Dorian Benkoil senior consultant at Teeming Media. An award-winning journalist and editor, he was a foreign correspondent for AP and Newsweek, and international and managing editor for ABCNews.com. At ABC News he moved to the business side, handling sales integration and business development, before joining Fairchild Publications as General Manager for their Internet division, becoming editorial director for mediabistro.com, then a consultant for Teeming Media in New York. He graduates this year with an MBA from Baruch's Zicklin school of business. Learn more about him at Benkoil.com or his blog - MediaFlect.com.
Robert Cauthorn is a journalist, former vice president of digital
media at the San Francisco Chronicle, and was the third recipient of
the Newspaper Association of America's prestigious Digital Pioneer
Award. He launched one of the first five newspapers web sites in the
world and is generally considered to have delivered the first
profitable newspaper web site in 1995. Cauthorn has been in the middle
of the transition from old media to new and is recognized as
frank-talking critic when he believes newspapers stray for their
mission. In mid-2004 he became the president of CityTools, LLC a new
media startup based in San Francisco.
Ben Compaine has divided his career between the academic world and private business. He was a journalist when manual typewriters were considered state of the art, but also led the conversion of his college newspaper to cold type. He has started and managed weekly newspapers. His dissertation at Temple University in 1977 was about the changing technologies that were going to unsettle the landscape of the staid and low profit newspaper industry. Since then he has focused his research and consulting on examining the forces and trends at work in the information industries. Among his most well-known works (and the name of his blog) is "Who Owns the Media?".
Vin Crosbie has been called "the Practical Futurist" by Folio, the trade journal of the American magazine industry. Editor & Publisher magazine, the trade journal of the American newspaper industry, devoted the Overview chapter of executive research report Digital Delivery of News: A How-to Guide for Publishers to his work. His speech to the National Association of Broadcasters annual conference was one of 24 orations selected by a team of speech professors for publication in the reference book Representative American Speeches 2004-2005. He has keynoted the Seybold Publishing Strategies conference in 2000; co-chaired and co-moderated last year's annual Beyond the Printed Word the digital publishing conference in Vienna; and regularly speaks at most major online news media conferences. He is currently in residence as adjunct professor of visual and interactive communications and senior consultant on executive education in new media at Syracuse University's S.I. Newhouse School of Public Communications, and meanwhile is managing partner of the media consulting firm of Digital Deliverance LLC in Greenwich, Connecticut.
About this blog
Two forces have shattered the news media. Technology is the first. Although media technology is undergoing its greatest change since the day in 1440 when Johannes Gutenberg first inked type, for more than ten years now the news industry has mistaken new technologies merely as electronic ways to distribute otherwise printed or analog products. Estrangement is the second. The news media has lost touch with people's needs and interests during the past 30 years, as demonstrated by rapidly declining readerships of newspapers and audiences of broadcast news. How we rebuild news media appropriate to the 21st Century from the growing rubble of this industry is the subject of this group weblog.
In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline
Two pieces of seemingly unrelated news hit the online world about 24 hours apart. However, the first may weigh heavily on the second.
Number one was the announcement yesterday (June 2) from AT&T signaling the end, for now at least, of unlimited wireless broadband. As of June 7 most 3G iPad users and all buyers of iPhones and other AT&T connected smartphones will have to pay for data based on usage. Unless grandfathered, from now on it will all be metered.
According to most reports (the New York Times’ David Pogue among them), most smartphone users should come out ahead by under either of the two plans. AT&T itself calculated that 65% of its subscribers use less than 200 mb of the lower price option (half the cost of the current unlimited plan they have) and altogether 98% use under the 2 gb limit of the higher price plan. But for the newer iPad, optimized for streaming video and more accommodating for watching You Tube, will these parameters stunt their use?
The matters if we probe the implications of the second news item, an AP story under the headline “Publishers see signs the iPad can restore ad money.” It began: “Good news for the news business: Companies are paying newspapers and magazines up to five times as much to place ads in their iPad applications as what similar advertising costs on regular websites.”
The story noted that “early evidence suggests the iPad is at least offering publishers a way to get more money out of advertisers.” Perhaps prophetically, though, author Andrew Vanacore hedged his bets, adding two graphs later: “Still, a lot will need to go right for publishers before the iPad and imitator tablet computers become a significant source of income.”
The seeds of what may not go right comes soon enough. Describing why iPad applications such as USA Today’s can justify higher ad rates than the standard online ad, Vanacore replays this scenario: “A reader can click on Courtyard by Marriott's USA Today ad and then with a flick of a finger scroll through images of the hotels' updated lobby design. Another tap and a high-definition video appears, full of happy hotel guests.”
But wait. With AT&T’s new data limited plans, this simple “tap” will generate perhaps megabytes of “high definition” video. Will tablet users want to eat up precious data usage on a Marriott ad. When the pool was bottomless, well, so what. With the pool is emptying fast, then perhaps not. At least, not as spontaneously.
AT&T’s new data plans are likely to be mimicked by other carriers eventually. Some or all might hold off initially so as to gain a short term competitive advantage. But they know AT&T is right. The spectrum for data is finite and when any commodity is free it get overused. Some mechanism is needed to ration it.
Every decision has consequences. It’s not unusual for some to be unintended. Matt Richtel, in his report describing AT&T’s data plan announcement, closed his piece with this anecdote:
“Mike Lapchick, an AT&T customer in Chicago, said that he tended to use his iPhone mostly for e-mail, and that he would probably see his data bill drop in half to $15.
“But Mr. Lapchick, who is the chief executive of a company that makes software used by Internet retailers to allow consumers to zoom in on product images, has another concern. As unlimited data plans go away, it could prompt cellphone users to watch their intake.”
He may not have realized it, but Lapchick could have been describing every media business that has hope that iPad and its competitors' forthcoming tablets may just have been blindsided by AT&T without being aware of what hit them. At least not yet.
According to a piece from The New York Times this week, “No topic is more hotly debated in book circles at the moment than the timing, pricing and ultimate impact of e-books on the financial health of publishers and retailers.” It goes on to says that publishers are concerned about making e-editions of their trade books available the same time as the print edition.
Amidst the uncertainty of how to treat the e-books is the fear of cannibalization of hardcover sales. “If you as a consumer can look at a book and say: ‘I have two products; one is $27.95, and the other is $9.95. Which should I buy?’,” according to Dominique Raccah, chief executive of Sourcebooks.
I’ve been delving into the nuances of book distribution and marketing since I wrote a book about the subject in 1978. And, typical for anything about the book publishing industry, notably missing form this article, and most such discussions, is an examination of the economics and the retail marketplace.
First, for bestsellers, at least—which is what this article focuses on—the real retail price of a hardcover fiction is not about $25 or $30 but the 40% discount price charged by most major outlets, including Amazon and B&N. Thus, the real price difference for most consumers is roughly $15 to $18 for the hard copy vs. $10 for the e-book.
Second, the article does have one data point—that Amazon is paying the same price for the e-book as the hardcover. Assume that is 50% off list. So that from the publisher’s position, it gets the same revenue no matter which format. And it saves the manufacturing cost. And it gets no returns! What’s not to like?
Third, this discussion would be enhanced by knowing how author royalties are being handled these days. If the author is earning a royalty based on a percentage of the revenue the publisher receives, then it is at worst a wash whether it is a percentage of the physical book or the price the e-book distributors pay. And to the extent that books are price elastic, the $10 e-book price point could potentially increase sales, thus resulting in greater revenue.
The difference between the business model needs of the legacy media and the new Web based media has t do with network externalities. This economic concept holds that the value of the services increases exponentially with the number of users of the service. Think telephone networks, fax, Facebook. In all these cases the value is in other users. For the traditional media there are few if any network affects. The value of the content of the Boston Globe to be is neither increased nor decreased for me as circulation does down—or up. Twitter, on the other hand, becomes more valuable as more users can get access to posts or me to the potential posts or more and more other users.
I’ll come back to this at the end.
The construct of network externalities struck me while reading coverage of the annual media conference sponsored by small investment bank Allen & Co. for 27 years usually generates news just because of who attends: the top executives of the big media companies, the young stars of the Internet challengers, investment bankers, some politicians, academics and a few outliers, like a sports star. Though the sessions are closed to the media, there are enough leaks to keep the scribes busy,
Most years the gist of the news is about who might be acquiring or merging with whom. This year, in the midst of an economic slump that puts the kabash on merger activity, much of the chatter was about business models. Media companies that for decades—or centuries—thought they knew where their revenue was coming from are in a quandary about where they might be getting their next dollars or Euros.
Thus the latest theme is the insistence-- from New Corp’s Rupert Murdoch, IAC’s Barry Diller, Liberty Media’s John Malone, Disney’s Robert Iger, among others -- that the free content gravy trend must end. Consumers are going to have to learn to pay for content online as they do in print or via cable, for music and movies. The legacy media have been struggling with the online model for years now—so far with limited success to show for their all their studies, experiments and worries.
But for me, the more fascinating discussion was the one of the business model for the new guys, like Twitter and YouTube. Diller reportedly told one session that he did not see how Twitter could make any money, despite its growing visibility. It has something north of 4.5 million accounts, but only a small fraction actually post anything.
What business model might work for Twitter? It has been highly successful in attracting users and in generating “buzz.” But so far it does not have a business model. It is operating on $55 million of venture capital.
A report on the Allen & Co conference, says that apparently some of the smartest media and Web executives could not come up with a model that would work to generate revenue without undercutting the network externalities that have been so crucial to Twitter's adoption.
Barry Diller, a media industry veteran, commented "I think it's a great service. I just don't think it's a natural advertising medium." John Malone, a cable industry pioneer and savvy media investor, voiced a similar view. Twitter would be hard-pressed to sell advertising on its messaging service without alienating users. He added that Twitter's best bet is to simply get people so addicted to the service that they might eventually pay fees. Malone claimed that Warren Buffet, one of the most successful investors, was thinking along the same lines, applying that model to YouTube, another media property that is wildly successful as measured by use, but still quite unprofitable. Buffett told Malone he would pay $5 a month to continue using it (that’s easy to say for the second wealthiest man in the world).
So here we have publishers and programmers and cable operators not only worried about their tried, if not quite true, business models in the face of declining circulation or viewership, unable even to see a healthy financial outcome for the new players that are growing exponentially, at the same time they achieve millions of users. Can it be that bleak?
So, finally, back to network externalities. The reason why a subscriber fee as a revenue source is a dangerous road for Facebook, MySpace, Twitter, or YouTube and the like is that any sort of charge, even a nominal one, is likely to lop off a substantial portion of its user base. This is the "Penny Gap.” – the experience that getting a user to go from free to any sort of payment, even a penny, is, in the online world, harder than getting a paying subscriber to pay more.That is, going from free to one cent a month would see a larger drop off in users that a service charging $1 riaisng its price to $2. The Penny Gap effect sets the network externality model in reverse. As some users drop off, the service becomes less useful to the remaining users, they are less enamored with it and drop and so it spirals down. Thus, services that thrive on network externalities need to proceed very cautiously—as their founders and managers presumably understand.
The folks who run the Web sites of legacy media, whether the online sites of the newspapers or newer sites like Hulu, do not have this issue. The value to me of my local newpaper—or its Web site—does not depend on the increase or decrease in the numbner of subscribers (except indirectly in the form of maybe more or less content as it generate more or less revenue).
The Penny Gap issue remains. Though media execs are calling for an end to free content as a way to save their franchises, so far no one has been willing to make the move, as they fear it will have a greater impact on the ad revenue than user fees will bring in. When The New York Times abandoned its subscriber Times Select pay tier, it made the decision that it could make more from advertising to large numbers than from a combination of subscriber revenue and lower advertising dollars.
The lesson is that the legacy media folks are going to have to solve their business model problem with a different solution than the one that might be best for new content Web sites like Twitter.
What could the Globe fetch? Well, certainly nothing within a rifle shot of the $1.1 billion it paid 16 years ago. David Carr, himself of the Times, asked six experts who specialize in valuing media properties. You could get the short answer in his column.
But even more fascinating is the almost stream-of-conscious responses of the six that he posts verbatim on the Media Decoder blog at the Times site.
The values—all guesses of course-- range from $250 million to a negative $25 million. Yes—The Times Co. might need to offer a buyer (if it could be called that) cash to take off their books the stream of losses projected for the paper into the immediate future, the union contracts and the 400 guaranteed-for-life jobs.
Bottom line? The price of the newspaper company may be less than what it charges ($1.00) to buy a copy of the newspaper.
Few of my friends or acquaintances are fans of the editorial
page of The Wall Street Journal. I live in Cambridge,
Mass, where President Obama received 88% of the vote in November.
So I thought I’d call their—and your—attention to the lead editorial
in today’s paper. Titled “Ink-Stained Politicians,” it is critical of congressional
initiatives to “rescue” the newspaper industry. One of the leaders of this
movement is my own senator, John Kerry. As are many of us, he is concerned
about the future
of the hometown Boston Globe. (The stakes may be particularly high, though,
for the senator. In his re-election bid last year the Globe gushed:"The case for reelecting John Kerry
would be strong under any circumstances . . . [but] the country needs his voice
more than ever.")
So it was Sen. Kerry’s subcommittee that held
a hearing on May 6 titled "The Future of Journalism." It was a
morose affair, with publishers enumerating the fate of failing and fallen
comrades. Then the senators turned to the culprits, Huffington Post and Google.
The hook for the
hearings was what role Congress could conjure to help out what Kerry buys into as “the fourth branch of government.” One
proposal, from Maryland Senator Benjamin Cardin, would allow newspapers to convert
to nonprofit status (hmm-it seems like the point is that they are already nonprofits.
What they should say is not-for-profits). Their operating revenues would be tax
exempt. In return, they would be precluded from endorsing political candidates, though, as the
Journal points out, that wouldn’t prevent them from taking sides more subtlety.
The other idea being floated was some sort of an antitrust
exemption that, as described by Dallas Morning News publisher James Moroney,
would allow the newspaper industry to conspire to find ways for making money from
putting the work of its journalists online. Of course, I thought that was what
the industry has been doing with such projects as Newspaper Next and The Newspaper Project. But I
suppose a major league baseball-like exemption would allow publishers to band
together for steps that would prevent the Huffington Posts and Googles from
making money off their backs.
The Journal’s position is one that I have trumpeted, as have
my colleagues here Dorian
Crosbie. That is to let the forces of technologies, consumer behavior and
the marketplace play themselves out, at least for awhile longer, before
have argued (as have others) that there will be changes, for sure. But that
there will also evolve multiple business models. There will be winners and
losers. Services lost-- for example some local coverage if some cities or towns
lose their daily printed papers—are highly likely to be regained as new players
jump in to fill a vacuum.
We see hints of that with an array of Web sites that focus
on local and even hyperlocal news. Some, like EveryBlock, for the moment are compendia
of links to local government sites, some blogs and even local news from other
sources. But that doesn't mean that is their end point. It is their opening gambit. Should they gain traction some will start adding original content (or they may find the togain traction they will need original reporting). A few, such as Buffalo Rising and Patch, already do have reporters covering the local
scene. Very few now. But given time, and a market, more
speaks for many in the legacy media who are urging Congress to legislate a
"consent for content" requirement to get the Googles and Huffington
Posts of the online world to pay "fair compensation" for content they
pick up and then sell advertising on. The
Journal comments“So, although most
newspapers are giving away their content free online, the feds should guarantee
them a stipend from anyone who gets someone to pay for it. There's a winning
In any event, it would seem to be a matter for negotiation rather than legislation.
The Journal continues: “The larger story here is that
newspapers are enduring the familiar process of economic "creative
destruction," in this case brought on by the Internet. Advertisers are
fleeing to search engines, while barriers to entry in publishing have crashed.
Despite the pain this causes to certain companies, this is not much different
than any other industry buffeted by new technology or business strategies.”
Creative destruction is right. In the early 1990s, the 200 year old Encyclopaedia Britannica was a $650 million company. Five years later in was bringing in one third that. It’s business model based on a high priced part time sales force selling “guilt” as much as $2000 sets of books was undermined by Microsoft’s Encarta, given away for free on a CD with a new computer and based on an old Funk & Wagnall supermarket-distributed encyclopedia. The World Book suffered similarly. Both have had to retreat and reformulate to survive in the world of DVDs and online delivery. Where was Congress then?
The Journal’s editorial concludes with an argument almost
stolen (dare I charge?) from a recent post of mine, save the last line:
“Some new business model will
emerge for journalism, if not for all newspapers, and in the meantime the
business of reporting the news isn't vanishing. It is taking new forms and
adapting, with newspapers growing their audiences online even as the sources of
their revenue shift. The industry is currently debating how to charge customers
for content, and no doubt many experiments will be tried. No matter who emerges
victorious, the journalism business will be stronger and more credible if it
avoids the government's embrace.”
To its credit, the Obama Administration is keeping its distance. Press Secretary Robert Gibbs, responding to a question, commented that while it's sad for cities to lose their daily papers, any public assistance "might be a tricky area to get into.…I don't know what, in all honesty, government can do about it."
The sooner the suits in Washington
and the executive suites in Dallas
understand that, the better off it will be for the future of journalism.
A college classmate, Peter, who lives in Ann Arbor, Michigan, asked me what “my take” was on the changes in the media world, referring to the de facto demise of this home town Ann Arbor News.
If you’ve been on vacation in Bali and didn’t want to pay the $15 a day resort Internet fee, the shut down of the 45,000 circulation News will make this the first city to lose its newspaper. The plan, according to owner Advance Publications, is to completely shut down the operation, lay off all empoylees, then start fresh with two new companies that will need far fewer staff. One, a Web venture called AnnArbor.com, will have some original reporting but rely substantially on reader input and community forums. A second company is described as a printing company that will publish a twice weekly newspaper fo some sort. Advance is also cutting back its daily newspapers in Flint, Saginaw, and Bay City to a thrice weekly schedule.
Types of organizations eligible for non-profit status under IRS 501(c)
My take, I wrote Peter, is that I suspect new players will see it as an opportunity to pick up the slack. They will enter with a different expense base. Maybe no single one will totally replace today's version of the newspaper, but in aggregate they will cover whatever territory for which there is a demand, e.g., an entertainment paper-- probably ad supported. More local stuff online. More stuff you can view on iPhone-like devices or Kindle-like. We’re in a period of fits and starts, but if there is a market there will be big guys or entrepreneurs who will fill the gaps. At the premium end there is the example of the for-profit (they hope) GlobalPost.com. The low end may be the for-profit (they hope) citizen journalist new AnnArbor.com.
But what about the not-for-profit model, a proposal popularized by an op-ed piece in The New York Times last month? An academic study being prepared for publication in the Journal of Media Economics this summer (I’ll post more details in July) looks at the fortunes of nonprofits in the magazine business. It notes that “nonprofit” can take many forms, both legally and as operational models. Many not for profits rely heavily on advertising revenue, just as their for-profit cousins. The study observes that they can be just as susceptible to economic downturns as for profit publications.
Indeed, at a small conference I attended earlier this month, I pointedly asked Rick Edmonds of the Poynter Institute whether the general downward pressures facing the newspaper industry had affected the St. Petersburg Times. That paper is something of the poster child for the non-profit model. The paper is controlled by a foundation set up by the late Nelson Poynter. If the paper has a surplus – the nonprofit term for profit—it declares a dividend. This is turn is the primary source of support for the many good program of the Poynter Institute. Edmunds had to admit that the Times is indeed taking a hit from the same forces felt by all newspapers. It has made staff cuts in its newsroom to help keep up profit. Even so, dividends are down. The Poynter Institute has a comfortable cash reserve for now. But the larger point is that the Times as well as the Institute are not immune to the forces and trends in the industry or the economy.
Philanthropic organizations—even the wealthiest—cannot defy gravity. Harvard, the richest of universities, is having to make major cutback because its endowment—line the financial markets—shrunk 22% ($8 billion) between July and October 2008 alone.
So let’s suppose that a newspaper does indeed have a billion dollar endowment behind it. To generate income it must invest that money somewhere. The more aggressively it’s invested, the more money for the newsroom. If invested in Treasury notes, the endowment is safer—but it may be short changing its mission—essentially leaving money on the table that could be used for journalism. So it takes a moderate course of investment. And suppose that lets the endowment generate a 5% return devoted to newspaper operations. That would be $50 million initially, a nice subsidy to keep up salaries, news bureaus, staffing. But what happens, as it has this past year, if the invested funds lose 20% of their value—well under the markets overall financial loses in the past year, thanks to our hypothetical endowment's conservative portfolio.
Now, with an $800 million portfolio, if it still drew 5%, it could only add $40 million to its income. What’s a publisher to do? Just as advertising and circulation revenue are falling, so is the endowment income that could otherwise prop up its finances. True, it may be better off than its fully for- profit brethren. But it will inevitably need to make cuts: in personnel, in travel, in salaries—the same types of cuts we hear about weekly.
So not-for-profit is not the solution, endowments are not the solution. What is?
As I wrote to Peter, there is not a solution. We have left behind an either/or world for one of many options. There is opportunity for non-profits, such as the well established Pulitzer Center on Crisis Reporting or the new Pro Publica. The entrepreneurial for-profit sector is represented by a new model with GlobalPost. The Detroit newspapers are leading the way (or were pushed) for daily newspapers in hybrid online and print. Advance Publications is trying out another for profit model in Ann Arbor.
The result will be an evolving stew of print, online, mobile, video and audio news sources—international, national, local and hyperlocal. For profit and not for profit. From existing well known media companies, from nonmedia players, from entrepreneurial start-ups. Those that will be successful and those that will prove unsuccessful.
When I teach about marketing, the most important word I emphasize is the word “some.” I tell them not to think in terms of “People want more news” or “People are willing (or unwilling) to pay for…” Market segmentation is about “some." “Some people” want. “Some people” will pay. Some. The digital technologies here and still emerging make it far more efficient to provide news, entertainment, whatever, to each of us in more forms than at any time in history.
There is a delicious irony that the wireless phone companies reap the rewards of enlisting tens of millions of users to pay about $10 monthly for the feature of sending and receiving 160 character text messages, yet publishers can’t make a business of convincing a small fraction of that number to pay half that amount to receive an online “newspaper” or magazine.” We pay to create our own information but won’t pay to receive news and other information created by “professionals.”
This phenomenon is at the heart of a sudden groundswell of concern for the future of the newspaper. Of course, it’s been building, with wave after wave of bad news (which editors thrive on when it refers to anything but their own backyard) of steep declines in circulation and an erosion in advertising that transcends the fall off signaled by the general recession.
And the remedies being proposed? Stripped to their core, there are two. One is to rely on some form of philanthropy. An investment officer at Yale and a financial analyst propose turning newspapers into nonprofit organizations, perhaps endowed by a foundation. They estimate that it would take only $5 billion to fund The New York Times (assuming I suppose a stock market that is more robust that we see at the moment).
The second is to cajole readers to pay something for the online version or to pay more for the print version. In this column I’m focusing on the latter. Another day I’ll add my analysis to the non-profit fantasy.
The re-ignition of the “pay for content”—or as it is now called a “paywall” --- is a response to the tsunami of bad news emanating from all corners of the legacy media business. Although local television and radio are hurting while magazines are downsizing, most of the Sturm und Drang has been about the even worse performance of newspapers. The New York Times has eliminated its dividends to conserve cash and has taken a $250 million loan from a Mexican oligarch. Hearst Corp., once the largest newspaper publisher in the U.S., put the Seattle Post-Intelligencer up for sale Jan. 9, and announced it will convert to digital only or shut it down if a buyer is not found soon. Same for its San Francisco Chronicle. The Detroit Free Press and The Detroit News now deliver papers only on Thursdays, Fridays and Sunday. The Tribune Company is in bankruptcy. And on it goes.
The argument of the growing bandwagon is that newspapers must stop giving away their content free in their online incarnation. They can’t depend on advertising revenue to pay for the same amount of quality journalism that has been supported under the traditional newspaper business model. They need to start charging something. Though not new (I last wrote about it almost three years ago), the subject has been largely dormant until recent months) when a flurry of articles and Blog posts have energized the subject. Tim Burden, at Printed Matters, has nicely annotated the debate since December.
The Achilles heal of this line of reasoning is that advertisers have long covered the full cost of content for newspapers. The share of the total cost of running a newspaper that is derived from circulation revenue has at best covered the cost of the paper, ink and maybe the press, the gas and trucks. Subtract the cost of the presses, printing and delivery and subtract the revenue paid by readers and what is left is the actually the cost of producing the content and the revenue provided by advertisers. At its core, readers have been receiving the information for free for decades.
So if the issue is how can “newspapers” continue to provide whatever mission we think they have fulfilled for the past century as they migrate to an all digital format, then we must follow the money. And that takes us to advertisers-- the same folks who make Google “free” and Yahoo “free” and Huffington Post “free” and “Politico “free.”
If newspapers have essentially been able to thrive on the revenue from advertisers alone (again, with cost of printing more or less covered by circulation revenue), why are they having so much trouble today? The answer is not one single factor, But a major contributor is that newspapers – whether print or digital—are just worth less to advertisers than they were 20 years ago. Back then, local advertisers did not have many options for reaching the mass local audience. What was the alternative for auto dealers? For real estate agents? Supermarkets or department stores? For some, direct mail was one possible option. But that was about it. Using pre-prints instead of ROP became attractive for some large display advertisers, leaving the publishers with a piece of the cash flow. Advertisers were hit with regular rate increases. And they pretty much had to pay, The publishers made good money.
But then a double whammy. Just about the time the Internet became a real alternative for classified listings—think Craigslist, Monster.com, eBay, Autotrader.com—and for retailers—think DoubleClick, Google, et al—the boys at the cable operators had perfected the insertion of highly local spots into their feeds. Between 1989 and 2007 local cable advertising increased from $500 million to $4.3 billion—or from 0.4% of all advertising to 1.6%. Advertising in newspapers fell from 26% to 15% in this period. Although some of the highly local advertisers going to cable may have taken some of their funds from budgets for radio or other local media, it is probable that a significant share came from the hides of newspapers. I estimate perhaps up to 20% of the decline in local newspaper advertising share can be attributed to local cable spots.
The other whammy, the gorilla in the room, is Internet advertising. No need to elaborate. But its impact on newspapers is not just that it has siphoned off dollars per se. Much more importantly is that the Internet has given most advertisers greater market power against newspaper publishers. Many big advertisers—like car dealers, real estate offices and big box retailers—don’t need the newspapers as much.
And this also explains why even an all-digital newspaper may have trouble supporting its economic model with online advertising. If newspapers could have simply eliminated all hard copy production costs and kept its advertising rates at the online equivalent of print milline rate, they could be profitable even with less advertising. But online rates are much lower on an equivalent copy sold vs. online visitor basis.
All old media also had a house edge over advertisers stemming from merchant John Wanamaker’s insight, “Half my advertising dollars are wasted. I just don’t know which half.” Now they do. Publishers (and broadcasters) are at a disadvantage in promoting the efficacy of their product when online metrics provide much greater certainty on who is clicking and even buying, vs. the legacy media.
