About Frédéric Filloux

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Analyzing the metered model

The metered model deserves a closer look. One the dirtiest little secrets of the online media business is the actual number of truly loyal readers — as opposed to fly-bys. No one really wants to know (let alone let anyone else know). Using a broad brush, about half of the audience is composed of casual users dropping by less than 3 times a month, or sent by search engines; 25% come more than 10 times a month. Over the years, as audience segmentation increased, media buyers (and publishers) selected the simplistic counting of Unique Visitors (UVs) as the metric of choice. In the meantime, all forms of Search Engine Optimization (SEO) and Search Engine Marketing (SEM) outfits have further elevated the collecting UVs as the primary goal for online publishers. Along with that practice came cheating. In order to inflate their UV numbers, many large news sites now rely on third party services such games that have nothing to do with their core business.

This distortion contributed to the erosion in advertising prices. Media buyers might by cynical, but they are not stupid. They know that a growing percentage of audiences is composed of accidental visitors with no brand loyalty whatsoever and who offer no attractive demographics. Combined to the “unlimited supply” factor inherent to the internet business, the result is a downward spiral for ad prices. These are important factors to keep in mind while considering paid-for systems.
News organization have implemented such systems in different gradations. At the far end of the spectrum, we have the Times of London: no access to the site without first paying. That’s is the riskiest option. The site ends up losing 90% of its audience (and the related advertising revenue) but hopes to offset the loss by gathering enough online subscribers. Without the promotional booster of free contents, this is a challenge – to say the least.
Others choose to give some of the site for free and put the most valuable contents — sometimes the digital version of the print edition — behind a paywall. This doesn’t always make economical sense as many readers are happy enough with the free content part. Editorially speaking, this leads to the creation of two categories: cheap fodder available for free (often created by junior staffers), and more “noble” content produced by the most senior members of the newsroom who also feed the print version.  This works fine for a brand associated with significant added value, or specialized (such as business news), or one that dominates its own market. The most successful paywall implementation has been the Wall Street Journal: it now has more than 1m paid subscribers, but it took 10 years to get there.

The third option involves a metered system. The principle is simple: once you’ve seen a certain number of stories in a given period of time, you need to become a paid subscriber to keep viewing the site. Some newspapers have been quite successful at deploying such a metered system.
For example, the Financial Times has set the cursor to 10 stories per month before hitting the paywall, after which the reader is asked to pay between € 4.99 and €7.49 (about $7.30 and $11) per month, depending on the package deal. A high price for really premium content. So far, FT.com has 3.4m registered users of which 224,000 have been converted to paid-for contents (+8% for Q1 2011). This translate into €20m to €25m extra revenue, only from subscribers (the service has been launched in October 2007). Currently, digital revenue (both ads and subscriptions) accounts for  30% of the FT’s revenue; according to FT execs, it is expected to reach 50% in 2013.

For the meter, finding the right setting is far from trivial. The trick is to decide how many free stories will be allowed before hitting the paywall, and how much to charge thereafter. In New York, three weeks ago, I spoke with Gordon Crovitz. With Steven Brill, Gordon co-founded Press+, which creates bespoke metered system for online medias. Press+ provides a complete set of e-commerce tools for publishers, from the access mechanism to the transaction system. It works with passes (daily, weekly), subscriptions plans (monthly or annual), topical packages, bundles and ancillary products.
Determining the right formula is usually done through A/B testing. Crovitz and Brill explain: the publisher will test two or three levels of free access (5, 10, 15 stories per month) and the same number of prices ($5 to $10 or maybe $15 a month). A few months of testing will determine the right formula. Typical ingredients are: the type of content, surrounding competition and possible alternative for the customers, the publisher’s willingness to bundle digital and print products. Metering can also be attractive for out-of-market audiences: an Australian newspaper will be free for its domestic audience but will charge overseas readers consuming more than 10 stories a month.

Another factor is the site’s advertising structure. The amount of inventory sold to advertisers varies widely. In the US market, the “sell-trough” ratio is about 60%, but it can go as low as 30% on some markets. This means the media can sustain some loss in page views due to the implementation of the metered system without losing ad revenue. An online media with a sell-trough rate of 55% can allow a 45% decrease in page views before eroding its ad revenue. According to Press+, traffic losses from implementing a meter are modest, ranging from 0% to 20% as counted in page views, and 0% to 7% in UVs.

Let’s try back-of-the-envelope calculations. A site gets 5m UVs and 100m page views per month; its yearly ARPU (Average Revenue Per User) coming from advertising is $3. This results in a yearly revenue of $15m. Now suppose only 20% of its audience reads more than 15 stories a month and one out of ten such readers are willing to pay $10 a month. The additional revenue will be: 5m UVs x 20% hitting the paywall x 10% willing to pay $100/year (discount included) = $10m in additional income — without depleting its advertising revenue. Actually, experience shows advertisers are now paying roughly 30% more for readers reached behind a paywall. All this before the 20% cut taken by Press+.

Naturally, as the saying goes, YMMV (Your Mileage May Vary), actual results will depend on many factors, one of them being how the pricing system is set (the simpler, the better).  Again, a rigorous test of all hypotheses is critical. Metered systems are the opposite of the one-size-fits-all.

