newspapers

Cracking the Paywall

(This version corrects an error in the percentage for the price increase of the FT)

Every newspaper, magazine or website is working on a paywall of sorts and closely monitoring what everyone else is doing. In almost every news company, execs are morosely watching advertising projections and finding numbers that are not exactly encouraging. For digital media, there is no way around this year’s weak outlook: the bad economic climate only adds to the downward price pressure exerted by the ever growing inventory of web and mobile pages. In a best-case scenario, volumes and prices will remain flat. On the print circulation side, Western newspapers are likely to witness a continuing readership erosion at a rate of several percentage points.

But here is the interesting point: The strongest players don’t just bow to the inevitable, they accelerate their transition to digital. This week, I was struck by the fact two such leaders made the same move: The New York Times and the Financial Times both announced serious price hike for their newsstand price (respectively 25% and 13.6%) :
- The NYT moves from $2.00 (€1.57) to $2.50 (€1.96) from Monday to Saturday, with no change for the Sunday edition still priced at $5 (€3.92) in New York, and $6 (€4.72) elsewhere.
- The FT goes from £2.20 ($3.39 or €2.66) to £2.50 ($3.85 or €3.03) on weekdays, as the weekend edition moves from £2.80 ($4.32 or €3.39 ) to £3 ($4.62 or €3.63).

Those numbers are really meaningful: a 10% increase every two years or so can be seen as an inflation adjustment — a generous one considering the inflation rate in those countries to be about 2.5%-3.5%. At 25% increase is a strategic decision aimed at accelerating the switch to digital. (The paper version of the FT now costs 25% more than it did last October).

Interestingly enough, for a New York Times addict, reading the paper online with the cheapest package ($15 a month), is now 40% to 50% cheaper that the home-delivered version and 70% cheaper than buying the paper each day at a newsstand. As for the FT, the standard digital version is now 21% cheaper than the print subscription and 68% less than the newsstand price.

Both are working hard at converting readers to the digital paid-for model. The FT is heading full steam into digital, furiously data-mining its 4 million subscribers base to convert them into paid-for subscribers (250,000 according to the most recent count). The FT’s tactics is simple: readers are relentlessly pushed toward the paywall thanks to a diminishing number of stories available for free: from 30 free articles per month in 2007 it is now down to 8 articles; the other bold move is making registration mandatory in order to access even a single story.

Last year, the New York Times came up with a less readable strategy: the adjustable paywall. And it seems to work. The NYT has been able to collect 324,000 paid-for digital subscribers in nine months. Considering the NYT has about four times less non-paying digital registered users than the FT (therefore a lesser conversion potential), this is not bad.

The Times builds its paid-for strategy on three key factors:

1 / The uniqueness of its content. Let’s put it this way: The New York Times has no equivalent in the world when it comes to great journalism, period. This valued content helped collect 34 million uniques visitors a month in its domestic market, and 47 million worldwide. More than any other newspapers in the world, the NYT has a huge base of loyal users. If it manages to convert only 5% of its global audience, say 2.4 million people, and extracts an ARPU (combined subscription and advertising) of $150 per year, it will gross €360 million, which largely covers the cost of its newsroom ($200 million a year, by far the largest in the world).

2 / The managed porosity of its paywall. One key requirement in building the digital subscription system for the Times was keeping as many of its readers as possible. There are two main reasons for this: high audience numbers are critical for advertising revenue; and the visibility factor is crucial for a news brand. This led to a system that targets the heaviest users. But even those can easily game the system (by using several browsers on several devices, I never bump into the paywall, with no particular desire to avoid it). Similarly, prices vary from $15 to $35… for exactly the same content — this is typical of a price structure aimed at audiences with flexible purchasing powers (it is widely established that richer people tend to opt for the most expensive package, regardless of its true value).

3 / Getting in bed with Apple. Since the early iPad days, The New York Times has been working closely with Apple for applications, subscriptions, and the nascent Newsstand. Again: thanks to its unique brand and the trust it carries, the NYT experiences no trouble collecting the precious customer data the app’s default settings fail to provide. In doing so, the Times benefited from Apple’s huge promotional vortex. The Apple system is highly beneficial when it comes to building an audience. But it does so at the expense of the essential customer relationship, and at a huge cost of 30% when the goal should rather be in the 10% range.
That was the Financial Times’ rationale for breaking the Apple leash. Last week, the FT went even further: it acquired the software firm Assanka, well-known for the development of the FT.com’s remarkable web-app that insured its crucial independence from Apple (story in PaidContent). In itself, the move demonstrates the FT’s commitment to mobile products: HTML5 development remain difficult and the FT decided it was critical to integrate Assanka’s development tools.

Of these three factors, the uniqueness of content remains the most potent one. With the inflation of aggregators and of social reading habits, the natural replication of information has turned into an overwhelming flood. Then, the production of specific content — and its protection — becomes a key element in building value. As for price structures, there is no magic formula. Usually, the simpler the better (as Apple demonstrated) — especially for businesses that start from scratch. But, with pre-existing and different audience segments such as an individual and corporate users, pricing decisions become more complicated and a diversified price list can prevent cannibalization. As for the Apple vs. independent app issue, my personal take is that sleeping with Apple is a quick short-term win, an easier strategy. But, in the long run, the independent way (which, after all, is an article of faith for Apple itself) will yield better results.

frederic.filloux@mondaynote.com

Innovation in turbulent times

News organizations have an innovation problem. Especially print media. As they gingerly wade into digital, their ability to foster innovation becomes more critical than ever. In today’s fast-changing landscape, they should view innovation as their main weapon against direct competitors and emerging players such as tech startups,.

