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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

NYTimes’ “Fair” Prices

Today, both Jean-Louis and I struggle with the same topic: last week’s announcement of the New York Time’s strange paywall structure.

For a digital newspaper, there is no such thing as a fair price. Too many questionable assumptions, too many variables, too many ways to play with data. The Monday Note and my day job as the head of the French digital press consortium both gave me opportunities to work on such numbers for weeks. Intellectually stimulating as the exercise might be, when analyzing readers’ migration to digital, you can’t reach useable conclusions through a mere extrapolation of the eroding print model. Nor can you reliably model price elasticity in an electronic medium where “free” is the rule, “freemium” the minority, and paid-for the exception.

Let’s start with the basic problem: the free model (read: advertising supported) cannot provide the financial support for an ambitious, in-depth, global information enterprise. This type of organization is inherently expensive. The depletion of print readership (expect a real 5-8% drop every year), and the corresponding loss in advertising revenue create an urgent need for new financial models. Otherwise, the likes of the Huffington Post will find nothing to aggregate other than the vast echo chamber they built their ephemeral value on.
As the past fails to provide a solid foundation, the most prudent way of building a new business model starts with basic building blocks. For instance, the cost of a high-volume digital transaction platform for news products (all sorts of products, not just dumb PDF shovelware) should be around 8% to 10% of revenue, all included. Then, covering the news should require x hundreds of editorial staff, y dozens of support positions, all costing z. In addition, the news organization’s value proposition need to be factored in these numbers. That value proposition, in turn, translates into who and how many would be willing to pay for such (perceived) qualities. All this leads to the most important task: rethinking the organization in order to achieve these goals — in a context where the print’s old money flow now looks like a dried-up creek in Summer.

Trial and error is the only way to find answers to all these questions. Experimenting requires humility, agility, ability to learn from mistakes. Let’s admit it: such traits are in short supply in century-old news organizations that – until recently – thrived on their unchallenged confidence. In contrast, an ability to adjust quickly is a dominant feature of the most successful digital companies. Another characteristic of the best tech companies being a relentless quest for simplicity. As an example, think of Apple’s fixation on removing unnecessary buttons and dials, or just look at Google’s main search page.

Unsurprisingly, the New York Times chose the opposite path. One possibility entailed weighing how much its large audience of faithful readers would be willing to pay for its content and shooting for a single subscription price aimed at generating volume. Instead, the NYT went for a convoluted pricing structure.

In a nutshell: after reading 20 articles over 4 weeks, you hit the wall. Then you must choose your plan: $15/month for web viewing + smartphone; $20/month for web access + app on a tablet; or $35/month for accessing the NYTimes on all devices (something the most valuable regulars do), details here. It took 14 months, and according to the Times digital czar Martin Nisenholtz, reams of market research to come up with this. I also involved a serious investment : $40m-$50m (!!) according to this Bloomberg story.

The New York Times paywall is like the French tax system: expensive, utterly complicated, disconnected from the reality and designed to be bypassed.

Loopholes abound. To avoid hitting the wall, take your pick:

  • Use different email accounts. If, like me, you own or operate several different domain names, bingo!
  • Easier: use three browsers as the cookies placed by the NYTimes on each are not interconnected; if you have Internet Explorer, Chrome, Firefox and Safari, that’s 80 stories a month! The paywall is fading away.
  • Delete your cookies. Many paranoid users do it every day, sometimes automatically. Deleting cookies introduces several drawbacks for those who want to navigate quickly, but penny-pinchers will like it.
  • Visit the NYTimes from other sites, such as Twitter or Facebook, but in fact from any site, including Google (see Jean-Louis’ view on this below).

This list goes on an on.

Whom is this paywall aiming at? According to the Times itself, about 15% of their current readership will hit the wall. The bet is that segment – affluent, busy, non-nerdy – won’t bother tricking the system and will instead pay up. Let’s accept that assumption and run the numbers (and notice the level of uncertainty):

Global audience for NYTimes.com: in February, according to Comscore, 48.5 million unique visitors worldwide. (Note that no one uses Nielsen numbers any longer.) Should we focus the analysis solely on the domestic market and reduce the UV number to 32m? Advertisers would agree: foreign audiences carry little value. But, when looking at those potentially willing to pay for the NYTimes, the answer is the opposite: let’s stick to the 48.5m.

Now, let’s remove those who just fly-by, i.e. people coming from search engine or social medias: they will look at one story and jump elsewhere. Google accounts for 15% of the NYTimes traffic; Facebook, 4%. Add others such as Twitter and round it up to 25% of the global audience. This leaves about 36m monthly regular users to play with, of which 15% (5.4m), according to the Times’ estimates, are heavy users likely to hit the wall. How many would take the jump and pay? And how much money would they contribute to the Times revenue line?

Here are the numbers for an average monthly spending of $20.00 :

Transformation rate => number of subscribers => annual revenue

5%  => 270,000 => $65m
10% => 540,000 => $130m
15% => 810,000 => $194m
20% => 1.08m => $259m

OK. Let’s stick to a reasonable 10%. How does the extra $130m compare to the current Times revenue structure? In 2010, The NYT Media Group (print + digital) made $1.55 billion all together. $780m came from advertising revenues, of which about $160m from NYTimes.com. Interestingly, 44% of the total  ($683m) came from circulation — at $2.00/day in newsstands, the NYTimes is expensive.

In this case, the Grey Lady’s digital operation would total: $130m+$160m = $290m. This is enough to support the huge 1000+ editorial staff (the newsroom expense line is said to be in the $200m range).

