The Upside of the Seattle Paper's End

Elaine Thompson / AP Photo If Hearst is right, they will prove that an online local-news operation can be a good business. Even if they fail at this attempt, we will learn from their efforts.

The Hearst Corp. announced today that it will be the first major media company to convert a metropolitan daily newspaper into a website, and end its run as a printed newspaper.

When Hearst follows through on its promise to shut down the Seattle Post-Intelligencer on Tuesday, it will shift to an online-only news business.

This dramatic shift could be the catalyst behind a new era in the news business. The single most important message sent by this action is that the news business has changed, and it may be possible to better serve an audience digitally than in print, and do it profitably.

Hearst says it can serve the Seattle audience with an editorial staff of around 20 people on its website, a fraction of the number it employs on the newspaper. Which 20 they pick will have a lot to do with the ultimate success of the online venture. They will need to capture the essence of what makes people read the PI, which will be a different mix than, say, the 20 most important employees to the newspaper.

This is what entrepreneurism is all about.

But the fact is, a website can take more advantage of everything else that happens on the web and link to content from outside sources, bloggers and other publicly available sources of information, like movie listings or little-league scores. Some things the paper did well can be provided on the web with little or no staff effort through links to outside sources.

The message is that Hearst executives believe they can produce the essence of what they do now—a local-news product, with a personality, that offers unique, high-quality content—with 20 journalists who both cover news and curate everything else on the internet to give their readers a package that gives them a sense of what is happening in their town.

The implications of this change are huge for the newspaper industry. If Hearst is right, they will prove that an online local-news operation can be a good business. Even if they fail at this attempt, we will learn from their efforts. This is what entrepreneurism is all about. What makes this experiment so important is two things: 1)It’s hard to find entrepreneurism at work in traditional companies and 2) We get to find out if a traditional media print-news brand has a competitive advantage in building an online-news business.

We will learn if the brand equity of a respected news organization will be able to accelerate a change in reading habits among those who haven’t already shifted from print to the web for their news.

There are certain aspects of the Seattle situation that make this move easier than it might be in other cities right now. Because the PI is in a joint operating agreement with the Seattle Times, the other local daily newspaper, Hearst does not have to close down a major printing operation completely, which would be costly. The Seattle Times, which is not owned by Hearst, will continue to publish as a newspaper. In recent years, it has performed all of the publishing functions for the PI.

So Hearst has a clear shot at trying this new business. The town will still have a printed newspaper from the Times, but the more than 100,000 people who got the PI each day will be sent to the Internet for their favorite columnists or writers. The newspaper world will be watching to see if the readers follow the writers.

The cost structure of this new business will be a fraction of its print ancestor. There won’t be any of those people who printed or delivered the paper, or who managed the pre-press process.

The revenue will also be a fraction of what they had in print. Internet advertising is not yet a mature business. Major advertisers don’t yet know how to advertise best on the web. While the public has shifted much of its time to web consumption, the advertising world has not shifted its spending to reach those people nearly as much.

Still, one of the main reasons the time is right to try this experiment is that print revenue is already dropping in a big way, causing many, if not most, metro dailies to lose money.One high-ranking executive of a major metropolitan daily told me that last week’s revenue was 45% below the same week a year earlier. To make matters worse, he also said that the largest advertiser, a major retailer, now was responsible for between 15 and 20 percent of all revenue at the paper, compared with less than 5 percent a couple of years ago. Based on what is happening in retailing, one can only speculate how worried that makes publishers.

Internet-based content businesses are considerably smaller than their existing print or broadcast ancestors, a fact that has made it difficult for major media companies to transform themselves into digital businesses. No one wants to preside over a strategy that argues that shrinking a company is the best way to survive. In the world of public companies, executives are loathe to suggest that reduced revenue is a good thing, even though the smaller businesses will soon be profitable and the large ones are seeing virtually all of their profits disappear.

The best and the brightest in the media industry will have to be willing to weather the pain of such shift, and still try to transition into businesses that have a future, even if they are smaller businesses today.

The media companies will be watching Seattle and the Hearst Corp. over the next few weeks, as should every journalist.

Larry Kramer is senior adviser at Polaris Venture Partners, a venture-capital firm. He served as the first president of CBS Digital Media. Prior to joining CBS, Kramer was chairman, CEO, and founder of MarketWatch Inc. Kramer spent more than 20 years as a reporter and editor at the San Francisco Examiner, the Washington Post, and the Times of Trenton.