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.
Two pieces of seemingly unrelated news hit the online world about 24 hours apart. However, the first may weigh heavily on the second.
Number one was the announcement yesterday (June 2) from AT&T signaling the end, for now at least, of unlimited wireless broadband. As of June 7 most 3G iPad users and all buyers of iPhones and other AT&T connected smartphones will have to pay for data based on usage. Unless grandfathered, from now on it will all be metered.
According to most reports (the New York Times’ David Pogue among them), most smartphone users should come out ahead by under either of the two plans. AT&T itself calculated that 65% of its subscribers use less than 200 mb of the lower price option (half the cost of the current unlimited plan they have) and altogether 98% use under the 2 gb limit of the higher price plan. But for the newer iPad, optimized for streaming video and more accommodating for watching You Tube, will these parameters stunt their use?
The matters if we probe the implications of the second news item, an AP story under the headline “Publishers see signs the iPad can restore ad money.” It began: “Good news for the news business: Companies are paying newspapers and magazines up to five times as much to place ads in their iPad applications as what similar advertising costs on regular websites.”
The story noted that “early evidence suggests the iPad is at least offering publishers a way to get more money out of advertisers.” Perhaps prophetically, though, author Andrew Vanacore hedged his bets, adding two graphs later: “Still, a lot will need to go right for publishers before the iPad and imitator tablet computers become a significant source of income.”
The seeds of what may not go right comes soon enough. Describing why iPad applications such as USA Today’s can justify higher ad rates than the standard online ad, Vanacore replays this scenario: “A reader can click on Courtyard by Marriott's USA Today ad and then with a flick of a finger scroll through images of the hotels' updated lobby design. Another tap and a high-definition video appears, full of happy hotel guests.”
But wait. With AT&T’s new data limited plans, this simple “tap” will generate perhaps megabytes of “high definition” video. Will tablet users want to eat up precious data usage on a Marriott ad. When the pool was bottomless, well, so what. With the pool is emptying fast, then perhaps not. At least, not as spontaneously.
AT&T’s new data plans are likely to be mimicked by other carriers eventually. Some or all might hold off initially so as to gain a short term competitive advantage. But they know AT&T is right. The spectrum for data is finite and when any commodity is free it get overused. Some mechanism is needed to ration it.
Every decision has consequences. It’s not unusual for some to be unintended. Matt Richtel, in his report describing AT&T’s data plan announcement, closed his piece with this anecdote:
“Mike Lapchick, an AT&T customer in Chicago, said that he tended to use his iPhone mostly for e-mail, and that he would probably see his data bill drop in half to $15.
“But Mr. Lapchick, who is the chief executive of a company that makes software used by Internet retailers to allow consumers to zoom in on product images, has another concern. As unlimited data plans go away, it could prompt cellphone users to watch their intake.”
He may not have realized it, but Lapchick could have been describing every media business that has hope that iPad and its competitors' forthcoming tablets may just have been blindsided by AT&T without being aware of what hit them. At least not yet.
According to a piece from The New York Times this week, “No topic is more hotly debated in book circles at the moment than the timing, pricing and ultimate impact of e-books on the financial health of publishers and retailers.” It goes on to says that publishers are concerned about making e-editions of their trade books available the same time as the print edition.
Amidst the uncertainty of how to treat the e-books is the fear of cannibalization of hardcover sales. “If you as a consumer can look at a book and say: ‘I have two products; one is $27.95, and the other is $9.95. Which should I buy?’,” according to Dominique Raccah, chief executive of Sourcebooks.
I’ve been delving into the nuances of book distribution and marketing since I wrote a book about the subject in 1978. And, typical for anything about the book publishing industry, notably missing form this article, and most such discussions, is an examination of the economics and the retail marketplace.
First, for bestsellers, at least—which is what this article focuses on—the real retail price of a hardcover fiction is not about $25 or $30 but the 40% discount price charged by most major outlets, including Amazon and B&N. Thus, the real price difference for most consumers is roughly $15 to $18 for the hard copy vs. $10 for the e-book.
Second, the article does have one data point—that Amazon is paying the same price for the e-book as the hardcover. Assume that is 50% off list. So that from the publisher’s position, it gets the same revenue no matter which format. And it saves the manufacturing cost. And it gets no returns! What’s not to like?
Third, this discussion would be enhanced by knowing how author royalties are being handled these days. If the author is earning a royalty based on a percentage of the revenue the publisher receives, then it is at worst a wash whether it is a percentage of the physical book or the price the e-book distributors pay. And to the extent that books are price elastic, the $10 e-book price point could potentially increase sales, thus resulting in greater revenue.
What could the Globe fetch? Well, certainly nothing within a rifle shot of the $1.1 billion it paid 16 years ago. David Carr, himself of the Times, asked six experts who specialize in valuing media properties. You could get the short answer in his column.
But even more fascinating is the almost stream-of-conscious responses of the six that he posts verbatim on the Media Decoder blog at the Times site.
The values—all guesses of course-- range from $250 million to a negative $25 million. Yes—The Times Co. might need to offer a buyer (if it could be called that) cash to take off their books the stream of losses projected for the paper into the immediate future, the union contracts and the 400 guaranteed-for-life jobs.
Bottom line? The price of the newspaper company may be less than what it charges ($1.00) to buy a copy of the newspaper.
Few of my friends or acquaintances are fans of the editorial
page of The Wall Street Journal. I live in Cambridge,
Mass, where President Obama received 88% of the vote in November.
So I thought I’d call their—and your—attention to the lead editorial
in today’s paper. Titled “Ink-Stained Politicians,” it is critical of congressional
initiatives to “rescue” the newspaper industry. One of the leaders of this
movement is my own senator, John Kerry. As are many of us, he is concerned
about the future
of the hometown Boston Globe. (The stakes may be particularly high, though,
for the senator. In his re-election bid last year the Globe gushed:"The case for reelecting John Kerry
would be strong under any circumstances . . . [but] the country needs his voice
more than ever.")
So it was Sen. Kerry’s subcommittee that held
a hearing on May 6 titled "The Future of Journalism." It was a
morose affair, with publishers enumerating the fate of failing and fallen
comrades. Then the senators turned to the culprits, Huffington Post and Google.
The hook for the
hearings was what role Congress could conjure to help out what Kerry buys into as “the fourth branch of government.” One
proposal, from Maryland Senator Benjamin Cardin, would allow newspapers to convert
to nonprofit status (hmm-it seems like the point is that they are already nonprofits.
What they should say is not-for-profits). Their operating revenues would be tax
exempt. In return, they would be precluded from endorsing political candidates, though, as the
Journal points out, that wouldn’t prevent them from taking sides more subtlety.
The other idea being floated was some sort of an antitrust
exemption that, as described by Dallas Morning News publisher James Moroney,
would allow the newspaper industry to conspire to find ways for making money from
putting the work of its journalists online. Of course, I thought that was what
the industry has been doing with such projects as Newspaper Next and The Newspaper Project. But I
suppose a major league baseball-like exemption would allow publishers to band
together for steps that would prevent the Huffington Posts and Googles from
making money off their backs.
The Journal’s position is one that I have trumpeted, as have
my colleagues here Dorian
Benkoiland Vin
Crosbie. That is to let the forces of technologies, consumer behavior and
the marketplace play themselves out, at least for awhile longer, before
panicking. I
have argued (as have others) that there will be changes, for sure. But that
there will also evolve multiple business models. There will be winners and
losers. Services lost-- for example some local coverage if some cities or towns
lose their daily printed papers—are highly likely to be regained as new players
jump in to fill a vacuum.
We see hints of that with an array of Web sites that focus
on local and even hyperlocal news. Some, like EveryBlock, for the moment are compendia
of links to local government sites, some blogs and even local news from other
sources. But that doesn't mean that is their end point. It is their opening gambit. Should they gain traction some will start adding original content (or they may find the togain traction they will need original reporting). A few, such as Buffalo Rising and Patch, already do have reporters covering the local
scene. Very few now. But given time, and a market, more
later.
