Speech to the Newspaper Works Forum: Innovation and Deregulation in the Internet Age

August 21, 2014
Ministerial Feed
Blog
Speeches

### Check Against Delivery ###

Good morning and welcome to the Newspaper Works ‘Future Forum’ where the publishers are able to come together to discuss industry trends and the future of their industry.

I would like to welcome in particular:

● The chief executive of the Newspaper Works, Mark Hollands
● Yasmin Namini, Chief Consumer Officer of The New York Times
● And some of the industry’s key chief executives who will be conducting a panel discussion this morning including Julian Clarke from News Corp, Greg Hywood from Fairfax, Michael Miller from APN and Chris Wharton from Seven West Media WA.

The Australian Story and Innovation Among Publishers

Our democracy depends on a free press.

The work journalists and editors do is just as important to our democracy as that done by politicians like me or judges or public servants.

Newspapers have been the most important foundations of journalism. They have had the scale and the influence to frame and host the big debates on the big issues. They have been big and ornery enough to take on powerful vested interests (and each other ) and have held governments to account.

Before I move onto the economics of the newspaper industry, the subject of this conference, let us reflect on the brutal murder of James Foley and the very high price that so many of our journalists, your colleagues and employees, pay to deliver us the news, pay to ensure our democracy. Journalists and journalism arre in the front line of the battle for democracy.

I condemn the murderers of James Foley, extend our condolences to his family and express the support of our Government to all journalists, including our own Peter Greste wrongfully imprisoned in Egypt, who are paying a high and all too often cruel price for freedom’s sake.

Now we all understand the nature of the challenge. The Internet has created a universal uber-platform now accessible from any device anywhere anytime that simply offers a more cost effective platform for advertising and especially classifieds.

A lot of people have criticised newspaper managements over the years for not seeing this coming and it is ironic that while the Internet became commercial twenty years ago newspaper advertising revenues continued to grow until relatively recently.

However even if the management of Fairfax which had dominated newspaper classifieds, for example, had seized all the obvious-in-hindsight opportunities so that they owned all of Seek and other online platforms, while their shareholders would be better off, their newspaper business would be facing the same challenges of declining revenues and profits and consequently shrinking newsrooms.

Newspaper advertising revenue in the United States peaked in 2005; Australia’s peaked in 2008, the year after the first iPhone was shipped.  Compared to 2003, the U.S. has seen a decline of print advertising revenues by 60 per cent while in Australia the decline has been 28 per cent.

Sometimes it is better to be few years behind the US.

And yet when it comes to innovation and embracing new online business models, arguably Australian publishers have been ahead of the curve.

It is barely a year since our two major publishers, News Limited and Fairfax introduced metered paywalls for their sites1, and the evidence is that our major mastheads now have around half a million paid, digital subscriptions.

At Fairfax there are 140,000 digital-only subscribers to The Age and The Sydney Morning Herald while those titles have around another 110,000 subscribers who have bundled physical and digital packages2.  Both the Sydney Morning Herald and The Age have more digital subscribers on Monday to Friday than they have subscribers to their physical paper (though less than their total sales)3.  News Limited has more than 200,000 digital subscribers  its titles and plans to re-launch its paywalls in the near future, making them simpler and easier to use4.  The Australian managed to increase the number of digital subscriptions, now boasting more than 64,000 digital subscribers, while doubling its weekly price to $6 – a sign that there is still an audience for quality journalism.

Compared to their international peers, Australian publishers have done well. This financial year, Fairfax has seen revenue from digital subscriptions rise to $24 million, which accounts for around 9 per cent of the digital revenues from its metro titles5.  By comparison, digital subscription revenues at the New York Times company  saw digital subscription revenue of around US$41 million last quarter, which was slightly less than 11 per cent of total revenue6. Digital subscriptions were $82 million at the New York Times out of $419 mn in total circulation revenue over the last six months..

