Modernize Newspapers

The Disruption of Publishers & uncool annuities

I'd like to think that I'm gaining a pretty interesting perspective on the disruption of the publishing industry.  As I've pointed out before, I was instrumental in the conversion of Stratfor into a web publisher in 1999.  I got a crash course in Internet Advertising in 2002-2003.  I've been the tech editor of one book and the writer of a second book over the last two years, so I've met a lot of folks in the book business.  And over the last year, I've been talking with folks in the newspaper business at a variety of families, big and small.

I think Marc Andreesen had some great yet unrealistic comments in the recent TechCrunch article, "Burn the Boats".  Sure, most publishers need to make their businesses more Web friendly today and without delay.  But put yourself in the shoes of an executive at one of these companies... can you honestly say you'd ignore cash flows from legacy businesses?  Especially when those cash flows are 1) admittedly declining yet significant, and 2) the only thing you really have?

Newspapers, television, and book publishers are all the same -- just with different challenges. Their businesses are being modernized, but each has put systems in place to maximize old revenue while experimenting with ways of bringing in new revenue.  Some prioritize the old revenue more, others are more adventurous.  Some put more investment dollars into new businesses, some less.  Some treat new technology with great enthusiasm, others with suspicion.  Some are quicker to analyze the impact of new technology on the old business, and others are quicker to experiment. 

Just about all companies that go through this transition have one thing in common -- they're woefully uncool.  They're uncool because they do a lot of things to preserve the old business that outsiders and tech early adopters simply don't understand.  I've made the case before on this blog that Microsoft is one such business.  Although I didn't make these decisions at Microsoft, I had a pretty good idea of the problem Steve Ballmer and other execs faced every year when prioritizing investments.

Here's a hypothetical example.  Say Steve has $1 billion in discretionary investment dollars that he can deploy across a variety of businesses.  So he decides to host leaders of a variety of business units so they make their investment ask:

• Office -- $400 million for an advertising campaign in the BRIC countries in 2011 that will generate an incremental $1.5 billion in company revenue over the next 5 years.
• Windows -- spending an additional $300 million on anti-piracy technology and an advertising campaign will result in $1.2 billion in incremental company revenue over the next 4 years.
• Office Live -- $250 million needed over 5 years to create a new Web-based Office integration product.  Product will be revolutionary but will be given away for the first 3 years, followed by an anticipated $200 million/year annual business.
• Server and Tools -- $500 million needed to accelerate development of additional Windows Server, SQL Server and developer tools features necessary to help enterprises build better client applications.  Total estimated impact to Microsoft across all businesses is $400 million/year starting in 2014, and is needed to also preserve other parts of the Client business.
• Azure -- $550 million in additional server capacity to support the growing business.  Impact unknown -- an additional $100-$400m/year in revenue is expected.
• Mobile advertising -- $800 million for new mobile advertising business unit, mobile provider partnerships, advertising campaign, and rollout of new location-based advertising initiative to advertisers.  $400 million annual business is estimated by 2015.

For those of you keeping score in our hypothetical example, that's $2.8 billion in new investment asks with only $1b to spend.  There are requests across old businesses and new businesses.  Some asks are inherently more speculative, while others are more certain.  All decisions are not made in a vacuum -- there are pressures to bring predictable returns to investors while modernizing the business at the same time.  Saying "it's complicated" would be grossly underestimating the problem.

I think my hypothetical example is a lot more real than most people would like to admit.  Most executives at publishing companies -- newspapers, book publishers, and television -- are dealing with similar issues every day.  

Disruptors are sexy because they don't have to deal with legacy annuities.  They have a business vision and they need to execute on it and it alone more or less.

What incumbents lack in agility (because of those cash flows), they make up for with... well... those annuities.  Even in decline, those annuities are significant and thus can't be ignored.

