Warren Buffett received a lot of attention when he started buying up midsize and local newspapers a couple of years ago, averring, ”Papers delivering comprehensive and reliable information to tightly bound communities and having a sensible Internet strategy will remain viable for a long time.” However, the 2013 annual report from Buffett’s investment firm Berkshire Hathaway Inc. reported an overall 5.6% drop in daily readers for the company’s stable of newspapers, with readership falling at 26 of the 28 papers he’s held for more than a year.

So what happened? Well, it appears that Buffett has not been able to implement digital strategies fast enough to avoid the general erosion of the newspaper industry, where revenues have fallen by more than one-third since 2005. Digital publishing leaders like John Paton, CEO of Digital First Media believe that just as important as what digital is, is what digital is not.

What Digital Is Not

Early on, newspaper corporate leadership equated ”going digital” with attaching ”.com” to the brand name, and maybe putting up a few stories on the newspaper’s website. Digital audience development was an afterthought, a bolt-on. But Paton and others who have succeeded in digital media contend that, ”we won’t forget print but when we are finished this process it will be the bolt on to digital and not the other way around.” As one example, Vox is a technology company that produces media, rather than a media company that uses technology.

SEE ALSO: Coverage Isn’t Complete Until It Crosses Platforms

Digital Subscriptions and Paywalls

A report by media analyst Ken Doctor estimates that around 40% of US dailies have or will soon have restricted digital access, i.e. paywalls. While paywall revenue may represent only pennies compared to the dollars print advertising used to bring in, those pennies add up, particularly when newspaper publishers spend less on newsprint, trucks, printing presses, and real estate to house operations. Circulation revenue in the US rose by 5% in 2012, representing around half a billion dollars for the news industry.

In the print era, advertisers contributed 80% of revenues with readers ponying up the other 20%, but reader revenue is estimated at 30% for 2013 due to paywalls. The New York Times has already achieved 56% reader revenue, and more dailies are expected to cross the 50% mark by 2017 if they commit to digital audience development rather than treating digital like an add-on to print.

What Charging for Digital Access Means

A 2012 report by Ken Doctor on paywalls says they are neither a panacea nor a tombstone on a dead industry, but rather a building block and a way to re-envision the newspaper industry. Changing the customer relationship to where a website doesn’t undermine pricing of content but rather supports it is an important component of the digital revolution. If newspapers just offer lip service about what online ”membership” means, they miss out on the audience development that can create a new model of the trusted relationship with readers the best dailies enjoyed during the print era.

When Newspapers Commit to Going Digital

There’s no denying that the initial shock of a paywall often produces a small negative impact at first. However, new digital revenue can quickly make up for it, with online subscription revenue outpacing network advertising losses due to a drop in page views. It takes time, but audience development grows after implementation of a paywall, as long as content quality remains high. Traffic basically ”resets” after a paywall, and audience development is rebuilt from there, largely with the help of core readers who use the news most often. The key to succeeding is delivering on the promise to readers that they’ll get their valued content on whichever platform they choose, because ultimately added value matters to them.

Getting Digital Right

Getting digital right depends on doing several things:

• Understanding the combined print and digital audience as a whole before implementing a pay-for-content proposition
• Developing the technological chops to deliver tablet- and smartphone-ready products, preferably app-based
• Carefully matching value to price – a hazy proposition for sure, but one that is gradually coming into focus
• Promoting digital products to help readers old and young appreciate what’s on offer
• And perhaps most importantly, delivering a high-quality product. If this suffers, the rest of the efforts will be for naught.

Changes in digital revenue streams are requiring major investments in digital products and the people who produce them. Print is going away faster than anyone expected, and digital can no longer be treated as an add-on to a print strategy. Audience development in digital news takes time. The big players on the web have been around longer than you may realize. For example, Gawker has been around for 12 years, and BuzzFeed has been around for eight. Warren Buffett’s experience with newspaper losses suggest that the longer newspapers wait to take digital audience development seriously, the lower their chances of success.

If you operate an online newspaper, RealMatch provides recruitment advertising for digital publications that help online media companies develop a new revenue stream, so your publication can continue to provide the great content that brings people to your site.