Navigating the Future
A newspaper guy turned successful new-media entrepreneur says it's unlikely that one overarching new business model will emerge for journalism in the digital age. Instead, look for a collection of improvised arrangements based on the lucky alignment of buyers’ and sellers’ needs. And that's not necessarily a bad thing. Posted: Tue, Nov. 1 2010
By Larry Kramer
Larry Kramer (firstname.lastname@example.org) was the founder and CEO of CBS Marketwatch and was the first president of CBS Digital Media. A former editor of the San Francisco Examiner and assistant managing editor/Metro of the Washington Post, Kramer teaches media management at the S.I. Newhouse School of Public Communications at Syracuse University and is the author of the new book "C-scape: Conquer the Forces Changing Business Today," from which this article was adapted.
While nostalgia may nudge some of us to see the news media's present financial crisis as the chaotic collapse of a once great, solid and rational system, the truth is that the old business models that paid for traditional media were always jury-rigged, technology-specific accidents of history, based on delivering quirky and expensive materials to a captive audience. The entire system of television networks and local broadcast stations, for example, came about because television signals degrade in the air. To deliver the signal across the country, it was necessary to have many local broadcast stations to boost the signal, and each one provided some local programming and got the rest from the networks.
Similar arrangements held in other media for similar reasons, specifically the cost of physical delivery. The long-playing record album forced consumers to buy 10 or 12 songs when they might have wanted only a few, because no one could press a record for them with just the songs they wanted. Textbooks for many years had to be purchased whether the professor assigned the entire book or only a chapter, because no one could set up a new publishing company just to serve the needs of one class.
Newspapers were also constructed by a haphazard blending of differing interests. Consider a device that can 1) Tell you what happened yesterday, 2) Give you a list of everyone selling a used Mustang, and the price, 3) Show you glossy color photos of every item on sale at the department store tomorrow, 4) Give you the times for every movie playing in your county, 5) Give you a coupon to cut the price of eggs at your grocery store in half, 6) Tell your fortune, 7) Give you the agenda for the town zoning board meeting tomorrow night, 8) Advise you on stock investments, 9) Predict tomorrow's weather, 10) Handicap the baseball game being played by the home team tomorrow and 11) List every house in the county that is for sale.
Why on earth would you put all of those disparate things together? It most cases, people who bought the paper wanted one or two of these things, but not the rest. It was just a different one or two for each person. They were all brought together by the convenience of a single delivery system that brought it to a home or made it easier to acquire elsewhere. Small outlets, like newsstands and news racks, have a limited amount of display space. You can't put 20 different papers on every street corner.
Then came the Internet, the mother of all disintermediating technologies, making it possible for buyers and sellers to find each other without most middlemen. One by one, the Internet and other new delivery technologies broke the old supply chains across the media landscape.
In the news business, search engines broke the near-monopoly of the local newspaper, putting every English-language newspaper on the Web in competition with all the rest. Now, not only could consumers often get what they wanted from the paper without paying for the old delivery methods, they could choose among hundreds of different papers and cherry-pick the coverage they liked best, story by story. At the same time, many advertisers discovered that they too could get what they wanted without paying for paper, printing and trucks. Free advertising online replaced the classified advertising that had heavily supported the old newspaper business. It wasn't just Google that put newspapers' future in jeopardy; it was craigslist, too.
How will the news media rebuild their delivery-based business models? They won't. The captive audience has escaped. Consumers have little reason to pay for delivery that isn't digital anymore, and digital delivery doesn't create comparable monopolies to support content. In the transitional era,as Jeff Zucker, the president and CEO of NBC Universal, famously said, everyone in media is worried that in giving up the old analog delivery models for digital replacements, they will "end up trading analog dollars for digital pennies."
That's not just a problem for people who work in media. It's a problem for anyone with eyes and ears. The old system funded much of the content we love – not just great journalism but movies, music, television and literature. As those profits disappear, so does support for developing new ideas, art and entertainment. Our amazing new powers to access what's already out there tend to overshadow this problem, but despite bold online startups, most news still comes from newspaper journalists, and newspaper journalists are running out of jobs. New media have been cannibalizing the expensive original content once fed by the traditional media business model. The corpse won't last forever.