Unfortunately, print media appears ill-equipped to innovate. The reasons are many.

– The weight of the past. Looking back ten years, making changes to a newspaper or magazine used to be a lengthy and complicated process, with technical, industrial as well as political implications. On the internet, by contrast, major changes are a only few lines of code away. Modern CMS (Content management systems) are designed to allow and sometimes encourage modifications and adaptation to rapidly changing needs. As for applications, a minuscule team needs only a couple of months to engineer an impactful product.

– The takeover of the bean-counters. In the newspaper industry, years of revenue depletion have shifted tremendous power to the financial guys. They performed as requested by shareholders (especially because journalist-bred managers lost their credibility).They cut, downsized, optimized. Not exactly the best petri dish for creativity.

– A risk averse culture. This is mostly a consequence of the previous point. Cost-centered management, added to gloomy business conditions, won’t foster initiative and risk-taking. The result is you will not see a group of journalists putting their job in play in order to launch a new product they believe in.

– No management reform. Each time I look at a newspaper’s org chart, I’m struck by the complexity of the management structure, by the level of red tape still remaining. Curiously enough, very little has been done about it. (In most cases, it has to do with a spreadsheet-driven management unwilling to fight organizational conservatism).

As a result, very few news organizations prepared themselves to switch to a genuine competitive innovation model, more comparable to the one used by technology companies. Having said that, questions arise: How to create an environment that will stimulate new ideas; how to restore a risk-taking culture; should innovation be mostly internalized or outsourced; how to select the best decision-making processes for the new digital-driven world?

Last week, the New York Times unveiled its Beta 620 initiative. As Matthew Ingram  puts it in Gigaom, the project is the NYT’s version of Google Labs, with selected projects presented to the public. Innovations involve social media, search, recommendation engines, etc. Let’s be clear: I can’t think of many news organizations with the courage and ability to devote anything close to what the Times is investing in its R&D effort. (To get an idea of the New York Times R&D Labs’s scope and ambition, see these videos shot by the Neiman Journalism Lab.) Still, some of their processes and ideas are worth considering. From what I’m told, Beta 620 is the visible part of a program started several years ago, one in which, once a year, everyone is encouraged to present a digital project. Even the least nerdy will be helped in his/her pitch. An ad hoc committee selects a couple of projects and the authors receive a small prize (a thousand dollars or so). More importantly, s/he will get appropriate resources and time to further develop it.

More broadly, the Times has a low-key but efficient way to stimulate innovation or improvements. Take its new CMS. Developed in cooperation with Infosys, it is carefully designed to be safe and robust. But, at the same time, it lets the nerdiest web producers tinker with the code to alter the layout of a page, or to adapt the rendering of the website to a specific need. When someone described how the improvement process was made available to so many, I was surprised by the level of trust the NYTimes is putting in its staff. (Needless to say: this accessibility comes with suitable precautions, tests procedures and so on).

Obviously,  very few news organizations facing a constant revenue depletion can afford a fully-staffed R&D Lab. Having said that, between its internal contest encouraging out-of-the-box thinking and the trusted approach for continuous improvement, The New York Times teaches us a lesson: Fostering innovation is a matter of creating the right environment as much as pouring tons of money in it.

The dominance of finance-driven management impacts innovation. It encourages a short-term approach. Today, an executive team will be much more inclined to spend money with the promise of a quick — even if small — return, as opposed to investing the same amount of cash in an actual new product. To them, the potential for the greater benefit of a truly new creation is outweighed by the risk of a more distant, more uncertain outcome. Investing $100,000 or $500,000 in a marketing campaign, aimed at boosting an existing digital audience, will get a greater consideration than making the same investment in a new app — especially since the performances of the former will be easier and quicker to measure.

Another side-effect is the alteration of the decision-making process. Ten or twenty years ago, sound businesses with decent margins and growth, along with predictable economic conditions, allowed gut-based decisions. Today is the opposite: with all key economic indicators blinking red, management will run for cover by asking for as much data as possible to justify their decision. And a landscape that changes faster than ever before makes getting reliable data a complicated task. Think about the changes we witnessed over the last two years. In a recent interview to McKinsey Quarterly,  Google’s CFO Patrick Pichette acknowledged that, every single day, 15% of the queries it handles are completely new and never seen before. This says a lot about the level of uncertainty the digital business now faces.

What is left to manage innovation? Based on my observations and discussions with project managers and executives, key recommendations emerge:

– Separate short-term tactics from medium-to-longer term strategy initiatives. Marketing is fine, but it doesn’t guarantee lasting results. A great product does.

– Dissociate production from innovation functions. Those who drive the train can’t be asked to design a new locomotive. Nor to oversee it construction.

– Stimulate creativity. Encouraging staff to come forward with new ideas, helping people formulate projects can be done inexpensively.

– Once a project is selected, assign clear objectives, scope, schedule and ways of measuring success or failure.

– Assign a small, dedicated team that will report to the top of the organization, not to middle management.

