The OC Register’s Big Bet

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by Michael Shepherd, President & CEO

Southern California has become a testing ground for one of the boldest publishing experiments in the last 25 years. Can a once proud newspaper regain the form – and, from an investor perspective, the profitability – it enjoyed before the industry started its long, seemingly irreversible circulation and revenue decline?

The publication: Santa Ana-based Orange County Register, a more than-century-old, privately held newspaper that emerged from bankruptcy in 2010 and sold in June 2011.

The new owner: 2100 Trust LLC, a private investment consortium headed by a man who most recently served as CEO for a small, greeting card company in Massachusetts.

The bet: Orange County’s well-educated, affluent market will respond to a higher quality print newspaper product by paying premium prices – both in terms of advertising rates and subscriptions – despite a massive generational shift to digitally consumed content.

The world’s largest media corporations and the analyst community have more than a few doubts about the paper’s prospects. But, new publisher Aaron Kushner remains unbowed, sinking large amounts of money into everything from newsroom staff to more expensive newsprint and other enhancements to support an annual subscription rate north of $350 per year.

Orange Coast magazine reporter Christopher Smith in his superbly researched and written piece for the February 2013 issue, “The Curious Quest of Aaron Quixote” does nothing to ease doubts about the grand experiment. The article references the newspaper publishing industry’s $24.8 billion dollar drop in advertising revenues since 2000 – a plunge of more than 50%. That coupled with the startling statistic that fewer than one in 10 OC residents currently receive the paper at home, contrasted with 13% a decade ago, shows just how bad things have gotten.

What makes this such a fascinating story is that so many people want Mr. Kushner to succeed, despite the seemingly overwhelming and obvious obstacles. Who, after all, doesn’t believe in the importance of quality? Isn’t that what every business owner strives to deliver each and every day?

Unfortunately, history teaches us that building a better mousetrap doesn’t always work.

In fact the graveyard of business is littered with companies who made great products, but didn’t survive. Remember Steve Jobs’ NEXt computer? A phenomenal piece of design and computer engineering. There was just one problem: There wasn’t a market for his expensive technological marvel and Jobs – arguably the greatest salesman and marketing force of the computing generation – couldn’t make it so.

Print newspaper revenues in larger metro markets will decline in 2013 by anywhere from 4%-6%, according to industry analyst Gordon Borrell, Even the most optimistic forecasts from other industry sources peg news advertising growth at 5% or less.

Conversely, Borrell is much more bullish about online which he predicts will surge some 30% in 2013. Similarly, respected research firm Gartner estimates mobile advertising revenue globally will hit some $11.4 billion by 2016, quadrupling the spend recorded in 2011.

I will spare you more numbers. Virtually every industry forecast out there shows strong double digit annual increases for digital and low single digit growth – at best – for print advertising. What does Mr. Kushner see in newspapers that seemingly the rest of the media world is unable to discover?

A most curious question, indeed.

Michael Shepherd

Michael serves as Managing Partner of The Shepherd Group, a brand and communications firm with offices in Seattle and Newport Beach. A former journalist, he specializes in building narratives through discovery, design, and development of branded editorial and visual content.

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