The hope has been that a new business model will be media's salvation. But if there is an all-purpose business model for media, no one has found it – and I don't believe anyone will. This pessimism is not because the business of media has hopelessly changed, but because in some ways it remains as it was. The business models for traditional media, such as the bundle of different sorts of advertising that kept newspapers profitable, were accidents that varied according to the specific medium – radio, remember, had no classified ads.
I believe the answer will be a patchwork of partial solutions specific to the kind of content being delivered, and the habits and preferences of the particular audience that wants it. Just as in the past, in the future there will be no one solid and rational system, but rather a collection of improvised arrangements based on lucky alignments of buyers' and sellers' needs.
And there's some good news here. Many people worry about how the large armies of journalists needed to provide the information so critical to a democratic society will be paid for. Some fear they will vanish. But it is very possible the future will bring about the salvation of strong, well-staffed newsrooms. By understanding their job – reporting and analyzing the news – future newsrooms will find themselves built around the audiences they serve, not the platforms they use. They will not be newspapers or TV news operations or radio newsrooms; they will be news organizations built around the content they cover. They will be financial news businesses, sports news businesses, political journals, and on and on. These operations will support multiple revenue streams from multiple platforms. Together, they can produce a great deal of revenue and finance those core news operations. And that is crucial.
To find arrangements that will enable them to survive and thrive, media organizations must shift their thinking and:
• Learn to make paying for content something that is in consumers' best interest. When Apple launched iTunes, the conventional wisdom held that "young people won't pay for music anymore," as they'd grown used to downloading it for free. And while iTunes hasn't solved all the problems of the music industry, it made paying for music cool again by offering a stylish "one-button" solution. (At the time, MP3 players were in part a way to show you were enough "in the know" to get your music for free.) Just as the Internet wasn't widely adopted until broadband connections eliminated the need to call your provider on a telephone modem and wait to be connected, the iPod and iTunes took downloading mainstream by making it easy to get content, easy to organize that content and easy to pay for it. (In the same way, millions now pay a monthly subscription fee for the ease of a digital video recorder such as TiVo, even though they could record the same shows for free on a VCR.)
In addition, the iPod's distinctive interface – the sleek player with its white earbuds, so different from the bulky CD Walkman – meant that you were paying not just for a more convenient technology but for a more attractive lifestyle choice. Women, especially, seemed more willing to be seen sporting an iPod than a CD Walkman. The decline of the old business models has brought producers and consumers closer together: They must engage in an ongoing negotiation about how content is going to get paid for and what would make paying for it feel worthwhile.
Some of this is a matter of education. Consumers are already paying in ways they don't realize – portions of cable and satellite subscription fees, as well as cell phone fees, go to creating the content that appears on those devices. Consumers pay for such networks as Lifetime, USA, CNN, Fox News Channel and the Golf Channel, but they don't know how much. It's just part of a bundled cable or satellite bill. Educating consumers on how accepting new business models will get them the high-quality content they want is as important as creating that content.
As the iPad starts to take hold, we are seeing early indications that consumers will pay for content from magazines that are being offered as digital single-copy sales. Only six months into the existence of the iPad, consumers are spending significant dollars for content on the tablet. Wired Magazine sold 105,000 downloads of its first digital edition. And even after the novelty wore off, it is now regularly selling more than 30,000 a month, at the same price as a print edition. According to Advertising Age, GQ is reporting more than 13,000 sales a month, and People magazine more than 10,000 a week. It's important to note that the technology to download single digital copies is still crude, but more important, with just eight million plus iPads out there, the vast majority of the population still can't get a digital download even if they wanted to. Neither CNN nor ESPN could exist when cable only reached eight million homes.
A glimpse into the next generation newspaper? Take a glance at the New York Post's iPad app. It gives the reader a healthy mix of news from the Post, presented with a look and feel similar to that of the newspaper but tweaked to be convenient to read on the iPad. Photos and photo layouts look even better on the iPad than they do in print or on most computers, as do many advertisements, because the publisher can control the art and design better on the tablet platform. Navigation is clean and easy. The first month it's free, but after that, the Post will be charging a subscription fee. I believe that I will be getting everything I want from the paper, so I am inclined to subscribe. Right now, I buy the Post at the newsstand when I can. I don't subscribe because I travel so much. Because the iPad subscription is portable, I can take it with me.
