Showing posts with label business models. Show all posts
Showing posts with label business models. Show all posts

4/1/14

The Rise of Expert Journalism in the Digital News Ecosystem


Expert journalism is playing an increasingly important role in the provision of news and news analysis. Its emergence and growth is taking away some of the functions of legacy news organizations, establishing new competitors, and creating new opportunities for cooperation. 
Expert journalism is a novel form of journalism made possible because of the developments in digital media. Written by persons with high levels of expertise, and designed for those whose interests in specific topics are greater than that of the average newspaper reader, television viewer, or digital news user, it is providing alternatives to news previously available only through print or broadcasting.
This type of journalism is practiced by scientists, economists, bankers, medical doctors, and civil society organizations focused on issues, regions, and conflicts. These producers work to provide accurate and, often, balanced content. It is also practiced by specialized professional journalists who provide news and information focused on issues such as climate science, energy, biotechnology, military affairs, and other topics. Expert journalism differs significantly from general user generated content because it operates in a professionalized environment and provides a digital location to which the public and many journalists come for information.

The growing reliance on expert journalism providers by news media and other journalists is not a surprise; many of those practicing this form of journalism were previously sources that journalists in general news media relied upon. Many established their own online enterprises so their information and ideas would less mediated by news providers and errors due to misunderstandings or abbreviation of information conveyed would be reduced.

Although some professional journalists are skeptical about this out-sourcing of news and information, research is revealing that expert journalism tends to have higher quality than general news provision.  When traditional measures of journalistic quality are employed, expert journalism tends to convey greater understanding of the topic by the writer, employ more fact checking, provide more background and context to stories, and be more likely to hold authorities, companies, and elites to account for the actions or inactions.

A variety of revenue models are emerging to support expert journalism, but the most significant seem to be paid speaking engagements, foundation support, subscriptions/memberships, and licenses for digital use by other organizations.

The rise of expert journalism is significant for the emergent media ecosystem in which commercial news organizations are increasing their focus on distribution and relying more on news, information, and commentary available from other sources. They are thus increasingly linking to articles produced by expert journalism and entering syndication agreements with them. Reliance on these sources of news and analysis can be expected to grow in the coming years.

3/19/14

4 strategic tipping points for digital content providers

Legacy and born-digital content creators are now approaching tipping points where they will be forced into deep strategic thinking and choices that will affect their future operations. Consideration of the platforms on which they operate, the platform(s) that receives preference, and the income and expenses they will bear will all inform the strategic choices.

The growth of digital consumption is forcing content creators to confront issues of offline and online consumption, but also to respond to the rapid growth of consumption on different types of digital devices—especially mobile devices. These changes are moving many firms closer to the tipping points.

In deciding how and when strategy needs to be reconsidered, managers need to watch for four critical strategic tipping points. These are points at which significant contemplation and decisions must be made or the enterprises will be put at risk by indecision:

1. When content income surpasses advertising income
2. When digital income exceeds print income
3. When mobile use (tablet, smartphone) tops desktop/laptop use
4. When income from print products no longer pays the costs of print operations
The issue of content income surpassing advertising income is important because it means that greater company attention must be paid to consumer needs and desires and that the advertiser interests must become secondary.  This represents a significant change in focus that has not been the norm in commercial media for 50 to 75 years.

When digital income surpasses offline income the question of whether a digital first strategy is desirable becomes moot. At this point digital first strategy becomes imperative and factors that may have been previously moderated moves in that direction must be overcome.

A number of content providers have already reached the mobile tipping point, where the majority of their content use and time comes from tablets and smartphones, and many others are rapidly approaching that point. At this point content production can no longer start with the version for print or desktops/laptops and be migrated to mobile devices, but needs to switch to production for mobile devices with larger screen devices and print secondary or tertiary in importance.

Those working both offline and digitally are likely to reach a point in which income from print products no longer pays the costs of print operations.  Some have already surpassed it. This will force them to confront the issue of whether to stay in or exit print. There is no simple answer to the question because it involves complex cost accounting and brand issues. When the tipping point is reached, however, the question must be considered in much the same way as digital services which did not stand alone financially in the past were supported by print.

