SURVEY - CREATIVE BUSINESS - Do online divisions have any value or future ?

Financial Times
Copyright (c) 2001 Dow Jones Reuters Business Interactive Ltd., trading as Factiva.

A year ago, as the investment frenzy reached its precarious peak, newspapers were debating whether print would be dead in a matter of years, displaced by electronic publishing on the world wide web. Today, they question whether their online divisions have any value or future. Some are licking their wounds. Major news organisations including News International, Mirror Group and Express Newspapers have retrenched since the beginning of the year, scaling back or closing online divisions. So how will newspapers evolve in the post-dotcom digital age? Newspaper production is already a highly digital process right up to the point where the physical papers are printed and distributed - sometimes vast distances - to the breakfast tables of their readers. Why, then, does it not make sense to go the last yard and send news to readers on their computer screens? Of course, this is precisely what newspaper websites do. However, reading news online remains a minority activity that doesn't appear to provide the best experience for the reader, nor an economically sustainable business for the news publisher. Electronic publishing offers news organisations many advantages, including instant global reach, freedom from space restrictions, eradication of the hours of delay between publication and reading and instantaneous updates throughout the day. News can be personalised or filtered for niche groups, and readers can search and access further information. Interactivity means that readers' reactions can be taken by e-mail, and their opinions sought through online questionnaires. And unnervingly, from the point of view of newspapers, their competitors are only a click away. On the face of it, electronic publishing looks attractive in commercial terms. Newspapers shouldn't need to charge a subscription, since they are largely freed of the costs of printing and distribution that are typically only just covered by the selling price. The hole in this logic lies in the fact that, even at the height of the investment frenzy, the nascent online advertising revenues never looked likely to support the vast number of dotcoms whose often paltry business plans depended on them to fund the content. The situation is still less tenable now that paid advertising on the internet has all but disappeared. John Birkenshaw, a director of the Print Industry Research Association (Pira) draws a distinction between dotcoms which have failed to make a success of transacting business online and electronic media publishing, which he says is viable. "There are examples of newspapers making money from online publishing - notably in Scandinavia - typically based on classified advertising or subscriptions," he says. But he concedes that it has all been dragged down by the dotcom malaise. Printed newspapers, meanwhile, have compelling strengths of their own. Reading print is rapid and retention rates are high. It is easy to scan a double page of headlines and decide what to read. You always know where you are - and when you have got through a story or the whole newspaper. A newspaper is light, portable, doesn't run out of batteries or need to be plugged in, won't break and can be thrown away - and it doesn't matter very much if you lose it. Above all, they are viable businesses. By comparison, subscriptions to online news services remain a difficult sell. Levels of online advertising spend have never reached a level sufficient to support newspapers on the internet, and e-commerce is fraught with problems as a revenue stream for newspapers. Arguably, the best route forward for newspapers is to treat their online operations as a marketing cost giving widespread exposure to the name and brand, and using them for cross-promotional purposes like attracting readers to buy the real (i.e. printed) product. Evidence suggests that giving news away online does not cannibalise sales of the newspaper. Meanwhile, other digital technologies promise to shake newspapers up more than the world wide web has managed to do. Digital presses are available today, and promise to revolutionise book publishing by making short print runs viable, and enabling books to be printed individually while-you-wait in bookshops. This will ease many publishers' headaches that include adequate stocking, over-production and risk. As an added bonus, "out-of-print" should become a thing of the past. Digital presses are much simpler than conventional newspaper presses, more limited in capability and production capacity, and require much less capital outlay. They range from glorified office printers to larger web-fed machines. Pages are sent straight to the press, avoiding the need for plate-making and press configuration. Each page can contain different information, leading to many opportunities such as personalisation and targeted advertising. Very short print runs, and even individually printed copies, are more cost effective, but each copy is an order of magnitude more expensive than copies produced on long runs on conventional presses. For newspapers, the look and feel of the real thing - that is, large format, folded pages on light grade newsprint - remains elusive on digital presses and production speeds are underwhelming. But if these limitations can be overcome, newspapers could be produced much more widely, more flexibly and far closer to the reader. This translates into much better geographical coverage of readers who can receive a printed newspaper at breakfast time. Since each copy printed on a digital press can be different, newspapers can be printed on demand in self-service kiosks, or as services provided by hotels or on airlines. Other advantages ensue. You may one day be able to get your local Remotesville Gazette while on business in Sydney or Tokyo, or newspapers might be able to provide frequently updated editions so that you get the latest cut of news printed for you at whatever time of day you buy it. The idea of a morning or evening paper would then vanish. News could even be personalised to your profile of interests. Looking further ahead, "digital paper", currently under development separately at MIT in Boston and at Xerox's PARC research labs in California, may provide the convergence point for print and new media. The race is on to develop a thin, flexible paper-like material that is capable of displaying a clear image like print, but one that can be updated. But it will take several years to reach a viable quality. The current state of the art is suitable for shop signs with updateable prices or special offers, but not for a legible book or newspaper. Both technical solutions involve suspending small visible components - capsules of charged ink in MIT's case, charged beads that can be made to rotate in Xerox's solution - between transparent plastified surfaces that contain thousands of transistors. Every point on the "page" can be individually made to display black or white, or perhaps a shade of grey. The day's news may then be delivered over the airwaves, presumably through tomorrow's 3G mobile networks, and effectively "printed" in the reader's hands. Pira's Birkenshaw says: "I don't know what the e-newspaper will be, but we haven't seen one yet. Digital paper may possibly be it." Newspapers, it seems, face an increasingly digital future, but this will be used first and foremost to make printed newspapers more flexible and more widely available. If you are waiting for a time when we will all read the news on a screen, don't hold your breath. See Alan Cane, page 10, and tomorrow's FT-IT for more on the technologies and applications )

(c) Copyright Financial Times Ltd. All rights reserved.

Copyright 2000 Dow Jones & Company, Inc. All Rights Reserved.