Dallas’s Moroney
speaks for many in the legacy media who are urging Congress to legislate a
"consent for content" requirement to get the Googles and Huffington
Posts of the online world to pay "fair compensation" for content they
pick up and then sell advertising on. The
Journal comments“So, although most
newspapers are giving away their content free online, the feds should guarantee
them a stipend from anyone who gets someone to pay for it. There's a winning
business model.”
In any event, it would seem to be a matter for negotiation rather than legislation.
The Journal continues: “The larger story here is that
newspapers are enduring the familiar process of economic "creative
destruction," in this case brought on by the Internet. Advertisers are
fleeing to search engines, while barriers to entry in publishing have crashed.
Despite the pain this causes to certain companies, this is not much different
than any other industry buffeted by new technology or business strategies.”
Creative destruction is right. In the early 1990s, the 200 year old Encyclopaedia Britannica was a $650 million company. Five years later in was bringing in one third that. It’s business model based on a high priced part time sales force selling “guilt” as much as $2000 sets of books was undermined by Microsoft’s Encarta, given away for free on a CD with a new computer and based on an old Funk & Wagnall supermarket-distributed encyclopedia. The World Book suffered similarly. Both have had to retreat and reformulate to survive in the world of DVDs and online delivery. Where was Congress then?
The Journal’s editorial concludes with an argument almost
stolen (dare I charge?) from a recent post of mine, save the last line:
“Some new business model will
emerge for journalism, if not for all newspapers, and in the meantime the
business of reporting the news isn't vanishing. It is taking new forms and
adapting, with newspapers growing their audiences online even as the sources of
their revenue shift. The industry is currently debating how to charge customers
for content, and no doubt many experiments will be tried. No matter who emerges
victorious, the journalism business will be stronger and more credible if it
avoids the government's embrace.”
To its credit, the Obama Administration is keeping its distance. Press Secretary Robert Gibbs, responding to a question, commented that while it's sad for cities to lose their daily papers, any public assistance "might be a tricky area to get into.…I don't know what, in all honesty, government can do about it."
The sooner the suits in Washington
and the executive suites in Dallas
understand that, the better off it will be for the future of journalism.
A college classmate, Peter, who lives in Ann Arbor, Michigan, asked me what “my take” was on the changes in the media world, referring to the de facto demise of this home town Ann Arbor News.
If you’ve been on vacation in Bali and didn’t want to pay the $15 a day resort Internet fee, the shut down of the 45,000 circulation News will make this the first city to lose its newspaper. The plan, according to owner Advance Publications, is to completely shut down the operation, lay off all empoylees, then start fresh with two new companies that will need far fewer staff. One, a Web venture called AnnArbor.com, will have some original reporting but rely substantially on reader input and community forums. A second company is described as a printing company that will publish a twice weekly newspaper fo some sort. Advance is also cutting back its daily newspapers in Flint, Saginaw, and Bay City to a thrice weekly schedule.
Types of organizations eligible for non-profit status under IRS 501(c)
My take, I wrote Peter, is that I suspect new players will see it as an opportunity to pick up the slack. They will enter with a different expense base. Maybe no single one will totally replace today's version of the newspaper, but in aggregate they will cover whatever territory for which there is a demand, e.g., an entertainment paper-- probably ad supported. More local stuff online. More stuff you can view on iPhone-like devices or Kindle-like. We’re in a period of fits and starts, but if there is a market there will be big guys or entrepreneurs who will fill the gaps. At the premium end there is the example of the for-profit (they hope) GlobalPost.com. The low end may be the for-profit (they hope) citizen journalist new AnnArbor.com.
But what about the not-for-profit model, a proposal popularized by an op-ed piece in The New York Times last month? An academic study being prepared for publication in the Journal of Media Economics this summer (I’ll post more details in July) looks at the fortunes of nonprofits in the magazine business. It notes that “nonprofit” can take many forms, both legally and as operational models. Many not for profits rely heavily on advertising revenue, just as their for-profit cousins. The study observes that they can be just as susceptible to economic downturns as for profit publications.
Indeed, at a small conference I attended earlier this month, I pointedly asked Rick Edmonds of the Poynter Institute whether the general downward pressures facing the newspaper industry had affected the St. Petersburg Times. That paper is something of the poster child for the non-profit model. The paper is controlled by a foundation set up by the late Nelson Poynter. If the paper has a surplus – the nonprofit term for profit—it declares a dividend. This is turn is the primary source of support for the many good program of the Poynter Institute. Edmunds had to admit that the Times is indeed taking a hit from the same forces felt by all newspapers. It has made staff cuts in its newsroom to help keep up profit. Even so, dividends are down. The Poynter Institute has a comfortable cash reserve for now. But the larger point is that the Times as well as the Institute are not immune to the forces and trends in the industry or the economy.
Philanthropic organizations—even the wealthiest—cannot defy gravity. Harvard, the richest of universities, is having to make major cutback because its endowment—line the financial markets—shrunk 22% ($8 billion) between July and October 2008 alone.
So let’s suppose that a newspaper does indeed have a billion dollar endowment behind it. To generate income it must invest that money somewhere. The more aggressively it’s invested, the more money for the newsroom. If invested in Treasury notes, the endowment is safer—but it may be short changing its mission—essentially leaving money on the table that could be used for journalism. So it takes a moderate course of investment. And suppose that lets the endowment generate a 5% return devoted to newspaper operations. That would be $50 million initially, a nice subsidy to keep up salaries, news bureaus, staffing. But what happens, as it has this past year, if the invested funds lose 20% of their value—well under the markets overall financial loses in the past year, thanks to our hypothetical endowment's conservative portfolio.
Now, with an $800 million portfolio, if it still drew 5%, it could only add $40 million to its income. What’s a publisher to do? Just as advertising and circulation revenue are falling, so is the endowment income that could otherwise prop up its finances. True, it may be better off than its fully for- profit brethren. But it will inevitably need to make cuts: in personnel, in travel, in salaries—the same types of cuts we hear about weekly.
So not-for-profit is not the solution, endowments are not the solution. What is?
As I wrote to Peter, there is not a solution. We have left behind an either/or world for one of many options. There is opportunity for non-profits, such as the well established Pulitzer Center on Crisis Reporting or the new Pro Publica. The entrepreneurial for-profit sector is represented by a new model with GlobalPost. The Detroit newspapers are leading the way (or were pushed) for daily newspapers in hybrid online and print. Advance Publications is trying out another for profit model in Ann Arbor.
The result will be an evolving stew of print, online, mobile, video and audio news sources—international, national, local and hyperlocal. For profit and not for profit. From existing well known media companies, from nonmedia players, from entrepreneurial start-ups. Those that will be successful and those that will prove unsuccessful.
When I teach about marketing, the most important word I emphasize is the word “some.” I tell them not to think in terms of “People want more news” or “People are willing (or unwilling) to pay for…” Market segmentation is about “some." “Some people” want. “Some people” will pay. Some. The digital technologies here and still emerging make it far more efficient to provide news, entertainment, whatever, to each of us in more forms than at any time in history.
On the one hand, he does not see a scenario where most daily newspapers can survive by squeezing a few dollars a month in the form of micropayment from readers. Having tried the user-pays-something route at Slate, he holds this to be a nonstarter.
But he does see the survivors—several of the major news organizations, plus a few “local papers that execute their transfer to the Web so brilliantly that they will earn a national readership” or some “Web site [that] might mutate into a real Web newspaper” – as actually providing more choice for most readers than existed in the past when there were thousands of print newspapers. Furthermore, “Competition is growing as well among Web sites that think there is money to be made performing the local paper’s local functions. One or two of these will turn out to be right.”
The result, observes Kinsley, is that the “American newspaper industry will be more competitive than it was when there were hundreds.” This is a song a few of us have been singing for years. Soon we might have a chorus.
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.]
Call me a pollyanna, but I’m hopeful. Hopeful that the Web may actually have been a force that’s raising the level of political discourse in America, making us smarter and better at understanding what’s going on. I’m hopeful because before the election I heard people talking, sometimes in Red states (the “real” America, not my beloved Manhattan’s Upper West Side) picking through divisive and unintelligent arguments being made by politicians and the political campaigns.