Companies will respond to these tipping points in different ways because of their varying markets, resources, cultures, and capabilities. The important thing is that managers watch for the tipping points, consider their implications, and consciously make decisions about how they will respond to them.

3/29/13

[Re-] establishing the relevance of legacy news organizations

Legacy news organizations (newspapers, magazines, and broadcasters) are confronting three critical relevance challenges as the digital world matures: Changing business configurations and characteristics, declining value of traditional news and informational content, and unhealthy attitudes toward audiences. These challenges will need significant attention if they are to be successful in the new information environment.  

During the twentieth century news products were widely used, fast-moving consumer goods. Because media operated in relatively inefficient markets, news organizations were cash-producing investments with high cash flows that yielded high profits. Newspapers had asset-heavy balance sheets and excellent equity positions.
The business drivers of the legacy news industry in the latter half of the twentieth century were growing consumption in absolute audience sizes (but declining penetration that most executives ignored). Companies changed high prices for advertising and set low prices (or no price) for consumers. They had the ability to self-finance operations and growth, carried relatively low debt loads (with the exception of a few firms during acquisition binges in the late 1990s and first decade of the millennium), and their shares were highly desired by investors.

Those conditions have changed markedly. The emergent business characteristics are that news is a low-demand consumer good with niche audiences, producing low cash flow, requiring asset-light balance sheets, and producing normal rather than excess profits.

Today there is diminishing consumption of news in traditional forms by audiences and advertisers, increasing prices for audience consumption and decreasing prices for advertising in many media. Low debt loads have become a necessity and most news organizations are no longer attractive investments. These changing characteristics and business factors are not a short-term problem, but represent a comprehensive transformation of the industry.
Compounding these business challenges is the reduced value of news and information content provided by most news organizations. Fifty years ago, you had to read a newspaper if you wanted to know what the weather was going to be, whether your favorite team won the match last night, whether share prices of your investments were up or down, what was happening in the school your children attended, whether the government was planning to increase taxes, whether the conflicts in other parts of the world were going to affect you, and what commentators were saying about public affairs.

Today, we have enormously increased amounts of news and information available from a wide variety of paid and free sources. At the better end of the spectrum is expert journalism in which economists, scientists, bankers, and other cover many topics of interest and specialized independent journalists and news organizations that are covering military affairs, social benefits, and corruption. Unfortunately, the overall trend is toward a narrower form of news and information, with reduced focus on issues, oversight, and analysis, and an inordinant supply of celebrity, sports, and entertainment news.

If legacy news providers are to overcome the content challenges, they will need to rethink and improve the value of content on all their platforms and strive to make their news and information unique. The content of news organizations will need to be reconceptualized and can’t just be moved across platforms because each is a different product, used in different ways by consumers, and needs different types of news and information to be prominent and presented in different forms.
Of equal importance, news organizations and journalists will need to interact with audiences in new ways that are outside their comfort zones. This is problematic because journalism has traditionally had highly paternalistic role definitions, seeing its functions as educating the rabble, guiding thought and opinion, protecting social order, and comforting the people. These definitions combine with professional values promoting wariness of social alliances and distrust of sources of information to make most journalists stand separate from the society and people they cover.

Those attitudes create significance relevance problems in the digital world because it is networked and collective, based on relationships and collaboration, and relies on connections built on shared values and interests, acceptance, transactions, reciprocity, acceptance, and trust. The public is increasingly adopting values and norms of the digital world and this is creating many conflicts with journalism.

Journalism remains firmly rooted in the material world which is based on structured relationships, privacy and concealment, property, hierarchy, control, and formality. But the digital world is based on more amorphous relationships, revelation and transparency, sharing, collaboration, empowerment, and informality. Consequently many news organizations have difficulties relating to the public in the digital world and are struggling to adapt.

For news organizations, adjusting to the new world is not simply a matter of finding new revenue, moving content to new platforms, and maintaining existing relationships with the public. It will require a complete rethinking of the roles and functions of news media, how they fit into peoples’ lives, and where they are positioned in the new information environment. These are enormous challenges and need to receive increased attention.