Hence, the renewed look at shaking coins from the readers or viewers. Easier wished than accomplished. We already have a history of those who have tried and succeeded. It’s a short list: The Wall Street Journal. Those who have tried and considered it a failure include The New York Times, Slate, the Atlanta newspapers and USAToday. The Penny Gap lives.
The magnitude of the challenge can be distilled from The New York Times’experience with its Times Select. In its two years of existence, the Times attracted 227,000 paying customers, at $49 annually. This translates into about $11 million annually. And this was just for access to a portion of its material. In abandoning a partial pay model, the Times calculated that it could get greater revenue from advertising on those paid for pages by opening them up, no charge.
I suspect that what we will find in the intermediate future is a mix of models and choices, among them:
• The Detroit model is one reasonable experiment: An attractive daily digital version, with home delivery of the paper reduced to Thursday, Friday and Sunday.
• An advertising supported all digital model, with the publisher closing down the printing plant, selling off its trucks, laying off the circulation and production departments.
• A voluntary pay model. This may take one of several forms. The “shareware” model for software has proven to work to a point. Users are asked to pay what they can or think the product is worth. Many users will be free riders. But, as we see with public television and radio, millions in their audience make annual contributions. (In 2007 at least one-third of those who downloaded Radiohead’s free "In Rainbow" album made a payment, in some cases higher than what the band would have received from a CD sale.)
How these and other variations develop will also depend on changes in the mobile business. The rate of adoption of SmartPhones with iPhone-sized screens; the pricing and availability of e-readers, such as the Amazon Kindle and the price for wireless broadband will enter into the viability of digital news formats replacing physical formats.
On the one hand, he does not see a scenario where most daily newspapers can survive by squeezing a few dollars a month in the form of micropayment from readers. Having tried the user-pays-something route at Slate, he holds this to be a nonstarter.
But he does see the survivors—several of the major news organizations, plus a few “local papers that execute their transfer to the Web so brilliantly that they will earn a national readership” or some “Web site [that] might mutate into a real Web newspaper” – as actually providing more choice for most readers than existed in the past when there were thousands of print newspapers. Furthermore, “Competition is growing as well among Web sites that think there is money to be made performing the local paper’s local functions. One or two of these will turn out to be right.”
The result, observes Kinsley, is that the “American newspaper industry will be more competitive than it was when there were hundreds.” This is a song a few of us have been singing for years. Soon we might have a chorus.
I'm pleased to report that the Out of Town News kiosk in Harvard Square is not ready for a 30. It apparently has found a new proprietor. I wrote in November that the long time owner was intent on
closing it when its lease expired at the end of that month. It agreed with the landlord-- the City of Cambridge-- to remain open through January while a new operator was sought.
The Cambridge Chronicle reported last week that
there were four bidders. The high bidder was an outfit that runs several other newsstands in the Boston area. At $140 per square feet for the 451 square foot landmark, the rent will actually be a bit
higher than the previous owner paid. Reports of the death of Out of Town News were pre-mature.
When I wrote about the expected cut back on home delivery for the Detroit newspapers, the assumption would be that many of the affected customers could access the online sites of the newspapers. I have learned, however, that the alternative to the “paper” paper is a bit more involved. Beyond the traditional Web site, the newspapers will be introducing rather impressive digital editions.
The digital version is more than a Web site. When initially accessed, the user sees a low resolution rendition of the front page on the left of the screen. Clicking on any article brings up the text of the article on the right. In a touch that tries to preserve the traditional flavor of the print paper, the etxt of articles with a jump actually stop where they would on the front page, followed by a link to the jumped page, but then continues with the rest of the article following. It’s an anachronism—but I can see the rationale for this formatting.
Users also have the option to display two pages across in the layout of the actual newspaper. In this format, the cursor changes to a magnifier, so a click on the low rez image enlarges it to a readable size. Yet another option allows downloading individual sections or even the entire newspaper as a pdf file. (Today’s newspaper was a 46 mb ZIP file). As best as I can tell this still needs some work, as each page is a separate pdf file.
The technology is far more amenable to user preferences than the more static approach taken by YuDu or The Sporting News or other previous digital publications’ digital editions.
The notion behind the digital edition is that it is fixed, being a representation of the print version. It is not updated 24/7. It IS the printed paper, digitally rendered. There is no ink to rub off or newsprint to toss out, but otherwise it has the benefits—pages randomly accessible – and drawbacks—fixed in time—as the print edition. Users are advised to go to the paper’s Web site for updates and breaking news.
I also tried it on my iPhone and it worked well, with the usual caveat of the iPhone’s small screen. But I could use all of the digital version’s functionality. Apparently the digital edition does not use Flash or any other non-browser standard technology.
The digital Free Press (and any other newspaper that adopts a similar technology) won’t appeal to everyone. Nothing does. SmartPhone access can provide some flexibility for mobile use, but is not a satisfying substitute. Reading a digital version, even on a nice widescreen monitor, is confining to a fixed place. But it is not hard to see the possibilities. If compatible with e-readers, such as Amazon’s Kindle or the newly introduced iRex with a 10” “paper” screen, the portability issue and the form factor hurdle recede.
Of course, the technologies only address the economics of the newspaper. They do not solve the enduring bigger question: Who will be paying to buy a newspaper, digital or otherwise?
The auto industry is not the only one in Detroit that is hurting badly. The Wall Street Journal reported today that The Detroit Free Press and The Detroit News will cease home delivery four days a week. The two newspapers are independently owned (by Gannett and MediaNews Group, respectively) but operate under a joint operating agreement that handles business operations for both papers, including delivery.
It’s no surprise that newspapers have been hurting, but the Detroit papers seem to be failing faster than those in other cities. Circulation of the papers is down between 15% (Free Press) and 22% (News), a long term slide that has no doubt been exacerbated by the troubles particular to Detroit’s major business.
The official announcement, expected next week, specifically refers to home delivery, suggesting that the papers will continue to print hard copies daily, with distribution limited to newsstands the four non-delivery days. The digital versions will continue as well.
I would have to assume that, if this comes to pass, the green eye shade folks have figured out the savings for this half-a-loaf strategy. I need to be convinced. If they do indeed still turn the presses every day, then the only savings are the variable costs of ink, newsprint, and delivery costs for the home delivered copies. All other fixed first copy costs stay the same. Subtracted from the savings is the lower advertising rates that could be charged for those days, reflecting lower circulation. The cut back is expected to be accompanied by a dramatic redesign of the print editions, which may have some cost implications. I guess we should wait for the details to make a final judgment.
The pending announcement makes very real the current virtual office pool in media circles, the winner being closest to predicting when the first major city newspaper would announce it would become an online-only service. Indeed, we may have a winner. in his column last week on media predictions for 2009, Business Week columnist Jon Fine included this precocious prophecy: “More than one newspaper in a top-100 market ceases publication or reduces its print edition to something unrecognizable as a daily newspaper.” Had he heard the scuttlebutt about Detroit, or is he just that good? (Fine also wrote “At least one recent, heavily leveraged media deal—Tribune, Univision, Clear Channel, the Minneapolis Star Tribune, I could go on—goes bankrupt. A week later the Tribune company did file for Chapter 11, though that debacle was a bit more foreseeable).
Two months ago, the Christian Science Monitor announced that it would become a weekly in print, along with its continually refreshed Web version. The Monitor has long been suffering so it was even less a surprise that the Tribune filing.
Still, this is quite likely the start of a trend. Some publishers may be emboldened by the Detroit plan to move ahead their own online-only strategy. Others can wait and see how it works out for Gannett and MediaNews, then either follow suit or decide to find other ways to cut costs. My own prediction (drum roll please) if that over the next two or three years more dailies will move to a hybrid platform, akin to Detroit, with less than daily delivery or even printing. The early trickle could become a stampede by the end of the decade, regardless of how fast the economy recovers. Newspaper economics are changing.
There is no dearth of bad news about the state of the newspaper business: Declining circulation and advertising linage, translating into repeated downsizing of staff and bureaus.
But much of that is abstract for those not actually losing jobs. So here’s a blast that brings the harsh reality home: Out of Town News, the venerable international news outlet in the epicenter of Harvard Square, in the epicenter of one of the more literate nooks of the world, is closing.
Out of Town News used to be a bustling hub, situated just outside Harvard Yard, across from the Harvard Coop bookstore, at the literal crossroads of Massachusetts Ave, JFK Street and Brattle Street. It was at the entrance (or exit) to the Red Line of the subway system.
John Kenneth Galbraith bought a copy of Le Monde there every day. Julia Child searched for obscure Italian and German cooking magazines, and Robert Frost once stopped by - it actually was a snowy evening - to get directions to a reading.
I used to stop by often. Outside there were stacks of the Globe and Herald, The New York Times, New York Post and the Daily News, Wall Street Journal and Washington Post. Inside were shelves laden with newspapers from Los Angeles, Philadelphia, Denver, Athens, Tel Aviv, London, Paris, Frankfurt, Tokyo: Indeed, 200 cities. Its name was truth in advertising. There were also hundreds of magazine titles, inside and outside. Customers could stand there and browse—or even read—without fear of being asked to move along.
But times change. I haven’t bought anything from Out of Town News in maybe 10 years. And apparently many others haven’t. Galbraith and Child are gone—replaced by a new generation that can read today’s Le Monde online—instead of paying $4 for a two day old issue.
Out of Town News was started by Sheldon Cohen in 1955. Previously he hawked newspapers with his father at the subway station. I met Cohen in the early 1980s. At the time I was working at a policy research program at Harvard, trying to scope out the implications of the inevitable transition to digital for the information industry. For a guy with ink under his nails, he was precociously curious not only about what threats that might have for the print business but what opportunities it might hold for him.
Though later I would see him now and then in the Square, I don’t know for sure where those few discussions lead him. But with great timing—maybe luck, maybe insight—he sold his business to Hudson News in 1994—yes, the year that the Internet went commercial and the Netscape browser was released. Hudson News is the purveyor of print media and over priced gum at newsstands in many airports. According to the Globe, Cohen, now 77, wept when he was told that the kiosk would be closed.
Institutions need to sunset when they have outlived their usefulness. There is probably a majority of two or three generations of Harvard students who have walked through Harvard Square for four years and never stopped into Out of Town News or even thought much about it. I wonder what will be the media institutions that disappear for them to shed a tear over when they look back.
[Added March 30, 2009: Reports of the death of Out-of-Town News were a bit premature. See this brief update.]
The current financial crisis only rubs salt into the wounds of the newspaper industry. Already hemorrhaging advertising linage and revenue (The Philadelphia Inquirer is reduced to putting car dealer display ads in the main news section where attractive full pages of department store ads used to be), a recession would further erode advertising. But now comes a credit and liquidity crunch that could affect newspapers companies carrying high debt loads, especially if the debt needs to be refinanced in the near term.
The “Heard on the Street” column of The Wall Street Journal last Friday noted that “Of the U.S. media companies whose debt is rated by Standard & Poor's ... 86% are speculative-grade, a higher percentage than any other industry.” Those companies planning to pay down debt through asset sales, such as The Tribune Co., may find that potential acquirers will have less access to financing. With $12 billion in debt, it was expected to pay some of that down through the sale of the Chicago Cubs. But that is not a done deal.
McClatchy Balance Statement
For example, McClatchy, the third largest newspaper publisher, is laden with debt from its 2006 acquisition of Knight Ridder. Its long term debt is still 10 times higher than pre-Knight Ridder even after using proceeds from sales of some newspapers to pay down debt. At the end of June, McClatchy had $1 billion in revolving and term bank notes loans as well as $50 million in public debt that will come due in 2009.
Its Long Term Debt to Equity is 5.8, up from 0.1 in 2005. And its stockholders equity is down 72% from its 2005 level. All this gives the owner of the Miami Herald and Raleigh News & Observer little wiggle room for raising additional capital. This crunch is reflected in its recent dividend announcement, cutting in half its dividend to conserve cash. That step is in addition to a 10% reduction in its workforce.
Holding higher relative amounts of debt is called “leverage” in the financial world. Used judiciously, leverage can help an enterprise grow without diluting the holdings of the owners. But when access to debt is too cheap and easy, it can also lead to making poor strategic decisions. And once laden with debt, it restricts further flexibility when, as now, credit comes with more strings and tighter knots.
With the decline in advertising and circulation, restrictive and more expensive credit may only accelerate the slide for some media companies.
Today was the first public edition of “The Sporting News Today.” This is a free, online daily version of The Sporting News, the weekly magazine that got its start as a bible for baseball fans.
The Sporting News has a rich history, starting publication in 1886. I remember my father subscribing in the 1960s. It was thick with box scores and stats for every team and every major sport. In 1977, when the Times Mirror Co bought the publisher for all of $18 million it had a circulation of about 356,000. By the time it was sold to Vulcan Ventures in 2000 for $100 million it had a circulation of over 500,000, but it was being threatened by the successful launch of ESPN Magazine, which had 850,00 circulation within two years of its 1998 launch.
The Sporting News was sold again in 2006, to American City Business Journals. Today the circulation is about 700,000, but at an annual price of only $14.97 for a new subscription—compared to about $61.00 in constant dollars in 1978.
Like many print publications, The Sporting News has been substantially affected by online content. Daily sports news has been particularly hard hit. The Internet is made for getting late night scores, accessing the scads of stats that even casual fans crave, following teams in far-off cities—and all for little or, most often, no consumer cost.
Like most other print publications, it has had an online presence. The Sporting News Today is something else though. It is a magazine formatted for the screen. But it is not like a Web site. It involves no scrolling. It is pdf-like, though it is not read with Adobe Reader. It is not the print edition read online, as with Zinio. To me each screen looked like a double page spread in a magazine—but with no need for a gutter. I sort of felt that I had spread opened the tabloid-sized magazine. You will note that each of the “double pages” has one page number.
By offering to send subscribers an email each day, readers so do not have to bookmark anything. Just click the link.
The content is vintage Sporting News: Right now heavy on baseball, but lots on football—professional and college. There is hockey, basketball, NASCAR, tennis. Even Little League World Series coverage is promised. And, with a nod to WEB 2.0, it will offer readers the opportunity to provide their own input: “You’ll get a byline, file to an editor.” (Actually, a clever spin on “Letters to the Editor.”)
No surprise, the business model for the Sporting News Today is, for the moment at least, advertising, though it was rather light for a first edition. The inaugural issue had a full page from SpeedTV.com, three half page house ads for Sporting News affiliates and a full page promotion for the revamped Sporting News magazine, which will become a bi-weekly. (Management expects to lose 100,000 circulation from current levels to the free online publication).
I’m not a design expert—I’ll leave that to my colleagues at Innovation Media Consulting Group. But the Sporting News Today will feel comfortable to readers who like the look of print and are put off by clicking here and there for do their online reading. The layout feels modern but grounded in print. How that plays may be generational—or not.
As a final note, it may be worth pointing out that while traditional print publications are downsizing, The Sporting News Today is hiring. Indeed, I got turned on to its impending launch by Charles Apple, it’s new art director, who was hired away from the Virginia Pilot newspaper. (Has anyone seen numbers on how many print journalists have been hired by online-only ventures other than self-funded blogs?)
There has been speculation in recent years on when we will get the first announcement that a daily newspaper will shut down its presses completely and switch to digital-only. There are still some big hurdles, like portability. But should services such as Amazon’s Kindle take off, allowing readers to take their digital publications on the go, then the Sporting News Today model may have legs and encourage a general interest newspaper to give it a whirl.
I really, really promise that I will not be stuck forever on what might be seen as a crusade about the change in the editorial mix of The Wall Street Journal since Rupert Murdoch took control. I don’t want to become the Ben-one-note on this as Lou Dobbs has become for his anti-immigration tirades.
Still, there is some news on the subject. I have written several times now about how the Journal has been devoting its front page to hot-off-the-press headlines that are essentially the same as what every other daily publishes: “Obama wins primary,” “Cyclone levels Sri Lanka.” This is a form of run-of-the-mill reporting to which the Journal brings little value added and, with earlier deadlines than most local dailies, perhaps less value.
But now comes some hard data—that’s what I like more than impressions—that does indeed confirm a substantial shift in the Journal’s editorial coverage since the change in ownership. The Project for Excellence in Journalism undertook a content analysis of the front page stories in the Journal for the four months before the December 12, 2007 date that News Corp. acquired control of Dow Jones, the parent of the WSJ and the three months following. Its finding was unambiguous:
In the first three months of Murdoch’s stewardship, the Journal’s front page has clearly shifted focus, de-emphasizing business coverage that was the franchise, while placing much more emphasis on domestic politics and devoting more attention to international issues.
The before and after change is most dramatic in several areas, as seen in PEJ’s chart I’ve cribbed here. Political news is up four fold, reflecting the intense coverage of the primaries that in the past election cycles would have received less space (if only because until recently the Journal rarely devoted more than a single front page column to any story). The full report at the Project’s Web site also compares the “new” Journal’s editorial mix with that of The New York Times, which Murdoch is keen compete with. There are still substantial differences, with the Journal devoting more of its front page to foreign topics, business and economics, less to politics.
Jack Shafer, writing at Slate’s Press Box last month, made note of the PEJ data, but chose to focus on his more generalized impression that the Journal may indeed be better under Murdoch because “it was swinging hard again in its traditional wheelhouse to produce great enterprise journalism.” He proceeds in identifying some examples, all, indeed quality reporting in which the Journal has long excelled.
This may be wishful thinking on Jack's part. I hope not. He has certainly identified some fine-- and traditional -- Journal pieces. But I'm speculating that perhaps they stand out because, as Jack notes, the primary season is over, and there had been no devastating earthquakes or cyclones for a few weeks, and the presidential campaign was in pre-convention simmer. Indeed, in the midst of these fine articles was the front page on June 4, as Obama wrapped up the Democrat's nomination. It struck me immediately as I picked up the Journal and The Boston Globe from the driveway that the Journal article was readily interchangeable with the Globe (and other dailies) articles. In my analysis, every day the Journal wastes newsprint with such headlines, photos and copy is a day lost to do the type of journalism Jack is rightly trumpeting.
I’ve mentioned before that I have great respect for Murdoch as a savvy businessman and as a risk taker who has made real contributions to the competitive landscape of the media.. My current critique is that the hot news approach is not a strategic direction that plays on the Journal’s long time strengths. To the contrary, it takes the paper on a path that daily newspapers should be trying to leave behind.
Ok. ‘Nuff said. I’ll leave this behind. If only Lou would move on from his obsession.
The Wall Street Journal's editors again flub an opportunity to differentiate themselves from the fading pack of daily local newspapers. At least the Times used the slightly more accurate "Claims" rather than "Clinches" and uses a marginally less trite photo.The Journal used the same photo as chosen by the Philadelphia Inquirer editors.
It will take the a few circulation reporting periods (March 31 and September 30) to get a feel for whether the Journal's new "look like a conventional daily" strategy is a positive or negative.
Most of what my colleagues and I write about in this space back in some way to the tsunami-scale scale changes overtaking the legacy media and the absence of a roadmap for what they should do. We can only track what seems to work for others, try to prognosticate the future (iffy beyond, say, six months), observe forces and trends at work, cajole and suggest.
There is, in short, much uncertainty surrounding where the business models for media are and should be headed.
One area that legacy media can control and should know something about is content. Newspapers, broadcasters, publishers of all stripes, have absolute control over their content. Newspaper publishers constantly need to ask themselves “What do consumers want when they subscribe or take $.50 (or $1.00) out of their purses/pockets to buy the publication. Broadcasters certainly ask, ‘Why should viewers tune us in?”
But I’m constantly amazed at their lack of insight and therefore the choices they make. And here I’m referring in particular to the broadly defined “news” segment of the media. Research shows that there has been a range of motivations that are involved in getting individuals to buy a newspaper or tune in a news program—or click to a Web site bookmark. One of the top motivating factors is the interest in learning what we do not know. What happened in the world while I slept? Who won the game last night? What is the weather forecast for tomorrow? What did my stocks close at? What does some “expert” think about a new movie or show? Surprise me!
What we don’t need the news media for is to be told what we already know. The Internet has, of course, made it possible for more people to know more of the answers to the above types of questions before they are available in print or even on a regularly scheduled broadcast. Still, there are many things we know even without the Internet. For example, most of use know if it is hot outside. Or wet or windy or cold. We look out the window or open the door. Anyone who drives a car knows the price of gasoline. Anyone who flies knows the airports are crowded and lines at Thanksgiving are long.
So where am I going with this rant? I’m astounded—and hopefully some of you are as well—at how the editors of news media shoot themselves in the foot everyday with the non-compelling nature of their many of their content decisions. For example, most days I turn on “American Morning” on CNN, even before the computer is fired up. And what do I hear, at length, each day lately? A business reporter, Ali Velchi, telling us the price of gasoline. “Pain at the pump” is the not so original refrain. And the usual “B” roll of someone filling up, with the obligatory quote from the woman in the street who is driving less and someone who will give up their “gas guzzler.” And the anchors commiserating over the latest record. And a reiteration of where Lundburg or AAA thinks the price is going in the “peak driving season.” Compelling stuff, no? Maybe the “Today Show” isn’t so lame.
Not long ago I was asked by a small chain of newspapers to spend a few days with their editors in a session to help them understand and strategize for the challenges facing them. They sent me a large stack of their newspapers so I could get a flavor for them. In the sample were issues from several of the papers with a variation of the headline “It’s Hot Out There.” Immediately I created in my head what this would say. By the third paragraph it would quote some gardener about the heat and how he is coping with it. And sure enough, in the first article I read I was both pleased and disappointed with the copy. There, in the third graph, was a quote from Pedro something, with the Generic Landscape Co. “Yeah, it’s hot. So we start really early and quit by two o’clock,” he explained. I mentally patted myself on the back. But there was more disappointment that the article was so very predictable.
However, the larger point is that, with both CNN and these newspapers (and many others that could be included) that these prominent “stories” were not about news. They were what anyone knew.
In this space I have recently been critical of The Wall Street Journal for a new editorial approach that has often reduced prominence of analysis and surprise in favor of featuring in many cases material that most readers would already know: A who-what-where-when accounting of an earthquake. A routine summary of the previous night’s primary results (and, with its early deadline, less timely that what was in the local newspaper). It is telling readers what many, if not most, could be expected to learn from other media they are likely to have seen.
The legacy “news” media cannot materially change the trend toward whatever is coming via technology. But they can slow their demise by concentrating on the content of their products. And they can enhance the position of their digital products as well by providing audiences with the serendipity factor and with a value added quality that is needed to have users buying, tuning or clicking to their products. That has been the not-so-secret sauce behind the strength of The New York Times, USA Today, Fox News and, until recently, The Wall Street Journal. Give people what they don’t know, not the current weather or yesterday’s price of a gallon of petrol.
Sometimes less can be more. This is the implication of my colleague Dorian Benkoil’s thoughts here last week about how newspapers (and other legacy media) might position their Web-based content to optimize revenue over eyeballs. Special interest magazine publishers have long worked this way, charging far higher cost per thousand ad rates for Time Inc's Fortune for example, than for its People, as the former has more attractive demographics for many advertisers than the latter. So a far smaller circulation can bring in as much revenue and perhaps greater profit margins than more circulation and costs. This has been the economics behind many subject-focused cable TV channels as well.
Here’s another way to look at more by subtraction. David Pogue, a New York Times tech columnist who I find entertaining and quite informative, had a column last month about why a product can be a success even with acknowledged flaws. Referring to Apple’s Mac Air he wrote:
…When your laptop has the thickness and feel of a legal pad and starts up with the speed of a PalmPilot, it ceases to be a traditional laptop. It becomes something you whip open and shut for quick lookups, something you check while you're standing in line or at the airline counter, something you can use in places where hauling open a regular laptop (and waiting for it) would just be too much hassle.
It's the same lesson I learned when I reviewed the Flip "camcorder" a couple weeks ago: if you change the shape and concept of something enough, it ceases to be that thing. It becomes a new thing, or a descendant of that earlier thing. But it's no longer the original thing, and you can't judge it on the same yardstick.
Lesson learned: Form—the products attributes—can create the function. Thus an entrepreneur can break out of a well-defined category (camcorder, laptop, cell phone) by changing some key characteristics—weight, time to boot up, capabilities—even a dramatic new price point.
Does this insight provide any guidance for the media industry? Should the local newspaper continue trying to be a general interest publication even when online? Is it already something else, in which case it needs to be evaluated by a different metric (i.e., time spent, return visits) than what has been used in the past (i.e., hits or clicks or gross eyeballs or total page views)? Or, perhaps, should legacy media be creating new “things” based on the old? What is the media equivalent of the Mac Air or Flip camcorder: a product that is recognizable but, by changing—often removing—product attributes is used by consumers (and advertisers in this case) in new ways?
Experiments with short form videos—first popularized from the bottom up thanks to the YouTube platform—have now become mainstream with the traditional video programmers. Viacom purchased short film pioneer Atom Films in 2006. But most attention continues to be on finding outlets for conventional programming, such as NBC Universal/News Corp.’s Hulu.
If I had the answer I’d offer it (though probably not here—a guy’s got to feed his family, or in my case, start paying college tuition). But I think it is an area ripe for brainstorming and another round of informed trial and error.
Have you heard about the “Freemium” business model? It’s a label offered by James Governor Jared Lukin in a “name-that-model” contest proposed almost exactly two years ago in a post at A VC by Fred Wilson, a partner in a New York venture capital firm.
Wilson looked at many of the more successful Web ventures and observed that what they had in common was a basic service that they offered for free and a step-up premium service that they charged for.
The basic voice over IP service Skype, for example, lets users call anyone anywhere for no cost, so long as both the caller and callee are at broadband-connected computers. However, if you really want to be able to call anyone anywhere—that is, to a land line or cell phone -- there are per minute charges. Want voice mail? Upgrade to Skype Pro.
A wonderful service I use called LogMeIn employs a similar approach. It gives me access to my desktop computer from any other computer, anywhere. A free version lets me see all my directories and files and transfer them to my remote laptop. The upgraded version actually displays the screen of my desktop, with access to any program or file, as though it was on my remote computer.
There are many other examples.
But for the Freemium model to work, Wilson observed there are other characteristics that demarcated the more successful implementations and the others:
• Ideally, they don’t require any downloads or plug ins to start. Lots of exceptions here, but it is a helpful goal.
• Support every browser with any material market share. There is no excuse these days to be FireFox or Safari challenged
• Make sure the service works on various flavors of Windows, OSX, and Linux.
In short, he says, eliminate all barriers to the initial customer acquisition.
But unlike 30 day free trials before having to pay, a true Freemium experience ensures that whatever the customer gets day one for free they are always going to get for free. Nothing is more irritating to a potential customer than a “bait and switch.”
If Freemium is such a great approach, why wasn’t The New York Times’ foray into this model more successful? It gave away a basic service and, with Times Select, offered a premium upgrade.
