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.
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.
At the Digiday Social conference today, Alan Brody of iBreakfast conjectured that we’re moving into a “relationship economy” that’s replacing the current “knowledge economy.” (Made me think of Howard Lindzon’s Social Leverage -- his thesis, in a nutshell, that using relationships and “leveraging” their power is now beating the concept of “financial leverage.”) Brody talked of how relationships -- built up over years, with special people who can hire, do favors, etc. -- cannot be outsourced to faceless people overseas, while knowledge work can. He said there are MBAs and college-educated people walking around India and Zimbabwe with every bit of useful knowledge of the people with multiple degrees in the U.S. who used to be able to use that knowledge they’d acquired to make sure they’d “never have to dig a ditch.”
Still, even in a relationship economy, the technology speeds things up, adds leverage, power. Companies like Social Vibe, whose CEO Joe Marchese was also at the conference, have shortened the timeline for creating relationships from years to months. Its passionate users select ads to place on their social network pages (such as on Facebook and MySpace) and then designate charities to receive any funds they earn. Those users are passionate, and feel a tremendous connection -- a relationship, if you will -- with SocialVibe.
Still, unlike a purely transactional commercial relationship, this one, because it runs deeper is more easy for Social Vibe to violate. The company will have to treat their passionate users with extreme care and nurturing. The company, venture-funded, seeking profit, and having arrived at their current model more by accident than by grand plan, must trust its backers to not push for fast cash above all. Marchese assured me in a previous discussion (for the We Media conference), that the backers -- including VCs JAFCO and Redpoint -- won’t subjugate the need to develop and care for users to the need to turn a profit. At We Media conference there seemed something of a consensus that, in fact, by doing social good many now believe profits will be stronger over time.
(Note that both iBreakfast and We Media have been media partners of our show, Naked Media.)
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.]
If the major reason for the American daily newspaper industry's demise were its stories contained too many dangling participles, then the industry could more easily comprehend its situation than instead hearing that the reason was it had violated the Principle of Supply & Demand.
The understanding of economics, particularly media economics, has never been its strong suit, except if the topic is how many tons of newsprint to buy, how many points a major stock market dropped, or how cut expenses to match revenues. Most newspaper publishers, editors, or journalists tends to equate economics as solely the science of government financial policy, household spending, Wall Street speculation, and petroleum pricing. They don't understand or have forgotten that a major branch of it is the behavioral science of Microeconomics - the study of how individuals make decisions to allocate their time and activities.
The main paradigm of microeconomics is known as rational choice theory or rational action theory, which states that individuals choose the best action according to their preferences and what constraints of supply, demand, time, and access face them. In it now lays the demise of American daily newspapers as we know them.
How did the American daily newspaper industry violate the Principle of Supply & Demand by failing to adapt the industry's core product to a radical change in consumers' supply of news and information during the past 35 years? To understand how, both start and end at the roots of the newspaper industry.
Start in the European city of Strasbourg during 1605 when the world's first newspaper began publication. It used a technology developed there 164 years earlier by the metalworker Johannes Gutenberg, who had invented a device for producing innumerable copies of the same text. (Please keep that concept in mind, because it's now moldering the newspaper industry). The Supply & Demand equation for accessing daily changing information was then quite the opposite it is today: Consumers had little or no supply of daily news until the daily newspaper. So to produce newspapers, this adaption of Gutenberg's book printing technology spread quickly worldwide.
Some modern critics of newspapers say the industry is leaden and 'doesn't think outside the box.' They probably don't realize the historical irony that underlay their criticisms. The core of Gutenberg's technology was a box containing lead type whose impressions could print innumerable copies of the same thing. In that core is the inherent limitation that it produces the same edition for everyone. Although in the 19th Century steam and later electrical power speeded Gutenberg's technology and the introduction of offset lithography during the middle of the 20th Century eliminated its use of lead, the analog technology used to produce today's daily newspapers is still Gutenberg's. Indeed, today's analog printing technology still has the same limitation that it had in Gutenberg's days - it produces the same edition for everyone.