I do think the American public ultimately gets it right, but that often it’s frighteningly slow to do so (think how long it took for a majority to decide the Iraq war is horribly mismanaged). But I heard an intelligent skepticism from voters this time, examining arguments, asking whether the things being said in political ads were right, wondering whether one candidate’s policies are better for the economy. I also saw a lot of discussion and uptake throughout the Web shooting down personal attacks (William Ayers, Muslim terrorism, etc.). I note that the attempts to Swift Boat the now president elect didn't take hold.
It was a real, intelligent level of discourse that makes me happy to hear. Sure, the economy is in crisis, and the mainstream media is telling us what’s wrong in Iraq and elsewhere. But the more intricate unweaving is going on online, not only in blog discourse but in the ability, for example, of many people who wouldn’t have seen Palin or Biden or McCain or Obama speeches and interviews to see them, rewind, look at them at their leisure, to observe charts and graphs comparing policies and opinions, expert and not, to watch The Daily Show and Colbert Report at our leisure and decide what to or not to laugh about or examine further. To, crucially, watch the Katie Couric, Sarah Palin interview segments and compare them with the Tina Fey impressions. We didn’t have to rely on reports of what Palin said, but instead after hearing about it (perhaps in the mainstream) could go see it and decide for ourselves as never before.
Neil Postman might have thought we were prone to nothing but amusing ourselves to death with our media, but maybe the kind of media we have now (and that the new White House might help us employ) is helping us to think about whether we want change and what that change really means.
Finally, a term for what happens in the real MediaVerse: The Pinball Effect. That’s what Nielsen CMO John Burbank used to talk about the way online and TV interrelate to spur consumption of the other. His example: The Katie Couric-Sarah Palin intterview gets six million viewers. That’s cut into clips, each of which is viewed three million times. Viewership of Saturday Night LIve (with their parody of the interview) spikes to 9.5 million viewers and 25 million people watch the skits on the Web and THEN a record 70 million people on 11 TV networks watch the vice presidential debate. That, Burbank said at the Media and Money Conference that concluded today in New York is how audiences build over time due to the effect, on “word of mouth.”
Of course, that doesn’t mean anyone’s making money on it, a point Burbank also raised.
Oddly, though, he said there has been “little impact” of citizen journalism, no breakout viral video clips from a cellphone, despite the many opportunities of Joe Biden speaking many places every day. (I might counter that there’s a lot of influential blog and Twitter discussion, and that any Swift Boating might occur online, especially via email. Video is not the only place to look for influence. Not to mention Obama’s in-game ads.)
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:
Today was the first public edition of “The Sporting News Today.” This is a free, online daily version of The Sporting News, the weekly magazine that got its start as a bible for baseball fans.
The Sporting News has a rich history, starting publication in 1886. I remember my father subscribing in the 1960s. It was thick with box scores and stats for every team and every major sport. In 1977, when the Times Mirror Co bought the publisher for all of $18 million it had a circulation of about 356,000. By the time it was sold to Vulcan Ventures in 2000 for $100 million it had a circulation of over 500,000, but it was being threatened by the successful launch of ESPN Magazine, which had 850,00 circulation within two years of its 1998 launch.
The Sporting News was sold again in 2006, to American City Business Journals. Today the circulation is about 700,000, but at an annual price of only $14.97 for a new subscription—compared to about $61.00 in constant dollars in 1978.
Like many print publications, The Sporting News has been substantially affected by online content. Daily sports news has been particularly hard hit. The Internet is made for getting late night scores, accessing the scads of stats that even casual fans crave, following teams in far-off cities—and all for little or, most often, no consumer cost.
Like most other print publications, it has had an online presence. The Sporting News Today is something else though. It is a magazine formatted for the screen. But it is not like a Web site. It involves no scrolling. It is pdf-like, though it is not read with Adobe Reader. It is not the print edition read online, as with Zinio. To me each screen looked like a double page spread in a magazine—but with no need for a gutter. I sort of felt that I had spread opened the tabloid-sized magazine. You will note that each of the “double pages” has one page number.
By offering to send subscribers an email each day, readers so do not have to bookmark anything. Just click the link.
The content is vintage Sporting News: Right now heavy on baseball, but lots on football—professional and college. There is hockey, basketball, NASCAR, tennis. Even Little League World Series coverage is promised. And, with a nod to WEB 2.0, it will offer readers the opportunity to provide their own input: “You’ll get a byline, file to an editor.” (Actually, a clever spin on “Letters to the Editor.”)
No surprise, the business model for the Sporting News Today is, for the moment at least, advertising, though it was rather light for a first edition. The inaugural issue had a full page from SpeedTV.com, three half page house ads for Sporting News affiliates and a full page promotion for the revamped Sporting News magazine, which will become a bi-weekly. (Management expects to lose 100,000 circulation from current levels to the free online publication).
I’m not a design expert—I’ll leave that to my colleagues at Innovation Media Consulting Group. But the Sporting News Today will feel comfortable to readers who like the look of print and are put off by clicking here and there for do their online reading. The layout feels modern but grounded in print. How that plays may be generational—or not.
As a final note, it may be worth pointing out that while traditional print publications are downsizing, The Sporting News Today is hiring. Indeed, I got turned on to its impending launch by Charles Apple, it’s new art director, who was hired away from the Virginia Pilot newspaper. (Has anyone seen numbers on how many print journalists have been hired by online-only ventures other than self-funded blogs?)
There has been speculation in recent years on when we will get the first announcement that a daily newspaper will shut down its presses completely and switch to digital-only. There are still some big hurdles, like portability. But should services such as Amazon’s Kindle take off, allowing readers to take their digital publications on the go, then the Sporting News Today model may have legs and encourage a general interest newspaper to give it a whirl.
Mediabistro blog FishbowlNY’s swipe at the valuation of Rafat Ali’s ContentNext, sold for a reported $30 million (including an earn-out over time based on performance) to the Guardian Media Group, smells at least a little bit of tit-for-tat over something Rafat wrote after mediabistro’s sale to Jupiter Media. Fishbowl says Content Next revenues in 2007 were $3 million, which it calls a “10+” valuation (I think they mean 10x), and ignores a few factors. Just as people during the mediabistro sale for $20 million plus a $3 million earn-out over two years quoted its revenues of a year earlier and ignored the 30-40 percent yearly growth as well as the inherent value of some of mediabistro’s assets (such as its list of more than 700,000 registered users, more than 10,000 of whom were paying members).
But even if CN’s valuation is lower than FishbowlNY is saying (they should, I think, subtract the earn-out to get a base value for the deal, which may be lower than $30 million) there are many reasons for it be high. One, as HighBeam and Newser.com CEO Patrick Spain noted to me on the phone yesterday, is the value of the core ContentNext audience -- media executives, decision makers with budgetary control. It also has a budding and growing group of conferences for which attendees pay hundreds of dollars admission to see even higher-profile execs speak (Murdoch, Cavuto...), a strong list of email recipients, high-profile business and financial advertisers it has cultivated and maintained for years, successful media properties in the U.S., U.K. and India (India!), a growing research component, and ContentNext Dex, a listing of media-tech stocks it has created and which serves as a technological bit of value. The participation of high-profile investor Alan Patricof, former WSJ.com GM Nathan Richardson as CEO, and, of course, editorial co-chief Staci Kramer, as well as a cadre of strong, international journalists who’ve stuck with the company for years, and a growing and successful sales team all adds up to value as well. The Guardian group, I’d say, bought the management as much as the company’s book assets, and I’d wager that the earn-out is larger than mb’s. Add, too, the U.K.-based Guardian group’s professed desire to go more international, the synergies with its other properties, the fact that it is a trust able to think and act more long-term than a typical public company, and there’s a lot of value to be wrung from its purchase of ContentNext beyond a typical times-revenue or even more cumbersome financial calculations, such as WACC. (I doubt there’s much if any debt on the CN’s books, and also doubt that capital structure played much of a role in the decision to buy it.)
I love mediabistro, where I’m proud to have serves as editorial director before the sale, and ContentNext, where I’ve helped in a couple different ways, and for the record my analysis here of both properties is from publicly available reports and discloses no private details. Mediabistro’s audience of media professionals is and was, like CN’s, worth a lot more than an average consumer audience. Rafat duly noted in his interview with Kara Swisher after his company’s sale that it does cost quite a penny to produce their brand of journalism: “We’re a news media business on the Internet, but we’re not a consumer Internet company. We will never be.”