—frederic.filloux@mondaynote.com

Trifling Twitter

When a member of the old guard barges into their cozy backyard, the Digerati jump up and strike indignant poses. And when the intruder’s point is missed, its author gets crucified. This is what happened to Bill Keller, the New York Times’ executive editor, when he dared to write a column critical of Twitter. In short, Keller’s well-documented piece, titled “The Twitter Trap“, contends the medium’s shallowness encourages superficial exchanges to the detriment of in-depth discussions. When, as a minor provocation, he twitted “#TwitterMakesYouStupid. Discuss“, someone keyboarded back “Depends who you follow” — and should have added: “… Depends also on how you follow people”.

I will stop short of joining the crowd of zealous Bill Keller critics. But I’m not fond of the piece, either: on several counts, I consider it misguided.

1 / Twitter is in fact small, and therefore cognitively inoffensive. Officially, the micro-blogging network (we ought to call it a media) born five years ago has 200 million users. This supposedly huge user base allowed it to raise about $360m in capital, including a last round of $200m led by Kleiner Perkins, the Valley venture capital grandee, on a $3.7bn valuation. Stunning indeed.
Now, let’s get back to Earth. Over the last 18 months, traffic has stayed flat. Time spent is eroding: 14 mn 6 sec per user in March 2010 vs. 12 mn 37 sec in March 2011. Contrast this to more than 6 hours spent on Facebook. (According to a recent cover story in Fortune, Mark Zuckerberg is said to pay less and less attention to Twitter’s evolution). Despite occasional news cycle-triggered traffic outbursts (the Spring unrest in Arab countries is a good example), such spikes don’t really translate into audience gains. As for the number of accounts, half are idle. And, as usual on the internet, the usage is extremely concentrated: 10% of all users account for 90% of the twits.
In the latter figure lays Twitter’s peculiar character: as they get better at using the medium, its most powerful users’ voices becomes louder than ever.

2 / Twitter is controlled by the user. The most notable fact in Twitter’s evolution is the increasing sophistication of its users. The top ten percent have become good at finding the best “relevancy niche”, i.e. a sector in which they’ll be able to rise above the crowd. Many do so by mastering all the available tools: they look a their retweets data, monitor who retweets them, and watch their ranking.
Symmetrically, the passive audience (reading more than actually twitting), has become adept at continuously refining their feed selection. Prattlers prone to comment on the Saturday night sports games tend to be abandoned to the benefit of those who stick to their expertise. Trimming subscriptions has become mandatory on Twitter (as it is on Facebook).

3 / Twitter’s pervasiveness has nothing in common with what we observe on Facebook or Google. As a business, Twitter’s trajectory looks more like Yahoo’s (unfortunately in a more precocious way) than a Google’s or Facebook’s. Zuckerberg’s social network enjoys unabated growth and much better monetization: it extracts about $3 in revenue per user (and makes a profit at it) versus $0.25 for Twitter.
This gap allows Facebook to continuously roll out new features. As a result, its already faithful users end up even more solidly anchored, increasing their time spent on the service. Twitter, on the other hand, has yet to show a sustainable business model, and its small core of heavy users remains difficult to monetize. This results in a hard to break vicious circle: no cash-flow => no investment capacity => costly investments due to a theoretically large user base. Twitter’s inability to introduce new sticky features is likely to further concentrate the twitterer base, while the broader circle of less involved users will tend to look elsewhere for excitement.
It will be difficult for Twitter’s management and investors to find their way out of this decaying orbit.

Already, Twitters’s limitations are visible in the way users consume online news. According the a study conducted by the Pew Research Center for Excellence in Journalism and based on Nielsen data (PDF here), Twitter is an insignificant referral (1%) for news when compared to Facebook (5%) or Google (30%).  However, the use of Twitter deserves to be encouraged in the newsroom (and taught in journalism schools), since:
a) it is an effective promotional tool for value-added stories;
b) it allows reporters to actually pinpoint their most loyal audience – and establish a relationship with it;
c) it doesn’t kill value like RSS feeds do (see a previous Monday Note on that matter).

Twitter will increasingly be a one-to-a-few medium, with a small base of hard-core users, increasingly selective about the contents they broadcast and who they follow. In passing, this trend will further reinforce the ongoing news sites traffic concentration where about 5% of the users account for 75% of the page views. (As an example, the Pew Research study indicates that 85% of USA Today.com users visit the site less than 3 times a month. And for the top 25 American news sites, “power users”, i.e. visiting a site more than 10 times a month, account for only…. 7% of the total).

Bill Keller’s handwringing about Twitter largely miss the point. Twitter remains largely controlled by its users, on both emitting and receiving sides. That is not the case for the search business that relies on sophisticated and secret algorithms to serve contents supposedly tailored for us – without our knowledge of this invisible editing (see this enlightening TED video by Eli Pariser on what he calls the “Filter Bubble”). What Bill Keller ought to worry about is the algorithm-powered news stream, designed to maximize its audience — and the advertising revenue. Therein lies the real danger for the brains of our children and their ability to learn how to judge by themselves. In comparison to the AOL Way (I’m referring to the stats-based news master plan exposed by Business Insider), the use of Twitter is a trifling matter.

frederic.filloux@mondaynote.com

Media & tech: Reconcilable Differences

Media and tech worlds must work together. There is not a shred of a doubt about it. The former have lost the dual battle for growth and economic performance; the latter are attracting eyeballs and endless funding. Still. When combined, their relevance to society can be greater than the sum of their respective parts.

