More on the earnings front, as A. H. Belo and Belo Corp recently announced their separate earnings. Both were poor at best. As most likely know, these companies were recently one, but decided separate into a company focused on newspapers and a company focused on television.
The cost for this split was over $4M, according to the Belo statement, and $20M dollars of tax needed to be paid thanks an accounting gain. That's some pretty significant cash to do what might have been possible through a tracking stock issue and management organization. The stock for both has declined considerably since the split, which is no surprise given the general industry malaise. One of the stated reasons was the large difference in the operations of the two divisions.
So what did they get for their money?
A newspaper company without any debt, which might be quite a boon in uncertain times. However, it loses the reach and sales staffs of the TV stations. In internet transitions, that might be a big mistake.
If you believe, as I do, that news and information will migrate further onto the Internet, there's much less difference between TV and newspaper. TV can translate scripts into stories, and newspaper sites have been shooting video. Add in the myriad consumer generated experiments and there's even less difference. Both serve the community in which they reside, and both seek to sell advertisements to local businesses. If anything the culture at a TV station is far more internet-like (read: FAST) than a newspaper. A TV station can scale up to broader internet scale, while it seems clear that newspapers will need to scale back over time to survive in the future.
I do think that the debt-free AHC will have far more runway than peer newspaper companies. It is my hope that they can use this to really get new business models going forward. However, I still feel that they missed an opportunity that was right in front of them by not utilizing the TV assets as a platform for internet growth.
Wednesday, April 30, 2008
Tuesday, April 29, 2008
The Danger of the Upsell
One of the hidden tactics of the newspaper industry is the upsell. The notion used to be that you could attract an advertiser with a basic package and then talk them into upgrades which didn't cost much more but delivered additional attention for the advertisers. It used to be little symbols and bold type in the classified section.
In recent years, this notion has translated to upselling advertisers to the online version. As tactics go, it was pretty easy money. Furthermore, by getting these advertisers to try online, they could be transitioned over time to the emerging model. It also made the sale easier, since online volume was much lower as a price point. It was more or less like buying a tie after getting an expensive suit, a fairly trivial addition that could make the first purchase better.
The danger, I believe, is being exposed in this model. Growth rates of newspaper internet properties are lagging far behind the growth rate of the internet as a whole. Media General reported a 3% decline in internet revenue (likely the worst of the bunch), and Lee reported a gain of 7.5%. eMarketer estimated that advertising on the internet as a whole would grow at greater than 20%.
In many ways this growth slowdown is related to an unhealthy reliance on this upsell. If the only people that purchase your product are going away, your potential market is getting ever smaller. Upselling requires adoption of print, which is clearly fading.
Online first advertisers are very different than print first advertisers. Online advertisers expect capabilities like behavioral targeting, profiling, re-marketing and click and action based models. Print advertisers buy reach. Upselling also taught the sales teams how to sell online reach as the primary metric, rather than efficacy or targeting. This will make the inevitable transition to online first sales even more traumatic. The sales team will be selling the wrong metric, to advertisers that are generally sophisticated about metrics.
The answer here is both simple and complicated. Training the sales force is one part of this, but the technology to sell advanced targeting is not always present. It is my guess that this is one of the main reasons behind Cox's announced purchase of Adify today. It's not only a play for the revenue, but can ad needed technology to the core product as well. Yahoo likely will be doing the same when it rolls out its platform to consortium members. Perhaps in the not too distant future, the web sales will be able to move beyond the upsell. Who knows, maybe print will be the upsell for web teams.
In recent years, this notion has translated to upselling advertisers to the online version. As tactics go, it was pretty easy money. Furthermore, by getting these advertisers to try online, they could be transitioned over time to the emerging model. It also made the sale easier, since online volume was much lower as a price point. It was more or less like buying a tie after getting an expensive suit, a fairly trivial addition that could make the first purchase better.
The danger, I believe, is being exposed in this model. Growth rates of newspaper internet properties are lagging far behind the growth rate of the internet as a whole. Media General reported a 3% decline in internet revenue (likely the worst of the bunch), and Lee reported a gain of 7.5%. eMarketer estimated that advertising on the internet as a whole would grow at greater than 20%.
In many ways this growth slowdown is related to an unhealthy reliance on this upsell. If the only people that purchase your product are going away, your potential market is getting ever smaller. Upselling requires adoption of print, which is clearly fading.
Online first advertisers are very different than print first advertisers. Online advertisers expect capabilities like behavioral targeting, profiling, re-marketing and click and action based models. Print advertisers buy reach. Upselling also taught the sales teams how to sell online reach as the primary metric, rather than efficacy or targeting. This will make the inevitable transition to online first sales even more traumatic. The sales team will be selling the wrong metric, to advertisers that are generally sophisticated about metrics.
The answer here is both simple and complicated. Training the sales force is one part of this, but the technology to sell advanced targeting is not always present. It is my guess that this is one of the main reasons behind Cox's announced purchase of Adify today. It's not only a play for the revenue, but can ad needed technology to the core product as well. Yahoo likely will be doing the same when it rolls out its platform to consortium members. Perhaps in the not too distant future, the web sales will be able to move beyond the upsell. Who knows, maybe print will be the upsell for web teams.
