Digital Media and the Newspaper Industry: an Interview with Michael Fogel of Hearst

Michael Fogel, VP at Hearst Media

We recently met Michael Fogel, vice president of technology development at Hearst Newspapers. Hearst is a client of Affinity Express. Using our services to become more efficient and proactive is just one of the ways Hearst is adapting itself to the growing predominance of digital media and the decline in circulation and print ad revenues.

This blog post lays out Mr. Fogel’s views on the newspaper industry and explains how Hearst is riding the wave and leading the industry.

Digital Media Has Disrupted the Newspaper Industry

According to Mr. Fogel, the split in revenues for the newspaper industry used to be 80% advertising and 20% circulation. That was prior to double-digit declines in print revenues.

Not only have print revenues dropped dramatically, but newspapers are struggling to offer online services. Even as news publishers find ways to create and deliver digital products, margins on online services are lower and publishers need higher volumes to compensate.

How Hearst Uses Digital to Its Advantage

Unlike many of its counterparts, Hearst is surviving and even thriving in the digital world. The company was very close to realizing a year-over-year revenue gain in October. To Mr Fogel’s knowledge, no other news publisher can say this.

When faced with declining revenues, Hearst responded with a multi-pronged strategy that is working well. Hearst doubled, tripled and, in some cases, quadrupled circulation pricing. Consequently, circulation has become a larger percentage of the total, accounting for 30% of revenues while advertising represents about 70%. And Sunday home delivery circulation numbers are actually up.

Hearst also focused on new digital services that would be of value to its customers, developed products and trained its staff to deliver them.

Most of online revenues are still from display, whether Hearst sells directly or sells remnant space to ad networks. But the publisher is seeing growth in new services beyond display ads.

The Advantages Newspapers Still Have

Newspapers are competing in advertisers’ minds and wallets with companies like Google, Facebook and Groupon. There is overwhelming choice and small-business advertisers are struggling to keep up and get the most for their time and money.

Where Hearst and other news publishers have the advantage is their armies of salespeople who know the advertisers and their markets. For the busy owner of a cupcake shop, fielding calls from Google, Facebook and Groupon sales reps can get overwhelming. But Hearst encourages its salespeople to turn up at the customer’s doorstep to talk to and educate them.

So that cupcake store owner sees her familiar newspaper contact, who is now a Hearst digital media services (DMS) rep, and learns about a range of services in one package, at one affordable price.

New Product Development and Training

Hearst has been trying to stay relevant with advertisers is by going beyond display advertising to offer a complete range of digital services that small-business owners need. Hearst markets services like SEO and SEM, landing pages, email marketing, iPad ads, mobile marketing and geo-targeting. The company is also considering new services such as reputation management.

One challenge with offering new services is that newspapers should remain true to their core purpose of news and editorial and find ways to drive business while ensuring that they remain credible.

It is important to train sales reps and make sure they are in touch with the times. Hearst provided training and encouraged all print sales reps to adapt to the new dynamics. Unfortunately, not all rose to the occasion and that has been a major reason for turnover in recent years.

Digital Sales and Operations

For Hearst, the average order value per customer was $200 to $300 per month when they started offering digital services. This improved to a current average of $500 to $600 per month. With its expanded suite of digital services, Hearst hopes to soon reach $1,000 per advertiser.

The biggest challenge in building and selling a full suite of digital products has been behind the scenes with sales training and ad operations. Once the reps come back with orders, they are fulfilled by several vendors, and processes are often inefficient. Hearst has been working with vendors to increase efficiencies and helping salespeople spend more time selling. This is an area that is ripe for standardization, consolidation and outsourcing.

At Hearst, DMS sales reps sell packages of online services. If customers are interested in additional print advertising, a  traditional print salesperson accompanies the DMS reps. Each group of salespeople has a different commission plan but are both incented on new business. Existing advertiser accounts are handled by reps that can sell traditional and digital services. Overall, the sales organization is close to  the point where every rep sells all services.

Distributing Content

Mr. Fogel believes that tablets will change publishing tremendously. Most publishers pay  Apple a standard 30% to distribute content on the iPad, which is actually cheaper than printing and distributing newspapers. This is a striking example of the way the emergence of digital media is as much an opportunity as a crisis.

Even more important, electronic delivery is emerging as the way readers want to receive their content. In one market, Hearst charges $59.99 for Sunday delivery and seven-day iPad access. Hearst is setting the tone with readers. At the same time, the company has unique content that is delivered only on iPads, providing added value for those subscribers.

Hearst has not instituted pay walls yet on any of its newspapers, but management is considering introducing a metered model. Given the success the New York Times has had with its pay wall, this seems to be something many newspapers will consider and perhaps implement over the next couple of years.

The Future of Newspapers in a Digital World

Mr. Fogel says, “The newspaper industry moves too slowly and seems to be waiting for print to come back. But classifieds are not coming back. Publishers need to get on the boat instead of standing on shore and watching the money float away. They have to go beyond print and display ads to provide greater value to advertisers.”

He predicts digital sales revenues will not entirely backfill losses in print revenues. That’s why Hearst has been working hard on reducing costs as well as expanding revenue sources. Fortunately, increases in digital revenue combined with cost savings and outsourcing of various functions has helped put the brakes on a slide in revenue and open up new business potential.

The biggest competitors for local SMB advertising dollars used to be the local yellow pages, which were declining faster than newspapers and had to react quickly and aggressively to transform. Now local directories are providing similar digital services to advertisers. They target all the local businesses and have large sales teams.

Publishers are losing out on their share-of-wallet for customers’ advertising dollars. Not only are newspapers competing with companies outside their industry but, since you don’t have to have a newspaper to sell digital services, geographical boundaries are disappearing and publishers in different locations are competing against each other. This means, in the next couple of years, there is going to be a land grab to be the most trusted, reliable and comprehensive provider to SMBs. Hearst is ahead of the pack and well-positioned to seize the opportunity.

About Kelly Glass
Kelly has been vice president of Marketing at Affinity Express for nine years now. She drives company strategy and all marketing activities.

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