Last week in New York, I was asked to share my views on the matter. This was before an audience of 350 media executives gathered for the Inma World Congress. Most were looking for ways to effectively partner with digital companies. As I worked on my speech, I asked my tech world contacts how they see us, the media crowd. Here are some quotes, from people who requested not to be identified.

“You guys, are geared to compete rather than collaborate. You’re not getting that collaboration is the new name for the game”. “Even among yourselves, you are unable to cooperate on key industrial issues, shooting yourselves in the foot as a result”. “Your internal organizations are still plagued by a culture of silos. The winners will be the ones  who break silos”.

Tech executives also underline they see media companies as co-managed with unions – the consequence being a wage system that discourages rewarding valuable individuals. Media companies are also viewed as having a tech-averse culture. “Media don’t understand that their business has become engineering-intensive. Their investment in technology is grossly insufficient”.

Symmetrically, I collected adjectives summing up media people’s perception of the tech world. “Arrogant, condescending”: true, old media people always have the feeling of being looked down upon by the guys in chinos. “Nerdy, left-brained”: well, it goes along with the flip-flops and the hoodie… “Wealthy”, (I’ll come to that later). “Alien to the notion of value for content”: also true; and that might be the most difficult obstacle to a reconciliation.

More than anything else, techies view the contents news outlets painstakingly put together as an annoyance. They don’t have a clue, nor are they interested in getting one, to the complex, costly and often dangerous process of collecting original information. “Euro-ignorant”: let’s just recall what the geographic distribution looks like in large tech corporations. The often-used EMEA  acronym encompasses Europe, Middle East, and Africa, i.e. from Germany to Burundi. Practically, when landing in Silicon Valley from Paris, you’re often made to feel you’re dropping in from the Third World.

“Contract Nuts”: when a 30 pages contract lands in your inbox from California, written in knotty legal English (even for a France-based deal), stipulating the relevant jurisdiction will be the Santa Clara County Superior Court, you can’t help but feeling a bit bewildered and put off. In dealing with tech companies, the amount of money spent in legal fees suddenly appears out of proportions. We have no choice but getting used to it.

The only identical critic, evenly spread on both sides, concerns bureaucracy: medias point at intricate technostructures staffed with legions of people working on the same subject; tech people mock news media needing six weeks to sign the innocuous non-disclosure agreement covering a routine project.

Let’s stop for a moment on the financial issue. Three key factors differentiate the tech from the media world.

1 / Size. The combined revenue of the US newspaper + magazine industry, all sources combined is about $60bn. This is sector is facing the following: Apple (most likely $100bn in revenue this year); Google ($29bn last year); Microsoft ($62bn) or Yahoo ($6bn). As for stock valuations over the last 10 years, consider the graphic below. It shows the performances of three mostly newspapers groups with market values above $1bn: Gannett Co. (market cap: $3.5bn), The Washington Post Co. ($3.33bn), The New York Times Co. ($1.13bn). Over the last 10 years, their stock prices went like this :

Now, on the same 10-year scale, let’s superimpose, Apple, Google, Microsoft; the scale flattens quite a bit:

You get the point. The media industry faces dramatic value depletion.

2 / Access to cash. Technology companies have access to a huge pool of money. After years of disappointing results, the Venture Capital industry is red hot again. In a previous Monday Note, I mentioned Flipboard – great app for the iPad, 32 people, no revenue –  with a current valuation of $200m, roughly the equivalent of the McClatchy Company with its 20 newspapers, 7700 employees, 24% EBITDA for a revenue of  $1.4bn.

3 / How to spend it. In itself, the cash allocation illustrates the cultural gap. In a tech company, once a project is approved, money will be injected until the outcome becomes clear: success or failure. As I asked an exec in a large tech group what the budget of the project we were discussing was, he answered: “Look, honestly I’ve never seen any spreadsheets on this. This project has been decided at the highest level of the corporation. We’ll pour money into it until it works or closes”.

By contrast, in a media company, investment will be kept at a bare minimum. Any engagement is set as low as possible: temporary staffing,  outsourced work, everything is in penny-pinching mode. Not exactly the “No Guts, No Glory” way…

Nevertheless, the more I’m involved in digital media projects, the more I’m convinced that both worlds need a rapprochement. Medias have a lot to learn from tech companies. The way they conduct projects, their relentless drive for innovation, their bold imagination, coupled with a systematic and agile “Test & Learn” approach…  For the news industry, drawing inspiration from such a culture is a matter or survival.

As for the tech ventures, they must admit they need the media industry more than they like to think. Flipboard, Google Reader, Bing: all aggregators would lose a great deal of their appeal if they no longer had original contents to aggregate or organize.

Over the past fifteen years, we kept hearing stories telling us Google or Yahoo could swallow any old media in a single gulp. It didn’t happen. Nor did these deep-pocketed corporations find within themselves the vision and skills to create a decent news gathering operation from scratch. The reason is simple and complicated: it’s a métier of its own; thousands of people have been practicing and evolving it for decades.

