Journalism: Paid content and determining the cost of free

Anyone who reads this blog regularly will know that I’m a huge fan of NPR’s Planet Money programme. The show guides you through the arcana of finance and economics in a witty and accessible way. Recently, they rebroadcast a programme on the cost of free. In this case they were talking about free doughnuts and rumours of a longstanding grudge that US veterans have against the Red Cross. Planet Money’s Chana Joffe-Walt investigated, and sure enough, American vets do grumble about the Red Cross charging for their doughnuts. The story is a bit more complicated, and I don’t want to spoil the reveal, but the story illustrates in Planet Money’s own wonderful fashion the cost of free, or more precisely, the cost to businesses of charging for something that used to be free. In the case of the Red Cross, they still have trouble shifting the opinion of vets who once got doughnuts for free and then found themselves paying for them.

If consumers are used to one price and it changes, the change will seem more dramatic, according to economist Uri Simonsohn, who is interviewed in the piece. When that reference price is zero, consumers will have one of two reactions. They will either adjust their reference price, the price that they are accustomed to paying, or Simonsohn says a price change can be seen as a categorical change, a change in the relationship between the consumer and the organisation. Simonsohn compared this categorical change to akin if your parents charged you for a holiday meal. The Red Cross charging servicemen for doughnuts was send as a categorical change, and Joffe-Walt said that the servicemen felt betrayed by the change in price and the change in the relationship brought about by that price change.

Simonsohn says businesses make these massively damaging categorical mistakes when they start charging for things that “people don’t think are part of business”. For example, Delta Airlines made the mistake of charging to speak to agents over the telephone in the 1990s, and Planet Money host Alex Blumberg says that customers “freaked out” and were so furious that Delta were forced to reverse the decision. As Blumberg said at the top of the programme, “Free can backfire. When you take something that was free and give it a price, that is a highly a risky move.” When people view a change in their relationship with a business as categorical, their imagination starts to run wild. If a business is going to charge me for this previously free product or service, they ask, where will it end?

Some price changes, however, are accepted. People won’t stand for being charged to speak to an agent, but now many Americans and most Europeans flying on low-cost carriers have accepted paying for bags. The idea that they have to pay to move not only themselves but their baggage from one place to another makes sense, but paying someone to have a conversation, that doesn’t make sense at all.

So how can businesses, including news organisations, avoid making the mistake of a categorical change in what they charge? As Joffe-Walt says, news organisations like the New York Times are wrestling with this. Blumberg said that people can either view the New York Times as a newspaper, which they know they pay for, or they can view it in the online ‘information wants to be free’ category. “Avoid for charging for things that people would not describe as ‘hey, I got this for free’ because that mistake could be very hard to fix,” Blumberg said.

We are seeing a lot of experiments by news organisations who are trying to generate revenue from readers to help pay for journalism, but it’s important that publishers not try to charge  for things that their readers don’t see as part of the journalism business. Making a category change error could have serious ramifications, and many news organisations do not have the resilience left to survive such mistakes. The big challenge of paid content has been, and continues to be, in understanding what things (or, more often, what bundle of things), readers will pay for. Fortunately, we’re starting to figure out what works and, just as importantly, what doesn’t.

Advertising innovation is key to digital transformation at news organisations

When I heard that Canada’s La Presse had spent three years and $40m building its iPad app, my jaw dropped. It is one of the most expensive content development projects I have heard of, and my personal view is that such exorbitant development costs don’t make sense in the digital era. Of course, then I heard that La Presse wasn’t charging for its app or for the content, and I really couldn’t believe that this was a sane strategy.

I was not alone. Steve Faguy, a freelance journalist in Montreal, had much the same thoughts. However, Faguy landed an interview with Guy Crevier, the publisher of La Presse, about the project, and Crevier says that there is a method to their madness, a method which will very soon be tested.

Crevier says that he is very sceptical about the success of paid content strategies and believes that only a few large US and European papers with a vast offering of exclusive content, especially business content, will make paid content strategies work. Faguy quotes Crevier as comparing digital paid content to cancer treatments that merely delay the inevitable. This has led many newspapers to cut staff, which leads to a downward spiral of lower quality and lower readership.

