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A Tale of Two Strategies - AOL vs. Newspapers

Tom Peters said a great thing at a seminar I attended a couple weeks ago.

“The problem is never the problem.  The response to the problem invariably ends up being the real problem.”

This puts me in mind of the state of the media industry.  In a week when Newsday announced it will begin charging for content, the managing editor of the WSJ declared that Google encourages digital disloyalty, and Bill Keller told his digital staff that learning the web side of the business was like taking a graduate level course without the undergraduate prerequisites, AOL CEO Tim Armstrong revealed that his staff of journalists has grown from 500 to 3,000 in the past 6 months.

Much has been said about the newspaper industry’s financial challenges.   They are not alone, as AOL has been experiencing many of the same difficulties.  PC World reports that in the first quarter, AOL’s advertising revenue fell 20%, overall revenue fell 23% and operating income fell 47%.

It seems however, that AOL is going to have a very different response to those difficulties.

Let’s compare.

AOL

Structure

Time Warner hired an online expert and ex-Googler to run their online business who has in turn re-organized not once, but twice to form the team he needs for AOL’s transformation.

Very soon, AOL will be spun-off from parent mainstream media company Time Warner to form a completely separate entity leaving the AOL team free of the concerns of a mainstream media company as they seek to grow and innovate.

Audience Strategy

And grow and innovate they shall.  Tim Armstrong and the leadership at AOL understand that “fragmentation is our friend”.  The MediaGlow publishing division consists of a mix of 84 branded and standalone vertical sites like Engadget and TMZ that combined have a total of 70 million UV’s and over 7 billion PV’s per month.   

Community also seems to be a priority at AOL.  In hiring those 2,500 new journalists, attention was paid to the audience those writers attracted.  “You’re not just hiring the person, you’re hiring the community they come with.”

This is a smart strategy.  In a world where only 16% of Internet users click on a banner ad and 8% of Internet users account for 85% of banner ad clicks, mindless mass reach is becoming less attractive to advertisers. 

Content and community are the new critical factors for site monetization.

Why?

Quality content is more likely to create engagement, which leads to community activity on the site, which leads to even more engagement.  Engagement leads to more time on site, and the likelihood of more interest in the ads targeted to the site, which leads to ROI for advertisers.  ROI for advertisers leads to site monetization, profit and the ability to further invest in quality.

Makes sense.  In Armstrong’s words “…how do we get shareholder value?  I think it comes from customer value”.

Culture

Armstrong encourages a culture of innovation at AOL and understands that sometimes you have to fail in order to learn and grow. "If you're not going to take risks and you don't think the future is bright," he said, "the Internet is probably not the right place for you."

And they are putting their money where their mouths are.  Hyper-local experiment Patch.com continues to ramp-up.  AOL will soon launch a new content management system that will allow for easier sharing of content across the verticals.  It will also bring in more outside writers by enabling tracking that will make it easier to pay freelancers for the ad impressions generated by their content.  Why that’s starting to sound a lot like the very successful and very smart Glam.com model.

Newspapers

Structure

Newspaper organizations are not led by digital experts.  In fact, newspaper organizations are not spinning-off their digital divisions, but rather, are going in the opposite direction with a focus on integrating the print and web operations.   They are in effect asking their managers and employees to do two part-time jobs.  Create the exciting new digital future while managing the accelerating print decline. 

Bill Keller illustrated the difficulty of this strategy when he lamented that he, unlike his digital strategy predecessor Jon “stop Jayson from writing” Landman does not have the “luxury of mostly detaching himself from a lot of the other problems in the newsroom.  Little things like the print editions and the non-digital budget…” and therefore he won’t “master the intricacies of digital the way Jon did”.

Audience Strategy

For all their talk about the importance of content, most newspaper companies have not created a wide range of content verticals targeting multiple niche audiences.  Sure they have created classified verticals and even mommy forums and a few pet sites, but few of those sites have editorial content.

Why haven’t newspaper companies created national vertical content sites like those of AOL?  My guess is that these companies have never had a product culture.  New features or sections are created by editorial or advertising, rarely both, and never by a person actually trained and skilled at product development.