Part of the answer (there is sometimes but not usually a silver bullet) may be that the model is most likely to succeed when the customer implicitly understands why the paid service has to cost money. Free e-mail accounts that offer greater storage for a fee. Termination cost on other carriers networks in the Skype model is explicit justification. In the case of TimesSelect, it would be obvious to most readers that arbitrary withholding of access to some portions of content was not related to significant costs. It may have made some sense as a “value” play, yet it clearly did not work. “But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results,” concludes Wilson.
The Freemium model was augmented one year later by another venture capitalist, Josh Kopelman. He has labeled his observation “The Penny Gap.” I recall meeting Kopelman when I was teaching at Temple University in Philadelphia. He had started Infonautics Corporation, the predecessor of today's High Beam Research, in the early Internet days. I assume from that he learned some lessons about offering a subscription service that gave users access to a wide range of magazines, journals, reference and newspaper material. (And that he was more successful with a subsequent venture, Half.com, acquired by eBay).
The Penny Gap says in essence that getting a user to go from free to any sort of payment, even a penny, is harder that getting a paying subscriber to pay more. Going from free to $1.00 is a much higher hurdle than from $1 to $2, even though the difference is the same. The Penny Gap is a disconnect with classical economic theory, which would hold that demand increases as the price decreases. As Kopelman illustrated in the accompany figure, getting users to make any financial commitment is the greater hurdle than the amount itself.
What does this say about the content-heavy online ventures of the legacy media business? In large measure it helps explain why they settled for the most part (well, except for The Wall Street Journal) on an advertiser supported Web model. From USA Today to Slate to The New York Times media sites have tried and failed to make a user pay model stick, despite offering some high grade content.
But by dissecting the successful non-media sites that have achieved a substantial user-pay component, could media firms find areas where they can truly find value added to justify a premium? I’m not optimistic. Two years ago I might have offered that a comprehensive ad-free video service could be sold at a premium. Recall CNN tried that with its Pipeline service, providing real time video streams and an archive of telecasts. It met many Freemium characteristics, including a presumption of additional cost for all the storage and bandwidth. Apparently Time Warner determined that more advertising revenue outweighed the subscription dollars. Hulu, the new NBC Universal-News Corporation joint venture, is all free, all the time. It has not made noises about offering paid-for premium content.
The bottom line is that as a generalization the media business may not get over the Penny Gap chasm. For those firms that have been on the electronic side, where advertiser supported has long been the total revenue stream, maintaining that model may be easiest to accept. For that segment of the print media that has been used to drawing at least some of its revenue from consumers, resigning itself to only advertising may be tougher. And perhaps a bit of a blow to its self-esteem.
When News Corp. first announced its intention to bid for Dow Jones, some critics moaned that Rupert Murdoch would impose his political ideology (presumably conservative) at the flagship Wall Street Journal. Jack Shafer at Slate, no knee-jerk Murdoch critic (“I genuinely admire the rotten old bastard”), nonetheless had his early list to be skeptical.
Rather than muck up a successful franchise that has outperformed the dismal newspaper industry metrics in advertising and circulation in recent years, my take at the time was why would he do more than invigorate management?
Well, I was wrong. Although there is no noticeable new slant ideologically, there has been a very visible change in editorial priorities. My own opinion is that they are taking the Journal 180 degree from where it should be.
For me (yes, I know, a sample of one), the attraction of the Journal was the unique front page: Distinctive both in physical layout and in content. It was clearly not my hometown Boston Globe—or your hometown whatever. I need not elaborate for anyone who has been a Journal reader.
While the Journal had moved away from the old six column layout, with most articles running one column down the front page, to a more conventional design with multi-column heads and less copy on page 1, the gist of the content was the same.
Now, many days I pick up the Globe and the Journal outside my door and I need to stare for a second to figure out which is which. Do I really need the Wednesday Journal to tell me about the vote tally from Tuesday’s primaries (and with an earlier deadline, less complete than the Globe). For that matter, what proportion of Journal readers even need the morning paper to inform them of the outcome? They got it from TV last night, from TV this morning, or online anytime.
There was certainly room for improvement in the management of Dow Jones that News Corp. could provide. Fresh thinking can be introduced. As one who has been following the ups and, more lately, downs of the newspaper industry professionally for 35 years, the fresh air being blown across the newsroom of the Journal seems to be a cold wind rather than a crisp breeze.
Prove me wrong Rupert. It’s your money and legacy. But if I’m right, can I get the old Journal back?
We know—or thought we knew—that Bill Gates and Steve Ballmer are smart fellows. But smart, as in understanding software architecture or how to manage a company or develop products is a different kind of smart than strategic smart. Apparently Messrs Gates and Ballmer don’t have the smart big acquisition gene.
I say this as an outsider. I don’t have access to the crunched numbers and five year outlooks no doubt ginned up by the Microsoft investment bankers. And, to be sure, many business pundits have a similar pat justification, all along the lines that both Microsoft and Yahoo have persistently tried to best Google but failed. “No one can compete with Google on their own anymore,” says Jon Miller the former chairman and chief executive of AOL. “There has to be consolidation among the major players.
Suddenly Microsoft, just a few years ago the bad boy of the computer galaxy, is—what—the white knight? Mark Read, director of strategy for the WPP Group, which owns ad agencies like JWT and Ogilvy & Mather, opined, “It is good for investment. It is good for competition.”
A combined Microsoft and Yahoo, notes The New York Times, would beat Google in Web traffic and come closer in ad revenues. Most importantly, the pair would give Google a greater challenge as it tried to enter display advertising, because Yahoo has the largest share of that market.
But wait a second. What does a merger with Yahoo really do for Microsoft—to the tune of a cool $44 billion? Lets look at some numbers.
Google has grown dramatically, going from zero to $17 billion in revenue. It is highly profitable, a bit (well, $200 million) over $4 billion in 2007. Very impressive. But Microsoft had almost 3.5 times that revenue -- $58 billion—and four times the profit-- $17 billion.
So what does Yahoo bring to the party? Not even $7 billion in revenue and a piddling $660 million in profit. It brings a search engine that’s technically pretty good. But Microsoft already has a comparable piece of technology. Yes, most of its revenue is derived form online advertising, nearly twice that of Microsoft.
And what’s the synergy of Microhoo? (or Yahsoft?). Not much that is obvious. Microsoft forecasts at least $1 billion in annual cost savings for the merged entity, from synergies in areas such as combining engineering talent.
Sure, a merger of this magnitude—pegged to cost savings rather than market opportunities-- would make sense if Microsoft was a struggling enterprise. It's not -- and a 29% profit margin at that. It has $21 billion in cash and short term investments. Assuming it actually realized the savings—so what? Microsoft already has the resources to compete with Google—if it is possible at all.
Then what does a Mircohoo end up with? Despite trying, Microsoft has not come up with a strategy to erode Google’s dominance in search and online advertising. Its share of the search market ended last year at 9.8%, down from 12% in mid-2006. Yahoo does better, but fell from an estimated 28.8% mid-2006 to 22.9% last year.
Now, let’s see. We take Microsoft’s failed strategy and add it to Yahoo’s failed strategy... and the best they can come up with is some savings effect, as the combined entity slides further behind.
I understand that the hope is that the two combined would bulk up to a third of the search market—perhaps in aggregate enough to prime the pump to attract more advertisers. But Yahoo alone had nearly a third of the search business in 2005 and that did not keep it from sliding downhill since then.
The combination of Time Warner with AOL in 2001 has been a disaster. However, it was primarily the outlandish $112 billion price tag, negotiated at the peak of the Internet bubble, that made it ridiculous. The notion of an old time content company wanting to modernize by associating with the new media start-up had some strategic sense, even if the conflicting cultures and stratospheric valuation doomed the combination. I could understand the potential synergies, even if not to the degree that could justify the cost.
I can also understand Microsoft’s necessity to segue from the operating system and packaged software business to a greater reliance on Internet-derived revenue. It knows it needs to modify its current business model. But I can think of better uses of $44 billion to get there. Glad I sold my Microsoft stock last year.
The Wall Street Journal Online Wants to/Does not want to be free, Part 7
Did I say in November that Rupert Murdoch said that the Wall Street Journal Online would do better with a totally ad supported business model? As Emily Latella would have said, “Never mind.”
We had some discussion here last summer on the scenarios that might justify a free strategy, wherein lower ad rates and foregoing $60 million or whatever in subscription revenue could be made up by 10x greater readership.
Apparently the new owner of Dow Jones is backing off. A report on a Wall Street Journal bureau chiefs’ meeting last week says that “Murdoch has scaled back his ambition to make WSJ.com entirely free.” According to one who was there “He said he originally thought making it free would bring in the biggest audience, but that after studying it it’s not as simple as he thought.”
I’m referring to the decisive TKO win for Sony’s Blu-Ray high definition DVD format over Toshiba’s HD-DVD format. Warner Bros. Entertainment announced yesterday that starting in May it will release high def DVD’s only in Blu-Ray. Up to now it has been selling them in both versions. Thus, the all Blu-Ray line up is now The Walt Disney Co., Sony Pictures, Twentieth Century Fox and Metro-Goldwyn-Mayer, in addition to Warner. Blockbuster had stated publicly last June that it would henceforth only stock high definition DVD’s in Blu-Ray. That leaves only Paramount and Universal in the HD-DVD camp. Blu-Ray players have been outselling HD-DVD players. But the industry consensus was that most consumers were waiting for a standard to emerge before committing. That time might be now.
There is a certain irony here, in that in the last big format battle royale in the 1980s, between Sony’s Beta video cassette format and JVC’s VHS format, Toshiba was one of the few electronics companies that stayed with the Beta format for many years. Sony pioneered videocassettes with its ¾-inch industrial U-Matic and then revolutionized the consumer industry by using time shifting as the way to solve the chicken and egg dilemma for getting out prerecorded videos. But then it lost the marketing war with JVC and Matsushita. Most engineers agreed that Beta was the superior technology, but VHS was good enough. Sony tried again with 8mm cassettes, but that never got traction as a pre-recorded format.
Indeed, the lessons from the videocassette battle would have suggested that the HD-DVD format should emerge the winner. Though less technologically sophisticated, it is less expensive to manufacture. Beyond the earlier adopters, the mass market tends to favor low price over tech elegance (top example: Mac vs. PC). But that doesn’t seem to matter when it is the content providers who now have a say in the direction of the hardware victor
The apparent win by Sony is also a minor setback for Microsoft, which backed the HD—DVD format with an external player for its XBox. On the other hand, all 2.5 million Sony PlayStation 3 consoles are Blu-Ray ready.
There was great anticipation in the industry over Warner Entertainment’s impending announcement. It was courted heavily by both sides. But with stronger Blu-Ray disc sales in the U.S. and even a greater Blu-Ray preference globally, Warner threw its clout to Sony. Neither the manufacturers nor the studios were benefiting from the consumer uncertainty and, in the case of many studios and retailers, the cost of manufacturing and stocking multiple formats. Everyone was hoping for a winner—though Toshiba wanted its technology to be the one that won.
As word gets out to consumers, look for Blu-Ray players to drop in price as volume ramps up and more titles become available for purchase and rental.
While my colleague Dorian Benkoil has been writing about entrepreneurial journalism, I’ve been studying a slightly different universe, media entrepreneurs. In collaboration with Anne Hoag at Penn State, we have been seeking to learn whether media entrepreneurs are different than entrepreneurs in general. That is, does one go into the media business motivated by a different set of goals than other sorts of entrepreneurs, say, in restaurants or pharmaceuticals? And, more broadly, what is the state of media entrepreneurship today?
I first discussed this line of research in an entry a few years ago at my Who Owns the Media? Blog. More recently Anne and I have pursued this notions of media entrepreneurship and have made some encouraging findings about the vibrancy of bottom up media. This is, indeed, a phenomenon that was recognized in America's earlest days. In our most recent paper we note that
It was Frenchman Alexis de Toqueville who first observed in the 1830s the role of media entrepreneurship in the United States. In his second volume of Democracy in America, Toqueville identified the media entrepreneur (though not employing that term) as peculiar to American democracy in a passage titled, “On the Literature Industry.” He may well have been the first to recognize the inherent interdependencies among media, capitalism and democracy, noting that democracy creates a mass market for “literature” (Newspapers, books and a few magazines were then the only mass media) because citizens seek to be informed in order to participate in their democracy.
We characterize media entrepreneurship as “the creation and ownership of a small enterprise or organization whose activity adds at least one voice or innovation to the media marketplace. In her initial work, Anne found that in measuring the incidence of media entrepreneurship in comparison to other U.S. industries, media on the whole were at least as entrepreneurial, and often enjoyed greater rates of entrepreneurship.
In the most recent line of our research we undertook extensive interviews with 14 entrepreneurs who started media businesses. Though not any sort of statistical sample, we did strive to locate a diverse group of subjects. About half were involved in traditional media—newspapers, book publishing, cable and film—while the others were in some type of online media venture.
Although the entrepreneurs we interviewed have come to their media ventures by many different routes and are at different stages in life, there are some striking similarities in their motivations and attitudes toward entrepreneurship as well as their process for discovery and exploitation. In brief, they are hard pressed to recognize any particular barriers, regulatory, technological, structural or otherwise. And while they are working to make their ventures profitable, their first thought about being “successful” is often a reference to having an “impact” or having influence in some sphere.
From my point of view the most noteworthy insight was that this impact appears in two distinct forms. Some view running a media enterprise as more than just an entrepreneurial venture. The media’s power to influence, for this group, is a prime motivator for becoming an entrepreneur. Others exploited their media ideas for reasons similar to those of entrepreneurs in general. We refer to the former group as “missionaries” and the latter the “merchants” -- a potentially significant organizing concept for media entrepreneurship.
For example, typical of the of the missionaries are the comments of one interviewee who said that merely running a business, “holds absolutely no appeal to me…When you say that, I think of payroll taxes, balancing a cash register. When you say media, I think creative, influence, reach.” She added that a media business was appealing because “you can help people in the masses. There are very few other ways to do that."
A minority of those we spoke to we determined were “merchants.” In general, they responded that running a business, not necessarily a media business, was the motivating factor. Merchants talked about success and rewards in terms that could apply generically to any enterprise:
“It’s rewarding from a self fulfillment stand point that, hey, here’s a concept that I took….We brought it to the marketplace and made it successful. That’s, you know, part of it. There’s a real sense of fulfillment now the fact that we have people working for us. People depend on us for their livings. We're supporting other families, paying taxes and being good citizens. … There’s a satisfaction that comes from that."
The research supports the notion that prospects for new media players—and hence voices—is strong. Or at least there are many entrepreneurs who perceive great opportunity. Combined with our data that shows rapid growth in the number of media businesses overall, it bodes well for diversity of formats and sources of media-supplied content. Perhaps most encouraging is that these entrepreneurs barely recognize the existence of barriers to entry to the media business.
That newspapers continue to lose advertising market share to the Internet is not a revelation. That newspapers are losing share of local advertising is a reason for concern. According to the latest tally, newspapers accounted for 43.7% of the local online advertising pie of $8.5 billion for the first 10 months of this year. This was down from a 44.1% share of a smaller total in 2004. The online revenue of local TV stations, on the other hand, did not decline so precipitously.
Local advertising traditionally has accounted for about 85% of total revenue for newspapers in larger market, even higher for small market newspapers. Local TV stations receive a far higher proportion of their revenue from spot national advertising, while radio stations have tended to be in between, though in most case closer to newspapers than TV. The primary local competitor for newspapers has historically been directories (e.g., Yellow Pages) and direct mail. Increasingly, cable has been able to siphon off local dollars with the capability to insert advertisements down to the neighborhood level.
What must be most unnerving to newspaper publishers and, to a lesser extent other local media players, is that pure play Web sites now have the largest share of local on-line advertising revenue—43.7% by the reckoning of Borrell Associates.
How can this be? Didn’t the publishers take solace in the fact that their local papers had a built in advantage over the upstarts thanks to their identification with the local market? And that all-critical brand equity?
It is becoming evident that the value of ad placement based on search terms, Zip code or Internet address proves more effective for the local advertiser even if the page viewed does not directly contain information that is congruent with the location of the user. That is, the value of the local newspaper or radio station has been that the advertiser had a high degree of confidence that anyone listening to that station or reading that paper was in their local trading area. But online the advertiser may not only be assured that the ad is placed in view of an individual within their target trading area, but may also have specific demographic or other characteristics desirable for that advertiser. Not to mention the added delight of knowing when an ad may have been seen and responded to in the form of a click or more.
Of course, this is true for the online site of any local medium. Too often, however, it seems that while the publisher’s sales force was working on convincing the paper’s current advertisers to try the online version, the new players had no such blinders. They were marketing to anyone, which often meant new service providers and merchants who had not been print advertisers: smaller in size but far greater in number. A version of the long tail effect. And that is where much of the growth is coming from. It’s not just old advertisers in new bottles.
Is a large circulation newspaper likely to generate more revenue by charging for its online edition or making it free to maximize advertising revenue? Is the online version of a newspaper a complement to the print version—or a substitute? The stakes are high and the answers have been elusive. With few exceptions, since the dawn of the Internet Age, newspapers have been wrestling with whether this new conduit would be its friend or its death.
Of course, we will know in the long run, when some media historian looks back on this time from 20 years hence. But that doesn’t help today’s decision makers. That is why the research of University of Chicago economist Matthew Gentzkow published earlier this year in The American Economic Review is so helpful.
In this highly data driven paper with the typically academic title, “Valuing New Goods in a Model with Complementarity: Online Newspapers,”, Gentzkow blends consumer data from the Washington, DC market with newspaper operating results to address three questions: What is the relationship between print and online versions on 1) the demand for either diversion, 2) on the welfare of consumers, and, crucially, 3) on the impact of charging consumers for the online product?
With 30 pages of assumptions, explanation and calculations, Gentzkow makes a well substantiated finding that, The Washington Post would have been better off charging a modest sum for its online version (on the order of $6.00/month) until about 2004. After that, however, the growth in online advertising expenditures crossed over to affirm that it is significantly more profitable to set a zero price for the online edition when one factors in even a small transaction cost for online payments. He suggests that his findings are robust enough that they would likely apply to other big city newspapers.
Along the way, Gentzkow upends the early assumption that the print and online versions of a newspaper were complements. Applying a more sophisticated demographic model than had been used in the past, which simply looked at newspaper readers and online readers, Gentzkow concludes that the substitution effect is “nonnegligible." He does add that ”it is “small, however, relative to some earlier predictions.” In other words, real but not likely “to threaten the survival of print media,” at least right now.
Gentzkow further quantifies the “consumer welfare benefit” created by having a zero consumer price for online newspapers, which he put at $45 million annually for The Washington Post’s market. For the 2000-2003 period that came at the expense of Washington Post Co. stockholders, as he calculated it lost money by giving away the online edition when it could have made a profit by charging for it. (Among the factors here is that, as substitute products, by charging for online, some print subscribers would have continued with their subscriptions instead of switching to the online offering). Starting in 2004, however, the Post was more profitable with the free online version that it would have been with an online use charge
Having seen considerable discussion about whether The Wall Street Journal would be better off making its online version free, as the The New York Times has done Gentzkow’s approach is another data point (a rather large one at that) to reinforce the advertising supported model, for mass market newspapers, at least. There are numerous instances, however, where a consumer-paid model will still be needed. In the magazine business, for example, advertising revenue for many of the mass audience magazines, such as People or TV Guide, can be 50% or more of total revenue. But there are many niche publications, such as The Nation or Weekly Standard, that are highly dependent on subscriptions for the bulk their revenue. It is likely to be the same for niche online sites.
News Corporation chairman Rupert Murdoch has made news with several talks this week.
Yesterday he declared that "the sky's-the-limit profits from traditional broadcast TV are over….Free-to-air television faces a lot of challenges, just from the sheer fragmentation of the audience.” Overall he characterized broadcast television as a "highly challenged industry in America."
This may actually be on the minds of some of the striking Writers Guild of America members. The Wall Street Journal reported than some of the writers who work for the soap operas are resigning from the union and going back to work. The audiences for the soapshave been sinking for years. “Writers and producers in the genre fear that by the time the strike finishes, their audiences won't return.”
On Monday Murdoch publicly admitted that he expected the online version of The Wall Street Journal will soon be free. News Corp. will likely close the deal to acquire Dow Jones next month. "We are studying it and we expect to make that free, and instead of having one million [subscribers], having at least 10 million to 15 million in every corner of the earth, keeping up-to-date minute by minute with all business and economic news from around the world," he told an audience in Australia.
Such comments give some insights in News Corporation's strategy and business model. Clearly, advertising will play a larger role in the business model for online content. On the other hand, he is hedging his bets on advertising from broadcasting. First, he advocates making television productions very high quality, so they can be sold to the global market “and then be brought back to America--or to anywhere in the world, for that matter --and be sold as DVDs.”
So, television becomes more consumer financed, while online becomes the prime advertiser-supported medium. At least in Murdoch’s view. How will this be affected, if at all, should DVD’s be supplanted by online delivery, such as by Netflix or Amazon’s Unbox or iTunes video service? Actually, News Corp has a bet there, with Hulu.com, its ad-supported online video venture with NBC Universal.
News Corp. has developed a “portfolio strategy”: When the crystal ball is cloudy, invest in a range of possibilities. Not all need to be a success. Two or three big ones will do.
Reuters reported that News Corp Chairman Rupert Murdoch said on Tuesday he was planning to boost the numbers of subscribers to the Wall Street Journal's Web site more than tenfold by making access free.
"We are studying it and we expect to make that free, and instead of having 1 million (subscribers) having at least 10-15 million in every corner of the earth."
What Google is apparently working on is not the hardware per se, but an open operating system and applications that play to its strengths in search, mapping, YouTube and, of course, targeted advertising. Various accounts has it speaking with Verizon Wireless, Sprint and T-Mobile in the U.S., possibly others globally.
The first question anyone following this thread would ask is why would any of these players consider opening up their tightly controlled phones? Right now, for example, Verizon customers who want GPS directions pay $10/month or $3.00 daily for data that cost Verizon almost nothing to provide. Other mobile phone data services bring in anywhere from $5 to $45 month. Why would Verizon agree to an open system that would blow open this cash cow?
The answer lies in the same metrics that lead The New York Times to forgo $49 from 220,000 subscribers to its Times Select service. And it is the same calculus that my colleague here Dorian Benkoil (and various commenters) put together for scenarios that might make it more profitable for The Wall Street Journal to give away its online product and forego the $60 million, plus or minus, in subscription revenue. That is, the potential for advertising revenue is greater than the current and projected revenue from the walled cell phone garden.
What are the stakes? In 2006, an estimated $301 million was spent on ads for mobile phone in the U.S. One research firm guesses that should increase to $2.12 billion in 2011. (How can they predict to two decimal places four years from now? Someday I will examine a bunch of these past forecasts and see how they line up with what really happened). But this projection likely assumes that the current cell phone industry model prevails. If a more open network evolved, with advertising dollars available to replace lost subscription revenue, that $2.1 billion would be higher. How much? Ah, there’s the rub.
What I am suggesting here is some credibility to the notion that the carriers, like much of the media industry, might do better from an advertising model than from user revenue for their data services. The most likely carriers to be amenable to a deal with Google would be number three Sprint-Nextel and number four T-Mobile. Word is that the latter may be closest to a deal. But Verizon could want to get in on the act as well to counter AT&T’s excluive with Apple. In any event, Google would likely need to split revenue more generously with the carriers than it does in the media world because the carriers are in a much stronger bargaining position.
If Google does get its foot (or whatever) in the mobile phone world, the impact could be every bit as great as has been its impact in the Web universe. It might force Apple to open up the iPhone even more than it has planned to, as much to accommodate its current partner, AT&T, than out of true belief.
I’m not ready to buy Google stock at $700—but then, I thought it was rich when its IPO priced it at about $85, so don’t take advise on this from me. Still, if they pull this off, $700 may look cheap by 2011.
Andy Serwer, the managing editor of Fortune, wrote in his blog on Monday that “Twenty years from now, the media biz will look completely different.” Yeah. But his reasoning for this went beyond the usual digital transformation.
Serwer foresees “two other equally important seismic events”: the passing of the old guard at the family controlled media companies and the “dismantling of media giants.”
Both these factors could as easily fit into a discussion at my Who Owns the Media? blog. But they also are appropriate for this venue because they address the shape of the future media landscape.
While both of Serwer’s “events” are right on, neither is “seismic” nor events, in the sense that they are ongoing process, not a product of a single incident.
Sumner Redstone's Viacom and Rupert Murdoch's News Corporation are as likely to continue under the next generation of ownership much as Newhouse has gone on after the death of its patriarch, S. I. Newhouse or Time Inc. (now Time Warner) after the age of Henry Luce. Sure, there may be differences. But they are not likely to be “seismic.” On the other hand, a new cadre of moguls may in the making,: Can you say Larry Page, Sergey Brin, Jerry Yang, David Filo, Mark Zuckerberg?
Similarly, the disaggregation of “media giants” has been an ongoing phenomenon for many years, for reasons ranging from financial needs to the latest trends in strategy. As one example, there is the recent split between Viacom and CBS. Adam Thierer has kept a “diary” of other media company divestitures.
Nearly 30 years ago, in the first edition of my book Who Owns the Media?, I compiled a table of the dominant media companies, based on the breadth of their media holdings. At the time, the company with the largest holdings across the media industry was Times Mirror Co, best know as publisher of The Los Angeles Times. Since then it sold off its magazines (e.g., Popular Science, Outdoor Life) and its book publishing (e.g., Mathew Bender, New American Library) and eventually sold what remained to the Tribune Co., which itself is in the process of selling itself to a private investor and an employee investment fund.
Another on the other short list of companies that had major positions in more than one medium was the old CBS, which back in the early 1980s, besides its television stations and networks, owned a stable of magazines that included Woman’s Day and Road & Track, and book publisher imprints including Holt Rinehart & Winston. All of that was sold off in pieces before CBS, as part of a revised strategy to focus on its “core” television business, undid the “media conglomerate” strategy that was in vogue in the 1970s and sold itself to Viacom.
On the other hand, Microsoft’s CEO Steve Ballmer said Tuesday that he expects 25% of the company’s revenue within 10 years to be generated by advertising-supported products and services. Sounds very media-ish.
So, yes, the media industry will look different in 20 years, just as it has evolved over the past 20 or 30 years. But the key world is “evolve.” This is not seismic. The digital revolution may be an appropriate use of “revolution” in the context of the centuries dominated by print. But we’ve seen digital coming for at least 25 years. The mass market Internet goes back 13 years. And newspapers and broadcast stations are still profitable. There has been and still is time to adjust.
Lots of long term rumbling, but no earthquakes, Andy.
The most e-mailed story at The New York Times’ site today is the one announcing that the Times is terminating its subscription “TimesSelect” service, effective tomorrow.
Calculated from the Times’ press release , TimesSelect had about 227,000 subscribers beyond its print base. This was generating an estimated $10 million annually. By online subscription standards, both are substantial numbers (though dwarfed by The Wall Street Journal’s base of one million online subscribers).
The Times’ release clearly points to the strategic basis for its decision: It could do better than $10 million in advertising by opening up its columnists and archives to a larger audience. No subtlety here: Denise Warren, chief advertising officer expected that “with the removal of the pay wall… Advertisers on the site can expect to see an unprecedented number of Times readers interacting with their brands." American Express is the first “sponsor” of the newly opened site.
