As newspapers and magazines grapple with shrinking readership and revenues, Tuck School of Business marketing professor Praveen Kopalle has found that print media outlets struggling to survive in the new world of online media have overlooked a crucial element of their product: advertisements. These media companies should target advertising to their readers so that both readers and advertisers will benefit, Kopalle said.
The media industry has been searching for ways to translate its products to a technology-driven world characterized by a 24-hour news cycle, social media and falling print circulation, according to Kopalle.
"What struck me about the publishing world is that it's a platform that caters to the readers and the advertisers," Kopalle said. "It's what you call a two-sided market."
Falling readership and declining advertising revenues have been a particular challenge for media companies. To combat this, some companies have experimented with paywalls, features of their websites that ask users to pay for online content. However, Kopalle noted that this is only one of the potential income sources for a newspaper.
"You have two revenue streams, from the readers and from the advertisers," Kopalle said. "A paywall allows you to get revenue from the reader."
Readers, though, are increasingly accustomed to getting their news for free and will not pay when they can simply read their news elsewhere for no charge. In addition, when a company charges higher prices, fewer people are to willing to pay due to a "downward sloping demand curve," he said.
Instead, the industry would do well to reexamine the nature of the advertisements it presents to its readers, according to Kopalle.
"You have to make sure the advertising is also valuable for them," he said. "The way the online publishing industry can make advertising more successful is by making the ads a part of the story." Advertising is often only valuable to the advertisers, but in cases in which the readers are genuinely interested in the advertisements, it can be valuable for the readers as well. This has been done most seamlessly in lifestyle-oriented publications such as Vogue, GQ and Golf Digest with highly targeted advertisements that are "trying to tell readers what their lifestyle should be," Kopalle said.
Web companies have done this particularly well, and could provide a model for traditionally print-based companies to follow, he said.
"What comes to mind is what Facebook does by having sponsored stories," Kopalle said. "That's also what Google is trying to do with placing advertisements next to their search results."
While using this type of advertising technique would be beneficial to revenues, there is no traditionally print media company that currently has such targeted advertising, according to Kopalle. However, the switch to online journalism provides an opportunity for publications to learn about their readers and target their advertisements to them.
"The beauty of online newspapers compared to physical newspapers is that you know exactly who is using it and what it is that they're reading," he said. "It's something the online newspaper world needs to think about quite seriously."
Other Tuck professors noted the modern relevance and applicability of Kopalle's research.
"Clearly, the whole business model for the media industry is shifting dramatically," Hans Brechbuhl, director of the Center for Digital Strategies and an adjunct business administration professor, said. "It will be trial and error to some degree, but I think [Kopalle]'s research can help inform the process."
Marketing professor Kevin Keller agreed that having a paywall to charge readers for content cannot be the only change that companies make to increase revenue.
"The point [Kopalle] makes, which is a really good point, is that it's tough when you've given something away for free to get people to start paying for it," Keller said. "It's interesting how they're trying to find the right formula."
However, while newspapers are a "pretty much an ad-driven business," any new model must be multifaceted, according to Jason Klein '82, former president and CEO of the Newspaper National Network, a company that works with advertisers to place their advertisements in national newspapers. While online advertising is important, even the most successful newspapers will not be able to replace the profits they once made from print advertising.
"People talk about trading print dollars for digital dimes, and it's become a bit of a cliche, but it's certainly true," Klein said.
To cope with this loss, newspapers would do well to invest in mobile and tablet technology and continue to integrate their print product with the internet.
"I think the industry is still pretty viable," Klein said. "I don't think they're going be gone anytime soon."
