From AJR, October 1999 issue
Web Spawns Talk, But Newsprint Turns Profit
Media companies are flogging their Internet products.
By John Morton
John Morton (email@example.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
AN ANOMALY OF THE newspaper business these days is that strong earnings are being driven by newspapers, yet what publishers are talking about most are their news operations on the Internet.
This was apparent at the Mid-Year Media Review in New York, where the publicly owned newspaper companies plugged their operations to the Wall Street crowd. Most of the companies detailed their Internet strategies at length, assuring the assembled analysts that newspapers are still on top of their game and that whatever the future holds, they have the capabilities to maintain their dominance of local markets.
Internet revenues are growing rapidly, they said, with most of the companies expecting $15 million to $30 million this year. That's about what a single newspaper with a circulation of 25,000 to 50,000 brings in. Profits remain elusive, although Gannett officials said USA Today Online probably will have a profitable year, and other companies said some individual Web sites may move slightly into the black.
Significant strategies emerging from the discussions included expanding traditional local Web sites into full-fledged portals through which customers can connect to a variety of local, regional and national sites. (See The World of New Media, September.) In effect, this is an effort to maintain newspapers' traditional role as the fount of all information.
Even newspapers that compete vigorously in print are teaming up on the Internet with joint portal sites. The Fort Worth Star-Telegram and the Dallas Morning News, which battle fiercely for dominance of the populated plains between the two cities, are now 50-50 partners in dfw.com, to which both newspapers contribute information and content.
Other collaborations include several newspapers signing up to contribute automotive classifieds to cars.com, a Web site with links to dealers and manufacturers nationwide. On the Internet, at least, the New York Times and Newsday are cooperating as much as competing in automotive classifieds. The same is true with competing newspapers in Minneapolis-St. Paul, in Fort Lauderdale and Miami, and in Southern California.
To a large extent, these efforts are a response to Microsoft Corp.'s entry into newspaper markets three years ago with its Sidewalk online city guides and CarPoint national online classifieds. Microsoft scared the hell out of newspapers when it jumped into local markets, but the technology giant probably did the newspaper industry a huge favor by startling it into aggressive Internet initiatives, hang the cost.
I never doubted that newspapers would prevail over Microsoft in any effort to deliver local information once they committed the resources to do it, and prevail they did. Microsoft recently gave up on its Sidewalk city guides, agreeing in July to sell them to Ticketmaster Online-CitySearch Inc. (Many newspapers use CitySearch partnerships to provide local entertainment information.)
A second major trend is for large media companies to consolidate their Internet operations across the country into single operating units. A.H. Belo Corp., the New York Times Co., the Tribune Co. and the Washington Post Co. have already done this. Others are likely to follow.
I suspect some of the companies consolidating Internet operations will eventually spin off these units into publicly traded companies to take advantage of the soaring stock prices accorded to almost any Internet-related company, profitable or not.
There could be a down side to this, though. Investor support for these companies stems in part from their efforts to protect their core newspaper and TV operations by getting established on the Internet. Disconnecting the Internet from core operations might cause investors to relegate conventional newspapers and over-the-air broadcasting to the same fate as quill pens and buggy whips.
Conventional newspapering is certainly driving media companies' profits this year; television profits have been weak. Earnings for publicly owned newspaper companies were up more than 10 percent in the second quarter, with operating earnings rising nearly 13 percent on average. Several companies showed even higher growth.
Which brings us to another anomaly: Guess where a lot of the advertising revenue that has been driving newspaper profits has come from? None other than new media companies advertising their Internet sites and the products to be found there.