Netflix used to have a charmed life.
This year, however, poorly thought out strategy and lurching decisions are stripping away many of its advantages and making it vulnerable to competitors.
Established in 1997, its founders saw opportunities in creating an Internet-based DVD-by-mail distribution system. It was designed to be a competitor to physical video stores, making it more attractive by offering a larger selection and using a unique IT driven distribution system that combined distribution centers across the country to serve customers within 24 hours at highly attractive prices.
The DVD-by-mail service became a hit, ultimately devastating the market of physical stores such as Blockbuster. By 2007 it had delivered more than 1 billion DVDs to customers. That same year it launched on-demand video streaming service so customers could also select a video and stream it to a PC (and later other platforms) for immediate viewing. The company allowed viewers a highly popular choice of physical DVDs or streamed video for the same price.
Effective marketing and the enviable distribution system led the company to became the largest video subscription service in the U.S., with 24 million customers
Despite--and because of the investments required for--its growth, the company was losing money on its $10 per month price for the joint service, so it suddenly increased it price to $16 dollars (a 60% increase) in July. That significant price change and the poor way it was introduced to customers—especially in the midst of poor economic times, angered customers and created price resistance that led a least a half million to drop the service.
Then, in September, the firm announced it would spin off its DVD-by-mail service and rebrand it Qwickster, leaving Netflix with the digital streaming business. Customers were furious to learn they would now have to pay separately for both services. By downplaying its DVD-by-mail business, the company hopes to reduce distirbution costs and its costs for content by moving content from a per rental basis to per subscriber basis that is more beneficial for the firm.
Netflix's decisions were not made with a customer focus, but a focus on stemming losses that worried some investors. That strategy is dubious, however, and share prices have fallen from nearly $300 per share in mid-summer to $140 per share.
The lurching changes have also made the company’s position seem vulnerable, leading to new competitors to enter the market. Dish Network, which bought Blockbuster out of bankruptcy, is now using it to introduce a competing DVD-by-mail and digital delivery services at competitive prices and Hula and Amazon are reportedly looking a ways to exploit consumer dissatisfaction.
The entire episode is a classic example of why companies should never take customers for granted and why company decisions need to be driven by creating--rather than subtracting--value for consumers.
Showing posts with label business models. Show all posts
Showing posts with label business models. Show all posts
MySpace Sale Underscores the Risks of Exuberant Digital Investments
The decision by News Corp. to dump MySpace once again reveals the risks of over exuberance toward digital companies that do not have a proven business model or long-term customer loyalty.
There are plenty of digital investments that meet those requirements, but a number of the most hyped firms moving toward IPOs and acquisitions do not. They need to be considered with hard headed pragmatism.
MySpace was launched 2003 and rapidly became the toast of the digital world as a social networking site and “the place” for musical stars and fans to connect. By 2005 it was the fifth most visited site on the Internet.
New Corp., which was anxious to benefit from growth in digital media, jumped at the opportunity to acquire the service and paid $580 million in 2005. It was an enormous price for a company with an unclear revenue potential.
Within two years MySpace had grown to be the world’s number one social networking site and was receiving 100 million unique monthly visitors. But it still had revenue problems; its visitors weren't paying customers and advertising wasn't paying its costs.
Despite landing a $900 million ad deal with Google, MySpace reported just one period of profitability. On top of that, it lost its cache with users and its leading position was soon eclipsed by Facebook.
Overall, it is estimated that the MySpace lost at least $1.5 billion under News Corp. and those losses dragged down the News Corp.’s overall earnings. The extent of its losses has never been completely clear because its results were not transparently presented in News Corp. financial reports.
After desperately trying to revive MySpace, News Corp. put it up for sale with an asking price was $100 million. It was sold in June to the online advertising network Specific Media for $35 million (about 6% of what News Corp paid for it), but the company was really just giving it away to get it off its books. As part of the deal, News Corp. took a minority equity stake in Specific Media.
Investing in emerging industries is always more risky than investing in established ones, so it requires a good deal of realism and clear headedness about the opportunities and their potential. It is not good enough merely to throw money on the table in hopes of drawing a winning hand or because the crowd is encouraging you on. A solid business plan that it is already working and producing financial growth and a user model based on more than popularity and status are required unless you investing high-risk capital you can afford to lose, as well as other opportunities it might have funded.
There are plenty of digital investments that meet those requirements, but a number of the most hyped firms moving toward IPOs and acquisitions do not. They need to be considered with hard headed pragmatism.
MySpace was launched 2003 and rapidly became the toast of the digital world as a social networking site and “the place” for musical stars and fans to connect. By 2005 it was the fifth most visited site on the Internet.
New Corp., which was anxious to benefit from growth in digital media, jumped at the opportunity to acquire the service and paid $580 million in 2005. It was an enormous price for a company with an unclear revenue potential.
Within two years MySpace had grown to be the world’s number one social networking site and was receiving 100 million unique monthly visitors. But it still had revenue problems; its visitors weren't paying customers and advertising wasn't paying its costs.
Despite landing a $900 million ad deal with Google, MySpace reported just one period of profitability. On top of that, it lost its cache with users and its leading position was soon eclipsed by Facebook.
Overall, it is estimated that the MySpace lost at least $1.5 billion under News Corp. and those losses dragged down the News Corp.’s overall earnings. The extent of its losses has never been completely clear because its results were not transparently presented in News Corp. financial reports.
After desperately trying to revive MySpace, News Corp. put it up for sale with an asking price was $100 million. It was sold in June to the online advertising network Specific Media for $35 million (about 6% of what News Corp paid for it), but the company was really just giving it away to get it off its books. As part of the deal, News Corp. took a minority equity stake in Specific Media.
Investing in emerging industries is always more risky than investing in established ones, so it requires a good deal of realism and clear headedness about the opportunities and their potential. It is not good enough merely to throw money on the table in hopes of drawing a winning hand or because the crowd is encouraging you on. A solid business plan that it is already working and producing financial growth and a user model based on more than popularity and status are required unless you investing high-risk capital you can afford to lose, as well as other opportunities it might have funded.
International Protection for Broadcasts Gaining New Momentum
The proposed international treaty on the protection of broadcasters is inching forward after nearly 10 years of consideration and member states of the World Intellectual Property Organization and other stakeholders are moving toward consensus on the central elements of what it is to do and what is the object of the protection.
Much of the rhetoric of stakeholders—particularly pay TV channels and sports rights organisations—has led many to believe it is about protecting their business models and revenue. They have done the proposed treaty a disservice.
It is about protecting the value creating activities of broadcasters in content selection, packaging and distribution—something that is not protected by copyrights, but can be protected with a neighboring right. What the treaty is intent on doing is protecting the broadcast—in a signal and derivative of the signal—which embodies the broadcasters value creation activities and is the object of the proposed protection.
The result may assist revenue generation and strengthen the business model of rights holders, licensers, and broadcasters, but it does not directly protect those.
What it will do is provide a streamlined mechanism for broadcasters to enforce their rights internationally when unauthorised reception, decryption, and retransmission and rebroadcast of their signals are done by other broadcasters and cablecasters. Such practices regularly occur in some countries and sometimes involve the second broadcaster substituting their own advertising and charging fees to obtain the broadcast.
The treaty essentially gives broadcasters the right to license other uses of their broadcasts and halt uses they have not licensed, but does not give them rights to the content in the broadcasts that they do not own.
The proposed treaty includes some protection of public interests, by permitting national limitations and exceptions for clearly public purposes such as education, service to visually or hearing impaired persons, etc.
Some scepticism about the proposals exists in developing nations, because most of the benefits will occur to broadcasters in high income and upper middle income nations and only limited benefits will occur in other states.
The thorns on the rose bush, however, involve the fact that many of the nations where egregious reuses of broadcasts have occurred have never well enforced copyright, so one must be highly optimistic to believe that passage of the treaty will solve the problem.
Much of the rhetoric of stakeholders—particularly pay TV channels and sports rights organisations—has led many to believe it is about protecting their business models and revenue. They have done the proposed treaty a disservice.
It is about protecting the value creating activities of broadcasters in content selection, packaging and distribution—something that is not protected by copyrights, but can be protected with a neighboring right. What the treaty is intent on doing is protecting the broadcast—in a signal and derivative of the signal—which embodies the broadcasters value creation activities and is the object of the proposed protection.
The result may assist revenue generation and strengthen the business model of rights holders, licensers, and broadcasters, but it does not directly protect those.
What it will do is provide a streamlined mechanism for broadcasters to enforce their rights internationally when unauthorised reception, decryption, and retransmission and rebroadcast of their signals are done by other broadcasters and cablecasters. Such practices regularly occur in some countries and sometimes involve the second broadcaster substituting their own advertising and charging fees to obtain the broadcast.
The treaty essentially gives broadcasters the right to license other uses of their broadcasts and halt uses they have not licensed, but does not give them rights to the content in the broadcasts that they do not own.
The proposed treaty includes some protection of public interests, by permitting national limitations and exceptions for clearly public purposes such as education, service to visually or hearing impaired persons, etc.
Some scepticism about the proposals exists in developing nations, because most of the benefits will occur to broadcasters in high income and upper middle income nations and only limited benefits will occur in other states.
The thorns on the rose bush, however, involve the fact that many of the nations where egregious reuses of broadcasts have occurred have never well enforced copyright, so one must be highly optimistic to believe that passage of the treaty will solve the problem.
Content Farms and the Exploitation of Information
A growing number of firms are aggressively pursuing the market for information by providing material that answers online searches and employing strategies so their material appears high in search results.
These enterprises are providing high quantity, low quality material on topics designed to produce many search hits and driven by the desire to make money from advertising received as high traffic sites. Some are proving quite successful.
Demand Media, for example, uses about 13,000 freelance writers to produce about 4000 articles a day for which it gains about 95 million unique visitors with more than 620 million page views monthly. Its eHow.com site alone gets about 50 million users. Ask.com, Yahoo and AOL are also engaging in the market.
When you make a search and are taken to answer.com, dictionary.com, wikianswers.com or hundreds of other sites providing such information to the public, you encounter this mass produced content. The business strategy is working and many of the sites are among the top 25 sites in the U.S.
These producers and a whole range of similar organizations are producing material in content farms that rely on freelancers who are paid as little as $1 an article or get no payment except for number of page views for their specific work. It is a throwback to the penny-a-word days of journalism in the 19th century. The firms are increasingly seeking video producers, photographers, and graphic artists to provide similar material at similar levels of compensation.
Even established news organizations and other enterprises are starting to use the syndicated material produced by such content farms. Organizations such as Hearst publications and National Football League are relying on them for some content that appears on their sites, for example.
