Can Newspapers be Saved?

 
The Problems with the Plans

A Solution that may Work

In Case You Missed It

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Last year, I wrote about my former life as a newspaper employee and what I think about the hurting business (you can read the issue here: http://www.cabot.net/Issues/CWA/Archives/2008/05/News-Business.aspx ). A lot has changed since then, with several newspapers shutting down operations (or threatening to), including the Rocky Mountain News and the Seattle Post-Intelligencer, and others laying off even more employees as revenues continue to plummet.

According to an article this week in The New York Times, "Ad revenue, the industry's lifeblood, has dropped about 25% in the last two years (by comparison, automotive revenue for Detroit's Big Three fell about 15% during the same period, although it has accelerated recently), and that slide, accelerated by the recession, shows no sign of leveling off in 2009.

"Web sites like Craigslist have been to classified ads what the internal combustion engine was to horse-drawn buggies. The stock prices of most newspaper publishers have dropped more than 90 percent from their peaks.

"Daily print circulation has dropped from a peak of 62 million two decades ago to around 49 million, and online readership has risen faster, to almost 75 million Americans and 3.7 billion page views in January, according to Nielsen Online."

Several plans have been proposed to save newspapers, but many of them seem to have little chance of actually working out. Here's why:

1.) One plan calls for college professors to write newspaper articles for free, because, as the plan's proponent put it, "Most professors aren't paid for what they write now." But, as one critic of this plan pointed out, reporting a news story is a tricky business that involves incredible detail and lots of fact checking--something professors might not have the time or desire to do. In addition, I'm pretty sure this would violate some labor laws, and while newspapers often offer unpaid internships (you're getting paid in experience!), this doesn't really feel like the same thing.

2.) Some media organizations have floated the idea of getting people to buy a special device that they can read the newspaper on (or as one organization has it, spitting out pages of news stories in readers' homes), but this seems like a real stretch. First, I'm pretty sure this is what a computer (or advanced mobile phone) already does. Every day, I (and millions of others) get on the Internet and read The New York Times and if I really like something enough to keep, I can print it out (keep in mind that this usually only happens with recipes). Also, I'm not sure if the bigwigs in the newspaper industry have noticed, but we're in a recession--getting someone to buy yet another device probably isn't going to go over very well.

3.) Others have suggested that perhaps it's personalization that's missing from the newspaper industry and have touted ideas to let readers choose the sections they want to receive and read. The problem is that this concept already exists all over the Internet. Readers can set up RSS feeds, bookmark Web sites, use iPhone applications and other Web aggregation tools to help them find the news they want. There's no need to slog through pages of fashion news if you want sports and readers are already savvy on how to skip the information they don't want.

But one plan has been proposed that may have legs ...

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So what will save newspapers?

Well, maybe nothing. But even if every newspaper in the U.S. shut down, we'd still need, and want, news and information. The question then becomes, what sustainable business model exists that will allow the news-gathering and news-delivering business to continue?

One of the major problems the industry faces is that people have gotten used to getting all the information they want for free. The entire Sunday New York Times can be found on the newspaper's Web site at no cost, while buying it at the newsstand will cost you $4 (around where the stock has been trading lately) and a dollar more outside the New York metropolitan area. Unfortunately, newspapers have traditionally valued their physical product, rather than the information the product contains.

So really what needs to change is peoples' perceptions that the information newspapers provide is valuable and worth paying for. And newspapers need to embrace the fact that their future is online and figure out a way to sustain themselves with that in mind.

If newspapers went solely online and there were no print operations to prop up, news could cost a fraction of what it does now and the burden of the cost could be shifted from the advertisers (which is how newspapers make money now) to readers. Printing and distribution costs are a major reason that newspapers demand high prices from subscribers and advertisers, but if they were eliminated, the information could be sold at a more palatable price. This, of course, raises the question: what will happen to the people who work in the newspaper presses and the employees who won't be needed once the newspaper downsizes to be solely online? Well, I don't have an answer for that, except that it may be a reality that newspaper publishers need to face before it's too late.