Tuesday, April 22, 2008
Earnings Season - GCI
Gannett reported generally awful earnings yesterday, but the stock finished the day slightly up. Much like every other newspaper company out there, the soft economy is taking its toll. Classifieds are tanking. They said all of the same things as everyone else.
However, there was one notable exception. USAToday revenue was up around 2%. Given the toils in the industry as a whole, that is a near miracle.
My thoughts on why they were able to pull this off:
1. USAtoday doesn't depend as much on classifieds. Since this is the area that's dying the fastest for most newspaper companies, a product built without dependence is bound to be stronger.
2. Local isn't as important as most newspaper companies think it is. With the massive suburbanization that has occurred, and the prevalence of national brands for so many facets of life, local is a bit of a myth. The Chili's in the suburbs of St. Louis have the same marketing needs as the ones in the suburbs of Portland. The national buy potential can be very valuable. That said, local is still the competitive advantage for most papers and I want to make the point that there is still something there, just not the "everything" that publishers want to believe.
3. A national footprint creates inherent diversification. If Florida and California are tanking, you can make it up in Chicago and Boston (or other places that seem to be doing well).
What can the average paper learn from this? Personally I believe that it comes back to the argument of being a window out from the community, more than a window on the community. With the local, local, local mantra its easy to forget that things do matter outside of the immediate community.
However, there was one notable exception. USAToday revenue was up around 2%. Given the toils in the industry as a whole, that is a near miracle.
My thoughts on why they were able to pull this off:
1. USAtoday doesn't depend as much on classifieds. Since this is the area that's dying the fastest for most newspaper companies, a product built without dependence is bound to be stronger.
2. Local isn't as important as most newspaper companies think it is. With the massive suburbanization that has occurred, and the prevalence of national brands for so many facets of life, local is a bit of a myth. The Chili's in the suburbs of St. Louis have the same marketing needs as the ones in the suburbs of Portland. The national buy potential can be very valuable. That said, local is still the competitive advantage for most papers and I want to make the point that there is still something there, just not the "everything" that publishers want to believe.
3. A national footprint creates inherent diversification. If Florida and California are tanking, you can make it up in Chicago and Boston (or other places that seem to be doing well).
What can the average paper learn from this? Personally I believe that it comes back to the argument of being a window out from the community, more than a window on the community. With the local, local, local mantra its easy to forget that things do matter outside of the immediate community.
Friday, April 18, 2008
Repurposing Content
One of the common strategies that comes up in regards to newspapers on the internet is that of re purposing content. The notion is the content currently produced for the newspaper can easily be placed into the new channel of the internet and it is all upside. This is an idea which I believe to be quite false and misguided.
The notion they should strive for is channel appropriate. The idioms and expectations of the various media are quite different. No one would take a TV news report's script and reprint it verbatim in the newspaper, but we just get the newspaper reprinted on the web.
There's a tone to a newspaper article. It is that of a definitive source. It will include all of the basics: Who, What, Where, How and Why. There is no reason to engage in a conversation about it, since most everything is right there. Loose ends are very bad, and opinion and bias are strongly discouraged.
Most good internet publishing is very different. It often uses one or more definitive sources. Links are often provided to the original source. It may not be complete. It may not pretend to know everything, so it invites conversation and comments. Loose ends are fine, since someone else may come along and tie them up. Opinion and bias rule the day. Personality is very important. Snark and sarcasm is frequent.
Certainly there are plenty of serious news sources out there on the internet, but I'll argue that the best "brands" in the space use a lot of what's in the previous paragraph.
To write for the internet "properly" takes resources. Like many of the commuter papers, it might be possible to edit the main news into the proper voice, but it takes people to do that.
There are signs of life here. CNN has tried posting bullet points for its stories to increase the speed of information and utility. Numerous newspapers have tried getting columnists and others to blog so they can take part in this. One of the most interesting recent endeavors is McClatchy's Star-Telegram in Fort Worth's effort at producing a young and humorous video called dafowo show (Short for Dallas-Fort Worth).
It's my opinion that the best efforts will have brands of their own. This may best emanate from commuter papers like Red Eye, or in entertainment portals. The url alone (http://redeye.chicagotribune.com/) of red eye should show that most papers don't agree. I believe that the best will use the resources of the paper to promote, but won't be too closely tied to the old guard's brand.
The notion they should strive for is channel appropriate. The idioms and expectations of the various media are quite different. No one would take a TV news report's script and reprint it verbatim in the newspaper, but we just get the newspaper reprinted on the web.
There's a tone to a newspaper article. It is that of a definitive source. It will include all of the basics: Who, What, Where, How and Why. There is no reason to engage in a conversation about it, since most everything is right there. Loose ends are very bad, and opinion and bias are strongly discouraged.
Most good internet publishing is very different. It often uses one or more definitive sources. Links are often provided to the original source. It may not be complete. It may not pretend to know everything, so it invites conversation and comments. Loose ends are fine, since someone else may come along and tie them up. Opinion and bias rule the day. Personality is very important. Snark and sarcasm is frequent.