I find the failure to create content strategies almost more troubling than the attempts at integrated structures.  Clay Shirky says that one of the 3 non-economically based reasons that most newspapers will eventually fail is that the bundle of information they present online is “incoherent”.  That is to say that the mix, of say, crossword puzzles, sports scores and international news was made necessary by the scarcity of printing presses.  Newspapers produced the mix of content that would appeal to the broadest audience possible.   As the web allows for narrower and narrower niches of content, maintaining the old bundle cannot work.

As for community, although more and more newspapers are recognizing it’s importance in the form of commenting and social media, their primary discussions are actually about how to stop it from happening by erecting pay walls.

Culture

In their book, The Three Laws of Performance, Dave Logan and Steve Zaffron make the case that “as people see the world, so they behave”.   

Well, in most newspapers, the mood is like death.  A place where people are worried about losing their jobs during the worst recession in 70 years with little hope of working again in their chosen profession is probably not the best environment in which to encourage risk-taking and innovation.

So let me ask you.  Who’s got the better response to the problem?

Which looks like the better place to invest - an online media company that is led by Internet veterans and is growing and innovating, or one that is cutting, retrenching and retreating behind a pay wall?

Where would you want to advertise - an online media company that is focused on creating ROI through quality, community or engagement created by vertical sites or one that still bundles content for the masses and relies on the declining click-through rates of banner ads to provide results?

If you were a talented, passionate journalist, marketer, ad sales person or product manager, where would you rather work - a media company that is growing, hiring, innovating and encouraging risk taking or one that is shrinking, fearful and stuck?

It’s obvious.

Newspaper executives aren’t stupid, in fact quite the opposite.  So why are they not doing what needs to be done?

I think the real question is why are they not allowing their companies to do what needs to be done?

I can only imagine that it is the very unpleasant reality that to affect the real change that will enable media companies to survive, there must be a massive power shift. 

From old guard, to new guard.  From print publisher to digital leader.  From editor-in-chief to product developer.

Ouch.

There's Something Interesting Going on in Maine. Yes, Maine.

Yesterday, I met (okay, by phone) Richard Anderson, founder of the Village Soup sites.  Village Soup currently consists of 4 community sites serving Knox County, Waldo County, Bar Harbor and Augusta along with two community newspapers (unusually, Richard built the sites first, the newspapers second).

Each “soup” consists of professional journalists, amateur content providers and advertisers sharing a common platform and creating a community site.  Together. 

Village Soup sites don’t have readers and advertisers - they have members.  What’s really different is that the members pay to be a participating part of the community. 

That’s right, anyone can read the content on the site, but only paying members may participate.

Sounds crazy?  It’s not.

As Village Soup members, businesses and organizations get the enhanced listings pages, display ads and appearance in search results offered by most local sites.  What’s different is that they can also publish blog posts and special offers to the site.  (Before you dismiss the notion of advertisers providing content, check out a recent post by Eastern Tire and Auto Service on what to pack in a winter emergency.)

True, a lot of the posts are just ads in disguise, but some are quite interesting and they are in a widget that is easily identifiable as advertising content so users know what they’re getting.  The special offers are even more valuable to users as the site is almost functioning as an electronic flyer for the community. 

Advertisers pay around $20/week and organizations pay around  $10/week for their memberships.

Readers pay about $4 to $9 per month.  That’s the subscription rate for the newspaper, a reverse-published, printed version of the site to be delivered to their door once or twice a week.  The catch is that users must be subscribers to participate on the paper’s affiliated website. 

I’m not a fan of forcing readers to subscribe in order to participate in a site, but for Richard, doing so has solved a key issue.  He says the quality of contributions from readers is increasing the quality of the site and reducing the need for moderation.  It’s hard to argue with that, though this strategy will cost them younger readers and may not be sustainable in the long-run.

In addition to the amateur content, there’s lots of professional journalism, including articles about crime, education and government.  The site’s “about” page lists an editorial staff of 20.

