Print-digital integration ‘sucked the life blood’ out of journalism’s future

This post originally appeared on The Media Briefing.

On both sides of the Atlantic, the newspaper business is experiencing its own episode of back to the future, reverting to a past when billionaire sugar daddies buy and prop up ailing titles.

The motivations sit on a continuum from a public service minded sense of noblesse oblige all the way to treating media as something akin to a US super-carrier, as the ultimate tool to project power. The new class of owners include former KGB agentshotel developershedgies and, of course, this week, Jeff ‘Vishnu’ Bezos, the creator and destroyer of retail business models.  

Historians will simply say, twas ever thus, and point to the fact that we’re merely returning to an older model of ownership. But could newspapers have responded to the digital tsunami in any other way than they did?  

The newspaper industry had a clarion call on how to respond to disruption, but like most disrupted industries, the industry has failed to adopt these strategies.

Newspapers are only the latest in a long line of industries that have been rocked by technological change. Clayton Christensen has studied hundreds of companies across a number of industries that have faced disruptive innovations, and in 1997, he wrote the Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.

Clark Gilbert is former professor of entrepreneurial management at Harvard Business School and began working with Christensen to apply the Innovator’s Dilemma to newspapers more than a decade ago in 2002. Unlike other industries, which simply did not see the disruption coming, newspapers recognised the threat posed by the internet, but Gilbert said, “Unfortunately, threat-induced response also leads to very rigid behavior.”

He added:

We found that despite recognizing the problem, most companies aggressively “crammed” the new business into the old business model and sales processes. For example, most newspapers tried to force their online sites to make money by selling the same types of advertising to their traditional print advertisers. The early online advertisers were different and the type of advertising they sought was much more focused around the interactive and direct targeting attributes of the new media.

Threat had motivated action, but it was resulting in an aggressive replication of the newspaper business. Newspapers had spent a ton of money, with little to show for it. In an effort to defend their core market from attack, newspaper companies were missing the new emerging market altogether.

More than a decade ago, Gilbert also had statistical evidence that should have been a warning to newspaper executives that digital-legacy integration was not the answer to their problems. In fact, it was exactly the wrong thing to do. He said:

In our large sample study, sites that separate their online organizations from the newspaper were more than twice as innovative than sites that remained integrated into the newspaper. More importantly, these sites gained 60 percent higher market penetration!

Fast forward to 2013. Three years ago, Gilbert left Harvard Business School to become the CEO of Deseret News. While on average US newspapers earn 17 percent of their revenue from digital, The Deseret News and Deseret Digital media earns 45 percent of their revenue from digital, according to the American Press Institute (API).

In April, I heard Gilbert speak at the International Symposium of Online Journalism in Austin about how he has applied the insights from the Innovator’s Dilemma to the Deseret News in Utah, and he laid out why integration was absolutely the wrong approach to disruption.

“In industries that are being disrupted, 9 percent of companies make it,” he said. Of the 9 percent that made it, 100 percent had set up a separate disruptive business unit.

Separate means:

  • A separate physical location.

  • Separate profit & loss.

  • Separate direct sales.

  • Separate content product and technology teams.

  • Separate management structure.

However, it is important to understand that while Gilbert says integration is a mistake, potentially a fatal one for your company, he is not simply advocating a digital first strategy. Key to his strategy is a dual transformation, creating a new disruptive digital company while also transforming the traditional print product.

In his transformation of the legacy print and broadcast business, he said that it is important to understand that in the age of digital media, generalists are not as  valuable as specialists. Local media should excel in this age, but instead they have suffered.

To help the newspaper find its USP, Gilbert used detailed market research to identify six core coverage areas. Yes, they slimmed down the legacy product, but they ploughed savings back into covering these six core areas that allowed them to create a differentiated product.

For the disruptive digital business, they are creating a company that looks beyond the twin revenue streams of advertising and paid content that dominate the income mix of most media companies.

“Its divisions include, but are not limited to, e-commerce, marketplace services, digital consulting and other emerging revenue streams in which tablets, mobile and social are integral parts,” the American Press Institute reported.  

Instead of one struggling company, Gilbert is trying to create two dynamic companies. They do meet, but he keeps the interaction at a minimum. Otherwise, the legacy business often “suck(s) the life out of” the digital disruptive business, he told the American Press Institute, adding, “You don’t get excellent from either if they’re integrated.”

Of course, the US isn’t alone in examples where splitting the legacy and digital business delivered better results. In fact, one of the pioneers is Scandinavia’s Schibsted. In 1999, it decided to split its digital divisions from its newspapers, and it has gone to build one of the most successful media companies in the world by building one of the most successful digital classified businesses in the world. With operations in 28 countries, US analyst Ken Doctor reported in February of last year that Schibsted earns 36 percent of its revenue from digital.

Looking at the recent newspaper buyouts by billionaires, the real question should be whether they will do the same thing as their previous owners, sinking millions into a disrupted business or whether they will heed Gilbert’s research and create a separate disruptive digital unit. Maybe that’s where Bezos will breath new life into the Post with a resurrected Post Digital. 

2 thoughts on “Print-digital integration ‘sucked the life blood’ out of journalism’s future

  1. Even if the solution were fool proof, funding an entirely digital branch will double administrative and management cost. Publications with depleting circulation and ad revenue might not have access that kind capital to fund two separate n ‘dynamic’ operations. Not unless they can attract a Slim or Bezo to fund the experiment.

  2. Subrat,
    There is a small point where the divisions or companies meet, and that is largely on the administrative point. Gilbert has looked at places where they can share those costs, but it is also key that they do not overlap so much that the legacy business can stifle the division operating in the disruptive space. In so many cases, the reflexes of those operating in the disrupted space are directly opposite to what they need to operate in the disruptive space.
    The solution isn’t full proof, nothing is. Gilbert says that separate operations are a “necessary but not sufficient” requirement for a company to navigate disruption. As I’ve said elsewhere, I worked for a company that had a separate digital division – Advance. Advance Publications and Advance Internet are the print and digital divisions for Conde Nast and Newhouse Newspapers. I worked for a year on a regional news website for Newhouse Newspapers. The separation didn’t spare the newspapers from the disruption in the industry. Newhouse is shifting to a three-day a week printing schedule, radically reducing headcount and making existing staff reapply for new more digitally focused jobs.
    If only nine percent of companies survive in a disrupted industry, it’s quite clear that most fail and that success is far from guaranteed.
    I’ll just say one more thing, I think what is key to Gilbert’s success is this idea of dual transformation. The print product needs to be rethought for a digital age as much as new digital products need to be created to operate in the disruptive market.

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