As online advertising revenues are expected to slow to little more than a trickle this year, Hearst is the latest newspaper company trying to figure out how much of its content it can put behind a pay-wall. Earlier this week during the Q4 earnings call, a Cablevision (NYSE: CVC) exec touched on plans to make Long Island's Newsday.com a complement to its pay TV services, while a few weeks ago, NYT mused in a Q&A with readers that the paper would try to find a way to charge readers for more of its online content.
Inescapable conclusions: A memo obtained by WSJ and attributed to Steven Swartz, the president of Hearst newspapers, lays out the issues confronting the company: "One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today. It is equally inescapable that during good times our industry developed business practices that were at best inefficient."
Difficult change: Hearst's newspaper division is in the middle of its "100 days of change." The initiative was billed as a signal that the company is finally serious about saving its ailing news business as the prospects dim for many of its properties. During the last 50 days, Hearst has already warned that that it would shutter the San Francisco Chronicle and it would either kill or produce a digital-only version of its Seattle Post-Intelligencer unless a buyer could be found by early March.
More web reporters, editors needed: As Hearst Magazines continues to explore the creation of its own e-reader to save its segment, Swartz' memo also pins a great deal of hope on the success of devices like Amazon's Kindle, which allow access to magazines, newspapers, blogs and other content for a regular charge. He adds that Hearst must demand that readers on the iPhone and other portable gadgets pay as well. But he concedes that general market newspaperswhich he says are "all pretty much alike"can't put everything behind a pay wall. By erecting a pay wall around some content, the company's newspapers might be able to charge higher prices by presenting advertisers with a more engaged and committed readership, as opposed to equally valuing all eyeballs that come to their sites. To attract paying subs and more money from advertisers, Swartz says that the newspaper websites have to be built up more. That includes creating more web-centric content by expanding "the number of reporters, editors and photographers who are running a truly great blog" and tapping citizen journalists for hyperlocal content, something the NYTimes.com is starting to do/a>.
Print realites, digital goals: Swartz describes Hearst's newspapers' situation as having a "revenue and business model problem as opposed to an audience problem." Print subscribers don't pay Hearst enough, he goes on to say, and they certainly aren't paying for the content. Subscriptions cover only a portion of the print and delivery costs. And advertising certainly doesn't make up the difference as it once did. Since staffs have been cut so deeply, companies like Hearst don't have the manpower to reach out to court advertisers as closely as they'd like. And so, Hearst will rely on telemarketing firms to do basic outreach to local business advertisers. It also plans to ramp up self-serve ad tools. And what must have seemed like heresy to some of the memo's readers, Hearst will make more use of newspaper ad alliances like those offered by the Yahoo (NSDQ: YHOO) Newspaper Consortium and online real estate seller Zillow, in addition to ad networks. Swartz: "We must fully make the leap from simply selling pages to selling audiences, and in doing so be able to sell packages of products, some of which won't be our own."
By David Kaplan