Bring On The Techies: How Silicon Valley Can Help Save Newspapers

This story was written by Nathan Richardson.

The author is the CEO of ContentNext Media, which owns paidContent.

How badly does the newspaper industry need new ideas? Here's the story I often tell when that question comes up.

The year was 2005, and I had recently joined the venerable Dow Jones (NYSE: NWS) from Yahoo (NSDQ: YHOO), where I had led the team that helped build the financial portal. My job at Dow Jones was head of all consumer online sites, including WSJ.com, Barrons.com and Marketwatch.com. One day I was invited to a meeting to brainstorm about, of all things, the width of the Wall Street Journal. After I made a suggestion that was somewhere between novel and off the wall, the then-publisher leaned on the table, looked at me and said: "How old are you, young man?" The suggestion was clear: If you're under 40, you can't possibly understand the newspaper business. I still wish my response, though impolitic, had been: "How old is your thinking?"

While I don't have a quick fix for the newspaper industry's problems, I know one thing: The very companies that are ensuring newspapers' online traffic/existence should be leading the dialogue on their survival. Yahoo, Microsoft (NSDQ: MSFT), Google (NSDQ: GOOG) and AOL (NYSE: TWX)- not the editors, journalists and cadre of analysts who have led the newspapers to the brinkshould be put in charge of identifying ways to keep a select number of news outlets viable. There are three reasons why the tech leaders should be driving this bus: their culture of innovation; their dependence on newspapers; and their track record of creating and growing sources of online revenue.

More after the jump, including some ways Silicon Valley and newspapers can collaborate
 

Companies in Silicon Valley depend on having a fast-paced culture of innovation where no ideas are bad ideas, all voices are heard, technology is embraced not feared, and you are irrelevant if you aren't open to change. To achieve aggressive goals in competitive environments, teams have to work together without hidden agendas or obsessive attention to where in the chain of command a new idea originates.

The major portals already have experience creating win-win situations for publishers, whether it's sending them traffic or providing feedback on headlines that draw in readers. And they can do it again in part because it's in their best interest to do so. Top news sites such as WashingtonPost.com, NYTimes.com and Marketwatch.com derive an average of 50% to 65% of their traffic from the big portals. Consumers have spoken, and they prefer going to the portals to be directed to their news sources. By the same token, Google, Yahoo, MSN and AOL absolutely depend on news from these sites to retain users, make money and differentiate themselves.

There are various ways that newspapers and Silicon Valley companies can work together to preserve graphical advertising rates, create scarcity and ensure that the age-old way of supporting content survives. The simplest solution, of course, is for the portals to just buy the top three newspapers and create an editorial trust, not dissimilar to the Scott Trust, which owns our parent company, Guardian News & Media. As I mentioned in a recent interview with Forbes, the trust model would allow the big portals to continue to monetize, surface and differentiate newspaper content in their own unique ways while creating a set of editorial boards that allow great journalism to flourish. Google itself has expressed interest in this idea

But since this is unlikely to happen anytime soon, here are three things that the newspapers and the techies can do immediatly:

One good idea, which gets floated now and then, is for the portals to host an online "upfront" for marquee media businesses similar to the TV upfront, which has become a planning and pricing guide for the networks and TV advertisers. For major areas such as news, finance, business, games and entertainment, the portals have 70% to 80% of the online traffic and command higher CPMs than the newspapers. If the sites can accurately forecast traffic, offer CPMs that are consistent, and take the advertisers dollars upfrontthe marketers will be able to better plan and spend on the remaining sites. And those sites will have a better sense of what prices would be competitive. At present, portal CPMs for marquee areas can reach double digits, while news sites have relatively low traffic and single-digit CPMs. 

Another promising idea is for the portals to agree on standard cost-per-click rates to be paid to publishers. In the current system, where rates range from barter to two cents a click, negotiations are like the Wild West. If the portals could agree on consistent rates for various types of publications, newspapers would save money. The portals should also agree on a fee structure that they pay for hosted stories rather than taking that content for free and failing to share any of the advertising upside. The portals' operation margins are significant, and there is ample room to cut the newspapers in on more of what they monetize. 

Finally, portals should agree to show search results only for the original sources of news content, as opposed to outlets that have repurposed that content. (This is something portals often talk about doing, but don't do very well.) At present, many smaller newspapers are able to place stories that are repurposed from larger news sources into search results on portals. The smaller sites make money from that content, while the original source struggles to surface in search results. Technology and tagging can solve much of this problem, but the technology companies and newspapers need to agree on a method to standardize this process.

The newspaper industry is in trouble, no one questions that. But rather than wait for papers to reinvent themselves, fresh thinking from Silicon Valley should be a big part of the solution. I was 35 when the Wall Street Journal publisher asked me my age. The reality is that even then, I was old in digital terms, and I now look to 25-year-olds for ideas and innovation. Silicon Valley gets that but I'm not sure the newspaper business does.

By Nathan Richardson