Tuesday, October 23, 2007
At the End of the Paper Trail
by Adam L. Penenberg
Why ink on pulp may soon be an artifact.
Print is doomed.
You've heard this before but probably have a hard time believing it. After all, your local newsstand is crammed with all sorts of newspapers, magazines, newsletters and free copies of The Onion, while Barnes & Noble has mountains of new titles and attracts legions of highly caffeinated book buyers. Perhaps you think rumors of print's impending demise are exaggerated. They aren't. But don't worry. You won't miss it either.
Print as a medium will ultimately fade away, just as parchment became paper, the typewriter gave way to the pc, and the waxed cylinder morphed into the record, then the compact disc, and now the digital download. The first to go will be newspapers, but over time magazines and even books will follow. And not only will they be distributed digitally (read: without paper), and accessed through a variety of devices - some mobile, some not - they will most likely be free. Not this year or next, maybe not even within the span of a decade, but surely in our lifetime. Your trusty copy of The New York Times that stains your hands with ink, your Vanity Fair with Leo DiCaprio on the cover, your dog-eared copy of the bestseller Skinny Bitch will all become museum pieces, bought and sold on eBay as collectibles, or tossed into landfills.
The Canaries in the Coal Mine
The signs of this great digital transformation are everywhere, with newspapers the proverbial canaries in the coal mine. Newspaper circulation is down for the fourth straight year and advertisers continue to migrate to the Web. The New York Times Co. reported that July ad sales slumped 3.5 percent while Internet ad revenue jumped 19.3 percent. That was after much steeper drops in February and May. The weakness in its ad sales led Standard & Poor's to lower the New York Times Co.'s debt rating to BBB, the second-lowest investment grade. The big newspaper chains are also in trouble. Gannett, which owns USA Today; McClatchy, whose papers include The Miami Herald and Sacramento Bee; and The Tribune Company, which publishes The Los Angeles Times, The Chicago Tribune and The Baltimore Sun, are experiencing an exodus of ads, especially since the real estate market began trending downward and desiccating their classified sections.
The New York Times and The Wall Street Journal have shrunk before our very eyes, with the Times lopping off an inch and a half in width from the paper and the Journal a full three inches, decreasing the amount of news in each issue by 10 percent - all with the goal of saving money. Meanwhile Veronis Suhler Stevenson, a New York-based investment firm, estimates that within four years Internet advertising will surpass newspapers as the nation's biggest ad medium. It's important to note that most circulation losses for newspapers have been occurring in metropolitan areas, where there is the greatest broadband penetration.
Profits have stagnated and newspapers' long-term prospects are bleak: Where are their future readers going to come from? Certainly not from Generation Web, the kids, teens and 20-somethings who have come of age with the Internet at their fingertips. A few years back The Washington Post, whose circulation has also been taking a nosedive, commissioned focus groups to learn why it was having so much trouble attracting younger readers. They asked participants, ages 18 to 34, if they would be interested in receiving a subscription of the Post, delivered to their door. The answer: Absolutely not, even if it were free. They didn't like old newspapers piling up in their homes and having to recycle them, especially since they could get the same information online.
A Sluggish Supply Chain
This shouldn't come as much of a surprise. In this broadband era of YouTube, iPhones, BlackBerrys, e-mail, IM and RSS feeds, most of us dash through life at a frantic pace. Dosing on information like it's Ritalin, we are bombarded with text, images, ads and digital come-ons, and driven to multitask - otherwise we wouldn't get everything done. We don't read news, we consume it, often by clicking headline to headline in pursuit of whatever catches our eye. We update our blogs standing in line at the pharmacy, check our BlackBerrys and Treos idling at traffic lights, our voice mail on train platforms, and Google the sales manager we're supposed to meet in 15 minutes. What's more likely in the coming years: That suddenly we will return to a slower, simpler time, or that our culture will continue this acceleration as information, the lifeblood of our work, leisure, investments, friendships and family, cascades all around us?
Now contrast this post-millennial lifestyle with the pre-millennial, time-consuming trek your local newspaper makes each day. It owes its analog existence to trees that are chopped down, trucked to a mill where they are mashed into pulp, flattened into paper and transported to printing presses. There the huge rolls of paper are sprayed with letters and numbers, photos, crossword puzzles, Sudoku and drawings, cut, stacked, bound and stuffed into trucks. These bundles are dropped off at newsstands or distributed to people whose job entails flinging each copy, one at a time, house to house. Later you step onto your porch, pick up the paper, scan the headlines and realize everything in it is a day late. You've already skimmed these articles on the Web, were fed e-mail links on your PDA or cell-phone or accessed RSS feeds, watched them on CNN, heard them on the radio or caught a glimpse of them on a news ticker atop a taxi cab. By the time you read the paper the news has moved on and so have you.