I am not saying anything new when I say that the best executives and the publisher incumbents that win will be the ones who effectively balance the needs of their organizations.  Jump in to new technology too fast, and you'll diminish those annuities prematurely.  Jump in too late or let process overtake you, and you'll miss the wave.

So should publishers burn the boats as Marc Andreesen suggests?  Maybe not yet.  But it's time to hunt in the jungle because you may just be here awhile.

Hal Varian on newspaper economics

Interesting blog post from Hal Varian, Google's Chief Economist, on newspaper economics.

http://googlepublicpolicy.blogspot.com/2010/03/newspaper-economics-online-and-offline.html

Hal points out a few things that I 100% agree with:

• special interest local advertising was the bell cow for the newspaper business,
• people consume news and information on social nets, mobile devices, etc. more and more today,
• experimentation is key to helping newspapers survive and thrive in the 21st Century.

Google has been demonized by folks in the newspaper business for making audiences mobile and destroying newspaper brand loyalty.  While this has in fact happened, I don't know that it's fair to blame Google. These are trends that were bound to be realized with Internet technology.

Now Mr. Varian is certainly not a "disinterested" party.  But he does make good points here.  Newspapers must continue to push the envelope and experiment with new models.  It's a cultural problem that must be overcome -- and it's tougher in some local media companies than others.

Automatically Writing the Story?

I found this article from The Sports Economist very, very interesting.

In a nutshell, researchers have found a way to automatically scan a box score from a sporting event and write a recap about the game.

Now that's interesting, although I'm sure a lot of people in sports journalism don't find it too funny.

IT will set local media, newspapers free

Maybe I'm naive as someone who has built a career in the Internet, but I still don't understand a fundamental issue about local media.  IT departments at most local media companies are more often an afterthought than a strategic asset.  Local media has dealt with the Internet as a "necessary evil" instead of an opportunity for disruption.

The tech industry has examples of things that appear to be "out of left field."  Consider the case of Amazon -- originally founded as an online bookseller, they branched out into other retail products.  Then they did the unfathomable:  they launched Amazon Web Services to get into the application and data hosting/services business.  They didn't know where that business was headed, but they knew there was growth.  Google has launched a variety of experiments -- some fruitful like Google Docs and others not so successful.  But they're willingness to think expansively about their business is a major contributor to shareholder value and to serendipity that drives future growth.

I don't see similar experimentation yet in the local media business.  I am not sure if it is a lack of commitment, the lack of developer & IT business talent, or what.  But you'd think that there would be a few cases of major media companies tackling new challenges.

As a direct result, you've seen innovations from disruptors like Craigslist, match.com, eHarmony, Zillow, blogging, hyperlocal publications, Google (News) itself, and others.  None of them could take down a local media powerhouse, but collectively, they have the potential to take all the economic value once owned by the local newspaper.

So here's what I don't get...

If local media sees all this disruption coming from IT, why wouldn't local media treat IT as a STRATEGIC IMPERATIVE moving forward?

The Local Ad Sales Force of "Order Takers"

Pundits in/around the local media business have observed that local media advertising salespeople are "glorified order takers" who are not qualified, willing, or able to do anything more than sling print advertising.

Having met a few of these folks and their managers, I think it's a bit of a generalization.  Sure, a lot of people who have sold ads for many years are committed to doing business the way it has always been done.  But for every "old school" ad sales rep, there are probably 5 younger people in the organization who have the hunger to take on new products and services.

Why?  It's in some ways a generational gap.  Younger people are, by now, expert social media users unless they've been hiding under a rock for the last 4-5 years.  Many of their interactions are online.  Very few of them have the experience of getting news and information from print and not television and/or the Internet.  Remember, your 30 year old ad sales reps may have had the Internet for half their lives.

As time passes and we all experience media in new ways, we'll all gradually get more comfortable with modernized local content and advertising.  Advertisers and younger people in the ad sales force are already there.  When will you make the leap?

Merry Christmas everyone!