This sounds like basic and somewhat obvious rules. With one exception: very few news organizations have adopted them.

frederic.filloux@mondaynote.com

The ePresse Digital Kiosk: First Lessons

[correction added about Relay.com's rate]

On June 30th, the French consortium ePresse opened its digital kiosk. Six months of hard work for a very small team (the ePresse consortium is a three persons operation: a CTO, a marketing person, and a manager), and still a long way to go. ePresse brought up eight titles: five dailies (Le Figaro, Le Parisien and its national edition, Libération, the sports daily l’Equipe and the business paper Les Echos), and three newsweeklies (L’Express, Le Point, Le Nouvel Observateur). This is only the rocket’s first stage: an iPad/iPhone app allowing per-copy purchases within the App Store; more to come this Fall.

Knowing I’m charge of this development, editors and news executives abroad inquired about the experience. Here are a few early observations.

[English version of ePresse demo here]

First, the big question: Why build a digital newsstand? After all, there is no shortage of places for buying online editions: Zinio, deployed globally; Relay.com and LeKiosque.fr in France. And, of course, Apple, which will roll-out its own Newsstand before year-end.

The answer is of a strategic nature: we’re dealing with concerns over control and technology.

For publishers, retaining full control of all commercial aspects of their digital sales channels is a critical matter. They must safeguard their freedom to decide prices, marketing strategies, discounts, bundles, special deals. They must also protect their ability to collect valuable customer data, without having to beg permission from a third party to do so. Marketing being the tactical engine of the trade, it is also one of the most underdeveloped assets of the press — and not just in France. A kiosk owned and controlled by publishers will be immensely beneficial for all involved.

Now, let’s take a walk through a usage scenario. You start by downloading the (free) kiosk application on your mobile phone. Next, you launch the application. A welcome screen greets you: for one euro (or dollar, or pound), you get unlimited access to the entire kiosk for one (or two) weeks, all you can eat.
Publishers might not like this: it amounts to a “leak” of digital copy sales that won’t be counted by the Audit Bureau of Circulation. But savvy publishers will also consider the upside: (a) the customer leaves his name and credit card info (that’s what the one-euro thing is about); (b) he will leave a trail of data. Then, when the almost-free trial period ends, a tailored offer is pushed to each individual customer, based on his recorded readings. An individual’s preferred title would be well inspired to offer him/her a steep subscription discount.
Over time, as reading patterns build up in the customer database, it becomes easier and easier to push offers not only based on title preferences, but also on a predictable news cycle. A political newspaper might cook up special deals six months before an election; a sports paper might do the same with Olympics and similarly attractive events. Here, tactical flexibility provides inordinate payoffs. As for occasional customers sticking to per-digital-copy purchases, they should be offered an incentive to give an email address, the ultimate goal being to convert them into digital subscribers.

Now the reality check: this scenario doesn’t work for current kiosks; pricing policies are constrained, promotional offers are not possible (they will eat up the kiosk’s margin) and the newsstand keeps customer data for its own marketing purposes. Plus, most kiosks charge around 30%, roughly three times the cost of an efficient digital delivery system.

The same goes for bundles. Currently, platforms handle those rather crudely. For publishers, beside per-copy sales, subscription systems end up as value-killers. In France, the Hachette-operated Relay.com kiosk offers a 9.90€ a month digital bundle for up to 30 10 magazines. A great bargain indeed, but one that yields a mere 0.30€ for each publication — before the kiosk’s cut. In other words, nothing. One of Relay.com’s bestsellers is said to be the 19.90€ a month all-magazines-you-can-read, with a similarly puny outcome for magazines.

In contrast, a publisher-run kiosk can introduce more bundling refinements such as a combined daily + weekly subscriptions system or any other such combination that makes sense marketing-wise. Deploying such arrangements will require a great deal of cooperation among titles – something close to performing unnatural acts, a delicate aspect of the job.

Building the system also involves deploying multi-title CRM (Customer Relationship Management) systems. This, in turn, requires weaving together customer databases belonging to different and sometimes competing titles – again, plenty of diplomatic issues in sight. I might be a little naïve, but I think media groups have done a great deal of progress recently when it comes to understanding the benefits of building integrated systems. With this in mind, for a consortium such as ePresse, the goal is to yield more value that the sum of its parts.

Now let’s jump to the technology aspect. ePresse.fr, launched ten days ago, is but the first stage of a much larger setup. Today, we limit ourselves to proposing an iOS app with per-issue sales only, through the Apple app store (lower case ‘‘app store’’ with intent as it seems Apple won’t be able to own those words). Obvious next steps include other mobile platforms and, more importantly, a subscription system directly available to smartphones, tablets and, of course, the web. In the process, we’ll add a couple more titles, but we intend to remain selective.

Mobility is a critical component. Currently, digital kiosks offer mostly PDF-based editions. As  discussed in a previous Monday Note, PDF is by no means the future of digital media. PDF once was a fantastic invention, but it wasn’t designed for today’s task: encapsulating news.
With this in mind, during the first months of ePress development, we spent a great deal of time aligning the output of the different publications to what we knew was the right target for mobility: XML feeds for stories on top of a “zoned” PDF that defines the placement of a story in a page.  Such feeds were supposed to come directly from each publication’s CMS (Content Management System). Some were able to supply the correctly formatted feeds right from day one, other needed upgrades to their CMS output. At publications, tech teams were very cooperative. We also got serious help from EDD, a French company specialized in digitizing media contents (EDD indexes and distributes 50,000 articles per day). EDD collects publishers’ PDF files, send those to India where the files are taken apart in order to produce the required output, all of it done every night within two hours.