The formula seems to be working.  The sites feel alive.  The users and advertisers are fully participating.  Blog posts and special offers are current, not stale.  Of the 100 or so Dining Offers on the Knox site, all were updated in the past 3 days and 25 of them were updated today. 

They have developed some significant traffic given the small size of the markets served (totaling 150,000 UV’s/month and 2.5 million PV’s/month) and 20% of the business’s revenue comes from online.

What I love about Village Soup is that Richard Anderson and his team are at least as committed to providing ROI to their advertisers as they are to providing great journalism to the communities they serve.  I know from my own experience, and through talking with several other hyper-local sites and networks that true advertiser value and therefore loyalty is by far the largest determinant of a site’s ultimate success and the most difficult thing to create.

The model isn’t perfect.  The fact that only print subscribers can participate will ultimately prevent them from becoming true centres for discussion and debate for their communities, and while the site structure is (mostly) fine, I think the design, even on the newer Augusta site could use a bit of an update.

That said, it’s very exciting to see a small publishing company doing so many things right.  Don’t you think?

A Perfect Storm. Where are the Skillful Sailors?

Newark mayor Cory Booker Tweeted an African proverb last week: “Smooth seas do not make skillful sailors.” 

Brilliant.   And, disturbingly applicable to the current state of the newspaper industry.

One has to wonder: how could floating along on margins of 20%, 25% even 30% and higher for the past couple of decades have created executives capable of fighting through a swell or two much less the perfect storm of recession, competition and structural change crashing down on them in 2009?

Case in point, check out the Live Blog and supporting materials from the API’s recent summit on their news media economic action plan where you will find a complete lack of actual business discussion.

Oh, there was lots of discussion about the various ways newspapers are thinking of charging for content, but no discussion at all about readers and potential readers, their needs, what they value and what kinds of things they might be willing to pay for. 

The session included the presentation of survey data complied by industry consultants Greg Swanson and Greg Harmon, which show a dismal perception gap between news execs and readers.  When asked how difficult it would be to replace newspaper sites, 52% of visitors think it would be easy while only 31% of news providers believe so.  When asked what would replace newspaper websites, the gap grows larger as 75% of news providers think it would be their print edition while only 30% of visitors agree.

News execs still aren’t looking to understand their users or to seek gaps in the marketplace, but instead they are trying to do the same old thing only now get paid for what has become free.  It’s all about existing products (i.e. news and features), nothing new.  What about data?  What about helping users to make or save time or money?  What about niche content that is rare or specialized enough to command payment?

As usual, newspapers are showing their complete lack of innovation.

I’m not talking about newsrooms.  Innovation has always been encouraged and valued in newsrooms.  Ask any old-timer (if you can find one) or new-comer for that matter (if you can find one) and you will be regaled with tales of brilliant journalists and the innovative techniques invented to get the story, get the quote, confirm that key fact, get the photo that proves everything…

No, I’m talking about the business side.  Why is that same innovation not encouraged and valued there?

Smooth seas.

Smooth seas allowed poor business decisions, counter productive structures and lackluster talent to be rewarded, fooling managers into thinking that they were better than they were.  How could they not be talented with all that money rolling in?

There are 4 P’s of marketing.  Product, Promotion, Place and Price.  The folks at the API summit just want to talk about price.  That’s because they’re not thinking of their websites as products.

The problem has been exacerbated over the years by the belief that only editors and publishers can be trusted with the integrity of the brand.  This simply isn’t true.  A good product person keeps a long-term perspective and knows that the key to success is the integrity, credibility and power of their brands even if that means saying “no” to advertisers from time to time (actually, a great product manager focuses on how they can say “yes” to an advertiser while maintaining editorial integrity instead of when to say “no”).

It’s time to break the cult of the editor and publisher and bring in product development expertise.  Not just someone from advertising or editorial or a committee of cross-departmental managers, but honest to goodness professional product people.  Product people who will examine the market data, study the demographics, lifestyles, challenges and habits of potential readers and then bring together editorial, advertising, technology and marketing to create digital products that serve users and advertisers and do so profitably.