The implications of these developments on the quality of Internet information and the prospects for professional writers are clear and hardly encouraging.
These enterprises are providing high quantity, low quality material on topics designed to produce many search hits and driven by the desire to make money from advertising received as high traffic sites. Some are proving quite successful.
Demand Media, for example, uses about 13,000 freelance writers to produce about 4000 articles a day for which it gains about 95 million unique visitors with more than 620 million page views monthly. Its eHow.com site alone gets about 50 million users. Ask.com, Yahoo and AOL are also engaging in the market.
When you make a search and are taken to answer.com, dictionary.com, wikianswers.com or hundreds of other sites providing such information to the public, you encounter this mass produced content. The business strategy is working and many of the sites are among the top 25 sites in the U.S.
These producers and a whole range of similar organizations are producing material in content farms that rely on freelancers who are paid as little as $1 an article or get no payment except for number of page views for their specific work. It is a throwback to the penny-a-word days of journalism in the 19th century. The firms are increasingly seeking video producers, photographers, and graphic artists to provide similar material at similar levels of compensation.
Even established news organizations and other enterprises are starting to use the syndicated material produced by such content farms. Organizations such as Hearst publications and National Football League are relying on them for some content that appears on their sites, for example.
The implications of these developments on the quality of Internet information and the prospects for professional writers are clear and hardly encouraging.
Digital Media Require New Pricing Methods
Newspaper publishers need to explore new methods of pricing content as they expand their digital portfolios because merely transferring the methods used in print can never bring the success publishers desire.
Print newspaper publishers have traditionally tended to set prices based on production and distribution costs and not on value created. Unfortunately, this has made it impossible to possible to obtain a price premium for factors such as prestige, service, experience, and convenience.
New digital operations, however, provide significant other pricing options because they differ in terms of whether they maintain the existing content bundle, whether non-payers can be excluded from use, the types of experience they deliver and how they are used.
Digital media require significant new thinking because they tend to be joint and complementary products with print. These lend themselves to selling strategies of bundling and versioning that permit uses of bundle pricing, option pricing, multiple purchase pricing, differential access pricing, and inventory based pricing that have not typically been used in the newspaper industry.
Pricing is particularly complex in the digital environment because the number of price choices grow exponentially. In the print product managers price advertising and the circulation, but when they add an online product they have to make 8 choices because they are shifting to a multisided platform operation. If mobile, social media and other print products are added to the portfolio, one must give significant thought to the roles each plays in the portfolio and the interactions of pricing choices among them.
Although digital media use is growing significantly, companies need to be pragmatic in their investments and operations and their hopes for new revenue. Online consumption is still only about 10 percent of all media use and online advertising is still only about 13% of offline advertising. Those numbers are significant and rising so companies needs to seek and exploit opportunities in digital spaces, but managers cannot expect those to immediately replace the contributions of their legacy operations.
Print newspaper publishers have traditionally tended to set prices based on production and distribution costs and not on value created. Unfortunately, this has made it impossible to possible to obtain a price premium for factors such as prestige, service, experience, and convenience.
New digital operations, however, provide significant other pricing options because they differ in terms of whether they maintain the existing content bundle, whether non-payers can be excluded from use, the types of experience they deliver and how they are used.
Digital media require significant new thinking because they tend to be joint and complementary products with print. These lend themselves to selling strategies of bundling and versioning that permit uses of bundle pricing, option pricing, multiple purchase pricing, differential access pricing, and inventory based pricing that have not typically been used in the newspaper industry.
Pricing is particularly complex in the digital environment because the number of price choices grow exponentially. In the print product managers price advertising and the circulation, but when they add an online product they have to make 8 choices because they are shifting to a multisided platform operation. If mobile, social media and other print products are added to the portfolio, one must give significant thought to the roles each plays in the portfolio and the interactions of pricing choices among them.
Although digital media use is growing significantly, companies need to be pragmatic in their investments and operations and their hopes for new revenue. Online consumption is still only about 10 percent of all media use and online advertising is still only about 13% of offline advertising. Those numbers are significant and rising so companies needs to seek and exploit opportunities in digital spaces, but managers cannot expect those to immediately replace the contributions of their legacy operations.
Getting It Wrong: The FTC and Policies for the Future of Journalism
Following hearings on the state of newspapers this past year, the U.S. Federal Trade Commission staff has now prepared a discussion paper of potential policy recommendations to support the reinvention of journalism.
The FTC’s staff ignores the fact that most newspapers are profitable (the average operating profit in 2009 was 12%), but that their corporate parents are unprofitable because of high overhead costs and ill-advised debt loads taken on when advertising revenues were peaked at all time highs. It also fails to make adequate distinction between longer term trends affecting newspapers and the effects of the current recession. The staff thus blends the two together to give a skewed picture of the mid- to long-term health of the industry.
Policy alternatives suggested by the staff for consideration include:
If commercial news enterprises can’t effectively manage themselves, compete in markets for their products and services, or find effective business models for themselves, why does anyone think that bureaucrats in the government have any ability to solve those problems for the news industry?
It is a classic example of policy-making folly that starts from the premise that the government can solve any problem—even one created by consumer choices and an inefficient, poorly managed industry. Most of the proposals are based in the idea of using government mechanisms to protect newspapers against competitors and to create markets for newspapers offline and online.
The FTC’s staff ignores the fact that most newspapers are profitable (the average operating profit in 2009 was 12%), but that their corporate parents are unprofitable because of high overhead costs and ill-advised debt loads taken on when advertising revenues were peaked at all time highs. It also fails to make adequate distinction between longer term trends affecting newspapers and the effects of the current recession. The staff thus blends the two together to give a skewed picture of the mid- to long-term health of the industry.
Policy alternatives suggested by the staff for consideration include:
- Limiting fair use provisions of copyright and providing new protection for “hot news,” which would give first news organizations to distribute a story a proprietary right to the facts in their article
- Providing a variety of types of subsidies for news providers
- Changing tax exempt status laws to make it easier to obtain not-for-profit status and funds from charitable donors
- Taxing advertising, spectrum, internet service provision, consumer electronics, and cell phones to provide funds for news organizations
- Creating new antitrust exemptions allowing price collusion and market division
It is hard to ignore the irony and incongruities of a government agency whose purpose is to protect competition and effective markets suggesting anti-competitive practices and taxes that will have negative effects on consumers, competitors, and other companies. Setting those aside, however, none of the suggestions deal with the real underlying economic and financial problems of the news industry: that fact that many consumers are unwilling to pay for the kinds of news provided today and that news organizations need to radically change their management practices and begin reducing organizational inefficiencies.
If commercial news enterprises can’t effectively manage themselves, compete in markets for their products and services, or find effective business models for themselves, why does anyone think that bureaucrats in the government have any ability to solve those problems for the news industry?
Challenges of Product Choices and Prices in Multi-Sided Media Markets
Commercial media have faced product and price challenges in 2-sided markets for more than a century, but are encountering greater difficulties in getting it right as they try to effectively monetize multi-sided markets.
2-sided and multi-sided markets are ones in which more than one set of consumers must be addressed and there is an interaction between strategies and choices for each set of customers. Prices for one group of consumers affects their consumption quantity and this, in turn, affects the prices for and consumption by the other groups. Optimal revenues can only be achieved by dealing with all groups of consumers simultaneously.
Newspapers are a classic example of 2-sided platforms. The first product is the content sold to audiences and the second is access to audiences that is sold to advertisers. This has been the basis of the mass media business model since late 19th century and the strategy has been to keep circulation prices low to attract a mass audience and then to make the majority of revenue from advertiser purchases.
In this model, success in selling the newspaper product affects ability to sell advertising access because more readers makes a paper more attractive to advertisers; conversely, success in selling advertising affects ability to sell the newspaper to readers because it provides resources that improves content and make the paper more attractive.
Getting prices right in this model is crucial, but most media have traditionally been relatively unsophisticated in setting prices. Few have used demand-oriented pricing, based on what the market will bear, or target return pricing based on achieving a specific rate of return. Instead most have set prices based on what the closest competitors are doing or on industry average price. They were historically able to get away with it because elasticity and price resistance were relatively low because of the near monopolies of past in many markets.
Today, however, product and price choices are getting much more complex because of rising competition and because media are shifting from 2-sided to multi-sided platforms in which relationships among consumers are compounded. This complexity is evident in the difficulties newspapers and magazines are having figuring out effective ways to provide and sell content online.
The problem occurs because there are paying audiences and advertisers for the print edition; free audiences and paying advertisers for the online edition; and some joint audience and advertisers who use both the print and online offerings. If one alters the free price online to create a paying audience, it not only affects the willingness of online advertisers to pay, but affects the willingness of joint audiences and advertisers to pay and thus effects performance of the print sales as well.
Creating the correct combination of content available in print and online, getting the content prices right, generating audiences in both places that are right for advertisers, and properly prices advertising is no mean feat. The situation is made even more difficult as publishers add eReaders and mobile services to the mix.
Those who think they can easily monetize newspapers, magazines, or other information products online ignore the significant challenges posed by multi-sided platforms and need to carefully consider the impact that these factors have on product and price choices.
2-sided and multi-sided markets are ones in which more than one set of consumers must be addressed and there is an interaction between strategies and choices for each set of customers. Prices for one group of consumers affects their consumption quantity and this, in turn, affects the prices for and consumption by the other groups. Optimal revenues can only be achieved by dealing with all groups of consumers simultaneously.
Newspapers are a classic example of 2-sided platforms. The first product is the content sold to audiences and the second is access to audiences that is sold to advertisers. This has been the basis of the mass media business model since late 19th century and the strategy has been to keep circulation prices low to attract a mass audience and then to make the majority of revenue from advertiser purchases.
In this model, success in selling the newspaper product affects ability to sell advertising access because more readers makes a paper more attractive to advertisers; conversely, success in selling advertising affects ability to sell the newspaper to readers because it provides resources that improves content and make the paper more attractive.
Getting prices right in this model is crucial, but most media have traditionally been relatively unsophisticated in setting prices. Few have used demand-oriented pricing, based on what the market will bear, or target return pricing based on achieving a specific rate of return. Instead most have set prices based on what the closest competitors are doing or on industry average price. They were historically able to get away with it because elasticity and price resistance were relatively low because of the near monopolies of past in many markets.
Today, however, product and price choices are getting much more complex because of rising competition and because media are shifting from 2-sided to multi-sided platforms in which relationships among consumers are compounded. This complexity is evident in the difficulties newspapers and magazines are having figuring out effective ways to provide and sell content online.
The problem occurs because there are paying audiences and advertisers for the print edition; free audiences and paying advertisers for the online edition; and some joint audience and advertisers who use both the print and online offerings. If one alters the free price online to create a paying audience, it not only affects the willingness of online advertisers to pay, but affects the willingness of joint audiences and advertisers to pay and thus effects performance of the print sales as well.