Once clean XML feeds (standardized for the eight titles) became finally available, we had to put those on our content-delivery platform. We did this by re-aggregating all the components (PDF, zoning/mapping files, XML files, summaries, graphic elements) within a transaction-tracking mechanism. For this, we picked miLibris, a French startup that provides reading tools and cataloging systems for publishers, and for the French ISP and mobile carrier Orange.

Again: the idea was to use native XML to publish each title we serve, fully formatted for each article.

Three reasons for this:

Readability. You don’t comfortably read by constantly zooming and pinching. The screen of smartphone covers only a 1/60th of a broadsheet newspaper. For a reading a “facsimile” rendering of a 30 pages publication you’d need 1800 pans and zooms. Insanely unrealistic. XML gives us the ability to automatically reformat the text to fit the device, smartphone, tablet or, eventually, PC browser. No more pinching and zooming, just scrolling.

Functionalities. Relying on XML and text opens the way to a broad set of additional features: font-size adjustment, social sharing of articles, ability to create users’ folders, search, recommendation engines, etc.

Future-proof. At some point, we’ll get rid of PDF. As mobility usage rises, readers will demand quicker downloads over 3G or Edge cellular network. Two obstacles remain: one is each title’s graphic identity; legitimately, publishers demand the preservation of the visual aspects of the publications. As shown below, we’re making progress; the PDF version of a page:

and its XML/HTML5 translation (click to enlarge both):

… But we aren’t yet able to translate the minute details of a refined newspaper layout in XML and HTML5.

The second aspect is more economical. In some countries (such as France), the entity in charge circulation audits (equivalent to ABC) refuses to take in account digital copies as long as they are not exactly identical to the print version. This outdated posture explains the remanence of PDF formatting: it is accepted as a ‘’carbon copy’’ of the print original. My take is this will evolve over time. Already, titles such as the Economist offer an encapsulated version of their print edition that carries the same editorial content, but with a different advertising setup in some parts.

The evolution of the “edition” concept of is indeed a key question. On the one hand, the notion is deeply associated with the idea of branded news encapsulated in a “cognitive container” – yesterday the paper, today the digital edition tied to an app. On the other hand, digital news also begs for real-time. This can be implemented through a variety of techniques: overlay real-time news display, or permanently updated editions, which, in turn, push hard in favor of a subscription model vs. per-copy sales, the latter a mere (but necessary) transition.

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

The NY Times: Un-Free At Last!

On March 28th, after much handwringing, the New York Times will finally deploy a paywall. NYT fans, your author included, rejoice: We see this as a necessary condition for the newspaper’s survival. Necessary…but not sufficient. A “small matter of implementation’’ remains an obstacle on the paper’s path to greatness in the digital era. A matter that, so far, doesn’t seem to have received sufficient attention from NYT execs.

Let’s start with a test…and no peeking: How much do you pay for an iTunes “song”?

If you answered “about $1,” you pass. A little less, a little more, the exact number depends on the whims of unseen seers, but, yes, about a dollar. And that reliable debit, give or take a few pennies, feeds an important psychological criterion. You’re free to focus on choosing your music, unencumbered by price considerations.

You’ve graduated to the next level: How much for a New York Times digital subscription?

The pleasant reassurance of a readily available “close enough’’ answer is sorely missing.

See the NYT’s Publisher’s nearly impenetrable calculus in his letter to readers, dip into the lengthy FAQ, and finish with this buggy article in the paper’s otherwise excellent Media & Advertising. You may also want to peruse the 2141 reader comments. By itself, the number gives a temperature reading.

You’ll need an accountant and an attorney to traverse the maze of plans and to decode the fine print in the NYT’s paywall T&Cs, but as I understand them:

  • The first 20 articles in a “calendar month” are free. After that, you’ll be nudged towards a $15 subscription for 4 weeks of Web access.
  • Smartphones? An iPhone, Android, or Blackberry app is included with the $15 deal. For one year of 52 (4 * 13) weeks, you’ll pay 13 * $15 = $195. Yearly subscriptions aren’t offered. But do I have to pay twice if I own both an iPhone and a Moto Droid?There’s no Web-only deal. The basic $15 rate bundles Web and smartphone access.
  • If you have an iPad you’ll pay extra: $20 per 4-week billing cycle = $210 for one year.
  • Other tablets? Not yet.
  • You want access from all of your devices? PC, smartphone, iPad, Times Reader 2.0, the NY Times app from the Chrome Web Store…that’ll be $35 for 4 weeks, $455 for a year.
  • If you’re a paper subscriber, the NYT elders smile upon you: You’ll have access to everything from all your devices with no unseemly display of surcharge. But it depends on the deal you make: new subscriber, renewal, special offer, a conversation with a Customer Retention Specialist… It all sounds like dealing with a cell phone carrier or a cable network provider or an airline. Three well-loved businesses.
  • For e-book readers such as the Kindle and the Nook: Sorry, no access at this time. (Amazon will sell you the NY Times newspaper, but it doesn’t give you access to the site.)
  • What happens if you touch a page through a search engine, through your friend’s Facebook wall or Twitter tweet, through a link on someone’s blog? Free…unless it’s not. Some visits fall within the 20 articles/month rule; others, such as through Google links, will have a 5 free articles-a-day limit. One can see what an enterprising geek could make of this. How does the NYT know it’s you coming back for one more hit of their good stuff? They do it through cookies. $195/year is a good incentive for a little bit of “cookie management” and IP address spoofing.