Make sure they are digital experts.  Give them their own division.  And please, hire them from outside the organization.  We need some skillful sailors.

 

Top 10 Lies Newspaper Execs are Telling Themselves

My favourite word at the Scripps National Spelling Bee this year was “Omphaloskepesis”: the act of looking at one’s navel.  It’s a great word for what’s going on in the newspaper industry right now. 

The choices are so frightening, the solutions so radical, no one wants to face up to the reality of what needs to be done.  So they retreat away from reality.  They are lying to themselves and it will only serve to speed their demise.

Here are the Top 10 lies as I see them.  I’ve saved the biggest, fattest one for last. 

Lie #1: We can manage this disruption from within an integrated organization.

No you can’t. 

Economic pressures over the past few years have led many newspaper execs to convince themselves that the integrated organization is the best option. 

This will not work because the disrupted cannot manage their own disruption.  Most newspaper employees are not qualified to do the strategic thinking required to manage disruption let alone create it in the form of new products that may challenge the core because they still see themselves as print newspaper employees.  Just stating that you are a “news” company instead of a “newspaper” company doesn’t make it true.

I couldn’t agree more with Howard Owens analysis.  The only way newspapers can ensure the survival of their brands and the journalistic principles they hold so dearly is to separate the web organization completely from the newspaper. 

Clay Christensen talks about the “sucking sound of the core”.  That’s exactly what is happening at news organizations around the world.  The print product will always win because it still makes the most money, has the most people and cost associated with it and is where everyone feels comfortable. 

It would be very difficult to sit at a boardroom table and convince the room that the focus should be on the thing that makes little money, has unlimited competitors and a very unclear future or path to profitability.  Michael Nielsen gives a nice explanation of this here.  The sensible manager will focus on managing the core even if it is in decline and that’s why the two operations cannot co-exist.

Lie #2: Print advertising reps can sell online ads too

Actually, most often the phrasing is “print reps should be able to sell online ads”.

Maybe they should.  But they can’t.

Asking print reps to sell online advertising simply doesn’t work.  I’ve had my own personal experience with this and have had numerous conversations with others who have tried to make it work.

Don’t take my word for it, over the past few years Borrell and Associates have used stronger and stronger language around about the need to keep print and digital sales forces separate.

In a 2008 report for the American Press Institute’s Newspaper Next project, they stated “The logical next step – and really the only next step – is to separate the sales operations”. 

They state this because they have proven numerically that combining the sales forces almost always dampens sales results.

Why? Because most print reps at most newspapers have not been sales people at all.  They have been order takers.  I remember several years ago hearing of the executive who quipped that his reps “aggressively answer the phone”.

Further, most print reps have been selling lines and columns for decades.  Online sales are far more complex and more time consuming than print sales.  The rep may have to explain how online advertising works to the client, something they themselves are probably still not comfortable with.  Then there’s the monitoring and optimizing and reporting.  It’s a lot of work for a fraction of the revenue.

Then there’s the question of compensation.  Just paying commission won’t work on such small numbers.  A VP of Advertising once asked me how he could justify paying 25% of his bonus budget on 4% of his revenue budget.  He definitely had a point.

My experience has been that an online-only sales team is always better.  They tend to be like their agency counter-parts, young, dynamic, aggressive and ambitious.

But newspaper execs hate, hate, hate to deal with this fact.  After all, “print reps should be able to sell online too”.  A senior exec at a very large newspaper company (not the Star) tried to convince me that his integrated sales force was working because while his total revenue was down this year, he had gained share. 

Nope, you’re lying to yourself.  In an economic downturn, the largest newspaper always gains share.

Repeat after me: Separate sales forces are the only way to ensure that the full value of the website is being monetized.

Lie #3:  Aggregators are killing my business

No they’re not.

This one drives me nuts.  Don’t blame Arianna, Tina, Larry and Sergey or all those Tweeple out there.  If anyone killed the newspaper business as we knew it, it was Craig Newmark.

People making this argument always forget that newspapers can be aggregators too.  As I asked earlier this week, why is there no HuffPo equivalent in the UK?

