Hamish McRae: Why newspapers can make net gains by embracing the new digital technology

Journalists inevitably find it difficult to comment dispassionately on events in their own industry, and the bid by Rupert Murdoch for Dow Jones is no exception. But the fact that Mr Murdoch should feel Dow Jones is worth so much more than the market had previously valued it at says something interesting about the way in which the newspaper industry is adapting to the new technologies. There is life in the old dog yet.

A couple of caveats. We don't know the wider motive behind the bid and in particular whether it is a lever for Mr Murdoch to achieve something else. Nor do we fully know the embedded value within Dow Jones of the electronic side of the business, for this is not just a specialist newspaper. What we do know is that Dow Jones and The Wall Street Journal are two of the top half dozen brands in the global financial and economic information business. The issue the group faces, as with all newspapers, is to figure out how to adapt the services it provides to the new opportunities that digital media offer.

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Step back a little. We see reports every month about the fall in circulation of US newspapers, for these typically are declining by about 5 per cent a year. (Here in the UK, circulations have been holding up rather better, with the exception of city evening newspapers.) Advertising revenues are similarly under pressure on both sides of the Atlantic.

What we hear much less about are the positive aspects of the communications revolution. One obvious one is that print media can get news and other information to their readers much more quickly than they could before. Another is that they can achieve global distribution at very low cost. Still another is that the total market - the total number of eyeballs reading the words - has expanded dramatically. And the brand value of a well-regarded newspaper seems to have been advanced by the new technologies.

The best information on all this comes from the US. The Newspaper Association of America collates the data and, seen in the big, it makes encouraging reading. For example, the unique audience of US newspaper websites in the first quarter of this year in the US was running at 59 million, up from 42 million in the first quarter of 2005. The average time per person was 45 minutes, up from 37 minutes two years ago.

So the market is both widening and deepening. Newspaper web readers are also an upmarket lot. For example, more that half have graduated from university, 90 per cent are in jobs, 63 per cent check news daily and 64 per cent have recently checked classified ads online.

From an advertiser's point of view, this makes them attractive, enabling them to increase their reach but, of course, there are plenty of other sites on which they can advertise: why should they choose newspaper ones?

When people go to a newspaper site, most of them, unsurprisingly, are going for breaking news. But a high proportion also go for local entertainment information and a rather smaller one for lifestyle information. The proportion seeking financial or investment might seem disappointingly small but remember that these stats are for the whole of the US newspaper industry rather than the handful of big city papers.

The search facility is particularly attractive and advertisers will like the, albeit small, proportion of readers who go online to search for products mentioned in the print adverts.

So the industry picture in the US is really quite positive. The obvious difficulty for US papers is making enough money from their growing online audience, for as a rule-of-thumb an online reader is worth only one-tenth of the overall revenue that someone who buys a physical copy is worth. So you need 10 new web readers for every one fewer print reader. But in the case of specialist financial readership, the equation may be rather different for two reasons.

The first is that The Wall Street Journal has pioneered the paid-for newspaper website. It has achieved much less market penetration than its free competitors, as you would expect, but the model seems to have worked for it. The other is that brand extension is easier in financial and economic information and other services than it is in general information. In other words, the Dow Jones and WSJ names have more traction with people interested principally in finance than, say, the New York Times brand has for people interested mainly in its more general news agenda. The Journal gives a better base to sell other services than does the Times.

What happens next? Well, we don't know Mr Murdoch's mind, nor do we know whether he will succeed in this venture. But what we can see is the rising global demand for high-quality financial and economic information - and judgement.

As far as information is concerned, there is some space between the very high-tech dealing services from Bloomberg and Reuters and the mass information available on the wires. Organisations such as Dow Jones or, indeed, the Financial Times should be able to make money within that space. Mr Murdoch's genius should enable him to create more products that will be successful in that space.

As far as judgement is concerned, my personal window on that came last October when I was in Beijing. Earlier during the year in Europe I had met a Chinese banker who told me that my columns and those of Stephen King on Monday were very useful to him. When we met again in Beijing I caught the feeling, new to me then, that China was likely to diversify its foreign exchange reserves - which I then wrote in these columns.

My point here is simply to show that not only is the market for financial information global; the market for financial ideas is global too. And that requires human interaction between people who trust each other and want to kick ideas around. That is where brand comes in. While it is perfectly possible to develop online "viewspapers", in practice the brand of the print medium helps writers reach the global market in a way that a purely online service would find harder to do.

The one thing I am very sure about is that physical print media will continue to be very important for at least another generation. That is because while people have limited time (and inclination) to watch a screen and as a result, time on the web is time not available to watch TV, people like reading words printed on paper. If you are doing that now, thank you - and please keep doing so.