Certainly there are plenty of serious news sources out there on the internet, but I'll argue that the best "brands" in the space use a lot of what's in the previous paragraph.
To write for the internet "properly" takes resources. Like many of the commuter papers, it might be possible to edit the main news into the proper voice, but it takes people to do that.
There are signs of life here. CNN has tried posting bullet points for its stories to increase the speed of information and utility. Numerous newspapers have tried getting columnists and others to blog so they can take part in this. One of the most interesting recent endeavors is McClatchy's Star-Telegram in Fort Worth's effort at producing a young and humorous video called dafowo show (Short for Dallas-Fort Worth).
It's my opinion that the best efforts will have brands of their own. This may best emanate from commuter papers like Red Eye, or in entertainment portals. The url alone (http://redeye.chicagotribune.com/) of red eye should show that most papers don't agree. I believe that the best will use the resources of the paper to promote, but won't be too closely tied to the old guard's brand.
NYT's latest strategy
I guess if you can't beat them join them....
SAI today had this post about NYT's efforts to gain more traffic from posting the most prurient of interests. A nasty divorce, and a video that exposes the husband's dark side.
What's most interesting to me is that the video in question has had over 2.6 M views so far. YouTube is kind enough tell you the top five sites that link to the video. Currently Four are aol articles, and one is comcast. Perhaps NYT is not getting credit for the traffic, but if they are, the impact is under 50,000 views.
That is not a whole lot of upside for the potential downside on the brand. I do think they handled the situation in a very New York Times way, commenting on how public formerly private matters have become in this era.
SAI today had this post about NYT's efforts to gain more traffic from posting the most prurient of interests. A nasty divorce, and a video that exposes the husband's dark side.
What's most interesting to me is that the video in question has had over 2.6 M views so far. YouTube is kind enough tell you the top five sites that link to the video. Currently Four are aol articles, and one is comcast. Perhaps NYT is not getting credit for the traffic, but if they are, the impact is under 50,000 views.
That is not a whole lot of upside for the potential downside on the brand. I do think they handled the situation in a very New York Times way, commenting on how public formerly private matters have become in this era.
Thursday, April 17, 2008
Media General Earnings
Media General reported earnings today. There is one very significant detail that should scare everyone interested in the future of newspapers as it relates to the Internet.
Their Internet revenues declined by 3.3 compared to a year ago.
Most newspapers have claimed the Internet as the "growth engine" for their future. This stall should be a stark wake up call to the fact that the growth engine still needs fuel and maintenance.
Yes MEG is heavily invested in Florida, and the market for real estate there is tanking. However, its nearly unfathomable that display and other efforts wouldn't make up for it.
In Bizarro world, the stock was up today...
Their Internet revenues declined by 3.3 compared to a year ago.
Most newspapers have claimed the Internet as the "growth engine" for their future. This stall should be a stark wake up call to the fact that the growth engine still needs fuel and maintenance.
Yes MEG is heavily invested in Florida, and the market for real estate there is tanking. However, its nearly unfathomable that display and other efforts wouldn't make up for it.
In Bizarro world, the stock was up today...
Tribune Conf Call - and sales
I've just spent some time listening to the investor conference call by Tribune. Since they're no longer public much of it is focused on success stories. The most amazing thing they have talked about is the pilot testing of sales changes. They noted how the sales staff is mostly compensated by salary, with a minor bonus component based upon performance.
It still amazes me that this will be met with shock throughout the industry. This is actually a dramatic shift, even if it seems like common sense that a seller will work harder if they share more in the upside.
The reason they noted was that publishers in the past implemented these systems as a method of cost control. When all they had to do was take orders, the "Sales" staff could have gotten expensive, so too much upside was a bad thing. Now that demand is down, the more important thing is to make sure that there is the proper incentive to push more products. If a sales person makes a lot of money, so what. The paper still makes more.
They want to align the sales with the customer more, to make sure they are delivering the value due to them. They have tried to compile a list of success stories that can be used for further sales.
I love it, with one notable exception. I think a retention incentive is very important. If sales is really going to align with the customer, they need to make sure they have as much incentive to serve the account as to sell it.
Before I started this blog, I would be one of the first that questioned the Zell purchase, not because of zell, but because of the leveraged nature of the transaction. What I forgot about was common sense is anything but common. Zell seems to be moving the team in the right direction, by running the company like an efficient business focused on the customer.
It still amazes me that this will be met with shock throughout the industry. This is actually a dramatic shift, even if it seems like common sense that a seller will work harder if they share more in the upside.
The reason they noted was that publishers in the past implemented these systems as a method of cost control. When all they had to do was take orders, the "Sales" staff could have gotten expensive, so too much upside was a bad thing. Now that demand is down, the more important thing is to make sure that there is the proper incentive to push more products. If a sales person makes a lot of money, so what. The paper still makes more.
They want to align the sales with the customer more, to make sure they are delivering the value due to them. They have tried to compile a list of success stories that can be used for further sales.
