Digital News and The Washington Post

Print newspapers are dying. So why is Amazon CEO Jeff Bezos investing millions in the Washington Post?

The Problem

The print newspaper business has been in an uninterrupted decline for the past 26 years. Last year circulation of U.S. dailies dropped 7%, and advertising revenues dropped 8%.2 Even the most prestigious institutions are hurting. Between 2013 and 2015 the Wall Street Journal lost 400,000 print subscribers while the New York Times lost 200,000.3

Digital to the Rescue?

Initially online readership sounded like opportunity. Reductions in materials, production, and delivery costs could only increase profitability, right? Unfortunately, no. Low marginal costs and competition for online readers quickly resulted in a race to the bottom. Pressured by an economic recession and rising cable and internet costs budget-conscious consumers gladly switched to free online news sources, but proved unwilling to pay for online content.

As consumers moved online declining print subscriptions create a death spiral for editors: reduced subscription numbers led to decreased subscription and advertising revenue, necessitating budget cuts and eventually a reduction in the journalism offered. While newspapers were busy dealing with the print subscription crisis, Craigslist exploded in popularity and another 40% of advertising revenues made an abrupt exit.3

What about online ads?

Despite optimism about the potential for sales of targeted online advertisements that revenue stream has yet to really pan out. Although the share of digital advertising is growing, total advertising revenues have been declining by almost 10% a year since 2007.1

Enter Jeff Bezos

In a collapsing industry one man apparently sees opportunity. In October 2013 Amazon CEO Jeff Bezos purchased The Washington Post for $250 million4, and in typical Bezos fashion began pouring investment into the company’s future. His strategic plan has consisted of three simultaneous lines of effort:

  1. The Newsroom

Total newsroom staff is up from 600 to 700 (second only to The New York Times), with reports of up to 50 additional full time hires.4,5  For context, that is roughly 26 times as many reporters as the average U.S. daily.2

  1. Digital Delivery Technology

Amazon’s influence in the Post’s new content delivery technology is obvious. Upgraded content hosting platforms deliver pages faster, while finely tuned recommendation engines keep readers online longer by tracking interests and suggesting other relevant content.5 To do this the Post’s technology team created a platform known as “Arc” that “Learn[s] rapidly about news readers in the same way Amazon has learned about buyers of goods.”4 The real genius? The Washington Post offers Arc to competitors for free: other newspapers get valuable data on their reader’s preferences, and the Post gets reader data across the entire industry.  

  1. Strategic Growth

The Post is a privately held company, but declining print circulation and free access to a remarkable number of ad-free articles online makes strong profit margins are hard to imagine.3,6  Instead, the Washington Post has elected to pursue growth. According to general manager Steve Hills: “Growth is the fundamental goal.”5

A huge part of the growth strategy revolves around offering free content. To introduce The Washington Post to new readers Hills has created industry partnerships that provide the Post’s online content to readers of over 300 local newspapers for free. Local newspapers get an additional perk to offer subscribers, and the Post directs a wider audience of news junkies to its website.5 I assume the free articles appearing in my Apple News feed serve the same purpose.

So what is the long game?

There are two distinct routes to [increased?] profitability that could explain the current strategy of providing so much free content. The first closely replicates the Amazon Prime business model. You start by offering a convenient service at a price people cannot resist. Over time the subscriber base grows and becomes dependent on your platform. A growing readership allows the cost of producing articles to be spread over an increasingly cost-efficient number of readers. Once appropriate thresholds of readership and dependence are reached the Post could conceivably charge a very modest sum, keep the majority of readers, and start to make a profit.

The other option is to keep the content free forever, gradually build reader profiles based on the articles they choose, and sell that information to other companies. Although consumer information gleaned from readership preferences is probably less valuable than the information contained in your free mail account, there are over 1 billion English speaking newspaper readers in the world and knowing what interests 200 million of them is probably worth something.