I might have misrepresented a clause or two, but the overwhelming truth remains: This is a failure of the Mind more than a failure of the brains. The NYT decision makers are without a doubt exceedingly intelligent and hardworking. But are they steeped in the Web’s culture, in the smartphone/tablet revolution?

Customers don’t make decisions with their neocortex, an organ that is too easy to bullshit. They decide within deeper, comforting recesses, and they rationalize when the culture demands a seemingly logical, socially acceptable “post-planation”.

What price do NYT’s execs put on simplicity, on ease, on reader enjoyment vs. catering to their own internal discourse? If they don’t like talking to Steve Jobs (and vice versa) they could turn to Jeff Bezos for tips on simplicity.

iTunes has taught us that customers are willing to pay for content if the process is simple, if it’s easy on the mind and the wallet. One could argue that consumers aren’t paying for the content, they’re paying for the delivery service.  Regard Netflix on Demand, to use another example. Restricted content, instant delivery, success.

All of this is well known, analyzed, taught in business schools. The brains at the NYT should know all of this.

Instead of the cellular plan language above, the Grey Lady could proudly offer the following:

  • A 4-week subscription costs $15. It works across any combination of the following devices: [list here. more devices as we go].
  • Paper subscribers…thank-you, and you’re welcome to our digital content on all supported devices, gratis.
  • Not a subscriber? Not a problem. You can “touch” 20 articles a month for free, regardless of the source.
  • We know there will be “enterprising” individuals who will try to circumvent our paywall, and we understand the seduction. We’ll stick to positive countermeasures: we’ll protect our content by offering superior apps that deliver superior joy of use.

So…why doesn’t she?

We know readers will pay for content. Consumer Reports and The Wall Street Journal prove it, but with an important difference: They’ve always charged for their content so they’ve never had to face readers’ withdrawal symptoms.

Or perhaps I missed an essential cog in the NYT money pump. Looking back to the 5 articles per day limit when coming through Google, vs. 20 per month by other means, including links on the NYT main page…I smell a deal. Is money flowing from Mountain View to Manhattan despite the Lady’s rage against aggregators such as Google News (while never cutting them off)? Does Google subsidize 5 daily articles by kicking back a fraction of its advertising revenue to the NYT?

From an advertiser’s perspective, this becomes a dubious proposition. Ostensibly, the paywall strengthens the NYT’s pitch to advertisers: You know we have a “bankable” audience; our readers are willing to buy in. The first 20 articles a month are free. They’ll get hooked. But (the advertisers respond) if anyone can have 140 free articles a month through Google…doesn’t this weaken your “select audience” argument?

Advertising dollars aside, business model transitions are hard, some say impossible. As my compadre Frédéric has shown many times in previous Monday Notes such as this one, the ARPU falls dramatically when moving from paper to pixels pushed around the Internet.

The transition conundrum is this: The Internet is killing paper and Web advertising won’t keep a newspaper afloat, hence the recourse to a paywall after years of free access. This might explain the Grey Lady’s unseemly contortions.

JLG@mondaynote.com

Tear down this PDF

The PDF document format is digital publishing’s worst enemy. For a large part, the news industry still relies on this 18-year-old format to sell its content online. PDF is to e-publishing what the steam locomotive is to the high-speed train. In our business, progress is called XML and HTML5.

Picture today’s smartphone reading experience. We’ll start with a newspaper purchased on a digital kiosk. For a broadsheet, a format still largely used by dailies, the phone’s “window” covers 1/60th of the paper’s page. Multiply by 30 pages of news. You’ll need 1800 pans and zooms to cover the entire publication (plus, each time time you pinch out, you can take a leisurely sip of your coffee as the image redraws).

Next, we have two iPhone screen captures of American Photo, purchased on Zinio. The more compact magazine format doesn’t help. Note that you need to scroll laterally to read a full line (as for the “Text” function, meant to insure easier reading, it is ineffective) :

Am I being too derisive, or can we say this is not the best way to read?

The battle for online news will be won on mobility. We’re just at the beginning of the smartphone era. We can count on better screens, faster processors combined to extended battery life, more storage, better networks… The bulk of news consumption will come from people on the move, demanding constant updates and taking a quick glance at what is stored in their mobile device — regardless of networks conditions. Speed, lightness and versatility will be key success factors. There won’t be much tolerance for latency.

In that respect, PDF is just a lame duck.

Back in 1993, the Portable Document Format was a fantastic digital publishing breakthrough. All of a sudden, using a sophisticated mathematical description of images, texts, typefaces, layout elements, the most complex graphic creation could be encapsulated into a single file. Large font sets and dedicated software were no longer needed. The PDF reader, licensed from Adobe Systems under the name of Acrobat, soon became free or pre-loaded in various OS platform. PDF became an open standard in 2008. As for the performance, it was stunning: see a 6400% magnification below:

Great for high-quality book publishing… And a completely pointless stunt for a mobile news product.