Evolution, not Revolution in the Newspaper Business

As we talk with partners, prospective investors, and other folks on the periphery of our business, we hear a consistent theme -- folks are skeptical of the future of the local media business.

Certainly, local media faces big challenges as we approach 2010.  Advances in the Web have taken away a number of core businesses like classifieds and personals, and a variety of new advertising opportunities have come about to dilute the importance of local media for reaching local audiences.  As such, many local media businesses are reducing staff, focusing on core competencies, and aggressively working *with* new technologies instead of against them to modernize.

One such trend that I think we'll see repeated is the move by the Dallas Morning News to reorganize around business segments.  Quoting further, "collaboration is expected to 'bring new products that consumers want to the market more rapidly.'"

Wow.  Think about that for a moment -- journalists and their management are now not just charged with producing good journalism, but also with thinking of their product more expansively and with more agility.

At one time, journalism as field was both closely guarded and sacrosanct -- it was defined as something very specific with rigid guidelines for what was and what was not permitted.  Perhaps social media, link sharing and the blogosphere have, as many have suggested, redefined journalism.

What I like about this reaction from the Dallas Morning News is that they've recognized that their product is more than just traditional journalism.  I'm sure we'll see a number of interesting advancements come out of this -- and I suspect other newsrooms will evolve similarly.

Many folks assume that the local media business is dead.  But remember, they do have great brand assets in every city.  They remain a primary and important influence in each community, and they're leading the way in keeping citizens of every local city and metropolitan area informed.  They're in flux right now, but they're going to emerge better, stronger, and much more competitive as they evolve in coming years.  Don't count them out.

Transforming Media - Part 2: Building a Technical Advantage

Last time, I presented the idea that media companies need to consider restructuring by offloading their internet business to a smaller, more agile company. Then what?

The second major piece of the restructuring puzzle is to develop a technical backbone that takes advantage of the company's strengths.

Media companies have two great advantages - local knowledge and local readership. Internet giants like Google and Yahoo are not going to develop first hand knowledge of your local area. They are in the business of organizing information, not understanding local culture. Learning what the people of Austin, Texas, like and want is not something you get from a computer. You get it by living and working in Austin.

Serving that local market in the Internet age will require different cost structures. Not everything that used to work will continue to work. Every dollar made from print adversing will not necessarily be replaced by a dollar of online advertising. In some cases, it may be a quarter, or a dime.

All hope is not lost, however. There will be new, innovative technologies that enable local businesses to connect with their customers. It started with simple banner and text ads, but innovation is not even close to stopping there.

Every twist on online advertising will require creative, quick thinkers who can develop software at breakneck paces. Some ideas will work. Most will fail. As a media company, youÕll need to place bets on new technologies early and often.

But how? Creating a strong technical team capable of cranking out advertising products at a pace more normally associated with a silicon valley startup is a massive challenge. I'd go as far as saying it's almost impossible for a large media company.

But what internet media companies can do (that most do very poorly today) is build a technical framework into which they can plug innovative products created by partners, whether those parters are Internet giants like Google, or 2 guys in a San Jose basement.

Some keys to successfully creating a flexible technical backdrop for a local media company:

