The tech gadget of the moment, this moment anyway, is Amazon's new wireless electronic book-reader, Kindle. The wireless device can deliver any one of more than 88,000 books, including bestsellers, which Amazon sells for under $10 each. The text appears on Kindle with the same crisp clarity as print on paper, and the battery that runs the device will go a week before it needs a two-hour recharge. Amazon hopes Kindle will tear up the book business just like iPod tore up the music business.
But there is another business, newspapers, that ought to be closely following Amazon's bet on Kindle. Newspaper owners these days routinely issue gloom-and-doom financial forecasts, usually accompanied by announcements of layoffs and other cost-cutting measures. Draconian steps are necessary, they declare sadly, because newspaper revenues keep falling.
In these scenarios the Internet is usually portrayed as the villain, siphoning off print readers and ad money, but not adding online revenue fast enough to make up the difference. Last year, the Project for Excellence in Journalism, a Washington, D.C.-based research group, estimated that if online ad revenue kept growing at 33 percent annually, it would still take a decade to break even with much larger print-ad revenues, which were growing at 4 percent.
In fact, during the most recent quarter, newspapers' online revenue rose only 21 percent, year-over-year, and print ad revenue dropped by nine percent. By such metrics, the continuing gap between online and print revenue appears to make the Internet a poor bet to replace print any time soon.
Or maybe not.
What the Project for Excellence study, and others, ignore is the potential impact of Kindle and its kin on newspaper economics. Success for Amazon's device would validate Kindle's key technology, known as E Ink. In May, Crosscut wrote about Hearst Corp.'s plans to test-market a wireless online newspaper within the next two years, using E Ink technology. But unlike Kindle's small, hardback reader, Hearst plans to employ the technology on a flexible screen almost as big as a tabloid paper. The e-paper can be updated by simply touching the screen. Hearst, owner of the Seattle Post-Intelligencer, is an investor in E Ink, along with Seattle Times minority owner McClatchy, Intel, and Motorola.
Essentially, both devices are new delivery systems for old content. What Amazon expects Kindle to do for book publishing – eliminate production and distribution costs – is the same goal Hearst has for its E Ink newspaper venture. The E Ink technology, says James McQuivey, a newspaper technology analyst for Forrester Research, "is probably the single largest display innovation of this decade."
Sounds cool, but what about that online revenue gap? How much would a newspaper need to cut expenses to switch from dead-tree print to an e-paper? Individual papers guard their finances jealously, so Crosscut asked two newspaper trade groups, the Inland Press Association and International Newspaper Financial Executives (INFE), for some help. Using averages from their annual National Cost and Revenue Study, a widely used industry benchmark, we created a hypothetical paper, which we'll call the Bugle-Interrogator. Our paper is a composite of data collected last year from a dozen real papers, each with about 100,000 circulation. (For comparison, the Seattle Post-Intelligencer's circulation is about 128,000.) Our B-I employs 530 full-time workers–about average, according to Inland/INFE – including 130 in the newsroom.
Here's a quick-and-dirty breakdown of the B-I's finances for 2006, using Inland/INFE's averages:
- Printing expenses: $6.7 million
- Circulation expense: $10.1 million
- Ink and newsprint: $10.4 million
- Newsroom expense: $9.9 million
- Advertising expense: $7.3 million
- Building, General and Administrative (G&A): $27.6 million
- Total annual expenses: $72.1 million
- Total annual newspaper revenue: $83.9 million (includes $15.8 million in paid-circulation revenue and $3.9 million in online ad revenue)
Two things jump out from these figures. First, our B-I turned a profit of nearly 10 percent last year. The trend is down, to be sure, but most businesses wouldn't sneeze at that profit margin.
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