• Stop asking what new sales model will support the existing business and put offering high quality content first. And ask the key question: What sort of business organization will support sales of your content? I hear frequent discussion in the industry of what the New York Times can do to replace its past revenue stream. That gets part of the problem backward. The right question is whether high salaries for both journalists and executives, and impressive real estate, are needed to create and sell the best news content in the world. From the biggest conglomerate to the smallest startup, some version of this question applies to every business out there. Is a new cost structure part of what should be looked at?
Paywalls are an obvious solution to the problem of protecting the value of quality news and information. Several papers are trying different forms of paywalls, and the New York Times will implement a system next year in which users will be charged after they access a certain amount of material. It's too early to make definitive judgments about these initiatives, but we do have some facts. We are told that the Times of London, which went behind a very strict paywall, has lost about 90 percent of its online readership. At the same time, the Times says the new approach it has created a much higher level of conversation in reader postings. The paper believes it is building a more elite and exclusive audience, and that it is reinforcing the belief that at least its news isn't a mere commodity.
While both the Wall Street Journal and the Financial Times have shown steady and strong growth in subscription revenue, both live in one area that has always done a good job of placing value on its content: the financial sector. Still, each has several years of charging for news under its belt, and their revenue models are maturing.
• Take advantage of all the ways that the Internet and other digital technologies can lower expenses. Digital technologies have reduced costs and barriers to entry in every area. Whether a company is in the business of creating and selling text, images, audio, video or a multimedia hybrid, expenses have been dramatically lowered for those willing to give up some of their traditional methods. At the same time, the Internet makes available essentially cost-free content such as reader photos and video, blogs, wiki sources, customer evaluations and so forth.
For businesses in general, some of these provide free market research and quality assurance information. Does the product work? Would consumers buy more if the features were changed or the quality was improved? All this information is being offered for free to companies willing to listen. Businesses tend to become aware of amateur media when they become a threat: Kryptonite had to pay attention to YouTube when a now-famous video showed how to pick one of its bicycle locks with a ballpoint pen. But companies need to view amateur media not just as potential threats but as natural resources to be harvested, as many retail Web sites have done by encouraging customers to post reviews, which, when positive, build confidence in retailers' products. They can take advantage of the same freedoms and opportunities that the technical convergence offers consumers.
• Keep experimenting with business models. In any business, when it comes to collecting revenue there are only three basic flavors. Payment can be collected:
1) Unit by unit.
2) By longer-term subscription.
3) From advertisers.
These approaches can also be combined. You could buy the traditional newspaper both by subscription and at the newsstand, and it was bundled with various forms of advertising; in searching for content-based equivalents, it's necessary to experiment with many possible combinations and hybrids.
The fashion industry has always discounted high-end merchandise to clear out excess inventory. Yet if all that merchandise were offered at a discount online from the beginning, it would undercut full-price retail sales. Instead, a number of Web sites such as Gilt.com have sprung up to offer "sample sales" on the Internet in a carefully restricted way. One designer's merchandise goes on sale for a 36-hour period beginning at lunchtime. Customers who could never have reached the physical site of a sample sale at lunch can shop from their desks. And because the selection is limited to one designer and the period of the sale is so short, it's unlikely that this online discount shopping will undercut sales to customers who would go to the physical stores.
It's an example of a new online revenue stream based on the specific content and the specific habits of one group of consumers. For news organizations, it isn't enough to deliver the baseball game story and box score the day after the game. They have to send the real-time score to phones and mobile devices as soon as it's available, stream the managers' postgame press conference live onto iPads and phones, and show detailed video highlights as soon as available on the Web and on TV.
One of the most important things publishers own is information about their customers. Newspapers might take a page from the magazine world: Some magazines are starting to use their deep relationships with their customers to build a more lucrative relationship with their advertisers, one that helps the magazine benefit from additional business it might bring to the advertiser.
David Carey, now president of Hearst Magazines, gave me an example of this when he was still at Condé Nast as a group publisher a few months ago. He pointed to Condé Nast Traveler, a magazine that frequently designates five travel agents as experts on a given itinerary the magazine is writing about and provides the agents' contact information.
As a result, those travel agents can receive as much as $20 million to $30 million in bookings from customers whose trips were created by the magazine. But until recently, Condé Nast hasn't shared in that revenue. "The problem is," Carey says, "we're inspiring the consumption, but then we walk away from it because we don't want to seem conflicted. Meanwhile, publications are going out of business."