I love it, with one notable exception. I think a retention incentive is very important. If sales is really going to align with the customer, they need to make sure they have as much incentive to serve the account as to sell it.
Before I started this blog, I would be one of the first that questioned the Zell purchase, not because of zell, but because of the leveraged nature of the transaction. What I forgot about was common sense is anything but common. Zell seems to be moving the team in the right direction, by running the company like an efficient business focused on the customer.
Tuesday, April 15, 2008
Not Just Newspapers
Magazine Publishers today reported a significant decline in ad pages and spending. Much of this will be blamed on the economy, but I'm willing to bet many of the same rules apply. Like it or not the world is going to bite sized pieces of content and bundled media is at risk.
The worst affected of the bunch might be the Yellow Pages. I live in a condo with roughly 120 units. We had our allocation of the book delivered last week, and all were stacked up near the mailboxes. I would estimate that no more that 10 have been picked up, and the piles remain.
My condo might not be representative of greater society, but I'd be willing to guess that it portends the future.
The worst affected of the bunch might be the Yellow Pages. I live in a condo with roughly 120 units. We had our allocation of the book delivered last week, and all were stacked up near the mailboxes. I would estimate that no more that 10 have been picked up, and the piles remain.
My condo might not be representative of greater society, but I'd be willing to guess that it portends the future.
Monday, April 14, 2008
Debt vs. Equity
Rumors have begun to circulate about Journal Register's (JRC) fate over the past several days. Their stock has seen the bottom drop out of it. There are plenty of signs that things are going very wrong out there. Alan Mutter wrote an excellent piece about the issue, which I won't try to rehash here.
The main issue is a simple one, the company has a truckload of debt. Debt is hard - you simply can't miss payments without dire consequences. Equity on the other hand is soft. If you miss your estimates the stock might get crushed, but you can live to grow another day. This is a bit oversimplified, but the point is important. If a company wants to access additional capital for purchases or other growth purposes, it has two choices. Debt or Equity. If you are sure about your companies long term projections, debt is fine; but if you aren't, equity issuance is the way to go.
Equity is usually more "expensive" than debt, in more ways than one. Equity issuance will cost in terms of dilution of existing shareholders, who will suddenly own less of the company in which they invested. Equity dilutes the voting rights of existing shareholders as well, leaving them with less power than when they started.
All of the recent purchases of newspaper companies have been debt financed. The Tribune takeover, McClatchy's purchase of Knight Ridder, the purchase of the Philly Inquirer, and Journal Register's purchase of the Detroit suburban papers. All may be leaving their companies in a dire situation.
You would only do these sorts of buyouts if you believed that the long term situation was stable. Private equity funds will often buy companies in decline with the hope they can cut expenses faster than revenue declines. Otherwise, the risk is not only dilution, but bankruptcy. It would appear that the assumption of stability or the rate of decline was wrong.
Why would you make that assumption in the first place?
First - Newspaper CEO's want control. Many have the infamous dual class structure to assure that remain at the helm regardless of the situation. Anything that could jeopardize that is simply unacceptable. I would surmise that the value of control to them is frequently more compelling than the straight finance of the situation.
Second - Equity deals may not have been well received. Presumably, the selling faction here believed that the long term prospects for the industry were poor. Offering a portion of a bigger company that is still tied to the same industry really wouldn't make them any better off. It would have been like trading a broken Honda Civic for a broken Jaguar. Same situation, just more expensive to fix.
Third - I personally believe that the purchasing parties believe that the situation would "flatten" They believe that there will always be a demand for the printed newspaper and they could generate economies of scale from the purchase. This is the one that explains both the insider buys and the outsider buys. Given the data from last year, this may have been the most dangerous assumption of all.
Frequently the public CEOs will be questioned about why they remain public. They state access to capital markets as one of the reasons. Debt is available to public and private companies. We've stated that few, if any, buyouts will be done through equity. So what access are they buying exactly? Compensation through options and restricted stock units. A few hundred thousand share dilution per year is hardly noticed by most investors, but can be very valuable to individuals granted these bonuses. Cynical, I know, but an observation that I can't explain any other way...
Unlike most of my other postings, I really don't have any good advice here. This is a bed that was made, and its going to be very difficult to get out of. The only interesting investments that newspaper companies have made are those outside of the newspaper sector, and most of those are a mixed bag. Washington post has done very well with Kaplan, but NYT has been mediocre with about.com. It's hard to run a venture fund with a public company, but Hearst has done fairly well investing with this philosophy as a private company.
The main issue is a simple one, the company has a truckload of debt. Debt is hard - you simply can't miss payments without dire consequences. Equity on the other hand is soft. If you miss your estimates the stock might get crushed, but you can live to grow another day. This is a bit oversimplified, but the point is important. If a company wants to access additional capital for purchases or other growth purposes, it has two choices. Debt or Equity. If you are sure about your companies long term projections, debt is fine; but if you aren't, equity issuance is the way to go.