Crevier also puts the $40m development costs in context:

“How much do you think it would cost me tomorrow morning to replace La Presse’s printing presses? It would cost me between $150 million and $200 million. And when I build a plant to print La Presse, I’m limited to 250,000 to 300,000 (copies) maximum. What does this money bring in future obligations? It brings me expenses of $100 million a year in paper, ink, trucks.”

Ok, that’s all fair enough for $40m is far cheaper than $300m. But how will the app generate enough revenue to pay for a staff of 200-plus journalists if the app and content are both free? The answer is premium ads. The app was designed to include special ad slots that La Presse hope they will be able to charge $16,000 for. In Faguy’s original critique of La Presse’s strategy, he highlighted a Radio Canada report that points out that this is much higher than other digital advertising in the Canadian market, and that the app doesn’t use standard digital ad formats so advertisers will need to do custom work to advertise in the app.

Raju Narisetti, Senior Vice President and Deputy Head of Strategy for the new News Corp, sounded a sceptical note on Twitter.

It is a bet-the-farm strategy, and one that requires that the app be a runaway success. I have to applaud La Presse in putting some thought and innovative effort into their future ad strategy. But will the audience be big enough and engagement be high enough to entice advertisers to pay the premium? We will have to see, but it will be a fascinating experiment.

La Presse’s experiment is just one of many now being run by different organisations, and this innovation, whether it is Buzzfeed’s native advertising play or Quartz’s novel in-stream advertising, is not only a good thing but an essential thing for the industry. Frédéric Filloux has an in-depth look at Quartz’s business/advertising model: it’s novel approach is bolstered by being in The Atlantic stable of print and digital publications, but the site has been able to attract very high value advertising. Filloux writes:

A year ago, the site started with four brands: Chevron, Boeing, Credit Suisse and Cadillac. Today, Quartz has more twenty advertisers from the same league. Unlike other multi-page websites, its one-scroll structure not only proposes a single format, but also re-creates scarcity.

The limited number of ad slots may create a cap for growth, but as he points out, Quartz is powering towards its break-even point ahead of schedule.

I’m a journalist, and I am thrilled to see a level of commercial innovation that we haven’t seen since the late 90s. I don’t think it will address all of the issues that journalism faces in the attention economy, but at least we’re starting to fight the good fight.

FT’s digital shift attempts to answer question: What does a newspaper do in the digital age?

The Financial Times has just announced a major shift that will see it move to single global print edition, deadlines driven by peak web viewing times and print stories that focus on context and added value of major stories of the day, according to The Guardian’s Roy Greenslade.

Roy said it appeared “to be the penultimate step towards becoming a digital-only publication”, and he quoted FT editor Lionel Barber as saying in a memo to staff:

The 1970s-style newspaper publishing process – making incremental changes to multiple editions through the night is dead. In future, our print product will derive from the web offering – not vice versa.

And Barber added:

journalists will publish stories to meet peak viewing times on the web rather than old print deadlines.

That doesn’t mean that the newspaper will be neglected or de-emphasised. Instead, it is a simple recognition that the format has to change to meet the needs of readers in a digital era. The paper will create pages that add context and value by helping make sense of “the most important issues of the day”.

Most newspaper organisations have not had the confidence to rethink print. They have focused their efforts on transforming digitally while doing little to change the print model. One leader, Clark Gilbert, president and CEO of Deseret News Publishing Co and Deseret Digital Media in the US, has been the leading proponent of a dual transformation that sees major changes at the ‘legacy’ print and broadcasting business as well as the creation of a new ‘disruptive’ digital business.

Between 2007 and 2010, the Deseret News saw their display advertising drop by 30 percent and their classified ad revenue collapse by 70 percent. Gilbert changes after joining the company in 2009 have stopped the death spiral. Digital revenue has grown by an average of 44 percent since 2010, but more than that, he grew print circulation, growing weekday circulation from 69,519 in 2011 to 91,638 in 2012 and Sunday circulation from 93,658 to 176,096, according to the Pew Research Center’s Journalism Project. On Sundays, the company has begun to print a national edition.

This print transformation has been almost entirely overlooked by the industry. The newspaper industry in the US has lost $40bn in revenue since 2007, but it hasn’t rethought newspapers, says US journalism revolutionary Clark Gilbert. At the International Symposium of Online Journalism in Austin in April, he said:

In a post-disruptive world, why would anyone pick up a paper at all? There are answers for that, but if an organisation is not asking that question, there is no future for that organisation.

