Last week in Beverly Hills, one man was grinning. Marcelo Benez, advertising director of La Folha de San Paulo is a happy man. His mission is to use every possible features allowed by modern printing machines, to offer his advertisers a variety of special formats. This goes beyond the limits of the publication itself : pop-up that surge from a page, complicated origami glued inside the paper, poster-like ads 16 times the size of a broadsheet page (“we don’t sell by the inch-column, but by the meter sometimes”, he laughs). That led to a stream of exclusive campaigns for the launch of products and services. A French daily for instance, does less that a dozen of “special operations” per year. By contrast, La Folha took up 287 of such events last year! Results are stunning : in 2007, the overall Brazilian economy grew by 5.4% ; for the ad market the growth was +9% and la Folha de San Paulo made a +19.3% progression in ad revenues.
Posts by Frédéric Filloux:
Or, is it “shrink to survive” ? Last week in Beverly Hills, California, this was the speakers’ motto at the 78th Word Congress of the International Newspaper Marketing Association. This just in: the “N” of INMA is about to refer to “Newsmedia”. This is supposed to make it less of dinosaur. Well, let’s stop crying on our congenital reluctance to change, whether we are The New York Times or Le Monde (which, by the way, was again on strike last week).
Earl Wilkinson is the executive director of INMA. As such, he crisscrosses the world for about 6 months a year to look at new ideas, new successful ways of dealing with the current media shifts. Together with Alan Mutter, former editor turned entrepreneur and blogger, they converge on key facts:
Newspapers have been complacent when faced with changes in the media ecosystem. They are stuck with a major misallocation of resources. As circulation declined they kept adding journalists (Wilkinson displayed convincing charts for these trends). And, in the audience-brand-content triumvirate, 90% of resources have been allocated to content. Publishers allocated ridiculous small amounts of energy to the value of their audience or of their brand.
The corporate goals and structures are in question. The obsessive quest for fat profits (in the US at least), the pressure from Wall Street, are proven to be incompatible with the necessary “trial and error” approach required today. (For once, that statement doesn’t come from unionized, conservative personnel.) In some instances, the rational thing to do is taking major newspapers private — as long as the debt burden remains reasonable. (On the subject, read Alan Mutter analysis on the reasons to take the New York Times private).
On the shareholders issue, the case studies presented at the INMA congress expressed a unanimous principle: all successful strategies have been implemented in the context of patient, focused — often unique — shareholders. The more numerous they are, the least are the chances for a swift adaptation (examples from Europe or Latin America are meaningful).
Today, the choice is to accept to be smaller — much smaller — in order to restore nice margins, or, in order to preserve the size of newspapers institutions, to expect only slim profits. Well, that’s for American newspapers. In some European countries like France, the goal is more modestly a cure from the chronic red-ink syndrome.
The “shrink to grow” movement has found its evangelist. His name in Chris Zook. He is head of global practice for the consulting firm Bain & Co and the author of “Unstoppable”. This is an excellent book about redefining businesses, filled with case studies.
Here are some of his views:
- The newspapers industry is no different from a “turbulent company”, that is a type of corporations shaken at the very core of their business model. A fast growing type, actually. The number of so-called “turbulent” companies has quadrupled in the last 30 years. According to Bain & Co, two companies out of three will have to rethink their core activity at some point. If we look at the Fortune 500 companies over a 10 years period, 30% have gone through a redefinition of their core.
- For newspapers, redefinition of the core means: smaller companies, less frequent publication (the seven days-a-week paper is over, meet the few days-a-week publication). It also means a major shift on the revenue pool toward the online business. In countries where the sector has reached its maturity (US, Western Europe), 80% of newspapers will experience such a massive transformation.
- The magnitude of the downsizing will be severe. Christopher Zook cites industrial companies that reduced their size by a factor of ten over few years, to refocus on their main activity, take a dominant position in their core market and increase dramatically their intrinsic value. As a result, these companies regained strategic positions on their core business.
Well. Not so fast: Applied to the newspaper industry, the case for a “shrink to grow” approach is questionable:
a) The trouble in the newspaper industry doesn’t come from increased competition in its own field, say better newspapers. Rather, we have a complete collapse of the “core” business, a migration of readers from ink dots on paper to pixels on PC screens.
b) This migration will expand as the bandwidth penetration increases. Alan Mutter draws a perfect correlation
between the broadband development in countries and the fall in circulation and advertising that ensues.
c) The digital products that now represent the only growing segment of any news activity (look at what happen to mainstream TV) generate no more than a fifth or a tenth of the print revenue per reader. As we explain in Monday Note #32 the industry is trading dollar for pennies (or euros for cents).
