Business Models for the News Media

Andrew Currah

Wednesday February 25, 2009

Themes

(1) The changing and challenged business model of the news media

(2) The social and democratic impacts of a digital news media landscape

(3) Potential business models for news publishing in the 21st Century

Publishers face an economic drought

* Foundations of print and broadcast journalism are crumbling due to structural and cyclical factors

* Enders Analysis forecasts a 12% decline in UK display advertising in 2009

* At DMGT, year-on-year advertising revenues are down by over 23%

* Digital revenues are not increasing fast enough

Publishers face an economic drought

* Foundations of print and broadcast journalism are crumbling due to structural and cyclical factors

* Enders Analysis forecasts a 12% decline in UK display advertising in 2009

* At DMGT, year-on-year advertising revenues are down by over 23%

* Digital revenues are not increasing fast enough

They are searching for a digital oasis

‘ ‘These may well be the last presses we ever own’ (Alan Rusbridger, 2009)

* Newspapers and broadcasters are investing in sophisticated ‘digital fortresses’

* A messianic belief that digital newsrooms will become engines of productivity and profitability

The digital audience is exploding

* The web is becoming the dominant communications platform of our civilization

* Already, over 23% of humanity are communicating and accessing information on the web

* Everyday, a further 860,000 people are connected

* Since 2000, connectivity has increased by 1300% in the Middle East, 1100% in Africa, 820% in Latin America

The digital divide is steadily narrowing

* Opening new markets for media brands worldwide

So the digital future appears bright

* Global digital success of media brands

* With limited marketing, news sites have amassed vast audiences worldwide

* US newspaper sites now attract an unprecedented 67 million unique visitors per month

News is becoming more visual

News will be enriched by public data

* Websites today are separated from the ‘deep web’; trillions of pages are invisible to Google

* The news could become far more immersive, relevant and engaging when combined with material from networked public databases

* The promise of professional news reporting, supplemented with user-generated mash-ups

And by the emerging ambient web

* Journalism is also being reshaped by the rise of the ‘ambient, real-time web’...

* ... as John Batelle puts it, the trail that is left by the new generation of ‘auto-digitizing hominids’ (e.g. twitter, facebook)

* Due to the speed of updates and the ubiquity of devices, the web is moving from a static to a dynamic state ... transforming newsgathering

Unfortunately the web does not pay

* The glut of web content is deflating the value of online advertising inventory (90% less than print)

Even digital magnets such as Facebook are struggling to find a workable revenue model

Digital news is not profitable

* Publishers are struggling to convert their massive audiences into significant revenues

* News consumption is fragmented, fleeting and mediated by search gatekeepers

* According to McKinsey, revenues per user are, at best, only 1/20th of the equivalent in print

Digital news is not profitable

* Publishers are struggling to convert their massive audiences into significant revenues

* News consumption is fragmented, fleeting and mediated by search gatekeepers

* According to McKinsey, revenues per user are, at best, only 1/20th of the equivalent in print

Publishers are betting on new tools

Geo-location may help by serving tailored adverts to specific markets and consumer groups

Metadata may help to create a more powerful, comprehensively networked archive of news content

The long-term outlook is uncertain

* Even if technologies such as geo-location and metadata are successfully deployed, revenues are unlikely to replace the profits of earlier generations

* The business of news is struggling to come to terms with a very different kind of digital consumer... characterized by a more transient approach to news

Digital attention is narrowing

The web is exploding: everyday, 1 billion new pages, 20,000 hours of video uploaded to You Tube

But we spend over 30% of our time online at only 20 websites... operated by 10 entities (none of which are commercial news sites!)

Digital attention is narrowing

The web is exploding: everyday, 1 billion new pages, 20,000 hours of video uploaded to You Tube

But we spend over 30% of our time online at only 20 websites... operated by 10 entities (none of which are commercial news sites!)

The web is transforming reading... Google Generation study by UCL researchers, 2008

‘It is clear that users are not reading online in the traditional sense; indeed there are signs that new forms of “reading” are emerging as users “power browse” horizontally through titles, contents pages and abstracts going for quick wins. It almost seems that they go online to avoid reading in the traditional sense’.

And rewiring the brain of consumers ‘Certainly if you had all the world’s news

and information directly attached to your brain, or an artificial brain that was smarter than your brain, you’d be better off’(Sergey Brin, Co-Founder of Google).