You don’t even need humans to do the aggregation.  Daylife, Evri, Inform et al will do it for you and in the case of Daylife in particular, brilliantly.

I won’t repeat my points from my post on the talk of changing copyright laws and fair use doctrine.  You can read them here.

Lie #4: We can re-create scarcity by putting up pay walls

No you can’t until you actually figure out what’s scarce and what’s abundant.

Most newspaper information just isn’t that scarce.  Nor is it of particularly high quality.  Why do we need to publish the entire printed product online?  The web is increasingly becoming verticalized.  Figure out what is truly scarce information to your readers.  Then, maybe you can charge for it.

I like Nic Brisbourne’s post on this topic.  See my post on the new economics of media for more on scarcity and abundance.

I believe that a large percentage of online readers are content to read someone else’s analysis of the news rather than the news itself.  A pay wall encourages users to find commentary on the news rather than the story itself.  Thus conversations about a particular news story will occur all over the web, but not on the originating site.

The first of the “95 Theses” in the Cluetrain Manifesto is that “Markets are Conversations”.  Allowing others to own your conversations is allowing others to own your market too.

Lie #5: Our readers paid for news in the past, they will again

Did they?  And will they?

I don’t know if we can make the definitive case that most newspaper purchasers were actually paying for news.  They were paying for a bundle of utility that included news, but where was the real perceived value in the minds of readers (i.e. which parts of the bundle did they feel they needed to pay for) and how much did monopoly or near monopoly play into the equation?

Newspapers used to play a role in the most important moments in our lives.  Our first job, car, rental apartment and purchased home were likely found in the classifieds section.  We used the paper to help us shop every week (coupons and flyers, travel, living and food sections) and decide what movie to see at what time and where.

Now the utility bundle is broken.  How much of the value of the newspaper was derived from news and how much was derived from all these other things?  After all, news has always been free on TV and radio.

Lie #6: There will never be enough online revenue to support our newsroom

Actually, this one is kind of true.  There may never be enough online revenue to support your newsroom as it is right now.  Where they are lying to themselves is in the assumption that the newsroom must continue to do all the things it does now.

Due to scale, competition and measurability, online advertising will likely never reach the dollar values of print advertising.  The businesses will be smaller.  Newsrooms must become smaller too. Use the Jeff Jarvis principle: Do what you do best and link to the rest.

Smaller newsrooms are not simply an economic requirement.  Readers demand more focused content as well.  They already know how to find the generic, commoditized stuff.  They want you to provide real value. 

Figure out what your online revenue potential is and build a newsroom of appropriate size.

Lie #7: No one will ever cover crime/health/city hall the way we do

Sure they will.

Most prolific crime blogger in Chicago is a 16-year-old kid with a police scanner.

Here’s a horrible little Catch 22 given Lie #6:  As more journalists are laid-off, the more potential expert bloggers there are and the greater the potential for small, focused local news sites to flourish using former newspaper journalists as freelancers and editors.  The more cuts made, the more newspapers are guaranteeing their own demise.

Lie #8: Our readers can’t be trusted/they are idiots/they are assholes

No they’re not.

When you get out of the way and let a real community develop, when you encourage and nurture that community, your readers will self-govern that community.

You are no longer the sole voice in the relationship.  You cannot continue to hold them at arms length. 

You can read about the great stuff Businessweek.com is doing to encourage community here.

Lie #9 Democracy will collapse without us

No, it probably won’t. 

People will find the information they need.  The vacuum will be filled.

If you haven’t read Shirky or Johnson on this topic, do so now.

And now, the biggest, fattest lie of them all!

Lie #10: I can compete with the best digital leaders/thinkers/creators in the world without becoming an active member of the online community.  

No you can’t. 

Until you have a blog, a Twitter feed and a Facebook account and until you are reading most of your news online and commenting on what you read, until you are all over Digg, Reddit, StumbleUpon, iGoogle, Netvibes and the like, until you can actually explain to me how online CPM-based advertising works, until you can explain how SEO and SEM work, until you know what “pwnd” means, until you know the significance of the 3 Wolf Moon or 3 Cat Keyboard t-shirt, you don’t know what you don’t know.