The newspaper industry jumped on PDF. The new format let a production crew send the full publication to the printing plant using huge, high definition PDF files directly transferred to the printing plates. When the web arose, the industry kept using the same format to make the publication available for downloading. After years of file optimization, a newspaper or a magazine still weighs 20 to 50 megabytes. The download is manageable over ADSL or cable, but impractical on a mobile network. But wait, it can get worse: on the Android platform, for example, the reader can actually ad weight to the original PDF file. This is the consequence of a good intention: giving the publisher the choice between a finished product that is easier to leaf through, but requires a heavier file, and one that downloads faster, but is more difficult to read.

Publishers’ inclination to keep using PDF is based on one idea: the graphical elements of a publication — layout, typefaces — are an essential component of a printed brand. By extension this visual identity is seen as a “label of trust” for the news brand, with the design-perfect PDF being the medium of choice.

Now, three things:
#1, this widely shared assertion is not supported by strong facts. There is no survey (to my knowledge) that links visual identity to reader loyalty, to feelings of trust;
#2, on this matter, if there remains any lingering bond with readers, it will fade away with the new generation of news consumers: they are much less sensitive than their elders to the notion of “trusted brand”, let alone to any design associated to it;
#3, the web has evolved. The HMTL5 standard has shown the ability to render any graphic design without the PDF format’s downsides (see this previous Monday Note: Rebooting Web Publishing Design).

Why not, therefore, jumping off the PDF train? The short answer is XML management. Our techiest Monday Note readers will forgive this shortcut: the Extensible Markup Language is a version of the web language readable by both machines and humans. An article encoded in XML is not an image but a set of character strings associated to various “tags” that describe what they are, where they belong; the description also provides contextual information to be retrieved at will. In theory, any publishing system, big or small, should be able to produce clean XML files. It should also be able to generate a “zoning file” that maps the coordinates of a story, or any other element in the page (see the red box below that indicates the position of the story in a newspaper front page). Armed with such position data, smartphone software can provide the right reading experience, limiting the need for the painful panning and zooming I mentioned above.

Unfortunately, no one lives in theory’s wonderland.

In fact, very few newspapers are able to produce usable XML or zoning files. Part of the reason lies in outdated editorial systems that were not designed (not upgraded either) to handle such sophisticated, web-friendly files. IT managers have been slow to embrace the web engineering culture and it didn’t occur to publishers than a “human upgrade” was badly needed deep in the bowels of their company…  (This, by the way, leaves another wide open field to internet pure players and their web-savvy tech teams).

This backwardness has created its own ecosystem… in low-wage countries. Every night, all over the world, highly specialized contractors collect the PDF files of hundreds of newspapers and send them to India, Romania or Madagascar. Down there, it takes a few hours to electronically dismantle the image files and to convert them to dynamic XML text files, with proper tagging and zoning. Thanks to the time difference, the converted static newspaper is sent back to the publishers by dawn, ready to be uploaded on an internet platform, right before the physical version hits the streets.

Many will find these shortcomings appalling. For a large part it is. The good news is the evolution has merely begun. Still, very few publishers realize that upgrading of their production chain is a crucial competitive asset. As for the PDF, it remains immensely useful for many applications, but it is no longer suitable for news content that thrives on nomadic uses.

frederic.filloux@mondaynote.com

Ongo… where?

Ongo is an ambitious digital kiosk. Launched last week, it was founded last year by Alex Kazim, a high-tech executive who worked at Ebay, Skype and PayPal. Kazim lined up an impressive group of investors: Gannett, The New York Times, The Washington Post and the venture capital firm Elevation Partners whose portfolio includes Facebook, Yelp and Palm (now part of HP). Altogether, Ongo raised $12m, an unusually large amount for such a project (marketing activities will consume a large fraction of the company’s funding). Headquartered in Cupertino, California, led by a mechanical engineer, Ongo carries more Silicon Valley DNA than its media siblings. As an advocate of greater technology input in media companies, I’d say it’s a good thing.

Up to a point. I see Ongo as too much of an automated aggregator as opposed to an edited news product. In this respect, Ongo might be a good start, supported by a neat tech implementation (both on the web and on the iPad), but we’re not there yet.

Let’s have a look.

Business-wise, Ongo is a paid-for kiosk. For $6.99 a month, it includes a basic set of  publications. Then, you add titles of your own choosing. As you’ll see below, the bill builds up quickly:

In this simulation, I’m getting five publications for free. Then, for a hefty $35.96 per month, I get four more titles… that are available for free on the web!

Am I missing something?

This is counterintuitive enough to force to make two assumptions:
– Some of these titles will soon switch to paid-for models; this could be the case for the Boston Globe (part of the New York Times Company, itself about to roll-out its paywall next month — is the $14.99 rate a prelude to the coming standalone price?). Most of Ongo’s catalog is likely to follow; otherwise, there is no point in subscribing to the service. (As for the Guardian, to my knowledge, it is meant to remain free).
– Ongo founders bet the true value of their service is harboring in a single place paid-for publications that are currently disseminated all over the web (and therefore require separate logins and, soon, payments). This is a huge bet on the value of simplicity and convenience.

Strange pricing choices aside, Ongo’s concept faces two big challenges: interface design and the commitment of its main editorial drivers.

First, on the web or on the iPad, Ongo is flat and dry. Its designers have deliberately chosen to remove the layout or the visual identity that defines a title. Again, they bet on the convenience of having everything displayed on the same site. In another departure from the usual web page structure, they opted for a “skimmer” style, based on a panel-like navigation: no more scrolling here, you jump from one screen to another.