• Forget about building websites and design. Extremely talented web-oriented graphic designers can be outsourced project by project. You'll get high quality, fresh designs without the overhead of full time employees.
• Concentrate on the boring stuff. The back-end systems are what matter. The goal is to make it simple and easy for your advertising and content product partners to integrate with your websites.
• Hire Internet people, not media people. Make no mistake - this technical transformation is not trivial - you will need lots of people on the cutting edge of technology to pull it off. Find a way to get them on board. Learn what motivates them and let them run. Hint - it's not money or ping pong tables.
• Single sign-on. It's a requirement - don't just ignore it and pretend it isn't. Nobody wants to sign into your newspaper website, and then also sign up with a different username for one of your partner's sites (which, by the way, might look just like yours). It's confusing, unnecessary, and a difficult problem to solve. But solve it.
• Manage your data. User lists and contact info will be fragmented throughout your organization if you follow this strategy. Things like opt-in status, unsubscribes, and mailing lists will be a nightmare to integrate manually. Automate this data integration. Again, it's a challenging task, but it has to be done. Data is too important and valuable to keep sectioned off in silos because "the system" couldn't handle it properly.
• Remove hurdles with flexible technology. Suppose an advertising product vendor wants to ask a consumer to sign up for a newsletter on your newspaper's signup page. Not only should this be possible, but the end result should be a disciplined flow of data, not a haphazard collection of incongruent lists. The answer to a request like this should always be "Yes, you can do that, but here are rules.",  not "The system can't do that." or "yeah, but we'd have to keep separate lists".
• Provide an API. Any reasonably competent software developer should be able to figure out how to build a product that integrates with your platform without talking to anyone at your company. That includes, signup, authentication, payment, permissions, unsubscribes - the whole nine yards.

The theme here is to be the glue that collects and stores the content and information that makes a media company valuable and outsource the details of the rapidly changing internet marketing world. If you do this, you will be able to create a process of rapid experimentation without having to bet the company on any one technology development effort.

It's going to be challenging, but whoever does this well will build a winning media company in the years to come.

Transforming Media: Part 1 -- Financing Creative Destruction

The future of the news industry, both print and television, is online. That doesn’t mean that people will not consume news while sitting on the couch or at the breakfast table. But that news may be displayed on a TV-like display or a digital print device like Amazon’s Kindle - not on paper or broadcast TV.

Traditional print and broadcast television will soon be relegated to the past. The writing is on the wall. You need not look any further than the financial statements of the major newspapers to see that this transformation is underway. Subscription revenues are falling, and internet ad revenue is a growing percentage of total ad revenue.

There is also good news in those financial statements. Internet revenues are today only a small percentage of total newspaper revenues. The lion’s share of the “creative destruction” is still ahead of us - and local media companies are sitting in a perfect spot to take advantage of that fact. But how?

Online advertising is an immature industry and changes rapidly. Old line media companies, often saddled with debt, do not. That has to change, and there are two components to that change - corporate transformation, and technical focus.

Many major media companies have lots of debt. With hard assets like printing operations and broadcast infrastructure, this debt makes sense. It maximizes the return on investment, and traditional print and broadcast media have been stable enough to support fairly aggressive financial leverage. That is about to change.

The online world is laden with risk - it is rapidly changing and unstable. This is not a good time to build up debt. Flexibility is the key to success.

So what is a media company to do? One strategy would be to spin off Internet related assets into a debt-free company. This is great for the newly created Internet media company- you get a smaller, more risk tolerant organization that is primed for growth into the new Internet media industry.

But what of the other side? The old broadcast and print company, now stripped of it’s higher growth Internet components, will be left with all of the pre-split debt. Unfortunately, this company will have to be managed as if it were going to disappear (or at least shrink dramatically). That means aggressive payment of debt and reduction of workforce as the market shrinks. It will be painful, but it’s the only choice. The alternative is bankruptcy and eventual liquidation.

Fortunately, there is still time for this. Broadcast and print are still producing significant revenues. There is still hope for an orderly contraction of a traditional media company, debt and all. I do not believe this window will remain open for very long. The more traditional advertising revenues decrease, the less likely it will be that a split like this will be viable. Once that window closes, it will be gone for good. Keeping the businesses together would exact a toll on the online business unit as it would be forced to operate in a print-dominated world as the company would be forced to cling to a declining  print-heavy revenue stream just to survive. 

The important concept here is to take the small and growing piece of the media business and put it into an environment where it can thrive while the option is still on the table.

Coming up next - part two of the transformation: building a technical backbone.