While it’s impressive that he got $30 million for the company so soon after Patricof invested, and in the midst of looking for a second round of funding, one eyebrow raiser from the Swisher interview is the speed with which the deal took place: “It all came to be in three weeks,” Rafat says, something he repeats on ScribeMedia.org, which is, full disclosure, a partner in Naked Media.
I really, really promise that I will not be stuck forever on what might be seen as a crusade about the change in the editorial mix of The Wall Street Journal since Rupert Murdoch took control. I don’t want to become the Ben-one-note on this as Lou Dobbs has become for his anti-immigration tirades.
Still, there is some news on the subject. I have written several times now about how the Journal has been devoting its front page to hot-off-the-press headlines that are essentially the same as what every other daily publishes: “Obama wins primary,” “Cyclone levels Sri Lanka.” This is a form of run-of-the-mill reporting to which the Journal brings little value added and, with earlier deadlines than most local dailies, perhaps less value.
But now comes some hard data—that’s what I like more than impressions—that does indeed confirm a substantial shift in the Journal’s editorial coverage since the change in ownership. The Project for Excellence in Journalism undertook a content analysis of the front page stories in the Journal for the four months before the December 12, 2007 date that News Corp. acquired control of Dow Jones, the parent of the WSJ and the three months following. Its finding was unambiguous:
In the first three months of Murdoch’s stewardship, the Journal’s front page has clearly shifted focus, de-emphasizing business coverage that was the franchise, while placing much more emphasis on domestic politics and devoting more attention to international issues.
The before and after change is most dramatic in several areas, as seen in PEJ’s chart I’ve cribbed here. Political news is up four fold, reflecting the intense coverage of the primaries that in the past election cycles would have received less space (if only because until recently the Journal rarely devoted more than a single front page column to any story). The full report at the Project’s Web site also compares the “new” Journal’s editorial mix with that of The New York Times, which Murdoch is keen compete with. There are still substantial differences, with the Journal devoting more of its front page to foreign topics, business and economics, less to politics.
Jack Shafer, writing at Slate’s Press Box last month, made note of the PEJ data, but chose to focus on his more generalized impression that the Journal may indeed be better under Murdoch because “it was swinging hard again in its traditional wheelhouse to produce great enterprise journalism.” He proceeds in identifying some examples, all, indeed quality reporting in which the Journal has long excelled.
This may be wishful thinking on Jack's part. I hope not. He has certainly identified some fine-- and traditional -- Journal pieces. But I'm speculating that perhaps they stand out because, as Jack notes, the primary season is over, and there had been no devastating earthquakes or cyclones for a few weeks, and the presidential campaign was in pre-convention simmer. Indeed, in the midst of these fine articles was the front page on June 4, as Obama wrapped up the Democrat's nomination. It struck me immediately as I picked up the Journal and The Boston Globe from the driveway that the Journal article was readily interchangeable with the Globe (and other dailies) articles. In my analysis, every day the Journal wastes newsprint with such headlines, photos and copy is a day lost to do the type of journalism Jack is rightly trumpeting.
I’ve mentioned before that I have great respect for Murdoch as a savvy businessman and as a risk taker who has made real contributions to the competitive landscape of the media.. My current critique is that the hot news approach is not a strategic direction that plays on the Journal’s long time strengths. To the contrary, it takes the paper on a path that daily newspapers should be trying to leave behind.
Ok. ‘Nuff said. I’ll leave this behind. If only Lou would move on from his obsession.
Most of what my colleagues and I write about in this space back in some way to the tsunami-scale scale changes overtaking the legacy media and the absence of a roadmap for what they should do. We can only track what seems to work for others, try to prognosticate the future (iffy beyond, say, six months), observe forces and trends at work, cajole and suggest.
There is, in short, much uncertainty surrounding where the business models for media are and should be headed.
One area that legacy media can control and should know something about is content. Newspapers, broadcasters, publishers of all stripes, have absolute control over their content. Newspaper publishers constantly need to ask themselves “What do consumers want when they subscribe or take $.50 (or $1.00) out of their purses/pockets to buy the publication. Broadcasters certainly ask, ‘Why should viewers tune us in?”
But I’m constantly amazed at their lack of insight and therefore the choices they make. And here I’m referring in particular to the broadly defined “news” segment of the media. Research shows that there has been a range of motivations that are involved in getting individuals to buy a newspaper or tune in a news program—or click to a Web site bookmark. One of the top motivating factors is the interest in learning what we do not know. What happened in the world while I slept? Who won the game last night? What is the weather forecast for tomorrow? What did my stocks close at? What does some “expert” think about a new movie or show? Surprise me!
What we don’t need the news media for is to be told what we already know. The Internet has, of course, made it possible for more people to know more of the answers to the above types of questions before they are available in print or even on a regularly scheduled broadcast. Still, there are many things we know even without the Internet. For example, most of use know if it is hot outside. Or wet or windy or cold. We look out the window or open the door. Anyone who drives a car knows the price of gasoline. Anyone who flies knows the airports are crowded and lines at Thanksgiving are long.
So where am I going with this rant? I’m astounded—and hopefully some of you are as well—at how the editors of news media shoot themselves in the foot everyday with the non-compelling nature of their many of their content decisions. For example, most days I turn on “American Morning” on CNN, even before the computer is fired up. And what do I hear, at length, each day lately? A business reporter, Ali Velchi, telling us the price of gasoline. “Pain at the pump” is the not so original refrain. And the usual “B” roll of someone filling up, with the obligatory quote from the woman in the street who is driving less and someone who will give up their “gas guzzler.” And the anchors commiserating over the latest record. And a reiteration of where Lundburg or AAA thinks the price is going in the “peak driving season.” Compelling stuff, no? Maybe the “Today Show” isn’t so lame.
Not long ago I was asked by a small chain of newspapers to spend a few days with their editors in a session to help them understand and strategize for the challenges facing them. They sent me a large stack of their newspapers so I could get a flavor for them. In the sample were issues from several of the papers with a variation of the headline “It’s Hot Out There.” Immediately I created in my head what this would say. By the third paragraph it would quote some gardener about the heat and how he is coping with it. And sure enough, in the first article I read I was both pleased and disappointed with the copy. There, in the third graph, was a quote from Pedro something, with the Generic Landscape Co. “Yeah, it’s hot. So we start really early and quit by two o’clock,” he explained. I mentally patted myself on the back. But there was more disappointment that the article was so very predictable.
However, the larger point is that, with both CNN and these newspapers (and many others that could be included) that these prominent “stories” were not about news. They were what anyone knew.
In this space I have recently been critical of The Wall Street Journal for a new editorial approach that has often reduced prominence of analysis and surprise in favor of featuring in many cases material that most readers would already know: A who-what-where-when accounting of an earthquake. A routine summary of the previous night’s primary results (and, with its early deadline, less timely that what was in the local newspaper). It is telling readers what many, if not most, could be expected to learn from other media they are likely to have seen.
The legacy “news” media cannot materially change the trend toward whatever is coming via technology. But they can slow their demise by concentrating on the content of their products. And they can enhance the position of their digital products as well by providing audiences with the serendipity factor and with a value added quality that is needed to have users buying, tuning or clicking to their products. That has been the not-so-secret sauce behind the strength of The New York Times, USA Today, Fox News and, until recently, The Wall Street Journal. Give people what they don’t know, not the current weather or yesterday’s price of a gallon of petrol.
Sometimes less can be more. This is the implication of my colleague Dorian Benkoil’s thoughts here last week about how newspapers (and other legacy media) might position their Web-based content to optimize revenue over eyeballs. Special interest magazine publishers have long worked this way, charging far higher cost per thousand ad rates for Time Inc's Fortune for example, than for its People, as the former has more attractive demographics for many advertisers than the latter. So a far smaller circulation can bring in as much revenue and perhaps greater profit margins than more circulation and costs. This has been the economics behind many subject-focused cable TV channels as well.
