The Independent Investor: What Will Save Our Local Newspapers?
 |
Over the last year, I have refrained from weighing in on this issue, despite the painful closing of my hometown newspaper, The Independent. I care deeply since I have been a journalist for at least as long as I have been working on Wall Street. The sad truth is I recognize the problems my brothers in newsprint face but, until recently, I could not see a viable solution.
As most readers know the decline of newspapers began back in the '60s. The combination of increased competition from all sorts of publications, the emergence of the Internet, changing demographics and consumer taste, the decline of advertising and the rising costs of distribution and materials conspired to sink one of the great monopolies of all time, the city newspaper.
Sure, they should have seen it coming but few did. Newspaper companies thought they were fighting back by growing larger, swallowing up smaller publications from coast to coast. They believed this way they could drive down costs, employ economies of scale and offer advertisers an increasing readership base. In the meantime, the debt piled up and then the economy hit a brick wall. The rest is history but unlike the doomsayers, I believe newspapers will rise again.
You see the world needs newspapers. They are the only organization that has the time, energy and will to do what needs to be done, which is gather the news, sift through it and bring to you and I the important bits in a world that overflows with useless information. People argue that the Internet provides all the news you need and it's free. I disagree. There is little quality control on the Internet, no seasoned editor looking over one's shoulder to check the facts. (Editor's note: We're sure Bill doesn't mean entities like iBerkshires, which are essentially online newspapers without the paper.) Without the newspaper, I believe most of today's electronic news would be lost and relegated to sensational news bites without much substance.
To date, most think tanks and media experts believe if the newspaper as an institution is going to survive they need to do things like shrink circulation to profitable levels, offer options on how people receive their news whether via the Internet or some other means and deliver the news through whatever channel readers choose. And yes, no matter how painful, editorial departments must be cut down to whatever size makes sense revenue-wise. Lastly, newspapers must give the consumer what they want rather than journalists deciding what they think the reader wants.
I don't believe newspapers should scrap the printed form. There are plenty of people of my generation who will still buy and read the paper. We also swat flies with it, start the woodstove with it and, on occasion, use it as a floor covering for Fido. It remains a valuable franchise and a source of profits for at least the next thirty years or so. Advertisers will still pay for space in a newspaper.
Most of the newspapers that carry my column also have an Internet site already. The challenge with that method of distributions is to convince advertisers that the internet is an additional (as opposed to an alternative) source for advertising spending. While the internet effort continues to forge ahead, publishers understand it will take time before advertisers realize the value of Internet advertising.
In the meantime I have been watching the development of the Kindle, an electronic book-reader offered by Amazon.com. I don't own one and won't until the price drops considerably. Yes, I'm one of those consumers who never buys the roll out, must-have gadget until the price drops in half and all the kinks are worked out. The Kindle allows you to buy, read and store any number of books all on one gadget for about $359.
I suspected when it was introduced a year and a half ago that it would be a successful product for Amazon. I began to wonder if something similar might not help the newspaper business in its dilemma. Clearly distribution and material costs are killing the newspapers. What if they could deliver the news in a similar form?
On Wednesday, Amazon's CEO Jeff Bezos introduced a more expensive version of their book-reader called Kindle DX for $489. It is geared toward textbooks and newspapers. The device features a larger screen and is designed to mimic the experience of reading printed black ink on paper. Critics immediately dismissed the product as too expensive, won't work and can't be mass marketed but I'm not so sure. It is interesting to me that the publishers of the Washington Post, New York Times and Boston Globe will be test selling the new product at a reduced rate.
No on one I know will be digging into their pocket to spend almost $500 just to read their local newspaper anytime soon. But now that the technology is available, I believe it will be only a matter of time before the Chinese or someone else figures out how to make it for less than $100. At that point, newspaper companies could sell it to its readers at a substantial discount or even give it away (a la cell phones today) for a yearly subscription.
No, the critics say, people will never go for that. Whether reading a book, magazine or newspaper, people want to be able to turn the page, smell the paper, bend the cover, etc. Maybe so, but the numbers tell a different story.
At the Kindle DX product launch, Amazon's Bezos indicated that since the original Kindle was introduced 18 months ago, the company's digital books are already selling at 35 percent of the level of print books. To me that is an amazing ramp up and indicates that people have adjusted to this new way of buying and reading far faster than anyone imagined. I predict in the not-too-distant future even I will be reading at least some of my news via a Kindle-like gadget. There's another plus as well — no more hauling newspapers to the dump once a week.
Bill Schmick is a licensed investment adviser representative as well as a registered financial consultant. All views and opinions expressed by Bill in his columns are strictly his own. Direct your inquiries to him at 1-518-610-1553 or wschmick@fairpoint.net. You can also visit www.afewdollarsmore.com for more of Bill's insight.
