Rolling Up the Online Newspaper Coverage

01/26/08 - 11:00 AM EST

I never said that the business media knows nothing about how a business runs. That's not what I said. Just because many business journalists come into the trade without any experience in business or, often, even a remote interest in their beat, doesn't mean they can't become learn-it-alls.

But there is an instinct for business -- a sixth sense of its dynamic nature -- that is too often lost. Investors were the victims of a perfect example this week. Ironically enough, it was in a data-based article about the future of the newspaper business, which has been turning shareholders into sob sisters for years now without more than vague promise for a reversal. If you can find a single hard fact to support the hope that they'll get out of their roiling cauldron, do let me know.

But here's the data on the future of newspapers: Nielsen compiled numbers showing that newspapers saw 6% growth in online readers for 2007 vs. 2006. Alone, this is bad news. If newspaper companies like Gannett(GCI - Cramer's Take - Stockpickr) and New York Times(NYT - Cramer's Take - Stockpickr) are going to replace enough of their exponentially more profitable print readers with the fly-by-night, cheap-o Internet ones -- well, they gotta' be growing their readership base by more than this or my name ain't Rupert T. Firefly.

Look, though, at how this substandard level of growth is analyzed by two articles. One gets the dreaded Business Press Maven "Back of the Hand" award. The other, which only had to make one simple connection to be considered the peak of form, wins the coveted Business Press Maven "Nod of Approval" for the week.

'Twas the Associated Press that made The Business Press Maven's nostrils flare, because the anemic rise in reader growth was defined in the lead as "a rare bit of good news for an industry struggling to adapt." But that wasn't even its greatest offense against good business sense, and let this be a lesson.

The article goes on to talk about how many newspapers have been adding features to their Web sites, like "jazzier graphics." It even has a quote about how aggressive newspapers have been in adapting these new tools into their site. From there it goes to the most subliminal, covertly assumptive line about newspaper's future that it has ever been my displeasure to read:

"Revenues from online advertising have been growing at newspapers," AP writes, "but not yet fast enough to replace the declines in their traditional print advertising business."

See: not yet fast enough. It will one day, at least according to AP. But will it? Well, AP fails to bring up the essential issue, the one that will determine if online advertising will replace print advertising or simply run it into the ground.

Cannibalization Is the Key

To what extent are the free online newspaper Web sites cannibalizing print readership? Anecdotally, the cannibalization is an enormous factor. I can list people I know who have ended subscriptions or limited them to Sundays until the cows come home. And to not mention the prospect of cannibalization, the central issue to the future of newspapers or, at least, those, unlike News Corp.'s(NWS - Cramer's Take - Stockpickr) Wall Street Journal, who strap their future to being free as air online? Never before in business history, after all, has anyone succeeded selling essentially the same product for hundreds of dollars through one distribution network that they are giving away for free in another.

The trade-off doesn't seem to be working, as online readership numbers that seem to be stuck in the mud seem to be showing. But to not even try to gauge whether that 6% is coming from former subscribers, as the plummet of subscription numbers grinds on, shows a basic lack of understanding in the dynamic nature of markets and the way consumers (like me, for example) think and adjust.

Compare that to the wherewithal of David B. Wilkerson from MarketWatch. He is not too many sentences into the article when we hear about the give (and possible take) between dime-a-dozen online readers and the valuable subscribers:

"The newspaper industry has contended that online readership has expanded its total audience. Analysts have yet to be convinced that online usage isn't merely cannibalizing print business."

David B., The Business Press Maven genuflects in your general direction. You help investors understand the nature of business with such observations about the nature of newspapers. Hopefully, too, you'll help newspaper companies understand that as they delude investors, they might also be deluding themselves. Unless you are running up the score of online readers beyond reason and imagination, you might just be robbing Peter to pay Paul 1/100 of what Peter earned you.