Here’s another way to look at more by subtraction. David Pogue, a New York Times tech columnist who I find entertaining and quite informative, had a column last month about why a product can be a success even with acknowledged flaws. Referring to Apple’s Mac Air he wrote:
…When your laptop has the thickness and feel of a legal pad and starts up with the speed of a PalmPilot, it ceases to be a traditional laptop. It becomes something you whip open and shut for quick lookups, something you check while you're standing in line or at the airline counter, something you can use in places where hauling open a regular laptop (and waiting for it) would just be too much hassle.
It's the same lesson I learned when I reviewed the Flip "camcorder" a couple weeks ago: if you change the shape and concept of something enough, it ceases to be that thing. It becomes a new thing, or a descendant of that earlier thing. But it's no longer the original thing, and you can't judge it on the same yardstick.
Lesson learned: Form—the products attributes—can create the function. Thus an entrepreneur can break out of a well-defined category (camcorder, laptop, cell phone) by changing some key characteristics—weight, time to boot up, capabilities—even a dramatic new price point.
Does this insight provide any guidance for the media industry? Should the local newspaper continue trying to be a general interest publication even when online? Is it already something else, in which case it needs to be evaluated by a different metric (i.e., time spent, return visits) than what has been used in the past (i.e., hits or clicks or gross eyeballs or total page views)? Or, perhaps, should legacy media be creating new “things” based on the old? What is the media equivalent of the Mac Air or Flip camcorder: a product that is recognizable but, by changing—often removing—product attributes is used by consumers (and advertisers in this case) in new ways?
Experiments with short form videos—first popularized from the bottom up thanks to the YouTube platform—have now become mainstream with the traditional video programmers. Viacom purchased short film pioneer Atom Films in 2006. But most attention continues to be on finding outlets for conventional programming, such as NBC Universal/News Corp.’s Hulu.
If I had the answer I’d offer it (though probably not here—a guy’s got to feed his family, or in my case, start paying college tuition). But I think it is an area ripe for brainstorming and another round of informed trial and error.
Have you heard about the “Freemium” business model? It’s a label offered by James Governor Jared Lukin in a “name-that-model” contest proposed almost exactly two years ago in a post at A VC by Fred Wilson, a partner in a New York venture capital firm.
Wilson looked at many of the more successful Web ventures and observed that what they had in common was a basic service that they offered for free and a step-up premium service that they charged for.
The basic voice over IP service Skype, for example, lets users call anyone anywhere for no cost, so long as both the caller and callee are at broadband-connected computers. However, if you really want to be able to call anyone anywhere—that is, to a land line or cell phone -- there are per minute charges. Want voice mail? Upgrade to Skype Pro.
A wonderful service I use called LogMeIn employs a similar approach. It gives me access to my desktop computer from any other computer, anywhere. A free version lets me see all my directories and files and transfer them to my remote laptop. The upgraded version actually displays the screen of my desktop, with access to any program or file, as though it was on my remote computer.
There are many other examples.
But for the Freemium model to work, Wilson observed there are other characteristics that demarcated the more successful implementations and the others:
• Ideally, they don’t require any downloads or plug ins to start. Lots of exceptions here, but it is a helpful goal.
• Support every browser with any material market share. There is no excuse these days to be FireFox or Safari challenged
• Make sure the service works on various flavors of Windows, OSX, and Linux.
In short, he says, eliminate all barriers to the initial customer acquisition.
But unlike 30 day free trials before having to pay, a true Freemium experience ensures that whatever the customer gets day one for free they are always going to get for free. Nothing is more irritating to a potential customer than a “bait and switch.”
If Freemium is such a great approach, why wasn’t The New York Times’ foray into this model more successful? It gave away a basic service and, with Times Select, offered a premium upgrade.
Part of the answer (there is sometimes but not usually a silver bullet) may be that the model is most likely to succeed when the customer implicitly understands why the paid service has to cost money. Free e-mail accounts that offer greater storage for a fee. Termination cost on other carriers networks in the Skype model is explicit justification. In the case of TimesSelect, it would be obvious to most readers that arbitrary withholding of access to some portions of content was not related to significant costs. It may have made some sense as a “value” play, yet it clearly did not work. “But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results,” concludes Wilson.
The Freemium model was augmented one year later by another venture capitalist, Josh Kopelman. He has labeled his observation “The Penny Gap.” I recall meeting Kopelman when I was teaching at Temple University in Philadelphia. He had started Infonautics Corporation, the predecessor of today's High Beam Research, in the early Internet days. I assume from that he learned some lessons about offering a subscription service that gave users access to a wide range of magazines, journals, reference and newspaper material. (And that he was more successful with a subsequent venture, Half.com, acquired by eBay).
The Penny Gap says in essence that getting a user to go from free to any sort of payment, even a penny, is harder that getting a paying subscriber to pay more. Going from free to $1.00 is a much higher hurdle than from $1 to $2, even though the difference is the same. The Penny Gap is a disconnect with classical economic theory, which would hold that demand increases as the price decreases. As Kopelman illustrated in the accompany figure, getting users to make any financial commitment is the greater hurdle than the amount itself.
What does this say about the content-heavy online ventures of the legacy media business? In large measure it helps explain why they settled for the most part (well, except for The Wall Street Journal) on an advertiser supported Web model. From USA Today to Slate to The New York Times media sites have tried and failed to make a user pay model stick, despite offering some high grade content.
But by dissecting the successful non-media sites that have achieved a substantial user-pay component, could media firms find areas where they can truly find value added to justify a premium? I’m not optimistic. Two years ago I might have offered that a comprehensive ad-free video service could be sold at a premium. Recall CNN tried that with its Pipeline service, providing real time video streams and an archive of telecasts. It met many Freemium characteristics, including a presumption of additional cost for all the storage and bandwidth. Apparently Time Warner determined that more advertising revenue outweighed the subscription dollars. Hulu, the new NBC Universal-News Corporation joint venture, is all free, all the time. It has not made noises about offering paid-for premium content.
The bottom line is that as a generalization the media business may not get over the Penny Gap chasm. For those firms that have been on the electronic side, where advertiser supported has long been the total revenue stream, maintaining that model may be easiest to accept. For that segment of the print media that has been used to drawing at least some of its revenue from consumers, resigning itself to only advertising may be tougher. And perhaps a bit of a blow to its self-esteem.
While my colleague Dorian Benkoil has been writing about entrepreneurial journalism, I’ve been studying a slightly different universe, media entrepreneurs. In collaboration with Anne Hoag at Penn State, we have been seeking to learn whether media entrepreneurs are different than entrepreneurs in general. That is, does one go into the media business motivated by a different set of goals than other sorts of entrepreneurs, say, in restaurants or pharmaceuticals? And, more broadly, what is the state of media entrepreneurship today?
I first discussed this line of research in an entry a few years ago at my Who Owns the Media? Blog. More recently Anne and I have pursued this notions of media entrepreneurship and have made some encouraging findings about the vibrancy of bottom up media. This is, indeed, a phenomenon that was recognized in America's earlest days. In our most recent paper we note that
It was Frenchman Alexis de Toqueville who first observed in the 1830s the role of media entrepreneurship in the United States. In his second volume of Democracy in America, Toqueville identified the media entrepreneur (though not employing that term) as peculiar to American democracy in a passage titled, “On the Literature Industry.” He may well have been the first to recognize the inherent interdependencies among media, capitalism and democracy, noting that democracy creates a mass market for “literature” (Newspapers, books and a few magazines were then the only mass media) because citizens seek to be informed in order to participate in their democracy.
We characterize media entrepreneurship as “the creation and ownership of a small enterprise or organization whose activity adds at least one voice or innovation to the media marketplace. In her initial work, Anne found that in measuring the incidence of media entrepreneurship in comparison to other U.S. industries, media on the whole were at least as entrepreneurial, and often enjoyed greater rates of entrepreneurship.
In the most recent line of our research we undertook extensive interviews with 14 entrepreneurs who started media businesses. Though not any sort of statistical sample, we did strive to locate a diverse group of subjects. About half were involved in traditional media—newspapers, book publishing, cable and film—while the others were in some type of online media venture.