You are competing with the very people who created the Internet.  Increasingly, you are competing with the generation who grew up online.   How can you possibly be so arrogant that you think you can compete in that world without becoming a part of it?

Stop that navel gazing and look around.  You are outmatched. 

Conversations About Changing Fair Use Doctrine and Copyright Laws Scare the Hell Out of Me

My jaw has dropped on more than one occasion in the past month as I’ve read about some of the uninformed conversations media leaders (and industry outsiders) have been having about the future of news organizations.  Conversations about changing fair use doctrine and copyright law, charging for content and disabling search engines are being lead by people who don’t seem to understand the new economics of media.

It’s not the conversations about paid content that bother me.  These ideas are not new.  They are very old ideas that have been tested and failed.  They will fail again and then go away as will the World Association of Newpaper’s Associated Content Access Protocol proposal.  You can read the analysis of this topic by people more eloquent than me here, here, here, here, and here.

It’s the conversations about fair use and copyright that scare the hell out of me.

First came the blog post by Judge Richard Posner in which he suggests it should be illegal to link to copyrighted content without consent.  The last paragraph of Posner’s (now infamous) post states:

Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

Next came the 62 page white paper produced by Dan Marburger (Ph.D economics) and David Marburger (1^st amendment lawyer) and endorsed by Connie Shultz and others at the Cleveland Plain Dealer.  The report recommends changing copyright law so that it would be illegal for “parasitic aggregators” to link to or even discuss (!) facts published by a website for a pre-determined period of time.   Here’s the nut of it from page 47 of the report:

“Unjust enrichment theory in common-law unfair-competitor contexts would entitle the originator of news reports to two kinds of remedies against competing parasitic aggregators if the originator chose to enforce its common-law rights.  One would be to require those aggregators to disgorge revenues received from advertising associated with the substance f the originator’s new reports. 

The other would be to obtain an injunction against parasitic aggregators similar to that affirmed by the Supreme Court in INS.  In effect, the injunction would bar those aggregators from commercially exploiting the substance of the originator’s news reports in direct competition with the originator, but only for a brief duration.  The injunction would last for a sufficient period of time to enable the originator to exploit the brief commercial life of its news reports before the aggregator can, and thus recoup the originator’s investment in journalistic services.”

I love the word “disgorge” in the first paragraph.  As if anyone but Google is gorging on online ad revenues.

The proposal became an online sensation as a battle ensued between Jeff Jarvis and Shultz after Jarvis made some excellent arguments against it on his blog, accurately pointing out that under these new rules, TMZ would have owned Michael Jackson’s death – no one else would have been able to even discuss it.  (Incidentally, the battle between Jarvis and the Plain Dealer became quite entertaining as it devolved to the paper’s “reader representative” calling bloggers “pipsqueaks” and incorrectly assuming that Jarvis couldn’t possibly have an audience as large as Shultz’s.  You can read King Kaufman’s account here and the Guardian’s Dan Kennedy’s take here.)

But is doesn’t stop with changing copyright law.  Now AP has proposed a type of DRM system for news content – a mysterious “wrapper technology”.  To be honest, I don’t even understand what they are trying to achieve.  There are conflicting views even from within the AP with President Tom Curley stating that a licensing agreement will be required for use of even small amounts of content such as links and headlines and Jane Seagrave, AP’s Sr. VP of global product development saying it is only for full text content.  Either way, when I viewed the AP’s explanatory illustration with Tim Quinn, my Director of Site Operations, we were both left scratching our heads as to how this could even be implemented.  Some have likened it to “magic beans” and the folks at reddit.com had a great time creating their own version.

Each of these proposals requires the Internet to stop being the Internet – as in an interconnected network – and reveals a woeful lack of understanding of how value is created online. 