People like me, working on both sides of the fence, strongly believe in the virtues of cross-pollination. On the media side, it might have to start by finding out what we expect from the tech world, whether they are aggregators, distributors, or search engines. Then, we’ll need to change the way we innovate. In a nutshell, screw the bean-counters that will strangle decisive investments while being unable to stop the hemorrhage in their “legacy” businesses; assign small teams on a small numbers of really (as opposed to cosmetically) crucial projects; do more prototypes and less spreadsheets. Be bold and fearless. As the techies like to say: Go big, or go home!

Failure must be an option. Paralysis is not.

frederic.filloux@mondaynote.com


Lessons from the Bin Laden coverage

One after the other, the newscycles of momentous events keep reshaping the digital information landscape. The latest example of such alteration is the Bin Laden story, it just set a new reference point. For traditional media, this raises the pressure yet another notch; they must rethink everything: organizations and processes – as well as business strategies.

First, a quick recap of the Sunday May 1st events (all times Eastern Standard Time; add six hours for Western Europe and five hours for the UK):

4-4:30pm — 79 Navy Seals raid Osama Bin Laden’s compound in Abbottabad, Pakistan.

7:24pm — A former Navy intelligence officer name Keith Urbahn, currently Donald Rumsfeld’s chief of staff (we all discovered the former Defense secretary indeed has one) shot this tweet:

In Washington’s political game, this is a way to say: We, too, are in the know, we maintain our own network of sources within the military.
Within one minute Keith Urbahn’s shout was retweeted 80 times. Including by New York Times’ media reporter Brian Stelter. Another minute later, the original tweet had multiplied by 300, triggering instant global speculation.

9:46pm — The White House communication staff on duty sends a three word “Get to work” email to the press corps. At the same time, Dan Pfeiffer, the White House official serial twitterer sends the following:

10:40pm – As Barack Obama is still working on his speech, and after frantic phone calls to verify the story, the Times’ national security team and its Washington bureau decide to run a one line mention of Bin Laden’s Death. Ten minutes later, the website shows this:

10:45pm – All three TV networks interrupt their programming and break the news.

11:30pm – President Obama speaks live from the White House. 56.5 million viewers watch his address.

12:45am (May 2nd) — The East Coast edition of the New York Times closes. It contains a 10 pages section titled “The Death of Bin Laden” (NYT’s editor Bill Keller decided to drop the “Mr.”).

Observation #1: Twitter is king. A well-connected, politically driven staffer leaks the news first. No one knew Keith Urbahn before (see his profile in New York Observer), but his Twitter ID gave him credibility; for his Twitter followers, his post immediately raised a red flag: Rummy’s aide would not compromise his boss by leaking false information.

Between the White House’s first cryptic alert and Barack Obama’s actual announcement, about 15 million tweets has been exchanged. The number comes from Social Flow, a social media optimization platform. See their remarkable visual reconstruction of the tweets’ spread (below is the interaction between Urbahn and Stelter):

Incidentally, beat reporters now need a new skill: they must master the microblogging service in the most professional of ways. Tweeter has now reached a new status: main alert feed – as long as (and that is a big “if”) a proper credibility index is used to qualify the source. Such capability is supposed to be the key differentiation between a pro and an amateur.

For efficiency, several journalists I know are now morphing their social presence into a series of well-organized feeds streams. The same applies to their propagating scoops or promoting stories.  A smart use (both social and professional) of Twitter should be taught in J-Schools.

Observation #2: As notions, “edition” and deadline are dead. A newspaper editor’s worst nightmare is breaking news landing on a Sunday night at closing time. Such conjunction of content and timing carries a high risk of irrelevancy — if missed, or of good-faith false information hitting the streets the next day — if inaccurate. We all have memories of too-close-to-call elections, rumors of a personality’s death, etc.

Newspapers took time to make their mind up on the question of deadlines and editions (and many have yet to cross that Rubicon). But the leaders of the pack took the straightforward option: dump everything on the internet, as fast as you can and without regard for closing deadlines.

For the Bin Laden story, most big news organizations produced vast amounts of articles as their physical paper were being re-edited. By the time the updated edition hit the street, its had content been posted on the net, but every story had also been continuously updated and augmented.  Did it affect newsstand sales? Early data show this isn’t the case. Sales always rise, no matter how more up-to-date the publication website is. With high impact news, analyzing reader reactions shows people still enjoy the physical paper’s broad view — and, for those special occasions, there is the “collector’s item” feeling.

The fading notion of edition raises two questions: How should newspapers strategize their differentiation from the social wave?  And how could such evolution impact business strategies?

The answer to the first question lies in the ability to validate and confirm a piece of breaking news, followed by injecting exclusive coverage and expertise to the mix. For example, a national security specialist and a regional bureau will bring unparalleled added value.  This 2300 words  roundup story in the NY Times was assembled and filed in the hours following Obama’s speech; it carries no less than eight bylines, three seniors writers and five contributing reporters. Very few news organizations have the resources and the internal leadership to quickly deploy such journalistic firepower. For news organization,  survival rests on their ability to retain editorial capabilities, as opposed to succumbing to the aggregation temptation.