Although the entrepreneurs we interviewed have come to their media ventures by many different routes and are at different stages in life, there are some striking similarities in their motivations and attitudes toward entrepreneurship as well as their process for discovery and exploitation. In brief, they are hard pressed to recognize any particular barriers, regulatory, technological, structural or otherwise. And while they are working to make their ventures profitable, their first thought about being “successful” is often a reference to having an “impact” or having influence in some sphere.
From my point of view the most noteworthy insight was that this impact appears in two distinct forms. Some view running a media enterprise as more than just an entrepreneurial venture. The media’s power to influence, for this group, is a prime motivator for becoming an entrepreneur. Others exploited their media ideas for reasons similar to those of entrepreneurs in general. We refer to the former group as “missionaries” and the latter the “merchants” -- a potentially significant organizing concept for media entrepreneurship.
For example, typical of the of the missionaries are the comments of one interviewee who said that merely running a business, “holds absolutely no appeal to me…When you say that, I think of payroll taxes, balancing a cash register. When you say media, I think creative, influence, reach.” She added that a media business was appealing because “you can help people in the masses. There are very few other ways to do that."
A minority of those we spoke to we determined were “merchants.” In general, they responded that running a business, not necessarily a media business, was the motivating factor. Merchants talked about success and rewards in terms that could apply generically to any enterprise:
“It’s rewarding from a self fulfillment stand point that, hey, here’s a concept that I took….We brought it to the marketplace and made it successful. That’s, you know, part of it. There’s a real sense of fulfillment now the fact that we have people working for us. People depend on us for their livings. We're supporting other families, paying taxes and being good citizens. … There’s a satisfaction that comes from that."
The research supports the notion that prospects for new media players—and hence voices—is strong. Or at least there are many entrepreneurs who perceive great opportunity. Combined with our data that shows rapid growth in the number of media businesses overall, it bodes well for diversity of formats and sources of media-supplied content. Perhaps most encouraging is that these entrepreneurs barely recognize the existence of barriers to entry to the media business.
Mark Glaser calls the entrepreneurial acumen of journalists into question, but most start-ups fail, in any industry. He and others in comments give examples of those who’ve succeeded. This on the heels of Jeff Jarvis’ entrepreneurial journalism contest, which, if it works, will help seed a new generation of journalists not encumbered by the need to have a “job”. I’ve taken a fairly traditional route, myself, getting an MBA before becoming truly entrepreneurial. But then, I’m 1 or 2 generations away from most of the folks proposing projects to Jarvis’ contest.
There are a few advantages they have over some of the older folks like Dan Gilmor or Bill Scoble that Glaser sites as having failed, chiefly that they may not be as wedded to older ideas of what a journalist is or can be. They probably don’t think of “entrepreneurial journalism” as an oxymoron. Some may say that true journalism can’t be entrepreneurial, because a journalist should not have commercial concerns. (If you worry about whether to put an ad on your site, or where, that will affect how you display the content, for example.) And the anxiety of being laid off can be debilitating, while the sense of charting one’s own destiny and earning money from folks who are actually consuming the product, rather than an in-between entity, can be liberating.
There is something else that can be a challenge for many journalists: I’ve found successful entrepreneurs to be relentless optimists, skilled socially (at least when necessary), willing to make hard choices even when it’s not fair, and not being stopped by unfairness directed at them. Journalists, but contrast, are often a bit negatively oriented, and gripe about things that haven’t gone well -- newsrooms are full of, if not malcontents, certainly half-contents. Then, again, so are many workplaces. There is a such thing as a postive-minded journalist, and I hope entrepreneurial journalism isn’t an oxymoron.
That newspapers continue to lose advertising market share to the Internet is not a revelation. That newspapers are losing share of local advertising is a reason for concern. According to the latest tally, newspapers accounted for 43.7% of the local online advertising pie of $8.5 billion for the first 10 months of this year. This was down from a 44.1% share of a smaller total in 2004. The online revenue of local TV stations, on the other hand, did not decline so precipitously.
Local advertising traditionally has accounted for about 85% of total revenue for newspapers in larger market, even higher for small market newspapers. Local TV stations receive a far higher proportion of their revenue from spot national advertising, while radio stations have tended to be in between, though in most case closer to newspapers than TV. The primary local competitor for newspapers has historically been directories (e.g., Yellow Pages) and direct mail. Increasingly, cable has been able to siphon off local dollars with the capability to insert advertisements down to the neighborhood level.
What must be most unnerving to newspaper publishers and, to a lesser extent other local media players, is that pure play Web sites now have the largest share of local on-line advertising revenue—43.7% by the reckoning of Borrell Associates.
How can this be? Didn’t the publishers take solace in the fact that their local papers had a built in advantage over the upstarts thanks to their identification with the local market? And that all-critical brand equity?
It is becoming evident that the value of ad placement based on search terms, Zip code or Internet address proves more effective for the local advertiser even if the page viewed does not directly contain information that is congruent with the location of the user. That is, the value of the local newspaper or radio station has been that the advertiser had a high degree of confidence that anyone listening to that station or reading that paper was in their local trading area. But online the advertiser may not only be assured that the ad is placed in view of an individual within their target trading area, but may also have specific demographic or other characteristics desirable for that advertiser. Not to mention the added delight of knowing when an ad may have been seen and responded to in the form of a click or more.
Of course, this is true for the online site of any local medium. Too often, however, it seems that while the publisher’s sales force was working on convincing the paper’s current advertisers to try the online version, the new players had no such blinders. They were marketing to anyone, which often meant new service providers and merchants who had not been print advertisers: smaller in size but far greater in number. A version of the long tail effect. And that is where much of the growth is coming from. It’s not just old advertisers in new bottles.
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.
A poll conducted in May by Harris Interactive for INNOVATION International Media Consulting indicates that online news and information will supplant television network news as the leading news source over the next five years. But news from television in general (including from cable networks) should continue to be dominant. It also confirmed continued erosion of the role of newspapers, although by my interpretation of the findings newspapers may be in a position to benefit from the ascendency of online news if they can navigate some tricky shoals.
By the numbers
The poll, covering the U.S., Australia, UK, Spain, Germany, France and Italy, asked about media habits today, expectations about media sources in five years (always an “iffy” kind of question) and about attitudes towards newspapers, such as credibility, importance and image. You can see all the results here. I have focused today on just several pieces of data that I think most useful for publishers.
In the U.S., 39% of adults claimed to get most of their news from television, compared to 24% from newspapers and 18% online. By 2012, 37% respondents projected they still would be relying on television, newspapers down to 19% and online news sources up to 26%.
But the poll does not differentiate between online news that is provided by today’s newspaper publishers and that coming from a non-newspaper Web site. Much to its credit, the INNOVATION poll does follow up with this question:
“When most people think about ‘reading a newspaper’ today, do you think that they include the newspaper’s online news and information websites as part of the definition of reading the newspaper?”
Nearly half—49%-- said that they did not consider a newspaper’s online site as within the definition of “the newspaper.” Another 21%-- a large proportion—were unsure.
This finding raises some strategic uncertainty for newspaper publishers and editors. At this point, many consumers still consider the “newspaper” the physical product. So, for example, at the top of its main Web page it may say “The Philadelphia Inquirer” in the familiar Old English script, but it’s not the "newspaper” for these readers. It’s just online news. So should newspapers be focusing on transferring the newspaper’s brand to the online arena?
I don’t know, based on responses to another question that asks simply,
“Do you personally consider online news from a newspaper site to be as credible as the news printed in the newspaper?”
Two thirds of the adults in the U.S. agreed that credibility was equal to the printed paper, only 14% did not (the rest were undecided). However, this finding is undercut by what the same poll found in measuring the credibility adults place on the newspaper in the first place: On a scale of 0 (no credibility) to 100, the median was 57, a rather so-so vote of confidence. (It bested the publishers in the U.K., where newspapers only had a 50 score, but lagged Germany, where they garnered a median of 67).
Responses to another question also should raise a red flag. Given a list of reasons why the respondents might not read newspapers, 55% agreed that they are “Biased or too narrow of a viewpoint” in their reporting. And, consistent with the previous credibility score, 38% said they are “Not viewed as a credible or trustworthy source of news and information”
Implications for strategy
If the credibility of newspapers in the U.S. is so tepid and objectivity so questioned, then might not publishers be better off distancing their online product from their print products? If online news is viewed as a new or different product, should publishers try to present themselves to the pubic with a new brand? Something like what General Motors did with Saturn: Create its own identify, a fresh platform, a different business model. To some degree that has worked for GM and Saturn.
