The newspaper industry's predominant economic model has remained fundamentally unaltered for more than a hundred years. That is about to change.

This model, simply stated, implies that newspapers generate revenue by delivering "eyeballs" to a range of national advertisers and local merchants. The industry cost structure – including the gathering, production and distribution of news, information and opinion – is substantial, but the immense profit associated with run-of-press and preprint advertising has fostered margins viewed by outsiders as bordering on the obscene.

Unfortunately, all good things must come to an end. The flaws inherent to this model given today's radically altered media landscape and economic realities, are becoming pronounced.

A decade ago, the Newspaper Association of America fired a warning shot to the industry that evolution was inevitable. Characterizing the threat to newspapers as one of "fragmentation, targeting and bypass," the NAA said what many outside observers were thinking: that an industry that had emphatically and successfully positioned itself as the last great mass medium was at significant risk as consumer marketers, facing an increasingly diverse and fragmented marketplace, sought more targeted and cost efficient channels for communicating with customers and prospects.

In other words, the focus was no longer on "eyeballs" — it was on customers.

Ten years back, however, the industry was still enjoying profit margins about which other enterprises could only fantasize. The warnings, to a large extent, rang hollow. With an assist from significant cost reductions over the past twelve months, those margins remain healthy today.

Market share, however, does not. Revenue growth does not. Nor, for that matter, does circulation.

These are the underlying fundamentals of this industry. We must ask ourselves just how far cost reductions can take us in the face of eroding fundamentals.

It is my humble belief that the industry's obsession with its short-term financials, its cultural reluctance to pursue and embrace change, and its persistent focus on product at the neglect of the consumer, have seriously undermined its ability to conceptualize and implement a more relevant and profitable business model for the next fifty years.

That is the bad news. The good news is simply this:

You will evolve and you will win.

How?

By changing the business model you will change the fundamentals of newspapering. And I use the term "newspapering" very loosely for while I passionately believe that the daily newspaper has a robust future, I am also of the conviction that it will comprise but one of multiple, integrated communication channels that will be leveraged by the "regional media powerhouse" to optimize relationships between buyers and sellers.

This conviction, as a matter of fact, is the underlying premise of the economic model proposed herein — that the entity today known as your local daily newspaper will morph into the role of "Infomediary," leveraging its consumer and merchant relationships, the trust and credibility engendered by the brand, and its incomparable opportunities to acquire and distribute information through its interactions, to dominate.

But let's not get too far ahead of ourselves. Instead, let's briefly take a closer look at each of the three constituencies of the new business model. Interestingly, they are the same three constituencies of the old business model: the consumer, the merchant and the newspaper.

The Consumer

Many believe that the Internet has made things easy on the consumer. It can be argued, however, that product proliferation, media intrusion and privacy concerns have actually complicated the lives of shoppers.

Without question, the Internet has spawned a remarkable increase in the number of merchants as the need for shelf space and other entry barriers have fallen. More vendors means more clamor for attention. More attention requires more advertising. More advertising - likely more intrusive advertising - will surpass the consumers' ability to process and respond in the desired manner.

How will they react? I suspect consumers will seek shelter from the storm, and they will find it with an institution in which they place their trust. Trust, in fact, will become a principal asset of those institutions capable of earning and keeping it.

Consumers will gravitate to entities that they trust will represent their interests in the marketplace. Without the time, knowledge or inclination to assess and respond to the infinite consumption opportunities to which they are exposed, consumers will seek to simplify the process of purchasing relevant products and services.

Ironically, as consumers display growing concern for privacy erosion, they will actually share more information with those institutions capable of sheltering them from irrelevancy. Again, consumers will trust these entities to judiciously protect this data and to respond in a relevant manner.

These institutions will filter appropriate communications to consumers using the specific channels designated by those consumers. In their book, Net Worth, John Hagel and Marc Singer characterize such institutions as information intermediaries, or infomediaries (see sidebar). This concept will be discussed in detail later.

The Merchant Community

The early 1990's proclamation from the Newspaper Association of America regarding the phenomena of "fragmentation, targeting and bypass" was an accurate assessment then and remains so today.