The coverage of Fukushima’s disaster provides another example of the increasing newscycle-deadline disconnect. I noticed every roundup story was indexed to the Tokyo bureau’s ability to produce articles – sometimes-sizable ones – in real time, not on a fixed newspaper production schedule.

Business wise, as many consider paid-for options to supplement the ailing advertising-model, the notion of paid-for editions also needs serious rethinking. Readers now expect live coverage, plus recap stories in a timely basis. Planning a commercial activity based on the sale of a single electronic edition becomes increasingly irrelevant. Readers might  prefer buying inexpensive access (preferably on a monthly basis, from a publisher’s perspective) to a sort of business class-equivalent content (I’m referring to Information Architects‘ Oliver Reichenstein’s analysis here). Alternatively, the most technologically advanced news organizations will develop hourly updated ePapers, encapsulated in an attractive layout. The Wall Street Journal provides a good example: on the iPad, it provides both a regular “As Printed” edition and a “Now” one.

Magazines are also likely to revisit the closed “edition”. No wonder Condé Nast plans to rethink its iPad strategy. As a longtime reader of Wired and Vanity Fair, I will stop purchasing issues online; not only do such editions download in the most painstaking of ways (with entire library vanishing with no reason), but I no longer see the added value it carries compared to the plain paper subscriptions coupled to an occasional look at their websites. (On this, readers actually voted with their feet.)

The way most news organizations are handling big news such as the Bin Laden killing or Japan’s tragedy is reassuring: these outfits demonstrate an ability to master social media as well as a will to cater to readers’ new needs. For once, editorial seems to evolve at a faster pace than the business side.

frederic.filloux@mondaynote.com

Freemium Revisited: Paying For Content-Based Applications

Last week, Instapaper’s founder Marco Arment gave us a remarkable insight into the economics of content applications. For readers who haven’t used Instapaper on their iPad or iPhone (preferably on both): this application is an absolute must-have.
This is what I call a Real-Life App. Minimalist design, no frills, no “wow effect”. But, in return for the sobriety, unparalleled efficiency. Instapaper was born from a need, not from a marketing concept or PowerPoint vaporware. In last October’s Wired profile,  Arment explained himself: at Tumblr, the blog platform where he was Chief Technologist, a draining job that made concentration difficult, he began to feel the need for such an app.
Reading text longer than a two-page business memo has become everyone’s daily challenge. The inability to allocate time for lengthy, in-depth reading is a contemporary disease – well portrayed in Nicolas Carr’s last book The Shallows.

Hence Instapaper: a service based on a bookmarklet that lets you to save browser pages for later reading. When you want to save a page for later reading, you click on your browser’s Read Later bookmark . Like this:

The pages you save get automagically synchronized with your iPhone and iPad Instapaper apps; they become available for online and offline reading. This makes Instapaper ideal when traveling. For the Kindle, Instapaper features an easy setup to send all your saved stories to the device.

Instapaper is a one-man operation. It has three (modest) revenue streams: apps sales, a tiny one-dollar a month subscription via PayPal, and a small amount of ad space on the website. So far, Marco Arment checks all of today’s smart Internet relevant boxes:

  • a straightforward application with a clear purpose: saving long texts for later reading
  • a clearcut business model, one that doesn’t depends on “eyeballs” hypothetically pimped at bargain-basement prices
  • a remarkable implementation of its own API model: see Instapaper’s API’s how-to page. The Read Later API allows 140 third party applications (news-related aggregators, RSS feeds readers, Twitter apps) to upload and sync pages for later reading on your devices.
  • good execution: Instapaper works flawlessly, exactly as advertised
  • the AppStore ecosystem is a perfect fit for such an ultra-light operation. The developer focuses on what he does best and Apple takes care of the rest: worldwide app distribution, updates… and monthly checks — minus its usual 30% cut
  • it addresses a well identified market: upmarket information consumers, willing to take the time to read quality, long-form text – and willing to pay a small amount of money for the service. This is a solvent niche market. Small revenues but nice margins — as opposed to the thin or inexistent ones ‘‘enjoyed” in mass markets.

Coming back to today’s subject – the monetization of content based applications – Marco Arment sheds an interesting light on pricing strategies.

Credit: Flickr Webstock Photostream (cc)

In the beginning (Fall of 2008), his iPhone app came in two flavors: free for the light edition, and $9.99 for the full-featured one. In June 2009, he lowered the price to $4.99 — where it stands now. When the iPad launched, Arment decided against a free version for Apple’s new tablet. And, last Fall, he ran an experiment: the free iPhone version disappeared from the AppStore for three days. Sales increase immediately. Then he reiterates the experiment:

On March 12 [2011], knowing I was heading into very strong sales from the iPad 2’s launch, I pulled Free again, this time for a month. Again, nobody noticed, and sales increased (although it’s hard to say which portion of the increase, if any, is attributable to Free’s absence, since most of it is from the iPad 2’s launch).