One objective has certainly been achieved. In 2015 the Washington Post overtook the New York Times in total online readers. The last publicly reported figures claimed 76 million individual visitors in December of 2015.4 In describing his business philosophy Jeff Bezos offers a clue to the future: “There are two kinds of companies: those that try to charge more and those that work to charge less. We will be the second.”7 

795 words

 

Sources:

  1. Pew Project for Excellence in Journalism, Pew Research Center. “State of the News Media 2004.” Accessed 15 Nov 2016. http://www.stateofthemedia.org/2004/newspapers-intro/audience/
  2. Barthel, Michael. “Newspapers: Fact Sheet.” Pew Research Center for Journalism and Media. Published 15 June 2016. Accessed 14 Nov 2016. http://www.journalism.org/2016/06/15/newspapers-fact-sheet/#more-data
  3. Kennedy, Dan. “Print Is Dying, Digital Is No Savior: The Long, Ugly Decline of The Newspaper Business Continues Apace.” WGBH News. Published 26 Jan 2016. Accessed 16 Nov 2016. http://news.wgbh.org/2016/01/26/local-news/print-dying-digital-no-savior-long-ugly-decline-newspaper-business-continues
  4. Lever, Rob. “Bezos Transforms Washington Post in Digital Age.” Physics.com. Published 30 Jan 2016. Accessed 16 Nov 2016. http://phys.org/news/2016-01-bezos-washington-digital-age.html
  5. Doctor, Ken. “Is The Washington Post Closing in on the New York Times?” Politico Media. Published 6 Aug 2015. Accessed 15 Nov 2016. http://www.politico.com/media/story/2015/08/is-the-washington-post-closing-in-on-the-times-004045
  6. capitolcommunicator. “Washington Post Circulation Drops 37% since 2009.” Published 4 Oct 2015. Accessed 15 Nov 2016. http://www.capitolcommunicator.com/washington-post-circulation-drops-37-percent-since-2009-states-dcrtv/
  7. Anders, George. “Jeff Bezos’s Top 10 Leadership Lessons.” Forbes. Published 4 April 2012. Accessed 17 Nov 2016. http://www.forbes.com/sites/georgeanders/2012/04/04/bezos-tips/#4f0a1d347947

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15 thoughts on “Digital News and The Washington Post

  1. It was very interesting to hear about the synergies that Amazon (large retailer) and Washington Post were able to have, it’s not something you’d intuitively think about. That seems to be part of the online world though – no matter how different online businesses may be, the fact that they’re “online” automatically means that things like knowing customer preferences, etc., as described in this article, are important to the success of the business, and are valuable to other online businesses. One thought I had about The Washington Post’s potential strategies for increasing profitability, is that users might respond negatively to their data being sold to other companies, and might feel it’s a violation of their privacy. As you pointed out though, this is already happening to some extent with email use.

  2. This was really interesting. I didn’t know that WP had caught up and surpassed NYT in terms of online readership. The Arc platform seems to be an interesting application of something that worked well for Amazon but I worry a bit about following that train of thought to its logical end. Amazon succeeds when it knows consumer’s interests because that knowledge lets it cut costs, reduce inventory that isn’t likely to sell and market more efficiently. Applying that to WP certainly yields the same benefits but may come at a public cost. In an age where the media is under fire for its coverage of the recent presidential election and other alt-news providers like Facebook and Google struggle to combat fake news and break users out of self-reinforcing information bubbles, one could argue that it is more important than ever to have WP reporting things that may not be high on one’s list of interests but are important. If WP continues down this route, will it one day only provide and promote online articles about sports and entertainment? Most people don’t list long-form investigative reports as one of their top interests, yet those exposes (like the WP’s Whitewater revelations) have long shaped public discussion, the public consciousness and elections.

    1. TK, thanks for the response. It’s an interesting philosophical debate isn’t it? Who is responsible for ensuring that the news we consume offers a fair and balanced perspective: the reader, or the reporter/editor? Personally, I’m on Team Personal Responsibility here. Most media outlets are ultimately for-profit businesses, and it seems unfair to criticize them for supplying a perfectly legal product that their consumers demand. But I also sympathize with Ty’s comment below. In an increasingly complicated world it’s hard to be as informed as we should be.