Another approach, also borrowing from the auto industry, is to create a new, perhaps high end product, as Toyota did successfully with Lexus. Instead of creating a Toyota model with more bells and whistles, it created a separately dealer network for a separate brand (sharing some components under the hood only). Might publishers want to keep their current print and online brands for the mass audience but establish new brands with distinctly new content and a different business model for the high (or low) end?
I’m not necessarily advocating for either one. But looking at this empirical data suggests that there there is a need for fresh thinking, for opportunities to be tested—and perhaps some swamps to be avoided.
[Full disclosure: I have occassionally been a consultant for INNOVATION.]
There have been a number of developments and announcements in recent weeks, which, individually, amount to little more than the now-normal background noise of the media business. But seen collectively, they add further arrows to the growing quiver of ammunition that the media landscape is continuing to sift beneath our feet.
For today, I want to highlight the data and analysis published last week by the media-centric private equity firm, Veronis, Suhlis & Stevenson (VSS) in its latest Communications Industry Forecast, covering through 2011. This has nuggets which, if accurate (this is a forecast) would bring to higher resolution the winners and losers in the media arena. For example, total spending on all communications grew substantially faster than GDP between 2001 and 2006. Furthermore, VSS predicts that communications industry spending will continue to grow faster than the overall economy through 2011, making it the third growing sector of the economy.
That’s some good news. On the other hand, the report finds that, for the first time since 1997, consumers spent less time with media in total last year than in the previous year. VSS believes this decrease, though small in percentage terms, is due to changing consumer behaviors and digital media efficiencies. “The drop in consumer media usage was driven by the continued migration of consumers to digital alternatives for news, information and entertainment, which require less time investment than their traditional media counterparts.” It continues: “Consumers typically watch broadcast or cable television at least 30 minutes per session while they spend as little as five to seven minutes viewing consumer-generated video clips online.”
VSS does not see this decrease as part of a long term trend, expecting consumer media usage to stabilize in 2007 and increase slightly through 2011. However, this would be driven by time spent with out-of-home media and videogames as the only major segments to achieve accelerating growth in this timeframe. Overall consumer time spent with media is forecast to increase at a compound rate of 0.5% from 2006 to 2011, down substantially to the 0.8% in the previous five-year period.
The real headline, however, is this prognostication: “In what would be a watershed moment in communications history, VSS predicts that Internet advertising – including pure-play websites and digital extensions of traditional media – will replace newspapers as the largest ad medium in 2011.”
I assume they mean that advertising in printed newspapers will be supplanted by advertising online—which includes the advertising that newspaper publishers generate from their online sites. Still it would be another stake in the heart of what once the biggest rooster in the barnyard.
But here’s another bombshell: “In addition to shifting their attention to alternative media, consumers are also migrating away from advertising-supported media, such as broadcast TV and newspapers, to consumer-supported platforms, such as cable TV and videogames.” Time spent with consumer-supported media grew at a compound rate of 19.8% from 2001 to 2006, while time spent with ad-supported media declined 6.3% in the period. This is not a measure of revenue but of consumer time spent. But with all the buzz about everyone moving to totally ad supported models (see Rebuilding Media’s latest foray into this space), this finding more than suggests that consumers are willing to part with their discretionary income for the right content or platform.
Another data point is found in a piece by Bobby White in The Wall Street Journal (sub. required). "Across the cable TV industry," writes White, "… independent channels are also turning away from TV to the Internet." Black Family History, The Lime Channel, The Employment and Career Channel, Horror Channel and HorseTV are among those that pulled the plug on their cable affiliation in favor a going Internet only.
“The shift illustrates how the Internet is offering a second chance to certain segments of old media. Web-based TV is now becoming a more viable business route, and Internet video is exploding. Running an online-only video channel, which doesn't require expensive cameras and broadcasting gear, is cheaper than operating a cable TV channel. While starting a new cable channel today takes an initial investment of $100 million to $200 million, a broadband channel needs just $5 million to $10 million to get going, says Boston-based research firm Broadband Directions.”
It’s a constant challenge when in the midst of change to separate trends from simple data points. One needs a series of data points over time that show direction. The Journal article may well be a data point that fits into the trends the VSS study provides. It seems though that enough data points are aggregating to confirm some direction with far reaching strategic implications for and broad array of players in the media industry.
Back in the early days of consumer online services one of the hot topics for prognosticators was the expectation of “disintermediation.” In brief, this referred to cutting out middlemen in the supply chain, such as stockbrokers between buyers and sellers of securities. Online services, then the Internet, they predicted, would make transactions more efficient by cutting out unneeded intermediaries.
Although talk about disintermediation has subsided and the predictions of some self proclaimed visionaries have not been fulfilled, the reality is that this phenomenon has in fact been operating and is picking up steam.
It is most clear in many financial transactions. Pre Internet I recall paying about $150 on average to buy or sell a stock. I’d have to call a broker, who would call me back later with the results of the order. And he or she got a hefty commission. Today, services such as eTrade, Fidelity and many others facilitate electronic orders that pass through them to the exchanges. Commissions have fallen to as low as $5 a trade.
eBay is a disintermediation vehicle for many types of transaction. About eight years ago, cleaning out the basement of the house where I was raised, I came across a stash of Playboy magazines dating from the early 1960s and Life magazines from the same era. My first reaction was to check on their value with some used magazine and book stores around. They, of course, would have bought them below the market rate so they could retail them for a profit. But I stumbled across this new eBay thing, listed them and sold them myself at “retail,” bypassing the intermediary. Moreover, I was able to reach a national (at the time) audience, while the local retailer had to base its price on a smaller, local market.
With its original direct to consumer business model, Dell disintermediated computer retailers. Paradoxically, HP has helped rejuvenate that channel and Dell has just this week acknowledged that it will sell through retailers. As I keep reminding my marketing students, the word “some” is a big word. Some people may like going direct, but some people still like to call a broker, go to Blockbuster, buy from Wal-Mart. For now, disintermediation is not an absolute—it’s an alternative.
The process continues. Netflix started the disintermediation of video rental stores—and will itself be bypassed by downloaded videos unless it is successful in becoming “one of them.” Much software is downloaded, not packaged, hence stores like Egghead and CompUSA have died or had to retrench.
Which bring us to the media world. The first high profile threat was Napster, which was the ultimate in disintermediation by allowing individuals to trade music with each other. After some fumbling, the recorded music industry has reached a degree of accommodation with the technology through iTunes and its competitors. Bye-bye Virgin Music Superstores, Tower Records and a host of others.
Newspapers have seen a portion of their high margin classified ads disintermediated by Craigslist and Monster.com. Why pay those high per word rates when you can reach more people, in a searchable format, than in the shrinking newspaper. Advertisers have learned about disintermediation as well. While banner ads have a third party middleman, Google’s AdSense or AdWords is far more efficient: pay only when used.
The legacy television networks are scrambling to prevent disintermediation. Postings of network shows on YouTube and the like were a threat to the networks and their local affiliates and had to be stopped. To one degree or another ABC, Fox NBC and CBS have elected to disintermediate their own local affiliates by allowing viewers to access many network shows online directly from their own Web site. Meanwhile, NBC has engaged in deals to distrubute its programming via numerous Web sites, as has CBS.
Disintermediation is not necessarily a losing proposition for the media industry. It’s just a matter of learning how to use it to its advantage. For example, last week the season finale of the popular TV series Grey’s Anatomy featured a soundtrack
by singer Ingrid Michaelson. Never heard of her? Not surprising, as she does not have a recording contract. She was found on MySpace by a firm that specializes in locating undiscovered talent (of which there is much) and using their works on TV shows and commercials for far less than it cost to license the music of established artists from a record label.
Because she does not have a record company contract, when one of her songs gets downloaded from iTunes, she pockets $.63 of the $.99 charge, compared to the 10 to 15 cents a major label artist gets sent. That amounts to $37,800 from the 60,000 times her songs have been downloaded. Ms. Michaelson has a gig she would likely have never had before MySpace, income in excess of what she would likely have earned from her music before iTunes. And ABC bolsters its profitability by a few dollars.