This break went so well that I pushed the return date back by another month. I may keep it out indefinitely, effectively discontinuing Instapaper Free. More

Read, Share and Destroy

The social web’s economics are paradoxical: The more it blossoms, the more it destroys value. In recent months, we’ve seen a flurry of innovative tools for reading and sharing contents. Or, even better, for basing one’s readings on other people’s shared contents. In Web 2.5 parlance, this is called Social Reading. For this, the obvious vector of choice is the iPad: it possesses a (so far) unparalleled ability to transform online reading into a cozy lean-back experience.

A year after the iPad’s launch, the app store is filled with a swarm of forcefully competitive offerings. Like everyone else in the business, I stuffed my device with about ten (and counting) such apps, gathered in a “Daily Me” folder.

Last week, I dissected Flipboard, one my favorites because of its simplicity, neat look and speed. But I’m also enjoying News360, a Russian crawler that scans more 100,000 sources (“200,000 in the next few months…”). News 360 adds a semantic layer whose purported goal, in short, is to increase relevancy.  Zite carries spectacular personalization features as well as Cease and Desists Letters from publishers (see Zite Response here).
Taptu is a more recent one. It takes a further step in customization by using the most advanced graphical features found in iOS. Many of these mobile aggregators are available on Android as well.

All of theses apps start with the same raw material. They collect and rearrange RSS feeds, they crawl Twitter or Facebook streams.  Unfortunately, from a news publisher vantage point, all these aggregating apps kill value by removing ads from the articles they assemble for our reading pleasure. In order to fit their elegant and efficient layout, these apps remove “visual noise”, that is all these “annoying” ads.

The paradoxical beauty of today’s web contents is this: On the one hand, 95% of all revenues are still ad-related. On the other, that same content becomes easier to read it without commercial distractions. Publishers didn’t merely accept it, they encouraged it. I already mentioned the negative effect of generous RSS feeds on the business: see RSS Lenin’s Rope. At first, the hijacking of RSS feeds by a new breed of apps was seen as an unfortunate consequence of publishers’ naïveté. After all, when the RSS mechanism was invented more than ten years ago, the idea of repurposing it into a bespoke e-journal wasn’t on anyone’s mind. Now, the media industry faces a completely different picture. Publishers of expensive contents can’t even console themselves by fantasizing their promiscuous supply of RSS links will bring back traffic. RSS super-readers are mostly self-contained and do not send any traffic to anyone else. More

Flipboard: Threat and Opportunity

Every media company should be afraid of Flipboard. The Palo Alto startup epitomizes the best and the worst of the internet. The best is for the user. The worst is for the content providers that feed its stunning expansion without getting a dime in return. According to Kara Swisher ‘s AllThingsD, nine months after launching its first version, Flipboard’s new $50m financing round gives the company a €200m valuation.

Many newspapers or magazines carrying hundreds of journalists can’t get a €200m valuation today. Last year, for the Groupe Le Monde, an investment bank memo set a valuation of approximately $100m (net of its $86m debt at the time, to be precise). That was for a 644 journalists multimedia company – OK, one that had been badly managed for years. Still, Flipboard is a 32-people startup with a single product and no revenue yet.

So, what’s the fuss about?

The answer is a simple one: Flipboard is THE product any big media company or, better, any group of media companies should have invented. It’s an iPad application (soon to be supplemented by an iPhone version), it allows readers to aggregate any sources they want: social medias such as Twitter, Facebook, Flickr or any combination of RSS feeds. No need to remember the feed’s often-complicated URL, Flipboard searches it for you and puts the result in a neat eBook-like layout. A striking example: the Google Reader it connects you to suddenly morphs from its Icelandic look into a cozy and elegant set of pages that you actually flip. Flipboard most visible feature is an interface that transform this:

Into this:

All implemented with near perfection. No flickering, no hiccups when a page resizes or layouts adjust. More

Bob Woodward: how many page views?

The legendary journalist was in Paris last week, promoting (“flogging”) his last book: “Obama’s Wars“. (Large excerpts in the Washington Post here). It was the standard book tour: TV and radio appearances; a well-timed cover story in Le Monde Magazine; same quotes, same anecdotes everywhere.
Still, I was curious. After all, he’s one of my heroes. In the 70′s, I was in high school when the Watergate story flared up. Later, thanks to Alan Pakula’s movie, All the President’s Men, I got a kick out of American journalism, out of the grandeur and power of large newspapers, of deadline fevers and of news folklore.

Almost forty years after Watergate, I was curious to see how the Net Generation, hooked on Twitter and Facebook, perceived Bob Woodward. To find out, I sat among 300 students in the amphitheater at the Sciences Po University in Paris.  Sciences Po is one of the most elitist and selective French universities with ties to several foreign colleges. Its curriculum includes a master in journalism (where I happen to have a small gig teaching professional blogging).

As expected, Woodward was really “on” – especially for those of us new to his stump speech. At 68, the trade still makes him tick.  He gleefully enjoys going after what people are trying to hide, “peeling the onion” as he puts it. He likes to tell how he showed up at a US general’s home at 8pm who greeted him by a loud “You! Are you still doing this shit?” Obviously, Woodward still does and still loves it. (A compilation of Woodward’s thoughts on journalism is available on Poynter.org, well worth your reading time).