Recent economic volatility has only exacerbated the need for consumer marketers to improve the return on their marketing investments. This suggests that they must reach high potential prospects and customers with greater efficiency than ever before. It also implies that "eyeballs" are no longer the criteria for marketing expenditures. The key measure is no longer related to human anatomy but instead it is how loud and how often the cash register rings - because revenue generated can readily be translated in ROI.

This leads us to a secondary requirement of the merchant community: the ability to measure. Without the essential metrics to assess the productivity of marketing initiatives, it is often challenging for marketers to justify expenditures across specific channels.

Direct mail, for instance, is a medium that lends itself to precise evaluation. The related costs of design, production, list rental, postage and fulfillment are readily calculated, and the associated revenues easily tracked. The decision to reinvest in, modify or eliminate such campaigns is straightforward because the numbers paint a clear picture.

Related to the requirement for improved efficiency and productivity is the need to integrate communications across multiple channels. Marketers must endeavor to extend their messages to customers and qualified prospects but, at the same time, minimize redundancy. And while repetition is sometimes desirable, redundancy is waste.

What is the difference between repetition and redundancy? Repetition occurs by design and is intended primarily to build brand recognition. Redundancy is unintentional (although sometimes unavoidable) and typically transpires when a specific offer or promotional piece (e.g., catalog) is delivered and received by a consumer more than once.

Because the return-on-investment of media typically used to support brand development initiatives – such as network television, newspapers, outdoor and shelter advertising, etc. – is not readily measurable, a growing share of U.S. advertising expenditures has migrated to direct response media for which the ROI is quite calculable. This phenomenon has been taking place for well over twenty years but the pace of share migration has accelerated dramatically with the fragmentation of cable and satellite television, the prevalence of email marketing, technology-driven data mining initiatives and more. Much, much more.

All in all, the media landscape is just about as perplexing to the merchant community as it is to the consumer. And just as the consumer is in quest of a credible entity to provide timely, relevant information about consumption opportunities, the merchant community is seeking a mechanism to optimize marketing communications through consumer intelligence and channel integration. In other words, both parties are in search of an infomediary.

Does such an institution exist today? Not quite. But if there was an entity well positioned to step up and seize such an opportunity, it could very well be…

The Daily Newspaper

There are those that believe that the days of the newspaper industry are numbered. Conversely, there are those who feel that there is no need to tinker with success and that newspapers will be around in their current form for another 150 years — just as they have been for the past 150 years.

Most people tend to believe that reality lies somewhere in the middle. And because it is integral to the business model put forth below, I will offer my own personal assessment:

The entity that is today characterized as the "newspaper company" will not only survive, but will dominate the media landscape for the foreseeable future. It will actually look quite different from today's predominately print publishing company, but will still produce a printed product which represents but one of numerous integrated channels of communication with consumers.

It is my belief that this entity will in fact become the principal matchmaker between consumers with specific consumption intentions and merchants desiring to satisfy them. Put another way, today's newspaper is tomorrow's infomediary.

The New Model

The diagrams below offer comparative views of where the newspaper fits in the media landscape under both the current and proposed economic models.

In Diagram 1, the merchant community leverages all relevant media to drive sales activity. Although integration across these channels is desired, the simple fact is that it cannot be achieved to any meaningful degree.

Given the need for efficiency on the part of merchants, the growing desire for relevance on the part of consumers, and the aspiration to grow market share on the part of newspapers, the flaws in this model are enormous.

Consider instead the economic paradigm represented in Diagram 2.

preferences and purchasing intentions. In so doing, it obligates itself to
judiciously protect the privacy of its "clients" and to deliver
value through relevance, quality and cost. Or, as stated by Hagel and Singer:

"By offering a variety of agent and targeted marketing
services, they will help consumers reduce the 'interaction' cost
of searching for goods at favorable prices in an environment of
proliferating, increasingly complex products."

"Infomediaries will build more detailed and comprehensive information profiles about customers than vendors could ever have hoped to create on their own. Properly constructed information profiles will allow marketers to more reliably reach and convert prospects into customers. Vendors will see their cost of customer acquisition - for many companies their highest marketing cost - significantly decline. They will also reduce churn and increase cross-selling, while gaining more cost-effective insight into opportunities for product enhancements and customization." Hagel and Singer

To deliver value to consumers, the infomediary must also
establish or leverage existing relationships with a wide range of merchants
capable of satisfying consumers. And because the infomediary's ability to
continue serving in that capacity is directly tied to the quality of those
merchants, they must be selected with care.