Equity is usually more "expensive" than debt, in more ways than one. Equity issuance will cost in terms of dilution of existing shareholders, who will suddenly own less of the company in which they invested. Equity dilutes the voting rights of existing shareholders as well, leaving them with less power than when they started.
All of the recent purchases of newspaper companies have been debt financed. The Tribune takeover, McClatchy's purchase of Knight Ridder, the purchase of the Philly Inquirer, and Journal Register's purchase of the Detroit suburban papers. All may be leaving their companies in a dire situation.
You would only do these sorts of buyouts if you believed that the long term situation was stable. Private equity funds will often buy companies in decline with the hope they can cut expenses faster than revenue declines. Otherwise, the risk is not only dilution, but bankruptcy. It would appear that the assumption of stability or the rate of decline was wrong.
Why would you make that assumption in the first place?
First - Newspaper CEO's want control. Many have the infamous dual class structure to assure that remain at the helm regardless of the situation. Anything that could jeopardize that is simply unacceptable. I would surmise that the value of control to them is frequently more compelling than the straight finance of the situation.
Second - Equity deals may not have been well received. Presumably, the selling faction here believed that the long term prospects for the industry were poor. Offering a portion of a bigger company that is still tied to the same industry really wouldn't make them any better off. It would have been like trading a broken Honda Civic for a broken Jaguar. Same situation, just more expensive to fix.
Third - I personally believe that the purchasing parties believe that the situation would "flatten" They believe that there will always be a demand for the printed newspaper and they could generate economies of scale from the purchase. This is the one that explains both the insider buys and the outsider buys. Given the data from last year, this may have been the most dangerous assumption of all.
Frequently the public CEOs will be questioned about why they remain public. They state access to capital markets as one of the reasons. Debt is available to public and private companies. We've stated that few, if any, buyouts will be done through equity. So what access are they buying exactly? Compensation through options and restricted stock units. A few hundred thousand share dilution per year is hardly noticed by most investors, but can be very valuable to individuals granted these bonuses. Cynical, I know, but an observation that I can't explain any other way...
Unlike most of my other postings, I really don't have any good advice here. This is a bed that was made, and its going to be very difficult to get out of. The only interesting investments that newspaper companies have made are those outside of the newspaper sector, and most of those are a mixed bag. Washington post has done very well with Kaplan, but NYT has been mediocre with about.com. It's hard to run a venture fund with a public company, but Hearst has done fairly well investing with this philosophy as a private company.
Wednesday, April 9, 2008
Tragedy of the Commons?
This begins with the assertion that great journalism can create immense societal value. This isn't always easy to quantify, but if one uses the example of graft which results in inflated contracts on a local level, there's at least some sense of magnitude.
Imagine that a journalist exposes this situation. A local official grants a contract to a firm without proper purchasing protocol, resulting in millions of wasted dollars for a community. For arguments sake the estimated waste is $5M. Let's assume this occurs in a moderately large city, like an Atlanta or Phoenix. Just for ease of math, the population is around 5M people in the metro area. Under this circumstance, this expose just saved each man, woman, and child $1 of wasted tax dollars.
This argument sounds a lot like one that is made when journalists talk about how important they are to democracy. It fuels their drive to expose wrongs, and has lead to some great and honorable works.
The question on the table is: Who receives the monetary benefit for this effort?
In a "fair" world, some of the "savings" might be shared with the newspaper and journalist. These types of incentive systems exist in corporations who reward employee suggestions for cost savings with a portion of the savings. However, this system is entirely internal and the corporation is free to use such a system. The example we have used is funded publicly, so no such freedom exists. City governments are not (nor should they be) free to reward whistle blowers with a portion of this savings. This makes since since it would potentially encourage false expositions of wrong. For that matter even the reported story could be false, since it doesn't have the same due process of a trial or even a peer review.
Presumably, the populace each becomes one dollar richer because of this. If they had the option, would they reward the paper for this important work with a portion of their new found wealth. The answer is likely a resounding no. Simply put, they have no incentive to do so. Furthermore, the benefit is uncertain and difficult to prove. Waste is far more theoretical than cash in a person's hand. If asked, they would guess the benefit to be far less than the actual savings.
In some ways this is one of the reasons that people refuse to pay for news. Their perception is that any value created is difficult to measure, and thus worth less than it really is. This example is for a quantifiable benefit, so reporting on a car accident or sports team is that much more difficult to measure. Consumers are free to take the benefit and don't feel they need to pay it back.
They would also feel that the face value of the paper paid for a portion of the their benefit, and recognize the advertising component as part of their payment as well, even if they know they didn't pay for it directly.
True investigatory journalism is very expensive. Facts need to be checked very well to avoid lawsuits. The company exposed in our example is likely to lose far more than the excess price in its contract, they may be barred entirely from doing business with the city. Any holes in the story will be an excuse to sue the newspaper for its perceived losses.
So if consumers don't value it enough, and its expensive to do; why do it at all? Certain companies look at this as part of their civic duty, but it's not hard to reduce it to deminimus nonetheless. Its far cheaper to republish wire stores that are interesting and edit slightly for local content than spend weeks or months working on a story that could get your paper sued. It's cheap to follow police reports and press clippings.
