Extra! Extra! – Smartphone replaces newsprint! Read all about it…

Atsuo Fujimura, Senior VP of Media Business Development at SmartNews

Atsuo Fujimura, Senior VP of Media Business Development at SmartNews

The Internet punched a hole in the newspaper business. Now the industry again is being disrupted by the Smartphone. Beacon Reports met with SmartNews’s Atsuo Fujimura to discuss the rapidly changing news publishing business and to put the firm’s experience into a global context. The company makes a popular mobile-centric news app.

Mail-Chimp-mall-Pic- Read all about it v2SmartNews was founded in June 2012 by entrepreneurs Dr. Ken Suzuki and Kaisei Hamamoto who wanted to switch train commuters from playing mobile games – a preferred pastime on journeys – to reading news. To persuade passengers, they built a fully automated news aggregation service based on proprietary algorithms that serves trending quality news to users through a Smartphone app. SmartNews became a hit in Japan, winning both Apple’s and Google’s ‘best app’ awards in 2013. More than 12 million apps have been downloaded to date.

Fujimura is Senior VP of Media Business Development and was one of the firm’s first hires. He recounts that “It was hard work” to convince conservative management from traditional media companies to partner with SmartNews. Initially incumbent publishers saw the startup as a potential hostile new entrant. Not only had total newspaper revenues in Japan fallen by 20% between 2003 and 2013, but ‘old media’ was destined to lose its monopoly over news production. Today anyone with a computer or mobile phone can instantly publish news through social media.

Newspapers everywhere scrambled to find new business models appropriate for the digital age. The US was fastest to respond, as newspaper revenues there plunged by 2/3rds from $48 billion to $16 billion since 2005 (see FT article). Paid newspaper circulation of some larger US dailies also fell by almost 50% over that period.

The response of Japanese newspapers in contrast lagged. One reason is that paid newspaper circulation in Japan is huge by US standards. Japan’s leading papers, the Yomiuri Shimbun and the Asahi Shimbun, have paid circulations 6.5 times that of similarly ranked US newspapers, The Wall Street Journal and USA Today (see chart). Comparatively, “The newspaper business in Japan is relatively stable,” noted Fujimura.

Japanese incumbents are also better positioned legally to fend off new entrants. While US intellectual property law allows firms ‘fair use’ of copyright material without permission from the rights holders, Japanese copyright law has no similar provision (although the courts may try to emulate notions of ‘fair use’). According to Yoshifumi Chinen, a Tokyo based trademark attorney, the practice can lead to unpredictable court judgments. “If Japanese copyright law had a ‘fair use’ provision, digital startups could start new businesses with fewer unknown risks,” he told Beacon Reports.

With more time to respond, Japanese newspapers took two or three years to study the market and then tried to develop digital solutions by themselves. “They struggled first to move to digital and then later again to the mobile platform,” Fujimura said, noting that publishers still using legacy technology are turning to firms like SmartNews which can offer a better mobile solution.

Fujimura used his long-standing reputation in the news publishing business and a soft sales approach to convince incumbent publishers that SmartNews was not a threat. He argued that people who read news on Smartphones are demographically younger than those who subscribe to print publications. It was unlikely that SmartNews would cannibalize their subscribers. Nor does SmartNews compete by producing original news content. Media partners also get to keep 100% of the revenues they earn by selling their own advertisements and get a share of the revenues SmartNews earns from other ad programs.

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Fujimura’s offer was all upside, without requiring publishers to take any downside risks. Taking this friendly approach with hundreds of media companies, he secured almost 90 partners in Japan that currently receive over one million page views per month through the service.

Meanwhile in the US, a new generation of integrative startups is aggressively disrupting the news establishment, where digitally native news organizations like Buzzfeed use computer science to decide what to write, rather than choose whose existing news to republish.

Buzzfeed hires journalists to write articles optimized for social sharing. An in-house scorecard tracks journalist performance, ranking the articles they produce by page views. Originally more editorially akin to a ‘tabloid’ than ‘broadsheet’, Buzzfeed built a large following of 150 – 200 million unique users each month. Now they are using their understanding of how to engage a large, young, mobile and socially interactive audience to publish increasingly serious news.

Some commentators think that Japan’s news startups should also be more innovative and put the interests of readers before those of the incumbents. Among them is The Bridge, an online newspaper covering Japan’s tech sector. They found all Japanese digital news startups, including Gunosy, SmartNews, Line News, Presso, Romly, Vingow, Mynd, and Kamelio, cooperate with ‘old media’, rather than compete against them (see article).

Regardless, SmartNews has gained traction globally. The firm launched a version of their app in the US late last year where, according to App Annie, it has climbed to become the 4th most popular IOS app in its category.

SmartNews competes against other popular US news apps including Flipboard, Business Insider, Upworthy, Mashable, and Vice. Facebook and Apple have entered the fray with their own news services, ‘Instant Articles’ and ‘Apple News’ (launching this autumn). All are certain to make the headlines.

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