This question of the place of a newspaper in a digital world needs to be asked and answered by more industry leaders. To answer this question, Gilbert follows the advice of his former Harvard Business School colleague, Clayton Christensen, author of the Innovator’s Dilemma. In the Innovator’s Dilemma, Christensen says that people have jobs that they want to do, and those jobs remain constant. What changes is how people do those jobs.

Like the FT, Gilbert believes that the newspaper of the future will have much more context and perspective. This isn’t opinion as much as it is analysis, content that makes sense of and explains events and information. This is content that relies on expertise and insight and moves the newspaper up the value chain; it will still be fresh the next morning after people know the breaking news from broadcast, digital and social media.

Print needs to change, and it is great to see that visionary leaders in the industry have the confidence to meet this challenge.

Aalto, Helsingin Sanomat: Super stats on digital subscribers and mobile from #wpe13

John Thompson of Journalism.co.uk has tweeted some great stats about paid content and mobile from World Publishing Expo 2013. In particular, a string of recent tweets highlight some fascinating numbers from Finland’s largest daily newspaper, Helsingin Sanomat.

The conversion figure, the stat that 42 percent of all subscribers pay for digital content, is pretty incredible, and I hope that John provides some more detail. With a lot of paid content strategies, you hope for between 5 to 10 percent conversion. How do they achieve that?

Journalism transformation: Break down silos and innovate strategically

News organisations are still facing a lot of challenges in 2013. Tribune newspapers is reportedly looking for $100 m in savings, which will probably mean more staff cuts. Gannett recently eliminated 200 jobs at its local newspapers. Reuters has been the focus of a lot of rather unflattering coverage of how it blew through an estimated $20 m on a consumer website revamp that failed to deliver a working website.

I don’t mean to be a “prophet of doom” to borrow a line from Charlie Beckett of the London School of Economics, but times are still tough. However, Charlie looks at some recent research to find out management strategies of news organisations that are successfully navigating this disruptive period and transforming themselves into multi-platform news providers. In a recent piece in inPublishing, Charlie says:

Recent research on the most progressive newsrooms says that the successful ones are those that combine commercial, technological and editorial management most closely. This is not just a case of slavishly following the money by following the clicks. Instead it is more a case of linking editorial tactics to a clear plan for revenue growth.

This reminds me of a conversation I had this week with my former editor at the BBC, Nic Newman. In the past, we had editorial, commercial and technical silos in news organisations, and we need a lot better coordination. There is a lot of discomfort from journalists about breaking down the wall between editorial and commercial, but I believe Charlie has found the right way of putting it. We have to link editorial strategy to revenue growth if we want to have sustainable, independent news organisations, and I think that there are a lot of ways to build the business of journalism to support the mission of journalism. However, as Nic says, we’ve all got to work together, commercial, technical and editorial.

Joy Mayer, the director of community outreach for the Columbia Missourian, the newspaper run by the faculty of the University of Missouri and staffed by journalists there, wrote a great piece on how to create editorial tactics that work. Speaking specifically about social media strategies, she says that to create an effective strategy, you need to ask three questions:

1. Why am I doing this?
2. What do I hope to happen? (Is your answer measurable or trackable?)
3. How will I track what works and use that feedback to craft future strategies?

With print, broadcast and digital strategies, we need to ask why we are doing something, and I think that this is really important in terms of opportunity costs. What is the cost of doing this as opposed to something else? Let’s stay on the topic of social media. This week there was quite a hullabaloo about Popular Science shutting off comments on all but a handful of debate focused articles. PopSci associate editor Dan Nosowitz said in a radio interview: “we think that the current form we have for comments wasn’t doing our readers much of a service”, according to a post on Poynter.

Let’s step back and look at a different way. What is the opportunity cost for PopSci of comments in their current form? What would it cost in terms of staffing to improve the experience? Is that staff time better spent elsewhere? Of course, I skipped to question two on Joy’s list. Going back to her first question: Why do they have comments in the first place? Is there a better way for them to achieve their goal another way? What are the metrics for success of this new strategy? If you answer the why question, you’ll be able to communicate more effectively to staff what they’re trying to achieve, and as an employee, I can remember examples when editors or managers helped me be more effective by giving me clear guidance. Yes, we want to experiment a lot, but we also need focus to be effective.