In much the same way search engines have broken down the traditional wall between journalism and marketing, they have also broken down the wall between journalism and direct sales. A single Web search might bring up the travel information a reader is seeking and specific offers for plane tickets and hotels for that itinerary.
The Wall Street Journal has used this thinking to create its own travel agency, which promotes trips "inspired by articles" in the paper. And both the Journal and the New York Times have created wine clubs to share in the revenue created by the consumption of wine recommended by their critics.
• Take advantage of traditionally strong content areas to keep and increase ad dollars. For local newspapers, that remains local news and information. Another hotbed of advertising support is likely to come from a category that has thus far been almost nonexistent on digital platforms: local advertising.
"We're in the early phases of seeing new products developed to serve the information needs of communities," says Merrill Brown, founding editor of MSNBC.com and now a media consultant involved in several local and hyperlocal news projects. "That effort is about to dramatically accelerate, because a wave of advertising dollars are now moving from traditional media to new local outlets."
Like news organizations struggling with the changes in the storytelling process wrought by new technologies, advertisers have had similar problems trying to figure out the best way to sell their own stories. But in the new digital world, advertisers have to behave like media companies, too.
"Advertisers are looking for new ways to reach local consumers with messages that go beyond search engines, and hundreds of millions of dollars in local markets will migrate to digital platforms over the next few years," Brown predicts.
The key to who will win the local information wars lies with the players who understand the need to serve their audiences with relevant news and advertising. By aligning the two, not in an inappropriate way, local news organizations will be serving their communities. By thinking of the convenience of the consumer, a publisher can juxtapose editorial content and promotional efforts by learning how to present both. Readers appreciate knowing the difference, but they also appreciate the convenience of having both in the same place.
When you search online for bars that have happy hours, it's OK to encounter a "First Drink Free" coupon from one of those watering holes, positioned alongside consumer reviews and rankings of the saloon. When researching places to eat and drink, consumers today look for the opinions and observations of other customers. A strong local media brand needs to deliver basic information (hours and prices), expert advice (quality of the food) and recommendations (from peers) in one place, along with advertising and promotion. Few can excel at all of that. Those with a head start in content and credibility just need to move quickly to capture that flag. They will need to label advertising and marketing content so they are not confused with editorial. New York's MenuPages iPhone app, for example, pulls content from sites like Grub Street (the magazine's food and restaurant blog), offers discounts on dinners and allows you to book a table.
Hyperlocal is "the sleeping giant of the media," according to Marketwatch.com media critic Jon Friedman. He believes this will be the next battleground for major media companies as they try to rebuild their flagging advertising revenue. As they max out the number of choices they are now giving their customers, they will instead use technology to drill down and get closer and more relevant by serving hyperlocal communities.
Several independent attempts to attack the hyperlocal market have already failed, unable to generate enough money to keep going. The local ones that are still in business are mostly nonprofits surviving on individual donations and foundation grants.
But "while foundation support and contributors have been enormously helpful in encouraging entrepreneurs to build exciting new local products, these aren't sustainable models," Brown says. "The secret to filling the void left by the shrinkage in the daily local newspaper and television markets is in the development of new tools to help advertisers engage with local consumers. The news and information industries need to focus on developing new ways to serve local businesses." • Steer clear of predictions and conventional wisdom, and instead experiment. Forecasts about which business models consumers will accept are often wrong. At one point "micropayments"―paying a few cents for a single article―were supposed to save the newspaper industry. But consumers couldn't be persuaded to pay for what they were already finding for free, and the World Wide Web Consortium halted its efforts to develop standards for micro transactions. At the same time, the subscription model for television was widely doubted, and many in television expected cable subscriptions to drop substantially during the recession of 2008; they didn't. Don't look for the one magic bullet. Instead, take a "beta" approach: Find as many promising ideas as you can, try them all and see what works in practice.
The biggest obstacles to finding viable new business models are not technological, they are mental. To one degree or another, we are all stuck in the old way of thinking – there is simply too much new out there to allow anyone to grasp the significance of each development. So we go on worrying about the future of newspapers, even though, as writer, consultant and new-media expert Clay Shirky puts it, "Society doesn't need newspapers. What we need is journalism." ###