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The widely held view that most newspapers are struggling to build viable online solutions to confront competition from the internet was confirmed last month in a report sponsored by the European Commission (EC).

The report warns that newspaper circulation in many European countries is falling, readers are ageing and advertising revenues are dropping. Yet most papers have failed to find profitable online services "to counter the threat of online news services and erosion of advertising income", the report says.

Published by Publishing Market Watch, the analysis of the European Newspaper Market is part of a EC-sponsored project to develop intelligence about the publishing industry. The report was written by Rightscom, the UK-based media analysis consultancy, and the Turku School of Economics and Business Administration in Finland.

The report found that newspapers are now only just ahead of the internet in the battle for consumer attention. While 13 per cent of the time consumers devote to the media is spent reading newspapers, 10 per cent is now spent on the internet. The internet has already overtaken magazines in the 'media hours' league table. The television is still well out in front at 41 per cent.

Even though more 'media hours' are spent thumbing newsprint overall, consumers who have access to the internet spend more time online than they do reading newspapers. Eighty-one per cent of newspaper readers spend an hour or less each week reading their newspapers and 15 per cent spend between one and two hours. Fifty-five per cent of internet users spend up to one hour a week online and 25 per cent spend between one and two hours.

And online services are becoming even more attractive. Broadband internet access in many EU member countries is making the online experience easier, more attractive and cheaper. Consequently many commentators think more people will turn to online news services "as a substitute for newspaper purchases".

As the internet has eroded the newspaper audience, it has also challenged newsprint for a shrinking pool of advertising revenue. While display advertising has been slow to develop on the internet, the report says nearly all newspapers have recognised the growing competition for classified ads. Online advertising is forecast to grow faster than other forms of advertising and may reach €4.2 billion by 2006. At that level it would command around 15 per cent of all advertising revenue in some countries.

The report says that most newspapers have failed to build viable online sites. It adds that for the newspaper industry "the internet so far has been an interesting experiment that has mainly been seen as a cost centre rather than a profit centre". Although a web presence has become important, few papers have tried charging for access to content.

As newspapers have struggled, the internet has provided other organisations and private companies with a platform they can use to challenge newspapers. "Yahoo has recently been strengthening its in-house journalism team to include comment as well as pure news; this has traditionally been one of the key areas of differentiation for newspapers."

Several newspaper industry experts interviewed for the project identified the web presence of public sector broadcasters like the BBC as a key influence on the market. The report concludes: "Although they do not take advertising revenue directly from newspapers or their web sites, some in the newspaper industry are concerned that they will take sufficient audience to reduce newspapers' share of attention enough to damage advertising sales."

According to the authors, public service broadcasters "have considerable news-gathering resources and strong audience loyalty and branding. They have been able to develop their web presence using their general funds and do not have to show a return on investment."

The report offers a stark assessment of newspapers' efforts to exploit the internet: "It does not seem likely that newspapers will be able to transform their fortunes in the online market place - unless newspapers begin to innovate much more rapidly than they have in the past.

"Their main option seems to be to manage costs carefully in order to remain competitive in an era of falling revenues."

See also:
http://www.publishing-watch.org
http://www.rightscom.com
http://www.tukkk.fi

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