Murdoch, et al to Google: "We don't want you here"

Over the last few weeks, the idea of banning Google from crawling newspaper web sites has gathered steam.  It started with Rupert Murdoch who suggested that News Corp web sites would be blocked from Google's index.  Now MediaNews Group and A.H. Belo (which collectively control 11 of the top 100 newspapers in the US & other major media properties) are considering the same move, with rumblings that many more may follow suit.

At issue is a fundamental question that industry observers have asked for many years -- "is the traffic provided by Google a net positive or net negative for the newspaper business?"

But the question behind the question is more about monetization.  Should Google provide a free index of available news for given search terms... and should Google benefit on the backs of content and news providers?

Local newspaper and television web sites provide a service to the local community -- journalism that informs the community and provides a necessary check on government and other local authorities.

Similarly, Google aggregates news for the convenience of consumers.  It also provides local news outlets with traffic and exposure to people all over the world.  This traffic can be great for raw page view numbers and other metrics, but it's conversely also difficult for a local media outlet to monetize.  If a significant portion of traffic for a newspaper web site comes from other parts of the country or the world, it is bringing a wealth of people to the web site but very few of them are likely to respond to a local advertisement.

Therefore, it is good for reach but it also dilutes the advertising product that is intended for the local audience.  The numbers are there, but the performance of the advertising suffers, and local online ads are thus that much harder to sell.

I am personally torn on this one -- I see both sides of the argument.  I'm sure I'll comment more on this as time progresses.  But this move does tell us a few things today:

1. Newspapers want to take back control and ownership of their content.  Google is the first target, because they are generating obvious economic value from indexing news site content likely at the expense of newspapers.
2. Inclusion in search results has reduced newspaper and television web sites to dumb content machines, and leadership at major media outlets has taken notice.
3. Continued commoditization of newspaper content can't work long term for the media business.
4. New technologies, if not properly utilized and harnessed, will present a real threat to the media business.  Therefore, it is the job of big media to figure out where to limit new technologies and where to partner.

We've all heard the saying "if you can't beat 'em, join 'em."  I'm not saying this strategy can't work, but it's certainly a possibility that as a result, the news business will ultimately think opportunistically about working with Google.  This move is a first step towards one of two conclusions -- success or partnership.  Who knows where this is headed.

The News Comes to Us Now

If a newspaper makes a website and nobody sees it, does it exist?

 

It's hard to think up a piece of the journalism puzzle that isn't changing these days. Advertising revenue is shifting online, as are newspaper readers. Television viewers are no longer constrained by time - just as 24 hour news networks changed the 5:00 news, the internet has changed the 24 hour news networks.

 

The place where people go to get their news continues to evolve. What we used to read in a daily paper became what we saw on twice-daily TV news programs. Then we could turn on the TV at any time to get the news - the 24 networks basically repeat the same things every half hour or so. But why do that when the web is around - just fire up your browser and check out the news on the website with no waiting required.

 

Just when you thought the immediacy of news was tapped out, social media like Twitter and Facebook hit the scene. Consumers of news no longer need to go to a destination (TV, radio, newspaper, website) to keep current. The news comes to us now through our Twitter feed or facebook page with no effort requried.

 

Read that last sentence again - the news comes to us now.  The same could be said for advertising as well.

 

The problem that many news organizations are having is that they are not aggressive enough. Stop trying to get the people to come to you. You need to go to the people. Social media and web technologies allow you to do this. We are entering a hyper-competitive era in the news business, and it's not about to end any time soon. If you don't know the answer to the following questions, you need to find out fast:

• How many Facebook users are in your metropolitan area?
• How many people use Twitter in your city's downtown zip code?
• How many people receive Twitter messages from Barack Obama?
• How much does it cost for Barack Obama to send those messages?
• How much should an ad in a Twitter or Facebook stream cost?
• What is a Twitter account worth?

These questions are just a starting place. Look them over. Find the answers. You'll find they paint a picture of the future.