© Hugo Passarello Luna

Bob Woodward is the embodiment of a disappearing form of journalism: source-based reporting as opposed to today’s echo-chamber news streams. His motto: Real stuff does not grow on the internet; it still comes from human sources who won’t expose themselves on Facebook or Twitter. As Woodward likes to recall, real journalism still depends on carefully planned and doggedly performed legwork. This results in a stronger position to get at the decisive facts. See this excerpt from the Poynter conference:

“In the case of Bush or Obama, I sent them long memos and said, ‘this is what I understand happened. What do you want to respond to?’ I remember sending Bush a 21-page memo. … The next day, Condoleezza Rice called me and said, ‘The president read it, I read it, and you’re going to write this book and these stories for the Post whether you talked to the president or not.’ I said, ‘Of course I am.’ She said, ‘He’ll see you tomorrow.’ ”

For students, even though Woodward stands by an idealistic (and ideal) view of journalism, such talk is both refreshing and invigorating.  Still, one J-school student tries to bring him down to today’s realities: “You say ‘go after sources, do the legwork’… But our future lies more in a desk job… In your view, how should we handle this reality?” Woodward’s answer was as expected:  a) get an iPad (for mobility – Woodward is known to be fond of it, unlike this self-depreciating Washington Post commercial would suggest); b) a great story always find its way and you should not be deterred to go for sources and original reporting. And no editor-in-chief will be insensitive to a great subject.

Touching but slightly out of touch.

The aspiring journalists deferentially listening to Woodward face an uncertain future, to say the least. Their world is likely to be productivity-obsessed. In journalism, stats are increasingly likely to define trends. See USA Today’s alleged intention to tie reporters’ bonuses to page views. This is yet another step in the current fashion now defining online journalism  (below is a slide from the infamous AOL Way Memo leaked by Business Insider):

The quest for profitability is not a bad thing in itself. Even Woodward believes that, to be free of influence, media should be a profitable business and not a subsidized one (even a non-profit organization like ProPublica). But linking part of reporters’ salary to traffic will corrupt journalism in many ways.

- First, it will accentuate the imbalance in news coverage. We all know the recipe: celebrity coverage (preferably prurient) and sports drive traffic; not politics or foreign affairs.

- Second, traffic-based compensation will deter young journalists from going after the most complex, difficult beats. Why try explaining what’s really going on at the Fukushima nuclear plant, or digging through the arcana of E.U. policy (even though it shapes the life of 450m people) if, two desks away, your colleague will make more money by recycling celeb gossip?

- Third, prioritizing revenue over relevancy will inevitably impact newsrooms resource allocation. Already, as the Gannett blog reported last year, USA Today has 27 reporters covering all forms of entertainment against 5 reporters covering the United States Congress and 4 in their investigation department. This says a lot about where journalism is heading. Should most news organizations decide to follow USA Today’s path, not only future Woodwards will end up making less than reporters treating lighter subjects, but they will soon become an extinct species. More

The Communication Paradox

Remember The West Wing, the cult TV series? Its last episodes describe the end of President Jed Bartlet’s term and portray his Chief of Staff and former Press Secretary, C.J. Craig, deluged with job offers as she struggles with the emotions of leaving her beloved President. Emissaries of Fortune 500 corporations, CEOs of fictitious tech companies, heads of NGOs are all making the trip to 1600 Pennsylvania Avenue with high six-figure contracts in hand. Because she’s a smart and generous women – and the series is suffused with utter political correctness – C.J. Craig leans toward a big foundation, eager to build highways in Africa — it could have been worse: a Carbon-Free nuculear plant, for instance.

As you’ll see in a few seconds, there is great irony in the following coincidence: the West Wing’s main writer was Aaron Sorkin, who also happens to have won an Oscar for his Facebook movie script…

Reality beats fiction: Robert Gibbs, Barack Obama’s former press secretary definitely looks less idealistic than the sharp-tongued West Wing character. Having left office in February, Gibbs is said to be in talks with Facebook (story in Times’Dealbook).  The stakes are high: Facebook’s IPO looms. Private stock transactions currently put a $60bn valuation on the company and such lofty expectations come with many PR challenges. And the West Wing “high six figures” will be suitably updated to seven or more…
Gibbs won’t be the first White House hand to move to Silicon Valley. As Politico recalls, Joe Lockhart, Bill Clinton’s Press Secretary, joined Oracle. And former John McCain’s communication chief Jill Hazelbaker is now at Google. Even higher, we have former Vice-President Al Gore: he now is a rain-making General Partner at Kleiner Perkins Caufield & Byers, the venture capital giant and, for good measure, also sits on Apple’s Board. When it is about lobbying, tech firms don’t cheap. They hire the best talent money can buy.

The paradox: Then, why do these high-tech firms do such poor public communication? The answer lies two or three levels below the big hired guns, where talent and decision-making power disappear. There, PR people are mostly employed in stonewalling tasks. And the corpocracy likes them that way. The power structure condones an incestuous hiring process. Senior flacks recruit junior flacks.  And, as in all consanguineous reproductive activities, DNA rarely improves. Most hires are expected to be docile; initiative is strongly discouraged by paranoid upper management layers. More

The NYT’s Melting Iceberg Syndrome

Could the New York Times be viable as a digital-only operation? What a ridiculous question: With almost a million copies sold every day, why would this preeminent newspaper even consider such a drastic withdrawal from the physical world?

