Why Henry Blodget is wrong about newspaper business models
Henry Blodget, who made and lost a fortune hyping the dotcom bubble, is back, and he's published a back-of-the-envelope analysis that purports to explain why newspapers are screwed: readers are migrating to the Internet, and Internet advertising can't deliver enough revenue to pay for newsgathering expenses.
Blodget's argument has more holes than a wheel of Emmenthaler. Here are just a few of them.
- He begins by examining the New York Times, which has become an international business, then implies that other U.S. newspapers have the same model. This is just plain silly.
- "Compete.com says the monthly reader base of NYTimes.com is about 7.5 million people." Yes, and the Times itself claims over 13 million monthly uniques. Neither is accurate or relevant. The figures are inaccurate because of severe overreporting driven by cookie-clearing and other factors, as documented some time ago by Clyde Bentley and Greg Harmon. But beyond that is an even bigger issue: Monthly unique user counts on news sites are loaded with "drive-by" or "web wanderer" visits. These one-hit wonders are the equivalent of someone walking past a New York City newsstand and reading a couple of headlines. They are in no way "real readers" and, if you're calculating revenue per reader, you need to divide the revenue by a much smaller number, which of course would yield a much different answer. How much smaller? This is an area where some data analysis would be welcome. My own analysis on a couple of small markets indicates that the difference could be at least an order of magnitude.
- "Specifically, let's pretend that, tomorrow morning, every print reader stops buying the paper, and, instead, reads it online. " Well, we might as well pretend that I'm emperor of the world, which would be much more entertaining. Neither is true. The core problem faced by newspapers is not a migration of consumption from their print products to their Internet products. The core problem faced by newspapers is a loss of readers across the board. The General Social Survey has documented a decline in newspaper readership that's pretty much a straight line going back to around 1970. It's a problem of content relevancy in an increasingly rich media mix, and not specific to the emergence of the World Wide Web.
Please understand that I am not arguing that newspapers aren't in trouble. But the problems are much more driven by a weakening ability to deliver an audience in any medium than by any inherent weakness of an online advertising model. At the end of the day it comes down to a simple question: Are your content and services relevant to consumers in your market?