Digital dimes: Bigger stack needed

Newspapers’ digital transformation is hitting some serious speed bumps. The problem: digital revenues are not growing fast enough to compensate for print advertising losses. In fact, the gap is getting wider.

Poynter, citing statistics from the Newspaper Association of America, says the ratio of print advertising losses to digital advertising gains over the first half of 2012 was 25 to 1. In 2011, the ratio of print losses to digital gains was 10 to 1. In 2010, the ratio was 7 to 1. This is a troubling trend, and speaks to larger problems with the online advertising model. While digital ad revenues continue to grow, they’re not nearly enough to make up for the shrinking print ad base.

NAA Chairman Jim Moroney told Poynter that the statistics underscore why most newspapers are aggressively pursuing broader revenue models, including digital subscriptions:

“For every good reason, the industry is still focused on print and digital advertising revenue. Now more are applying equal focus on print and digital circulation revenue.”

Moroney is also publisher of the Dallas Morning News, which launched a paywall in March 2011 and sold approximately 50,000 digital-only subscriptions in the first year. The publisher is extending its revenue model further this week with the launch of Speakeasy, a new “social content marketing agency,” in partnership with  marketing services agency Slingshot.

"The Dallas Morning News has many advertisers who look to us for marketing solutions and have been asking us to help them with their social media needs,” Moroney said in a press release. “Speakeasy is committed to meeting that trust by delivering superior results with a strong team and efficient operations."

These moves to expand the digital revenue base are critical for newspaper publishers to lessen what Poynter cited as a “historic 85 percent reliance on advertising for revenue.” But for many, the pace of the transition is too slow. Case in point: The Journal Register Co., one of the poster children for John Paton’s “digital first” strategy, which last week filed for Chapter 11 bankruptcy protection.

“The Journal Register Co. has made solid progress in its digital transformation in the last two years, more than doubling its digital audience with 235 percent digital revenue growth from 2009 to 2011,” Paton, the CEO of JRC parent Digital First Media, said in a statement. “But that transformation is threatened by a decline in print advertising revenue — the company’s largest revenue source — and legacy costs incurred when Journal Register Co.’s total revenues were nearly twice the size it is today.”

Nieman’s Joshua Benton concludes that despite Paton’s enthusiastic embrace of a digital-first agenda, “it’s been harder to be certain how Paton’s optimism has translated into results. Digital revenues are growing, but from an unspectacular base. Many of the company’s initiatives seem, while interesting, unlikely to move the revenue needle much. … Today’s release illustrates that JRC hasn’t yet found the magic formula.”

Benton adds, however, that the JRC bankruptcy filing – its second in three years – will be Paton’s best chance to show that the new model can work:

“In around 90 days, [Paton will] have had his chance to shed the costs he wants to shed. No longer will ‘we were built for print’ be a good excuse; if two bankruptcies can’t clear out all those cobwebs, I’m not sure what could. ‘Digital first’ will move from a slogan to a corporate name to a foundation of the company’s business structure.”

If that foundation can’t support a variety of different revenue streams – a large stack of dimes that collectively creates a profitable business – then  Paton, and the news industry in general, will be running out of options.