Creating the correct combination of content available in print and online, getting the content prices right, generating audiences in both places that are right for advertisers, and properly prices advertising is no mean feat. The situation is made even more difficult as publishers add eReaders and mobile services to the mix.
Those who think they can easily monetize newspapers, magazines, or other information products online ignore the significant challenges posed by multi-sided platforms and need to carefully consider the impact that these factors have on product and price choices.
SEARCH FOR ALTERNATIVE MEDIA BUSINESS MODELS HAMPERED BY NARROW THINKING
Media executives around the globe are clamoring for new and alternative business models and industry associations everywhere are holding seminars and conferences on how to create and discover them. There is just one problem: They don’t know what business models are.
When you cut through the rhetoric, you find that most executives are merely interested in finding new revenue streams. Even when you consider firms touted as having best practices in that regard, none have been very successful in establishing them. The reason is simple: The dominant thought about business models is highly limited and far too narrow to solve the contemporary challenges of media industries.
Business models are not merely about the revenue streams. Instead, they establish the underlying business logic and elements. They involve the foundations upon which businesses built, such as companies’ competences, value created, products/services provided, customers served, relationships established with customers and partner firms, and the operational requirements. If you get those elements right, the revenue issues take care of themselves.
The biggest problem of media business models today is not that the revenue model is diminishing in effectiveness, but that most media companies are still trying to sell nineteenth and twentieth century products in the twenty-first century. And they are trying to do so without changing the value they provide and the relationships within which they are provided.
Because of the enormous changes in technology, economics, and lifestyle in recent decades, the needs of customers have changed, they kinds of content they want, and the ways they obtain news, information, and entertainment have been dramatically altered. If media firms do not address these changes in consumer needs and behavior, no amount of worry about revenue streams will stem the fundamental challenge that audiences are leaving traditional print and broadcast media behind for content providers and distribution platforms that better serve their needs.
The content of traditional media products were created in specific technical, economic, and information environments that no longer exist. In order to evolve and prosper media companies must revisit the foundations of their businesses, ensure they are providing the central value that customers want, and provide their products/services in a unique or different way from other media firms.
The range of technologies and distribution and interactive platforms available in the twenty-first century require that firms increasingly see their business activities as cooperative processes requiring coordination and interdependence with external firms and customers themselves. Standing isolated and alone—at arms distance from the customer—is no longer a viable option.
This is not to say that firms must make sudden and dramatic changes in their business models, but they must start revisiting all the aspects to make regular incremental improvements and changes. Questions need to be asked about what is provided, why it is provided, how it is provided, and the entire structures and operations of firms. These need to be addressed first, then the revenue models can be sorted out and improved.
When you cut through the rhetoric, you find that most executives are merely interested in finding new revenue streams. Even when you consider firms touted as having best practices in that regard, none have been very successful in establishing them. The reason is simple: The dominant thought about business models is highly limited and far too narrow to solve the contemporary challenges of media industries.
Business models are not merely about the revenue streams. Instead, they establish the underlying business logic and elements. They involve the foundations upon which businesses built, such as companies’ competences, value created, products/services provided, customers served, relationships established with customers and partner firms, and the operational requirements. If you get those elements right, the revenue issues take care of themselves.
The biggest problem of media business models today is not that the revenue model is diminishing in effectiveness, but that most media companies are still trying to sell nineteenth and twentieth century products in the twenty-first century. And they are trying to do so without changing the value they provide and the relationships within which they are provided.
Because of the enormous changes in technology, economics, and lifestyle in recent decades, the needs of customers have changed, they kinds of content they want, and the ways they obtain news, information, and entertainment have been dramatically altered. If media firms do not address these changes in consumer needs and behavior, no amount of worry about revenue streams will stem the fundamental challenge that audiences are leaving traditional print and broadcast media behind for content providers and distribution platforms that better serve their needs.
The content of traditional media products were created in specific technical, economic, and information environments that no longer exist. In order to evolve and prosper media companies must revisit the foundations of their businesses, ensure they are providing the central value that customers want, and provide their products/services in a unique or different way from other media firms.
The range of technologies and distribution and interactive platforms available in the twenty-first century require that firms increasingly see their business activities as cooperative processes requiring coordination and interdependence with external firms and customers themselves. Standing isolated and alone—at arms distance from the customer—is no longer a viable option.
This is not to say that firms must make sudden and dramatic changes in their business models, but they must start revisiting all the aspects to make regular incremental improvements and changes. Questions need to be asked about what is provided, why it is provided, how it is provided, and the entire structures and operations of firms. These need to be addressed first, then the revenue models can be sorted out and improved.
NEWS HAS NEVER BEEN A COMMERCIALLY VIABLE PRODUCT
Industry, scholarly and policy discussions about the future of the news industry in North America and Europe continue to focus on how news enterprises can sustain themselves in the 21st century. Publishers keep asserting that things will be fine if they can erect pay walls and charge for news online and they argue that governments should provide legal protections for online news so they can make news a viable digital business product.
Their approach is wrong and ignores the fundamental reality that news has never been a commercially viable product because most of the public has been, and remains, unwilling to pay for news. Consequently, news has always been funded with income based on its value for other things.
Historically, the first collection and dissemination of news was funded in ancient times by emperors and kings, who used governors and officials throughout their realms to collect news and information and send it to the seat of power. Emissaries, consuls, and ambassadors collected foreign news and information in places important for trade or seen as potential threats to the realms. In this Imperial Finance Model, news and information were collected and shared with officials throughout the realms to assist in governance activities. This revenue model was based on official financial support because it served the interests of the state.
In the Middle Ages, a Commercial Elite Finance model developed in which wealthy merchants hired correspondents in cities and states with which they traded to collect information about political and economic developments relevant to their trade. Linen, porcelain, sherry, and spice merchants used the news for commercial advantage and held it in confidence rather than sharing it with others.
In the 18th and 19th centuries a broader Social Elite Finance Model developed to support newspapers that served the needs of the aristocracy and widening merchant class. Even with high cover prices, this model news was not viable and newspapers were subsidized by commercial printing activities and income from other commercial activities, governments and political parties, and merchant associations.
The Mass Media Finance Model appeared in the late 19th and 20th century, made possible by the industrial revolution, urbanization, wage earning, and sale of finished goods. In this model news was provided for the masses at a small fee, but subsidized by advertising sales. Because most of the public was uninterested in day-to-day events and “hard” news, the bulk of newspaper content was devoted to sports, entertainment, lifestyle, and features that increased the willingness of the public to spend pennies for the product.
This mass media financing model remain the predominant model for financing news gathering and distribution, but its effectiveness is diminishing because the “mass” audience is becoming a “niche” audience in Western nations as those less interested in hard news continue abandoning newspapers for television, magazines, and the Internet. This is creating a great deal of uncertainty how society will subsidize and pay for journalism in the twenty-first century.
Focusing on news as a commercial product appears futile and commercial news providers would do well to put their efforts in creating other commercial activities that can subsidize news provision, such as events, education and training, bookstores, travel agencies, and a variety of merchandising activities. Many publishers subsidized news activities with these types of activities a century ago and some continue to do so. It is likely that news providers will rely on a far wider range of revenue streams in the future than merely on the consumer and advertising streams upon which they depend today.
Their approach is wrong and ignores the fundamental reality that news has never been a commercially viable product because most of the public has been, and remains, unwilling to pay for news. Consequently, news has always been funded with income based on its value for other things.
Historically, the first collection and dissemination of news was funded in ancient times by emperors and kings, who used governors and officials throughout their realms to collect news and information and send it to the seat of power. Emissaries, consuls, and ambassadors collected foreign news and information in places important for trade or seen as potential threats to the realms. In this Imperial Finance Model, news and information were collected and shared with officials throughout the realms to assist in governance activities. This revenue model was based on official financial support because it served the interests of the state.
In the Middle Ages, a Commercial Elite Finance model developed in which wealthy merchants hired correspondents in cities and states with which they traded to collect information about political and economic developments relevant to their trade. Linen, porcelain, sherry, and spice merchants used the news for commercial advantage and held it in confidence rather than sharing it with others.
In the 18th and 19th centuries a broader Social Elite Finance Model developed to support newspapers that served the needs of the aristocracy and widening merchant class. Even with high cover prices, this model news was not viable and newspapers were subsidized by commercial printing activities and income from other commercial activities, governments and political parties, and merchant associations.
The Mass Media Finance Model appeared in the late 19th and 20th century, made possible by the industrial revolution, urbanization, wage earning, and sale of finished goods. In this model news was provided for the masses at a small fee, but subsidized by advertising sales. Because most of the public was uninterested in day-to-day events and “hard” news, the bulk of newspaper content was devoted to sports, entertainment, lifestyle, and features that increased the willingness of the public to spend pennies for the product.
This mass media financing model remain the predominant model for financing news gathering and distribution, but its effectiveness is diminishing because the “mass” audience is becoming a “niche” audience in Western nations as those less interested in hard news continue abandoning newspapers for television, magazines, and the Internet. This is creating a great deal of uncertainty how society will subsidize and pay for journalism in the twenty-first century.
Focusing on news as a commercial product appears futile and commercial news providers would do well to put their efforts in creating other commercial activities that can subsidize news provision, such as events, education and training, bookstores, travel agencies, and a variety of merchandising activities. Many publishers subsidized news activities with these types of activities a century ago and some continue to do so. It is likely that news providers will rely on a far wider range of revenue streams in the future than merely on the consumer and advertising streams upon which they depend today.
RECORD COMPANIES, DIGITAL DOWNLOADS AND ARTISTS RIGHTS
Pink Floyd was always a unique rock group and understood its music as a form of artistic expression. It evolved from psychedelic music in the 1960s to progressive rock known for rock instrumental and acoustic effects in the 1970s. The group often saw their albums as integrated works of art in which subsequent tracks built upon earlier ones. They considered their entire recording to be art; that the ordering of tracks was part of the expression and should not be altered, and that the album should be enjoyed as a whole not merely as a collection of individual songs. Even the album covers got special artistic attention reflecting their content and experiences.
The band felt so strongly about the art of its music that it negotiated a contract with EMI that included a provision to “preserve the artistic integrity of the albums.”
Consumers obviously thought Pink Floyd got the art right, helping the group achieve 16 gold, 13 platinum, and 10 multi-platinum albums. Two of its albums sold more than 10 million copies. The group’s recordings are second only to the Beatles recordings in terms of their value, something not missed by the group’s label EMI.