This is what transformational management looks like: Clear goals that achieve the journalistic mission and help generate revenue to support that mission.

NewsRewired 2013: Three things driving QZ.com’s journalism

Quartz, the newest member of The Atlantic Media network, launched in 2012, but by July, it already had 5 m users and said that it had already passed The Economist’s web traffic in the US and would soon pass the Financial Times, and Jay Lauf, the publisher of the site, kicked off Journalism.co.uk’s News Rewired 2013 talking about the strategy behind the site’s success.

Lauf started by saying that digital media need to ask: Where does your audience come from? Do they come to you directly, via search or social?

Direct: 10 to 15 percent of traffic – While it is nice to think that people come straight to your homepage, he compared that to the fanciful idea that his young daughter comes to him every night as he eats dinner and asks for his advice, any nuggets of wisdom he might impart. It’s a nice idea, but as every parent knows, this isn’t reality. Similarly, journalists believe that their audience online are coming to them directly to learn the news of the day. Even on big sites like CNN and the New York Times, direct traffic is only 10 to 15 percent of traffic. That leaves 85 percent of your traffic off the table, Lauf said.

Search: 25 percent and stalled – A couple of years ago, the focus on was on SEO. It was the search game, a game of trying to “trick the robots, writing for machines not audiences”. He said that some journalists were encouraged to misspell the names of celebrities so that these sites could capture the 50 percent of traffic from people who commonly misspelt those celebs’ names. “That leads to a lot of questions. What does this mean for the quality and intellectual honesty of journalism?” Lauf asked, adding that it was a “waning game”

From a business standpoint, he said that search traffic referrals have “flat-lined” at about 25 percent, so a focus on SEO still leaves a lot of traffic.

Social – sharing and ‘dark social’ – However, the rest is coming via sharing, either through social and sharing networks – Twitter, Facebook, Google+, Pininterest – or through ‘dark social’, simply sending links via IM or email.*

He said that we could all debate the value of the audience from these sources, but Lauf said that if a news site wasn’t winning with SYBAWs – smart, young and bored at work readers – they were dead. He said that media consumption had moved from pull (with the image of US newspaper sales box) to push (social media and mobile notifications).

Lauf summed up the new news consumer with the quote:

If the news is that important it will find me.

For Quartz, the question is how they get into these streams, these social streams that will SYBAWs are using to monitor news. They focus on three things:

Be visual “Embrace the fact that the web is a visual medium. Liberate content from the conventional constructions of the print world.”
What’s the thing? – Lauf said, that every story has a nugget, a data point, a new angle that gets to heart of something new and interesting. We love to share nuggets. “That doesn’t mean that story can’t widen, but think of headline first. Think of headline as a tweet. Will people share this? Will it travel?”
Radically simple, responsive design – They have created a radically simple site that looks clean on the desktop, the tablet and mobile. They don’t need separate tablet or mobile apps because the site looks good on all platforms, and it uses an infinite scroll. They didn’t clutter the site with a dizzying choice of 50 links when “people came to read only one story”, Lauf said.

They have also carried this radical simplicity to their ad strategy. Lauf said:

We rethought the way that we designed advertising. We wanted to avoid a Piccadilly Circus of drop-downs, pushovers and distractions.

The ads appear in Quartz’s news stream, much like ads now appear in the Facebook mobile news feed. They are labeled as sponsored content, and they are shaded subtly differently in the navigation.

They have 50 full-time staff, split almost evenly between business and administrative staff and editorial staff. Developers sit side-by-side with editors and journalists, he said.

In July, just ten months after launch, Quartz announced that it had 5 m users, and they claimed that they had already passed The Economist in terms of traffic in the US and was setting its sights on overtaking the Financial Times in the US. (A claim that the The Economist disputed saying that ComScore consistently under-reported their US traffic.) Quartz predicted just yesterday that it would be profitable by 2015.

Quartz might be based in the US, but it is obvious that it has global ambitions if for no other reason editor Kevin Delaney requires his journalists to speak fluently at least two languages. Of the site’s 50 or so full-time journalists and contributors, they speak 119 languages.