  3. Interesting insight! In this case, the digital transformation appears to deal more with how Amazon and the Washington Post are using reader’s data rather than actually transforming the content of the newspaper as I initially expected. I appreciate that Jeff Bezos’ goal is to ultimately charge readers less, but I’m concerned this strategy is simply creating a customized Facebook feed to replace a newspaper. I’m curious, do Jeff and the team truly believe newspapers can be transformed beyond moving online and to our phones? Do they have a vested interest in journalism or simply learning more about their Amazon customers through a different avenue?

    1. I had a similar reaction, Paige. More and more advertising and journalism seem to be converging. This past election cycle highlighted the lack of integrity in news reporting on Facebook and other social media outlets. I wonder how invested Amazon is in protecting the integrity of journalism in our country vs. building a population of listeners for Amazon media.

      1. Thanks for the comment. Your point about the convergence of advertising and journalism is well taken. A search of the Washington Post website turns up 1,411 different articles in the last 12 months that mention “Amazon.” Some simply include a mention of the company, but others are a pretty shameless plug for it’s products (search “Amazon Fire” for example).

      2. Really interesting post and comments – I share a similar concern, CF. It is becoming increasingly apparent that our “personalized” news feeds are presenting us with content that is very similar to what we usually consume. Consequently, in order to broaden our knowledge and perspectives, we have to go searching for content that is “unpersonalized” to our usual media consumption. Recently, I have tried to do this more regularly but truth be told, I often very quickly slide back to “personalized” content as I quickly skim fast news in between and around our busy schedules.

  4. Terrific topic as I am faced with the decision to renew annual subscriptions each year at Christmas! I am fascinated by the $250 mil valuation that Bezos paid for the WP – what were his assumptions and considerations regarding cash flows for the news industry. At one point, I thought that talent might be a real big consideration for any newspaper. To retain the finest editors and established columnists, you would have to pay them well, as popular journalists help retain paying costumers. I wonder whether talent was a consideration for Bezos and the future of the WP. Ultimately though, it was fascinating to read the perspective that Bezos could be applying an Amazon Prime model to newspapers, and it will be interesting to see the evolution of the news industry in the upcoming years.

  5. Great post! I love this industry, and think it’s really, really hard. Let me push back about a few points here from the comments section:

    As I read it, you guys had two main concerns about the Post under Bezos:
    1. The Post might be more of a stalking horse for Amazon–a way to gather data.
    2. The Post under Bezos won’t be objective, favoring Amazon.

    I think I disagree with both arguments–I’m a lot less cynical here.

    1. If you look at the scale of data and customers that Amazon has vs the Washington Post, it seems like a really unlikely theory. Is there any chance that buying a newspaper is the best way to acquire customer data? Amazon has the best data already, and can buy more from service providers who do just that.

    Additionally, the Washington Post is not part of “Amazon”–it’s owned directly by Bezos. The businesses are run separately, with very little overlap of staff or strategies.

    2. The checks and balances within newspapers are extremely robust. At the Washington Post, Marty Baron is an extremely strong editor who came into the Post with decades of experience (he’s the main editor from the movie Spotlight). The business side–Bezos and the revenue people–have almost no ability to influence even the tone of coverage, and can never influence journalists about how they cover specific groups, like Amazon. I know this is hard to believe (we’re right to be critical and a bit cynical!) but I truly believe this is how it works.

    Some of these concerns are widely shared (in particular by Trump, who has been making similar arguments all year); I’d be cautious, though, about taking those arguments at face value.

    Unfortunately, these arguments solve the business problems not at all! One thing I’d add here, NC; digital subscriptions is a huge revenue lines for them that are growing quickly. Much of their “Free” strategy that you employ is really more like “freemium”, offering some content free to grow the front-end of the funnel and improve conversion to paid products.