That’s the kind of creativity the newspaper industry needs as well. Disintermediation will ebb and flow. But the net will be more flow than ebb.
Fresh data that has surfaced over the past few weeks has reinforced previously observed trends in media advertising and usage. But they have also raised some red flags or sounded warning bells or whatever imagery you’d prefer. Yet amidst the downers there are some positive signs. The transition from legacy media formats to digital formats continues to show a mix of threats and opportunities.
First is the continued downward spiral of advertising in daily newspapers. Nothing new here. But the rate of decline may be accelerating. For the fourth quarter of 2006, total ad revenue at newspapers-- including online revenue-- was down 3.7% from the same period a year earlier.
This past February, individual newspapers and groups reported some dramatic year over year declines: USA Today down 14% while parent Gannett was down 3.8% overall. The Tribune Co. and McClatchy both reported 5% losses. The New York Times Co. was down 6% and The Wall Street Journal off by 10%. Even publishers of smaller city papers, where the losses have been more modest in the past, were afflicted. Media General, which publishes papers in Tampa, Richmond, VA and Winston-Salem, NC, was down almost 6%.
And this is in a period where advertising expenditures in general were reasonably robust. One can't attribute this to a recession. The New York Times reports that publishers “blamed the declines largely on the continuing shift of classified advertisers from print to online, especially to mostly free sites like Craig’s List. In some cases, particularly in Florida and California, they traced the weaknesses to volatile real estate markets.”
Meanwhile, one bright spot for newspapers, online advertising, is showing some signs of slowing as well. Online ad revenue, though up 31.5% for newspapers last year to $2.7 billion, still accounted for only 5.4% of newspaper ad expenditures. Most threatening is that newspapers are facing growing competition from other Web sites aimed at their local market strongholds. Google and Yahoo have already been offering key word search-related advertising that can be geared to local advertisers. But now other local media—TV and radio stations, city magazines—are beefing up their Web sites to help shore up their own advertising woes. Radio stations, faced with declining time spent listening are putting video on their Web sites, along with streaming audio of their programming, to attract larger audiences and selling local advertising.
Perhaps most ominously for all the local media is that the largest share of advertising as well as the fastest growing, are “pure play” sites. That is, they are not related to existing legacy media but exist solely on the Web. This might include Craig’s List as well as local news sites such as Buffalo Rising and Dallas’ Pegasus News. As seen in this table from Borrell Associates, about 38% of local online adverting goes to these nontraditional sites—and their share is rising.
There is a small note of good news. A Nielsen/NetRatings study (commissioned by the newspaper industry trade association), found that online visitors to newspapers Web site rose by 5.3% in the first quarter of this year. According to this source, that is the steepest quarterly rise since the numbers were first tracked in 2004. This translates to 59 million visitors to newspaper Web sites.
And another report that might lift the spirits of newspaper publishers came from the Poynter Institute last month. A study tracked the eye movement of 600 test subjects as they read whatever they wanted from their regular newspaper and their newspaper’s Web sites. The most relevant finding for here is that a much larger percentage of story text was read online than in print.
On average, online readers read 77% of what they chose to read, while broadsheet readers read an average of 62% and tabloid readers read an average of 57%.
Newspaper publisher McClatchy Co. has entered into an agreement to provide Yahoo with news and commentary from its staff. Initially it will be limited to material from just four foreign bureaus, but could expand.
With more than 36 million unique monthly visitors to Yahoo’s news site alone, the alliance gives McClatchy far more exposure than it gets through its newspaper (aggregate circulation about 3 million, readership maybe two times. Web site visits likely include some overlap with print readership).
This is just one of a string of recently announced deals between newspaper publishing companies and Yahoo and rival Google. It is the start of a realization that the core of the news business in the future for these folks is more news gathering and less news distribution.
It is part of an action plan (I would hope) among some legacy media companies more than others that it can no longer be business as usual in the digitally connected universe. Ken Goldstein, a analyst who concentrates on Canadian media, has a few illustrations that nicely captures how massive this change is, looking in this case at television.
Figure 1
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.
Earlier this year a thick volume was published with the descriptive, if uninspiring, title Handbook of Media Management and Economics. The editors of the Journal of Media Economics asked me to use a review of the book to expand on the state of the new field of media economics and management. I have posted the complete review at my Web site. In brief, what I wrote was that it is difficult—maybe impossible—to understand the dynamic of the media landscape today without some basic knowledge of economics in general and the micro economics of the media industry in particular.
For about 20 years I have been using a line with industry and academic audiences: “No newspaper ever went out of business for lack of content.” (The folks running the media know this). And the same applies to those who publish magazines and books, operate radio stations, cable networks and even Web sites.
The responsibility for that survival sits not only with management but with every employee in each enterprise. No matter whether the central mission of a particular media organization is news or information or entertainment, a piece of that mission statement needs to include something to the effect that its product must meet a need or want of some audience.
One of the editors and an author of the Handbook, Sylvia Chan-Olmstead, recounts in the Preface her experience at an academic mass communications conference, where a respondent to one student’s paper that had used media management theories “blasted her study.” The respondent’s argument was that the student should have relied on “serious” mass communication theories and left the “business stuff to the people from business schools.”
That respondent represents the “head in the sand” attitude that remains apparent among some journalists, “reform” advocates and even in some schools of communication. Think about it: For anyone who feels that the media have a special role in society and who wants those who control the media to take that mission into account in their decision-making, would it be best to leave it to “those folks in the business school” or to decision-makers who have been schooled in the ways of the media along with an understanding of how their industry functions and thrives?
Large publishing enterprises that grew along with the steam driven rotary press and the railroads did not fully take shape until the 20th century. The earliest substantive work I have found devoted to a media industry was O.H. Cheney’s Economic Survey of the Book Industry, published in 1931. In that landmark work he noted that management and control methods were inadequate, hazards and wastes were high, and the distribution system could not handle a reasonable volume profitably. Little, if anything, had change in that industry by the time I revisited the book publishing industry in a 1978 study.
Most early “research” of the media industry was in the form of histories, though with an occasional nod to the economic side of the business. James Playsted Woods subtitled his 1949 book Magazines in the United States “Their Social and Economic Influence.” When Alfred McClung Lee published The Daily Newspaper in America in 1947 he included sections on Ownership and Management as well as Chains and Associations. However, he had no research to refer to. For example, he described the acquisitions and divestitures occurring during the 1920s and 1930s at Hearst and Scripps-Howard, among others. He quoted the vice president of the Lindsay-Nunn chain, who said in 1930, “I think it is becoming more and more evident that it doesn’t matter who owns the newspaper as long as it is operated vigorously and fairly. The average reader doesn’t bother about the paper’s masthead.” Lee added “Good theories, perhaps.” But then he speculated with his own theory that perhaps readers do care about editorial policies.
That’s all that existed: speculation and assumptions. Thanks to research that started in the 1960s we now have real data, actionable information that tests the assertions and justification of the stakeholders, strategic planners and policy makers. Plans and policy based on rigorous data is far sounder than those based on opinion.
Today more of us understand that the media are businesses, even if run by a union, a not-for profit organization, or an employee-owned commune. And except for a handful of true idealists who don't mind living in their parent's basement (or come with their own trust funds or well paid spouses) the best people expect to be decently paid. They also expect reasonable travel budgets, resources and up-to-date equipment. That means they need to work for organizations whose income exceeds their expenses and keeps growing, the better to provide them with better wages and resources. Income must be generated to invest in new plant and equipment and to keep pace with old and new competitors.
Whether as journalists, film makers, MBA managers, media entrepreneurs, investment bankers or FCC staff, the capacity to understand developments in the media industry and analyze its activities will only become more challenging. Enhancing our understanding of media economics and applying it to media management is critical for a vigorous and thriving media arena. The coming of age of the disciplines of media management and economics is symbolized by the arrival of this Handbook and could not have been more timely. After all, no Web site ever went dark for lack of content.
Vin Crosbie
Dorian Benkoil
Bob Cauthorn
Ben Compaine
