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UMD Business Experts Discuss Newspaper Industry Shifts

Aug 13, 2013
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Media Alert: Aug. 13, 2013
Attention: Business Reporters

COLLEGE PARK, Md. Experts in the University of Maryland's Robert H. Smith School of Business are available to discuss the current state of the print news industry. Their analysis follow the recent Washington Post acquisition by Amazon.com founder and chief executive Jeff Bezos, the Boston Globe sale to Red Sox owner John Henry, plus other recent sales and spinoffs of newspapers across the United States.

The Smith School has an in-house facility for live or taped interviews via fiber-optic line for television or multimedia content.

Why Bezos, Henry and Others are Buying: P.K. Kannan, content-design marketing expert

“Newspapers in current form and context have become difficult to manage profitably, and owners simply want to divest these assets. As a result, they have become cheap to buy, and smart investors like Buffett and (John) Henry view them as good buys and see opportunity in running these newspapers, ideally, with a better business model than the previous owners. Bezos, among recent buyers, likely will experiment the most, as he views the traditional format of print to be a ‘dead format.’

“Generally, traditional content producers such as record studios and newspapers have not embraced changes brought about by online technologies and have suspiciously viewed them as impediments to business.

“This is partly cultural as these traditionalists are not very willing to take risks and experiment with technological innovations. The new owners -- like Bezos and Henry -- will bring these changes as they are unencumbered by such ingrained culture. This is significant because even though newspapers have been online for a while they have done little to infer what readers are doing online and use that ‘big data’ to personalize their content delivery. News consumers tend to be pressed for time, and their attention is fragmented across many media. Therefore, the value that personalization can bring to customers will not be missed by Bezos, and he is very likely to mold the Washington Post along these lines. As this creates more value to readers and gets more of their attention, the value of online advertising is likely to increase."

Kannan, the Ralph J. Tyser Professor of Marketing Science and chair of the Department of Marketing, focuses his research on online and mobile content design and marketing – including print versus digital and has consulted for publishing companies including for e-content pricing. Contact him at pkannan@rhsmith.umd.edu.

How Newspapers Should Adapt: Bill Rand, co-author of Media, Aggregators and the Link Economy

“For the Washington Post and traditional newspapers, the future is not in print media. To fix its newspaper division, considering its $53.7 million net operating loss in 2012, the Post needs to commit wholeheartedly to the digital age, including blogs and social media. Thus, it needs to view itself not as a pure content creator, but as a medium that optimally blends content creation and content curation. This challenge faces the whole industry, and survival will be difficult for smaller newspapers, but brands like the Washington Post, New York Times and Boston Globe should be able to build new identities with focus on core strengths, such as political coverage and in-depth journalism.

For the Washington Post, Bezos is likely a good candidate to guide the paper through this transition. With Amazon, he successfully created a one-stop shop for ‘everything’ from what was a very old idea, i.e., the bookstore. Ideally, he will bring just the right insights and innovation to continue to develop the Post's strategy while maintaining the integrity and rigor of journalism it is known for.”

Rand, assistant professor of marketing, also directs Smith’s Center for Complexity in Business. Contact him at 301-405-7229 or wrand@rhsmith.umd.edu.

The Scope of Industry Decline and a Potential, Bezos-Spurred Rebound: Hank Lucas, author of Searching for Survival: Lessons from Disruptive Technologies

“The Internet has disrupted newspapers in multiple ways, from readership moving to news sites and aggregators on the Web, to advertisers fleeing newspapers to the likes of Google, e-Bay Motors and Monster.com. The papers are caught in a vicious downward cycle, and they must reduce costs, usually by reducing staff and the size of the paper. All of this results in a lower quality product, which contributes to further declines in readership.

“Though a few papers like the New York Times and Wall Street Journal have had some success in erecting paywalls and charging for content, it appears the economics are not favorable. It is very difficult to generate enough revenue from the average paper's website to offset the loss of revenue from print advertising and circulation.

“Those larger papers with a strong national following are surviving, as are the smaller, local papers thanks to a continuing interest in very local news that continues to attract local business advertising. The Washington Post has a potential national following, and I think that is why Bezos is willing to take a chance buying it. Amazon is a very innovative company and is willing to take risks on new products and services. I expect Bezos to innovate with the Post and create new ways to package and distribute content while figuring out how to generate additional revenue. The Post could become a model for survival. Bezos buying the paper could be the best thing that has happened to the industry since the Internet started disrupting its business model.”

Contact Lucas, the Robert H. Smith Professor of Information systems, at hlucas@rhsmith.umd.edu or 301-405-0100.

Why Warren Buffett is Buying Smaller Papers: David Kass, finance expert and ‘Warren Buffett blogger

“Within 72 hours, the Boston Globe ($70 million) and the Washington Post ($250 million) sold for $320 million, each representing a small fraction of its value as recently as 10 years ago. Meanwhile, during the past year and a half, Warren Buffett’s Berkshire Hathaway has invested a similar sum, $344 million, in purchasing 28 relatively small, local daily newspapers.

“As a result of the Internet providing free coverage of both national and international news, newspapers serving large metropolitan areas such as Washington, D.C., and Boston have experienced rapid declines in circulation, advertising and profits. But newspapers serving small communities have been fairly stable financially, because, newspapers -- despite the Internet -- remain the primary source of local news to these communities about such subjects as high school football, the mayor or taxes.

"Buffett believes that newspapers delivering comprehensive and reliable information to tightly bound communities and having a sensible Internet strategy (including a pay format) will remain viable for a long time. At appropriate prices (very low multiple to current earnings), Berkshire Hathaway plans to purchase additional newspapers and expects to earn acceptable rates of return on its investment."

Kass, a Tyser Teaching Fellow in finance, can be reached at dkass@rhsmith.umd.edu or 301-405-9683. Follow him on Twitter.

About the University of Maryland's Robert H. Smith School of Business 

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, MS in business, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.