(Slide 1)

There’s a book out now by Charles Madigan called -30- For those of you not familiar with this particular graphic, it is used by journalists and wire services to designate the end of a story. The book, which is subtitled “the collapse of the Great American newspaper” is a series of essays from commentators and practitioners. I haven’t finished it yet, but based on the few essays I’ve read, I would recommend it highly.

The topic today is the changing media landscape. While I’m sure there is an expectation that I will make a lot of predictions about the future, there’s less of a chance that I’ll come away looking like a fool if I talk about the past, so I’m going to spend the bulk of my time up here analyzing history, which I think is more exciting anyway.

It’s probably no secret to any of you that the newspaper industry is in real trouble.

(Slide 2)

Just yesterday in the NY Times, there was a story about this year being the worst on record for American newspaper companies. Ad revenue fell 8% in 2007 and 14% in the first quarter of this year. The declines are expected to get worse before they get better.

(Slide 3)

In a recent speech in Sweden, Dean Singleton, CEO of Media News Group, posited that 19 of the top 50 Metro newspapers are losing money today and that the number will continue to grow.

These declines are only partially a result of the sinking economy—they are mainly due to trends in media habits that have been going on for the past decade or more.

There is a lot of talk these days about the death of the newspaper, but it’s really nothing new. People have been predicting the end of the newspaper since the advent of radio and then again when television made its debut. In 1980, five years after I started in this business as an advertising salesman for the Clarksville Leaf-Chronicle, Ted Turner launched CNN and boldly predicted that the 24-hour news service was going to put daily newspapers out of business. Instead of predicting the demise of the daily newspaper, he probably should have been anticipating the advent of Fox News.

And of course that kind of talk really heated up in the mid-90’s when Marc Andreesen created Mosiac, the first web browser to bring a graphic interface to the world wide web and effectively making the internet a tool for the masses.

And indeed throughout the 90’s circulation and readership losses for American daily newspapers were significant. But equally significant were newspaper company profits. The 1990’s were one of the most lucrative periods in the history of the industry. Newspapers brought in record profits and sold for multiples of cash flow that were unheard of

But like so many businesses, they concerned themselves too much with the short term and not enough with the long. Instead of investing profits in research and development and thereby putting themselves ahead of the curve, they just got fatter and happier.

Then along came a guy named Craig.

(slide 4)

In 1998 Craig Newmark started an internet bulletin board of sorts in San Francisco, which he called craigsslist.org. You’re probably all familiar with it. Note the dotorg domain name—it’s dotorg instead of dotcom because the service is non-profit. At the time only the most prescient of us in the business—and I’m not including myself among that group—had any idea of the impact it would have on newspapers. Only when Craig started introducing his service in other markets did it become clearly evident that craigslist was a major threat.

(Show craigslist.org home page and the Nashville home page)

For those of you who aren’t familiar with craigslist, this is the home page for Craigslist.org—you can see the number of cities they’re in around the world, some 450 now, and here is the Nashville home page. Let’s just go to one category here and see what it looks like. Very basic. Not organized entirely well. But you can see from the number of postings—just today—in this one category that there is a ton of stuff here for sale, for rent for whatever. I’m a cyclist so I always go to the bike listings to see what’s for sale there. I can promise you there haven’t been this many listings for bikes for sale in the City Paper—or the Tennessean for that matter, in years.

And the amazing thing is that craig started this from a cheap office in San Francisco pretty much all by himself. He now has about 25-30 employees--a staff a fraction of the size of the typical daily newspaper classified advertising department—but with that small staff he has garnered

(slide 5)

(You’re probably curious to know how craig pays himself and his staff and the answer is that in certain communities he charges for certain ad classifications. Employment in SF; real estate, I believe in NY) It’s been estimated that that $25 million in revenue represents less than 5% of what the company could be earning if he cared about “monetizing” the service fully. But unlike most internet pioneers he has no interest in that—his intentions are entirely altruistic. He believes the internet exists for the betterment of mankind—and shouldn’t be used for profit.

I’ll finish this discussion of craigslist with an anecdotal story that will give you an idea of the financial impact craigslist has had on the industry.

In 2000 our little newspaper the Nashville Scene somewhat fortuitously found ourselves part of an investment group that bought a much larger publishing entity, Stern Publishing in New York. Our flagship paper, the Village Voice, had an absolute lock on apartment rentals in New York. In the 90’s if you were under the age of 30 and just moved to New York and were in need of an inexpensive apartment, or if you were a landlord or management company looking for tenants, there was only one place to go. That was the Village Voice. Coming out only once a week on Tuesday, we would have people outside our offices lined up to get a copy of the paper to try to be the first to make a phone call to a landlord advertising an apartment for rent, which in New York were and still are very scarce. That franchise was so strong that we were one of the first newspapers of any type in the country to figure out a way to monetize the internet. We sold early notification packages to readers searching for apartments. You could go online tell us what kind of apartment you were looking for –1 br, studio—the price range, location, etc. and for a fee we would notify you of an apartment listing fitting your needs before the ad was actually published in the newspaper.

Then in mid-2000 Craig came to town. That year we did about $4 million in revenue in that one single category. The next year, as a result of Craig, it dropped in half. My guess is that now it’s probably non-existent.