Chris Anderson, editor-in-chief of Wired and author of the Long Tail concept spoke recently at a media forum at the University of Central Lancshire (UK). His takes on evolution of journalism are blunt, but rather difficult to argue with:
- As an alternative to “commodity news” that is pointless to pursue on the Internet, he suggests going after true journalism (original reporting, narrative pieces), and also Internet packaged stories.
- To him, there is an opportunity to make “something that still has value and which people will pay for, either directly or in terms of their attention which can be monetized through advertising”.
- As for news organization, Anderson said jobs will be lost. He even draws parallel with the damages caused to the classified sector by Craigslist and the likes. (He can’t be more right in the light of the latest figures of job cuts in the media sector. A recent report quoted in the Hollywood Reporter says that layoffs in the US media are up 57% for the first four month of the year compared to a year ago. Almost 8000 persons where fired since Jan 1. Last year, total number was 11,700 jobs lost.
Among the subliminal messages the Monday Note is willing to send to the media executives, one is about tactics to boost creativity in their depressed ranks. This is why Google’s experience is interesting to watch. In Business Week, CEO Eric Schmidt gives some clues:
- Don’t mess up with the 20% thing: at Google, engineers are encouraged to spend 20% of their time for projects outside their assigned duties. Schmidt says, they can actually invoke those required 20% whatever the deadline pressure are, their superior must bend to it.
- Track your innovation processes. Use the right tools to measure progress. Add layers of prototyping and testing.
- Listen to people. You don’t “manage” innovation, Schmidt says, and it comes from unexpected places.
In a negotiation process, whether it is for a job interview or a commercial transaction, two related approaches are often used to understand the opponent: perspective-taking and empathy. The first is the cognitive power to consider the world from someone else’s viewpoint, the second is the power to connect with them emotionally.
Adam Galinsky of Kellogg School of Management at Chicago Northwestern University and his team tested these different approaches in a study outlined in this week’s Economist. Results are worth the click
News publishers remain obsessed with the question: what will be the main distribution platform for their contents, and what will be the subsequent business models? For clues, let’s zoom in the iPhone’s recent performances as well as its immediate prospects.
The smartphone introduced a year ago by Apple has become the tool of choice for news-hungry Internet mobile users. According to M:Metrics, a survey company that tracks the use of mobile devices, a stunning 85% of iPhone owners report using it to access news and information contents. That compares to 58% of the overall smartphones users and only 13% of basic mobile phone owners. By the same token, iSuppli, another research firm, found out that iPhone users spent 12% of their time surfing the web versus 2.5% for the regular cellphone users. On the top of this, data shows that iPhone users spent more time, by a factor of 12 accessing a social network (another future important delivery platform for news content).
What does that means for the publishing sector? First : interface is key. Try accessing a newspaper (or even the Monday Note) on a Blackberry : it’s 1985′s teletext! Do it on an iPhone, it works fine. The added development is negligible compared to the costs of the average Content Management System (CMS) and can be accomplished internally as shown by many sites (The New York Times, Condé Nast’s Portfolio magazine).
Second, we see applications beyond the made-for-iPhone sites that could benefit the publishing industry. In the coming months, we’ll see a first batch of true applications created for the iPhone. For example, how about a powerful caching system for publishers? With it, the user stores dozens of pages of favorite sites — or hundreds of book pages — on an iPhone or iPod Touch for a quiet reading off-line. (I still wonder why a publishing company isnt developing such an application itself and giving it away with pre-loaded content. Small development cost — count less than $100k for a first version — add a nice viral demo on You Tube and you get significant PR impact).
What about the business model? Well, the most obvious one is advertising. On the Internet, scarcity of pixels doesn’t imply little revenue. Quite the contrary, actually. For most sites, the bulk of their revenue comes from very few top slots on their homepage, the remaining inventory being sold at bargain basement prices. (On the French market, discounts between rate cards and net prices average 80%). Translating: a single banner ad on an iPhone-optimized minisite can be sold at a high premium CPM. Plus there are other revenue sharing systems to explore: the monthly bill of iPhone users is 24% higher than the average mobile user’s. That’s $228 extra per year.
News providers should devote small, highly focused set of resources (a developer + a couple of junior editors would be fine) to develop content optimized for the iPhone and related micro applications. This applies also to advertising agencies and media buyers who should get into this emerging piece of digital real estate.
