Finding Answers in Free Newspapers

Are newspapers dead?  Probably not.  However, they do need to seriously rethink their business model.

As traditional media in general are making a comeback, newspapers still have a very tough road ahead.  While circulation numbers show a long, steady decline, classified revenues have plummeted and newspapers have never been a strong display medium.

There has, of course, been much discussion about this subject, but one thing that has been missing is any serious discussion of the one part of the newspaper business that has experienced amazing growth over the last decade:  Free newspapers.

The Success of Free Newspapers

The free newspaper model got it’s start in Sweden, with Metro, still the leader in the category.  Since then over two hundred titles have been launched, many in just the last five years.  It’s no exaggeration to say that, next to digital, free newspapers have been the biggest media trend of the last decade.

The idea is counter-intuitive, but makes a lot of sense.  Traditional newspapers spend quite a bit of money on marketing and getting their products into the hands of consumers.  For most, print and distribution is a loss leader.  Free newspapers simply save enough of those costs to make giving them away a business worthy idea.

While the financial viability of the free newspaper model has been called into question, especially during the crises, there are increasing signs that they are here to stay.  Metro AG recently announced that it is profitable again and, with ad spending on the rise again, things will only get better.

Moreover, free newspapers have come up with some clever innovations that can be applied elsewhere in the newspaper world.

Rethinking Distribution

One of the advantages that free newspapers have is that, since nobody is paying for them, they have no responsibility to distribute to a wide geographic area.  Instead, they concentrate on high traffic areas where they can get the papers into the hands of the most people for the least cost.

They also constantly optimize their distribution.  If a particular location isn’t paying off, they drop it quickly and look for greener pastures elsewhere.  They also focus on public transportation, where commuters are most likely to leave the paper behind for others to read.  Further, they alter circulation numbers during the week so that costs are more aligned with revenues.

Many traditional newspapers see themselves as a quasi-public service rather than a business, so it’s not surprising that, with increased competition from digital, they have trouble making money.  They can learn a lot from free newspapers single-minded pursuit of efficiencies.

An Innovation in Revenues

One of the most intriguing aspects of the free newspaper model is that they actually expect to lose money on the newspaper.  They make it back with supplements that are designed for profitable advertising categories, like cars, banks, etc.   Again, rather than insisting on “servicing” certain areas they can adjust their costs to match the revenue opportunity.

What’s especially interesting about this approach is that they see the daily newspaper as a medium that can carry more profitable products.  Unlike the newspapers of old, these supplements usually target display rather than classified advertising, which is something digital media still hasn’t learned to do well.

Some newspapers do have impressive supplements, like The New York Times Magazine.  However, most efforts in this area are pretty weak.  It would behoove newspaper publishers to hire some top notch magazine people.  As I explained in an earlier post, magazines have done very well in the digital age.

The Content Question

One of the salient criticisms of free newspapers is the lack of substantive content.  They lean heavy on wire services, rather than on in-house reporting.  The lead story on the front page is as likely to be about a celebrity than a real news story, if not even more so.  Serious journalists look down their nose at much of what freesheets publish.

However, even here there is much for the traditional newspaper world to learn.  Free newspaper content is well suited to its audience, which is rich in young professionals who want a quick read for their commute (the same audience that traditional newspapers are losing).  If they want more depth, they can do further research on the Internet when they get to work.

Not everyone can be a New York Times, a Washington Post or a Guardian.  In the past, heavy classified advertising made newspapers so profitable that they could be all things to all people.  Those days are gone and they’re not coming back.

A Fragmented Future

For paid newspapers to have a real future, they need to focus on what each can truly do well, rather than on what they would like to think they do well.  As I pointed out before, Newsweek’s strategy failed largely because it was more for the benefit of the editor in chief than for the consumer.

While many in the newspaper industry like to hark back to a glorious past, there’s no reason why the future can’t be just as exciting.  While digital will continue to be a challenge, recent research shows no correlation between rising Internet audience and falling circulation.  Digital tablets present even more possibilities.

As the success of free newspapers show, what’s really needed is some creative thinking.  The St. Petersburg Times won substantial web traffic as well as a Pulitzer, with politifact.com.  High profile columnists can form the basis of a strong conference business.  There’s a ton of untapped opportunity in newspapers.

One thing is for sure: the traditional newspaper model, which relied heavily on classified advertising, will not survive; and that’s not necessarily a bad thing.

– Greg