TimesSelect was a bit controversial from the start, and not just with consumers. Many of its columnists, who, after all, get both ego satisfaction and presumably greater impact with a bigger audience, were unhappy being sequestered behind the pay wall.
Although the venerable Times yielding to the advertising-over-consumer payment model seems to add further credence to the “information wants to be free” trend, I have gotten wind of a new venture that aims to succeed as a user payment model for content providers where micropayments has failed. I will supply more details when available.
A poll conducted in May by Harris Interactive for INNOVATION International Media Consulting indicates that online news and information will supplant television network news as the leading news source over the next five years. But news from television in general (including from cable networks) should continue to be dominant. It also confirmed continued erosion of the role of newspapers, although by my interpretation of the findings newspapers may be in a position to benefit from the ascendency of online news if they can navigate some tricky shoals.
By the numbers
The poll, covering the U.S., Australia, UK, Spain, Germany, France and Italy, asked about media habits today, expectations about media sources in five years (always an “iffy” kind of question) and about attitudes towards newspapers, such as credibility, importance and image. You can see all the results here. I have focused today on just several pieces of data that I think most useful for publishers.
In the U.S., 39% of adults claimed to get most of their news from television, compared to 24% from newspapers and 18% online. By 2012, 37% respondents projected they still would be relying on television, newspapers down to 19% and online news sources up to 26%.
But the poll does not differentiate between online news that is provided by today’s newspaper publishers and that coming from a non-newspaper Web site. Much to its credit, the INNOVATION poll does follow up with this question:
“When most people think about ‘reading a newspaper’ today, do you think that they include the newspaper’s online news and information websites as part of the definition of reading the newspaper?”
Nearly half—49%-- said that they did not consider a newspaper’s online site as within the definition of “the newspaper.” Another 21%-- a large proportion—were unsure.
This finding raises some strategic uncertainty for newspaper publishers and editors. At this point, many consumers still consider the “newspaper” the physical product. So, for example, at the top of its main Web page it may say “The Philadelphia Inquirer” in the familiar Old English script, but it’s not the "newspaper” for these readers. It’s just online news. So should newspapers be focusing on transferring the newspaper’s brand to the online arena?
I don’t know, based on responses to another question that asks simply,
“Do you personally consider online news from a newspaper site to be as credible as the news printed in the newspaper?”
Two thirds of the adults in the U.S. agreed that credibility was equal to the printed paper, only 14% did not (the rest were undecided). However, this finding is undercut by what the same poll found in measuring the credibility adults place on the newspaper in the first place: On a scale of 0 (no credibility) to 100, the median was 57, a rather so-so vote of confidence. (It bested the publishers in the U.K., where newspapers only had a 50 score, but lagged Germany, where they garnered a median of 67).
Responses to another question also should raise a red flag. Given a list of reasons why the respondents might not read newspapers, 55% agreed that they are “Biased or too narrow of a viewpoint” in their reporting. And, consistent with the previous credibility score, 38% said they are “Not viewed as a credible or trustworthy source of news and information”
Implications for strategy
If the credibility of newspapers in the U.S. is so tepid and objectivity so questioned, then might not publishers be better off distancing their online product from their print products? If online news is viewed as a new or different product, should publishers try to present themselves to the pubic with a new brand? Something like what General Motors did with Saturn: Create its own identify, a fresh platform, a different business model. To some degree that has worked for GM and Saturn.
Another approach, also borrowing from the auto industry, is to create a new, perhaps high end product, as Toyota did successfully with Lexus. Instead of creating a Toyota model with more bells and whistles, it created a separately dealer network for a separate brand (sharing some components under the hood only). Might publishers want to keep their current print and online brands for the mass audience but establish new brands with distinctly new content and a different business model for the high (or low) end?
I’m not necessarily advocating for either one. But looking at this empirical data suggests that there there is a need for fresh thinking, for opportunities to be tested—and perhaps some swamps to be avoided.
[Full disclosure: I have occassionally been a consultant for INNOVATION.]
There have been a number of developments and announcements in recent weeks, which, individually, amount to little more than the now-normal background noise of the media business. But seen collectively, they add further arrows to the growing quiver of ammunition that the media landscape is continuing to sift beneath our feet.
For today, I want to highlight the data and analysis published last week by the media-centric private equity firm, Veronis, Suhlis & Stevenson (VSS) in its latest Communications Industry Forecast, covering through 2011. This has nuggets which, if accurate (this is a forecast) would bring to higher resolution the winners and losers in the media arena. For example, total spending on all communications grew substantially faster than GDP between 2001 and 2006. Furthermore, VSS predicts that communications industry spending will continue to grow faster than the overall economy through 2011, making it the third growing sector of the economy.
That’s some good news. On the other hand, the report finds that, for the first time since 1997, consumers spent less time with media in total last year than in the previous year. VSS believes this decrease, though small in percentage terms, is due to changing consumer behaviors and digital media efficiencies. “The drop in consumer media usage was driven by the continued migration of consumers to digital alternatives for news, information and entertainment, which require less time investment than their traditional media counterparts.” It continues: “Consumers typically watch broadcast or cable television at least 30 minutes per session while they spend as little as five to seven minutes viewing consumer-generated video clips online.”
VSS does not see this decrease as part of a long term trend, expecting consumer media usage to stabilize in 2007 and increase slightly through 2011. However, this would be driven by time spent with out-of-home media and videogames as the only major segments to achieve accelerating growth in this timeframe. Overall consumer time spent with media is forecast to increase at a compound rate of 0.5% from 2006 to 2011, down substantially to the 0.8% in the previous five-year period.
The real headline, however, is this prognostication: “In what would be a watershed moment in communications history, VSS predicts that Internet advertising – including pure-play websites and digital extensions of traditional media – will replace newspapers as the largest ad medium in 2011.”
I assume they mean that advertising in printed newspapers will be supplanted by advertising online—which includes the advertising that newspaper publishers generate from their online sites. Still it would be another stake in the heart of what once the biggest rooster in the barnyard.
But here’s another bombshell: “In addition to shifting their attention to alternative media, consumers are also migrating away from advertising-supported media, such as broadcast TV and newspapers, to consumer-supported platforms, such as cable TV and videogames.” Time spent with consumer-supported media grew at a compound rate of 19.8% from 2001 to 2006, while time spent with ad-supported media declined 6.3% in the period. This is not a measure of revenue but of consumer time spent. But with all the buzz about everyone moving to totally ad supported models (see Rebuilding Media’s latest foray into this space), this finding more than suggests that consumers are willing to part with their discretionary income for the right content or platform.
Another data point is found in a piece by Bobby White in The Wall Street Journal (sub. required). "Across the cable TV industry," writes White, "… independent channels are also turning away from TV to the Internet." Black Family History, The Lime Channel, The Employment and Career Channel, Horror Channel and HorseTV are among those that pulled the plug on their cable affiliation in favor a going Internet only.
“The shift illustrates how the Internet is offering a second chance to certain segments of old media. Web-based TV is now becoming a more viable business route, and Internet video is exploding. Running an online-only video channel, which doesn't require expensive cameras and broadcasting gear, is cheaper than operating a cable TV channel. While starting a new cable channel today takes an initial investment of $100 million to $200 million, a broadband channel needs just $5 million to $10 million to get going, says Boston-based research firm Broadband Directions.”
It’s a constant challenge when in the midst of change to separate trends from simple data points. One needs a series of data points over time that show direction. The Journal article may well be a data point that fits into the trends the VSS study provides. It seems though that enough data points are aggregating to confirm some direction with far reaching strategic implications for and broad array of players in the media industry.
Last week I participated with a small group for an informal half day mini-conference at MIT to revisit the arena of online micropayments. This was a very hot topic in both academia and among some newspaper people 10 years ago. As described by Bill Densmore, one of the pioneers of the movement, micropayments are
“…A system [for the Internet] for tracking, exchanging and settling value (including payments) for information commerce (text, music, game plays, entertainment, advertising views etc.).” Beyond that basic component, the premise of the conference organizers for such a system adds an ideological component: That the system “should be ubiquitous yet never be owned or controlled by either the government or a dominant private, for-profit entity. It needs to be massively distributed and - in some fashion - collaboratively owned.”
The backstory: Among the prognosticators at the start of the online age, the original business model for online information was that the user would pay for content. Why the need for a micropayments in the first place, when there are credit cards and the like? The assumption was that the transaction cost would be prohibitive for payments that might be five or ten cents to read an article. The earliest models, therefore, were monthly subscriptions, such as the first iterations of online versions of the Atlanta Journal & Constitution and the LA Times on the pioneering Prodigy service. Version 1 of USA Today on the Web was for a monthly subscription. Slate started free, then switched to mostly subscription, but went back to free when it became obvious that the revenue from subscribers in the thousands would be less than advertising revenue from readers in the hundreds of thousands or higher. But requiring subscriptions to anything could discourage spontaneous access to a stand alone article from nonaffiliated writers or minor publishers.
As we all know now, the mass audience never bought in to the option that it must pay for most of its news and general information. With a few readily identified exceptions (let’s think—oh, The Wall Street Journal Online comes to mind…), newspapers, magazines and everyone else soon discovered that they could make more money by offering free access and use the many additional eyeballs to sell advertising, initially in the format of banners and similar versions of “display” ads.
This model worked to a point. Still, it was particularly unsuited for the small players, who did not have the wherewithal to sell advertising and , in any event, with monthly hits in the hundred or thousands, could not get the interest of these advertisers.
But the marketplace works in neither strange nor mysterious ways. Aggregators such as Doubleclick soon arose to make it easier to include ads on a site. Later, the major breakthrough was the introduction of the AdSense program by Google. This created the column of text ads that are ubiquitous throughout the Web. The ads that are displayed are, more or less, related to the content of the Web site. AdSense has made it possible for small advertisers to get cost-effective targeted placement and has made it nearly effortless for even the most humble Web site to see some revenue.
This growth of Internet advertising was seen by some participants of the conference as having sidelined the development of any payment or user-identity systems. “Why did micropayments fail?” asked one of the conveners.
However micropayments have not failed-- they just did not evolve in the way that had been foreseen by the early developers. AdSense – and similar programs—have created a form of micropayments funded by a third party-- advertisers. Numerous Blogs and other information sources-- including some from mainstream media-- are earnings modest to substantial sums by way of aggregating many "clicks," frequently at five cents or 25 cents each. This is precisely the micropayments idea-- just from an unanticipated angle.
The objective of the mini-conference was to identify needs and requirements for an Internet information payments infrastructure and consider next steps on how to create the needed.
My own take on this—as I was asked-- was that if there is truly a need, then there are any number of smart entrepreneurs out in the universe who would grab the opportunity and an equally substantial group of venture capitalists looking for ways to invest in something that has not been done, is needed—and can be sold for a profit. This soluton, to be sure, runs into the ideological component among some in the community who hold that such a system cannot well serve content providers who may not be mainstream. I disagree. If the AdSense approach – i.e., free-- cannot generate enough income for this group of content providers, I have my doubts about how many takers they will have at ten cents a crack.
There is also growing evidence that strongly suggests that individuals and groups with something they want to say or show are not necessarily motivated by the money but rather by the opportunity of a forum. I call them missionaries, as opposed to "merchants" who are motivated by the profit motive more than the attraction of having a media platform. Hence the proliferation of Blogs, Podcasts and Web sites--many with sophisticated graphics and substantive content—yet without an obvious business model. This is the world of citizen media makers, about whom I will have more to say one of these days at my Who Owns the Media? Blog.
The Internet has provided a forum for a mind boggling cacophony of opinion, art, information and entertainment. The question for the next conference should be: Has the lack of a user-micropayment system held that back? How would the offerings via the Internet look differently if such a user-micropayment infrastructure was in place?
Back in the early days of consumer online services one of the hot topics for prognosticators was the expectation of “disintermediation.” In brief, this referred to cutting out middlemen in the supply chain, such as stockbrokers between buyers and sellers of securities. Online services, then the Internet, they predicted, would make transactions more efficient by cutting out unneeded intermediaries.
Although talk about disintermediation has subsided and the predictions of some self proclaimed visionaries have not been fulfilled, the reality is that this phenomenon has in fact been operating and is picking up steam.
It is most clear in many financial transactions. Pre Internet I recall paying about $150 on average to buy or sell a stock. I’d have to call a broker, who would call me back later with the results of the order. And he or she got a hefty commission. Today, services such as eTrade, Fidelity and many others facilitate electronic orders that pass through them to the exchanges. Commissions have fallen to as low as $5 a trade.
eBay is a disintermediation vehicle for many types of transaction. About eight years ago, cleaning out the basement of the house where I was raised, I came across a stash of Playboy magazines dating from the early 1960s and Life magazines from the same era. My first reaction was to check on their value with some used magazine and book stores around. They, of course, would have bought them below the market rate so they could retail them for a profit. But I stumbled across this new eBay thing, listed them and sold them myself at “retail,” bypassing the intermediary. Moreover, I was able to reach a national (at the time) audience, while the local retailer had to base its price on a smaller, local market.
With its original direct to consumer business model, Dell disintermediated computer retailers. Paradoxically, HP has helped rejuvenate that channel and Dell has just this week acknowledged that it will sell through retailers. As I keep reminding my marketing students, the word “some” is a big word. Some people may like going direct, but some people still like to call a broker, go to Blockbuster, buy from Wal-Mart. For now, disintermediation is not an absolute—it’s an alternative.
The process continues. Netflix started the disintermediation of video rental stores—and will itself be bypassed by downloaded videos unless it is successful in becoming “one of them.” Much software is downloaded, not packaged, hence stores like Egghead and CompUSA have died or had to retrench.
Which bring us to the media world. The first high profile threat was Napster, which was the ultimate in disintermediation by allowing individuals to trade music with each other. After some fumbling, the recorded music industry has reached a degree of accommodation with the technology through iTunes and its competitors. Bye-bye Virgin Music Superstores, Tower Records and a host of others.
Newspapers have seen a portion of their high margin classified ads disintermediated by Craigslist and Monster.com. Why pay those high per word rates when you can reach more people, in a searchable format, than in the shrinking newspaper. Advertisers have learned about disintermediation as well. While banner ads have a third party middleman, Google’s AdSense or AdWords is far more efficient: pay only when used.
The legacy television networks are scrambling to prevent disintermediation. Postings of network shows on YouTube and the like were a threat to the networks and their local affiliates and had to be stopped. To one degree or another ABC, Fox NBC and CBS have elected to disintermediate their own local affiliates by allowing viewers to access many network shows online directly from their own Web site. Meanwhile, NBC has engaged in deals to distrubute its programming via numerous Web sites, as has CBS.
Disintermediation is not necessarily a losing proposition for the media industry. It’s just a matter of learning how to use it to its advantage. For example, last week the season finale of the popular TV series Grey’s Anatomy featured a soundtrack
by singer Ingrid Michaelson. Never heard of her? Not surprising, as she does not have a recording contract. She was found on MySpace by a firm that specializes in locating undiscovered talent (of which there is much) and using their works on TV shows and commercials for far less than it cost to license the music of established artists from a record label.
Because she does not have a record company contract, when one of her songs gets downloaded from iTunes, she pockets $.63 of the $.99 charge, compared to the 10 to 15 cents a major label artist gets sent. That amounts to $37,800 from the 60,000 times her songs have been downloaded. Ms. Michaelson has a gig she would likely have never had before MySpace, income in excess of what she would likely have earned from her music before iTunes. And ABC bolsters its profitability by a few dollars.
That’s the kind of creativity the newspaper industry needs as well. Disintermediation will ebb and flow. But the net will be more flow than ebb.
Fresh data that has surfaced over the past few weeks has reinforced previously observed trends in media advertising and usage. But they have also raised some red flags or sounded warning bells or whatever imagery you’d prefer. Yet amidst the downers there are some positive signs. The transition from legacy media formats to digital formats continues to show a mix of threats and opportunities.
First is the continued downward spiral of advertising in daily newspapers. Nothing new here. But the rate of decline may be accelerating. For the fourth quarter of 2006, total ad revenue at newspapers-- including online revenue-- was down 3.7% from the same period a year earlier.
This past February, individual newspapers and groups reported some dramatic year over year declines: USA Today down 14% while parent Gannett was down 3.8% overall. The Tribune Co. and McClatchy both reported 5% losses. The New York Times Co. was down 6% and The Wall Street Journal off by 10%. Even publishers of smaller city papers, where the losses have been more modest in the past, were afflicted. Media General, which publishes papers in Tampa, Richmond, VA and Winston-Salem, NC, was down almost 6%.
And this is in a period where advertising expenditures in general were reasonably robust. One can't attribute this to a recession. The New York Times reports that publishers “blamed the declines largely on the continuing shift of classified advertisers from print to online, especially to mostly free sites like Craig’s List. In some cases, particularly in Florida and California, they traced the weaknesses to volatile real estate markets.”
Meanwhile, one bright spot for newspapers, online advertising, is showing some signs of slowing as well. Online ad revenue, though up 31.5% for newspapers last year to $2.7 billion, still accounted for only 5.4% of newspaper ad expenditures. Most threatening is that newspapers are facing growing competition from other Web sites aimed at their local market strongholds. Google and Yahoo have already been offering key word search-related advertising that can be geared to local advertisers. But now other local media—TV and radio stations, city magazines—are beefing up their Web sites to help shore up their own advertising woes. Radio stations, faced with declining time spent listening are putting video on their Web sites, along with streaming audio of their programming, to attract larger audiences and selling local advertising.
Perhaps most ominously for all the local media is that the largest share of advertising as well as the fastest growing, are “pure play” sites. That is, they are not related to existing legacy media but exist solely on the Web. This might include Craig’s List as well as local news sites such as Buffalo Rising and Dallas’ Pegasus News. As seen in this table from Borrell Associates, about 38% of local online adverting goes to these nontraditional sites—and their share is rising.
There is a small note of good news. A Nielsen/NetRatings study (commissioned by the newspaper industry trade association), found that online visitors to newspapers Web site rose by 5.3% in the first quarter of this year. According to this source, that is the steepest quarterly rise since the numbers were first tracked in 2004. This translates to 59 million visitors to newspaper Web sites.
And another report that might lift the spirits of newspaper publishers came from the Poynter Institute last month. A study tracked the eye movement of 600 test subjects as they read whatever they wanted from their regular newspaper and their newspaper’s Web sites. The most relevant finding for here is that a much larger percentage of story text was read online than in print.
On average, online readers read 77% of what they chose to read, while broadsheet readers read an average of 62% and tabloid readers read an average of 57%.
Newspaper publisher McClatchy Co. has entered into an agreement to provide Yahoo with news and commentary from its staff. Initially it will be limited to material from just four foreign bureaus, but could expand.
With more than 36 million unique monthly visitors to Yahoo’s news site alone, the alliance gives McClatchy far more exposure than it gets through its newspaper (aggregate circulation about 3 million, readership maybe two times. Web site visits likely include some overlap with print readership).
This is just one of a string of recently announced deals between newspaper publishing companies and Yahoo and rival Google. It is the start of a realization that the core of the news business in the future for these folks is more news gathering and less news distribution.
It is part of an action plan (I would hope) among some legacy media companies more than others that it can no longer be business as usual in the digitally connected universe. Ken Goldstein, a analyst who concentrates on Canadian media, has a few illustrations that nicely captures how massive this change is, looking in this case at television.
Figure 1, which I have only slightly modified from his, shows the quite simple value chain c. 1975: Content providers—primarily Hollywood studios – created movies and television programming. They were distributed via commercial broadcasters to consumers, with nascent cable providers also starting to retransmit those signals. Advertisers contracted with the broadcasters to deliver their messages to the consumer. Straightforward and limited to handful of players.
Fast forward to 2007. Figure 2 shows a far richer, more complex, more fragmented landscape. The number of players has proliferated exponentially. Indeed, considering peer-to-peer and aggregators such as YouTube that provide easy access to materials from content creators that range from the highly professionals to the rank duffer, the close circle of content providers is blown apart. And this is possible because the gate keeping function of the broadcasters and then cable providers has been undermined by satellite and the Internet, not to mention offline conduits such as DVDs.
Similar charting of the newspaper or radio value chains would yield parallel changes, blowing up of the tight community of players and limited choices for advertisers and consumers. In its place is greater choice for these constituencies. But with this choice comes greater effort, for advertisers to find the best outlets for their target markets and for consumers to know what they want and where to find it.
This change also provides a surfeit of opportunity for those enterprises willing to make the effort and accept some failures in experimenting with evolving and unproven business models. I don’t know how the McClatchy/Yahoo deal will pay off for the newspaper publisher. But it is certainly moving its mindset in the right direction.
The recently tabulated results of advertising expenditures in U.S. by TNS Media Intelligence tells a familiar story, with few surprises. Looking at the five years from 2002 to 2006, advertising in “measured media” overall increased 23.7%, from $121 billion to almost $150 billion. This was just slightly ahead of the growth of the total economy, which expanded by 23.1%.
But the story is, as usual, in the details. First, the big picture. As is certainly no surprise, Internet advertising is for real. From 6% of the total in 2002-2003, it zipped to 12.4% in 2006, eclipsing radio and closing in on newspapers and magazines. TNS only includes display advertising in the Internet totals. I have approximated revenues from search-based advertising, using most of Google’s revenue from 2004-2006 as a rough (and likely understated) estimate. For example, in 2006 Google had $10.6 billion revenue. I included $10 billion. Search revenue from Yahoo, Microsoft, Ask and others would only accentuate the Internet trend.
We also see that television, which includes both broadcast and cable, is in the same relative market share decline as is the print media. According to the TNS compilation, all media sectors except newspapers showed some growth in actual dollar revenue. A finer grain analysis of the data, however, indicates that most of the revenue growth for television has been in cable, although even that has slowed in recent years. The other hot spot is in Spanish language media, which nearly doubled its overall share of the total from 1.6% in 2002 to 3.0% in 2006. Nearly 90% of last year’s $4.8 billion was for television (and is included in the total figure for TV).
Of course, TNS’ method of accounting does not take into consideration the large chunks of the Internet’s advertising that does get into the pockets of newspaper and magazine publishers as well as television and radio outlets, through their own Web operations. But the value of this exercise is seeing what is going on with traditional media formats vs. the newer ones, aggregated as “the Internet.”
I have focused here on market share. So long as the overall advertising pie continues to grow legacy media can continue to see revenue growth, though at a slower rate than the pie. But any media company’s strategy needs to include a way of capturing a substantial share of the sector with the highest growth. And that is once again confirmed as being in the online world.
Various compilations of advertising revenue shows wildly different numbers, though the trends are fairly consistent. For example, the Newspaper Advertising Bureau (NAB) just reported that newspaper advertising revenue for 2006 was $46.6 billion, a decline of 1.7% from 2005. This is far higher than the $28.0 billion reported by TNS, but consistent with the decline noted by TSN. NAB also found that the online revenue of newspapers was $2.7 billion in 2006. It is noteworthy that although this was 32% ahead of the previous year’s online revenue, it lagged the 34% revenue growth rate for online revenue overall.That is, newspapers are not quite holding their own with their competitors in the online world.
Differences in numbers can be attributed to what is counted. TSN, for example, does not include direct mail, which has elsewhere been shown to be a robust 15%-16% of advertising dollars. It may also reflect what is being tracked. TSN, for example, looks at advertising expenditures. The NAB is computing advertising revenue. For my purposes, the absolute dollar amount is less critical than the trends and the consistency of any one source's data collection.
The challenge of media competition from ground level
This letter to The Wall Street Journal yesterday succinctly sums up the state of competition in the media world today and the rapidity with which the landscape is changing. It helps explain why the National Association of Broadcasters, of all special interest groups, is opposing this particular flavor of radio merger.
XM and Sirius
March 1, 2007; Page B7
The thought that a merger between XM and Sirius could create a monopoly is absurd ("Making Radio Waves," Review & Outlook, Feb. 21). They would offer only one of many content options for consumers. It's a moot point anyway. By the time the merger is completed, satellite radio will have won the battle with radio but lost the war. When I subscribed to XM three years ago, I immediately quit listening to traditional radio. Satellite radio is simply a superior choice. However, now that my 927 favorite songs reside on my iPod, I have little need for radio of any kind. Why scan the dial in hopes of finding a song that I like when my iPod contains only songs that I like?
When I joined the Program on Information Resources Policy (PIRP) at Harvard in 1979, the message that we were delivering to the media companies was that of convergence. It was a tough—no, make that almost impossible—sell. We tried to explain that the future was in digital. And in digital, text bits and video bits and audio bits, graphics bits—they all looked the same. The folks who ran these companies couldn’t understand how television would be any more of a competitor than it already was. They did rally when they saw AT&T make noise about doing an electronic Yellow Pages, but they won that battle (though not the war).
Although there were profound implications for business strategy, we had our greatest impact in the telecoms sector, where the regulatory ramifications of the change from analog to digital were more immediate and the stakes higher. (Anyone here recall Computer Inquiry II? III?) The just mentioned e-Yellow Pages proved just how high the stakes were for classified. Can you say Monster? Craig’s List?
For the media folks, they were probably right in largely ignoring our message, at least in the early 1980s. A few newspaper companies, such as Knight Ridder with Viewtron, made a stab at exploring digital products. But all the technology and economic pieces were not yet in place. Timing may not be everything, but it is important.
Skipping ahead 20 years in one swoop and we can now see the shape of real convergence. Web sites of enterprises that heretofore have been called newspaper publishers are offering the same mix of text, video and audio as are being offered by sites from television stations, cable networks and, yes, radio broadcasters.
And now we even have radio, that last bastion of single sensory output, ramping up for video on its Web sites. “The nation’s commercial radio stations have seen the future, and it is in, of all things, video,” observed an article in yesterday’s New York Times.
“Audiences in Los Angeles, for example, will be able to tune in today to Power 106 for an annual Valentine’s Day event called “Trash Your Ex,” in which jilted listeners are invited to put mementos from past loves in a giant wood chipper — and to let it whir while the disc jockey, Big Boy, urges them on. And for the first time, audiences everywhere will be able to watch streamed video of the event, to be held in a parking lot in Pasadena, on the Web site power106.com.”
Radio, as with other legacy media formats, has had to deal with an erosion of its audience. Of course. The time you have spent reading this entry—multiplied by the millions of people clicking on millions of other Web sites and podcasts—takes time that otherwise may have been spent using traditional media.
To be sure, radio has perhaps suffered less than newspapers and television broadcasting because radio has long been a second medium, used in the background while we do other things. Still, with mp3 players and the like offering some of the same benefits as radio, the amount of time spent with radio has fallen by 14% over the past 10 years (see accompanying chart).
So here is where convergence really starts to get serious: With digital TV sets proliferating, more of what is available on that screen will come via the internet (or perhaps more generically over some TCP/IP-based transmission).Wireless devices, whether 3G or Wi-Fi or Wi-Max—the technologies are not important but the certainty of widely available wireless broadband is—we will increasingly have news and information as well an entertainment and transaction provided in a highly competitive landscape.