Let’s stop here. The New York Times’ pricing structure, the fact that it is also designed to protect the paper’s physical circulation, the paywall’s porosity all complicate projections. One thing is sure: $35 a month ($420/year — $455 year for 52wks) to view the online paper on three devices is ridiculous, not matter how elitist the target group is fantasized to be. You simply don’t charge such an amount in a (US) market where services like Hulu or Netflix cost $7.99 per month. The Times would have been better inspired to go for a simple $15 a month on all devices. Such a price would allow to shoot for a goal of 2 or 3 million digital subscribers worldwide within three years. This would yield $360m-$540m in extra revenue, corresponding to between 5% and 8% of the regular digital readers mentioned above. For a global brand of the NY Times’ stature, such numbers are not unattainable.

frederic.filloux@mondaynote.com

RSS Lenin’s Rope

As I write this column, I wonder: Am I slipping into schizophrenia? My right brain is frying, overloaded by a never ending whirlwind of new digital tools, from hardware to internet applications. My left brain, which powers both my current daily job and this Monday Note, is cooler, skeptical. Both sides look on as the digital wave devastates professional journalism, shredding all value previously associated to it.

Take RSS feeds.

From a right brain perspective, RSS is an extraordinary invention. It provides all the ingredients of modern news consumption: unlimited choices, free access (including to otherwise paid-for sources), easy setup, inherently up-to-date, etc.

The first RSS iterations were rather crude. “Readers” (RSS client software) were spartan but extremely efficient. Now, we’re entering a new phase: RSS “arrangers” or “organizers” transform raw feeds into a rich reading experience, much closer to a newspaper or a magazine. The introductions of Flipboard and, last week, of Zite make Google Reader look like a Finnish psychiatric ward being replaced by a Norman Foster design.

Zite has generated a great deal of reviews (see Fast Company’s ). It’s a marked improvement over Flipboard. The latter is better designed, but offers not hierarchy to help arrange RSS feeds and other sources (such as Twitter, Flickr of Facebook feeds). Zite creates a magazine-like table of contents and, using a recommendation engine, appears to learn from your reading patterns. Further dissection is left to learned tech bloggers debating the pros and cons of the latest iterations of these multi-sources readers.

No matter how perfectible these personal readers are, they undoubtedly gestate the news publishing industry’s future. They successfully address two key factors in today’s media consumption:

- time allocation — I’ll tend to pick the service that helps me to be more productive
- the interface dimension, i.e. the increasing appetence for sleek and fluid designs.(Something Google still doesn’t get: instead of sticking to their Blue Cross Blue Shield-like, data-centric color code, they ought to go get their own Jonathan Ive).

Now, the left brain speaks up and asks two questions:

- what business model for the apps developers?
- how does this way of reading the news impact (positively or negatively) the business models of existing medias?

Advertising is the most likely answer to the first query. In theory, huge readership should yield nice revenue streams. At some point, B2B licensing could become feasible; large firms could fill bespoke versions of Flipboard with internal information, catalogs, manuals, etc.

The second issue is more tricky. Here are some examples.

Below is the Business home page in Zite. No ads, no nothing. In the red rectangle, a headline from Business Week:

Next is the Business Week article as it appears in Zite:

Look, Ma: No ads! No money!

Now, the original story as it appears on the BusinessWeek site:

As you can see, there are ads. Expensive ones, actually. According their official rate cards,  Bloomberg Business Week expects to charge a CPM (Cost Per Thousand) of respectively $115 for the banner and $144 for the square in the right column. OK. These are before-negotiation rates. But even after a 50% rebate, this is still huge: in Europe, rates for business sites are more likely to net a CPM in the $20-$30 range. Bloomberg Business week supports this price with its 12.9m unique visitors audience and its enviable  demographics. BBW brags it reaches 638,000 millionaires, which is half the Wall Street Journal’s purported score of 1.38m millionaires.

The wall Street Journal, precisely. As it appears in the Zite business page:

….Then, in a Zite full story page:

… and the original story, as you can see full loaded with ads (but, for some reason, not behind the paywall):

You get my point: by reinserting a story from an external source in its interface, Zite strips it of any value to the original publisher. Here, I refer to the ads sold in this particular editorial environment. And Zite isn’t even substituting its own value — thank God…

This could be fine for a Twitter feed, Facebook babbling, or any kind of user generated gruel. But it is not fine at all for professional publishers such as The Wall Street Journal Gigaom or Business Insider (I performed the test above for all three.) To a varying extent, these organizations line up writers and editors in order to produce their content. For them, this is the perfect lose-lose situation since their news material leaks into Zite, resulting into content they won’t be able to monetize. In return, they get nothing: no fee, no revenue share, zip.

The agent responsible of this economic absurdity is the RSS system. Medias are profusely generous with their RSS feeds. The New York Time offers no less than 167 streams of various natures. You can reconstruct an entire digital newspaper with those. In doing so, you remove all the value that was sold with this content by the NY Times ad sales people. And if you add feeds provided by great newspapers and magazines such as The Guardian, The Financial Times, The Economist (50 feeds!), The New York Review of Books and some good pure players and professional blogs like Slate, Poltico or TechCrunch…. You’ll end up making the best digital daily you can think of, because, you will end up to be the ultimate editor.

I cant’ help but consider the RSS  generosity shown by all medias (main street traditional as well as digital natives) as another iteration of Lenin’s rope: “Capitalists will sell us the rope with which we will hang them”…

At the risk of repeating myself, from a user’s perspective, I find this abundance of great content just fantastic. And as a journalism freak, I carry no nostalgia for the good old days. My concern is simply for the news business, for its ecosystem’s sustainability — i.e. the ability to collect and produce original information. That’ll be the subject for a next column.

frederic.filloux@mondaynote.com