As revenues decline, the most expensive items will get cut first. Unfortunately for society, that is often the stories that deliver the most value. When journalists complain about the cuts - they often miss out on this part. I don't need to read yet another review of the latest movie from the "local" perspective, I need to make sure that my political system is responsible. These exposes are often very compelling pieces and examples of bold and brave storytelling. What's left as the investigations are limited is bland and generic. This is true commodity news and exactly the type of stuff that can be found EVERYWHERE on the internet.
The places that seem to be picking up on this lack of ... um... gravitas are places like the alternative press. They often produce one or two stories a week, and don't have to appeal to the same broad demographic as the main paper. The limited deadlines make the pressure to produce a daily update much lower, and instead they can focus on longer and bigger. Blogs have also been active in this area, but with a few exceptions, are rarely taken as seriously as mainstream press.
Newspapers need to get back to telling the stories that matter with bravery. It is the unique and valuable story that get people to pick the thing up in the first place. Even if consumers don't think they want to pay for it, this value creation is one of the key drivers of consumption.
Imagine that a journalist exposes this situation. A local official grants a contract to a firm without proper purchasing protocol, resulting in millions of wasted dollars for a community. For arguments sake the estimated waste is $5M. Let's assume this occurs in a moderately large city, like an Atlanta or Phoenix. Just for ease of math, the population is around 5M people in the metro area. Under this circumstance, this expose just saved each man, woman, and child $1 of wasted tax dollars.
This argument sounds a lot like one that is made when journalists talk about how important they are to democracy. It fuels their drive to expose wrongs, and has lead to some great and honorable works.
The question on the table is: Who receives the monetary benefit for this effort?
In a "fair" world, some of the "savings" might be shared with the newspaper and journalist. These types of incentive systems exist in corporations who reward employee suggestions for cost savings with a portion of the savings. However, this system is entirely internal and the corporation is free to use such a system. The example we have used is funded publicly, so no such freedom exists. City governments are not (nor should they be) free to reward whistle blowers with a portion of this savings. This makes since since it would potentially encourage false expositions of wrong. For that matter even the reported story could be false, since it doesn't have the same due process of a trial or even a peer review.
Presumably, the populace each becomes one dollar richer because of this. If they had the option, would they reward the paper for this important work with a portion of their new found wealth. The answer is likely a resounding no. Simply put, they have no incentive to do so. Furthermore, the benefit is uncertain and difficult to prove. Waste is far more theoretical than cash in a person's hand. If asked, they would guess the benefit to be far less than the actual savings.
In some ways this is one of the reasons that people refuse to pay for news. Their perception is that any value created is difficult to measure, and thus worth less than it really is. This example is for a quantifiable benefit, so reporting on a car accident or sports team is that much more difficult to measure. Consumers are free to take the benefit and don't feel they need to pay it back.
They would also feel that the face value of the paper paid for a portion of the their benefit, and recognize the advertising component as part of their payment as well, even if they know they didn't pay for it directly.
True investigatory journalism is very expensive. Facts need to be checked very well to avoid lawsuits. The company exposed in our example is likely to lose far more than the excess price in its contract, they may be barred entirely from doing business with the city. Any holes in the story will be an excuse to sue the newspaper for its perceived losses.
So if consumers don't value it enough, and its expensive to do; why do it at all? Certain companies look at this as part of their civic duty, but it's not hard to reduce it to deminimus nonetheless. Its far cheaper to republish wire stores that are interesting and edit slightly for local content than spend weeks or months working on a story that could get your paper sued. It's cheap to follow police reports and press clippings.
As revenues decline, the most expensive items will get cut first. Unfortunately for society, that is often the stories that deliver the most value. When journalists complain about the cuts - they often miss out on this part. I don't need to read yet another review of the latest movie from the "local" perspective, I need to make sure that my political system is responsible. These exposes are often very compelling pieces and examples of bold and brave storytelling. What's left as the investigations are limited is bland and generic. This is true commodity news and exactly the type of stuff that can be found EVERYWHERE on the internet.
The places that seem to be picking up on this lack of ... um... gravitas are places like the alternative press. They often produce one or two stories a week, and don't have to appeal to the same broad demographic as the main paper. The limited deadlines make the pressure to produce a daily update much lower, and instead they can focus on longer and bigger. Blogs have also been active in this area, but with a few exceptions, are rarely taken as seriously as mainstream press.
Newspapers need to get back to telling the stories that matter with bravery. It is the unique and valuable story that get people to pick the thing up in the first place. Even if consumers don't think they want to pay for it, this value creation is one of the key drivers of consumption.
Tuesday, April 8, 2008
Audience Matters
This may be the most basic of arguments, but somehow it is lost at times within the industry. Nothing happens without an audience. It is the product that we sell. The newspaper and related websites are merely channels to reach that audience, nothing more.
However, I have actually heard that we need to develop products that don't depend on audience.
Huh?
It's similar to wanting to develop products without customers.