PWC are forecasting industry-wide digital subscription revenue to grow ten-fold until 2018, with around 6.1 million Australians paying for a digital subscription.  Of course each new digital subscriber will bring less revenue per user, but the forecast is that there will be almost double the number of total paying subscribers once digital is taken into account.  Revenue from circulation should begin to plateau at around $1.2 billion, down from the $1.3 billion earned currently7.  In other words, if you can collect enough digital dimes you may well end up with close to a dollar after all.



Clearly paywalls are not a silver bullet. Publishers have to find the correct balance between making sure that people pay to read their stuff and at the same time maximise the eyeballs on their sites for the sake of advertisers. This is nothing new - publishers have had the same debate about cover prices since time immemorial. The best model, originally pioneered by the FT I am informed by Yasmin Namini, is the freemium model.

The Sydney Morning Herald’s paywall, for instance, was introduced allowing 30 free articles a monthwhile the News+ paywall offered people between five and 15 free articles a month9.  Each outlet gets, on average, 10 and 11 sessions per month per user respectively10, with a number of page impressions each session, but readers are not necessarily going to bump up against the paywall. 

The Industry Responds to Digital Disruption

The term ‘digital disruption’ is well known to all of us here today.  Jeff Bezos, himself now a newspaper proprietor, decided that an ebook should cost under $1011; Netflix delivers a platform where people can watch an array of content whenever they like; the music industry innovates in the sound quality on compact discs and then along comes Spotify. 

The old models of production and distribution are being changed forever; entire supply chains will disappear; customers’ behaviours change and eventually too, so must the behaviour of the incumbents if they are to have a place in the new environment.

The Internet has not just offered new and cheaper platforms for advertising and, because of the superior functionality of online search, especially classifieds, it has also dramatically lowered the barriers to entry for new competitors.

Sir Frank Packer sold The Daily Telegraph to Rupert Murdoch in 1972 and regretted it. Trevor Kennedy recalls the big old man wheezing with emphysema prowling through the cavernous emptiness of what had been the Telegraph’s press room and dreaming of making a comeback.

His son Kerry came close to getting back into the newspaper business, nearly merging with the Herald & Weekly Times shortly before News acquired it and at one point proposing a Wapping-like plan to acquire Times Newspapers to the Thomsons in 1979.

But a perennial interest of Kerry was to return to the Sydney daily newspaper market and at different times I worked on business plans to do that. But the lock off the incumbents, especially Fairfax, had on the classifieds was too strong, the cost of  entry too high, the rivers of gold too distant for Kerry to realise his dream.

In many ways the great metropolitan newspapers were even more protected against competition than the television licences - technology started to threaten them first with rental videos, then DVDs, then Pay TV, but newspapers seemed impregnable.

That undoubtedly bred an attitude of complacency among proprietors - and of course many opportunities in the new world was missed.  The hardest thing for a manager of any company to do is to cannibalise an existing revenue stream -- even as less experienced competitors are lining up to cannibalise it for them.

As former Baltimore Sun reporter, David Simon, wrote, most newspapers simply weren’t ready for the Internet when it came:

“Which, exactly, is the proper epitaph for the generation that entered newspapering at the very moment when the big-city dailies — the fat morning papers, those that survived the shakeout of afternoon tabloids and other weak sisters — seemed impervious, essential and ascendant? Were we the last craftsmen prepared for a horse-and-buggy world soon to prostrate itself before the god of internal combustion? Or were we assembly-line victims of the inert monopolists of early 1970s Detroit, who thought that Pacers and Gremlins and Chevy Vegas were response enough to Japanese and European automaking superiority?”12

But today newsrooms are looking more and more like Silicon Valley start-ups.  Never have the barriers to entry been so low for competitors and competition so intense.  Three of the top 10 news sites in Australia according to Nielsen were not there three years ago - The Daily Mail, the Guardian and the BBC.  Competitors like The Huffington Post and Buzzfeed are competing against traditional companies with no legacy infrastructure costs or liabilities.  Our media industry has not been so diverse or susceptible to change.

One of the most common things you hear from pessimists about the future of ‘traditional’ media companies is that consumers are not willing to pay for news in an online world.  Received wisdom is that media companies were too late in putting their paywalls up, that consumers have been trained to expect things for free, that the sources of information in the online world are just too abundant and that smaller, nimbler operations have targeted niche audiences and have outmaneuvered larger, general news organisations.

