Newspapers are increasingly looking at diversification. Good. But the important question is why has it taken 100 years to get there?

I'm not offering a lecture in "I told-you-so!" or providing armchair quarterback analysis. But for the record, I've been arguing this point for 20 years.

Now that structural change has affected the newspaper industry as much as the Great Recession, it is well past the time to find a new business model.

This is no longer the motto du jour. It's time to find a whole new business: one that protects and nurtures. Rather than being the only asset, diversification is the route forward. And newspapers have plenty going for them with this strategy.

As the traditional newspaper product fragments, we are going to see classified and other advertising verticals migrate into specific branded digital services. Newspapers were slow to realize this trend, but are now, encouragingly, recovering their position. Well-strategized newspaper companies should now be able to look forward to reclaiming some of the cash, and profits, they enjoyed from their previous classified operations.

What works

So what NPD, or new product development, options exist? Where are the best examples?

In Norway, my favorite newspaper company, Schibsted, is aggressively expanding. Originally a family trust, the company is now publicly traded, but with the provision that the family retains a golden share that guarantees editorial integrity and excellence.

The result? An extraordinary, diversified media group, with newspapers at its heart, and interests in a range of classified services, magazines, TV and software. Norway is the most successful newspaper market in the world, and Schibsted is by far its most dominant player. Intriguingly, 50 percent of its profits come from its digital operations.

In Denmark, another newspaper publisher, JP/Politikens, has successfully ventured into book publishing and even branded clothing.

London's Daily Mail Group, perhaps the most successful newspaper publisher in Europe, today draws only half its revenues from newspapers. The other half comes from financial services products, radio interests in Australia and money it collects as one of the world's largest event organization companies.

Broaden scope

I've argued for a long time that newspapers should be moving into below-the-line, or BTL, marketing. The strategy fits very strongly with the core business, and in fact has grown from 30 percent to 70 percent of total

communications expenditures in the last 20 years -

a pace that eclipses the growth of the Internet.

And who's one of the beneficiaries? None other than the newspaper industry's master wizard, Rupert Murdoch. While his BTL division only generates 3 percent of News Corp.'s revenues, it accounts for 9 percent of its profits, with a margin in excess of 30 percent.

Other examples are The Washington Post and Financial Times owner Pearson, each of which has made a successful transition into educational publishing.

As well as BTL opportunities, other obvious areas for development are locational and contextual marketing, thus exploiting newspapers' traditional strengths.

Here's another approach, one followed by The U.K.'s Guardian and The Irish Times.

As I wrote recently, The Scott Trust exists to guarantee the future existence of The Guardian. The group has moved into radio, magazines, digital activities and data services even as it sold its under-performing regional newspapers and reviewed the future of its money-losing Sunday paper.

The Irish Times operates in a similar structure and it, too, is seeking to expand its activities in order to protect its core asset.

Commitment to core product

The idea that newspaper companies could be owned by larger entities, dedicated to distributing profits to supporting quality news, is a very attractive option to me.

But it requires two realizations. First, trusts can be dedicated to encouraging quality news and journalism; greedy shareholders cannot. Secondly, this process does not necessarily guarantee effectiveness and efficiency. The Guardian and Irish Times are both world-class newspapers. But in the case of the Guardian, it employs an implausible number of journalists for its size. Meantime, The Irish Times was almost brought to its knees before Managing Director Maeve Donovan was able to bring it back from the brink.

Recently, there has been talk on Capitol Hill and the U.K. parliament to provide subsidies to newspaper companies. This is a common practice in many European countries. But this type of financial support would be utterly pointless in the greedy shareholder regime. It may be possible to provide tax breaks for news publishers, but that type of relief would have to be squeaky-clean.

The best solution is not government assistance. Instead, newspaper owners must realize that news is a cherished asset that can be converted into an alternative capital generator.

The key lesson from the last 20 years is that debt must only be used to fund real growth, by which I mean top-line rather than bottom-line. It can no

longer be used to fund acquisitions that are later

offset by cost reduction rather than customer

expansion.

The industry's recent performance, distorted as it might be by the world's economic malaise, does offer this lesson. The last time I looked, in the United Kingdom at least, a direct correlation exists between a newspaper's profitability and circulation decline.

In other words, the more profits, the faster rate of attrition. The Internet is not the cavalry coming any time soon. We have to think NPD.

Jim Chisholm is a France-based independent media consultant. He can be reached at jim@jimchisholm.net.

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