As the publisher, Lauf might be on the business side, but he ended on an inspirational vision for journalism. He said:

I started out as a journalist, a wide-eyed idealist, and I’m still a wide-eyed idealist. I still believe deeply what we’re doing on the business side is essential and important work. Intellectually, honest journalism is the underpinning for a democratic society. If we can figure out how to make this commercially valuable for hundreds of years to come, we all win.

Amen. With some of the long-standing tensions between the business and editorial sides of news organisations especially during this time of cuts and chaos in the industry, it is essential to hear business side leaders making the strong case that smart commercial thinking supports the mission of journalism. Business leaders in journalism are not all ‘bean counters’ obsessed with the short term. If we can solve the commercial problems and develop new revenue streams and rejuvenated business models, journalism, journalists, audiences and democracies all win.

* If you’re unfamiliar with the term dark social, Journalism.co.uk did a recent podcast on that. It’s called dark social because it is listed simply as ‘direct’ traffic from analytics services. This could be traffic from people directly typing in the URL, people sharing the link via IM or email or people using secure search.

Clay Christensen @RSAInnovate: Why the spreadsheet is killing job creation

Clay Christensen at the RSA in London
Clay Christensen at the RSA in a talk titled “The Capitalist’s Dilemma”.
Photo by Kevin Anderson, Some Rights Reserved

Disruptive, or empowering innovations, create jobs, but they take time to pay off, while efficiency innovations eliminate jobs and free up capital (save money) in the short term, Harvard Business School professor Clay Christensen said in a talk entitled “The Capitalist’s Dilemma” at the RSA in London last night. The problem he sees is that management has become a conversation almost entirely focused on spreadsheet-driven financial targets and short term efficiencies rather than longer term value creation, which also creates jobs.

If you’re not familiar with Christensen, he sums up the focus of his work in the preface of The Innovator’s Solution, a book he wrote with Michael Raynor. He says:

It is easy to explain why poorly run companies fail; but many of history’s most successful and best-run firms have lost their positions of leadership, too. Why is so hard to maintain success?

Christensen looked at disruptive innovation, or what he called empowering innovation last night, and why incumbents were overthrown by upstarts. In some industries, such as the case with newspapers, they recognised the disruption but were still unable to adapt. I’ve written two pieces for The Media Briefing, looking at Christensen and his former Harvard colleague Clark Gilbert‘s advice for the newspaper industry and how they can adapt.

Last night, Christensen was talking about innovation in much broader terms and looking at the affect of focusing on short-term cost-saving innovation versus longer term empowering innovation.

What he wanted to understand was why unemployment has been taking longer to return to pre-recession levels since the recession in 1990. What was interesting is that he was looking not just at unemployment but more precisely the “lag from when real GDP returns to the pre-recession peak to when employment returns to the pre-recession peak”.

Clay Christensen at the RSA in London
Click to go to Flickr for the full-size image. Photo by Kevin Anderson

As you can see from the graph, looking at recessions in the US from 1948 until now, the average lag was six months, but then the lag began growing from 15 months to 39 months to the current lag after The Great Recession. Sixty months after it began, and we still don’t know when unemployment will return to pre-recession levels. What is causing these jobless recoveries?

To put it succinctly, he blamed a short-term focus driven by the financial models easily run in spreadsheets by “26-year-old analysts”. He summed it up the theories and the practice of finance that is leading to this short-termism in this table.

A theory of finance Tools of finance
pre-eminence of returns on capital spreadsheets – Visicalc, Lotus, Excel
calculus needs something to maximise measurement via ratios
Milton Friendman gave the target NPV (Net present value)
Guided by Delaware courts, not legislation ever since Management becomes the assembling, optimising and shipping of numbers.

Created with the HTML Table Generator

Just to look at the power of spreadsheets, he said that they were the biggest recent development, adding:

A 26-year-old can build the financial models of companies and effortlessly test the impact of different inputs onto outcomes that matter.

He said that business is now driven by “the church of finance”, in which finance becomes a religion both in terms of how it is taught and the level of belief of its adherents. With the true believers of finance driving management, decisions are boiled down to measuring the efficiency of deploying capital.