12/3/12

What we now know about news and news revenue in the digital world


There has now been enough experience and research to draw conclusions about how news is transitioning to the digital world and what it means for news companies. If one objectively views the developments, one sees that the current developments are is neither as bleak as some journalists portray them nor as rosy as some digerati frame them. Instead, we have reached a point where digital news is becoming workable in commercial terms, but is not yet mature enough to erase the industry's business challenges.
News consumption in the digital environment is significant and audience reach is now 5 to 10 times larger across digital platforms than for print editions of most newspapers.  Many large news organizations are now generating 15-25 percent of their revenue from online, tablet, and smartphone platforms and benefits are starting to appear for some mid-sized players as well.

If we look at what has occurred in the past decade, there are some important lessons to embrace about news businesses in the digital environment:
  • Commoditized news does not create economic value; you have to provide something unique if you are going to get the public to pay for it
  • Consumer payments are becoming a more important revenue source than advertising and success come through creating more sources of revenue than merely audience sales and advertising sales
  • Paid apps for news on smartphones and tablets are gaining better acceptance than general online payments, and
  • new partners, networks, and value configurations are needed in the digital world.
When it comes to payment issues we now know that:
  • Willingness to pay is affected by the platform used (partly because of expectations and traditions and partly because of better payment interfaces), as well as the number of free digital competitors in the market
  • Willingness to pay ranges from about 4 to 12 percent of the public in markets that have been studied
  • Larger legacy news players seem to have advantages when seeking digital payments because of their offline size and resources and the strengths of their brands
  • Instituting a paywall reduces website traffic between 85-95 percent
  • Metered ( freemium) models provide brand and marketing advantages and reduce traffic loss somewhat
  • Cooperative paywalls involving multiple newspapers are beginning to work in some locations and provide economies of scale and transaction cost saving that are useful for smaller organizations
  • Public affairs magazines are finding it easier to get the public to pay than newspapers, especially on tablets. This may be due to differences in how they approach and present content.
It is also apparent that users expect more from digital environments than the print environment and that they are more willing to use and pay for news if it offers a better experience (convenience, simplicity, ease of reading/viewing, enjoyment), if they can influence the presentation and consumption and interact with content and other users, if content includes more analysis and access to additional material, if it includes audio-visual material, and if it offers various usability tools. Those factors mean that news organizations have to offer digital content that differs from the print newspaper in many ways.

We have learned that to make money from news in the digital world companies have to focus on customer needs (not the needs of the news organization), must be realistic about financial expectations (you won’t make as much money as in the 1990s and growth won’t be highly rapid), and that you cannot just transfer the same content among platforms because each platform requires different types of presentations, story forms and navigation.
Some news organizations are making good progress in getting things right and the public is increasingly seeing value provided by news on digital platforms and evidencing increased willingness to pay. Most news enterprises still have a long way to go, but we have no reason to be  highly pessimistic about the future of news in the digital world.

7/27/12

Facebook's business problems are symptomatic of many large digital firms

Facebook is wrestling with a business challenge more traditionally found in legacy media: how do you translate consumers that don’t think they have a commercial relationship with you into relationships that that other firms will pay for?

Despite 955 million active users and increasing revenues, the company has lost a third of its share value since its IPO in the spring.  The exuberance that surrounded its IPO and overpriced its shares has worn off and investors are realizing that being big isn’t enough to ensure business success. Its latest earnings reports show the firm lost money, $157 million, in the second quarter on income of $1.18 billion.

Facebook’s challenges are symptomatic of a long line of “successful” digital firms that are experiencing monetization problems, including Yahoo, You Tube, AOL, and Twitter. Despite large numbers of users globally, they still lack effective business models to generate revenue levels congruous with their size. They may provide great communication functions for users, but they are not transforming very well from innovative users of technologies to highly profitable commercial enterprises.

Part of their challenge is that they have to focus so much effort on non-paying customers and those customers think of the services as personal communications—making them resistant to many efforts to monetize them. This problem has long plagued traditional media, but they are conceived as mass rather than personal media and have been around so long that many people are now used to a certain level of commercial exploitation. They also have a proven track record of return on advertisers’ investments that digital media have not yet been able to deliver for many types of advertisers.

