Fairfax paper cuts are going to hurt

A few days after negotiations between Fairfax and News Corporation over shared print facilities in Melbourne and Sydney, Fairfax chief executive Greg Hywood revealed Fairfax was cutting back on the newspapers you pick up at newsagents and investing the money in digital. He could be turning dollars into cents.

Right around the world, digital ad revenues aren't making up for the decline in traditional ad revenues. It was, as Mark Day wrote in The Australian, a courageous move – in the Sir Humphrey sense. There's no evidence the relaunch will halt the disastrous decline in print.

With the digitisation of everything that can't be nailed down, newspaper chains like Fairfax are the canaries in the coal mine for other industries facing similar challenges, from book shops and publishing to health care, industries where barriers to entry are low and where information is the main product. The trend to digitisation will accelerate with 'Generation C', people born from 1990 on who expect to be constantly connected through every possible device now entering the workforce, and with costs of computing and technology equipment dropping.

That will highlight the fundamental management tensions confronting all sectors undergoing disruption – the conflict between those who want to go faster and those who want to slow things down.

Executives and managers of all industries will have to ask questions. Like for example, how digitisation will affect their business models, whether it opens the door for new players and the best ways to counter that and whether it opens new opportunities, both inside and outside the industry. The smarter ones will ask about ways they can use it to become the number one player in their sector. Getting the two camps inside their organisation – the ones embracing digitisation and the ones sticking to legacy systems – to agree on the answers is the big challenge.

Perhaps that's why the newspaper industry failed to ask these questions. It goes to those tensions inside their management ranks.

The evidence so far suggests that newspapers, like Borders, Blockbuster and Kodak, have been slow to react to the changes. A study released last week by the Pew Research Centre in the United States found that digitisation is burning money. Newspapers lost $10 in print advertising revenue last year for every $1 they gained online. Pew found that five technology companies — Google, Microsoft, Yahoo, AOL and Facebook — now account for a whopping 68 per cent of all online ad revenue. Newspapers aren't even in the ball park and are losing ground to tech intermediaries like Google, Facebook, Amazon and Apple with smart phones, tablet computers and social networks. Still, technology is giving people links to news outlets so the old models will not completely disappear – particularly when there are some readers who are not jumping across to digital.

They are still part of the ecosystem. But they won't be as powerful, as large and as profitable.

The problem for newspapers is that the firms behind those technologies, especially Google and Facebook, are in a stronger position to make money from news stories than the companies that gather the information because of their ability to collect personal data about consumers and create highly targeted advertising.

The report says: "Two trends in the last year overlap and reinforce the sense that the gap between the news and technology industries is widening. First, the explosion of new mobile platforms and social media channels represents another layer of technology with which news organisations must keep pace. Second, in the last year a small number of technology giants began rapidly moving to consolidate their power by becoming makers of 'everything' in our digital lives. Google, Amazon, Facebook, Apple and a few others are manoeuvring to make the hardware people use, the operating systems that run those devices, the browsers on which people navigate, the e-mail services on which they communicate, the social networks on which they share and the web platforms on which they shop and play. And all of this will provide these companies with detailed personal data about each consumer.”

Newspapers aren't about to die. But they will change. Who knows, technology companies might even buy legacy media properties, like magazines and newspapers, to boost their content. Indeed, Facebook is heading in that direction, recently adding an Interest List feature encouraging users to subscribe to grouped interests, like for example, tech news sites that will appear in their news feed. In effect, it is one step to turning Facebook into a personalised newspaper. Aggregator services like Flipboard and Engadget are becoming key news sources.

The tech industry is setting the agenda. British network ITV last week launched a new site as a live news stream with Twitter-like minute by minute updates on news stories, limited to two paragraphs or shorter.

All this will change newspapers and news. People will get their news from all over the place, not all of it reliable.

If they are to survive, newspapers will have to do what Kodak failed to do: break their business models. For example, they will need to reshape advertising sales departments that have relied on relationships with businesses and metrics that now count for naught in the digital universe where consumers are more wide-ranging in tastes and demanding of their standards. And they will need to engage better with readers. If they succeed, they could become profitable little businesses, the key word being little, staffed by only a handful of reporters.

The Economist argues that the future of news lies in the media returning to where it was 300 years ago when news travelled by word of mouth and circulated in taverns and coffee houses in the form of pamphlets and newsletters. With the Internet now making news more social, participatory, diverse and partisan, The Economist says the coffee house is back.

But making the jump won't be easy. In every organisation, from media to retailers like David Jones, Myer and Harvey Norman, the biggest challenge always comes down to the tension between those who advocate a more aggressive approach and those aligned with legacy traditions, those who want to go fast and those who want to slow down because the digital model is not paying bills, and doesn't look like it ever will.

It is typical of all industries undergoing disruptive change. Kodak stands out as the great example. But then, Kodak is also a warning of what will happen if there's no change to the business model.