What media sells is access to its audience, plain and simple. We have been honored with a bit of attention and we sell a portion of that to willing parties. Advertisers expect this exchange of value.
To develop without audience is a fundamental disconnect from the value that our clients are buying. This mentality is disingenuous at best, and extortionate at worst. It smacks of self importance and entitlement.
Audience matters, and its our job to go out and *earn* it every day.
However, I have actually heard that we need to develop products that don't depend on audience.
Huh?
It's similar to wanting to develop products without customers.
What media sells is access to its audience, plain and simple. We have been honored with a bit of attention and we sell a portion of that to willing parties. Advertisers expect this exchange of value.
To develop without audience is a fundamental disconnect from the value that our clients are buying. This mentality is disingenuous at best, and extortionate at worst. It smacks of self importance and entitlement.
Audience matters, and its our job to go out and *earn* it every day.
Friday, April 4, 2008
Craig and that darn List
Inevitably, when talking about the newspaper business, craigslist will be mentioned as one of the things "killing" the business. It's one of the things where the conventional wisdom is spot on... craigslist and others have killed classifieds.
Again the big question is why?
Simple economics supply some insight into the answer. Monopolies and imperfect competitive forms have some degree of pricing power. In the best cases they can drive significant surplus profits and consume much of the economic benefit created.
However in perfect competition, prices are driven down to marginal cost, the amount of money it takes to produce an incremental product. For properties like craigslist, that cost is pretty darn close to zero. They've chosen to charge in a few selected categories, but generally everything is still free on it for this very reason.
Newspapers saw this and tried to imitate. Even ebay has tried to imitate, but none has had the success of Craig. It is simply too late to imitate free. Craig's list has too much traffic for others to succeed in its wake. It is the gold standard for low priced stuff that doesn't ship very well. Appliances, furniture, rentals, "escorts," work from home jobs, services. Most of these products aren't worth $49.95 to list in the paper, but free is quite valuable. Furthermore, the traffic that is generated is very valuable. It's a self supporting loop. Audience comes for the listings, and the listings go to the sites with the most audience. Imitators are on the outside of this loop, and will find it very hard to break in.
The only answer is differentiation. When a product is unique, an element of pricing power returns. Ebay knows this well, as the auction model offers value which can increase the price for a seller. It works best in things that ship well: electronics, handbags, collectibles, etc... It also has the audience loop on its side, although there are some indications that it might be slipping slightly.
Newspapers are stuck in the middle. They can neither offer the national exposure and price maximization of eBay, nor the low budget experience combined with audience of Craigslist. They have been stuck trying to salvage the print product which seems futile at best. For all of its design flaws, craigslist is easier to use than printed classifieds.
I propose that newspapers learn to work with the two dominant players in the space. eBay has never figured out how to do local items that don't ship well, and newspapers could help here by creating local portals for the right categories. Furniture would be my first foray, and I believe that the newspaper should be a full service reseller of eBay's platform. Arrogance on both sides has prevented discussions, but that needs to end. Craigslist is in need of reputable services to post and sell items for them. Instead of selling space, newspapers should be selling this service, perhaps including credit card billing and safe exchange locations.
Again the big question is why?
Simple economics supply some insight into the answer. Monopolies and imperfect competitive forms have some degree of pricing power. In the best cases they can drive significant surplus profits and consume much of the economic benefit created.
However in perfect competition, prices are driven down to marginal cost, the amount of money it takes to produce an incremental product. For properties like craigslist, that cost is pretty darn close to zero. They've chosen to charge in a few selected categories, but generally everything is still free on it for this very reason.
Newspapers saw this and tried to imitate. Even ebay has tried to imitate, but none has had the success of Craig. It is simply too late to imitate free. Craig's list has too much traffic for others to succeed in its wake. It is the gold standard for low priced stuff that doesn't ship very well. Appliances, furniture, rentals, "escorts," work from home jobs, services. Most of these products aren't worth $49.95 to list in the paper, but free is quite valuable. Furthermore, the traffic that is generated is very valuable. It's a self supporting loop. Audience comes for the listings, and the listings go to the sites with the most audience. Imitators are on the outside of this loop, and will find it very hard to break in.
The only answer is differentiation. When a product is unique, an element of pricing power returns. Ebay knows this well, as the auction model offers value which can increase the price for a seller. It works best in things that ship well: electronics, handbags, collectibles, etc... It also has the audience loop on its side, although there are some indications that it might be slipping slightly.
Newspapers are stuck in the middle. They can neither offer the national exposure and price maximization of eBay, nor the low budget experience combined with audience of Craigslist. They have been stuck trying to salvage the print product which seems futile at best. For all of its design flaws, craigslist is easier to use than printed classifieds.
I propose that newspapers learn to work with the two dominant players in the space. eBay has never figured out how to do local items that don't ship well, and newspapers could help here by creating local portals for the right categories. Furniture would be my first foray, and I believe that the newspaper should be a full service reseller of eBay's platform. Arrogance on both sides has prevented discussions, but that needs to end. Craigslist is in need of reputable services to post and sell items for them. Instead of selling space, newspapers should be selling this service, perhaps including credit card billing and safe exchange locations.