The winners and losers are far from being determined. But what is inevitable will be, first, greater fragmentation of the audience over a wide variety of players aiming for sometimes mass and sometimes niche markets. We will see advertisers faced with a greater dispersion of their budgets. And eventually we will have to see a new wave of consolidation to help create some economic rationalization of this scenario. It will continue to put stresses on the regulatory regime, which has been slow to respond to the implications of the changing technologies and media strategies.
I hope to be around to have another retrospective look in 20 years.
Data points, data points, data points. After awhile they aggregate enough to become trends. Here are several recently observed data points:
• Time Warner’s Time Inc unit announced that it was cutting 150 positions, half from editorial at Time, People, Fortune, etc. This on the heals of a reduction of 600, mostly business side, last year.
• The digital version of Sports Illustrated accounted for 13 percent of profits in 2006 and is projected to rise to 18 percent this year.
• The number of people reading Internet blogs on the top 10 U.S. newspaper sites more than tripled in December 2006 from the previous December—from 1.2 million viewers to 3.8 million.
• On the other hand, viewership of the ABC, CBS and NBC evening newscasts was down by 1.1 million in November from 2005.
• Based on the first six months of 2006, Internet advertising revenue should total about $16 billion for the year, or about 30% greater than 2005. This is roughly 10 times the rate of growth of advertising overall and would make Internet advertising greater than magazine advertising (although some of the Internet expenditures go to the Web sites of magazines).
• A private equity group has agreed to buy the Minneapolis Star & Tribune from McClatchy for less than half of what it paid for the newspaper nine years ago. And presumably McClatchy was happy to be walking away with what it got.
These data points confirm what we intuitively know is happening. But the data adds an undeniable veritas to the generalizations. Time Inc is not waiting until its profit disappears and its publications are in trouble before it takes action. Meanwhile, the editors on the digital side can gather greater respect within their organizations and among their peers—and more importantly, greater clout—as they can show that they have an audience and growing revenue and even profit.
While “we” may be the center of attention as content providers, the top news Web sites list this year, based on the volume of links at Google News, is topped by ABC News, The New York Times and Reuters. Compiled annually by NewsKnife.Com, the list is little changed from last year.
1 ABC News
2 New York Times
4 Washington Post
5 Times Online, UK
7 Guardian Unlimited, UK
8 Voice of America
9 Christian Science Monitor
10 International Herald Tribune
What can be read into this analysis? By the numbers:
• Six of the top 12 are associated with newspapers.
• Two have roots as wholesalers—news services. Only since the development of the Internet have they reached out to an end-user audience.
• Two are related to commercial television news operations, one from a magazine, one is a government agency.
• Three are non-U.S. based, with all three being in the U.K. (IHT is nominally located in Paris, but most of its content is from its New York Times parent)
• One, The Christian Science Monitor, by its inclusion on this list, might seem to have far more prominence in the online world than in the print world, where its circulation is about 70,000.
• They are all—no surprise—English language.
Does this ranking tell us anything about online and traditional media institutions? It is important to understand what this is not: a ranking of the most used news sites, though as might be expected there is some overlap. According to Nielsen data, ABC News.com is the fourth largest pure news site, behind the New York Times (discounting higher ranked sites that are essentially news portals, like Yahoo or aggregated listings such as all Gannett sites taken together, except USA Today). And of the others only CNN makes the Nielsen list.
NewsKnife’s analysis essentially awards the greatest weight to the news sites based on the frequency and prevalence of its links. You can see more of the methodology here.
That said, the NewsKnife rankings do reflect the prominence that these sites have in Google’s aggregation of the news and no doubt drives far more traffic to these sites than they would have without Google News. It suggests that relatively small circulation publications can get high visibility, while being a major player in general in other venues (e.g., CBS News, Associated Press) is not an automatic ticket to top ranked accessibility.
Time Magazine-- one of the icons of traditional media-- named "You" as its "Person of the Year." With a reflective piece of Mylar on a computer monitor screen as the cover, the editors rejected newsmakers such as Iranian President Mahmoud Ahmadinejad or former Secretary of Defense Donald Rumsfeld or the new Speaker of the House Nancy Pelosi in favor of You Tube and the millions of bloggers and amateur journalists and YouTube contributors.
Richard Stengel, the Managing Editor of Time, wrote by way of explanation:
"The other day I listened to a reader named Tom, age 59, make a pitch for the American Voter as Time's Person of the Year. Tom wasn't sitting in my office but was home in Stamford, Conn., where he recorded his video and uploaded it to YouTube. In fact, Tom was answering my own video, which I'd posted on YouTube a couple of weeks earlier, asking for people to submit nominations for Person of the Year. Within a few days, it had tens of thousands of page views and dozens of video submissions and comments. The people who sent in nominations were from Australia and Paris and Duluth, and their suggestions included Sacha Baron Cohen, Donald Rumsfeld, Al Gore and many, many votes for the YouTube guys.
"This response was the living example of the idea of our 2006 Person of the Year: that individuals are changing the nature of the information age, that the creators and consumers of user-generated content are transforming art and politics and commerce, that they are the engaged citizens of a new digital democracy." (my emphasis here)
Heady stuff for those of us who blog, who read blogs, who have recognized that the significance of YouTube (perhaps about to become the generic term for any user-content video sites, the way TiVo is often used to mean any sort of personal video recorder) just more than just silly pet tricks. Another cause for urgency for change for traditional media.
Juan Antonio Giner has posted a series of photos of newsrooms from around the world at the Innovation Media Consulting Group’s blog. (I am an occasional consultant for Innovation). He reports that traffic to the site has far surpassed any other post. The photos show the attractive as well as the archaic. At one extreme are some cluttered cubicles at the Toronto Star, at the other is the state of the art Daily Telegraph’s new facility.
Giner’s take is that “We must be shamefaced about the design of our newsrooms…The future of newspapers starts in the radical design and redesign of the newsrooms.”
The new Al Jazeera Newsroom
My colleague at Innovation, Juan Senor, writes at the blog: "Open, airy spaces create energy and facilitate communication." He is referring in particular to the UK's Sky News Channel's newsroom. There might be something intuitively attractive about this and other expectations for more thoughtfully desgned newsrooms for a multimedia world. And if one is designing a new space it is a no-brainer to give fresh thought to the placement of editors, other newsroom staff, to lighting and work flow.
The key, though, is "payback." It's obvious why editors and reporters would be interested in how others are living, in many cases envious of the likes of the Daily Telegraph's newsroom. But most publishers and owners of ongoing newspapers, before signing off on an expensive newsroom rewrite, will ask "what's the return on investment?" Is there hard data that a revamped, reorganized newsroom has a return in a better newspaper-- and through that improved circulation, online traffic and/or advertising?
Earlier this year a thick volume was published with the descriptive, if uninspiring, title Handbook of Media Management and Economics. The editors of the Journal of Media Economics asked me to use a review of the book to expand on the state of the new field of media economics and management. I have posted the complete review at my Web site. In brief, what I wrote was that it is difficult—maybe impossible—to understand the dynamic of the media landscape today without some basic knowledge of economics in general and the micro economics of the media industry in particular.
For about 20 years I have been using a line with industry and academic audiences: “No newspaper ever went out of business for lack of content.” (The folks running the media know this). And the same applies to those who publish magazines and books, operate radio stations, cable networks and even Web sites.
The responsibility for that survival sits not only with management but with every employee in each enterprise. No matter whether the central mission of a particular media organization is news or information or entertainment, a piece of that mission statement needs to include something to the effect that its product must meet a need or want of some audience.
One of the editors and an author of the Handbook, Sylvia Chan-Olmstead, recounts in the Preface her experience at an academic mass communications conference, where a respondent to one student’s paper that had used media management theories “blasted her study.” The respondent’s argument was that the student should have relied on “serious” mass communication theories and left the “business stuff to the people from business schools.”
That respondent represents the “head in the sand” attitude that remains apparent among some journalists, “reform” advocates and even in some schools of communication. Think about it: For anyone who feels that the media have a special role in society and who wants those who control the media to take that mission into account in their decision-making, would it be best to leave it to “those folks in the business school” or to decision-makers who have been schooled in the ways of the media along with an understanding of how their industry functions and thrives?
Large publishing enterprises that grew along with the steam driven rotary press and the railroads did not fully take shape until the 20th century. The earliest substantive work I have found devoted to a media industry was O.H. Cheney’s Economic Survey of the Book Industry, published in 1931. In that landmark work he noted that management and control methods were inadequate, hazards and wastes were high, and the distribution system could not handle a reasonable volume profitably. Little, if anything, had change in that industry by the time I revisited the book publishing industry in a 1978 study.
Most early “research” of the media industry was in the form of histories, though with an occasional nod to the economic side of the business. James Playsted Woods subtitled his 1949 book Magazines in the United States “Their Social and Economic Influence.” When Alfred McClung Lee published The Daily Newspaper in America in 1947 he included sections on Ownership and Management as well as Chains and Associations. However, he had no research to refer to. For example, he described the acquisitions and divestitures occurring during the 1920s and 1930s at Hearst and Scripps-Howard, among others. He quoted the vice president of the Lindsay-Nunn chain, who said in 1930, “I think it is becoming more and more evident that it doesn’t matter who owns the newspaper as long as it is operated vigorously and fairly. The average reader doesn’t bother about the paper’s masthead.” Lee added “Good theories, perhaps.” But then he speculated with his own theory that perhaps readers do care about editorial policies.
That’s all that existed: speculation and assumptions. Thanks to research that started in the 1960s we now have real data, actionable information that tests the assertions and justification of the stakeholders, strategic planners and policy makers. Plans and policy based on rigorous data is far sounder than those based on opinion.
Today more of us understand that the media are businesses, even if run by a union, a not-for profit organization, or an employee-owned commune. And except for a handful of true idealists who don't mind living in their parent's basement (or come with their own trust funds or well paid spouses) the best people expect to be decently paid. They also expect reasonable travel budgets, resources and up-to-date equipment. That means they need to work for organizations whose income exceeds their expenses and keeps growing, the better to provide them with better wages and resources. Income must be generated to invest in new plant and equipment and to keep pace with old and new competitors.
Whether as journalists, film makers, MBA managers, media entrepreneurs, investment bankers or FCC staff, the capacity to understand developments in the media industry and analyze its activities will only become more challenging. Enhancing our understanding of media economics and applying it to media management is critical for a vigorous and thriving media arena. The coming of age of the disciplines of media management and economics is symbolized by the arrival of this Handbook and could not have been more timely. After all, no Web site ever went dark for lack of content.
Publishers are organizing to stake a larger claim to the revenue now being garnered by the search engines, particularly Google. Two weeks ago a consortium of primarily EU-based publishing associations lead by the World Association of Newspapers announced a venture called Automated Content Access Protocol (ACAP), through which the providers of content published on the world wide web would be capable of communicating permissions information (relating to access and use of their content) in a form that can be readily recognized and interpreted by a search engine “crawler”, so that the search engine operator is enabled systematically to comply with such a policy or license. The full ACAP briefing paper is here.
A recent article by the Society for Computer and Law reviews the legal status of Google’s tools that provide web users with links to online content. For the most part courts have ruled that Google (and therefore other search engines) are not violating copyright by providing links to the pages of publishers. Last month, however, a Belgian court did rule that Google News (as opposed to Google’s basic search) was acting as an information portal (that is, like a publisher) rather than a mere search engine. The SCL article summarized the publisher arguments that court considered:
It causes the newspaper publishers to lose control of their Web sites and their content. While Google News links to an article on the newspaper publishers’ servers, once the publishers removes the article it still remains accessible on Google News via the link to the Google cache.
The appearance of automatically generated headlines on Google News means that users may avoid or by-pass the newspaper sites, resulting in a reduction of traffic and therefore loss of advertising revenue to the publishers.
Access to the newspaper articles and other material via Google’s cache results in other missed opportunities for the newspaper, including reader registration and re-distribution rights.
Someone please help me understand, Where’s the beef? How does the publisher lose control of its Web site? For example, at 11:04 am EDT on Oct. 18 Google News’ top link was: The axis of anxiety
Belfast Telegraph - 1 hour ago
North Korea is the newest and least predictable member of the most dangerous club in the world. By David Usborne and Raymond Whitaker.
Has the Belfast Telegraph been robbed of possible traffic because thousands of users saw that? And how many of those who clicked through to the article would otherwise have the Belfast Telegraph as their usual source of online news? On the other hand, how many of those who clicked were exposed to the ad promoting “Online Monopoly”, an ad I for one have never seen elsewhere and was intrigued enough to click on.
Less than an hour latter, the lead had become:
Rice seeks to temper fears of Asian arms race Swissinfo - 2 hours ago By Sue Pleming and Chisa Fujioka. TOKYO (Reuters) - US Secretary of State Condoleezza Rice reassured Japan on Wednesday that Washington would stand by a commitment to protect its Asian ally, trying to temper ...
Was the Belfast News, or any other pubisher in that listing, being taken advantage of by being in the Google spotlight for 30 or 40 minutes?
And then its on and on about Google’s “cache” (sounds like “cash”, which, of course, is what this is all about). An article at Google News this morning headlined “Reuters offloads Factiva stake for $160m.” It was freely available if I chose the Times Online (London), but when I clicked on The Wall Street Journal’s link, I found only the first 50 words or so of the story and was told I needed to be a subscriber to see the whole thing.
Where’s the beef?
When I searched Google’s archive for articles mentioning HP CEO Mark Hurd and the recent controversy about investigating the HP Board, I received dozens of hits. But when I tried to view “Dunn Departs HP Board,” from Pensions & Investments Online Sept. 22, I was confronted with a screen that said I needed to register and sign-in before getting access.
So where’s the beef?
ACAP: Will it Work?
In practical terms, ACAP is a solution in search of a problem. I’m certain the overwhelming number of publishers today get far more benefit from being crawled and displayed by the search engines than any minor harm. They get hits from audiences far greater than they would get sans search engines. (I wish I knew of some solid research that would confirm this, but it’s so evident on its face that I’m willing to make this assertion.). More hits can only lead to great value for advertisers, more registered users, and, in a few cases, and even subscription revenue. Content providers already have the option of-opt out from Google, they can already control access to the bulk of their content through registration and subscription requirements.
The outlook for the successful widespread implementation of an ACAP-like system primarily depends on whether Google really sees anything of value in it. If Google, MSN and others choose not to modify their crawlers and spiders, whatever, to interpret the code that ACAP will provide publishers, the latter will be left with the choice of either opting out altogether or using current tools. There are only a handful of publishers worldwide that might even entertain the fiction that they would be better off without the search engines even as now functioning.
There are precious few example—I can think of none—where top-down implementation has succeeded on the Internet. The Internet itself-- though initially developed with US government funding-- grew very much organically, as did the World Wide Web. eBay was not a creation of Christy’s or Sotheby’s auction houses. Despite years of talk about micro payment systems, it was not the major financial institutions that created PayPal, the most successful new system for online payments. Downloaded music was not a creation of music publishers or record companies, but grew from the success of Napster and the initiatives of Apple. Online video has received most of its attention thanks to the success of YouTube rather than a big-bucks push from the legacy video industry. And Google itself was a garage-shop end-around the top-down effort of Digital Equipment Corp (later Compaq’s) Alta Vista search engine.
Not only is ACAP a long shot to succeed as a model, but I don’t even see how the content industry will be better off if it does.
The Tribune Co and its Los Angeles Times newspaper are in the news again today. This time it’s about the paper’s publisher, Jeffrey M. Johnson, who has become something of a newsroom hero in standing up to the parent company by refusing to initiate ordered budget cuts. This new profile comes after a flurry of articles (and here and here) in recent weeks about pressures on the Tribune Co to sell the Times. Moreover, the situation at the Times is a subset of turmoil at the Tribune Co., similar to that which resulted in the dismemberment of Knight-Ridder.
The unrest at the Times, however, is being repeated at large and medium size dailies all across the country. The underlying facts are undisputable. The remedies are less obvious.
The facts, which have been repeated frequently here and elsewhere, are that:
1) Daily newspaper circulation has been on a long term and steady decline. From a high point in the 1980s of about 63 million daily copies, the most recent count reports a total of 45.4 million copies, a decline of about 28%, even as population and households increased over that period. Some papers and some areas have fared better than others, but the trend overall is down.
In the case at hand of the L.A. Times, circulation, which was more than 1 million daily 10 years ago, was down “only” 17%, to 852,000 this year. Again, this despite a 12% growth in population since 1990 in Los Angees County alone.
2) Advertising is flat. Adjusted for inflation, newspaper advertising revenues increased only 7.3% between 1994 and 2004. That’s a compound annual growth rate of 0.7%. Total advertising in all media, on the other hand, grew by 49% in that period. Newspapers accounted for 27% of total advertising in 1985, 23% in 1995 and about 17% today.
With lower circulation and an expanding list of alternative vehicles for reaching their audiences, advertisers have been switching their budgets elsewhere, from direct mail to local cable to the Internet.
So, what’s a publisher to do? Jack Klunder, senior vice president for circulation at The Los Angeles Times, commented that Johnson was not against retrenchment: “Jeff has never said that we don’t need to make intelligent cost cuts. The challenge is, How do you grow your business when you have years of a stagnant or even declining revenue picture? You can’t grow your business just by cutting costs.”
Indeed. But Klunder’s statement leaves out a big detail: What is their business? Does he refer to the business of printing and distributing a newspaper? Or does he mean the business of gathering news and other information and making it available on a variety of platforms to multiple audiences?
True, businesses cannot grow by cutting—but they can survive. And right now newspaper publishers need a strategy to grow their business while transitioning from a reliance on high profit paper-based models. They will never again be able to have long term growth in the newspaper. But they can thrive if the cuts in expenditures on printing presses and circulation departments are accompanied by maintaining the capability for providing content about the local area in which they are well known. And offering this by whatever mechanisms some customers want to use: Web sites, Podcasts, Vodcasts, mobile devices, or telepathy for that matter. That will keep some—hopefully enough-- advertisers as customers as well.
I don’t know if the Tribune Co. has been intelligent about the cuts they want to make in LA or elsewhere. What we do know is that cuts are inevitable given the shrinking traditional newspaper. The hard part is how to make that part of a plan for regeneration.
I was leading an editors conference for a small newspaper publishing group last week. The objective was to think about strategies for the newspapers as well as their online components. To get things going I presented an ersatz IQ quiz to the 60 or so participants. Below are the questions. The answers and discussion follow. Few of the editors last week had the correct response to more than two of the five questions.
1. In the last quarter, MediaNews Group derived 13% of its profit from online. What % of its revenue was from online?
2. What is the annual quarter over quarter rate of increase for online revenue of newspaper publishers?
3. In 1950 about 2% of GDP went toward advertising. What was the % in 2005?
e) What’s GDP?
4. Craig Newmark got the idea for Craigslist when he was classified ad manager of what Northern California newspaper? Extra credit: In what year?
a) San Francisco Chronicle
b) Oakland Tribune
c) Sacramento Bee
d) San Jose Mercury-News
e) None of the above
5. Which newspaper group created the first consumer-oriented online news product in the U.S.? Extra credit: In what year? (+/- one good enough)
a) NY Times Co.
b) Dow Jones
f) Tribune Co.
1. a) I read recently that NewsMedia (a privately held company) claimed that 5% of its revenue was from online. (Unfortunately I didn’t make note of the source and I have been able to find it again. If anyone can provide a link, please leave a comment or email me). This would help confirm that the profit margin for online is greater than in print. I keep telling the newspaper folks that they should not be concerned about replacing lost print revenue dollar of dollar with online revenue. The key metrics are profit margin and net profit. 30% on $100 million beats 20% on $125 million.
2. c) For the industry overall it has been running about a 30% to 35% clip recently—both in the US and EU. It is still under 6% of total newspaper ad revenue in the U.S., but much needed, as print revenue has been flat.
3. b) Advertising expenditures have hovered about 2% of GDP for decades, up a bit in good years, down some in recession years. In 1930 newspapers took in about 45% of the total. By 1950 it was down to about 30%, with most of the difference going to radio. Surprisingly perhaps, television had relatively little effect on newspaper advertising share, with most of that medium’s share coming out of radio in the 1950s. Of course, the total amount spent on advertising kept increasing over the years, as 2% of a consistently larger GDP kept all boats rising, even as some lost share. But today, with so many boats in the water, newspapers are not only losing share but, in constant dollars, finding it hard to even increase ad rates enough to make up for declining lineage. Even broadcast television is losing share, to cable networks.
4. e) Trick question. Newmark—as presumably most of the readers of this blog will know, was a software engineer and did not come from the newspaper industry. That, of course, is the point. We might have expected that someone at a newspaper would have seen the connection between online and classifieds in a creative way before an outsider did. In fact, incumbents tend not to be product innovators because they are afraid of cannibalizing their current profitable products. So outsiders are freer to innovate. It is easier to create a Wal-Mart from the ground up than for a Sears to re-invent itself. By the way, Craigslist first appeared for the San Francisco area in 1995.
5. d) Knight-Ridder teamed up with AT&T to create Viewtron, a videotex service, in 1983. I was there. It used a TV set for the display (what else?) and the ubiquitous “set top box” from AT&T for the smarts, incorporating a 1200 baud modem. All for about $600 (double that in today’s dollars). Oh, plus $12 per month, plus $1 per hour for the dial-up time. The graphics were crude. But the services are recognizable: news, weather, sports, primitive online banking, shopping—and email with the handful of others who subscribed. Never heard of it? Surprise! They shut it down in 1986, after spending $50 million. Right idea, wrong decade.
The point of the quiz is three fold: First, the online information business did not arrive suddenly with the commercialization of the Internet. It started with Prestel in the late 1970s in the UK and had the attention of the newspaper industry (or at least Knight-Ridder and Times Mirror, which lagged K-R only by months with its own videotex trials) in the early 1980s. Unfortunately, the failure of these early developments emboldened the naysayers who were skeptical that online would ever be a threat to newspapers.
Second, it is exceedingly hard for incumbent players in any industry to reinvent themselves faster than outsiders can see and take advantage of opportunities. For the incumbents the knee jerk reaction is to preserve market share. For the new guys, getting even one or two percent of a large market such as advertising, can look very attractive.
Finally, online advertising dollars are quickly becoming sizeable and the profit margins make even the 20% sought under the old one-newspaper city model look minimal. Growing the online component of their businesses—whether with a MySpace type acquisition or more modest local initiatives—is not only important, but urgent and imperative.
We’re often quick to put down the newspaper company executives who “don’t get it,” who are still fighting rear guard actions against the forces and trends eroding the traditional newspaper’s business, or just moving too slowly, looking for “the” strategy or business model, when in fact the digital dynamic calls for experimentation and innovation.
Coloring with such broad brush strokes always leaves out the finer grain. There are many in the industry who do get it and who have been trying to find models of content, delivery and revenue to make up for the revenue being lost by the ink or paper product.
This line of thought came to mind having recently discovered a thoughtful piece in Nieman Reports by Mike Riley, the editor of the 97,000 circulation Roanoke (VA) Times. His starting premise is that we need to stop thinking of the institution of the newspaper. The first step is to think of these operations as news gathering organizations. In that context they are in a position of strength looking at the media landscape:
In most markets, they are the last remaining mass-medium; they are prime creators of original journalism and, in many cases, they are deeply committed to a community’s civic life and welfare. Finally, they are blessed with a profitable business model that can, if allowed, underwrite a range of digital experiments and online forays to move us successfully into the future.
Riley offers 12 observations for his news gathering colleagues. Several that I find most critical and not always obvious are:
Don’t force change. So then how do you change if editors and publishers can’t dictate it. He says to start with natural allies in the newsroom and let it spread. He found that the photographers were among the first group most amenable to experimentation, creating multimedia presentations and videos for the Web site. Others caught the enthusiasm – the viral approach. Ultimately, says Riley in another one of his points, “Get everyone to drink the Kool-Aid.”
Integrate, don't separate. Riley thinks there is now a clear winner in the debate about whether a disruptive technology has a place in the traditional newsroom of the newspaper. Should the online newsroom be separate or integrated with the traditional newsroom? “My belief is that you shouldn't relegate online players to backrooms or basements, particularly if you want others to learn and grow. The online content operation should be integrated into the newsroom, particularly as the seismic shift of resources from print to online gains momentum.” He found that moving the online time into the newsroom at his paper made a huge difference for the good. "The online editor hears a metro editor talking with a reporter about a breaking story, and within minutes that nugget of news is posted on our Web site.”
Don't be afraid to invent jobs. At a time when the news is usually about downsizing, he says that new positions must be created. One that has been of great success for the Times was a multimedia editor. This approach has paid off with some stellar prize-winning multimedia projects. He launched the TimesCast, an interactive, online video newscast in the somewhat iconoclastic spirit of Rocketboom.com .
Work across traditional barriers. This one gets dicey: the modern newspaper was viewed as having a high wall between the newsroom and the business side of the enterprise. Editors were known to resign if publishers tried to infiltrate. But, says Riley, “In this new world, different departments need to communicate and coordinate well…” This includes the information technology folks as well as those in advertising.
In a traditional newspaper world, such conversations might seem jarring, but in this new environment, it is essential that they take place as we construct a new paradigm. This is not always easy for newsroom folks to understand. The irony, of course, is that newspapers, the world's chroniclers of change, are themselves frightened to death of change, and that fear can often impede vital experimentation.
There are others who understand what needs to be done and are in a position to make it happen. Steve Yelvington, who is the new media guru for the 27 Morris Publishing dailies, has been toiling in this patch for decades. Significantly, Morris and Riley's parent corporation, Landmark Communications, are privately held companies. Though they might not have access to the capital available to their publicly owned cousins, they may be better positioned to experiment and absorb lower margins while making the transition from the ink on paper world.
At any rate, Riley’s article is a helpful take on working toward a blueprint for change in the newspaper business.
Federated Expected to Drastically Reduce Newspaper Advertising
More down news for big city newspapers: Federated Department Stores, owner of Macy’s and Bloomingdale’s, is expected to trim (perhaps "hack" is the better term) its current $825 million expenditures for newspaper advertising by 25% to 50%. Federated’s department store brands reportedly are the single largest advertiser for newspapers. Spot TV is also expected to suffer. According to Advertising Age the new mix will favor national TV and magazines.
Though a bit removed from the main focus of Rebuilding Media, my completion of a project that required reviewing the media landscape in Russia the past three months coincided with last weekend’s G-8 summit there. Having spent more than five weeks on the ground, meeting with Russian publishers, attending conferences and seeing the media up close (with the aid of Marina, my tireless interpreter) has been most eye opening.
First, the big picture. Reports we hear in the Western media about the increasing amount of government control over the media are not exaggerated, though not always in context. Government ownership of Rossia, NTV TV, Center, and Channel One, the last the most watched network, is anathema to our First Amendment. Western Europe has a long tradition of government control of broadcasting networks—think BBC. But the role there has been out front and has been imbued with a public service expectation. In Russia, Channel One looks like any other commercial station. While its ownership by the government is not hidden, its obscured by its programming and “brand identification..”
