Newspapers and e-readers

THE world’s largest newspaper printing plant, owned by News Corporation, started production in March 2008. Based in Broxbourne, north of London, it is larger than 20 football fields and can produce 3.2 million newspapers every night.

Most of the national titles in the United Kingdom have purchased new presses in the past five years. Rupert Murdoch’s three plants in the UK cost about $A 917 million.

Assuming the cost of a printing press is amortised over 30 years, the money News Corp spent works out at about $A 30.5 million a year, not counting interest charges. On top of that we need to add the cost of newsprint, ink, and distribution.

By comparison, the cost of hosting a major web site that transfers a few hundred gigabytes of data a day is negligible. Distribution costs for online editions of newspapers are low by comparison. But online advertising has not yet reached a stage where it is possible to turn off the printing presses.

Distribution and printing account for at least 60 per cent of the cost of a daily newspaper in Australia. In the United States, it is 70 cents in the dollar. At a large American daily, only about 18 per cent of the total budget is spent on content.

Amazon CEO Jeff Bezos said the newspaper industry was under “significant distress”. “One of the big costs that they have is distribution and printing.” He was arguing that a device like his company’s Kindle could help remove those costs, and would change the economics of the newspaper business. Kindle is expected to be available in Australia this year.

The Kindle is an e-reader, a mobile device designed primarily for storing and displaying digital documents. The best-known e-readers in 2009 were the Amazon Kindle, the iRex iLiad and the Sony Reader. They are used mostly for reading books, but in America they also offer the content from daily newspapers without the advertisements. Other products are expected early in 2010. Rupert Murdoch was in South Korea in October talking to Samsung and LG about their manufacturing re-readers for him.

Newspapers could provide each of their readers who had subscribed for more than two years an e-reader as recognition of loyalty. The e-reader could become a status symbol. Readers could keep the device while they continue to subscribe. This would reduce distribution and printing costs, though managers would need to do the sums to calculate when this approach became financially viable.

A newspaper could negotiate a good price by buying e-readers in bulk. Analysts estimate it costs about $US 650 million a year to print and deliver The New York Times. In 2009 the company expected to pay $US 65 million just for newsprint. As of late 2009 about 830,000 people had subscribed to the paper for more than two years. To give an e-reader to each of those subscribers, at $400 per device, would cost the Times about $US 332 million.

These numbers are simplistic and it would still cost money to close down some printing presses and reduce the number of trucks used for distribution. Plus they still need to serve the other 170,000 people who make up the paper’s 1 million plus circulation.

Some people still want a printed newspaper, and advertisers like the permanency of print. Maybe those consumers will pay a premium for print. And for a media organization starting fresh, or looking for new business models, e-readers offer an option.

But the e-reader has issues that need to be resolved: Content is only available in black and white, which advertisers do not appreciate. The exceptions are Fujitsu’s FLEPia colour reader, which costs a hefty $US 1,000, and Samsung’s Papyrus. The latter is only available in Japan.

Depending on the device they buy, people will find themselves tied to one format that does not read other formats. It’s like buying a car that can only use one brand of petrol.

And e-reader suppliers take a huge cut from subscription fees. In America, Amazon is said to take 70 per cent of the revenues for delivering a newspaper’s content to the Kindle. For example, subscribers pay $US 14 a month to receive The New York Times on the Kindle, but the media house only gets $US 4.20 per subscription.

All e-readers have one major selling point: They are perceived as being greener than newsprint. Don Carli, senior research fellow with the Institute for Sustainable Communication, said that despite the fact that print was based on “comparatively benign and renewable materials” it had come to be seen as wasteful and environmentally destructive.

“The carbon cost of print will soon have to appear on the balance sheets of advertisers, publishers and retailers. It will also appear in the price tags of goods and services. As we exit the global recession we will simultaneously be transitioning to a low carbon global economy that will change the meaning and value of waste and inefficiency,” Carli said.

Almost all e-readers use e-ink, which simulates the look of ink on paper. The technology uses a layer of micro-capsules filled with sub-micrometre black and white particles that create a low-power, reflective screen. These particles form images on the screen like printed text.

For editorial managers, the key decision is when and whether to invest in the transition. Publishers would need to subsidise the cost of the digital devices or include those costs in the subscription the same way that phone companies build the cost of the mobile phone into the contract. Publishers would also face the task of convincing advertisers their products would still be seen.

The debate has only started, but will grow louder as the Kindle and other e-readers become available in Australia.

* Published in the Bulletin of PANPA, the Pacific Area Newspaper Publishers’ Association, December 2009

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