It's one thing to rely on such an intricate supply chain for manufacturing a stealth bomber. It's a complete waste of scarce and expensive materials (not to mention fuel) for the dissemination of mere words and pictures on a page, and it takes far too long. This doesn't mean blue chip news organizations like The New York Times or The Wall Street Journal, for which Rupert Murdoch just plunked down $5 billion, will end up atop the scrap heap of history. Assuming they play their cards right, they should be in business for the long haul - online. It's print as a distribution system that is destined to disappear. The transition to a completely Web-based news system will be painful, as revenue and operations shrink in the short term. Over time, however, this too will change, as the Internet spreads from our desks to handheld devices to even our clothes - and ad revenue grows with it.
The Web Paper of Tomorrow
The inevitable decay of the printed word is part of a predictable pattern of development. The incipient form of a new technology tends to mirror what came before, until innovation and consumer need drives it far beyond initial incremental improvements over its predecessors. The first battlefield tanks looked suspiciously like heavily armored tractors equipped with cannons; early automobiles were called "horseless carriages" for a reason; the first motorcycles were based on bicycles; the first satellite phones were as clunky as your household telephone. A decade ago, when newspapers began serving up stories over the Web, the content mirrored what was offered in the print edition. What the tank, car and newspaper have in common is that they blossomed into something far beyond their initial prototypes. In the same way that an engineer wouldn't dream of starting with the raw materials for a carriage to design a rad new sports car today, newspapers won't use paper or ink anymore.
Instead they'll publish content that differs vastly from what traditional newspapers offer. Already you see this happening. The New York Times, The Washington Post, The Wall Street Journal and USA Today - the nation's four biggest newspapers - are all investing heavily in Web video. They put together multimedia presentations with photo slide shows and audio podcasts to complement stories in the paper. Many of their reporters blog.
David Pogue, the Times' gadget guy, publishes a weekly print column, an e-column, a daily blog, a weekly audio podcast and a weekly video. He recently featured himself in a satirical Web video segment singing about the iPhone, set to "My Way." That's a performance you won't catch in the daily paper.
There's also a movement afoot to go hyper-local. This guarantees content that isn't replicated across the Web universe - like breaking national and international news tends to be. It also offers great potential for local businesses to place ads in front of the eyeballs that matter: consumers from the community. But no matter what form news organizations take online, they will never again achieve the profit margins that newspapers did in the past - as high as 40 percent a year. (The average Fortune 500 corporation reaps less than 10 percent.) In pre-Web days, newspapers functioned as de facto monopolies. On the Internet, users are a click away from almost any publication in the world, and news portals like the Drudge Report, Yahoo and Google News funnel aggregated news stories from hundreds of publications and attract tens of millions of users. The Internet isn't just disintermediating - leaving out the middleman - it is also monopoly busting. In the way the local department store is suddenly vulnerable to competition from online stores, newspapers are also fair game.
One thing is certain: Within the next few years a major newspaper will shut down its paper edition and become strictly an online publication. After this first domino falls, the rest will follow.
Magazines Buck the Trend - For Now
On the other hand, magazines have not yet been upended by this digital tsunami. Unlike newspapers, most magazines offer something readers can't get online. Yet. Leaf through a New Yorker, Vanity Fair, Wired or Fast Company, and you'll encounter rich, character-driven narratives, with a great deal of thought given to the art. Many of these stories are 2,500 words or longer - about eight pages with photos and sidebars. For now, there is no way to replicate that experience online and over mobile devices. Unlike news, usually offered in short-form bursts, magazines specialize in longer form journalism with a more extended shelf life.
As a result, a number of magazines are thriving. The New Yorker (revenue up 7.5 percent from 2006), Vanity Fair (+21.7 percent), Wired (+10.7 percent) and Fast Company (+13.9 percent) have all seen their ad pages grow in the last year. The Internet has not siphoned away readers from them as it has from newspapers. The big exceptions, of course, are magazines whose raison d'être is providing news - like Time (-14.6 percent) and Newsweek (-0.3 percent). There simply is no reason for either publication to exist today, at least with their historic missions. If a newspaper is a day late with news, what does that make a weekly news magazine?
There are, however, chinks in the magazine industry's armor. Forbes is $6 million off its projections for the year, and Bono and his Elevation group didn't spend a reported $300 million for a 40 percent stake in the company for its paper magazine. They did it because of the strength of Forbes.com, which could practically mint its own currency. Fortune (revenue down 10.5 percent from the year before), BusinessWeek (-7.6 percent), Business 2.0 (-30.1 percent) are all hemorrhaging ad pages. Even Portfolio, the new business magazine Condé Nast has ploughed $100 million into developing, has seen its ad pages dwindle from 185 in the premier issue to 122 in the second. You have to wonder whether Portfolio will replicate the Katie Couric experience - big sales for the first few issues that quickly taper off after people have checked it out and decided they don't need another business magazine.