Finally, the infomediary must implement and integrate communication
channels with consumers that satisfy the vendors' need for efficiency and
the consumers' channel preferences.

The "Newspaper" as Infomediary

There are three essential qualities of the infomediary:

1. Trust. As stated by Hagel and Singer, "Trust
   is the infomediary's lifeblood." Without trust, consumers
   will not share their personal information. Any doubt concerning
   the integrity and credibility of the infomediary will entirely
   undermine its ability to serve it that capacity.
2. Existing relationships with consumers and
   merchants. While today's newspaper is the logical entity to
   evolve into tomorrow's infomediary, it is not the given entity.
   The Internet opens the door to numerous other institutions to
   usurp that role. The window of opportunity is not a large one,
   and those posturing to serve as the dominant infomediary will
   be disadvantaged if they must build these relationships from scratch.
3. Channel integration. The ability to integrate
   the distribution of marketing communications across multiple channels
   is vital for two reasons. First, it allows for communication utilizing
   the preferred medium of the consumer. Second, it contributes to
   the optimization of merchant ROI by minimizing redundancy. (This
   is the primary impediment to companies like Amazon.com and Yahoo!
   in assuming the infomediary role.)

Consider how these qualities relate to today's newspaper
and why it is poised to evolve into the infomediary of choice in a complex
media landscape.

Trust. The public's trust of the media has been the
subject of immense research. Generally speaking, it has not been high, gradually
eroding following post September 11 highs.

Among media companies, the newspaper company's credibility
has typically remained well above average. But to ascend to the role of infomediary,
it must be impeccable.

The Internet has actually enhanced the opportunity for newspaper
companies to forge a new level of trust within their communities. While dismantling
barriers to information, the Internet has simultaneously opened the door
to abuse and irrelevance. The simple fact that the local newspaper's web
site is typically the most patronized of local sites is evidence of the brand's
strength. Brand strength usually translates to trust.

Relationships. This represents a compelling advantage
in the infomediary sweepstakes.

On the consumer side of the equation, the newspaper "touches" a
substantial percentage of market households every day of every week. This
percentage varies from market to market and newspaper to newspaper. But what
is fairly consistent across markets is the variety of "touch points" across
which these contacts take place — the newspaper, newspaper web sites,
customer service inquiries, contest entries, billing, etc. The range of these
contacts is unparalleled, the frequency matched only by the Internet.

With the exception of newspaper web sites, the level of
interactivity of these contacts is minimal. In other words, most newspaper
communication is one-way rather than two-way. Although this is less than
optimal in trying to capture relevant consumer data, process modifications
can easily be implemented that allow for greater interactivity and data acquisition.
But the marketing systems must also be in place to warehouse and analyze
this data if value is to be derived from it.

Under the proposed model, the newspaper industry's relationships
with its advertisers are dramatically transformed. Perhaps the most substantial
change is in the perception of the newspaper company and its representatives.
No longer is the newspaper simply seen as a vendor. No longer are account
representatives viewed as order-takers. Instead, the newspaper's control
of consumer data and integrated communications make it a vital collaborator
in the success of its merchant partners, and its representatives knowledgeable
consultants in ROI optimization.

Time is of the essence is establishing the infomediary positioning.
The simple fact that the newspaper has existing associations with the merchant
community is an enormous advantage.

Channel integration. The ONLY entity capable of integrating
newspaper distribution with solo mail, marriage mail, email and telemarketing – traditional
direct response channels – is the newspaper company. It is precisely
these channels, with the exception of telemarketing, that have garnered the
largest gains in market share at the expense of newspapers and broadcast
media. And they are also the channels that stand to perform well in the face
of advertiser requirements to maximize ROI on marketing initiatives because
they are measurable and targetable. Newspapers must be in these businesses.

This potency of this advantage is directly related to the
newspaper's knowledge of its readers. US newspapers, for instance, typically
have a high percentage of home delivery circulation. Moreover, they also
know the names and addresses of their subscribers.