The result isn’t convincing. Ongo’s iPad edition shows every story at the same level. In the example below, the second screen of yesterday’s “Page One” (2nd screen of page 1, that’s novelty) mixes up a Taco Bell story drawn from USA Today and pressure on the White House to condemn Hosni Mubarak.

And should you select navigation by title (in the example below: the Washington Post), you will get this bizarre page structure in which a US representative’s dental ordeal is displayed on the side of the main Egypt article — while the secondary Egypt story is sent at the opposite corner of the page:

This is a perfect illustration for the limits of automated aggregation. Without a proper dose of human editing, of rearranging news streams to make them consistent with the news cycle hierarchy, any machine-driven system will inevitably produce contents structures disconnected from readers’ expectations. Serious news websites rely on well-trained editors for their home page or use A/B testing procedures, to determine on the fly which headline is the most likely to be clicked on. Even a captive — i.e. subscription based — clientele will not easily abandon its ingrained news reading ways.

The same applies to visual references. Print or digital newspapers, or web pure players, all give a great deal of thought to interface design. They strive for a combination of unique visual identity and easy navigation. Ongo simply cannot expect to attract or retain readers by encapsulating everything into the same dull layout. (We’ll come back to the issue of merging design and digital constraints in a future Monday Note).

The second challenge is what I’ll call the “broken toys pawned off to poor kids” syndrome. In 1990, when the world discovered the horrendous living conditions in Romanian orphanages, European families began giving toys to charities. Used toys, of course. Broken toys, in fact. Charities were understandably pissed. In business ventures, the “broken toys syndrome” occurs when a partner is so reluctant to play its role, that it keeps its involvement to a bare minimum. In Ongo’s case, two critical audience attractors — the New York Times and The Financial Times — are not really playing the game. The NYTimes feeds the platform with a selection of stories, many of them one or two days old. As for the FT, it provides so little content that it doesn’t even fill its allocated space on Ongo’s iPad screen (see below).

These two institutions should make up their mind: either they are on board with Ongo for a price consistent with their current (or future) rate — perhaps applying a discount if they want to push the new platform — or they stay inside their cosy walled garden and established brands. At this stage, Ongo presents the two “Times” as being part of its product. But, at this stage, these iconic papers are far from being really there. As readers quickly see through the scheme, this type of incentive isn’t going to help.

As far as subscribing to Ongo, although I expect to cough up about $600 this year for a wide range of digital news contents, I won’t flash my Visa card for Ongo — yet. Tomorrow, perhaps: this one-week old site has the brainpower, the backers and the funding to become the powerful platform for online news this industry badly needs.

frederic.filloux@mondaynote.com

The Uncertain Future of Free Dailies

There are signs. Not necessarily good ones. At ten in the morning in Paris, you still find piles of free dailies at almost every distribution point. At four in the afternoon, in the business district, outside one of the busiest subway stations, unopened stacks of copies of Metro lay soaked by the winter rain. Two years ago, subway and commuter trains were filled with people reading a free daily. Now, readership has dropped dramatically. In 2002-2005, to make sure the morning daily was there when its intended target group walked by, the logistics team at 20 Minutes (the market leader) carefully adjusted the number of papers available at key locations using traffic analysis in 15 mins increments. Today, the oversupply is obvious.

What happened to the free dailies that once rocked the press market?

Before I go further, a bit of disclosure. I was 20 Minutes’ editor from 2001 to mid-2007; then, until December 2009, I went to work for Schibsted ASA, the Norwegian group that owns 50% of 20 Minutes.

The French free daily market is a strong one. Here are the main data (source: EPIQ/ Audipresse market research): total readership is 4.5m people (+0.4% from September 2009 to September 2010); this is approx. 9% of the French adult population in about 10-12 major cities.

Ranking……………………Readership…………….Ownership
1- 20 Minutes :………….. 2.7m (+2.2% Y/Y) ……Schibsted/Ouest-France
2-  Metro :      ……………. 2.4m  (-0.7%) …………Metro International
3- Direct Matin: …………..1.7m (+4.8%)……….  Bolloré Média
4- Direct Soir: …………….1.0m.(-5.4%) …………Bolloré Media

Financially speaking, these titles share an advertising market of about €120m ($160m). Their market strategy is built on heavy discounting (about 80% of the rate card vs. 50% for the paid-for press). As a result, a full page in a free daily will net about €10,000-15,000 as opposed to €40,000-50,000 for a major paid-newspaper.
In Q3 2010, for 16% revenue growth, 20 Minutes showed a negative EBIT of €1.3m; it could however turn a small profit for the full 2010 year with revenue in the €50-55m range. Metro showed both a declining EBIT and declining revenue for the same period. The other two papers don’t provide figures but are said to bleed cash.

Where is this going?

#1 Readership. The key issue, obviously, but without a clear trend. The free press is designed to target a young, urban, active audience, one that is in high demand by advertisers. To make targeting more efficient, these papers beg for localization: specific pages for news, culture, services, etc. produced by a small local staff.
On the French market, free dailies show a small year-to-year growth thanks to the opening of new cities. In theory, such expansion is fine.  But going in the second tier of cities means watering down the very demographics the papers rely on for their pitch to advertisers. Plus, in smaller areas, localization becomes economically unviable. Even if, on a spreadsheet, publishers are still able to defend the marginal cost of expanding into smaller cities, the gain in advertising revenues is close to zero (or will get there after few quarters). A perfect example of the law of diminishing returns.