Can such a move prevent the possible extinction (as the Economist puts it) of parts of traditional media? Certainly not. But it is better to be in the race than on the bench.
For years, the Blackberry was the tool of choice for the executive on the move obsessive with the idea of staying in touch. Results are stunning: last year, Research in Motion (RIM) added 6.5m Blackberry users. The device is great, with features polished thanks to many iterations and a truly innovation oriented company (read this story in Business Week).
The Blackberry is stable, robust. It has a great push-mail system, and even a private, incredibly fast, network for short messaging (using the PIN number of each device). Okay, speaking of design, its neither Raymond Loewy or Jonathan Ives (Apple’s Michelangelo). But it works. Hence the market share : it peaked at around 60% of the smartphone market back in 2005. Then, Windows Mobile came: the same hassles than your desktop, but in your pocket (sorry, I can’t help it). Fine. Mid-2006, Windows Mobile market share was approaching 40%. Then came the iPhone. Apple’s pie in smartphone is cruising slightly below the 30%, but growing fast. Especially when it is adding features targeted to the office population. Who will eat whom ? Some answers in this story in the New York Times.
We mentioned in Monday Note #29 the boom of personal genomics sector. A great business really, at the convergence of intimate fear, aging population, increase in health prevention expense, paranoia, untold eugenic tendencies, growing hypochondria, etc. Just to give an idea on how it smells good, among the top players : Navigenics is funded by the big venture capital firm Kleiner Perkins Caufield & Byers, and 23andMe was co-founded by Anne Wojcicki, wife of Google co-founder Sergey Brin. (23 is the number of our chromosomes.) Legal life could be more complicated than the molecular version. These companies are under scrutiny by legislators to find out if telling someone that he has Alzheimer predisposition is comparable to an unregulated form of medicine. Lawyers are working on both sides, as they should. And geneticists are sending warning signals like in this article in the New England Journal of Medicine.
You thought that you were saturated with ads, with messages of urban life misery, right ? Thinks again. Thanks to Vibes Media, now everyone can create live advertising. How it works: you’re in a stadium, attending a game (to me, nightmare as already begun); you pull out your cell phone and type a text message. Within seconds (after verification, we hope) it appears on a huge billboard sponsored by a beer brand. The advertiser now has two reasons to be happy: many eyeballs are directed on the billboard to see the constantly changing text messages; then, by deriving the number of messages, it can even figure out the number of contacts (Vibes mentions a crowd of 5000 shooting 11,000 messages — forget the game!). As Business Week pointed out, there are plenty of applications such as, in an airport, waving a loved one goodbye on a Motorola billboard… We better get muscles for our eyeballs.
And I don’t want to ruin the party, but just, figure out our future, with the combination of such technology + RFID chips + GPS localized cell phones + wifi triangulation + genomics ID + biometrics devices + behavioral science, and we are in. The network becomes a (gilded) cage.
A quick update on extreme ads practices, Condé Nast is to provide analysis based on ad-tracking system. It struck a deal with MediaAnalyzer. The system will be to measure the efficiency of long terms ad. Story in Folio Magazine.
Last year was not a good one for Axel Springer AG, one of Europe’s biggest publishers. The biggest failure was the attempt to get into the mail-delivery business. Springer had to give up when the German government decided on a minimum wages for the postal industry. Then, for Springer, the mail sector no longer appeared viable. (That’s the beauty of this mail-delivery job: as long as you are forbidden to have legion of “working poor” in your plants, it is not worth it). This lead to a massive write-off and Springer lost E288m last year.
Quoted by Bloomberg, CEO Mathias Doepfner said Springer will focus on businesses that don’t depend on political decisions; he mentioned Internet and foreign businesses as expansion areas. Problem is: these two segments didn’t perform well last year either for Springer. In France, the group lost E40-50m in a failed venture to launch an ambitious daily. (As usual, French publishers applied pressure on the government. This turned to pressure on Springer, which gave up. It worked). And on the Internet front, Springer acquired 68% of AuFeminin.com, Europe biggest women’s site, for 32 euros per share. Unfortunately, Q1 results for Aufeminin.com yielded a 29% drop in profit. The share tumbled to less than 20 euros, close to its 2000 IPO level. A tougher competitive environment is cited as the cause.
Springer’s stock is now trading at 72 euros, a 50% drop from its all time high in February 2007.
Axel Springer AG controls 170 newspapers and websites and magazines in 33 countries.