    Spencer

    1. Spencer, thanks for the insightful response.

      I’m not as convinced as you are that The Washington Post is totally separate from Amazon. I would hope that it is, and I have great respect for Marty Baron, but I’m cautiously skeptical. I can’t claim to have read everything that the Post has ever published, but I did recently read about a dozen articles on Amazon or Amazon products and all seemed glowingly positive. Maybe that’s because Amazon is a great company with great products, but the conflict of interest is hard to miss. It’s also worth noting that Amazon doubled it lobbying spending in 2015 to $9.4M (https://www.washingtonpost.com/news/the-switch/wp/2016/02/05/why-amazon-is-doubling-down-on-lobbying/). To a company that certainly seems to recognize the value of making friends in Washington, the value of having Washington’s most widely-read paper on your side seems pretty obvious. Of course none of that means that the Post is biased (I personally think it offers some of the most thorough and objective journalism out there), but a healthy does of skepticism is rarely harmful.

      With regard to your point about the current Freemium pricing model and “huge revenue lines” from digital subscriptions, I couldn’t find any data from a reputable source to support that. The Post is notoriously tight-lipped about its financials. We know a little about circulation numbers because they are required to disclose that information to potential advertisers, but that’s about all I could find. If you have more info I’d love to see it.

      1. NC,

        To your first point–I totally agree that there’s conflict here. That’s not a real concern if we’re talking about positive reviews of the Kindle Fire, but, as you point out, Amazon is more and more involved in public policy, and that’s certainly an issue. I don’t think we should underestimate the fiercely independent newsroom cultures, though, and the difficulty Bezos would have in directly influencing coverage of Amazon, even if he wanted to.

        On subscriptions–here’s an article about the Post’s focus on digital subscriptions (light on hard numbers, but it indicates that subscription revenue is a big part of their strategy):
        http://digiday.com/publishers/washington-post-grew-digital-subscriptions-145-percent/

        The NYT likely has a similar model, and we can see their numbers since they’re public. It looks like their digital-only subs revenue is still pretty small–but is growing fast.
        http://www.nytimes.com/2016/07/29/business/media/new-york-times-co-q2-earnings.html

        Those absolute numbers are smaller than I’d expected, but I definitely think they’re onto the same issues with advertising that you mention–and are hoping digital subs can make up some of the difference.

        Spence

  6. How has the Washington Post been able to overtake The New York Times in terms of readership? Is it simply the Freemium model or does it have something to do with the content (maybe due to the increased news room staff)? I understand they are pursuing growth over profitability (seems to be the Amazon way) but I am just a bit skeptical of their plan for actually doing that.

    1. CAN, this is purely anecdotal and speculative on my part, but as a frequent (non-paying) reader of both the WP and the NYT I find the WP to offer a greater variety and quantity of free articles. That probably has something to do with WP winning the online reader battle. I also think they do a better job of suggesting articles based on the readers interest (again, my experience only).

      Although the WP newsroom is growing they are still behind the NYT in sheer quantity of reporters, ~700 to ~1300.

  7. Great read! I was quite baffled when I heard of Jeff Bezos’s acquisition of The Washington Post. But as you pointed out, building a large reader base, getting them hooked onto free digital subscriptions and then charging a small fee in the future may make the entire venture hugely profitable. In order to do so, the Post would (and it seems they are) have to keep improving the quality of content provided, striving to become the undisputed leader in this space. Only then will customers continue reading the free articles available in the Post, in a sustainable manner.

    I also believe there is a conflict of interest in this case, as has been pointed out by others. While there are PR benefits, I think there is limited upside for Amazon. Its services have revolutionized e-commerce globally and customers see Amazon for the high quality of products and services it offers.

    Also, there could be serious privacy concerns if the plan is to share subscriber data with other organizations in the future. I would be curious to know your thoughts on this. Is this a legitimate concern? Do you think any potential backlash by subscribers will make the Post drop such a plan?

  8. Super interesting topic! Let me point also to the fact that the Washington Post just few years prior to the sales to Bezos was worth a few billions of dollars. Unfortunately, it seems that as that was a family business, it was dificcult for the new generation to recognize failure in turning the business around, and timely sell the shringking assets. Some argue that the family was waiting to find a proper buyer, who would sustain the good name and practices of the company, but I personally think it was the family mistake. Finally, let me also say that some newspapers have successfuly transformed their activities to digital needs of users. The Atlantic seem to be one good example, in which the paper business became just an addition to the online edition. Most important was for them to timley recognize the incoming digital disruption.

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