This Grinch-like trying to stop the Media 2.0 world from coming will not save traditional media as the case used to justify it is built on false assumptions:

1.  It shows a lack of understanding of what is scarce and what is abundant.  The Marburgers make a flawed assumption that “parasitic” online news aggregators have the ability to drive down the CPMs charged by traditional media news sites.  For this to be true, advertisers would have to be deciding between placing ads either on an aggregator site or a traditional news site and no other sites.  They would have to ignore the billions of annual ad impressions on pure-play content sites, blogs, forums and social networking sites.  We would also have to ignore the fact that a substantial proportion of online advertisements are placed through ad networks, both premium and remnant, where advertisers are buying a channel rather than specific site brands.  There is simply too much inventory available for us to determine that one site is having a direct impact on another site’s CPMs, especially at the national level.  Ironically, Google is considered a “pure aggregator” and therefore “economically good for originators of news”.  If you want to determine who is driving CPM advertising rates down, look no further than Google and its CPC marketplace.

2.  There is no way to quantify the actual economic impact of the “parasitic aggregators”.  CJR reports that Jane Seagrave of AP estimates it to be “tens or hundreds of millions” of dollars, but doesn’t elaborate on how she’s arrived at that number. The Marburgers state that “Changing the law to prevent the free riders’ unjust enrichment should boost the market rate for online advertising associated with daily news reports to a level that covers the costs of using large staffs of journalists to produce them, plus a modest profit.  Based on what?  They also refer to the Daily Beast and Newser as two of the “parasitic aggregation sites” that are driving ad rates down.  The thing is, neither of those sites currently sell advertising.   And what about advertisers such as Purina who are creating their own sites using aggregation?  They’re good because they are “pure aggregators”, but they are bad because now they don’t need to advertise on the traditional media site.  As soon as you stick your finger in one hole, another leak springs somewhere else.

3.  It assumes that the commercial life of a news report is “usually about a day”.  Ever heard of the Long-tail?

4.  It assumes that the old model of being a closed, dominant portal is the only model for creating value and funding quality newsgathering.  The Marburgers refer to a 1942 article published in the Harvard Law Review by Rudolf Callmann who predicted the destructive effect of free riding on newsgathering.  I’ll refer to the 2005 PowerPoint by economist and Harvardbusiness.org blogger Umair Haque, who states that value is now created by being open to aggregators, micro-platforms and re-constructors.  Being open provides economies in distribution, coordination and production that enable the popularity of content to grow.  Haque believes that failing to understand this will be the single biggest cause of fatal strategic errors committed by mass media companies.

5.  It assumes that all online advertising is IAB standard positions sold on a CPM basis.  I can testify from my experience with my own sites that increasingly, advertisers are asking for custom integration, page take-overs, tool sponsorship, advertorial sections, etc.  It’s no longer based solely on driving page views.  Context, environment and engagement are becoming increasingly important.

6.  It focuses on newspaper websites as solely about creating breaking news content and completely ignores the other things we are and should be doing to add value.  We should be at the centre of our communities.  See Steve Buttry’s blueprint for the complete community connection here.  We should be partnering with local advertisers and seeking ways to drive ROI for their advertising dollars.  We should be creating vertical niche content sites.  We should be providing news, information, context around long-running stories, data, listings, events, advertising, flyers, coupons, maps, etc.  See Mark Pott’s excellent checklist here.

7.  It assumes newspaper websites cannot become aggregators themselves.  This is ridiculous.  In fact, news websites must become aggregators if they are going to survive.  There is no need to re-create content that exists on other sites, we should be linking to it.  We should be creating local networks and selling advertising for local bloggers.  The Miami Herald’s South Florida Blogs and the Tribune’s Chicago Now are excellent examples of how newspapers can help drive traffic to the local blogging community.

8.  It assumes that only print media companies can create quality news reporting and opinion.  Of course, we know this is already being proven wrong.  Countless authors, scientists, professors and other experts have created global brands for themselves producing high-quality original content on their blogs. Globalpost.com, the Huffingtonpost’s new investigative fund, spot.us are all experimenting with creating original news content without a traditional newsroom.