With sales of digital downloads exploding (accounting for nearly $4 billion in industry sales last year), the record company saw gold in selling individual tracks from albums such as “The Dark Side of the Moon” and “The Wall”. It licensed Pink Floyd’s tracks for sale on iTunes. It was like EMI was cutting up a Kandinsky painting and selling the pieces individually.
The band wasn’t amused and headed to court. It argued that it albums were indivisible and that EMI had violated the contract with the group by splitting them up. EMI countered that it was all just a matter of the new way of doing business in the digital age and that the contemporary technology and business model made it necessary to do disaggregate the albums.
This week the court ruled in favor of Pink Floyd, awarding them $60,000 for the contract violation and $90,000 for legal costs. The court said EMI cannot distribute the group’s music "by any other means than the original album, without the consent of Pink Floyd."
The case is another in a long line of disputes over major media and online companies using content without appropriate permissions of copyright owners. These are the same companies that vigorously protect their own interests against individuals and other media companies and that regularly tell legislators they need more rights so they can protect the interests of authors, artists, and performers. The arrogance and duplicity could not be clearer.
It is also a stark reminder that most media enterprises are somewhat unhappy alliances between content creators—whether journalists, authors and writers, filmmakers or performers—and business creators who often have differing perspectives on the roles and functions that media perform for society and the individuals who use media for art and expression.
The band felt so strongly about the art of its music that it negotiated a contract with EMI that included a provision to “preserve the artistic integrity of the albums.”
Consumers obviously thought Pink Floyd got the art right, helping the group achieve 16 gold, 13 platinum, and 10 multi-platinum albums. Two of its albums sold more than 10 million copies. The group’s recordings are second only to the Beatles recordings in terms of their value, something not missed by the group’s label EMI.
With sales of digital downloads exploding (accounting for nearly $4 billion in industry sales last year), the record company saw gold in selling individual tracks from albums such as “The Dark Side of the Moon” and “The Wall”. It licensed Pink Floyd’s tracks for sale on iTunes. It was like EMI was cutting up a Kandinsky painting and selling the pieces individually.
The band wasn’t amused and headed to court. It argued that it albums were indivisible and that EMI had violated the contract with the group by splitting them up. EMI countered that it was all just a matter of the new way of doing business in the digital age and that the contemporary technology and business model made it necessary to do disaggregate the albums.
This week the court ruled in favor of Pink Floyd, awarding them $60,000 for the contract violation and $90,000 for legal costs. The court said EMI cannot distribute the group’s music "by any other means than the original album, without the consent of Pink Floyd."
The case is another in a long line of disputes over major media and online companies using content without appropriate permissions of copyright owners. These are the same companies that vigorously protect their own interests against individuals and other media companies and that regularly tell legislators they need more rights so they can protect the interests of authors, artists, and performers. The arrogance and duplicity could not be clearer.
It is also a stark reminder that most media enterprises are somewhat unhappy alliances between content creators—whether journalists, authors and writers, filmmakers or performers—and business creators who often have differing perspectives on the roles and functions that media perform for society and the individuals who use media for art and expression.
THE BATTLE TO CONTROL ONLINE PRICES
The struggle to control prices of digital content sold online continues, with producers and distributors battling over prices for downloads of books and music.
In the latest skirmish, Amazon removed Macmillan books from its website after the company protested that online retail was using monopoly power to force publishers to accept prices no higher than $9.99. Macmillan and other publishers have now signed distribution deals with Apple that allows them to price downloads at $12.99 and $14.99.
Producers, of course, want higher prices because they produce higher revenue and better profits.
The struggle to control prices is not unique to the online environment. In the offline world, producers of books, magazines, CDs, and DVDs have long struggled to gain limited shelf space because there is a large oversupply of products and retailers’ have selection preferences for popular, rapidly selling products.
Large national and retailers have also used their bargaining power to push wholesale and manufacturer suggested retail prices downwards. Wal-Mart, now the number one music retailer in the World, uses its purchasing and sales power to sell large quantities of music at the lowest price possible—the basic price/quantity model for all the products it carries.
What is new in the offline world is that the conflict does not merely involve struggles over the price and quantity strategies of retailers, but that the retailers are using the media content as a joint product with their proprietary digital hardware.
Amazon wants content prices low not merely to sell more books, but because it helps it sell Kindle, its e-book reader. To date, it has been able to do so because it was the leading seller of both products—something it learned from Apple’s strategy with i-Tunes and i-Pod.
Competition in distributing content, even just a little competition, helps shift some of the power away from the retailer and back to the producer. Apple was forced to back away from its enforced price of 89 cents for a download when recording companies made deals with other download providers and threatened to end the rights for Apple to see their popular music. Apple is now playing spoiler to Amazon in the book downloads and Amazon has agreed to carry Macmillan books again.
Newspaper publishers are now seriously testing and considering a variety of e-readers as ways to reduce production and distribution costs. As part of their strategies, however, they would do well to learn from the experience of the music and book business. They need to remember that a basic rule of business is that if you don’t control price, you don’t control your business.
In the latest skirmish, Amazon removed Macmillan books from its website after the company protested that online retail was using monopoly power to force publishers to accept prices no higher than $9.99. Macmillan and other publishers have now signed distribution deals with Apple that allows them to price downloads at $12.99 and $14.99.
Producers, of course, want higher prices because they produce higher revenue and better profits.
The struggle to control prices is not unique to the online environment. In the offline world, producers of books, magazines, CDs, and DVDs have long struggled to gain limited shelf space because there is a large oversupply of products and retailers’ have selection preferences for popular, rapidly selling products.
Large national and retailers have also used their bargaining power to push wholesale and manufacturer suggested retail prices downwards. Wal-Mart, now the number one music retailer in the World, uses its purchasing and sales power to sell large quantities of music at the lowest price possible—the basic price/quantity model for all the products it carries.
What is new in the offline world is that the conflict does not merely involve struggles over the price and quantity strategies of retailers, but that the retailers are using the media content as a joint product with their proprietary digital hardware.
Amazon wants content prices low not merely to sell more books, but because it helps it sell Kindle, its e-book reader. To date, it has been able to do so because it was the leading seller of both products—something it learned from Apple’s strategy with i-Tunes and i-Pod.
Competition in distributing content, even just a little competition, helps shift some of the power away from the retailer and back to the producer. Apple was forced to back away from its enforced price of 89 cents for a download when recording companies made deals with other download providers and threatened to end the rights for Apple to see their popular music. Apple is now playing spoiler to Amazon in the book downloads and Amazon has agreed to carry Macmillan books again.
Newspaper publishers are now seriously testing and considering a variety of e-readers as ways to reduce production and distribution costs. As part of their strategies, however, they would do well to learn from the experience of the music and book business. They need to remember that a basic rule of business is that if you don’t control price, you don’t control your business.
THE BIGGEST MISTAKE OF JOURNALISM PROFESSIONALISM
Efforts to professionalize journalism began early in the twentieth century as a response to the hyper commercialization of newspapers and the “anything goes” approach to news that emerged in the late nineteenth century as a means of increasing street sales through sensationalism, twisting the truth, and outright lies.
The impetus for journalistic professionalism originated among publishers who wish to counter the trend and it gained support of journalists who saw it as a means of improving their working conditions and social standing. Journalism training and higher education programs, professional societies for journalists and editors, and codes of ethics and conduct emerged as part of professionalism. These promoted the core values of accuracy, fairness, completeness, and the pursuit of truth.
These efforts improved industry practices, pushed out the worst journalists and publishers, and creating some trust in the content of news. They also created environments in which advertisers were willing to promote their wares in newspapers and made news organizations more financially sustainable.
This is where journalistic professionalism took a wrong turn, however.
It did so in two ways. First, professional journalists were taught and accepted the idea that they should worry about the journalism and leave the business to itself. Second, journalists, along with other employees, decided to seek improvement to their compensation and working conditions through unionization—thus becoming adversaries of management rather than partners in the management of news organizations.
Both developments clearly improved journalism and lives of journalists; however, they also separated journalists from business decisions and removed them from any responsibility for the organization’s actions and sustainability.
Although some protests over editorial interference, owner avarice, and the corporatization of the news industry were heard in the 20th century, few efforts to alter the situation developed because the enterprises were willing to share a sufficient portion of the riches generated with journalists and because companies employed more journalists, improved newsrooms, built networks of bureaus, and provided resources to undertake interesting reporting activities.
That has all changed. The reporting resources are gone, the networks of bureaus are being dismantled, many enterprises can’t afford their own facilities, and journalists are being widely laid off. All of this is being done with little input and influence from journalists and editors precisely because they spent nearly a century denying responsibility and involvement in business decisions.
Today, many journalists are arguing for the creation of new types of news organizations—primarily not-for-profit enterprises—and they are repeating the same mistake. Most are suggesting, or already setting up, organizations in which journalists still have little say on strategy and business matters. Many are content merely with the idea that the new enterprises won’t be profit driven. That, however, is not enough.
Journalists need to be equally responsible in ensuring they produce news and information that has value. They need to be responsible for ensuring their new organizations create the revenues and organizational strength needed to carry out high quality journalism. They need to ensure that organizational decisions make the organizations and the journalism offered viable.
If journalists continue to deny responsibility for the operation and survival of their news enterprises, it will be impossible to create sustainable news organizations for the future.
The impetus for journalistic professionalism originated among publishers who wish to counter the trend and it gained support of journalists who saw it as a means of improving their working conditions and social standing. Journalism training and higher education programs, professional societies for journalists and editors, and codes of ethics and conduct emerged as part of professionalism. These promoted the core values of accuracy, fairness, completeness, and the pursuit of truth.
These efforts improved industry practices, pushed out the worst journalists and publishers, and creating some trust in the content of news. They also created environments in which advertisers were willing to promote their wares in newspapers and made news organizations more financially sustainable.
This is where journalistic professionalism took a wrong turn, however.
It did so in two ways. First, professional journalists were taught and accepted the idea that they should worry about the journalism and leave the business to itself. Second, journalists, along with other employees, decided to seek improvement to their compensation and working conditions through unionization—thus becoming adversaries of management rather than partners in the management of news organizations.
Both developments clearly improved journalism and lives of journalists; however, they also separated journalists from business decisions and removed them from any responsibility for the organization’s actions and sustainability.
Although some protests over editorial interference, owner avarice, and the corporatization of the news industry were heard in the 20th century, few efforts to alter the situation developed because the enterprises were willing to share a sufficient portion of the riches generated with journalists and because companies employed more journalists, improved newsrooms, built networks of bureaus, and provided resources to undertake interesting reporting activities.
That has all changed. The reporting resources are gone, the networks of bureaus are being dismantled, many enterprises can’t afford their own facilities, and journalists are being widely laid off. All of this is being done with little input and influence from journalists and editors precisely because they spent nearly a century denying responsibility and involvement in business decisions.