And rewiring the brain of consumers ‘Certainly if you had all the world’s news

and information directly attached to your brain, or an artificial brain that was smarter than your brain, you’d be better off’(Sergey Brin, Co-Founder of Google).

'What the web seems to be doing is chipping away my capacity for concentration and contemplation. My mind now expects to take in information the way the web distributes it: in a swiftly moving stream of particles. Once I was a scuba diver in the sea of words. Now I zip along the surface like a guy on a jet ski' (Nick Carr).

And rewiring the brain of consumers ‘Certainly if you had all the world’s news

and information directly attached to your brain, or an artificial brain that was smarter than your brain, you’d be better off’(Sergey Brin, Co-Founder of Google).

'What the web seems to be doing is chipping away my capacity for concentration and contemplation. My mind now expects to take in information the way the web distributes it: in a swiftly moving stream of particles. Once I was a scuba diver in the sea of words. Now I zip along the surface like a guy on a jet ski' (Nick Carr).

However, there is some continuity

* The age of connectivity does not spell the immediate death of print or broadcast news

* The edited news still has wide appeal

* The World Association of Newspapers confirms: Newspapers reach 1.7 billion people each day Print advertising will increase by 17% by 2013 Continued growth in emerging economies (e.g. Brazil, Russia, India, China)

Paper also has an enduring appeal ‘The newspaper is an island of peace in the digital chaos’ (Hamlet’s Blackberry, William Powers, 2008)

‘Paper’s great strength is that it allows the mind to settle down into that peaceful deep-dive state in which we do our best thinking. This state is much harder to achieve when we’re reading in the digital medium, where there is endless information, and so many possible tasks to undertake at any moment. On the internet, there is no beginning and no end’

Paper also has an enduring appeal ‘The newspaper is an island of peace in the digital chaos’ (Hamlet’s Blackberry, William Powers, 2008)

‘Paper’s great strength is that it allows the mind to settle down into that peaceful deep-dive state in which we do our best thinking. This state is much harder to achieve when we’re reading in the digital medium, where there is endless information, and so many possible tasks to undertake at any moment. On the internet, there is no beginning and no end’

Some blogs are becoming newspapers

* Selected blogs and adverts printed for specific localities* Proving popular with local merchants in the downturn

Business models still have to evolve ‘The reality is that resources for journalism are now disappearing from the old media faster than new media can develop’ (Paul Starr, 2009)

* The digital revolution is exposing the news media to severe pressures, amplified by the recession

* ... cementing a variety of changes at every stage in the value chain of news; from the way it is presented to how it is sourced and gathered

Newspapers kept afloat by giveaways?

‘I’m struck in these times by all the things that are being offered on the front pages of newspapers... They are almost becoming more dominant than the stories themselves’ (Andrew Marr, 2009)

Broadcasters looking for new revenue

‘The tentacle-like growth of clandestine advertising in American TV shows in the form of product placement has taken another controversial step with the introduction of McDonald's products into regional news programmes’ (The Guardian, 2008)

Broadcasters looking for new revenue

‘The tentacle-like growth of clandestine advertising in American TV shows in the form of product placement has taken another controversial step with the introduction of McDonald's products into regional news programmes’ (The Guardian, 2008)

Cost pressures are reducing bureaux

‘The first thing that news publishers do when they are in financial trouble is to close foreign bureaux’ (Robert Thomson, Editor of WSJ)

* 2002-2006: the number of US newspapers with correspondents abroad fell by 30%

* Reducing the breadth of coverage; resulting in a ‘windsock’ model that closely follows the audience

The world through a windsock

... Number of seconds that US network and cable TV news dedicated to stories by country in Feb 07 (e.g. death of Anna Nicole Smith received 10x more coverage than the IPCC report that month)

A new age of digital windsocks?

The digital revolution makes it easier, but also more urgent, for publishers to follow the audience (and hence, advertising revenue)

Following the digital consumer

A new measure and language of success is taking root in the digital news organization

* Publishers can now monitor the clickstream in real-time, showering journalists with rich data

* The modern newsroom features provocative ‘league tables’ where stories compete for attention

The digital windsock in action

The immediacy of the clickstream influences editorial decisions

* Emerging evidence that coverage and resourcing decisions are following the clickstream

* The result is that the attention of the audience is further funneled around quirky, tent pole stories

Life in the clickstream

According to The Onion, the clickstream is ‘destroying morale and escalating tensions’ among journalists, who are under pressure to ‘craft articles with those magical ‘click and send’ qualities’.