But media companies are increasingly using new tools to deliver on their core mission which is to inform, to entertain and to tell important stories.  Consider, for instance, the amazing multimedia package The Australian put together for its 50th anniversary; Trent Dalton’s series on the remote island Utopia for the Weekend Australian combining beautiful writing and multimedia into a single package13 or Fairfax’s decision to suspend its paywalls in October to cover the NSW bushfires14

I have also enjoyed the Courier Mail’s front pages this year too -- though they have not always been kind to the Government.  We all talk about innovation in journalism and it’s fair to say that perhaps no other profession has taken as keenly to the introduction of photoshop - whether it be the Courier Mail sending up Jacqui Lambie as Rambo this week,  justifying life as a Queenslander after the State of Origin loss or  Wayne Swan as Eugène Delacroix’s Liberty after his warnings that the budget could lead to insurrections similar to the French Revolution.  I hope it is no mere coincidence that the Mail’s circulation figures were the best performing among all metropolitan and national newspapers15.

All of this has meant that traditional media companies are attracting more eyeballs than ever.   That is why the Newspaper Works is so important in telling the industry’s story, particularly with its Enhanced Media Metrics Australia, or EMMA, survey.  It shows that people have never read our major publishers’ journalism more.  This year print readership was down by 4 per cent but digital readership was up by 11 per cent16.  In June, the Sydney Morning Herald had a total readership of 5.58 million, which is more than the population of the greater Sydney region it notionally serves.

Now it is broadly true that there is an unwillingness to pay for online news content.  Only 11 per cent of consumers surveyed in the U.S. and eight per cent of consumers in the U.K. say they have paid for online news content in the past year17.  Another 11 per cent of consumers in the U.S. said they are thinking about paying for online news content in the year ahead.  In Australia, the story is similar – only 8 per cent of people say they are willing to pay for online news18.

But then, there has always been an unwillingness to pay for newspapers.  Readership has always been higher than paid circulation – currently each physical newspaper sold in Australia nonetheless passes through 3.5 sets of hands of people who read it19.  People have always expected to read the news for free to some extent - whether it be a spare newspaper lying around at a cafe or at the office or at an airport.

Despite the medium, there is always going to be an engagement curve with readers.  Some people will access news online but never butt up against a paywall; some people will butt up against a paywall but pay for access sporadically.  Some people will buy full digital subscriptions and opt for home delivery on a weekend.  The important thing is that no one strategy is likely to work, nor can each customer be treated the same.

There has been a huge amount of innovation when it comes to different business models to capture more value out of each segment of the market with three key trends standing out: the increasing fragmentation and targeting of products; the success of pre-roll video advertising and opportunities for mobile in general; and the continuing value in print as a ‘premium’ product.

Increasingly, the ‘all you can eat’ model for paid subscriptions is giving way to smaller, more nimble products in much the way that e-books and digital music have had to settle for price points that consumers are comfortable with.  So for instance, the New York Times has in recent weeks launched two new apps, NYT Opinion and NYT Now, which cost just $2 a week, which is cheaper than the US$15 a month for iPhone access and US$35 a month for full digital access.

Interestingly, when it comes to willingness-to-pay, it is the digital natives who are more likely to shell out for online news.  In Australia, people aged 25-34 years of age are almost four times more likely to pay for online news than those aged 45 to 54 years of age20.

Even when customers don’t want to pay, publishers are getting better at finding value.  Companies like The Guardian, through its ‘Known’ project, are asking customers to register their personal details21.  Publishers are learning from  Google and others the wisdom of the old adage: “If, in the digital age, the product is free, then you are the product”.

Another great trend has been the rise of pre-roll video.  We may grumble about Google eating the world, but one of the upsides of those annoying YouTube ads is that consumers are more willing to tolerate pre-roll video advertisements.  In the U.S., embedded video advertising doubled in the two years to 2013, now accounting for $4.14 billion in industry revenue22.  In Australia, it has become one of the most effective forms of online advertising, with a third of consumers saying it will affect their buying decisions23.