Large digital players will continue to evolve and can be expected to improve their financial performance over time, but it will take a good deal of innovative thinking about the business rather than about the technologies and social value of their services.


7/11/12

Digital journalism reaches sustainability, but transitional business problems interfere

The income streams of digital news providers continue to grow and many have now reached the point of sustainability. Fundamental financial and business problems, however, are keeping publishers from moving out of print and becoming digital-only operators.

This leads many publishers and journalists to continue bemoaning the fact that digital media do not provide as much income as print and many still argue that organized, regular newsgathering and distribution cannot survive in a digital-only environment. They point to the fact that digital advertising produces only about 15 percent the income of print advertising—largely because it does not appeal to retail, display advertisers--and that paid circulation for digital products is growing slowly.

Their analysis is flawed, however, because publishers do not require as much revenue online as offline because the costs of digital operation are so different.

Editorial operations account for only about 10-15 percent of total costs of operation of print newspapers, but they are the primary cost for digital operations. About half of the costs of print are taking up by printing and expenses for getting papers to readers; when the costs of paying for and maintaining buildings and land used to house presses and circulation equipment are factored in, those costs rise to about 60 percent of total costs. Expenses to maintain the large advertising operations found in print newspapers add another 10 percent to overall costs and the managerial costs due to the large number of personnel and functions in non-editorial activities add about another 5 percent. Thus, switching to digital operations can take out at least three-quarters of the costs of print newspaper operation, making the lower revenue of digital operation sustainable.

A growing number of newspaper companies are already generating 15-20 percent of their total revenue from digital operations, making nearly enough money to sustain the kinds of journalism practiced by legacy news media. So why does negativity about the future of journalism remain so high and why are newspapers not yet moving to digital-only operation?

There are three primary reasons:
  1. Print newspapers still continue producing above average returns compared to all industries. No publisher is willing to throw away those operating profits even if the costs of print operation are higher than digital.
  2. Retail advertisers get more return on investment from newspaper advertising than any other form of advertising, including digital. As long as they remain willing to advertise in newspapers, no publisher is willing to give up the revenue stream and operating profits that they now provide.
  3. Owners of print newspapers have a great deal of capital tied up in facilities, printing and distribution equipment that cannot be withdrawn because few buyers want to acquire the used equipment today.
The fundamental challenge today isn’t that digital journalism has not reached sustainability; its how does a publisher transition from the print to digital-only operation in a way that is financially feasible and desirable.

The transition is critical for society because it will bring with it the reportorial strength and organization that exists in newspapers. That is something that digital startups do not provide because they generally lack the capital to build and sustain staffs as large as those of print newspapers and because they lack the reputations and brand identity of established papers.

Newspaper owners, publishers, and journalists then need to stop decrying the digital revenue problem and start focusing on solutions to the business challenges of when and how to realistically reduce and end the print operations. It will happen at some point in the future; the problem is how to plan and manage the switchover.

5/11/12

Is the future of digital journalism an outside job?

Making small digital news providers sustainable has become the holy grail of journalists and the search continues for workable business models and revenue streams.

Advertising may produce some revenue, but it will never generate sufficient resources to support digital journalism because so little advertising money is available for sites with small audiences. About three-quarters of all online advertising goes to the top 10 sites and Google, Facebook, Microsoft, and Yahoo account for about 60 percent of all online revenue. This leaves very little advertising expenditures to be contested among all other players--of which news providers are only a small fraction. At the same time, the prices paid for online advertising are falling because there are so many sites offering advertising, the advertising inventory is nearly infinite, and audiences continue fragmenting.

This means the majority of funding for start-up digital journalism must come from elsewhere and online news sites—especially start-ups—are having mixed success trying to construct multiple revenue streams from philanthropy, memberships, events, consulting services, and payment systems. Both large legacy news organizations that dominate provision of news in the digital space and free automated aggregators are hampering efforts of small sites to develop audiences. The primary successes that can be observed have been for start-ups carrying out special forms of journalism or concentrating on highly specific topics.