The situation is apparently so dire, the article continues, that staffers at the New York Times (including four Pulitzer prize winners) have ‘requested transfers to the Home & Garden and Travel desks’, where their digital profile is more likely to bloom.

Life in the clickstream

According to The Onion, the clickstream is ‘destroying morale and escalating tensions’ among journalists, who are under pressure to ‘craft articles with those magical ‘click and send’ qualities’.

The situation is apparently so dire, the article continues, that staffers at the New York Times (including four Pulitzer prize winners) have ‘requested transfers to the Home & Garden and Travel desks’, where their digital profile is more likely to bloom.

The windsock makes economic sense

* It offers a quick route to clicks and advertising

* It favours processing over news gathering

* It can be fuelled with content from the wires or PR

But it also carries a civic price

* Cut backs are leaving large parts of public and private life without any mainstream coverage

* Digital anchors are a dying breed; consciously navigating the clickstream requires economic shelter

* Only a handful of publishers enjoy the cross-subsidy required to prioritize aspects of editorial integrity and public service over clicks

Are we facing a democratic deficit?

‘I think, we have to face up to the prospect that for first time since the enlightenment, you are going to have major cities in the UK and western democracies without any kind of verifiable source of news. That hasn’t happened for 200-300 years and I think, it is going to have very profound implications’

(Alan Rusbridger, Editor, Guardian, 2008)

Welcome to a new era of corruption?

‘More than any other medium, newspapers have been our eyes on the state, our check on private abuses, our civic alarm systems. It is true that they have often failed to perform those functions as well as they should have done. But whether they can continue to perform them at all is now in doubt’

(Paul Starr, 2009)

Even Google thinks so!

‘People are consuming more and more media on the Internet but paying less and less... That's bad for Google. We are critically dependent on high-quality content. We have a moral imperative to help preserve a free press’

(Eric Schmidt, CEO, Google, 2008)

Can the web fill the gap?

Some evidence that networked users are building digital platforms that can perform a watchdog role

Networks vs. hierarchies in media

Celebrates the wisdom of crowds and the power of networked information production - versus the ‘outdated’ business model of media that defined the 20th Century

A distributed model is also flawed

* The web can be gamed by activists, vocal minorities and vested interests

* Clicks are fungible commodities that can be manipulated, generated and sold

* The mentality of the mob vs. a community of professional reporters and editors

The web is no substitute

‘We need a few big dogs with enough money to choose principle even when it does not make economic sense... There is no substitute for the professional, civil service style, relentless, independent thinking, reporting and observation that developed in the big newsrooms after the Second World War’

(Steve Coll, CEO, New America Foundation)

So how do we sustain a confident, viable and independent news media in an environment that appears unable to provide the resourcing that such public service journalism would require?

* Cross subsidy?

* Efficiencies and productivity?

* A retreat to paid firewalls?

* Endowing publishers as charitable trusts?

(1) The ‘freemium’ philosophy

* A model that combines free with premium; free content backed up by paid subscriptions

* Strong demand for geopolitical intelligence; and proven success by the Wall Street Journal and the Financial Times

* Can it be extended to general interest news? (discussions underway at News International about including The Times in the WSJ model)

Possible benefits

* A dedicated core of customers could sustain healthy subscription revenues

* Advertising inventory would become more scarce, potentially pushing up rates

* Behavioural targeting could also increase margins(e.g. FT.com charges a 10% premium for this)

(2) The case for endowments

* Anchoring the publisher in a non-profit mould that is better placed to resist the clickstream

* Endowment provides a financial bedrock that is supplemented by sales, advertising, syndication, etc.

* Readers may be willing to pay more in tax deductible contributions than current subscriptions

* Philanthropic support of specific kinds of journalism (e.g. Pro Publica)

Costs and dangers

* The sheer scale of funding required; e.g. $2 billion for the Washington Post

* Donations might be laced with expectations or vested interests

* Preserving an outdated model of production - at the expense of smaller, grassroots models of media

* Challenge of balancing innovation with conservatism; e.g. avoiding the subsidization of inefficient business practices

The End

Thanks for listening