Today, many journalists are arguing for the creation of new types of news organizations—primarily not-for-profit enterprises—and they are repeating the same mistake. Most are suggesting, or already setting up, organizations in which journalists still have little say on strategy and business matters. Many are content merely with the idea that the new enterprises won’t be profit driven. That, however, is not enough.
Journalists need to be equally responsible in ensuring they produce news and information that has value. They need to be responsible for ensuring their new organizations create the revenues and organizational strength needed to carry out high quality journalism. They need to ensure that organizational decisions make the organizations and the journalism offered viable.
If journalists continue to deny responsibility for the operation and survival of their news enterprises, it will be impossible to create sustainable news organizations for the future.
THE WIDENING RANGE OF REVENUE SOURCES IN NEWS ENTERPRISES
It is obvious that both the offline and online news providers are in the midst of substantial transformation and that the traditional means of funding operations are no longer as viable as in the past. This is disturbing to the industry because it has enjoyed several decades of unusual financially wealth and few in the organizations know how to find and generate new sources of revenue.
The financial uncertainty facing the industry is not unusual, however. We tend to forget that news has historically been unable to pay for itself and was subsidized by other activities. In the past newspapers and other news organizations engaged in a far larger range of commercial activities than then they do today and publishers had to be highly entrepreneurial and seek income from a wide variety of sources in order to survive.
The initial gathering and distribution of news was paid for by emperors, monarchs, and other rulers who needed information for state purposes. Later, wealthy international merchants hired correspondents to gather and relay news that might affect their businesses. When news became a commercial product, newspaper publishers subsidized the operations with profits from printing books, magazines, pamphlets, and advertising sheets, income for editors from shipping and postal employment, profits from operating book shops and travel agencies, and subsidies from communities and political and social organizations.
Today, however, news organizations are struggling to maintain themselves and develop digital operations by primarily focusing on the two revenue streams they have known in recent decades: subscriptions and advertising. Many people are being disappointed because those are failing to provide sufficient financial resources to sustain their operations.
The need to seek income from multiple sources is clear, but runs somewhat counter to the values of twentieth-century professional journalism, which denigrates commercial activity and thus engenders organizational resistance to new business initiatives. Continuing staff reductions and other budgetary cutbacks are eroding some internal opposition, but are rightfully leading to questions about how far one goes down the commercial road before news gives up its independence.
In both the online and offline news worlds, a wide variety of revenue generating activities are appearing—some based on traditional subscriber/single copy sales and advertising sales—but many others moving into new areas of monetization.
Many news organizations are increasing the range of advertising services provided to sell and create ads for their own media products, but also to provide clients services that can be used in competing products as well. New types of advertising offerings are being created to link across platforms, sponsorships of online and mobile news headlines are developing, video advertising is being offered online, and special “deals of the day” advertising spots are being offered.
Some organizations are increasing their product lines producing paid premium products and niche content for professional groups and persons with special interests; some are providing business service listings for a fee; others are creating a variety of non-news products; still others are operating additional business units creating paid events, running cafés, book and magazine shops, and providing training and education activities.
Sales of other products and services are being increasingly embraced through e-commerce (linking published reviews films, performances, and recordings to sites where customers can buy tickets, DVDs, CDs, etc.), creating and selling lists and databases of local businesses and consumers, producing special reports and books, selling photographs and photography services, and even selling items such as computers and appliances.
A growing number of news organizations are seekings subsidies though reader memberships and donations and grants from community and national foundations.
These are healthy developments because they increase the opportunities to create revenue that can fund news activities. Obviously, the abilities and willingness of different news enterprises to engage in the range activities vary widely, but the fact that they are appearing show that news organizations are beginning to adjust to the new environment and becoming more entrepreneurial than they have been for many decades.
What is needed now is not knee-jerk opposition to these efforts from news personnel, but thoughtful development of realistic principles and processes to minimize any negative effects of these new initiatives on news content so that trust and credibility are not diminished.
The financial uncertainty facing the industry is not unusual, however. We tend to forget that news has historically been unable to pay for itself and was subsidized by other activities. In the past newspapers and other news organizations engaged in a far larger range of commercial activities than then they do today and publishers had to be highly entrepreneurial and seek income from a wide variety of sources in order to survive.
The initial gathering and distribution of news was paid for by emperors, monarchs, and other rulers who needed information for state purposes. Later, wealthy international merchants hired correspondents to gather and relay news that might affect their businesses. When news became a commercial product, newspaper publishers subsidized the operations with profits from printing books, magazines, pamphlets, and advertising sheets, income for editors from shipping and postal employment, profits from operating book shops and travel agencies, and subsidies from communities and political and social organizations.
Today, however, news organizations are struggling to maintain themselves and develop digital operations by primarily focusing on the two revenue streams they have known in recent decades: subscriptions and advertising. Many people are being disappointed because those are failing to provide sufficient financial resources to sustain their operations.
The need to seek income from multiple sources is clear, but runs somewhat counter to the values of twentieth-century professional journalism, which denigrates commercial activity and thus engenders organizational resistance to new business initiatives. Continuing staff reductions and other budgetary cutbacks are eroding some internal opposition, but are rightfully leading to questions about how far one goes down the commercial road before news gives up its independence.
In both the online and offline news worlds, a wide variety of revenue generating activities are appearing—some based on traditional subscriber/single copy sales and advertising sales—but many others moving into new areas of monetization.
Many news organizations are increasing the range of advertising services provided to sell and create ads for their own media products, but also to provide clients services that can be used in competing products as well. New types of advertising offerings are being created to link across platforms, sponsorships of online and mobile news headlines are developing, video advertising is being offered online, and special “deals of the day” advertising spots are being offered.
Some organizations are increasing their product lines producing paid premium products and niche content for professional groups and persons with special interests; some are providing business service listings for a fee; others are creating a variety of non-news products; still others are operating additional business units creating paid events, running cafés, book and magazine shops, and providing training and education activities.
Sales of other products and services are being increasingly embraced through e-commerce (linking published reviews films, performances, and recordings to sites where customers can buy tickets, DVDs, CDs, etc.), creating and selling lists and databases of local businesses and consumers, producing special reports and books, selling photographs and photography services, and even selling items such as computers and appliances.
A growing number of news organizations are seekings subsidies though reader memberships and donations and grants from community and national foundations.
These are healthy developments because they increase the opportunities to create revenue that can fund news activities. Obviously, the abilities and willingness of different news enterprises to engage in the range activities vary widely, but the fact that they are appearing show that news organizations are beginning to adjust to the new environment and becoming more entrepreneurial than they have been for many decades.
What is needed now is not knee-jerk opposition to these efforts from news personnel, but thoughtful development of realistic principles and processes to minimize any negative effects of these new initiatives on news content so that trust and credibility are not diminished.
IMPLICATIONS OF CHANGING DEFINITIONS OF MEDIA MARKETS
An important contemporary development is the shift of media market definitions from traditional platform-based definitions to functional definitions. This is occurring because media product platform definitions are losing their specificity and uniqueness due to digitalization and cross-platform distribution developments.
Newspapers are becoming news providers, delivering news and information via print, online, mobile, and other platforms; broadcasters are moving off the radio spectrum, exploiting not only other streaming and video-on-demand opportunities, but also text-based communication on web and mobile platforms.
Although functional definitions clarify what companies actually do, they obscure wide differences in audiences, business relations, and revenue sources on the different platforms and give some the mistaken impression that a functionally defined operation can be successful operating the same way across the different platform environments. The functional definition is also confusing some policy makers and regulators concerned with effects of cross-media activity, consolidation, and concentration who do not carefully sort out the different elements of product and geographic market definitions among the platforms.
From the business standpoint, the fundamental problem of the functional definitions is that it leads many content providers to believe they can simply repurpose existing content across platforms. They are happy to do so because the marginal cost is near zero, but they ignore the facts that it also commoditizes the content, that the content losses uniqueness, and that similar presentation may not be appropriate on other platforms. Consequently, the repurposed content can produce only a small marginal increase in revenue.
To ultimately be successful in functional markets, companies need to offer a good deal of new content and launch new products on the new platforms rather than merely reusing what is already there in the traditional ways. Leading cable channels, for example, early in their development relied on motion pictures and syndicated programs previously shown on network television, but soon realized that they needed original programming to attract better audiences and gain additional revenue. Financial newspapers have begun to get it right on the Internet, offering more content and tools than in their print editions and establishing specialized niche products for different types of industry and business readers.
We are all watching to see who among general content providers manages to get their functional approach to markets right using the Internet, Mobile, e-Readers, and other platforms.
Newspapers are becoming news providers, delivering news and information via print, online, mobile, and other platforms; broadcasters are moving off the radio spectrum, exploiting not only other streaming and video-on-demand opportunities, but also text-based communication on web and mobile platforms.
Although functional definitions clarify what companies actually do, they obscure wide differences in audiences, business relations, and revenue sources on the different platforms and give some the mistaken impression that a functionally defined operation can be successful operating the same way across the different platform environments. The functional definition is also confusing some policy makers and regulators concerned with effects of cross-media activity, consolidation, and concentration who do not carefully sort out the different elements of product and geographic market definitions among the platforms.
From the business standpoint, the fundamental problem of the functional definitions is that it leads many content providers to believe they can simply repurpose existing content across platforms. They are happy to do so because the marginal cost is near zero, but they ignore the facts that it also commoditizes the content, that the content losses uniqueness, and that similar presentation may not be appropriate on other platforms. Consequently, the repurposed content can produce only a small marginal increase in revenue.
To ultimately be successful in functional markets, companies need to offer a good deal of new content and launch new products on the new platforms rather than merely reusing what is already there in the traditional ways. Leading cable channels, for example, early in their development relied on motion pictures and syndicated programs previously shown on network television, but soon realized that they needed original programming to attract better audiences and gain additional revenue. Financial newspapers have begun to get it right on the Internet, offering more content and tools than in their print editions and establishing specialized niche products for different types of industry and business readers.
We are all watching to see who among general content providers manages to get their functional approach to markets right using the Internet, Mobile, e-Readers, and other platforms.
MEDIA, INNOVATION, AND THE STATE
There is a growing chorus for governments to help established media transform themselves in the digital age. From the U.S. to the Netherlands, from the U.K. to France, governments are being asked to help both print and broadcast media innovate their products and services to help make them sustainable.
State support for innovation is not a new concept. Support of cooperate research initiatives involving the state, higher education institutions, and industries has been part of national science and industrial policies for many decades. There has been significant state support for innovation of agriculture/food products, electronics, advanced military equipment, information technology, and biomedical technology and products.