And finally, it has to be acknowledged that there is still a great value in print itself.  One of my favourite sources for financial news about the newspaper and media industry is Monday Note. 

Many of you will have heard me refer to an argument that one of the site’s writers, Frédéric Filloux put forward that newspapers - and particularly weekend newspapers - should seek to drastically raise their cover prices24.  The experience internationally has been that once you lose the least loyal customers, the remaining market is quite inelastic when it comes to prices.  I take some small pride that as Communications Minister, at least someone in the industry is listening to me -- both The Australian and the Sydney Morning Herald have raised the cover prices by 30 cents to $3.30 on their weekend editions.

The fact is that print is still valued as an advertising platform and as a way of reading the news.  In Mary Meeker’s annual State of the Internet presentation, she showed there is still a strong bias to print, with it earning 19 per cent of industry revenue despite it taking just five per cent of media consumption time25.   As News Corporation’s Robert Thomson recently said: “Print is a concentrated, intense reading experience with unique affinity in our digitally distracted age”26.

Implications for Government

In our Boost Productivity and Reduce Regulation policy we took to the Australian people during the election we set a target across government of reducing regulatory costs to the economy by $1 billion per annum.

The current media, telecommunications and radiocommunications regulatory framework is still based in a mid-1990s pre-Internet world of relatively stable technologies and business models – a world where governments and regulators were more worried that the rivers of gold didn’t converge than they were about encouraging a torrent of innovation.

The pressures on the regulatory arrangements and the negative impact of out-dated regulation on the industry will only increase.

In May this year, I released a deregulation roadmap setting out my deregulatory priorities for the communications sector.  We have made a positive start, achieving savings in the order of $30 million dollars for media and telecommunications businesses during the government’s first repeal day.  Work is well underway for another layer of regulation to be repealed, reduced or made simpler in time for the second repeal day scheduled for late October.

The roadmap also flagged that the Government recognises that industry wants reform in a range of policy areas. These included the current media ownership and control rules, the anti-siphoning scheme, retransmission of commercial and national free-to-air services, and options for the use of unassigned broadcasting spectrum.

Many in the industry have asked me to look at whether we still need platform specific media ownership rules. . At its March 2014 meeting the broadcasting and media representatives on my Ministerial Advisory Council were also in broad agreement that reform was necessary, particularly where it could improve the economic stability of the sector in an increasingly difficult environment.

Now I first represented a media company on a media regulation inquiry in 1977. So I have seen this film before and I know that consensus ends where self-interest kicks in.  But I am in the process of holding focused discussions with senior executives in the industry to test if consensus can be achieved on the various proposals that have been put to me.

With an agenda that includes rolling out the NBN, reforming the public broadcasters and Australia post, e-government and the promoting the digital economy I have explained to all the players that consensus is always a good place to start from to achieve any change.

It’s fair to say that change is still on the agenda but it needs to carefully balance two competing concerns – the need for diversity in our media industry and to ensure that we have enough economically viable media businesses to make that diversity possible.

But let me remind you that there has been a change of Government. I believe in working with the industry not against it. I believe that given the massive increase in competition and diversity  there should be less regulation of the media sector not more and I certainly do not intend to break with Australia’s peace time tradition and introduce Government regulation of the content of your newspapers as the previous labor Government attempted to do.

Local News

I’ve already stressed the importance of deregulation to this Government and when it comes to the debate of media ownership, and the reach rule in particular, there is a bit of controversy and ill-informed debate over local content.

Let me just reiterate that any changes to media ownership will not affect the local content requirements that are a part of a radio or television license. 

Everyone, the government included, is concerned that regional communities around Australia have access to news, presented and written by journalists who understand their area, their people and their issues.

In an ACMA report on local content 91 per cent of regional Australians said they considered local content to be important, and again, 91 per cent of those surveyed believed they had access to all the local content they would like. As regional broadcasters and newspapers face increasing cost pressures, it’s important that regional Australians have access to a variety of sources for local news and information.