The answer to sustainability may not lie in the business creation and business operational approach. The key to making emergent digital news providers sustainable may lie in the 18th and 19th century approaches to journalism, in which journalism was an avocation and not a profession (or at least only a part-time profession).

If one reviews the history of newspaper start-ups around the world, one finds that the bases of journalistic compensation were not journalism itself. It many cases it was funded by public employment—serving as postmasters, teachers, or other civil servants—or by operating commercial endeavours—such as printing firms, taverns, and retail shops (Even brothels funded the costs of newspapers in some towns in the Western U.S. during the nineteenth century).

The current inability to effectively fund small-scale digital journalism means that we all need to be thinking more broadly about how we can support the functions and people involved in them. If the past is a guide, we may need to return to provision of local journalism as community activism, political activity, or business support service—all of which played significant roles in establishment of news provision in years past.

9/24/11

How to Destroy Your Customer Base and Investor Confidence

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.

7/24/11

What Legacy Media Can Learn from Eastman Kodak

What do you do when your industry is changing? What do you do when your innovations are fueling the changes? Those problems have plagued Eastman Kodak Co. for three decades and the company’s experience provides some lessons for those running legacy media businesses.

Eastman Kodak’s success began when it introduced the first effective camera for non-professionals in the late 19th century and in continual improvements to cameras and black and white and color films throughout the twentieth century. Its products became iconic global brands.

The company’s maintained its position through enviable research and development activities, which in 1975 created the first digital camera. Since that time it has amassed more than 1,100 patents involving electronic sensing, digital imaging, electronic photo processing, and digital printing. These developments, however, continually created innovations damaging to its core film-based business.

Digital photography created a strategic dilemma for the company. It could move into digital photography and destroy the highly profitable film-based business or it could exploit the film-based business while it slowly declined and then--when it was no longer profitable--try to leap out of the business into digital world. It was an ugly choice and the company chose the latter.

Today, the company has just 15% of the employees it once had and its stock prices are about 15% of what they were before it finally stripped out its production capacity and distribution systems. An enduring benefit of its research and development activities is that the company now owns patents on much of the underlying technology used in all digital cameras including those in mobile phones. It is building a new digital revenue stream on licenses and infringement payments for use of those technologies. Those alone now account for 10% of its turnover.

Eastman Kodak’s situation is not unlike that of legacy media firms, especially those in print, whose uses of digital technologies two decades before the arrival Internet and whose experiments with teletext and other telecommunication based information distribution systems foreshadowed the arrival of the Internet.

Today, newspapers and magazines—and increasingly broadcasters—are faced with dilemma of whether to keep exploiting their base legacy product or to dump the old business and jump fully into digital. It is as ugly a choice as that faced by Eastman Kodak in the 1980s and 1990s. So, what lessons can be learned from its experience?

1)      Don’t try to fight change

You may not like its direction and may understand how it will affect your current business, but you will not be able to stop its momentum and trajectory if it is beneficial to many customers. In such conditions you can only protect your existing product by making it as productive and competitive as possible, by adjusting its strategies to better serve those who are most loyal and resist change, and by carefully monitoring the pace of change and the investments you make in the existing product. Simultaneously, existing companies that want to benefit from the change need to be creating new products for the new markets and allow them to develop and mature with the pace of change even though they may be compounding the challenges in the pre-existing product.

2)      Don’t wait too long to change

Waiting to move into new markets with new products gives upstart companies and other competitors opportunities to become players with better products and larger market shares once you decide to enter. Although there are sometimes reasons not to be first movers, you should not wait too long because it is very difficult and expensive to enter and become a major player once a new market moves into its maturation phase.

3)      Be willing to sacrifice some short-term profit for long-term gain and sustainability

Careful strategic consideration must be given profits during transitional periods and managers needs to make the strategy clear to the company and its investors. It may be desirable to boost research and development costs even though there is no guarantee they may produce results; it may be necessary to harm the profits of the existing product by building up its replacement and cannibalizing some of its market; it may be appropriate to make investments in the new product that may not pay off in the short-term. Whatever the strategy, it should be the result of clear and deliberate choices and managers need to ensure that investors and entire company understand the reasons for it.