Now…It used to be that when newspapers whined about tough times, that meant that their profit margins had dropped to the low to mid-teens from the typical 20-30% range they were accustomed to. Historically the newspaper industry has been extremely profitable. It’s never been an industry with a tremendous amount of top-line growth, but throughout the 80’s and 90’s those margins were very attractive to Wall Street

Before I go any farther, I should probably point out that. I’m talking here about traditional paid daily newspapers like the Tennessean, the vast majority of which operate as monopolies in the markets they serve. I’m not talking about free dailies, free weeklies or community weeklies. Nor am I talking about national newspapers like the New York Times, the Wall Street Journal or USA Today. While they are feeling the impact of the changing media landscape they’re not nearly as affected as large paid dailies.

So, is this just another case of newspapers whining? I don’t think so. For all practical purposes, Wall Street considers the newspaper industry DOA.

As a whole newspaper companies lost 42% of their market value from the beginning of 2005 to the end of 2007. And they’re still losing it. The slide here shows some publicly traded newspaper stocks

(slide 6.)

There are probably a lot of you in the audience are wondering why I haven’t talked about the quality aspect and thinking to yourself “well, if they were doing a better job of reporting what’s going on in their communities, I bet they wouldn’t be suffering all these circulation and revenue losses.” There is a certain amount of truth to that, but the reality is that if “mass media” still exists, local newspapers are the closest thing to it. Where else can a advertiser looking to reach as many people as they possibly can in a given market turn? The last time I checked the daily audience of the Tennessean was larger than the 6:00pm newscasts of WSMV, WTVF and WDCN COMBINED. It wasn’t very long ago that an advertiser could reach as many as 60% of a market with one ad in a single edition of a daily newspaper. And some markets readership was significantly higher. In a world of increasing media fragmentation, this is impressive. But it represents its own set of problems.

In order for daily newspapers to try to hold on to their positions as “mass media” which is what the K-Marts and the Sears and other major retailers expected of them, they dumbed the news down. Now I happen to believe that this was a wrongheaded strategy given that the amount of celebrity news and gossip you see in the typical paid daily has actually turned many higher-income, better educated readers away. But believe me, if the Tennessean all of sudden became the New York Times, they’d lose even more circulation than they already have. The sad fact is that the average American these days just isn’t that interested in the important things going on in the world. That’s why Beverly Keel occupies page 3 of the Tennessean every day.

One more point—and this happens to be a sore spot for me. I’ve been selling newspaper advertising for over 30 years and I can tell you that there are few advertisers out there who give a damn about the quality of the product they’re buying. The bank presidents and business owners who tell me what a great job we’re doing at the City Paper are often the same ones that turn their media buying decisions over to 20-somethings at advertising agencies based in Atlanta or New York or wherever. They don’t have a clue about who actually reads what in a market and they really don’t care to know. It never ceases to amaze me how corporations who spend millions and millions of dollars on advertising can give a 22-year old fresh out of college power over where that money is spent. So, yes, I hold some of you out there responsible for the quality of your daily newspaper. You love to complain about it, but you keep on supporting it with your ad dollars. Sometimes we get what we deserve.

So, remember our friend Craig

(slide 7)

You might be wondering how one guy giving away ads can have such massive impact. Let’s look at some quick and dirty newspaper economics

(slide 8).

As you can see the historically the typical daily newspaper—and again I’m talking about your typical monopoly daily—counts on classified revenue for about 40-45% of their total revenue. The rest comes from what we call ROP (run-of-press) and inserts. But classified advertising has historically counted for about 65% of newspaper profits. If any of you have ever placed employment ads in the Tennessean, you understand what I’m talking about here. They have been able to get away with those ridiculous prices because of the lack of competition, which until craig and the internet came along was almost non-existent. But these “franchises” have virtually disappeared and with them, a lot of the inherent profitability of being a monopoly daily.

So what does all this portend? Or why did the City Paper choose to cut our frequency from five days per week to two?

The short answer is that this is where the world is going.

Here are some trends:

(Slide 8)

(Slide 9)

(Slide 10)

This last slide is probably the most disturbing. Not only do these young people represent the demographic that most advertisers want to reach, but today’s 22-year old is going to be right smack dab in the midde of that demographic group in five years.

Let’s look at some more trends…

(slide 11)

Most of the online advertising growth has been national but local is the next great frontier. And I believe newspapers, if they’re smart, are in the absolute best position to capitalize on this growth. That’s why Yahoo and Google and other pureplay internet sites are partnering with newspapers and why Gannett owns careerbuilder.com and cars.com. . Yahoo tried to get in the local advertising business a few years back. They set up offices in major markets hoping to eventually have local news and ad sales operations in the top 50 markets. Microsoft actually started first with City Search. They opened up shop here in 1998 and had a staff of 30-35 folks. I’m not even sure they still have a local office.

So the good news for newspapers is that they have the relationships with local advertisers that yahoo and google don’t have and probably never will. The better news is that newspaper websites are typically the most heavily trafficked local websites in their communities and in 2006 they garnered 35% of local online ad spending. The bad news is that that market share of local online spending is fast declining. Why?

(slide 12)

Internet advertising in the U.S. will jump to the third largest category of ad spending this year, behind TV and newspapers but ahead of radio.

(slide 13)

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(slide 15)

While online advertising is growing exponentially, it’s still a challenge. The most common response I get from advertisers when talking to them about online advertising is “I don’t even have a website.” Well you don’t necessarily need one. Online advertising will drive bricks and mortar business. Brands will be built and customers will respond to banner ads, overlays on video ads, and pre-rolls (those are the short commercials that you have to view before watching some videos on the internet) in much the same way as they do with traditional media today.