State support tends to work best in developing new technologies and industries and tends to focus support on advanced basic scholarly research through science and research funding organizations, creation and support for research parks and industrial development zones for applied research, and incentives and subsidies for commercial research and development.
Many governments also support efforts to transform established industries. These are typically designed to promote productivity and competitiveness as a means of preserving employment and the tax base. In the past there has been some support for technology transfer from electronics and information technology to existing industries and for retraining, facilities reconstruction, and entering new markets.
Trying to apply those kinds of research and transformation policies in media is challenging, however, because much of media activities tend to be non-industrial and are dependent on relatively rigid organizational structures and processes that are difficult to change. These factors are complicated by the facts that media engage in negligible research and development activities, have limited experience with product change and new product development, and tend to have limited links to higher education institutions.
It is clear that a growing number of managers in media industries understand the need for innovation because of the declining sustainability of current operations and because Internet, mobile, e-reader, and on-demand technologies are providing new opportunities. The real innovation challenges in established media, however, are not perceiving the need for change or being able to get needed technology, but organizational structures, processes, culture, and ways of thinking that limit willingness and ability to innovate. This is compounded because many managers are confused by the opportunities and don’t know what to do or how pursue innovation.
Today, the innovation challenge facing media—especially newspapers--is not mere modernization, but fundamentally reestablishing their media functions and forms. What is needed is a complete rethinking of what content is offered, where, when and how it is provided, what new products and services should be provided and what existing ones dropped, how content will differ and be superior to that of other providers, how to establish new and better relationships with consumers, how the activities are organized and what processes will be employed, what relationships need to be established with partners and intermediaries, and ultimately how the activities are funded.
The state’s ability to influence media innovation of this type is highly constrained. Governments worldwide have proven themselves ineffectual in running business enterprises and they have limited abilities to affect organizational structures, processes, culture, and thinking in existing firms. What governments can do, however, is to fund research that identifies threats, opportunities and best practices, provide education and training to promote innovation and help implement change, offer incentives or subsidies to cover transformation costs and support new initiatives, and help coordinate activities across industries.
These kinds of support will be helpful, but they will not be a panacea because the greatest impetus for and implementation of change and innovation must come from within companies. The support will only be helpful if companies are actually willing to innovate and change to support that innovation. The extent they are willing to do so remains to be seen.
State support for innovation is not a new concept. Support of cooperate research initiatives involving the state, higher education institutions, and industries has been part of national science and industrial policies for many decades. There has been significant state support for innovation of agriculture/food products, electronics, advanced military equipment, information technology, and biomedical technology and products.
State support tends to work best in developing new technologies and industries and tends to focus support on advanced basic scholarly research through science and research funding organizations, creation and support for research parks and industrial development zones for applied research, and incentives and subsidies for commercial research and development.
Many governments also support efforts to transform established industries. These are typically designed to promote productivity and competitiveness as a means of preserving employment and the tax base. In the past there has been some support for technology transfer from electronics and information technology to existing industries and for retraining, facilities reconstruction, and entering new markets.
Trying to apply those kinds of research and transformation policies in media is challenging, however, because much of media activities tend to be non-industrial and are dependent on relatively rigid organizational structures and processes that are difficult to change. These factors are complicated by the facts that media engage in negligible research and development activities, have limited experience with product change and new product development, and tend to have limited links to higher education institutions.
It is clear that a growing number of managers in media industries understand the need for innovation because of the declining sustainability of current operations and because Internet, mobile, e-reader, and on-demand technologies are providing new opportunities. The real innovation challenges in established media, however, are not perceiving the need for change or being able to get needed technology, but organizational structures, processes, culture, and ways of thinking that limit willingness and ability to innovate. This is compounded because many managers are confused by the opportunities and don’t know what to do or how pursue innovation.
Today, the innovation challenge facing media—especially newspapers--is not mere modernization, but fundamentally reestablishing their media functions and forms. What is needed is a complete rethinking of what content is offered, where, when and how it is provided, what new products and services should be provided and what existing ones dropped, how content will differ and be superior to that of other providers, how to establish new and better relationships with consumers, how the activities are organized and what processes will be employed, what relationships need to be established with partners and intermediaries, and ultimately how the activities are funded.
The state’s ability to influence media innovation of this type is highly constrained. Governments worldwide have proven themselves ineffectual in running business enterprises and they have limited abilities to affect organizational structures, processes, culture, and thinking in existing firms. What governments can do, however, is to fund research that identifies threats, opportunities and best practices, provide education and training to promote innovation and help implement change, offer incentives or subsidies to cover transformation costs and support new initiatives, and help coordinate activities across industries.
These kinds of support will be helpful, but they will not be a panacea because the greatest impetus for and implementation of change and innovation must come from within companies. The support will only be helpful if companies are actually willing to innovate and change to support that innovation. The extent they are willing to do so remains to be seen.
JOURNALISM AS CHARITY AND ENTREPRENEURSHIP
Many journalists pursuing new online initiatives are learning that good intentions are not enough for providing news.
The latest group to do so is former Rocky Mountain News reporters who started rockymountainindependent.com this past summer using a membership payment and advertising model. The effort collapsed Oct. 4 with them telling readers, “We put everything into producing content and supporting our independent partners, but we can no longer afford to produce enough content to justify the membership.”
There problem is hardly unique. The conundrum facing many journalists is whether to pursue the noble work of journalism as unpaid charitable work or to become engaged as journalistic entrepreneurs with a serious attitude toward its business issues—something many despised in their former employers.
If journalists want pay for their work, if they want to provide for their families, and if they want to pay mortgages, they need to spend more time figuring out how to provide value that will extract payments from readers and advertisers. To do that they have to construct organizational structures and activities that support the journalism; they will have to ensure that startups have sufficient capital; and they will have to engage staffs in marketing and advertising activities, not merely news provision.
One of the most difficult issue for these new journalism providers—as well as existing print and broadcast providers—is that journalists tend to overestimate the value of news for the public. What the public actually wants is less, not more, news.
It is not that the public doesn’t want to be informed, however. It is just that journalists spend so much time, space, and effort conveying commodity news that provides little new and helpful information for readers and cannot generate sufficient financial support. By commodity news I mean the simplistic who, what, and where stories about what happened yesterday. Those kinds of stories are readily available from many sources and provides readers little for which they will pay.
Instead, in a world of ubiquitous commodity journalism, successful journalists need to be spending time exploring the how and why of events and issues and helping readers understand and cope with what is expected next. Effective journalism in the new environment needs to focus more on today and tomorrow than on yesterday.
Success in the contemporary journalism environment it is not merely about providing news, but about providing helpful and advisory news explanation based on solid values and identity to which readers can relate. It must be part of entrepreneurial journalism or new ventures will fail.
To get there, however, journalists starting up new enterprises will need to develop resources and entrepreneurial motivation to sustain their efforts more than a few months. Most new commercial and noncommercial enterprises require 18 to 36 months of operation before they develop a loyal audience and achieve a stable financial situation. Unless journalists are willing to work for free during that time, they will have to raise capital to survive; and if they want their new organizations to thrive and develop they will have to provide a different kind of news than most are used to creating. It will need to be unique and better than what is already available.
The latest group to do so is former Rocky Mountain News reporters who started rockymountainindependent.com this past summer using a membership payment and advertising model. The effort collapsed Oct. 4 with them telling readers, “We put everything into producing content and supporting our independent partners, but we can no longer afford to produce enough content to justify the membership.”
There problem is hardly unique. The conundrum facing many journalists is whether to pursue the noble work of journalism as unpaid charitable work or to become engaged as journalistic entrepreneurs with a serious attitude toward its business issues—something many despised in their former employers.
If journalists want pay for their work, if they want to provide for their families, and if they want to pay mortgages, they need to spend more time figuring out how to provide value that will extract payments from readers and advertisers. To do that they have to construct organizational structures and activities that support the journalism; they will have to ensure that startups have sufficient capital; and they will have to engage staffs in marketing and advertising activities, not merely news provision.
One of the most difficult issue for these new journalism providers—as well as existing print and broadcast providers—is that journalists tend to overestimate the value of news for the public. What the public actually wants is less, not more, news.
It is not that the public doesn’t want to be informed, however. It is just that journalists spend so much time, space, and effort conveying commodity news that provides little new and helpful information for readers and cannot generate sufficient financial support. By commodity news I mean the simplistic who, what, and where stories about what happened yesterday. Those kinds of stories are readily available from many sources and provides readers little for which they will pay.
Instead, in a world of ubiquitous commodity journalism, successful journalists need to be spending time exploring the how and why of events and issues and helping readers understand and cope with what is expected next. Effective journalism in the new environment needs to focus more on today and tomorrow than on yesterday.
Success in the contemporary journalism environment it is not merely about providing news, but about providing helpful and advisory news explanation based on solid values and identity to which readers can relate. It must be part of entrepreneurial journalism or new ventures will fail.
To get there, however, journalists starting up new enterprises will need to develop resources and entrepreneurial motivation to sustain their efforts more than a few months. Most new commercial and noncommercial enterprises require 18 to 36 months of operation before they develop a loyal audience and achieve a stable financial situation. Unless journalists are willing to work for free during that time, they will have to raise capital to survive; and if they want their new organizations to thrive and develop they will have to provide a different kind of news than most are used to creating. It will need to be unique and better than what is already available.
4 STRATEGIC PRINCIPLES FOR EVERY DIGITAL PUBLISHER
As publishers move more and more content to the Internet, mobile services, and e-readers, these digital activities change the structures and processes of underlying business operations. Many publishers, however, pay insufficient attention to the implications of these changes and thus miss out on many benefits possible with digital operations.
This occurs because publishers become focused on issues of content delivery and uncritically accept the fundamental elements of the processes involving platforms and intermediaries. In order to gain the fullest future benefits from the digital environment, however, publishers needs to strategically consider and direct activities involving the users, advertisers, prices, and purposes of their new platforms.
In creating business arrangements with platform and service providers and intermediaries, 4 fundamental strategic principles should guide your actions:
1. Control your customer lists. The most important thing you do as a publisher is to create relationships with and experiences for your customers. It is crucial to ensure that your content distribution and retail systems do not separate you from those who read, view, or listen to your content. If you do not operate your distribution or pay systems, or don’t have strong influence over their operations, this important part of the customer experience falls outside your control and— worse—you never establish direct relationships with customers that allow you to get to know them better, to create stronger bonds, to use them to improve your products, or to up-sell services. If you must use intermediaries, ensure that you have full access and rights to use e-mail, mobile, and other addresses for all your content customers and that you have some influence over the look, feel, and content of the contacts that your service providers have with your customers.