The best plan I've heard on how to save the news business was written about in Time magazine by Walter Isaacson, who proposed a sort of micro-payment method for receiving news stories. Readers could pay by the month, by the week, by the issue or even by the story in a sort of iTunes-like model. If news stories were cheap enough and it was easy enough to pay for them, I'll bet most people wouldn't mind shelling out a dime or quarter to access important information.

Whatever the solution, I know I'll be sad to see print newspapers go the way of the dodo bird. Those that can learn to adapt and change, however, could prosper in the future as people continue to benefit from their news-gathering prowess. Behind almost every TV news report or blog entry is a well-reported story written by a professional journalist who works for a newspaper. What we need to do now is separate the idea that those journalists work for newspapers--which is merely the method of delivery--and allow their work to flourish in whatever medium people choose to get their news. The key is getting people to treat news stories and the information newspapers provide as a privilege, not a right.

[Side Note: Some of my friends (ironically, most have worked in the newspaper industry) have already begun to prepare for a world with no newspapers. During a camping trip last year, they chose to light a fire with birch bark instead of newspaper, thus preparing for the post-newspaper world.]

Do you read a newspaper every day--online or in print? What would make you pay for news content online? What will save the newspaper business? Send us your feedback via email or on our blog, http://www.iconoclast-investor.com

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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.

Cabot Wealth Advisory 3/9/09 - Thoughts on Obama's Healthcare Summit

On Monday, Timothy Lutts wrote about why our healthcare system is broken and the measures he would take to fix it, most notably, trying to prevent health problems (such as obesity) in the first place. Tim also wrote about why AIG is not a good investment right now and how this example of stocks to avoid can be applied to other bottom-of-the-barrel stocks. Tim finished by writing about three stocks that he thinks have the potential to lead the next bull market. Featured stocks: Netflix (NFLX), Starent Networks (STAR) and China Distance Education (DL).

http://www.cabot.net/Issues/CWA/Archives/2009/03/Obama-Healthcare-Summit.aspx

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Cabot Wealth Advisory 3/12/09 - Learning the Hard Way

On Thursday, Paul Goodwin wrote about what the tech bubble taught him about market timing and why it's important to remember those lessons today. Paul also discussed why it's important to prepare for a bull market in advance, just like an athlete gets ready by training before the season begins. Paul finished by writing about three fertilizer companies that are highly profitable, well-run operations. Featured stocks: Agrium (AGU), CF Industries (CF) and Terra Industries (TRA).

http://www.cabot.net/Issues/CWA/Archives/2009/03/Learning-the-Hard-Way.aspx

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Cabot Wealth Advisory 3/13/09 - Healthcare Follow-up

On Friday, Timothy Lutts reprinted many of the letters you wrote to him about his healthcare column from earlier in the week--most readers agreed with Tim's viewpoint and many added insightful views of their own. Tim also wrote about why having Obama in the White House is making gun stocks rise. Featured stocks: Sturm Ruger (RGR), Smith & Wesson (SWHC) and Cabela's (CAB).

http://www.cabot.net/Issues/CWA/Archives/2009/03/Healthcare-Follow-up.aspx

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Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Editor's Note: Cabot China & Emerging Markets Report was the #1 newsletter for 2006 and 2007 with gains of 78.6% and 74.1% respectively, according to Hulbert Financial Digest. Editor Paul Goodwin applies Cabot's time-tested growth stock investing system to the emerging markets to tell you when it's time to buy and when it's not. This preserves capital when the market is down and gets subscribers invested aggressively when the market is soaring higher. Right now, Paul is telling his subscribers that the Chinese economy is still healthy, and still growing. The country is not in debt, and the Chinese stock market is acting better than the U.S. market. Don't let the opportunities in the emerging markets pass you by, click the link below to get started today.

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