Of those surveyed, 82 per cent said they got access to what’s occurring locally by reading their local print newspaper at least once a week, a higher usage rate than commercial radio (67 per cent), local ABC radio and social media (63 per cent)27.

Importantly, over 95 per cent of regional Australians reported they would seek out local content, and they access different sources for different purposes. For regional Australians local newspapers are the preferred source for local sports and information about community events, and the second most preferred source after television for local news. Demonstrating that local print newspapers have a vital role to play in providing Australians access to the information they want to read.

Local newspapers are not only important sources of local content, they are important advocates for regional issues. In 2012 The Border Mail took out two Walkley Awards, including the award for excellence in journalism, for their ‘Ending the Suicide Silence’ campaign. The week-long campaign was comprised of features in The Border Mail, stories on mental health issues, and lobbying for mental health services in the region, complemented by a Facebook page. The innovative approach to this issue was not just about reporting local content, but uniting and mobilising a community on an issue of critical importance.

I think it’s also important to acknowledge the work of another Walkley-winning campaign and that is the Newcastle Herald’s ‘Shine the Light’ series on child sex abuse in the Catholic Church which led to first a NSW judicial inquiry and now a Federal royal commission. Journalist Joanne McCarthy’s commitment in the face of threats, complaints and abuse was pivotal in uncovering what had been hidden from the community for too long. Walking the fine line between advocacy and journalism McCarthy confessed that she was a regional person and only a regional paper could have done what the Newcastle Herald did because it went well beyond  what is normal behaviour for a metro28.

Regional newspapers are therefore not only an important source of local news and information, but a vital part of the media landscape, pushing the boundaries, advocating for change, and giving regional Australians a voice.

Conclusion

Newspapers have been - and still by and large are - the great foundations of journalism and our democracy.   Nearly all of what we read and see on the television and hear on the radio are almost always the result of the  original journalism of our big publishers and the ABC.  It is almost inconceivable to think of the recent ICAC inquiries without the tireless work of journalists like Kate McClymont; or the Health Services Union scandals without writers like Brad Norrington.

I gave a speech in 201229 expressing a genuine concern that the very foundations of journalism, the most powerful organs of free speech, the great newspapers themselves are struggling to survive.  Those concerns are still valid, but it is clear that in the last two years the industry has responded to the challenge in an innovative manner that gives us every cause for optimism about your future.

The former editor of The Guardian in Australia Kath Viner defined our current media age as one in which we’ve seen ‘the rise of the reader’30 putting at the very centre of what media organisations do.

Our politicians may come and go and in between complain bitterly about how outrageously they were treated by our big media organisations;  recognising that complaining about the media is as useless as complaining about the media.

But the truth is that challenges you face are important not just for your shareholders and your staff, but for our democracy, our free society. We need you to succeed, our freedoms depend on it.

 

Thank you for your time today and good luck for the road ahead.

ENDS

 

Footnotes

1. News Limited launched news+ in June 2013 while Fairfax introduced its paywall in July 2013.  The Australian uses a mixed paywall.

2. Fairfax, (2014), “Annual Results Investor Briefing”, p.7, available online at: http://storage.googleapis.com/fxj-corp-docs-public/2014-08-14_Full-Year%20Results%20-%20Investor%20Briefing.pdf

3. Audited Media Association of Australia, (2014), “ABC Paid Media Audit, June”

4. Robert Thomson, (2014), “Full Year Financial Results: Transcript”, available online here.

5. Fairfax, (2014), “Annual Results Investor Briefing”, p.38, available online at: http://storage.googleapis.com/fxj-corp-docs-public/2014-08-14_Full-Year%20Results%20-%20Investor%20Briefing.pdf

6. New York Times Company, (2014), “Second Quarter Results”, available online at: http://investors.nytco.com/investors/investor-news/investor-news-details/2014/The-New-York-Times-Company-Reports-2014-Second-Quarter-Results/default.aspx