2. Control advertising in your digital space. Users see advertising placed on your website, your mobile messages, and your e-reader content as part of your product and it affects the experience you deliver to them. It is not enough to control the size and placement of ads; you also need to control the dynamic functionality, types, and content of ads. The experience your product delivers is of little interest to outside providers of digitally delivered advertising, but it must be to you. You should control your own advertising inventory and maintain approval rights and—as with audiences—you should have the ability to make direct contact with advertising customers so you can add value by working with them to achieve greater effectiveness and provide better benefits across your content platforms.
3. Control your own pricing. Do not put yourself in the position of merely accepting the ad suppliers’ price and payment for advertising appearing in your digital product. The digital space and audience contact that you provide is the product and service being purchased and some contact is more valuable than others. Know how your value compares to that of competitors and set your prices according. Don’t be a price taker, be a price maker. Digital advertising will not grow to become an important part of your business if you let the most important decision of the revenue model reside in someone who does not care about your business.
4. Drive customers to platforms most beneficial to you. Digital media give you the opportunities to serve customers where and when they want to be served, but you need to use those opportunities to drive them to your financially most important product. Internet sites, e-readers, mobile applications, and social media are highly useful for contact and interaction, but not yet very effective for revenue generation. The best effects typically result from increasing use of your offline product or driving traffic to your most finally effective digital location. Make sure that all the distribution platforms you use are configured for easy movement to other digital platforms that benefit you most, even if they don’t directly benefit your service provider.
Digital publishing can only become successful if you get the business fundamentals correct by controlling the most important commercial aspects of the operation. The value configuration created by customer interfaces and partner networks must be arranged to work in your favor and strategic thinking needs to guide how you organize and direct those activities.
This occurs because publishers become focused on issues of content delivery and uncritically accept the fundamental elements of the processes involving platforms and intermediaries. In order to gain the fullest future benefits from the digital environment, however, publishers needs to strategically consider and direct activities involving the users, advertisers, prices, and purposes of their new platforms.
In creating business arrangements with platform and service providers and intermediaries, 4 fundamental strategic principles should guide your actions:
1. Control your customer lists. The most important thing you do as a publisher is to create relationships with and experiences for your customers. It is crucial to ensure that your content distribution and retail systems do not separate you from those who read, view, or listen to your content. If you do not operate your distribution or pay systems, or don’t have strong influence over their operations, this important part of the customer experience falls outside your control and— worse—you never establish direct relationships with customers that allow you to get to know them better, to create stronger bonds, to use them to improve your products, or to up-sell services. If you must use intermediaries, ensure that you have full access and rights to use e-mail, mobile, and other addresses for all your content customers and that you have some influence over the look, feel, and content of the contacts that your service providers have with your customers.
2. Control advertising in your digital space. Users see advertising placed on your website, your mobile messages, and your e-reader content as part of your product and it affects the experience you deliver to them. It is not enough to control the size and placement of ads; you also need to control the dynamic functionality, types, and content of ads. The experience your product delivers is of little interest to outside providers of digitally delivered advertising, but it must be to you. You should control your own advertising inventory and maintain approval rights and—as with audiences—you should have the ability to make direct contact with advertising customers so you can add value by working with them to achieve greater effectiveness and provide better benefits across your content platforms.
3. Control your own pricing. Do not put yourself in the position of merely accepting the ad suppliers’ price and payment for advertising appearing in your digital product. The digital space and audience contact that you provide is the product and service being purchased and some contact is more valuable than others. Know how your value compares to that of competitors and set your prices according. Don’t be a price taker, be a price maker. Digital advertising will not grow to become an important part of your business if you let the most important decision of the revenue model reside in someone who does not care about your business.
4. Drive customers to platforms most beneficial to you. Digital media give you the opportunities to serve customers where and when they want to be served, but you need to use those opportunities to drive them to your financially most important product. Internet sites, e-readers, mobile applications, and social media are highly useful for contact and interaction, but not yet very effective for revenue generation. The best effects typically result from increasing use of your offline product or driving traffic to your most finally effective digital location. Make sure that all the distribution platforms you use are configured for easy movement to other digital platforms that benefit you most, even if they don’t directly benefit your service provider.
Digital publishing can only become successful if you get the business fundamentals correct by controlling the most important commercial aspects of the operation. The value configuration created by customer interfaces and partner networks must be arranged to work in your favor and strategic thinking needs to guide how you organize and direct those activities.
THE TRANSACTION COST PROBLEM OF NEWSPAPER MICROPAYMENTS
The desire to monetize online news is leading some to enthusiastically promote micropayment systems. A number of the leading newspaper sites are leaning toward a cooperative payment system that will allow readers to use a single account to access material at the leading papers. Such a system will not be technically difficult to implement, but getting the price right will be a significant challenge because of transaction costs and significant differences in the economic value of articles.
To create the best industry wide effects, a micropayment payment system would need to include as many papers as possible (see "The Challenges of Online News Micropayments and Subscriptions" http://themediabusiness.blogspot.com/2009/05/challenges-of-online-news-micropayments.html). The fact that a consortium is currently being sought only among the major players illustrates, however, that such a system would be cost inefficient because content from smaller papers would attract fewer transactions and be more expensive to service.
A widely inclusive system would encounter the problems of small payouts that have plagued collecting rights societies for authors, composers, and performers. Those systems have found that the costs of managing transactions, accounting and auditing, and conveying funds to rights holders incur higher expenses than the payments due many rights holders and that such a system is possible only when the rights holders and content that generate the most transactions subsidize those that generate the least.
This occurs because each right must have a separate account, uses of all rights must be monitored and recorded, funds must be collected, expenses for accounting, auditing and other administrative costs paid, and funds must be transferred to recipients. These activities incur significant transaction costs.
Even a cooperative system limited to newspapers that attract the largest number of customers will encounter transaction cost challenges.
In single content sales systems, for example, the cost of making transactions takes up the bulk of the price. In the sale of mobile telephone ringtones, for example, the composer, arranger, and performer get only about 20% of the price. For digital song downloads everyone associated with the content--songwriter, arranger performers, and record company--receive less than half. This occurs because merchant and financial transaction costs are very high. The cost for using a credit card adds 5 to 7 percent to merchant costs and the expense for bank processing of each transaction is a minimum of about 25 cents. Even electronic fund transfers between bank accounts incurs about 30 cents in transaction costs.
These realities will affect the structure and pricing of newspaper article micropayment purchases. The most efficient system for users and firms will require the use of prepaid customer accounts to reduce the number of bank system transactions. This will allow users to transfer funds to their accounts and then purchase articles at pennies a piece. Funds collected would be then periodically transferred to papers. Such a system could also include the option for occasional users to make credit cards purchases of articles, but the price would have to be $2 to $10 per article to make it worth the effort.
The biggest pricing challenge, however, is that some articles will be more valuable than others and will be most sought after by consumers. This means newspapers will have to figure out BEFOREHAND which stories fall into those categories and they will have to decide what prices to charge for them. Papers will have to hire personnel to try to figure out before publication which are the most economically valuable stories--something that will be extremely hard to do--or they will have to set prices based on the costs invested in creating each story (something current newspaper accounting systems do not support). In either case, increased costs will result. The only other reasonable option is to set prices per article based on the overall average cost of producing an article or a column inch of editorial copy. This, of course, over and under prices content simultaneously.
Moving to a micropayment system is not merely a matter of starting to charge for content online, but involves changing the fundamental business model of papers. Newspapers have historically bundled all content into one product available at a single price. In retailing, bundling has always worked best for getting consumers to buy more of the product at a lower price than if bought individually. With this tactic the producer gains profit because the costs of distribution and sales are collectively lower. A second tactic involves bundling products of unequal or uneven value that are sold together to achieve a joint price that is higher than would have been obtained individually.
Newspapers have historically benefited from such bundling by filling pages with relatively inexpensive news agency and syndicated content and by including huge amounts of information culled from public sources that did not require significant investment of resources or added value. Unbundling and selling individual articles with a micropayment system will produce little consumer willingness to pay for this type of content--a significant problem because it is the bulk of editorial content in most newspapers today. Unbundling will also increase transaction costs, thus reducing profitability. This will force higher prices on consumers that will affect demand.
Disaggregating the newspaper and making more money off some individual articles will also create pressure for additional payments from journalists who write the most valuable articles. This will also increase costs of the micropayment system.
Making money from online journalism is, thus, not just a matter of saying "Let's all start charging." It will require fundamental rethinking of the value chain, what content is offered, and how it is produced. It will also require significant thought about what's in it for consumers--something that is glaringly missing from current discussions of starting online payments. The consumer challenge is especially salient because most online news readers do not currently buy newspapers. If they are not willing to pay for news in print, why will they suddenly be willing to pay for that same news online? If papers can't figure that out, no decision to implement micropayments will end happily.
To create the best industry wide effects, a micropayment payment system would need to include as many papers as possible (see "The Challenges of Online News Micropayments and Subscriptions" http://themediabusiness.blogspot.com/2009/05/challenges-of-online-news-micropayments.html). The fact that a consortium is currently being sought only among the major players illustrates, however, that such a system would be cost inefficient because content from smaller papers would attract fewer transactions and be more expensive to service.
A widely inclusive system would encounter the problems of small payouts that have plagued collecting rights societies for authors, composers, and performers. Those systems have found that the costs of managing transactions, accounting and auditing, and conveying funds to rights holders incur higher expenses than the payments due many rights holders and that such a system is possible only when the rights holders and content that generate the most transactions subsidize those that generate the least.
This occurs because each right must have a separate account, uses of all rights must be monitored and recorded, funds must be collected, expenses for accounting, auditing and other administrative costs paid, and funds must be transferred to recipients. These activities incur significant transaction costs.
Even a cooperative system limited to newspapers that attract the largest number of customers will encounter transaction cost challenges.
In single content sales systems, for example, the cost of making transactions takes up the bulk of the price. In the sale of mobile telephone ringtones, for example, the composer, arranger, and performer get only about 20% of the price. For digital song downloads everyone associated with the content--songwriter, arranger performers, and record company--receive less than half. This occurs because merchant and financial transaction costs are very high. The cost for using a credit card adds 5 to 7 percent to merchant costs and the expense for bank processing of each transaction is a minimum of about 25 cents. Even electronic fund transfers between bank accounts incurs about 30 cents in transaction costs.
These realities will affect the structure and pricing of newspaper article micropayment purchases. The most efficient system for users and firms will require the use of prepaid customer accounts to reduce the number of bank system transactions. This will allow users to transfer funds to their accounts and then purchase articles at pennies a piece. Funds collected would be then periodically transferred to papers. Such a system could also include the option for occasional users to make credit cards purchases of articles, but the price would have to be $2 to $10 per article to make it worth the effort.