A leading newspaper publishing group is owned by Gazprom, the mammoth energy company that is government owned.
Most disconcerting were the stories I heard from more than one source-- some of them with inside knowledge—that the Putin administration calls the top editors of the leading media to the Kremlin for regular meetings. There they are told what the governments top interests and agenda is for the next week or two. No threats, but there is an expectation that the editors will be sure to promote that agenda, and positively. If not? They know that the tax police, the customs officials, the license grantors and so on can make life difficult for those who do not cooperate.
The result? A study earlier this year by the Moscow-based Center for Journalism in Extreme Situations found that “The main nationwide television channels devote about 90 percent of their news coverage to President Vladimir Putin, the Cabinet and the main pro-Kremlin United Russia party, portraying them almost exclusively in a positive light.”
On the other hand, the situation is far removed from the tight control of Soviet times, though in those days everyone knew that the media were tools of government propaganda. Today it is less obvious. Still, book publishing is free and robust, with 90,000 book and brochure titles of all sorts published yearly. Magazines, though as elsewhere mostly non political, have seen little, in any, interference. And, unlike China, the Web is unfettered.
Indeed, the Internet, though still behind in penetration compared to the US and Western Europe, is developing quickly, particularly in the major urban areas. (Russia’s territory is the largest on earth, but 10% of the population lives in Moscow and St. Petersburg, with 11 other cities of over 1 million population). Internet is in 80% of PC households and broadband, primarily DSL, is widespread. There are an estimated 22 million Internet users in Russia (out of 142 million total population). The sophistication of Web sites is three or four years behind the US in terms of video, audio and design. but if you signed on to Rambler, the Yahoo! of Russia, you would certainly recognize it as a busy portal.
Newspapers are suffering there as much as here, mostly because TV has just come alive in the past 15 years. Media advertising was about $5 billion there last year (vs. about $250 here), so the industry is really challenged.
There is intense competition among daily newspapers, with about a dozen serving Moscow and additional competition in the regions. This includes business and sports dailies and others that focus on traditional yellow journalism. As a generalization, they are mediocre at best. They are thin, with bland graphics and hold to a level of journalistism standards that would be unacceptable by most Western standards. (Television news is worse). There are no thick weekend editions—too many people head off to their dachas (often just shacks on a small plot of land an hour or so out of town). Part of the problem is that advertising in the media is still minuscule, though growing fast. In 2005 advertising expenditures in Russia were about $5.5 billion, up from $800 million in 2000 and expected to double by 2010. By contrast, advertising expenditures in the US last year exceeded $250 billion.
One problem faced by the print media is the underdeveloped state of logistics in Russia. Long distances, snowy winters and lack of well developed wholesalers and distributors make it difficult to get a new magazine out to the newsstands. The number of newsstands—often controlled by the city governments-- is limited. There are no coin boxes on the corners. There are no reliable local delivery services such as UPS that online merchants can rely on for delivery of books or other merchandise. There is for the most part only the Postal Service, which is not viewed as fast or reliable.
The bottom line is mixed for media in Russia. On the one hand, they are facing the same types of questions faced by media players here and elsewhere—how to make an orderly transition to digital media environment, what to preserve in analog and for how long. At the same time they are struggling with finding a Russian model for the press.
On the Editor’s Forum is a keynote address by Columbia Business School’s Eli Noam, whose theme starts with the warning “Today's newspaper will become a news-integrator, but the problem for traditional news organisations is that this type of virtual integrator function can also be done by others.” Other speakers here (remember, this is are newspaper publisher and editor conferences) are Wikipedia founder Jimmy Wales, Corante Media Hub colleague Steve Yelvington, Yahoo! News’, Neil Budde and Google News’ Nathan Stoll. Mochila.com and Microsoft have their presence here as well.
Unfortunately, the sessions for the publishers are far more mundane, despite promising titles. A session with the promising description of the “latest research and strategy reports in the Shaping the Future of the Newspaper project” is about classified advertising. A session headlined “The Product Innovators” will feature “The Future of newspapers - newspapers of the future” with that digital innovator Axel Springer of Germany and a “Review of the Russian media scene.” from TNS Gallup Media. Of interest, perhaps, but hardly the stuff of shoring up a sinking ship.
In all fairness, WAN has always been heavily European with a strong South American and Asian presence (China has a impressive delegation of 41 registered participants, compared to the 70 or so from the U.S.) In many regions newspaper circulation is still growing, thanks to improvements in literacy that expands the universe of readers and the lower penetration of cable, DBS and the Internet than in the West. That said, the publishers might be serving their future better by attending the Editor’s Forum.
While the New York Times Co. and the Washington Post have some reasonably high level people attending, is there any message in who is missing: no one from McClatchy, Gannett or Tribune Co. (other than a mid level European manager from the Tribune News Service).
If any worthwhile insights stumble out of these conferences, I’ll be sure to share them.
Is the agreement by a new local group of Philadelphia investors to buy The Philadelphia Inquirer and the Daily News from McClatchy any sort of vote of confidence in the future of daily newspapers? I’m afraid not. But we still may be able to scratch out some good news in this outcome.
The price being paid, $562 million in cash and debt assumption, is about nine times the reported EBITDA of the newspapers (EBITDA is “earnings before interest, taxes, depreciation and amortization,” which approximates operating income). This is based on 2005 earnings of about $62 million. However, income at the two Philadelphia papers has been declining for years. Indeed, 2004 income was about $75 million. And one can’t argue that 2005 was just a down year for the economy.
Nine times EBITDA would not be a bad deal for a growing property. But if income declines by a similar percentage in 2006, the price would be 11 times EBDITA—a rather rich price. Still, if the winning bid had been placed by an experienced newspaper group such as Gannett there might have been some reasonable room for speculating that there was serious hope for turning around the direction of these two declining newspapers. But, alas, it was a local group of investors, with no known experience in publishing. Thus, one must assume that part of the valuation they placed on the properties was "“home town” sentimentality, maybe boosterism, perhaps charity, or even naiveté that they had a “plan for turning things around.
It was probably some combination of all the above.
Though I would tend to be skeptical that the new management has any magic for substantially changing the growth vector of the newspapers, there is some reason for very cautious optimism. The other side of the naiveté coin is fresh thinking, such as offering “fixed slots to repeat advertisers." Not being saddled with the tradition of the ways of newspaper publishing, this new group may be able to implement strategies or specific programs that come out of their very different backgrounds: residential home building (Toll Brothers), consumer packaged goods (NutriSystem), an insurance brokerage, even a labor union pension fund.
Also, coming from outside newspaper publishing, these investors may not be basing their calculations on obtaining the profit margins that traditional publishers have become used to. Knight Ridder’s profit margin in 2004 was over 19%, which is about what newspaper publishers expect. The Philadelphia newspapers reportedly had a margin of half that, clearly dragging down the overall corporate rate. But for manufacturing industries in general, 9% is pretty good. For example, in the home building industry, 5% net income is typical. So perhaps these investors decided that an investment that could return close to 10% ain’t too bad. That might actually be a positive sign for a newspaper if it was in the context of a strategy to position it for a changeover to a greater emphasis on online income.
As the TV reporters like to end with, where this goes remain to be seen. But see it we will. Stay tuned.
Note: At my Who Owns the Media Blog I have taken a different angle on this deal, focusing on the media ownership implications.
The “Trust in Media” survey conducted by the BBC, Reuters and the Media Center released this week has something in it for almost anyone. I’ve written up one take at my Who Owns the Media Blog, where I conclude that it is a positive sign for diversity of content that there are no dominate, pervasive sources of news and information in the U.S., unlike some other democracies.
It found that the media were trusted a bit more than governments, Fox News was the most trusted medium in the U.S. Al Jazeera most trusted in the Middle East and the BBC (surprise?) most trusted globally. Blogs, says the report, are the least trusted form of news, with 25% of respondents finding them trustworthy.
But the report has some significant markers for looking down the road at where the business of the media is headed. On the one hand, few individual news Web site were cited by respondents as the source they trusted most. On the other hand, given the short time this media format has been around, the Web's inroads may be considered significant.
No surprise, youth use online sources most. Among all those survey over 10 countries, 19% of those 18 to 24 years old named an online source as the most trusted, compared to 3% of those 55-64 years. As significantly, 56% overall valued the opportunity to obtain news online. In the U.S. it was higher, at 60%.
The young male audience, in particular, is moving away from television towards the Internet. Ten percent fewer young males, compared to the average, name television as their most important news source (46% as opposed to 56% overall); and 15 percent say the Internet is now their most important news source in an average week, compared to just 9 percent of respondents as a whole.
In the U.S. as might be expected the important news source in a typical week is television, mentioned first by 50%. But the Internet, mentioned by 14%, has surpassed radio as a news sources (at 10%) and is only 7% lower than newspapers, at 21%.
Fully 20 percent of American men name the Internet as their most important news source.
Figure 1:"I value the opportunity to get news using Internet/wireless technology"
Figure 1, taken from the study, shows the percentage of respondents overall who “strongly” or “somewhat” agreed with the proposition “I value the opportunity to get news using Internet/wireless technology." The greatest disparity is in the age demographic, providing yet further data points that online information is already entrenched and will steadily encroach on older media formats as the population ages.
Recently I wrote about the “arrival” of video on the Internet. I thought that I’d get a few weeks at least until there were some other significant developments. But, no, the announcements keep coming. Last Monday Disney went public with its plan for free access to programming, the day after broadcast. Hard on its heels Fox released its plan to make its first run shows such as “24” also available the day after broadcast.
These are breakthrough developments for three reasons:
First, both these broadcasters are extending the model they know best: free programming, supported by advertising. Disney’s plan is to embed traditional spots that cannot be skipped or fast forwarded through, although the programming itself will have the pause, rewind and fast forward features we use on our personal video recorders. Fox did not provide that level of detail, so it may or may not have the same expectation for advertising.
Second, Fox has explicitly said it will split the advertising revenue from its Internet operation with its local affiliates. This notion of the networks generating revenue from its programming, possibly at the expense of lower viewership at the local affiliates during the initial broadcast, has been a sore point with the affiliates. Fox has addressed them head on—and presumably to the satisfaction of the affiliates.
Third, together with CBS’ offering of free online access to the NCAA tournament while charging for ad-less replays of hit shows like “Survivor,” says that the old time networks are adapting to a new game: multiple business models. Anne Sweeney, president of the Disney-ABC Television Group was right on target when she told a cable executive audience, "None of us live in the world of one business model.” They are seeing these options as an opportunity and responding accordingly. Previously much of their motivation was largely defensive, to hedge on the threat the Intrenet posed.
One of the benefits of the Internet is that it expands the options available to everyone—both users and content providers. In the past, resources were scarce enough that there was limited room for experimentation and segmentation on television. Broadcast spectrum was allocated in such as way that it almost mandated that it be used to reach the largest possible audience, hence the mass audience programming of the old networks. Cable expanded choices, allowing Time Warner and others, for example, to offer user-funded channels, such as HBO, with a different programming model than on its ad supported WB broadcast network.
But the Internet, helped along with broadband, is a marketer’s Nirvana and a viewers Utopia (well, at least compared to the first 50 years). We have free first run TV, paid first run, ad supported free next day access with ads or paid commercial-less next day access. There are opportunities for downloading to small, portable players and larger, fixed displays. Advertisers can efficiently target smaller audiences than ever, converting video into the equivalent of the print world’s magazine rack.
Michael Nathanson, media analyst for Sanford C. Bernstein & Company, tells it straight: “A lot of companies are trying experiments like these, not just Disney. But no one knows what the business model is and whether it will pay off." Very true. And the same could be said in the early days of radio, when there were experiments with different subscription and advertiser models.
The difference today is that we are likely to find that multiple models will profitably co-exist with one another, which should please both stockholders and entrepreneurs. And consumers will soon find – to borrow from another industry—they can “have it their way” when it comes to video.
I’m about half way through The Beatles, the new massive biography by Bob Spitz. Having come of age with the Beatles—I was a freshman in college when their first U.S. album swept over America – it all seemed very sudden. One day it was Elvis and the Ronetts. Next day it was all Beatles, all the time. But in reading Spitz’s book, I got a very different perspective on the phenomenon. From the time John Lennon was introduced to Paul McCartney in 1955, it was seven years of free gigs, grueling road trips and seven day a week performances in Hamburg before they even got their first recording audition. And another year until they broke out into the big time. As is often the case, a “sudden” phenomenon had been a long time in the making.
What in the world does this have to do with Rebuilding Media? Internet video is breaking out big time. After years of Internet video being a postage-stamp sized novelty, it is “suddenly” mainstream. I vividly recall showing a streaming video with RealPlayer (there was no Windows Media Player then) to my inaugural cybermedia class at Temple University in 1996. One student’s hand shot up with a question: “That’s cool. But no one is going to watch videos that are so jerky [it was a dial-up line] and so small.” “Absolutely true,” I responded. “But the importance of this is not where it is today but where we can expect it to be in 10 years."
So here we are 10 years later. Most households that are online use broadband connections. Wireless networks are in place with broadband capability. And cell phones that include the capability to receive video are common. This year may be the year that online video is recognized as a real business, as the established media companies throw their figurative hats in the ring to join the start-ups and innovators.
What’s some of the evidence?
First the new-guy players:
-- YouTube, one of the latest “new kids, rocketed from 3 million video streams per day to 25 million from Jan. 1 to Feb 28.
-- Apple’s iTunes is reporting downloads at the rate of about 3 million per month. Some are free, some are paid for.
-- NarrowStep, a company in the U.K. that provides technology and support for specialized Webcasts, says it is adding two to three new channels per week. Unlike the mostly amateur clips uploaded to YouTube and similar, NarrowStep is being used to create “slivercast” channels that are intended to be businesses. One client, Sail.tv, says it attracted 70,000 viewers in its first month. (payment required for access)
-- The Roo Group hosts or consults for 100 Internetcast TV sites which show 40 million videos a month. One client is YuksTV, which claims as many as many as 200,000 visitors in a month.
-- One of the “old-timers” among the new players is Atomfilms, a home for budding film-makers.
-- Then there is Google, big and wealthy but still a new player in video. Google provides access to everything from archived NBAAll-Star games for $3.95 to “Twilight Zone” classics for $1.99 to many free – and often worth as much— classic clips such as the 49 second "Benito scooping up after his dog.”
The traditional media companies have gotten the message:
-- The uber-Establishment Time-Warner’s CNN has been flogging Pipeline, a service that combines real time CNN feed with access to its video archive. It has the confidence to seek $25 annually—less than a subscription to Time.
-- CBS offered the NCAA’s March Madness basketball games on an advertiser-supported basis and had 5 million takers. Much of the pay-for material on Google Video is both current (e.g., “Survivor”) and historical (e.g., “Brady Bunch”) from CBS.
-- The prospects of a new revenue stream have driven Disney, which owns ABC, to agree with NBC Universal to provide “Scrubs”, which the former produces and the latter broadcasts, for sale on Apples iTunes. The significance of this is that it is the first time rival broadcasters have “joined together in a digital download deal.”
To be sure, these are just the tip of the iceberg (sometimes a cliché says it best). And naturally there are skeptics, though often one can see where their bread is buttered to understand:“‘I've never been a believer that we should create channels for all these niches like beach volleyball,’ said John Skipper, a senior vice president of ESPN. ‘They just don't pencil out. Because if you have 12,000 people, you can't afford to do it. And if you can't afford to do it, you can't make any money on it.’" But that’s like the publisher of People claiming that you can’t afford to publish a newsletter for 12,000 subscribers. No, not if you use the underlying economics of People.
The folks at Rocketboom.com, which claims “more daily subscribers for original syndicated multimedia content than nearly any other site, including Podcasts,” state it succinctly:
We differ from a regular TV program in many important ways. Instead of costing millions of dollars to produce, Rocketboom is created with a consumer-level video camera, a laptop, two lights and a map with no additional overhead or costs. Also, Rocketboom is distributed online, all around the world and on demand, and thus has a much larger potential audience than any TV broadcast. However, we spend $0 on promotion, relying entirely on word-of-mouth, and close to $0 on distribution because bandwidth costs and space are so inexpensive.
(Hmm, is this last phrase an argument for the carriers in the so-called “net neutrality” debate?)
The role and the business models of these and the many other players are all over the place. None of the new guys bulleted above actually create any content, while all of the old timers do. But the new players, including Google, YouTube and iTunes are providing the facility for all sorts of amateurs, professionals and amateurs-hoping -to-be- recognized- as-professionals to reach an audience.
“Slivercasting” is any way of describing the “long tail” concept introduced in a Wired article by that name in 2004: It refers to the large number of specialized offerings each of which appeals to a small number of people, but aggregate to a large market on the Internet. If each content provider was plotted on a graph along with best sellers, these specialized products trail off like a long tail that never reaches zero, as in the accompanying figure.
Of course, not all these ventures will survive economically, although as we have seen with the blogging phenomenon, in the long tail there inevitably will be some high quality content provided by individuals or entities motivated by other than direct revenue. Still, the implications for the effect of all this on our cumulative time available to spend on individual media programs, products and sites, as well the impact on the slicing of the advertising pie and consumer media budgets is likely to continue roiling and destabilizing the traditional media landscape.
There may be sudden phenomena in nature. But rarely in business. You just need to pay attention.
Another week, another front paper story on the media business from The Wall Street Journal. Today it was the lead story: “As Market Shifts, Newspapers Try to Lure New, Young Readers.” (subscription required)
The article provides some fresh data on advertising in newspapers: The categories of customers that provide by far the largest proportion of advertising have reduced the percentage of their ad budgets devoted to newspapers since 2000. In the case of employment—the highly profitable classified ads for jobs-- the decline was nearly 6%. In a high fixed cost business such as newspapers, this is a serious trend, though not a surprising revelation. Consolidation in the department store industry, highlighted most recently by the merger of May Co. and Federated, has only exacerbated the decrease.
The topic sentence for the Journal article: “Looking for ways to shore up their readership and broaden appeal to advertisers, many U.S. newspapers are adopting a new tactic: targeting narrower and younger audiences.”
Does this tactic (or is it a strategy) make sense? It depends on what the editors and publishers have as their long term goal. One question that newspapers editors and managers must get clear in their heads is the line between their newspapers and the entity that publishes the newspapers. That is, when we talk about “saving the newspaper” or “developing new strategies for the newspaper,” should this refer to the ink on paper product that is manufactured on Goss Metroliners? Or does this refer to the role of a newsroom, advertising department, and marketing organization that create of bundle of information for distribution to an audience by whatever channels?
I raise this question because the answer would suggest the direction for strategy. Emphasizing the current newspaper product might result in actions such as redesign of the paper’s graphics, changing the editorial mix to target a specific group of readers (i.e., “younger, current nonreaders” as the WSJ headline suggests), raising local ad rates for the dwindling core of “must have” advertisers, and so on.
On the other hand, if the strategy is to ensure the health of the company that publishes newspapers, then a different strategy may emerge. That is more likely to focus on new products, such as online classified ad services, hyper localized neighborhood Web sites, specialized free print publications such as the Tribune Co’s RedEye.
The two strategies are not completely mutually exclusive, but how they are viewed by editors and publishers does make a difference. First is a matter of priority. If management believes that it is newspaper that is paramount, then it may over invest in that (new presses anyone?), making the new ventures skimp for internal venture capital. And new ventures may be viewed more as an end to subsidizing newspaper margins than to truly developing new businesses that will replace the declining size of the paper product.
On the other hand, a strategy that looks at threats and opportunities, at the publisher’s own strengths and weaknesses, would look at the pieces of the enterprise—the editorial resources, sales and marketing, even circulation – and be willing to strike out in a fresh direction. There are some innovations finally emerging that the tide may be turning to this latter mode.
A day after the official announcement of McClatchy’s intended acquisition of the much larger Knight-Ridder, some of the dust is starting to settle. It reveals a not very pretty picture.
First, the assurances that McClatchy CEO Gary Pruitt made on Monday that “We have no plans for layoffs or across-the-board cuts" in the newsrooms is rather disingenuous given that he also confirmed that McClatchy would sell 12 of the 32 Knight-Ridder dailies, ideally on the same day the acquisitions is closed. Indeed, Pruitt added "McClatchy would not operate those papers for even one day." Thus, his statement that they would not close any newspapers, even the troubled Philadelphia Daily News, is likewise meaningless, as any of the possible buyers of the Philadelphia papers are not bound by any such promise.
And McClatchy is generally rated one of the most editorially conscientious publishers.
Second, McClatchy is trying to thread a needle: On the one hand it must assure its stockholders that its purchase will lead to a growing, prosperous newspaper company. Thus Pruitt talks about the growth markets many of the Knight Ridder papers are in.
Pruitt pointed out that the average rate of household growth over the next five years in the markets for the 20 papers the company would keep is 11.1%, compared to the average growth rate for newspapers in the United States is 7.5%.
On the other hand, in the markets of the dozen papers that McClatchy plans to divest the household growth is 4.8% for the next five years. Yet if it is to attract buyer interest, it must put a positive spin on these papers that do not fit its “long-standing acquisition and operating strategies." In other words, they’re dogs (financially, not necessarily editorially).
Of the 32 Knight-Ridder daily newspapers, McClatchy will sell 38% of the total. However, they account for 44% of Knight-Ridder’s daily circulation
The 12 McClatchy “rejects” can no doubt be sold. At some price virtually anything can be. While some of the pundits have proclaimed the 30% premium that Knight-Ridder fetched over its value before it put itself up for sale as a sign that there is a bit of life left in the industry, there is little likelihood that buyers of the 12 orphaned K-R papers will leave them untouched once they buy. Curiously, The Wall Street Journal (sub. required) reported that The Newspaper Guild-Communication Workers of America, which represents workers at Knight Ridder papers, said it is interested in buying some or all of the 12 papers. “Union President Linda Foley says it ‘intends to be aggressive about making an offer’ and is contacting McClatchy about its interest. ‘We're reaching out to them as we speak,’ she said yesterday evening.’” Now that would be fascinating to see.
Then again, Pruitt can also see how much he can get for the 12 on eBay—with no reserve.
Finally: The New York Times to Cease Printing Daily Stock Tables
The New York Timesannounced today that it would cease printing the daily stock listings, except on Sunday. It joins, among others, the Tribune Co.’s papers in Chicago, Los Angeles, New York and Orlando in cutting back on the pages of agate type. This has been a long overdue measure. The Internet has provided financial data faster and easier for years. Most investors who need to know the price of their securities would have found online access worth the price of an ISP service long ago. It's a no-brainer for saving tons of newsprint at a time when big city newspapers are under cost ands revenue pressures. The Times Co., however, declined to provide an estimate on its savings.
Among the worst performing publicly owned companies over the past three years are a collection of media companies. At my Who Owns the Media? blog I discuss the implications of this in a media ownership context. However in the Rebuilding Media space there is a different, though related message. First the data.
The Wall Street Journal last Monday tallied the best and worst performing stocks (subscription required). Among the 50 poorest performers were six media companies, four with major holdings in the fading newspaper segment, but also two major broadcasters, including the largest owner of radio stations. Among the best performing media companies were younger and thus more volatile entrants.
Worst and Best Performers, Total Return, Past 3 Years
# 4 New York Times Co.
# 5 Sirius Satellite Radio
# 8 Tribune Co
#9 XM Satellite Radio
#39 CNET Networks
#27 Dow Jones
# 33 Clear Channel Communications
Source: The Wall Street Journal, Feb 27, 2006, R1. Compiled by L.E.K. Consulting LLC.
Last year Adam Thierer and Dan English published a paper, “Testing ‘Media Monopoly’ Claims: A Look at What Markets Say” that I wrote about in September. In brief, Thierer and English found that Time Warner, Viacom, News Corp., Clear Channel, and Comcast lost a combined 52 percent of their value (in terms of market capitalization) over the previous five years. Time Warner in recent months was the target of an attempt by major stockholder Carl Icahn to break the company into four pieces to “unlock value.” Time Warner’s capitalization was lower in 2005 than in 2001. Knight-Ridder has been forced to put itself up for bid.
Although one might criticize Wall Street as being obsessed with last quarter's and the next quarter's earnings, over the longer haul the financial markets tell a story of substance. Out of 76 industry sectors (from home construction to computer hardware), the publishing industry was 72nd over the three year period, broadcasting and entertainment was 63rd. This is a statement about expectations of the future—the one year and five year future.
Folks who put our money (most of the big investments come from our retirement and mutual funds) out for investment are saying that there is so much uncertainty in the media arena that even when companies show reasonable profit they are not attractive bets for the future. On the other hand, some companies that have little or no profit may be worth the uncertainty and risk because their upside is substantial.
One clue to the media future may be found in following the money. But look at where it’s not going as well as where it is.
It comes every day. Relentlessly. News with no indication that the trends set in motion by silicon is slowing. Indeed, they are picking up speed.
“It,” is the creation of new media outlets, forms and channels. It is good news for anyone who is concerned that the old media limited access to content. It is bad news for those whose livelihood depends on the older media structure.
Here are just two data points, both brought to our attention by The Wall Street Journal (read it online for $50 annually or in print for $200 annually, your choice).
On Feb 21, the Journal lead with another media story: “Online Video Goes Mainstream, Sparking an Industry Land Grab.” The gist of this story is that there are companies that now make it “easy for any producer -- from home-movie buffs to television networks -- to distribute their videos to multitudes of Web sites.” And that is not just technologically possible, but with a revenue model.
Now, what is the link between these two media stories? The Journal celebrates newspapers whose circulation “is holding steady” while big city circulation is plummeting. It mentions that Bismark’s population grew 11% between 1990 and 2000. Despite that, circulation was lower in 2005 than in 1996. For The Bismarck Tribune’s parent company, Lee Enterprises, advertising revenue was up 4.7%-- but that does not mean linage was up. Even Knight-Ridder, top heavy with the more rapidly declining big city papers, could claim 2.8% ad revenue growth in 2005.
More telling in the Journal’s “glass half full” story was the signal in the last paragraph. Scheel’s, a local sporting goods chain, and major local advertiser with 3000 employees, reported that a survey it conducted of its employees found that almost none of the under 40 years old subscribed to a daily newspaper. It concluded with: “At the same time, the response rate to the company's newspaper ads is half of what it was 10 years ago, he says. So increasingly, Mr. Scheel is skipping newspaper ads and reaching out to customers directly through email.”
Meanwhile, according to Parks Associates, someone in more than 10 million U.S. households watches an online video at least monthly. Even more download videos. The market for using the Internet to access video thus stands in direct counterpoint to the newspaper trends. Brightcove is one of the start-ups positioning itself to facilitate a wealth on online video. (Time Warner’s AOL and IAC/InterActiveCorp are among the investors). The model is simple. Anyone with video content—The New York Times and Reuters are two, but so also is tiny Bollywood & Beyond, Inc. in discussions or any amateur film maker-- can sign on. Any Web site that wants to link to the available content fills out on online form and, voila, can offer syndictaed video appropriate for its site. Brightcove sells advertising that runs prior to the video. The revenue is sliced among the video provider, the Web site and Brightcove.