Still, technology will have to improve before magazines suffer the same fate as newspapers. The big bottleneck is the screen, which doesn't offer the rich reading experience of a glossy monthly. Nevertheless, screens are improving at breakneck speed. A wide screen flat panel television that cost $10,000 six years ago can be had for less than $700 today. Meanwhile the Apple iPhone, with its elegant touch screen, makes Web surfing a joy. In the next few years the price of screens like these will plummet, and they will become ubiquitous - as thin as wallpaper, mounted on walls, tables, even T-shirts, and become standard on mobile devices.
Screens are a type of organizational innovation, which can have a profound and disruptive impact on existing industries. On a macro level, the Web is an organizational innovation because it stores and organizes information. The Qwerty keyboard is another - it allows for the efficient production and organization of words. By customizing it, Palm, then BlackBerry, was able to create the modern PDA.
Google is one, too; it enables you to search all this information. Soon you'll be hearing of video search, which relies on speech recognition technology to search the audio in a video clip and spit out transcripts of what is said. With one search engine called EveryZing you can even click on a word in the transcript and it will take you to that exact spot in the video. As organizational innovations like these work their way into all manner of consumer products, and online publications can offer an equal or superior reader experience to their glossy paper brethren, magazines will inevitably migrate to the Web.
Books Without Borders
The final piece in the print puzzle is books. To create one that lists for $25 costs publishers about $5 to print (including the cost of paper and ink), $1 to warehouse, and an additional amount to ship to stores. Typesetting and other production costs add even more. Throw in the rate of returns - unsold books that are sent back to the publisher, which is as high as 40 percent - administrative costs (overhead) and author royalties (about 10 percent of the list price) and many publishers operate at a slender margin.
Books are not just competing with other books. They go up against every other entertainment option - movies, TV shows, music videos and music, and video games. By charging $25 a book, publishers are simply pricing themselves out of most people's entertainment budgets. In response, some publishers have been experimenting with PDFs of short books at $1.25 each, but these have thus far had puny sales. Instead of thinking small, publishers will think in terms of bits and bytes and fully embrace the e-book, which would mean no returns, no shipping costs, no warehousing and a fraction of the overhead.
Although e-books have not yet taken off because of limited content and inadequate screens, this is bound to change. Already HarperCollins and Random House have begun digitizing their entire catalogs - some 50,000 titles. Sony has created an e-book, the Sony Reader, with a screen that eliminates glare and flicker and has improved battery life. And just because the Apple Newton, regarded as the first PDA, was a bust, it didn't prevent BlackBerry and Palm from eventually creating a $4 billion market.
Imagine this: An electronic book in a tasty leather binding with two touch screens that fold out and mimicked the look and feel of a book. It would have a search/find function, wireless Internet connection, and store hundreds of books. (Apple's iTunes model would transfer well to the book world.) Say you are reading a biography of Amelia Earhart. You'd be able to link to video interviews with the great aviatrix, watch rare newsreel footage, check out maps of her journeys, the schematics of the plane she flew, access interviews with aviation historians, read newspaper and magazine articles, purchase memorabilia on eBay, and link to any of the primary sources given as footnotes. Books would be multimedia events far more exciting than mere words on a page.
The New Economy of Abundance
There could also be an additional bonus to the consumer. In the future, news, magazines and books may all become free. With so much content at your fingertips and no barriers to purchasing it, the price should come down - like it has for newspapers. The New York Times in print costs $1.25; it's free on the Web. Although Times publisher Arthur Sulzberger believes the Times made a mistake in training a whole generation of readers to expect free Web content, he had little choice. With so much news available over the Net, the Times, if it had charged for news, would have never grown like it has, just as Forbes.com would never have become the online powerhouse it is today if The Wall Street Journal hadn't chosen to charge for Web subscriptions.
Chris Anderson, Wired's editor-in-chief and author of The Long Tail, plans to offer two versions of his next book, entitled Free, in which he looks at giving away content instead of charging for it, in what he dubs the economy of abundance. Readers will either be able to buy the book for the list price or download a second version free but with advertisements. It's entirely possible Anderson will earn more on the ad-supported book than he will on the hardcover.
There are those, of course, who can't imagine life without a good book to curl up with. They can't stomach the idea of doing without their morning ritual of reading the newspaper over coffee or leafing through a magazine on the train. These may be the same people who thought they'd never give up the pop and hiss of vinyl records, jettison the typewriter for a laptop, spring for high speed Internet access, or buy a BlackBerry. In an earlier age they might have even resisted adopting the Qwerty keyboard - what's wrong with pen and ink anyway? But Web-based media and entertainment of the future will offer possibilities far beyond anything Aldous Huxley could have imagined.
You won't miss print on the page. And the Internet's impact won't stop there, naturally. The Web will do to broadcast and cable news what the Internet is doing to print. But that's for another essay.