Christensen explained the effect of this finance-driven focus through his framework of innovation. He sees three types of innovation:

• Empowering, which make the expensive and inaccessible, cheap and accessible.
• Sustaining, innovation that simply replaces an old model with a newer model
• Efficiency, “These reduce the cost of making and distributing existing products and services,” as he wrote in the New York Times.

Clay Christensen at the RSA in London

Empowering innovations create jobs but they use capital, and they are longer term investments, often taking five to 10 years to see a return. “Efficiency innovations pay off in a year or two. Instead of using capital, they save it,” Christensen said, but instead of creating jobs, they eliminate them.

The problem he sees in the US (and the UK, although he wasn’t ready to say that will full confidence) is that he estimates there is now a third of the empowering innovations being created as there were in the 1950s, 60s and 70s.

Why is the US economy so anaemic? It isn’t weak corporate balance sheets. He said they were “pristine” and stronger than they had been in years. The problem also isn’t lack of capital, and he said over and over that the US is awash in capital, which is why private equity and hedge fund managers say that so much money is chasing so few deals these days. The problem is that the “finance mechanism hijacks capital and recycles it unto itself”, Christensen said.

That’s the problem, and he did point to a few solutions. For one, he said that capital needed the will to invest in longer term, empowering innovations. He pointed to the US tax code that punished short-termism by charging the personal rate of tax on investments of less than a year, which for top-bracket income earners would be 35 percent. However, if you hold that investment just one more day, 366 days instead of 365, then the tax rate drops to 15 percent. He said that 366 days is not the kind of long-term investment that will spur empowering, job creating innovations. Instead, he recommended low or zero taxes on money invested five to eight years.

He also criticised the solutions spun by the Democrats and Republicans, the two dominant parties.

I think the Democrats and Republicans are both wrong on this redistribution issue. In the US, the top 1 percent own 28 percent of disposable income. The Republicans say that we have to let them keep their money to invest in jobs. Most of them don’t invest in jobs but use their capital to create more capital.

The Democrats are wrong as well.

If we don’t have empowering innovations, the solution isn’t to redistribute wealth in the other direction, which is in line with the Democrats efforts to increase taxes on higher income brackets. I like how Christensen put this in the New York Times:

If the I.R.S. taxes their wealth away and distributes it to everyone else, it still won’t help the economy. Without empowering products and services in our economy, most of this redistribution will be spent buying sustaining innovations — replacing consumption with consumption. We must give the wealthiest an incentive to invest for the long term. This can create growth.

Of course, one of the great debates in our current politics is how to deal with rising debt in our societies. Christensen is pro-growth, and when asked whether “we can say definitively that austerity doesn’t promote prosperity”, he said very quietly, “yeah”. However, Christensen seemed to nicely get around the gridlock of the current debate on how to deal with the debt. However, he does admit in his article in the Times that the issues are complicated.

Innovation and journalism

For me trying to think about how innovation affects journalism, I had one take away. When a product becomes commoditised, it opens up opportunities both above and below the commoditised project. I do believe that the over supply of information has commoditised much of breaking news such that as Christensen pointed out in a 2011 study:

The wealth of information available almost instantaneously has lowered the value of the general interest news story such that it’s often less than the cost of production. General interest and breaking news reporting comprised of answering the “who, what, when and where” has become commoditized. It cannot create enough value to sustain a news organization in the long term.

The question becomes what opportunities exist above and below the commoditised “general interest news story”. What could those products be? It’s a good question, and it’s one of the reasons why I bought a copy of The Innovator’s Solution after the talk. I managed to get a few seconds with Christensen after his talk, and I thanked him for his research in 2011 and asked what he would recommend in terms of how to work within a traditional news organisation. His answer was sobering, but that will have to wait for another blog post.

Clark Gilbert’s five business model ideas that are changing the news industry

After writing about how print-digital integration was absolutely the wrong response to digital disruption, I’ve been going back to more of the ideas of Clay Christensen and Clark Gilbert on how the news industry should respond to disruption. I would strongly encourage you to take an hour and a half of your time and watch Clark Gilbert speak at Harvard University’s Nieman Foundation. I had read his ideas, but he’s even more forceful and compelling in person (or via video).

Clark Gilbert, Deseret News – April 25, 2013 from Nieman Foundation on Vimeo.