The biggest pricing challenge, however, is that some articles will be more valuable than others and will be most sought after by consumers. This means newspapers will have to figure out BEFOREHAND which stories fall into those categories and they will have to decide what prices to charge for them. Papers will have to hire personnel to try to figure out before publication which are the most economically valuable stories--something that will be extremely hard to do--or they will have to set prices based on the costs invested in creating each story (something current newspaper accounting systems do not support). In either case, increased costs will result. The only other reasonable option is to set prices per article based on the overall average cost of producing an article or a column inch of editorial copy. This, of course, over and under prices content simultaneously.
Moving to a micropayment system is not merely a matter of starting to charge for content online, but involves changing the fundamental business model of papers. Newspapers have historically bundled all content into one product available at a single price. In retailing, bundling has always worked best for getting consumers to buy more of the product at a lower price than if bought individually. With this tactic the producer gains profit because the costs of distribution and sales are collectively lower. A second tactic involves bundling products of unequal or uneven value that are sold together to achieve a joint price that is higher than would have been obtained individually.
Newspapers have historically benefited from such bundling by filling pages with relatively inexpensive news agency and syndicated content and by including huge amounts of information culled from public sources that did not require significant investment of resources or added value. Unbundling and selling individual articles with a micropayment system will produce little consumer willingness to pay for this type of content--a significant problem because it is the bulk of editorial content in most newspapers today. Unbundling will also increase transaction costs, thus reducing profitability. This will force higher prices on consumers that will affect demand.
Disaggregating the newspaper and making more money off some individual articles will also create pressure for additional payments from journalists who write the most valuable articles. This will also increase costs of the micropayment system.
Making money from online journalism is, thus, not just a matter of saying "Let's all start charging." It will require fundamental rethinking of the value chain, what content is offered, and how it is produced. It will also require significant thought about what's in it for consumers--something that is glaringly missing from current discussions of starting online payments. The consumer challenge is especially salient because most online news readers do not currently buy newspapers. If they are not willing to pay for news in print, why will they suddenly be willing to pay for that same news online? If papers can't figure that out, no decision to implement micropayments will end happily.
JOURNALISM STARTUPS ARE HELPFUL, BUT NO PANACEA FOR NEWS PROBLEMS
One of the most exciting developments in journalism is the widespread appearance of online news startups. These are taking a variety of not-for-profit and commercial forms and are typically designed to provide reporting of under-covered communities and neighborhoods or to cover topics or employ journalistic techniques that have been reduced in traditional media because of their expense.
These initiatives should be lauded and supported. However, we have to be careful that the optimism and idealism surrounding these efforts not be imbued with naïveté and unbridled expectation. All these initiatives face significant challenges that require pragmatism in their organization and sober reflection about their potential to solve the fundamental problems in the news industry today.
We need to recognize that these online initiatives are not without precedent. We can learn a great deal about their potential from other community- and public affairs-oriented media endeavors. Community radio, local public service radio and television, public access television, and not-for-profit news and public affairs magazines have existed for decades and provide some evidence about the potential of the startups. Most rely heavily on the same types of foundation, community support, and membership financial models that startups are employing and this gives them a head start in the competition of those resources.
Despite sharing fundamental objectives and goals, these existing news and public affairs enterprises exhibit wide differences in the services they provide and their effectiveness in offering them. Many suffer from precarious financial conditions.
For the most part, such initiatives are highly dependent upon volunteer labor, individuals with the best of intentions who contribute time and effort. Those who manage the operations must expend a great deal of effort to train, coordinate, motivate and support these volunteers. This incurs cost and takes time from other activities.
Most of the organizations operate with highly limited staffs of regularly employed personnel and this is especially true in news operations. Professional journalists working in these organizations tend to be poorly paid; few have health and retirement benefits; most do not have libel insurance that protects aggressive and investigative reporting; few have access to resources to invest time and money in significant journalistic research. The consequence of these challenges is that there tends to be high turnover because the operations typically rely on young journalists who use the organizations to gain professional experience and then move on to better funded or commercial firms.
The community and public affairs operations also exhibit widely disparate size and quality in their journalistic activities. Even most affiliates of National Public Radio—which is generally considered the most successful of non-commercial news operations—tend to have small and relatively undistinguished news operations. Most rely upon the exceptional content of the national organization, large metropolitan affiliates, and the best of the content collectively produced by other local affiliates. Affiliates with larger news staffs and quality tend to be limited to those linked to university journalism programs or in the best-funded metropolitan operations.
The challenges faced in these organizations should not deter the establishment of new online initiatives or keep the rest of us from supporting them. We need to be realistic about their potential, however. In the foreseeable future these startups will tend to supplement rather than to replace traditional news organizations. They may be part of the solution to the problem of news provision, but they alone are not the remedy.
These initiatives should be lauded and supported. However, we have to be careful that the optimism and idealism surrounding these efforts not be imbued with naïveté and unbridled expectation. All these initiatives face significant challenges that require pragmatism in their organization and sober reflection about their potential to solve the fundamental problems in the news industry today.
We need to recognize that these online initiatives are not without precedent. We can learn a great deal about their potential from other community- and public affairs-oriented media endeavors. Community radio, local public service radio and television, public access television, and not-for-profit news and public affairs magazines have existed for decades and provide some evidence about the potential of the startups. Most rely heavily on the same types of foundation, community support, and membership financial models that startups are employing and this gives them a head start in the competition of those resources.
Despite sharing fundamental objectives and goals, these existing news and public affairs enterprises exhibit wide differences in the services they provide and their effectiveness in offering them. Many suffer from precarious financial conditions.
For the most part, such initiatives are highly dependent upon volunteer labor, individuals with the best of intentions who contribute time and effort. Those who manage the operations must expend a great deal of effort to train, coordinate, motivate and support these volunteers. This incurs cost and takes time from other activities.
Most of the organizations operate with highly limited staffs of regularly employed personnel and this is especially true in news operations. Professional journalists working in these organizations tend to be poorly paid; few have health and retirement benefits; most do not have libel insurance that protects aggressive and investigative reporting; few have access to resources to invest time and money in significant journalistic research. The consequence of these challenges is that there tends to be high turnover because the operations typically rely on young journalists who use the organizations to gain professional experience and then move on to better funded or commercial firms.
The community and public affairs operations also exhibit widely disparate size and quality in their journalistic activities. Even most affiliates of National Public Radio—which is generally considered the most successful of non-commercial news operations—tend to have small and relatively undistinguished news operations. Most rely upon the exceptional content of the national organization, large metropolitan affiliates, and the best of the content collectively produced by other local affiliates. Affiliates with larger news staffs and quality tend to be limited to those linked to university journalism programs or in the best-funded metropolitan operations.
The challenges faced in these organizations should not deter the establishment of new online initiatives or keep the rest of us from supporting them. We need to be realistic about their potential, however. In the foreseeable future these startups will tend to supplement rather than to replace traditional news organizations. They may be part of the solution to the problem of news provision, but they alone are not the remedy.
OMG! NEWSPAPERS MAY NOT BE DEAD!
Success in businesses is not the result of highly mysterious factors.
To be successful an enterprise must offer a product or service that people want; it must provide it with better quality and service than other providers—or at a lower price than competitors; it must change with the times and demand; and it must never forget to focus on customer needs rather than its own. And a limited number of competitors helps. Duh.
Many journalists have trouble understanding these principles, however, and we were treated to 2 classic stories in which journalists breathlessly announced this discovery over the weekend.
The New York Times told us about the “resurgent” Seattle Times. The Times is starting to reap the fruits of monopoly caused by the demise of the print edition of the Post-Intelligencer and the stabilizing economy. It has picked up most of the print readers from the P-I, raised its circulation prices, and been able to keep the higher ad rates that were charged when ads were put in both papers. http://www.nytimes.com/2009/08/10/business/media/10seattle.html
The Associated Press told us “Small is beautiful” and that local papers do not feel competition for big players like CNN, metropolitan television, and Craigslist because they focus on local news and advertising not available elsewhere. “Less competition means the print editions and Web sites of smaller newspapers remain the focal points for finding out what's happening in their coverage areas.” http://tech.yahoo.com/news/ap/20090809/ap_on_hi_te/us_small_newspapers_1
Journalists are also starting to discover that the industry might not be as dead as they have been portraying it to be. A number of stories have reported that the drop in advertising due to the recession appears to be near bottom, that profits and share prices are rising, and there is no wholesale rush to the web by print newspaper readers.
These “surprises” are developing, I believe, because journalists have never covered their own industry with the same interest and vigor that they have covered other industries. This is partly true because they have adamantly and publicly expressed distain for the business side of the news industry and because they tend to accept and endlessly repeat the views of publishers without critical fact checking or seeking better understanding of the business dynamics of news. Whatever happened to the old journalism adage "If your mother says she loves you, check it out!"
Perhaps they will learn.
To be successful an enterprise must offer a product or service that people want; it must provide it with better quality and service than other providers—or at a lower price than competitors; it must change with the times and demand; and it must never forget to focus on customer needs rather than its own. And a limited number of competitors helps. Duh.
Many journalists have trouble understanding these principles, however, and we were treated to 2 classic stories in which journalists breathlessly announced this discovery over the weekend.
The New York Times told us about the “resurgent” Seattle Times. The Times is starting to reap the fruits of monopoly caused by the demise of the print edition of the Post-Intelligencer and the stabilizing economy. It has picked up most of the print readers from the P-I, raised its circulation prices, and been able to keep the higher ad rates that were charged when ads were put in both papers. http://www.nytimes.com/2009/08/10/business/media/10seattle.html
The Associated Press told us “Small is beautiful” and that local papers do not feel competition for big players like CNN, metropolitan television, and Craigslist because they focus on local news and advertising not available elsewhere. “Less competition means the print editions and Web sites of smaller newspapers remain the focal points for finding out what's happening in their coverage areas.” http://tech.yahoo.com/news/ap/20090809/ap_on_hi_te/us_small_newspapers_1
Journalists are also starting to discover that the industry might not be as dead as they have been portraying it to be. A number of stories have reported that the drop in advertising due to the recession appears to be near bottom, that profits and share prices are rising, and there is no wholesale rush to the web by print newspaper readers.
These “surprises” are developing, I believe, because journalists have never covered their own industry with the same interest and vigor that they have covered other industries. This is partly true because they have adamantly and publicly expressed distain for the business side of the news industry and because they tend to accept and endlessly repeat the views of publishers without critical fact checking or seeking better understanding of the business dynamics of news. Whatever happened to the old journalism adage "If your mother says she loves you, check it out!"
Perhaps they will learn.
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