Editor’s note: The American Press Institute released its Newspaper Next report last month. The following synopsis highlights some of the issues API’s Elaine Clisham will discuss Jan. 20, 2007, at the TPA 60th Midwinter Conference & Trade Show in Houston.

By Clayton M. Christensen and Andrew B. Davis

The Big Three U.S. auto manufacturers. Downtown department stores. Video rental stores. Minicomputer manufactur

After spending a year studying the problem in the course of the American Press Institute’s “Newspaper Next” project, our answer is a resounding yes.

Our belief is not an academic one. Over the last five months we conducted demonstration projects at a handful of U.S. newspaper companies. Although it’s too early to point to billion-dollar businesses, we have seen mindsets shift and managers get excited as they see the massive growth potential that still exists for the industry.

Newspaper companies have real assets to bring to the table. Despite declining circulation, the core newspaper product continues to produce cash flows that many other industries eye with envy. The core content produced by the industry is the basis for many of the disruptors; without newspaper content, there isn’t much news for television to report, bloggers would have less to blog about, and Yahoo! News and Google News would be blank pages. Furthermore, newspapers have strong brands and highly skilled employees.

But success will not come easily. Driven by shifting customer behaviors, the media landscape is changing at an unprecedented pace. Fundamental changes are reshaping the media environment and are sending waves of disruption throughout the industry.

In the face of this, newspaper companies have barely begun to scratch the surface of their innovation potential. To succeed, they have to learn to look at markets in completely new ways, invest to create new capabilities and re-think the way they work individually and collectively.

Jobs To Be Done

The mindset shift starts with the way newspapers see the consumer. For a long time, newspapers have watched as readership has slid. They have tried to answer the question, “How can we convince more people to read our paper?” The question needs to be: “What indispensable information jobs will consumers hire us to do?  What products can we provide that will do those jobs better than any other competitor?”

Just as GateHouse Media New England is doing with WickedLocal.com (one of our demonstration projects) and Cox Communications is doing with Kudzu.com, newspaper companies have to help consumers who don’t use the newspaper solve the pressing problems they face in their lives.

These solutions are likely to require new capabilities, such as constructing databases of local information, finding ways to tap into the “collective wisdom” of people who live in the community and building platforms on which virtual communities can form.

Newspaper companies have to rethink their revenue equation as well. For generations, display advertising and classified advertising have powered the newspaper business model. The companies that place those advertisements are—not surprisingly—called “advertisers.”  Many newspaper executives have fooled themselves into thinking that the problem these business customers seek to solve is to advertise.

That’s not right. Advertising is a compensating behavior. In its demonstration project, the Richmond (Va.) Times-Dispatch interviewed more than 40 businesses that don’t advertise in the newspaper. Not one said the problem they are trying to solve is to advertise. Instead, they are looking to build relationships with consumers, create brands, attract employees and simplify back-end operations. Those are the real jobs to be done.

Newspaper companies must help businesses and individuals that don’t advertise address these issues. They must do so by creating new solutions that get their jobs done, including such “offline” strategies as niche publications and special events as well as emerging Web approaches such as paid search, consumer direct, targeted advertising, and lead generation.

These aren’t pie-in-the-sky models. These are real approaches that already are making many non-newspaper companies (and a few newspaper companies) big bucks. Utilizing these approaches can enable newspaper companies to reach business customers that historically couldn’t or wouldn’t use newspaper products.

Realizing this potential requires developing new capabilities. The Boston Globe—one of our demonstration projects—sought to develop new ways to reach small businesses that didn’t use any of the Globe’s products. The Globe’s idea? Resell a “search engine marketing” offering from a third-party vendor. One key to success? Using low-cost sales channels like telesales to reach the market.

The Payoff

Newspaper companies shouldn’t approach the innovation challenge alone. There are opportunities for companies to collaborate online in powerful ways, particularly to serve national companies that want to tap into the vast reach of the more than 1,400 local daily newspapers and more than 8,000 non-daily ones that collectively reach more than 55 million consumers.

There are dozens of other specific suggestions that appear in the Newspaper Next report, including a step-by-step method for innovation, a “game plan” for growth, a dashboard to track progress, reviews of the demonstration projects, and the results of a survey of industry leaders that indicates a clear desire for collaboration.

Above all else, newspaper com­panies have to commit to doing things differently, and they must back that commit­ment with action. Business as usual will not suffice. Cutting costs and hoping the current storm will subside is not a strategy for growth.

The payoff of all of this work can be significant: Companies can launch new offerings, grow in new directions, and harness the disrup­tive forces that have threatened the industry. They can move from monolithic product offerings to a vibrant portfolio of products, services and business models.

The Desert Sun in Palm Springs, Calif., worked hard over its four-month demonstration project to develop structures and processes to make innovation sustainable. Its efforts energized the newsroom, helped improve existing products and sparked innovative ideas. Its newly constituted “Big Brain” panel helped to shepherd an idea for a Web site where restaurants can post coupons for free called FoodPsycho.com.

Through its findings and initial implementation via the pilot programs, API’s Newspaper Next project has demonstrated that by using a process for innovation-driven growth, the newspaper industry can not only survive, it can grow and prosper.

Clayton M. Christensen is a Harvard Business School Professor and the founder of Innosight LLC, a Watertown, Maine, innovation consulting company. Andrew B. Davis is the president and executive director of the American Press Institute. Innosight and API collaborated on the Newspaper Next project. View the final report at www.newspapernext.org.