Of course, there is nothing new and insightful here about the long term declining fortunes of the traditional newspaper industry and the prospects of all things digital. Big yawn. No, the message today is two-fold. First is the rate at which the changeover is happening. There are Brightcove-type initiatives being uncovered virtually every day. Just another that I came across recently was the movie “Waterborne,” which was reportedly the first full length feature with an original release on Google Video. It reportedly had 25,000 downloads in its first two weeks, at $.99 to $3.99 a pop, followed by an advance purchase of 15,000 DVDs. The independent producers had previously rejected at six figure advance from a distributor to maintain full ownership rights.
Unlike the dot-com era, these ventures come grounded in realistic business models based on reliable trends such as the growth in broadband. (Though, as an aside, successful attempts to legislate the benign sounding network neutrality policy could set back some of the high bandwidth –need plans).
Second, no matter what spin even The Wall Street Journal tries, the forces and trends at play cannot be buried. The only way the Lees, McClathchys, Gannetts and Knight-Ridders of the publishing world will stay profitable is by raising rates, at the risk of accelerating loss of advertisers and buyer, and by cutting costs. They have been doing both. In the short term it can produce favorable returns for investors.
As I noted here before and will say again, newspaper publishers, as well as other traditional publishers and radio and television broadcasters, are going to have to reinvent themselves while they still have strong cash flow and resources.
Today is the final day of a symposium in Washington to brainstorm the future of the newspaper. The symposium is part of the “Newspaper Next: The Transformation Project” of the American Press Institute. API, a creation of the newspaper publishers, has as its mission providing “training and professional development for the news industry and journalism educators.” “Newspaper Next” is a $2 million year-long project that seeks to “conceive and test new business models to help newspapers thrive in the next decade” It has hired some high priced Harvard Business School professors as consultants to collaborate with the “25 industry innovators and thought-leaders” who will produce the report later this year.
The members of the task force include mostly individuals who are associated with traditional newspapers as well as a handful of leading edge digital pioneers, such as Steve Yelvington. Creating a task force to try address the future of the newspaper industry would be ho-hum. The unique innovation of this effort is that the model will be tested at an operating daily newspaper, probably starting early next year.
This is all well and good, if not unconventional or even a bit weird. With 1457 daily newspapers in the U.S. alone—not to mentioned the thousands of others globally—one would expect that there is plenty of opportunity for experimentation in real time. And in fact that is happening. Some newspapers, like the Lawrence (KS) Journal-World, have been trying out new approaches to both their print product and their online sites. Editorial techniques such as encouraging citizen journalists, running photographs uploaded by readers, focusing on neighborhood-level articles and more are being tried somewhere at any given time. Business models that include reducing (New York Post) or even eliminating the price of the papers (Metro) are in play.
Among the pushing-the-envelop goals of “Newspaper Next" are
Assess the threat to newspapers in the next decade, including emerging competition
Determine opportunities for newspapers, including implementation of available new technology
Suggest executable new business initiatives – products, services and strategies – with detailed rationales
This is what $2 million antied up in 2006 gets? Seems to this observer that any newspaper-owning company that has not had its own task force and consultants analyze the external environment by now is incompetent and should sell out and get into the slide rule business. Any publisher who has not taken advantage of dozens of studies, scores of blogs from some very savvy current and former newspaper people among others, and the accumulated insights from 10 years (mid-1980s-mid-1990s) of being warned that big change was coming and 10 years of living with these changes should be stripped of his or her titles and forced to use a typewriter forever. And any publishing enterprise that does not have a thick book of possible initiatives now in progress or worth considering should be prohibited from ever buying another ton of newsprint. Where have these folks been for 20 years?
I’d be curious to see how many “models” the API group promotes. Or do they expect the same model that may be appropriate for a 26,000 circulation daily in a homogeneous North Dakota town can be applied to an 800,000 circulation paper in a metropolis? One size isn’t going to fit all.
The players in the newspaper industry carry the burden of being the incumbents. As such they have been afraid to innovate if it might cannibalize their traditional product or stray into a competitive area they wished to avoid. It should have been one of the major dailies that initiated a feature such as Yahoo’s Kevin Sites in the Hot Zone. Any of the major chains could have teamed up with a Lycos or Overture five years ago to create a service that Goggle pre-empted with Google News. The New York Times Co. bought About.com in 2005 for $410 million. Why wasn’t About part of a portfolio of $5 and $10 million start-up venture investments?
To be sure, there were some pockets of foresight. The Tribune Co. did have a venture portfolio dating back to the 1990s that included early investments in AOL and Excite. The Raleigh News & Observer started its NandoTimes online site in 1994 (though it was shuttered in 2003 in favor of local newspaper-branded sites by McClatchy.) Knight-Ridder pioneered an early videotext service with AT&T in the early 1980s. However, it often seemed that many of the investments were of the CYA nature, rather than as part of a strategic plan to reinvent themselves for a changing environment.
It is easy to look back and groan over what should have been. Reality is, there were plenty of signs a decade or two ago of where the information industry was headed and a gaggle of analysts interpreting them for the industry. Many listened, fewer heard and only a handful acted in a committed way. The inflection point was then. There’s nothing wrong with API’s $2 million experiment. Better late than never.
On January 27, 2006, Western Union sent its final telegram, 150 years after it sent its first. There’s a bit of a message for the media industry in this historical footnote.
In the late 19th century and into the 1930s, Western Union was the pinnacle of the communications business. Indeed, believing that telegraph was the be all and end all of communications technology, Western Union turned down the offer to buy Alexander Graham Bell’s telephone patents in 1876 for $100,000. (They soon realized their mistake and actually hired Thomas Edison to develop a telephone device, which he did. But Bell’s fledgling company won a patent infringement suit against the giant Western Union which then withdrew from voice telephony).
But Western Union thrived for a time, even as the Bell System overtook it in size. In 1900 Western Union sent 63 million telegrams. In its peak year, 1929, it handled 200 million telegrams. Telegram service was slowly eroded by the increased availability and decreasing price of long distance voice. But it also lost market share as teletypewriters were introduced, a newer technology that did not require skilled Morse code operators. Much later, facsimile spelled the end to what was left of the telegram’s commercial market. In the past year 20,000 telegrams were sent, mostly as novelties or as formal notifications.
What does this say to and about the media industry? Western Union, at one time the monopoly national communications company, was co-opted by new technologies. Though profitable for many years after its heyday, it’s decline brought it to bankruptcy and rebirth as a money transfer service—a very different business. Even then, it was blindsided by an upstart, PayPal, as the first mover in the Internet money transfer business. Its belated response, Bidpay.com, closed shop the end of 2005.
So the lessons, once again, are, first, that bigness guarantees nothing when it comes to the future, even when at one point a near monopoly. (The same could be said for AT&T, which survives in name only because Southwestern Bell, the company that bought the remains of the old Ma Bell in 2005, assumed the AT&T name.) In the past I wrote about how none of the 10 largest retailers in the U.S. in 1962 were around 30 years later.
Second, just because newer technologies and players don’t ruin a business or an industry overnight that doesn’t mean that a long decline, with occasional ups amidst the many downs, is in progress.
Finally, even when a player does make a strategic move into a concentric market (as W.U. did from electronic text to electronic money), the game is not necessarily won. For the moment, Western Union still has a decent business transferring money internationally. But newer players, such as PayPal, are nipping at its heals.
The media industry was much like banking for the first seven decades of the 20th century, staid and predictable. Newspaper publishers knew exactly who their competitors were—other newspapers. Broadcasters knew that once they got their sinecure from the FCC they were set. Book publishers came and went with easy entry and exit, but with the “security” of knowing that “the book” as a format was forever. Hollywood studios understood that the bottleneck of distribution and marketing would keep the number of major competitors manageable.
But all that is out the window (or, perhaps, Widows), much as is the old telegram. Newspaper circulation continues its decades long slide. Knight Ridder reports lower earnings each quarter. Television networks are making their hit shows available for download the day after broadcast. Some Hollywood movies are released on DVD and cable the same time as in the theater. Podcasts and vodcasts come from regular folks and media heavyweights alike. Radio emanates from satellite and the Internet. Video on demand fills 42” high definition screens—and 3” cell phone screens.
Where will you be the day your hometown daily newspaper ends its print run or the TV listings start to show only the names of new programs available each day, not the time they are on?
Do we rebuild the media industry from the outside in or the inside out? It may depend on what is understood by “convergence.”
Convergence has been a misunderstood concept in the information industries almost from the first time it was uttered. (I don’t know exactly who or when was first, but I was working with Anthony Oettinger in the late 1970s when I first heard about convergence from him at the Program on Information Resources Policy at Harvard. If Tony wasn’t the first, he was near the starting line).
From the beginning, media, telecommunications and computer companies, among others, misinterpreted the significance of what was converging. It was not fundamentally about industries converging—though that is one outcome. It is not about technologies converging, for that would be redundant. Convergence is about the blurring of the boundaries of content as all goes digital. That is, in the historical analog world, a printed page is created through a very different process than a video image: the mechanics of capturing, processing, storing and transmitting are easily defined and differentiated. The economics are different. The regulatory regime can be clearly defined.
But in the digital world, a bit is a bit. A string of zeros and one. Whether it may eventually be displayed as a text or audio or an image bit, it is captured, stored, processed and transmitted much the same way. At that point, it is simply (or maybe not so simply) a function of economics for how it gets to the end user and who provides it. Some examples?
An easy one is the newspaper: take all those bits created in the newsroom and from various outsourced vendors like the Associated Press and create a plate and put ink on it, print a paper and truck it to the buyers. Or take all those bits and impose some flavor of mark-up language on them and store them for access remotely. Oh yeah, this second option can make audio reports and video streams available within the text “pages."
A newer more complex example stems from something like Google’s announced acquisition of DMARC Broadcasting, an apparently Old World business that, ho-hum, places ads on radio stations. But if advertisers can create their own listings and bid for placement in text using Google’s service, why not do the same with digital files that happen to become audio instead of text and show up inserted into digitally controlled station stations instead of Web wages? Whoda thunk?
And now we have “television” programs stored on servers to be sold to folks who will carry them around on their portable iPods and the like. There were 8 million video downloads from Apple’s iTunes service in the first months, and that was tallied from a skimpy inventory of titles and before an estimated 14 million video iPods were opened from under the Christmas tree. You’ve got to extrapolate: what does this do to the broadcast network and affiliate model if consumers decide they like and are willing to pay for their digital video on demand? If consumers can download their re-reruns, where does this leave local broadcast stations that make big bucks from repurposed hit shows like “Friends” and “Law & Order?” What could be the impact on the DVD distribution Channel, which after all still requires a manufacturing process and energy-intensive shipping?
Soon you may read about Yahoo or Goggle acquiring a firm called SpotRunner, which does for TV ads what DMarc does for radio. From the convenience of a Web browser, it allows a local pizza restaurant owner to order a generic pizza shop TV ad to be inserted on television sets only in its neighborhood during prime time. And at a cost that may not be much different from buying space in the local weekly newspaper.
And it’s doable because it’s all digital. That’s convergence.
It can’t be much fun these days for the top managers of the traditional media companies. On the one hand they must deal with the normal responsibilities of running a large organization. For the public companies there is the overhang of Sarbanes-Oxley as well. In the “old days”—let’s say before 2002 or so—there were the usual strategic decisions: where to reinvest profits, whether to buy, acquire, merge, or seek organic growth. It was always a challenge to get it right more than wrong. But top management got big bucks for trying and often received personal gratification from playing the game.
Today, on the other hand, if their heads are not swimming in the unknown-unknowns facing them they are either naïve or disconnected. 'Cause convergence is when you don’t know where the next bit is coming from.
…when I shop for cable TV channels, don't bully me into paying for TV I don't care for. If I don't want to invite a preacher, a gruesome medical operation, or -- gag -- Nancy Grace into my home, I shouldn't have to.
Rather than forcing us to buy TV in crazy, mixed-up combos, where non-sports fans pay for ESPN and those without children buy Noggin, a la carte cable would enable us to make specific decisions about what gets piped into our homes. Parents would be able to make specific decisions about what gets piped into their kids' brains.
“I think it's called freedom of choice.
Now, while the discussion of what makes sense for how cable companies package and sell their service is certainly legitimate for discission, I found it curious that this was coming from the keys of a print newspaper scribe. Following is the note I sent to Mr. Gilbert (no response yet).
I found it curious a newspaper writer is complaining about bundling. The newspaper is, historically, the original bundle.
I would like to buy just the parts of the newspaper I read: maybe the City/Region section and Business. I look at the front page only because it hits me in he face when I get the paper. Sports I could do without-- I'm a Philadelphia sports follower, so the Patriots and Red Sox etc don't grab me. Sidekick [a tabloid insert] is a waste of newsprint from my perspective.
Oh, and I don't need the Living Section, though I did find your article there yesterday as I was pulling that section out of the bundle. What serendipity!
Now that I think about it, I do sometimes read something or other in the front section, but just 'cause I already have it. Same for Sports now and again. (But never in Sidekick).
But if I had my choice, would the Globe sell me just the two sections I really want? Maybe for $.10 each??
Of course, the Globe's cost would not decline much even if they had to print fewer overall pages. The real cost of newspaper production is the first copy cost-- additional copies are just the marginal cost of paper, ink an a few cents for running the press one more rotation. For the Globe to maintain its staff, it would need to rejigger its charges to keep revenue from falling from both readers and advertisers. So while the full bundle may be priced at $.50, each separate section might be $.20. Thus for my two sections I would only save a dime. Heck, might as well get the whole thing then.
I know you can see where this leads to in the cable industry. The cost of the cable plant does not decrease under a la carte. The cost of program acquisition would not decrease commensurate with any declines in subscribers to particular channels-- the programmers costs don't decrease if viewership drops, say, 15%. As much as it annoys me personally that the most expensive single channel for Comcast is ESPN, which I could easily live without, I understand why a la carte is not as simple as it seems to the audience that doesn't understand the economics of the newspaper or cable system.
And we should not under estimate the value of serendipity and diversity in the value of the bundle. One of the great joys of the newspaper is stumbling across something that we wouldn't have seen if all media were stove piped-- that is, focused only on what we know we want or like. Like the Web is for many. I'm glad I saw your column, just as I'm glad that in using the "next channel" button on my remote I occasionally stumble on something on the Biography or History channels. If asked to pay for them I probably wouldn't. But they're bundled and it's not such a bad thing to hear some promotion on the radio or elsewhere for one of their programs and, what the heck, I watch since it's available. Bundling equals diversity.
In fact much of the a la carte argument -- the serendipity-- will fade as on-demand becomes more prevent. In the meantime, we still see that more households are adding on services on cable, not cutting back.
So I urge the Globe to keep their bundle and not insist that Comcast shed theirs.
Speaking of the future of the media industry, do we continue to need publicly funded television and radio to accomplish the objectives that were set out in the Public Broadcasting Act of 1967? Is the chronic controversy over biases, typified most recently in the resignation of the last chairman of the Corporation for Public Broadcasting, worth the tax dollars (relatively small at $400 million out of a $2.3 billion budget)?
Last month a blue ribbon panel headed by former Netscape CEO James Barksdale and former FCC Chairman Reed Hundt took a stab at addressing the future of public service media in a report, “Digital Future Initiative: Challenges and Opportunities for Public Service Media in the Digital Age.” In the Foreword they write: “Our nation’s media marketplace is becoming increasingly fragmented and on-demand…. If today’s public broadcasters can successfully adapt to this new environment, the potential for enhanced public service through digital media is vast…”
From the start public broadcasting in the U.S. was destined to be a political football. On the one hand, the legislation required a "strict adherence to objectivity and balance in all programs or series of programs of a controversial nature." But it also prohibited the federal government from interfering or controlling what is broadcast. This set up an obvious tension where the government that created the CPB would not be able to do anything about a perceived failure to meet its obligation for objectivity and balance without interfering in some way.
In the U.S., where there has always been more choice for viewers than most other places, the Public Broadcast Service network (PBS) has always had very low ratings. And those audiences have been heavily skewed to educated, higher income demographics— the very groups that have access to buying DVDs, premium cable/satellite programming tiers such as the Sundance Channel, as well as books, magazines, etc. Public media’s core constituency, as described by the public broadcasters’ own promotions are “affluent, influential, educated, discerning, and diverse. They are the decision makers and opinion leaders…” Central Michigan Public Television claims that its audience penetration “runs deeper into upscale households than any other medium. According to surveys conducted by Roper Reports, public television viewers have high incomes and are likely to have invested in stocks, bonds and mutual funds.”
Meanwhile, public broadcast individual contributors have been falling for years. About 4% of households contribute to a PBS entity. The bread and butter of PBS is now available on channels like Discovery, History, Biography. Their aggregate audience is greater than PBS. C-Span, available in nearly 90% of households, provides political coverage that PBS could never dream about.
Viewers everywhere vote with their eyeballs. It’s not widely recognized that in early 1980s videocassette recorder adoption was faster in Europe than U.S. Why? The U.S. had market driven programming. When VCRs became available, Europeans were faster to escape the benevolent programming constraints of public authorities by becoming their own programmers using video rentals.
The “Digital Future” report argues that public broadcasters try to adapt “to this new environment,” in which case they have a future (apparently by tackling the “nation’s literacy and learning crisis.”). That in itself should send a message: if they need to work so hard at finding a media role, then maybe it is time to sunset itself. Indeed, the Digital Future panel could have started out with this point of view: if a public service media organization did not exist today, what are the compelling arguments that would rally the public to support the creation of such a service? As we think about the media landscape for the future, we do need to consider whether a publicly funded entity, with all its baggage, is truly needed.
After a decade of the Internet revolutionizing the way people communicate and spend their leisure time, a growing number of consumers are going further -- creating entertainment and other media "content" on their own. Cable networks, radio stations -- even advertisers -- are embracing such "user-generated content" and serving it up, hoping to appeal to new and younger audiences that are impatient with standard media fare.
Cable network Current TV is using viewer-supplied videos to fill large slots of its 24/7 hour schedule. All one needs to make a video Web log, or vlog, is a digital camera (many capture moving images) and a broadband connection. Videos produced by individuals as well as mom and pop production operations also are finding their way to on-demand services offered by cable companies. Mefeedia.com, lists 2,580 vloggers who have created a total of over 100,000 videos.
In the heady days of Web 1.0, the debate over “is content king” raged in many venues. None other than The Bill addressed the very question in a column 10 years ago. He said right up front: “Content is where I expect much of the real money will be made on the Internet.” In typical Gates fashion, he put his—Microsoft’s—money to support this strategy, losing a bundle (at least by normal media business standards) in content-rich Slate.com among other investments.
Was Gates wrong? Is format king? Are transactions king? Is process king? All the above? None of the above?
As much as most journalists and producers would like to believe that it is all about content, they would be right only some of the time—and maybe not even the majority of instances.
For example, that Web site that gets so many pixels of copy here and elsewhere, Google, is primarily about process: it’s real value added is the algorithm that helps users find the content of others. Yes, it’s the content we are seeking and get, but Google has not created any of it other than a display page.
Yahoo rose to prominence as an indexer of the content of others. Today it is among other services, a portal, pulling bits and pieces of the content provided by third parties. With its "Kevin Sites in the Hot Zone” site it is dipping its pinky in the real content waters, but the experiment is still young and the results unknown (at least to us).
One of the most successful Web ventures has been eBay, which is all about transactions. The only content eBay owns is the code to its application system and the copy it writes for its front page.
Many of the most successful online ventures have been those where the users are also the content creators. The biggest media acquisition of the year I believe was News Corporation's purchase of MySpace.com. This is a site where the content is created by users, who then look for other users by the content they created. Consider the likes of Friendster, Facebook.com and Flickr. Think of the biggest information services and you will find that the content was user created: like the telephone, now cell phones, SMS: we create our own content.
Of course there are many venues where content is both critical and potentially profitable. Can you say HBO? And certainly the television networks in their heyday. Even today, the difference in a rating point – that is, more popular content than a competitor – is worth hundreds of millions of dollars of revenue in a year. King Kong pulled in a “disappointing” $50 million its opening weekend of Dec 16-18, but the second place movie that opened that weekend sold only $13 million in tickets.
Yes, content does matter. Sometimes critically. But so can process. So can format. For the big, traditional media companies having content is not sufficient nor is it even necessary to be successful in the digital environment.
I've previously written about how the long term trend of media advertising
expenditures does not bode well for the profitable sustainability of all players in the legacy and even newer media. With ad expenditure as a percentage of Gross Domestic Product growing only at about the same rate
as the economy, the ad pie is being split into ever more smaller pieces. Radio took share from newspapers. Television took
share from radio and more from newspapers. Cable television is vacuuming dollars from broadcasters. The Internet is sucking share from everyone else.
So it cannot be good news for many in the media biz to learn that there is yet another player having some success at grabbing for another few billion dollars from the ad budget. This is the
video game industry.
Now, there might be some hesitancy to include the $10+ billion video game business as part of the media industry. But that is too short sighted -- director Peter Jackson has invested a reported $30 million to develop a "King Kong" video game as an ancillary to his movie. And it would be beside
the point. Folks who use the media for advertising, such as Reebok and Castrol, are already spending $70 million this year to get their name or products into video games. And a recent study catalogs the reasons why this is likely to expand eight fold in the next four years. (Note that
the study comes from Nielsen Entertainment and video game publisher Activision, not exactly disinterested
Video game demographics are highly skewed right now with 18-34 year old males. According to the study this group spends more time playing video games than watching prime time television. So while television
producers are trying their hand at adding product placement to their largely passive entertainment, video game publishers can offer consumer goods providers a large (20 million) targeted audience of
players who are interacting with and deeply involved with what is on he screen. For example, in the "Law & Order: Justice is Served" game a murder victim was about to sign a contract
with fashion designer Lacoste. In a forthcoming Atari game called Tycoon City, high end watch maker TAG Heurer and audio purveyor Bang & Olufsun will showcase their stores. Daimler Chrysler's Jeep
brand is paying to be part of Activision's "American Wasteland" game.
The Nielsen study claims that in experiments with control groups people who saw certain ads while playing a video game were significantly more likely to rate it favorably than those who saw the
same game without the ad. Similar control group experiments with conventional television show product placements did not find any difference between groups in how the advertiser was rated.
How much and how fast advertisers start allocating their ad budgets to video games is less important than the fact that here is another example of how the media universe is changing as a result of
the pervasive adoption of digital technologies. In another context, the Kinks (in Lola) sang "It’s a mixed up muddled up shook up
world." Just when you think you might have figured it out, another alligator jumps out of the swamp. There are no safe corners in the media jungle.
"There are more unknowns and potential threats swarming around the media business today. I've been in the business a long time and it feels like today is very different in terms of attitude at major media businesses or the entities that feed into media. I think a challenge all of us face in the traditional media space is the balance between tradition and economics. Our businesses tend to be a little too reverential to tradition and not as much to the consumer. Thanks to the power of digital technology, we're seeing pretty dramatic shifts in consumer behavior and demand. We have to pay heed."-- Robert Iger, CEO of Walt Disney Co. in an interview in The Wall Street Journal, Dec 5. (sub required)
Has anyone besides me considered the apparent paradox of some of the recent innovations and announcements coming from the new and old media and their suppliers?
• For decades we have been lusting after larger television screens. In the 1950s, a 9" screen was common. By the 1990s, the 26" screen had become the standard living room set. It sort of stuck there until today, when the 42” plasma screen is evolving as the sweet spot of the living room media center, with 50" and 65" units widely available. So why is it that there is so much apparent excitement about announcements from Apple and Sprint and others that we can now get video on 3" screens?
• Second, the media is full of the apparent sudden wisdom that advertising revenue is a workable model for media. Google has shown the way, we are informed. Microsoft is at work revamping a version of Office as a Web-based application that will be free—except for advertising. Advertising supported media is all the rage. But wait! The traditional television networks and their radio predecessors, invented the advertiser-supported free-to-the-consumer model 70 years ago. But while the pundits herald the Google model, the broadcasters have suddenly found religion in user-revenue. As if discovering a new lode of gold, they proclaim, “Let’s sell yesterday’s show for $1.99”—to view on those 3” screens.
A digression. In 1994, Tony Oettinger, my former colleague at the Program on Information Resources Policy at Harvard, described the coming of the “agony and the ecstasy” in the age of digital media. “There’s ecstasy,” he wrote, “among the sellers of information products and services because huge markets have developed that didn’t exist fifty, ten or even five years ago…. There is agony…among these same sellers because, as their markets have become huge, they have tended to become both highly competitive and increasingly fragmented.”
This observation from more than a decade ago explains these apparent contradictory trends, as you no doubt have already started thinking about. They are a factor in the phenomenon that I wrote about last week, that the media must get used to being in a permanent state (for now) of discomfort. But the small screen/big screen and advertiser/consumer support dichotomies also illustrate the opportunity available for media players. Broadcasters have been beholden to a single revenue stream since day one (although now programming they own also have a life as DVDs). Today, the Internet and broadband and on-demand technologies being implemented by their one time cable operator nemeses have provided an avenue for more options.
Meanwhile, although small screens may seem like a step backward, combined with extreme portability and increasingly with wireless connectivity, they actually expand the market for video: on the bus, the beach, waiting at the doctor’s office—the possibilities are endless. Maybe the folks who should worry are the magazine publishers who paper those offices with free magazines and the newspaper publishers who have held on to the portability of print as being a benefit that, until now, wasn’t possible with television.
Oettinger concluded in his 1994 essay: “There’s ecstasy in contemplating the many attractive new and open roads ahead. There is agony in choosing among them.” Large screen, small screen? Ad supported, customer supported? Paper or plastic? Choices for consumer, high stakes options for players.
With a dizzying display of daily details about new channels and formats for video coming from broadcasters, movie studios, hardware providers and distribution channels, it may be quite useful to heed the advise that a highly regarded Madison Ave. media strategist has offered to advertisers: “They must get used to being in a permanent state of discomfort.” This can be applied equally to the traditional media companies.
Rishad Tobaccowala is the “chief innovation officer” for ad agency Starcom MediaVest Group. As a media strategist, his role is to steer advertisers to the most appropriate media for their offerings. With a successful track record of spotting trends, his advice is acted on by the biggest of big advertisers. And from that fixed pot of advertising dollars, he and colleagues at other agencies are steering more of the booty away from traditional media.
"Blogs and podcasting have gone from 'What are those?' to mainstream in less than two years. Rupert Murdoch paid $580 million to acquire a social-networking business and Google's market cap is higher than Viacom's," he says. "So where is the steady state?"
Such “accepted wisdom” as meeting the challenge by moving advertising to product placement meets with his scorn. It’s old wine in new bottles. What is he telling clients? In short, to understand how consumers are increasingly using the media, particularly video. The undeniable direction is to greater user control of both when and where we consume video. This has always been a characteristic of print: read it at your own pace, at the time you want and where you want. Television has been supplier controlled: we had to watch it at a fixed location and at the time we were told. Turn it on four minutes after the hour and those four minutes of programming were lost in the ether.