He quotes the president of an online newspaper division:

Overall, the newspaper industry’s involvement in the internet has been one where it had a lot to lose and it’s been trying not to lose it, as opposed to starting from scratch and having a lot to win.

Gilbert has created a disruptive division that is all about winning digital opportunities. About 47 minutes in, he lays out five business model ideas that are changing the news industry and are helping his digital division grow at 40 percent year-over-year.

  1. Digital revenue should a third of your business in 2012 and half of your business by 2015
  2. A digital buyer needs a digital seller
  3. New channels are the difference between Transformation A and Transformation B
  4. Digital marketplaces (Not Digital Publishing) will win
  5. Dual transformation requires new organisation

And he says that number 2 is non-negotiable, and watch the video at 51 minutes to see why Gilbert is even more adamant about that now. Your jaw will drop. Seriously, this is worth your time.

They have four digital advertising channels:

  1. Companies that want a legacy-digital bundle
  2. Large local digital only
  3. Small local digital only
  4. National advertisers that do a significant amount of targeting and re-targeting.

He said that he recently noticed that the legacy-digital bundle sales had plateaued, but one of his other channels (he didn’t say which one) is growing by 70 percent year-over-year, which is just one reason why they have 40 percent year-over-year digital revenue growth.

Number four will interest everyone who is in local media. He says that digital marketplaces are winning local.

Gilbert makes an even more forceful case than he did in Austin where I saw him in April that integration, especially on the business side, was absolutely the wrong idea. When the Washington Post integrated its print and digital, digital revenue growth stopped. When the Dallas Morning news integrated print and digital, digital revenue growth stopped, Gilbert said.

Contrast that with Gilbert’s company. In 2009, legacy revenue accounted for 90 percent of the business and digital came only from 10 percent. In 2012, he said that legacy revenue channels would account for only 33 percent of overall revenue. Digital revenue is now bigger than revenue at their TV station and their radio station, and it will soon pass print.

I’ll just finish with this comment from Gilbert:

News is not a business model. It’s a public good.

However, you can build a business around the brand that you create with this public good.

Fellow journalists, you should be fighting for this kind of thinking because Gilbert plows back a third of all the profit from the digital division to fund the newsroom.

New Bloomberg Media CEO, Justin Smith, rouses the troops

Justin Smith has a great track record of repositioning great media brands for the digital era. His most recent media makeover, The Atlantic is only his latest success story. Jeff John Roberts at paidContent had a great interview and profile of Smith looking at some the secrets behind his success. Smith is a digital evangelist and more. Two-thirds of Atlantic Media’s advertising revenue is digital, and while other media companies have suffered over the last three years, Smith’s Atlantic has been in the black since 2010. 

if there is one thing I’ve learned over the last few years, building a solid media company isn’t just about growing digital as quickly as possible but building successful products regardless of the platform. Roberts puts it this way:

And this is what Smith understands so well about building a media company today: the challenge is not print vs digital or about paywalls, but about using brand power to grab revenue wherever you can. 

As Smith moves on to his next challenge, Bloomberg Media, Digiday has excerpts from an email to his new troops. Smith has always invested in talent, and that was key to his strategy at The Atlantic. As a matter of fact, if there was one thing that ties together a lot of disparate strategies, whether it is Smith’s Atlantic or the revitalised Orange Country Register, it is about about making smart investments to deliver a great product

I’ll highlight just a couple of other comments that Smith makes. He has called on the staff at Bloomberg to embrace change and entrepreneurship. In terms of change:

The media industry is bifurcated into two distinct worlds: the struggling traditional segment that longs for a simpler, more profitable past that will never return; and the vibrant, entrepreneurial segment that is reinventing the industry before our eyes. The simple act of choosing to live on the new, wide-open frontier is a powerful step toward success.

And his definition of entrepreneurship is about adaptation and speed:

One definition of entrepreneurship is the ability to evolve your product, business model, technology, or talent base to capture a changing market opportunity. Moving quickly is paramount: the faster you move, the more you learn, and the sooner you can optimize for success. 

Bloomberg was already a strong brand and a source of revenue that most media companies would kill for, the $24,000 annual subscription for its financial terminals. It will be fascinating to see how Smith supercharges Bloomberg. 

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.