7. PWC, (2014), “Revolution, Not Evolution: The Australian Entertainment and Media Outlook 2014-18”.

8. Sydney Morning Herald, (2013), “Sydney Morning Herald Introduces Digital Subscription”, available online here: http://www.smh.com.au/national/sydney-morning-herald-introduces-digital-subscriptions-20130701-2p6nl.html

9. Davidson, D., (2013), “News Unveils Metered Digital Subscriptions Plan for The Daily Telegraph and Herald Sun”, available online here: http://www.theaustralian.com.au/media/print/news-unveils-metered-paywall-plan-for-daily-telegraph-and-herald-sun/story-fn9ymmvo-1226637384084?nk=b3383d18fb488f7dc0595bd28f410ed1

10. Nielsen, (2014), “Nielsen Online Ratings: June”.

11. Coll, S., (2014), “Citizen Bezos”, in the New York Review of Books, available online here: http://www.nybooks.com/articles/archives/2014/jul/10/citizen-bezos-amazon/

12. Simon, D., (2008), “Does the News Even Matter Any More?” available online here: http://davidsimon.com/does-the-news-matter-to-anyone-anymore/

13. Dalton, C., (2014), “Welcome to Utopia”, available online here: http://media.news.com.au/nnd/captivate/edenhope/#

14. Fairfax Media, (2013), “The Sydney Morning Herald and the Age Provide Community With Free Online Coverage of NSW Bush Fires”, available online here.

15. The Courier Mail’s circulation fell by 2.4 percent in the June quarter compared to the June quarter 2013.  Source: Audited Media Association of Australia, (2014), “ABC Paid Media Audit, June”

16. Newspaper Works, (2014), “EMMA Survey”

17. Reuters Institute, (2014), “Digital News Report”, p.56, available online here: https://reutersinstitute.politics.ox.ac.uk/sites/default/files/Reuters%20Institute%20Digital%20News%20Report%202014.pdf

18. Deloitte, (2014), “Media Consumer Survey”, available online here: http://www.deloitte.com/au/mediaconsumer

19. Newspaper Works, (2014), “EMMA Survey”

20. 15 per cent compared to 4 per cent.  Deloitte, (2014), “Media Consumer Survey”, available online here: http://www.deloitte.com/au/mediaconsumer.  Additional information on demographic breakdowns provided by Deloitte.

21. Doctor, K., (2014), “The Newsonomics of The Guardian’s New ‘Known’ Strategy”, available online here: http://www.niemanlab.org/2014/02/the-newsonomics-of-the-guardians-new-known-strategy/

22. Pew Research Center, (2014), “State of the News Media 2014: Paying for News: The Revenue Picture for American Journalism and How It Is Changing”, p.28, available online here: http://www.journalism.org/files/2014/03/Revnue-Picture-for-American-Journalism.pdf

23. Deloitte, (2014), “Media Consumer Survey”, p.19 available online here: http://www.deloitte.com/au/mediaconsumer

24. Filloux, F., (2012), “Why Newspapers Must Raise Their Price”, in Monday Note available online here: http://www.mondaynote.com/2012/09/02/why-newspapers-must-raise-their-price/

25. Meeker, M., (2014), “Internet Trends”, slide 15, available online here: http://s3.amazonaws.com/kpcbweb/files/85/Internet_Trends_2014_vFINAL_-_05_28_14-_PDF.pdf?1401286773

26. Robert Thomson, (2014), “Full Year Financial Results: Transcript”, available online here.

27. ACMA, (2014), “Regional Commercial Television Local Content Investigation Report”, p.20

28. Knott, M., (2013), “Accidental crusader: how a regional reporter prompted a royal commission”, published in Crikey, 28 March, available online here: http://www.crikey.com.au/2013/03/28/accidental-crusader-how-a-regional-reporter-prompted-a-royal-commission/

29. http://www.malcolmturnbull.com.au/media/free-at-last-or-freedom-lost-liberty-in-the-digital-age-2012-alfred-deakin

30. Viner, K., (2013), “The Rise of the Reader: Journalism in the Age of the Open Web”, available online: http://www.theguardian.com/commentisfree/2013/oct/09/the-rise-of-the-reader-katharine-viner-an-smith-lecture

Recommended Posts