That technological limitation delineated the newspaper industry's editorial and advertising practices during the past four centuries. Because each edition had a finite number of pages and was printed by analog technology had to produce the same for everyone at once, newspaper editors had to select stories according to two criteria:
Ignorance isn't bliss to the dying. Witness the pathos of American daily newspaper companies. Most have finally begun to realize that the deterioration of their businesses isn't cyclical but grave. Yet few, if any, understand why. Almost all grasp for the reasons.
Some attribute their grave condition to advertisers suddenly switching huge portions of spending from print to online - an excuse that ignores more than 30 years of declines in those newspapers' printed editions' circulations and readerships. Some others attribute their deterioration to not having transplanted their content into online quickly enough -an excuse that ignores not only the dozen years they've spent transplanting it but how their online editions are now read even less frequently and less thoroughly than their printed editions.
Most of the print newspaper experts who diagnose these companies' condition still prescribe stale nostrums such as more consumer focus groups, subscription price incentives, more stylish typography, or shorter stories. Meanwhile, most of the experts who diagnose these companies' Web sites prescribe balms and accessories such as giving blogs to reporters, adding video, or having the readers themselves report the stories. American daily newspaper companies have long been too financially impatient to submit themselves to anything but ostensibly quick cures and they've even longer been too conceptually myopic to perceive the real reasons for their declines.
I'll declare the real reasons. There are but two and neither has anything to do with multimedia, 'convergence', blogs, 'Web 2.0', 'citizen journalism,' or any ancillary topics you may have heard presented at New Media conferences this millennium.
Nor is either of the real reasons advertisers' abandonment of printed newspapers. Their abandonment is a symptom, not the reason for the decline. Contrary to myopia of many newspaper executives, advertisers aren't newspapers' primary customers. Although advertising revenues may be sunshine for newspaper executives, the roots of their business are readers. A newspaper with readers will attract advertisers but a newspaper without readers will not. Readers ultimately support and sustain the newspaper business.
To understand the real reasons why the American daily newspaper industry is dying, first understand why more and more Americans are no longer reading daily papers and how their abandonment of newspapers has been wrought by changes in their own media economics. Also comprehend why the epicenter of the newspaper industry's problems in post-Industrial countries is America and exactly how grave the situation is there.
For the upcoming episode of Naked Media, I’ll be speaking with Patrick Spain and Michael Wolff, co-founders of Newser.com. Preparing one of the “fun” segments of the show, we went out on the street this morning and asked about a dozen people of all ilks where they get their news. Once again (as with our segment on Twitter), I’m reminded that we in the biz need to remind ourselves that “normal” people don’t focus on a lot of the things that obsess us. A number of folks who looked to be in their twenties and thirties said they didn’t bother with the Internet, and instead go for free newspapers or TV. Or perhaps check NYTimes.com and nothing else. Most didn’t know, whether they were looking at the Web or TV, what “brand” of news they were consuming, though some did refer to a specific TV channel by number (‘I watch channel 5”) or just “my email” or “The Internet” or, perhaps, “AOL.” No one in our non-car culture here in New York mentioned radio.
No one talked about the “experience” and only one guy (a ringer from Scribe Media who was happening by) talked about RSS feeds or doing any personalized aggregation, or using any new technologies. None seemed terribly able to say why they watched one channel or Web site over another. It all seemed rather random and haphazard, that folks just happened upon a channel, whether TV or Web, and stuck with whatever they were fed. Few expressed a strong preference for any news or information brand.
You can write and shoot and brand and produce your heart out. But whether your stuff gets seen might all come down to whether your bizdev folk got the headline on the AOL or Yahoo homepages.
There’s a lot of grumbling and retorting about the AP’s attempt to then sort-of retreat from making bloggers either paraphrase or take down their pickups of material from the venerated wire service. But there’s a more immediate problem that runs deeper than complaints from bloggers like Michael Arrington, Jeff Jarvis or Jeff Nolan.