The same cannot necessarily be said, for instance, for publishers
in Australia and the UK. Thus, channel integration is much more challenging.
In these markets, it is the data advantage that must be leveraged to its
full extent. That is, the strength and integrity of the brand must be forcefully
employed in building the infomediary relationship with consumers.

The Revenue Equation

So how does the infomediary get paid?

There are a number of potential scenarios associated with
revenue generation, but two prominent ones are the following:

1. Communication. In this situation, the
   infomediary is compensated for communicating merchant offers to
   targeted consumers via all appropriate channels — newspaper,
   direct mail, email, etc. This is, of course, analogous to existing
   scenarios with the exception that compensation will be based not
   on "eyeballs" but on qualified prospects. Obviously,
   the value of a qualified prospect is much higher, and the merchant
   is willing to compensate the infomediary accordingly. It should
   be noted that the infomediary is not only generating new revenue
   on the basis of its information, it is also garnering revenue that
   heretofore has been spent with media competitors.
2. Customer Development. The fundamental
   purpose of the infomediary is to deliver customers — not eyeballs
   or even prospects. It can be argued that its compensation should
   be based on precisely that. For instance, the infomediary might
   get paid a ten percent commission for selling a travel package,
   or $500 for securing a home equity loan on behalf of a bank. The
   validity of this approach has been proven in the United Kingdom
   by at least two national publishers, The Daily Telegraph and The
   Times.

These scenarios are not mutually exclusive. That is, both
are relevant although one may be more appropriate with certain types of merchants.

Transforming the Newspaper

The migration from traditional newspaper company to new
age infomediary cannot happen overnight. Make no mistake — there is
urgency in ensuring that the position of dominant infomediary is not seized
first by another institution. Realistically, however, instituting a radical
transformation of an industry that has been resistant to even minor change
is beyond unlikely. So here are some cursory thoughts as to how newspapers
can hasten the evolution:

	Build the information infrastructure. The industry has accelerated its investment in marketing automation technology as proven applications have dramatically improved return on investment opportunities. These systems will become every bit as core to newspaper operations as presses and billing systems.
	Enhance interactivity. This can prove unproductive without the facilities in place to deposit and evaluate consumer information, but newspaper companies should actively engage consumers in a dialogue to build trust and acquire meaningful data. Any interaction is an opportunity to obtain information that can enhance a relationship with a consumer.
	Ensure privacy. It is imperative that newspapers use every opportunity to ensure consumers that any information shared will not be revealed to a third party unless explicit permission is given to do so. Consumer data is sought not so it can be sold to marketers, but so the infomediary can communicate directly with the consumer on behalf of relevant merchants.
	Diversify communication channels. The concept of "blended distribution" in which newspaper delivery is supplemented with targeted direct mail has become a modestly popular application in the USA. It is a terrific step forward in addressing merchant requirements but must be expanded to incorporate more finite zoning of preprint distribution and email at a minimum. Newspapers should aggressively leverage interactions in seeking email addresses (ideally tied to a name and street address) and consumer channel preferences.
	Transform the account team. Sales representatives have been challenged with selling a product - a product that is potentially burdened by growing obsolescence. In the future, these people must sell sophisticated solutions that incorporate multiple channels and powerful consumer data. Most are not equipped to do so. The education process should begin today.
	Invest in the brand. Brand strength often translates into trust. Trust is an essential element of the proposed business model.

Summary

It is difficult to say in 3,000 words what should take 300,000.
Nonetheless, it is important to recognize that the time for this industry
to pursue dramatic change has come — not as a reaction to the competitive
landscape, but as a proactive maneuver to leverage its incomparable assets.

As Dean Singleton, vice chairman and chief executive of
MediaNews Group told attendees of the West Virginia Press Association convention
last month, "It's time to charge, not retreat.

"It is indeed a delicious irony that the oldest communications
medium is emerging as the most modern, most high-tech, and most successful."

Reproduced here from IDEAS Magazine, the publication of the International Newspaper Marketing Association (INMA), October 2002. Tom Ratkovich is the president and founder of ASTECH InterMedia. He can be reached at 303.296.9966 x111.
	© 2005 ASTECH InterMedia, Inc.