Truth is: there is no urgency, no need to initiate, nor to accelerate the switch — at this time. But, in the coming years, like other large dailies, The New York Times will be afflicted by the melting iceberg syndrome: no matter how large the iceberg is at the beginning, it inexorably dissolves as it drifts toward warmer latitudes. The progression is barely visible but, at some point, as the exposed part liquefies under the sun, the iceberg’s center of gravity moves upward and it suddenly capsizes without warning (that’s why there is no permanent manned base on icebergs): “As an iceberg melts, the resulting change of shape can cause it to list gradually or to become unstable and topple over suddenly”. (From The use of catastrophe theory to analyze the stability and toppling of icebergs Annals of Glaciology, 1980).

Granted, the metaphor is a bit over-the-top in a column about media economics. Still. Replace the heat and irregular currents that undermine the iceberg’s stability with readership erosion and advertising migration, and you see how it applies to large newspapers.
For the latest US market trends, consider the following, based on recent data from the  Newspaper Association of America :

  • Over the last five years (2005-2010) advertising expenditures (print + digital) for US newspapers have dropped by 48%.
  • For print-ads only, the drop is 52%.
  • Symmetrically, digital advertising spending rose by 50%.

Unfortunately, digital ads still represent a small fraction of the advertising revenue, one that grows slowly: it went from 4.1% of total ad spending in 2005 to 11.8% in 2010. (For further analysis of NAA’s stats, read Alan Mutter’s column titled Newspaper ad sales hit 25-year low in 2010).

By themselves, such numbers explain why publishers are obsessed with paywalls (see last week’s Monday Note about the NYT metered system). For the short to medium term, there is no hope digital advertising will offset the depletion of print. One way or the other, readers will have to contribute.
Coming back to the New York Times, the paper is good at extracting revenue from its readers. Last year, copy sales brought $684m, or 44% of total revenue, vs. $780m (50%)  for advertising. This ratio is way above the national average where newspapers rely on ads for 80% of their revenue. As for digital advertising, its revenue reached $160m last year, that is 20% of the NYT’s total ad revenue, and 10% of all sources of income.

Let’s stop a moment and behold the printed New York Times’ true gem: its Sunday edition. It changes everything in our look at the paper’s digital equation:

  • Sunday circulation is 54% higher than on weekdays (1.35m vs. 877,000).
  • It’s an expensive package: $5.00 in New York, $6.00 elsewhere in the country.
  • Sunday copy sales bring five times more money than any weekday.
  • Advertising-wise, some analysts say the Sunday NYT accounts for about 50% of the paper’s entire advertising revenue.

Altogether, between circulation revenue and ads, it is safe to say that NYTimes’ weekend edition makes the same amount of money as the rest of the week combined. (For a good analysis of the subject, read The newsonomics of Sunday paper/tablet subscriptions by Ken Doctor, on the Nieman Journalism Lab blog).
Just as important, reader engagement is much stronger on Sundays: with an average reading time of 53 minutes for the Sunday edition vs. 36 minutes on weekdays. In parallel, demographics are spectacular: the Sunday reader’s median household income is $112,154. A strong number for the sales team’s pitch to advertisers.

Now, suppose the NYT Co. keeps its Sunday cash-cow but stops printing on weekdays. Combined copy sales and print ads revenue is cut by half to $730m. On the internet side, the 32 million domestic monthly unique visitors will be growing as a result of the cut. By how much? Let’s assume the Times is able to convert one third of its former print readership (remember: no more weekday paper) into paid-for website users spending on average $15 a month or $180 a year. This is about 300,000 people, bringing roughly $50m in revenue. In the meantime, we can assume the non-paying audience will also rise. With each “freeloader” carrying an ad-related ARPU of about $5.00 per year like today, an extra 10m UV (which is conservative) would bring another $50m. To sum up this very rough back-of-the-envelope calculation:

I’m not touching the $92m revenue in the NYT’s Media group P&L. Nor am I projecting any circulation growth for the Sunday edition (and it will grow, obviously). Under these assumptions, the NYT would make roughly $1 billion a year in revenue versus $1.5bn today.

Turning to costs. How much the company would be able to save is difficult to say. Google’s chief economist Hal Varian says switching to full internet distribution could cut production costs by at least half. In our case, we are keeping the thick Sunday edition but the entire production organization would have to be reinvented. Dumping weekdays editions would lead to major staff reductions at every level. Printing contracts with third-party operators would replace to the current cathedrals owned by the company. This would result in a great deal of savings when replacing today’s heavily unionized machinists, mechanics, engravers, drivers, typographers, paper handlers, electrician, pressmen, mailers, etc.

Let’s simply say that a significant part of the current 3,094 employees of the New York Times Media Group won’t be needed anymore. The same will apply to the current 1150 editorial staff. Even with a sizable weekend edition and no compromises on the journalistic quality, a staff of 800 writers and editors would be sufficient for both the digital operations and the Sunday paper.

A 1500-1800 persons company, reaching about 50m readers/viewers worldwide, making a billion per year sounds doable. Whatever the timeline is, the move will happen eventually. And preparations have to start now. The iceberg won’t stop melting.

frederic.filloux@mondaynote.com