Joshua Gans argues newspapers need to jettison their advertising sales departments if they want to survive:
Newspapers are completely out at sea, by Joshua Gans: The Pew Research Center released a new report today that brings together survey and other data on the plight of the newspapers. The data ... confirms what we already knew: digital ad revenue is not making up for the decline in traditional ad revenue but it is growing quickly and more so for newspapers with larger circulation. The sample size is too small to draw anything from the data though.
More interesting is how the newspapers are reacting to all this. The answer is: badly. They are experimenting with alternative business models ... but the story is one of internal resistance. ...
This is a very traditional story. What is interesting with the newspapers — as compared with Blockbuster, Circuit City and Kodak — is not how disrupted they are but how slowly change is occurring. Put simply, the fact that so many newspapers are still hanging on is a miracle. At the core of many are a group of consumers — both readers and advertisers — who are not jumping to digital platforms. This is enough to keep old print models afloat even if the tide of decline continues.
But the big issue is that no newspaper has grappled with the new digital reality: having an advertising sales department is obsolete. Traditionally, a newspaper’s sales department was the core of its business. It had relationships with local businesses and metrics to analyse performance. None of those capabilities matter in the digital world. Newspapers run around trying to sell ads — display ads mostly — for their online sites. But in that business, there are substitutes... That is a national and global market now. What is more, the role of matching ads to content is now done by computers rather than people. Hence, the newspapers that are going to survive are going to be the ones focusing purely on readers and outsourcing ad sales to broader networks. The Pew report does not even mention this as a possibility. Why? Because most firms have trouble outsourcing their previous revenue center. However, this blindspot is an illusion of past balance sheet specifications and managerial incentive provisions.