The VCR was born to help with the timing part, but quickly become primarily a playback of recorded entertainment. Not a bad start, but just a start. Tobaccowala predicts that 30% of U.S. homes will have DVRs in less than two years. Pair this with the increased availability the cable folks are providing us with on-demand content, the ability to search for video on Google or Yahoo, download it over ever wider broadband links, and zip it to the living room TV or the iPod, and traditional TV schedules will be largely marginalized.
Tobaccowala isn’t ready to write off traditional media, which he expects will continue to be plenty important. But they will have to provide their content in a greater variety of forms and help advertisers target consumers more preciselythan the usual demographic slices. "We are hungry for information and will value those who do a superior job of editing the ocean of material there is," he says.
The big bucks flowing to context-sensitive text ads, banners and interstitials do not happen in a vacuum. It requires the push of influential strategists such as Tobaccowala to convince the big advertisers to divert their budgets there. From that point the old saw I’ve repeated for decades from 19th century merchant John Wanamaker disappears. Speaking of his advertising budget, Wanamaker observed that “Half my advertising dollars are wasted. I just don’t know which half.” In the new media world any wasted dollars are immediately flagged and converted to the half that works. The legacy media buys are just not going to be efficient much longer.
New York Times' Paid Online Content Hits 135,00 Subscribers in Two Months
The New York Times has about 135,000 paid subcribers to its TimesSelect service, according to numbers released last week. That would total revenue of about $6.7 million in the first two months of the offering, at an average subscription price of $50. The Times said about 90% of those who signed up for a two-week trial converted to paid. Martin Nisenholtz, who heads up the on-line operations of The New York Times Company, added that the numbers were "at the high end of their expectations" (sub to TimesSelect needed).
I’ve heard the saying in the headline attributed to Confucius and legendary former New York Yankee’s manager Casey Stengel. No matter. It rings true.
Weather forecasters are far from perfect in predicting the weather for the next day here in Boston, even with all their data and computer models. Expecting that us social prognosticators can predict winning products, technologies and business models five years down the road has proven as inaccurate as you would expect—probably worse than chance.
I bring this up because among those of us immersed in thinking about the shape of an institution like the media there is a tendency to sometimes believe that we have insights beyond the bare outlines of where the technology is taking us. And we thus are frustrated that the incumbent players, who we know are protecting their turf and who we exhort to think more strategically do not seem to take us seriously. Perhaps there is good reason.
On the one hand it is fairly easy to predict the overall trends and outlines: We can be very certain that information has become digitally stored and processed and will be even more so. We can be comfortable that wireless will become more a mainstream piece of the distribution channels of that information. But it turns dicer to predict what the exact products will look like, which, if any, of multiple wireless technologies will emerge as the “winner” and even less possible to predict the social and cultural outcomes of the inevitable changes. As a result, we really can’t say with even the certainly of a 24 hour weather forecaster who and what will be the winners and losers 10 years—even five years—from today.
Let me give you an example of how hard predicting technology winners can be—and the stakes involved. In the early 1980s a well regarded market research firm called Predicasts (now buried deep within Gale Thomson ) issued a report on the market for home video five years out. It looked at the market for the still new videocassette recorders and the even more nascent video disc player market. The latter, if you are too young to recall, consisted of a model just hitting the market from RCA (remember that consumer electronics juggernaut?) that used a stylus on a platter that looked like a 33 rpm record as well as a new optical laser version from Phillips that also used a 12” disc that held one hour of video.
Predicasts had a graph that I’ve approximately recreated below that showed the total number of video players they predicted would be sold annually by 1987 (I believe my original notes are buried in a folder deep inside a storage locker). With the accuracy of hindsight, Predicast’s forecast of the number of home video devices that would be sold about five years out was pretty close to the actual—in the 800,000 plus range. But what a disaster was their breakdown of the market: They expected VCRs to quickly peak while the video disc format, which was barely on the market when they made their prediction, was hailed to be the winning technology.
From an academic perspective one might say “So what?” They got the general outlines right. But making actual business and investment decisions based on their miscalculation could have been very expensive for manufacturers of the hardware, the tapes, investors, Hollywood studios, retailers or even some consumers.
If one took a very long perspective one could say that the Predicast’s analysis was sound: optical disks, in the form of much smaller, high capacity and far less expensive DVDs in the middle of this decade have supplanted VCRs as the pre-eminent home video device—for the time being. But Predicasts was more than 15 years off in their timing.
We could pursue a similar analysis about videotext. Knight Ridder and Times Mirror Co. both newspaper publishers, invested in early on line information services that were very much a forerunner of what the Internet has wrought in terms of types of content and services: news, sports, email, electronic banking, shopping. But those services were expensive nonstarters. The technology (2400 baud modems, pricey set-top boxes as adjuncts to a TV screen display) wasn’t ready, the architecture was costly (circuit switched dial-up) and the business model wrong (user subscription proprietary closed systems ). Expensive when predications are off by about 20 years.
More recently the telephone companies—more specifically the cell phone providers—made an expensive and huge bet on 3G—the third generation cell phone spectrum capable of digital broadband transmission. They believed in the prediction of the future of wireless and bet billions to obtain the bandwidth. But they didn’t account for other wireless technologies like 80211.x—Wi-Fi. Now there’s Wi-MAX. Other pieces of spectrum, such as 700 MHz that will become available when broadcasters return UHF spectrum to the FCC in three or four years, may be used. So while wireless is in our future, it would be difficult if not foolhardy to predict who might be the winners and losers a decade hence.
One criterion I hope we have gleaned from the plight of the many technological innovations that have come and gone is that those that rely on expensive infrastructure and/or governmental regulation (or deregulation) are much slower to happen—if at all—than the existence of the technology itself would suggest. Wi-Fi, which relies on unregulated spectrum, snuck in under the tent while the big telco providers and other players waited, sued, appealed and waited some more for various regulations, auctions and court decisions, and then required an investment of many billions of dollars. The Internet bloomed where videotext system languished in part because it did not require much in the way of new investment or expensive equipment at start-up. It used the existing switched telephone infrastructure and the PC’s that were already widespread on home and office desktops.
I know—and you know—that the shape of the media is changing. We know that many pieces of the future are going to get smaller, faster, cheaper or better. We know that current media players need to adjust or wither. But we can’t very well predict the timing (ask Knight Ridder) of which technologies will be part of the mix at any time beyond a few years, other than in broad strokes.
Harte-Hanks was ahead of its time. And the more data that I see on newspaper readership the more they look pretty smart.
Hitting newspaper publishers with yet another piece of negative data about their future health might seem like piling on at this point. But when the data is so compelling that it has strategic implications it needs to be given broad circulation (so to speak).
I don't know how many of you are aware of the Grade the News Web site, a project of the San Jose State University's School of Journalism and Mass Communication. I just discovered it myself. It describes itself as the Consumer Reports for news outlets in the San Francisco Bay Area. Earlier this month journalism professor and former Knight-Ridder journalist Phil Meyer penned (if that can be used anymore) a column headlined “Newspapers can't maintain monopoly profits because they've lost their monopolies.” In it he voiced skepticism that attracting “young readers” is a viable resuscitation strategy for traditional newspapers. His compelling evidence went beyond the usual table that shows that 20-somethings don’t read the newspaper. No, Prof. Meyer, the creator of the term and author of the landmark book Precision Journalism makes an even more compelling case with this graph:
It's a fine example of a picture having value of a thousand words. But just to leave nothing to chance, the import of the data is that the pre-radio generation had and maintains a higher level of newspaper readership than the pre-television generation, which in turn is higher than the boomers who were raised with TV and radio. And the post-boomers, having had VCRs, DVDs, gazillion channel cable and, of course, the Internet, distracted by more media choices than ever, not surprisingly has the least need for-- or at least the least time for-- traditional newspapers.
I'm not sure where Phil got this data, but if there's anyone I trust to have accurate information it would be the author of Precision Journalism.
Meyer does see a sliver of a silver lining, reminding us that "new media never completely replaces old media. They just drive the old media into more specialized niches. Newspapers will survive, but in radically different form, many less than daily." Certainly true for the intermediate future. But it will also eventually result in changes of ownership, as some of today's owners decide they don't want to be in the lower volume, specialized niche business.
The prototype may have been the Harte-Hanks newspaper group, headed by a smart CEO named Robert Marbut. About 10 years ago they decided that the value of their newspapers was high and the future was dull, so they sold their papers-- mostly in Texas-- and redeployed assets into the direct mail business, which indeed has been more robust than newspapers. Direct mail has actually increased its share of advertising expenditures as newspaper share continue to fall. Today more advertising dollars are spent on direct mail than in newspapers. Harte-Hanks may not have foreseen the impact of the Internet when it made its strategic decisions, but it was aware of the move to digital and it understood the long term implications for newspapers. While Harte-Hanks still uses print, it is essentially a data base business.
One scenario is that down the road we may well see a handful of companies that will specialize in smaller, higher priced printed dailies and less than dailies, while many of today's publishers, like Harte-Hanks before them, will morph into something else in the ever-more broadly defined media arena.
As a media format the daily newspaper as we know it is in trouble. It will not die in our lifetime. Indeed, it will linger for quite a while and produce profits for many publishers. But maintaining an appearance of health will take hard work and tough decisions. Newspapers are like a beauty queen past her prime. Make-up, exercise, and the proper lighting may produce an illusion of her old self. But beneath it she knows the reality. For newspaper publishers, cost cutting, judicious use of technology, and sharp management may produce a profitable newspaper. For the industry as a whole, a long term decline is inevitable.
I wrote that almost exactly 14 years ago for a speech to the Inter-American Press Association in Sao Paulo. I stumbled across it, covered with digital dust (it was in a WordPerfect 4.1 file) as I was preparing to address CEOs and top executives from about 45 newspaper publishers from 28 countries, ranging from southern Brazil to Singapore, Russia, Central America and Europe. They were in Cambridge, Mass. for a seminar called “What’s Next?” sponsored by the Innovation Media Consulting group I work with. Many of the same people had participated in a similar seminar in Cambridge 12 years ago and I had been trying to find any record of my talk back then.
The scenario I painted then is playing itself out. Not for every newspaper everywhere, but certainly for the industry overall. And it’s getting harder for the publishers to keep up the facade of beauty— or profitability. Recent earnings reports from Knight Ridder, (don’t left the headline mislead you—the profit is from a one time sale of assets, while operating earnings are down) Tribune Co., and Gannett are not pretty. Scripps showed higher operating earnings largely because of profit from the Shopzilla.com site they purchased earlier this year. The publishers have been responding the way any organization has to respond when their revenue is not increasing as fast as expenses—they cut expenses. In the case of newspapers, there are three main expenses: giant printing presses; paper, ink and fuel; and labor. The former is rather fixed: even if they print fewer papers they can’t save any money on the 25 year depreciation schedule they have on this capital equipment. With fewer or thinner editions, they do save a bit on paper and ink not used. But the loss in advertising revenue from lower circulation is greater than the lost circulation revenue. So by far the most substantial item to cut is labor. In short, a newspaper that today sells 160,000 papers daily cannot afford as large a staff as one that 10 years ago sold 200,000 paper daily.
We’ve heard the response that if these publicly held companies weren’t so obsessed with maintaining 20% net profit margins they wouldn’t have to cut. That’s true—to a point. That’s a very short, one time fix—sort of like showing higher earnings through a sale of assets. If the publishers were willing to accept a profit that was more in line with most manufacturing industries, they could maintain the current level of staffing and pay scales and watch their margins decline for a few years as expenses continued to outpace revenue. Then they are in the same place as today: Do they start cutting staff or let profit slide to the point where there are no resources left for travel, equipment and benefits?
So the down sizing of today is insidious if we think that newspapers are only in a temporary down trend. If only the publishers would hold on, things will get better and they can keep staff and profit. But that’s not the reality, as I noted 14 years ago (and further back, but I don’t have a 5.25” floppy disk drive anymore to retrieve older documents).
On the other hand, there are new opportunities for journalists and editors. Yahoo! has Kevin Sites in the Hot Zone, as well as an editor and journalist in the comfort zone back in headquarters. New players, such as Techdirt Inc., employ journalists for its service that edits your personal news feed and blogs to provide their expert commentary. Back Fence and Pegasus News may be prototypes of other new opportunities for journalists, editors and others who used to find work as top down journalists. And of course there are any number of Web sites and blogs that do or will be home for writers, editors and commentators who in the “old days” would be at a printed newspaper.
One of my messages to the publishers at “What’s Next” was not to look at change as a negative. It is also an opportunity—and that includes the downsizing at our old newspapers. Not only can those who have been let go recycle themselves, but a new generation of digital natives are coming into journalism without the baggage that “newspaper” needs to be on paper.
In another context, my generation loudly sang along with Bob Dylan:
The Wall Street Journal published an article (sub required) last Monday about how The Los Angeles Times was hoping to reverse a long time slide in circulation and advertising by tinkering with the editorial mix toward more shorter stories, “softer” news and more regional reporting. The Times was purchased five years ago by Tribune Co., generally one of the more savvy newspaper publishers. But I read the Journal’s article with my mouth figuratively hanging open. They still don’t get it. Management seems to talk the talk (digital, convergence, online, yada, yada) but they don’t seem to walk the walk.
I’ve been preparing a talk to a large group of international newspaper publishers here in two weeks. I’m supposed to be addressing what the Internet means for them. So I’ve been thinking about what I can discuss with them that they have not heard before. Meanwhile, I have been leading a group of MBA students in their capstone course, something called “Cases in Decision-Making.” That lead me to revisit former Intel CEO’s Andrew Grove's 1996 book, Only the Paranoid Survive. In the process I was reintroduced to one of the points Grove made that is oh so applicable to managers of the incumbent media industry. Grove says people succeed in a certain corporate environment precisely because their mind-set fits that environment. Those same people are therefore unlikely to be quick at adapting to a changed environment. Grove then observes:
"If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider's intellectual objectivity."
Grove recalled that when Intel found itself being threatened by Asian producers of memory chips – its bread and butter in the 1980s – its first response was to try to beat them at their own game: sell them for less, or make a better chip. Or they could try for niche markets. After a year of analysis, he eventually realized that there was no solution for Intel in the memory chip business. But that would mean abandoning the business which was the founding basis of Intel. “Intel equaled memories in all our minds.”
To face the real crisis, Grove and his top management had to take themselves and the baggage they carried out of the decision process. What he did was ask his colleague Gordon Moore (of Moore’s Law): "If we got kicked out and the board brought in a new CEO, what do you think he would do?" Moore’s response: "He would get us out of memories." To which Grove responded, "Why shouldn't you and I walk out the door, come back and do it ourselves?"
And they did. Intel refashioned itself as a microprocessor business and the rest is history.
There’s a very relevant lesson to be found here for newspaper publishers today—and perhaps soon for broadcasters and publishers of other formats as well. Enterprises in industries that are mature or declining or just being threatened by change tend to be defensive, even when they may look like they are building or acquiring. It’s the "covering your ass" mentally of responding to threats rather than genuinely seeking opportunity.
And you really can’t blame them as an initial response. They have everything to lose. Their challengers only need to pick up a little market share here or there to win. In the newspaper business there are high fixed costs. There are low marginal costs. Thus, the first copy of the daily paper bears almost the entire cost of the operation. Subsequent turns of the press cost relatively little. That means that a 10% circulation decline saves little in costs but weighs heavily in lost revenue, primarily in lower ad rates.
On the other hand, a new player in the information space, call it Challenger.com, has much lower fixed costs and even lower marginal costs. If they pick up only two or three percent of the newspaper’s advertising revenue, they might have a very profitable business.
One of the points I will tell the publishers is that they have to pull an Andrew Grove. Building on Bob Cauthorn’s piece in Rebuilding Media last month (“Newspapers, meet precipice: It's the product stupid"), publishers truly need to talk thinking like outsiders. And Dorian Benkoil added a post here just today as I was writing this ("Big media trying to get it" that asks the same questions.
Last April News Corporation’s Rupert Murdoch gave a speech to the American Society of Newspaper Editors that was right on the money—almost. And in News Corp's case, they are putting up their money. He warned:
The peculiar challenge then, is for us digital immigrants – many of whom are in positions to determine how news is assembled and disseminated -- to apply a digital mindset to a new set of challenges.
In short, we have to answer this fundamental question: what do we – a bunch of digital immigrants -- need to do to be relevant to the digital natives?
Probably, just watch our teenage kids.
What he should have said is “Just hire our teenage kids.”
The answers are not likely to come from the current generation of management unless they are following the insights from a generation that is not imbued with the culture of newspapers or other legacy systems. They must fire themsleves and come back as outsiders.
In New Orleans, where there is also lots of talk about rebuilding, there are seven broadcast stations. As of a few days ago only three were back on the air. No one at the Federal Communications Commission seems to know how many of their radio stations are broadcasting. But this is a case of the dog that didn’t bark: There has been no pressure from—or on – the FCC to get emergency generators to the broadcasters or to pressure the license holders to get back in business. No one seems to give a….
On the other hand, in interview and account after interview of interview and account we hear about the concerns of the citizens of New Orleans: When will cell service be restored? Where can I get online to find the Web sites that can help me connect with dispersed family members or to learn about what services are being offered by whom?
Meanwhile, the local daily, the Times-Picayune whose plant was out of commission, was reduced to publishing totally online for several days. Putting aside the revenue model, this turned out to be not much of an issue either given the circumstances, as there was—and is still -- no one left in New Orleans. The internet, on the other hand, was perfect for the newspaper to be available to the New Orleans Diaspora from Baton Rouge to Boston.
So what’s the point? As an information medium, people wanted the Internet more than they wanted the old time television channels. Online publishing was more robust than a waning manufacturing process.
While efforts to rebuild New Orleans are on the front burner, how consumers in the area affected by Katrina prioritized their media needs should provide some fresh insights into rebuilding media.
Can the media survive on advertising? Lots of folks are counting on it. Broadcasters have always had this single revenue stream. Daily newspapers get about 80% of revenue from advertising and the hot print properties, such as the give-away Metro dailies, depend about 100% on advertising. Now much of the Web is counting on advertising: Google, Yahoo! and increasingly AOL to name just a few of the biggies. News Corp. just shelled out $600 million for MySpace.com, which has no real revenue except advertising.
Now, in a long, sometimes disjointed but useful piece at the Hollywood Reporter.com, Diane Mermigas trumpets “Convergence fulfilled: A fleet new class of corporate entrepreneurs invents the future.” The article covers a broad territory but essentially paints a positive future for the established media players, with the caveat: their “ business models, revenue streams, creative dynamics and key relations with global advertisers, consumers and competitors will be dramatically different…” That’s for sure, and here’s why.
Mermigas quotes many of the usual suspects: Forrester Research, the investment banking analysts (who were so wise in their analysis in the late nineties—not), and consultant prognosticators. For years I’ve been threatening to do a study of the old “predictions” made by all these folks and match them up with actual results. My hypothesis is that the rate of accuracy will be no better than a coin toss.
But one thing jumped out at me in this piece—and others I have seen. Mermigas cites these sources for her contention that “Ad revenue will grow impressively as advertising takes on new forms.” She says that Internet-based advertising will grow most dramatically, but even traditional media will see growth of 4.3% annually.
Can’t happen. The reality is that over time advertising cannot grow—or at least has not grown—faster than the economy. Over the past 70 years—that’s a long trend -- advertising expenditures have varied within a rather narrow range of 2.00% to 2.50% of GDP. And for most of that time it has been closer to 2.20%-2.30%. This has held true through recession and boom times. It had held true even as new media forms joined the fray—television, cable, now the Internet. In 1990, advertising expenditures were 2.28% of GDP. In 2003 they were 2.27%.
Of course, there have been winners and losers. Newspaper publishers had 45% of the pie until radio came along, which quickly stole share as newspapers fell into the 30% range. In the 1950s and 1960s television’s impact on newspapers was far less than it was on radio. One of the most robust segments of advertising has been direct mail, which has actually increased slightly in recent years and never really dipped as did newspapers, radio and magazines. It now accounts for about 20% of advertising, considerably more than do newspapers.
In good times the U.S. economy can grow about 4% annually. This constancy in advertising as a proportion of the economy means that if any media segment grows faster than 4%-- such as Internet advertising has been—then other sectors must grow slower—like newspapers. So when Forrester Research predicts that Internet advertising will be 8% of the total by 2010,-- an average of almost 50% annually, then it is hard to buy in to Morgan Stanley’s prediction that traditional media will still grow an average of 4.3% unless the economy is on a real rip.
Although I’m not a betting man, my money says that Forrester’s guess aout the Internet will be more accurate than Morgan Stanley’s about traditional media. If that’s the case, the outlook for traditional media players is at best one of treading water. That’s why companies like News Corp. need MySpace.com-like investments.
The interview citing Bob Cauthorn that Vin Crosby posted Sept. 6 puts the focus once again on the declining popularity of newspapers in the American media mix. Bob places the blame on the newspaper owners. David LaFontaine, the author of the article, associates the declining circulation to “corporate demands for 20-30 percent profits.”
The fact is, newspapers have been declining in use not only since the Internet gave us new alternatives. The slide started with radio in the 1930s.
The heyday of newspapers was in the late 19th century, as expanding literacy combined with the development of the steam-driven rotary press, a market economy and wood pulp-based newsprint to make the mass circulation penny press possible. From the mid-1800s to the 1920s, newspapers were the only mass circulation daily news and information medium in the media barnyard. That changed with radio. It accelerated with television. The Internet is just the latest information technology that has added to the choices that consumers and advertisers have for obtaining and creating information.
Some numbers: In 1930, there were 1.3 newspapers sold per household. In other words, on average households subscribed to more than one paper, perhaps a morning and evening paper. By 1940 – by the time radio was ubiquitous—it had fallen to under 1.2 per household. There was a slight up tick in 1950, but then the downward spiral continued: by 1980 it was .77, in 1990 .67 and in 2003 under .50— on average only half of households bought a daily paper. The number of newspapers sold per 100 adults follows a similar slope. In absolute numbers, daily newspaper circulation peaked about 20 years ago at 63 million and has fallen about 13% since then.
What this indicates is that we can debate whether it is greedy publishers who have ruined modern journalism, or blame big cities, or lay it on the convenience of the telephone or..or..or…Many variables are at work: the sprawl of cities and changing work patterns took the steam out of evening newspapers. But a great force has been the effect of radio, broadcast TV, now cable networks and Web sites that compete for a constant pool (as percent of GDP) of advertising expenditures and consumer expenditures.
I could further contend that newspapers today are as high quality as they have ever been. After all, in what by-gone era were more than a handful of dailies considered “quality?” Was the Kansas City Star higher quality in 1955 than today? The Huntington (WVA) Herald-Dispatch? On the other hand, we do know that several major papers have raised the bar. Knight-Ridder’s Philadelphia Inquirer is generally regarded as being far superior today (though perhaps a rung below its Knight-run peak in the 1980s) than under independent owner Walter Annenberg. The Chicago Tribune is far more respected than when it was the plaything of Col. McCormick. Win some, lose some.
But the real lesson here is that the decline of print newspapers—at least as measured by circulation—is not new and not traceable to any single or pair of deteriorating elements. Rather it is part of the organic life of the media. There is far more competition for everyone’s money and attention. Publishers, journalists and the rest of us must learn to live with it. The trends may be slowed by tweaking with the newspaper’s format or content, but the overall direction is not.
Media economist Daniel English joins Adam Thierer in evaluating the market performance of five large media stocks (Time Warner, News Corp., Clear Channel, Comcast, and Viacom) over the past five years. Individually they have all declined in value. As a group they have lost 52% of their market value (in terms of market capitalization). Almost as surprising, the performance of the entire Dow Jones U.S. Broadcasting & Entertainment Index is nearly 45% below where it stood in 2000. Considered in conjunction with the results of other recent studies, they view this as another indication of the media industry's intense competitive rivalry. Indeed, in 2004 Google and Yahoo generated $4 billion in new revenue—the same amount as the 10 largest newspaper companies combined. The paper is "Testing 'Media Monopoly' Claims: A Look at What Markets Say."
According to The Wall Street Journal Microsoft reports that its Xbox Live online gaming service for the console that helped pioneer the online-gaming boom has more than two million members who pay an annual subscription fee of $69.99. That's the tidy sum of $140 million. This is money that comes right out of discretionary budgets of families-- the same "pot" from which they spend for newspapers, magazines, movie admissions, DVDs and the like. $140 million here, $140 million there-- and it's no wonder why there's less left for the old media.
It's a pleasure to join long time acquiatance Vin Crosbie and new virtual acquaintance Bob Cauthorn in contributing to this Weblog. The news media, and the media industries in general, are businesses. As I tell my students, no newspaper ever went out of business due to lack of content.
I plan to continue posting to my own blog. Sometimes I will cross post here while other entries will be unique either here or there. So read both! Now on to business...
In my latest study on media competition I show that the televison audience is far more segmented than in the days of the reign of three networks through the mid-1980s. That the make-up and competitiveness of television has changed dramatically can be gleaned in the following list of the ten programs with the highest rating since Nielsen began measuring audiences. Only one of the ten is from the time since the start of the fourth network (Fox) in 1986 and that single event was part of the Winter Olympics from early 1994. Four of the 10 were from the 1970s. Since then, not a single Super Bowl, Word Series game or last episode of a popular series could muster an audience to rival the days of limited choice.
Although I haven’t put together the numbers, I would venture that not one network owner would break into the top 10 even if we added together all their corporate-owned programming-- i.e., broadcast and cable networks -- available at any given hour.
Other data I’ve presented shows that the five largest providers of television programming networks (Viacom, Disney, NBC, Time Warner and News Corp) account for a smaller proportion of television viewership than only three owners of three networks regularly aggregated in the 1960s into the 1980s. This undercuts the notion that fewer owners are controlling what more of us choose to watch, certainly if the comparison point is some supposed “Golden Age” of television a decade or more in the past.
Even though they continue to be profitable despite smaller and smaller audiences, the large media companies know that they need to change and adjust to the changing media mix if they are to survive. That could happen if they didn’t morph as they have been. News Corp, for example, recently announced it was buying Myspace.com and some related Web sites for something close to $600 million. I can’t predict whether that is going to be a good investment or not (I would say “not” unless News Corp has some strategy to keep MySpace from being the hot site du jour, only to be replaced by fickle surfers next year).
But it is possible that if today’s media companies simply try to circle the wagons their future isnot guaranteed. I recently was leading graduate students in a Strategic Planning class on a case study (by purchase) of Wal*Mart. Here’s a sobering lesson from that case:
“Of the top 10 discounters operating in 1962 – the year Wal*Mart opened for business—not one remained in 1993.”
Korvette’s, W.T. Grant, Woolco, Zayre, Two Guys, among others had been at the top and were gone. More recently, established chains such as Bradlees, Caldor and Ameshave closed their doors, usually not voluntarily. Wal*Mart has learned from their mistakes.
We shouldn’t expect to see media companies—no matter how large or seemingly entrenched—stand pat as the technologies change around them,as consumer behavior adjusts to the choices and broader range of technologies available, and as advertisers follow their customers.