A few weeks back the editor of the Cleveland Plain Dealer on "On the Media" talked about how newspapers in Ohio were reaping great benefits trading material, and linking and cross linking. More importantly, she said she was no longer reliant on The Associated Press for her stories from the region but instead was getting the original versions direct from the other sources around the state rather than paying “a big chunk” of her budget, about $1 million for rewritten AP stories. Picking up directly, on the Web, and putting other papers’ stories directly in the newspaper was also better quality, she said, and readers were noticing:
“I mean, we've always had access to news from all over the state. It was just, you know, it went through the AP mill. I frankly think we're getting better, more distinctively written stories because they're not going through the AP mill.”
If local papers skip the AP, that means the core constituency is in revolt. That will potentially be more corrosive than the fight with the blogosphere over fair use. "As long as there are are two papers to trade articles, the AP will exist," one rake at the wire service -- where I worked for seven years on the international desk and as a foreign correspondent -- quipped to me once. But what if the members form their own cooperatives and cut out the AP as middleman?
I’m not saying this will happen immediately. AP, whose core business is the not-for-profit cooperative dues of member newspapers, has offered to cut its rates starting next year. Newspapers, despite ad and circulation declines for decades, have been notoriously slow moving, and many will be reluctant to pick up content from papers they might think of as competitors; the AP has given them the cover they sought to do so less blatantly. But the economic pressures are only increasing as revenues and readership decline more precipitously, and any success in Ohio could be the thin edge of a wedge. “We've set up this little cooperative,” said the Plain Dealer editor, Susan Goldberg. “I don't know how it'll work in the future, but right now it's working really well.”
Add to that AP’s deal to have its direct results placed higher in Google than member papers, further pissing them off, and newspapers will look harder at the Ohio example. We're talking months or perhaps years, certainly not decades. The example could spread nationally or internationally.
CEO Tom Curley has been leading the AP into a future in which an increasing share of its revenues comes from sources other than member dues, such as direct photo revenues, Web content services and broadcast fees. But the transformation may not be fast enough. AP doesn't have the luxury of Bloomberg or Thomson Reuters in which news gathering can be supported by financial terminals that really bring in the bucks.
AP should own the Web. It has its roots in the trading and sharing of information. It gets a significant chunk of revenue from providing the backbone through which others pass content. It coded and tagged and parsed content with everything from category codes to prioritization markings, and ways to match text and photos decades before those practices became fashionable for everyone. But culture and old habits are very hard to change, and I fear for the company's viability hope it can work out a more creative win-win solution for all.
CBS buying CNET might make sense financially and the chart they released (see bottom of post) showing the various properties makes a good case for "synergies" of adding unduplicated audience in various verticals. CBS Chief Les Moonves, in PaidContent interview, makes a good case for the assets and how they all fit.
It's the operational part -- integrating the two -- that will be a challenge. Very different cultures, even if CNET is one of the more traditional-style companies in its space.
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.
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.
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.
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.
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.
I sometimes feel like an unpopular proselyte in arguing that today's digital journalists – at least at a senior editorial level – need to understand the business imperatives while also understanding the usual journalistic ones (double sourcing, verifiable accuracy, fairness, disclosure, etc).
WSJ.com managing editor Bill Grueskin seems to feel the same way, and has kindly sent me a list of things that today's editors in digital media must keep in their head, along with all the usual editorial duties.
In no particular order here they are. My additions in parens:
- Differentials in online/print ad rates
- Paid vs. free models (ie, subscription or micropayment vs. ad-supported)
- Role of search engines in driving traffic and revenue (SEO /SEM)
- (Corollary of above:) Tailoring content to appeal to search and other third party sites
- Tailoring content to maximize page views and thus ad impressions
Sree Sreenivasan of Columbia U frequently points out that journalists at The New York Times compete to get on the Most Read/Most Emailed/Most Blogged page, which also shows the most common search terms on the NYTimes.com site.
I say the NYTimes.com (and any) editors should also be aware of what the most-searched terms are on Google and Yahoo, and what those searches show on those sites, and what pages people land on after doing those searches and clicking through on the results.
From there they can get into funnel- and path-analysis, and more deep metrics. It becomes an organizational issue of who delves how much, into what; the bigger shops, like the journal, have the luxury of having someone(s) who does nothing but Web analytics – often a marketing team function, sometimes part of the technology department.