4)      Own the rights to technologies and services your competitors will employ

Use your R&D efforts and make strategic acquisitions to acquire the technologies and services that competitors will need to employ in the new market so they must turn to you and share the benefits of their growth. Unfortunately, few legacy media companies invested in research and development to early exploit opportunities in digital media by creating the underlying hardware and software for content control and distribution online and in phones, tablets, and computers. Thus, they own few intellectual property rights other than trademarks to their legacy media names and most are not benefiting as Eastman Kodak from patents being used by those eroding the business base. However, the new products still need content products and content management services that legacy media have long produced and companies need to be open to cooperating with the new competitors rather than giving them incentives to go elsewhere or to develop their own content capabilities.

These are turbulent times for legacy media and they require making choices and positioning firms for the future. It is no time for timidity or keeping on with business as usual.

7/4/11

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.

5/29/11

Google, Newspaper Archives, and the Business of Cultural Heritage

Google announced this month that it is ending its ambitious project to digitally archive newspapers. The project to scan the archives of the nation’s newspapers and make them available online as a searchable historical record was announced in 2008 with the level of hubris only found in online enterprises.

"Our objective is to bring all the world's historical newspaper information online,” said Adam Smith, director of product management at Google, announcing the project. Those lofty aims were echoed by Punit Soni, manager of the newspaper initiative: “As we work with more and more publishers, we'll move closer towards our goal of making those billions of pages of newsprint from around the world searchable, discoverable, and accessible online…."Over time, as we scan more articles and our index grows, we'll also start blending these archives into our main search results so that when you search Google.com, you'll be searching the full text of these newspapers as well.”

After scanning about 60 million pages and beginning to make them available as full page shots--because costs of disaggregating and indexing were too high and copyright clearances were difficult to obtain for older material—the company announced that it will quit scanning pages, but continue offering the existing pages available on it Google News Archive site. It said it would not invest any new effort to improve indexing or add tools to better search and manage the archive.

The project may have been well-intentioned, but it was not well thought out. It was a free service designed to use the search traffic at the site to raise revenue through advertising Google would put on the site. The scale of the project was enormous and requiring finding, scanning, and indexing thousands of daily and weekly newspapers--many no longer in existence. It would require a long-term commitment of funds, personnel and server capacity to catalogue and scan the material and provide and maintain search functions. The project ultimately incorporated on a fraction of the papers it had hoped to scan, did so spottily in many cases, and its usability was poor because it never mastered the problems of handling so much content. Worse yet, it discovered that history was not a money making business.

The exit announcement is not a surprise and is another sign that players the virtual world are stopping deluding themselves that they are replacing the entire world and that the laws of economics and finance to not apply to them.

As laudable the preservation of newspaper archives might be, expecting it to be completed and maintained by a commercial firm defied sense and historical experience. For centuries, the most important historical records, books, art have been maintain in governmentally and charitably funded collections because commercial enterprises were either unwilling to bear the costs or to allow the large scale efforts required to preserve, catalogue, index, and make available cultural heritage materials distract them from their business activities.

Why would anyone expect Google to act otherwise?

As Google increasingly acts as a mature business it will increasingly shed activities that were launched as goodwill gestures because the costs of their operations reduces the company’s financial performance and will diminish the value of its stock compared to other tech firms. Over time it will be harder for the firm to maintain the stance that it is not self-interested and motivated only by the opportunities to improve the lives of the public by providing access to all the world’s information.

The tentacles of its operations that have reached out into to many fields will increasingly be pulled back if they do not yield financial results. And fears that Google will rule the world will diminish. Google, Microsoft, Amazon and other big players of the digital world all have limits, just as did the handful of firms that once controlled steel, oil, and shipping through cartels. At some point even mammoth, wealthy companies do not have the resources and capabilities to keep expanding endlessly and their performance declines, leading shareholders to rein them in and competitors to find opportunities.

4/15/11

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.

12/2/10

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.

10/14/10

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.

6/12/10

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.

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?

5/10/10

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.

4/20/10

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.

3/17/10

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.

3/12/10

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.

2/2/10

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.