Tech Gurus to Newspapers: Ditch 90 Percent of Your Revenue Stream

Netscape (remember them) founder and tech guru Marc Andreessen recently told Techcrunch that newspapers need to burn their print product like Cortes once famously burned the fleet of ships that carried him to the new world. The Web is the only place to be. No amount of technological supplement is going to keep print alive.

“There are 2 billion people on the Web,” he said. “The iPad will be a huge success if it sells 5 million units.”

Google Chief Economist Hal Varian recently had pretty much the same thing to say in a recent post on his company’s Public Policy Blog:

[T]he fact of the matter is that newspapers have never made much money from news. They’ve made money from the special interest sections on topics such as Automotive, Travel, Home & Garden, Food & Drink, and so on. These sections attract contextually targeted advertising, which is much more effective than non-targeted advertising. After all, someone reading the Automotive section is likely to be more interested in cars than the average consumer, so advertisers will pay a premium to reach those consumers.

Traditionally, the ad revenue from these special sections has been used to cross-subsidize the core news production. Nowadays Internet users go directly to websites like Edmunds, Orbitz, Epicurious, and Amazon to look for products and services in specialized areas. Not surprisingly, advertisers follow those eyeballs, which makes the traditional cross-subsidization model that newspapers have used far more difficult.

Some have argued that the solution to the financial problems of newspapers is to charge for access. Many people place a high value on news, and there is clearly a significant social value to having a well informed citizenry. The problem is that there is a lot of competition among news providers, and this competition tends to push prices down.

News sources that have highly differentiated content may be able to make pay-for-access work, but this will likely to be difficult for more generic news sources.

In my view, the best thing that newspapers can do now is experiment, experiment, experiment. There are huge cost savings associated with online news. Roughly 50% of the cost of producing a physical newspaper is in printing and distribution, with only about 15% of total costs being editorial. Newspapers could save a lot of money if the primary access to news was via the internet.

Here’s the rub though: The vast majority of newspaper revenue still comes from their print products. Media analyst Alan Mutter pulls the stats from a recent Newspaper Association of America study.

The data show that the $3.1 billion in interactive advertising collectively sold by newspapers in 2008 accounted for 8% of the industry’s $38 billion in ad sales. If you assume papers generated another $7.5 billion in circulation revenues in 2008, then some 93% of the industry’s $45 billion in sales were associated with the legacy print product. Even though ad revenues probably fell $10 billion in 2009, print-driven newspaper revenues sill are running at better than $30 billion a year.

It doesn’t take a certifiable Silicon Valley genius to see that no business can walk away from some 90% of its revenue base without imploding.

For all their supposedly well-intentioned, conventional “print-is-dead” wisdom, you think the aforementioned Internet gurus might have a tiny bit of vested interest in opening up $30 billion in ad money to Web-based competition?