But today's top editor needs to know at least the basic, global issues Bill, Sree and I have stated just as much as a newspaper managing editor had better know the details of the print run.
Sasa Vucinic and Patrice Schneider of MDLF, Prague. March 2007
In 30 years working in news media, I've never encountered a more beneficial cause than the Media Loan Development Fund. So, I've been volunteering some of my consulrting time to it.
The idea behind the MDLF arose during the late 1980s when Yugoslavian broadcaster Sasa Vucinic watched freedom of the press almost evaporate in his country. He worked for B92, which was the independent radio station in Serbia and a thorn in the side of dictator Slobodan Milošević's regime. Unable to find a legal pretext to silence B92, the regime began threatening the radio station's advertisers. B92 began running out of money and Vucinic was unable to find any bank, inside or outside of Serbia, that was willing to loan B92 money to keep operating.
Vucinic never forgot that experience (he gave an videotaped talk about it at the 2005 TED conference). In 1995, he approached billionaire George Soros, who himself grew up under a Communist regime in Hungary, about the idea of creating a foundation to loan money to independent media in countries that have repressive regimes. Soros agreed to setup the Media Development Loan Fund, which is based in Prague.
Vucinic's first MDLF project was a newspaper that during the late 1990s was being forced by the Slovakian government to travel 400 kilometres to print the paper. The newspaper wanted to purchase a printing press, so MDLF loaned it the money. MDLF has since financed 135 projects for 58 independent media companies in 18 countries. When MDLF began, Soros didn't think the foundation would ever see its loans repaid, but 97 percent of the 58 projects have repaid their loans on time.
In 1998, MDLF established the Center for Advanced Media-Prague (CAMP) in 1998 to introduce new-media concepts and solutions to independent media in the post-communist and developing countries. Earlier this year, Patrice Schneider, MDLF's director of development and formerly the Managing Director of Netscape Europe and Deputy Managing Director of Hachette Filipacchi Media, asked several other international new media experts and I to advise MDLF and CAMP about coming changes in new media and new media technologies..
If you have a chance to help MDLF's worthwhile cause, please do so.
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
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.
Figure 2
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.
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.
Look at USAToday and CNN.The Virginia-Pilot, a newspaper based in Norfolk, VA, has incorporated its HamptonRoads.TV into its site, with its own production capabilities, not just replaying clips from AP video feeds.
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
3 Reuters
4 Washington Post
5 Times Online, UK
6 Forbes
7 Guardian Unlimited, UK
8 Voice of America
9 Christian Science Monitor
10 International Herald Tribune
11 Bloomberg
12 CNN
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.
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?
a) 5%
b) 8%
c) 10%
d) 13%
e) 15%
2. What is the annual quarter over quarter rate of increase for online revenue of newspaper publishers?
a) 10%
b) 20%
c) 30%
d) 40%
e) 50%
3. In 1950 about 2% of GDP went toward advertising. What was the % in 2005?
a) 1.5%
b) 2.0%
c) 2.5%
d) 3.0%
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
c) Gannett
d) Knight-Ridder
e) McClatchy
f) Tribune Co.
Answers
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.
If the Internet distributes information more efficiently and eliminates the middlemen, then why do so many owners and operators of traditional media — who are the middlemen — believe that they will make as much, if not more, money as the Internet becomes the primary means for distributing information?
That belief doesn't make sense.
Earlier this year at a conference in Paris, I pointed out to the newspaper industry that it is earning between one-twentieth and one-hundredth as much per website user as print reader. In April, Scott Karpindependently analyzed further why media companies shouldn't make as much online as in their legacy modes.
His post made me wondering if there are historical precedents. When the Industrial Revolution began, did purveyors of cloth, coal, iron, lumber, and other goods that industrialization would revolutionize, believe that they too could maintain their previous profit margins? The answer is yes, those purveyors believed that industrialization would just markedly decrease their costs of production, enlarging their profit margins. But as the Austro-American guru of management Peter Drucker (1909-2005) noted, "Not only did the cost of production markedly decline, but so did the value people were willing to pay for the products."