Thursday, April 3, 2008
Tuesday, April 1, 2008
Monetizing Content
In the category of overused words by the media industry, monetized might top the list. The word is usually used in reference to getting the money out of a creative product. Content gets monetized by ads, subscription revenue, archive sales, product placement, and countless other ways. Entertainment content can add DVD sales and other direct sources of revenue.
For the printed product, its mostly ads and subscription revenue. More or less, subscription revenue covers the cost of printing and distribution. So the quick analysis says that the revenue from ads needs to cover the cost of content production. Journalists oppose anything that resembles product placement. Archive sales are limited at best in the news business. The "new" in news is very important, thus limiting the archival value.
So we're left with ads. Ads have the problem of monetizing indirectly. If you buy an entertainment DVD, you've bought the content directly. The same is true of a music track, or watching a movie. It has been pretty we established that people don't think they should have to pay for news online. Ads are all that are left.
In the printed version, there could be 500 or more ads in a large metro paper per day. Each one of those advertisers paid for the people that picked it up. Just as with the articles, there's only so many ads that will be relevant, but if every person finds even one its still probably ROI positive for the advertiser. They key is that you are potentially exposed to all 500 ads. Advertisers are willing to deal with the inefficiency, especially since it's still likely ROI positive.
As the previous post stated, the internet is much closer to an a la carte system. Users only consume the content they deem valuable. This likely limits the ad exposure to perhaps 10-20 for a visit. If the ratio of interest is similar, the chance that a user will see a relevant ad is very low. (1/500 x 20 = 4% of the time).
Newspaper companies answer has been to jam more and more ads on to a page in the hope that something will be of value to the consumer. Most homepages have enough action to cause seizures in sensitive individuals. The ads are more obvious, and more obnoxious. Needless to say, the consumer experience suffers as a result.
It is my position that this is precisely the wrong approach. There are two things that these companies need to do. The first is to make darn sure that the ads displayed to a user are relevant to them. This is the principle of targeting and takes both technology and a sophisticated sales force. The proper model is most likely a share of transaction, to create the proper incentives for both the advertiser and the media company. Each action is far more valuable than a mere impression. Facilitating the right person to see an ad now becomes paramount, but can drive tremendous value for both parties.
The second thing newspaper need to do is understand the a la carte world. Each and every article needs to work to grab a potential readers attention. At the end of each an every article, there should be recommended, related articles to deepen usage. The home pages should encourage discovery and exploration, not make the user want to avert their eyes in horror. The ideal would be dynamic, profile based publishing. This would be the notion of displaying to a user the articles most likely to be relevant to them, based upon their past and stated interests.
Neither of these are very easy to accomplish, but its one of very few ways to compete on the internet.
For the printed product, its mostly ads and subscription revenue. More or less, subscription revenue covers the cost of printing and distribution. So the quick analysis says that the revenue from ads needs to cover the cost of content production. Journalists oppose anything that resembles product placement. Archive sales are limited at best in the news business. The "new" in news is very important, thus limiting the archival value.
So we're left with ads. Ads have the problem of monetizing indirectly. If you buy an entertainment DVD, you've bought the content directly. The same is true of a music track, or watching a movie. It has been pretty we established that people don't think they should have to pay for news online. Ads are all that are left.
In the printed version, there could be 500 or more ads in a large metro paper per day. Each one of those advertisers paid for the people that picked it up. Just as with the articles, there's only so many ads that will be relevant, but if every person finds even one its still probably ROI positive for the advertiser. They key is that you are potentially exposed to all 500 ads. Advertisers are willing to deal with the inefficiency, especially since it's still likely ROI positive.
As the previous post stated, the internet is much closer to an a la carte system. Users only consume the content they deem valuable. This likely limits the ad exposure to perhaps 10-20 for a visit. If the ratio of interest is similar, the chance that a user will see a relevant ad is very low. (1/500 x 20 = 4% of the time).
Newspaper companies answer has been to jam more and more ads on to a page in the hope that something will be of value to the consumer. Most homepages have enough action to cause seizures in sensitive individuals. The ads are more obvious, and more obnoxious. Needless to say, the consumer experience suffers as a result.
It is my position that this is precisely the wrong approach. There are two things that these companies need to do. The first is to make darn sure that the ads displayed to a user are relevant to them. This is the principle of targeting and takes both technology and a sophisticated sales force. The proper model is most likely a share of transaction, to create the proper incentives for both the advertiser and the media company. Each action is far more valuable than a mere impression. Facilitating the right person to see an ad now becomes paramount, but can drive tremendous value for both parties.
The second thing newspaper need to do is understand the a la carte world. Each and every article needs to work to grab a potential readers attention. At the end of each an every article, there should be recommended, related articles to deepen usage. The home pages should encourage discovery and exploration, not make the user want to avert their eyes in horror. The ideal would be dynamic, profile based publishing. This would be the notion of displaying to a user the articles most likely to be relevant to them, based upon their past and stated interests.
Neither of these are very easy to accomplish, but its one of very few ways to compete on the internet.
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