Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

You Can't Get There From Here - Why Andreessen Is Wrong

Posted by Tom Foremski - March 11, 2010


Marc Andreessen, the co-founder of Netscape, likes to give business advice to media companies. For a couple of years, he has been advising newspapers to completely abandon print. He said it again in a recent article. Alan Mutter, a former reporter, and successful media entrepreneur, writing on "Reflections of a Newsosaur" says the idea is "plain nutty."

Marc Andreessen had a really good idea when he invented the first popular browser for the web, but his latest notion – that newspapers should walk away from a business grossing more than $30 billion a year – is just plain nutty.

I agree. Newspapers can't abandon print when their online revenues are less than 5 percent of total revenues. Google's chief economist Hal Varian presented a bunch of dismal figures for the newspaper industry earlier this week.

GOOG's Chief Economist Hal Varian Has No Solution For Newspapers

The newspaper industry is stuck. Moving its business online involves extra costs in terms of needing staff with a variety of web skills, IT costs, etc. Yet the revenues don't match its cost of operations. And there's more...

I remember a conversation with a publisher of a very good IT print magazine. He told me he was thinking of stopping advertising on his web site. I was flabbergasted, how could you do that?

He said that he offered online advertising packages to his print advertisers. But when his advertisers looked at the poor click-through rates they assumed that their print advertising wasn't effective. So they would pull their print advertising. For the sake of a $600 monthly online ad package they were pulling $50,000 in print advertising.

This also works the other way. Online advertising rates lower than print but can be more effective. For some advertisers, a $600 ad buy can replace $50,000 in print advertising.

You can't get there from here.

It's a Yankee phrase that never made sense to me. But it makes perfect sense in defining the situation of the newspaper industry and its attempts to transition its business online.

There is no way that online news revenues can support the cost of operating newspaper newsrooms. Because the newspaper industry cannot give up print, it leaves the online field wide open to competitors, which have significant advantages:

- no legacy costs of business such as printing plants, unions, pension plans, office buildings, layers of admin.

- new competitors can build news businesses based on the dismal economics of the online world. For example, the extremely successful Huffington Post has fewer full time journalists than the New York Times has people moderating its reader's comments.

Newspapers are forced to watch smaller online competitors run off with the audience. You see that happening with the Gawker media network, and elsewhere too.

The situation is made even more horrible for newspapers because the rates for online ads continue to drop. Yet their costs of operations haven't dropped, they increase as they try to transition to online.

You can't get there from here.

- - -

Please see: Disruptive Technologies Disrupt


Story link | Subscribe free | Categories: A Top Story, MediaWatch




ForemskiInnovator.jpg

The Holmes Report names Tom Foremski one of the top 25 Innovators of 2013.




-->