The value people were willing to pay for those products declined. And that was when those products had been scarce. We today live an era when we're already awash in information. It's surplus, not scarce.
So, why do owners and opperators of traditional media companies believe that they will make as much, if not more, money as they switch to the Internet rather than using paper or radio or television as their primary means for distributing information? Wishful thinking. Belief. Faith.
But belief isn't business; it's religion. Root business concepts in reality, not in belief or faith. During Web 1.0, too many executives rooted their business plans in belief or faith. Unfortunately, the false idol they worshiped then turned out to be the Pets.com sock-puppet.
Today is scarily similar. I'm seeing too many Internet trade journal stories about how this or that 'business trend' is underway because thousands of executives hope to do this or that. Poppycock! Instead, show me thousands of executives who are successfully doing this or that. Hope is wonderful thing (and also the name of a girl I used to go out), but business plans shouldn't be rooted in hope. (Perhaps I too should have stayed with Prudence in 1976 rather than leaving her for Hope, but Prudence is a story for another day.)
Unless you publish or broadcast religious content, hope, faith, and belief don't have any place in media business plans. Including plans from startups, too.
So, if you're the owner or operator of a media who believes that you will make as much, if not more, money online as you did in print or radio or television, get your head out of the clouds. That's not heaven you've been glimpsing. It's aerial fog.
No, the world isn't hopeless. Yes, you can make much more online than you're making online now, just not what you were making when you're business was based upon scarcity and Industrial Era technologies such as printing presses and transmitters. Your world is changing. Or as Ad Age's Simon Dumenco earlier this year wrote about the magazine industry's perchant for traveling in limousines, We're Sorry Ms. Wintour, but You'll Have to Walk. And please use a map, don't just hope or believe that you know where you're going.
I’m in Moscow, where I will be attending some of the sessions of the World Press Association Newspaper (WAN) Congress and the associated World Editors Forum. One early observation from what the organizers have put on the program is ongoing concern about the online world for the editors, but business as usual for their publishers.
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.
Sorry couldn't resist the pun, but have some actual thoughts. Vin has complained on this blog that the "We Media" conference is really more a "they" media and that it tends to be people of stature talking down to the assembled masses. I don't necessarily agree that it's as dire as that, but did have a few thoughts about how the conference might better achieve its aims of being inclusive and using all the newish tools to allow a sort of participation not common at such confabs. They include:
Participation via low-end tech. The live satellite hookups were very impressive, and so was Jeffrey Sachs via Web cam. How about, following their concept of regional "We" sessions, have "booths" for conversation with people in the various regions hooked up to, say, chat to and from African and Arab and Asian countries. Maybe Internet cafes or other areas. Kind of a constant, live, video chat or video conference. People across regions should be able to connect, too. We can patch those in during the conference -- add to the "we-jay" concept the organizers used of having bloggers give a first-run impressionistic take on what they saw, by having we-jays from other regions.
How about, on large live screens, have the IRC or whatever chat mechanism scrolling live behind folks, and people at the conference can see the conversation multi-dimensionally?
Experiment with seating arrangements. Mostly, it was stage there, audience here. As always. How about having the presenters/discussers, the panels, in the middle, surrounded, or inter-mingled with the audience. Have them come sit at tables, and hear from audience members what's going on. Frame the discussion and start with questions. Allow for more of an intellectual melee (which might conversely have the effect of tamping down on folks who were shouting out at the assembled when not called on for questions). The smart panelists will relish the chance to hear more of what folks in the audience think.
Have folks from governments speaking on behalf of those governments, in translation if necessary. When people are taking the piss out of the Chinese, have a Chinese official answer (if that's do-able).
Allow questions from outside the room -- not just via the we-jays, but, say, via Skype or other audio or even video hookup.
Both through social structure and technology, we can make it an even richer experience, push the envelope, use the media themselves to show what "we media" can be and do.
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.
Vin Crosbie
Dorian Benkoil
Bob Cauthorn
Ben Compaine
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.