This leaves me frustrated.  We’re wasting time.  Rather than trying to figure out how we can restore the industry to where it was ten or fifteen years ago, we should be planning for the role we will play in this new world.  Rather than trying to figure out ways to stop users and content producers from linking and connecting and discussing and collaborating, we should be figuring out how we can enable them.  Rather than looking to users to pay for content to make up for our revenue declines, we should be figuring out how to help our advertisers navigate this new world of media by focusing on delivering return on their investment with us.

So I have to ask a question.  Can the disrupted manage their own disruption? 

In this brilliant analysis, Michael Nielsen suggests that the answer is no.  He believes that “organizational immune systems” prevent us from doing what needs to be done to save the industry and that true innovation would require us to be so radical in our decision-making, our executive teams would get fired. 

I’m not quite so pessimistic, but I do think it will require news media executives to focus on where we can provide value in the new media economy, not on how we can protect what was and will never be again.

This new economy requires radically different product strategies: letting the outside in, curation rather than ownership, becoming a part of an ecosystem, moving from mass to vertical content and viewing the site as a service instead of a product. 

The blogosphere is full of potential solutions for media companies to explore.  Here is a vision from Xark! of what the next 11 years might look like as we migrate to the new media world.

I’m lucky.  At the Star, we are starting to have these conversations about our future in Media 2.0, but it can’t just happen in small, isolated pockets.  There needs to be industry-wide thought devoted to these issues.

Mad Ave Blues - too funny

Okay, it's too long, but boy did this video make me laugh this morning.  No idea who creator LMcDuff is (says the pen name is after a yellow labrador named Lady McDuff), but this person nails what's happening in the ad world these days.

The New Economics of Media and thestar.com

Here is my PowerPoint presentation on the new economics of media.  

You can download it here.

Download The New Media Economy and thestar v3

The commentary for the presentation is below (with lots of text links), or you can download a pdf version here.

Download The New Media Economy Commentary

The New Media Economy and thestar.com

Slide 2.  A fundamental shift has occurred over the past 15 years as we have moved from media 1.0 to media 2.0. 

Slide 3.  It is a shift from scarcity to abundance.  Media supply has exploded in the digital space the barriers to entry are down and anyone can become a publisher.

Slide 4.  The Internet has not only exploded media supply, it has also “atomized” it.  Media is now consumed in smaller chunks across a variety of media sources as the average size of a media “good” has shrunk.  The average online video is 3.5 minutes long vs. the average TV program.  Blog posts are 2 or 3 paragraphs vs. 20 or more in a newspaper or magazine article.

And, this new micro-media is now unbundled from traditional media products.  It can be aggregated and reconstructed as we’ve seen on sites like the Huffington Post and the Daily Beast.

Slides 5 & 6.  The economics of this new media world are the inverse of the old media world.  Where content was once scarce and attention was abundant, now content is abundant and attention is scarce.

Slide 7.  The economics of media, like the economics of any product or service are based upon supply and demand.  Where supply is low, demand is high and where demand is low, supply is high.  Where the two curves intersect determines the balanced market – the quantity produced and the price it sells for.

Slide 8.  This is what supply and demand for media looked like before the Internet.  Because there were significant barriers to entry as a media company, i.e. you needed a printing press or a TV studio or movie camera, supply was relatively limited and demand was relatively high.  Thus prices were high.  In our case, that meant we were able to charge high rates to our advertisers.

High barriers to entry meant that it was more efficient for mass media companies to invest in marketing than to invest in content.  That isn’t to say the quality of our content wasn’t high, but it was more efficient to create a product that was good for everyone rather than perfect for everyone.  For example, I would like daily Travel and Movies sections, but no Sports.  We remained mass so that we could please the most readers most of the time, and used marketing to attract them to read our newspaper. 

Slide 9.  This is Umair Haque.  He’s a young Oxford-trained economist who is currently a writer for Harvardbusiness.org and leader of the Havas Media Lab, an economic think tank based in London.  Haque has been studying the impact of the Internet on various industries and defines this Media 1.0 world as the age of the blockbuster.   The blockbuster resulted in very high revenues and profits for media companies for decades.