Newspapers: Can things get any worse?

Google proposes new model and exec suggests circulation cut, but gloom pervades annual confab.

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By Richard Siklos, editor at large

SAN DIEGO (Fortune) -- As one might expect, the gathering of the Newspaper Association of America annual convention was a somber and lightly ­attended affair, relatively speaking. Highlights, if you could call them that, included bold talk of reinvention and threats from the Associated Press to clamp down on online pilfering of its content.

The overall vibe was of an industry that failed to stay ahead of technological change (everything from Craigslist to news aggregators) and has been struggling with the economy like everyone else.

The most interesting session -- after from Google (GOOG, Fortune 500) CEO Eric Schmidt's wrap-up Speech -- was a presentation from executives of two newspapers that have just undergone wrenching format changes. One, the East Valley Tribune in the Phoenix area, in January converted from a seven-day paid newspapers to a four times a week free paper with an expanded web presence. The paper, owned by Freedom Communications, cut about 40% if its employees in the process.

Even more dramatic was the conversion of the Detroit Free Press and Detroit News -­- operated under a joint operating agreement between Gannett and Medianews. Two Mondays ago, the papers re-launched and began being delivered only three days a week, on Thursday, Fridays and Sundays, with stripped-down "express" versions for sale the other days.

Dave Hunke, the CEO of the Detroit Media Partnership, said close to 85% of the papers' advertising revenue -- largely through pre-prints like coupons and circulars -- has been generated on those three delivered days. Hunke ran through a litany of challenges in the Detroit market, including skyrocketing unemployment, rampant foreclosures, and a market where 47% of adults are functionally illiterate and "we send more children to prison than to college. So we've got quite a problem on our hands." Neither paper was able to say whether their radical changes were working yet.

Google's Schmidt, who reiterated his concern about preserving the free press in the digital age, said that the Web search giant was poised to help newspapers in two or three concrete ways. First: the development of higher-quality display advertising that incorporates some of the contextual features that have made the company a powerhouse in text-based search advertising. Second: If publishers pursue paid models for their content, either through micro-payments or subscriptions, Google might be able to help.

In a meeting after his speech, Schmidt wasn't specific but his plan kind of sounded like Google could package and sell content to consumers in the way that cable operators do. Finally, and most interestingly, Schmidt told the group that newspapers needed to know more about their online readers and be able to tailor more content to them by keeping track of what stories they have already read. Reading on the Web he said, "is still relatively unpleasant" compared to the experience of magazines.

The big questions, as with all interactions between Google and so called traditional media, is the degree to which newspapers would want to cede key aspects of their online businesses to the technology giant, which it views with a mix of awe, fear and annoyance.

That ever-present tension made headlines yesterday after the Associated Press -- the wire service that is operated as an industry cooperative -- warned that it will seek legal remedies for Web businesses that distribute its members' work without paying for it. "I was a little confused by all of the excitement in the news" about this, Schmidt said, because Google has a multi-million dollar contract with the AP for hosting and aggregating its content on Google. However, other publishers, including Rupert Murdoch, who owns newspapers around the world, have singled out Google of late for not compensating papers for providing content to the summaries they create. From his perspective, Schmidt compared aggregators like Google News to radio news summaries rather than some new form of distribution.

Meanwhile, Jim Chisolm, a consultant from a firm called iMedia Advisory Services said that newspapers have huge revenue opportunities but need to reposition themselves from sales organizations into local marketing businesses that can tap into everything from event marketing to the nascent but growing business of targeted advertising for mobile phones. He also tried to inject a little levity into the proceedings: if more cost cuts need to be made, he said, "The number one thing to do is fire your media journalists, because they're the ones who are writing about how bad things are."  To top of page

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