#2 The product. When they commute, what do people do instead of reading a free daily? Their heads are deep down inside their smartphones. Compared to a convenient, permanently updated, set of mobile services, the free press has lost its appeal.
Right now, the free daily is riding a low-cost downward spiral: fewer pages every day, requiring less journalists and editors, at every level cheapest is best, etc. Product people are no longer in charge. The result is seen every day in the product: nothing to retain the reader’s attention, no original treatment or angle, no uniqueness whatsoever; content is flat, bland, and often packaged in an increasingly aggressive ad environment (several times a week, an advertising cover-sheet conceals the content of the front page). No wonder the mobile phone is taking over. The rise of the smartphone took the free press by surprise, both in terms of time allocation (hours spent to text-messaging of Facebooking) and by its ability to provide a competing news product.
In retrospect — always easier than making good predictions — free papers should have capitalized on their brands, built upon millions of daily readers, to develop strongholds in web and mobile, with products targeted at every segment of their audience. In addition, satellite, market driven products in both editorial and services, should have been engineered. Darwin’s survival of the fittest.

#3 Market positions. Revenue and profit numbers show the importance of retaining the number one slot. On the French market, in spite of having a better product and running a tight ship, the n°1 position held from the start by 20 Minutes is likely to change. For one, profitability is fragile with three players on the market — one too many, at least. Two, Bolloré Media — publisher of Direct Matin and Direct Soir — shows both resilience and resolve. Size matters: for the €6bn revenue Bolloré Group, its free dailies weigh about 2% of the conglomerate (two thirds are transportation and logistics). In such a context, the €40-50m poured into the free press is pocket change.

The low barrier-to-entry is one of the most challenging free press features. Basically, you design a product, put together a stable of two dozens journalists, sign a couple of printing and distribution contracts and you’re in business. The rest is a constant adjustment to circumstances. It is very difficult to built a durable, unique and hard to replicate business.
In addition, Bolloré enjoys two advantages: it holds strong positions in the advertising sector (from creation to media buying) and, more importantly, it has the luxury of the time. From its perspective, being the late-comer with a so-so product is a minor inconvenience that can be corrected over time. The 172 years-old Bolloré group is good at the wait-and-adapt game. For instance, the weak evening edition of its free daily (Direct Soir) is about to morph into a theme-oriented daily special (cars, sports, well-being…). In the meantime, it will keep beefing up its circulation and thus could en up in a position to take the critical #1 slot. With a set of editorial products carefully designed to attract advertisers, Bolloré and its Direct papers could disrupt the game.

But in the long run, free newspapers face the tough and delicate challenge of dealing with digital news consumption. They still own great assets: brands (not as diversified as they could have been, still…), huge audiences and healthy shareholder structures. It is “a mere matter” of adapting products and creating new ones. Management by KPI is fine — and necessary. But, in a highly media-diverse competitive market, “painting by the numbers” can’t compensate a lack of product strategy vision and implementation.

frederic.filloux@mondaynote.com

Le Monde: a blueprint of a turnaround

The iconic French newspaper Le Monde is about to begin a new chapter of its complicated history. Last September, what remains France’s most influential paper changed hands (see previous Monday Note Le Monde’s escape velocity and story in NY Times’ DealBook).

Le Monde is now owned by a triumvirate: Xavier Niel, a telecom entrepreneur, provided the bulk of the €110m ($130m) injected in the venture; Matthieu Pigasse, head of Lazard France, and Pierre Bergé, co-founder of Yves Saint-Laurent fashion house. Now, as the paper prepares to replace its editor, the new owners’ turnaround operation faces tough challenges.

But, before we continue, a disclosure that might influence the way you read this column:

Over the last few days, I have been on the receiving end of feelers from both insiders and outsiders: they wanted to gauge my interest in Le Monde’s editor job. (None of these informal conversations directly involved the owners.) For reasons I’ll discuss towards the end of this note, I made it clear I wasn’t interested.

With this out of the way, let’s look two sets of problems at Le Monde: editorial and industrial.

The editorial one is a relatively minor. Le Monde prides itself in remaining the “Paper of Record”. Unfortunately, such posture encourages more arrogance than it spurs innovation or a burning desire to win. Le Monde’s morning e-mail sent to digital subscribers exemplifies this hauteur; it says: “Que dit Le Monde?” (What Does Le Monde Say?) ; it’s not “What’s in today’s paper”, “What we’ve got”, “What we scooped”, “Selected legwork”, or “You might like…” No. It is: “The State of the World according to Le Monde”.

Quite logically, we get headlines that pontificate about yesterday’s news (Le Monde is an afternoon paper, oddly enough). Rolling your eyes, you still buy it at your favorite kiosk hoping to find good reading material. Most of the time, you actually do. Le Monde still manages to retain a great editorial team, one able to produce and edit high-quality content. But such capability is no longer sufficient to keep (and preferably expand) its readership.

On weighty topics, The Guardian or The New York Times are just as solid as Le Monde, but they are also way more fun to read. By “fun to read” I mean these newspapers are more willing to assign valuable journalistic resources to subjects popular with readers but belittled by French journalists. (For more on what readers actually like, see a previous Monday Note: What do they read – actually ? ).

Again, dusting off this slightly austere and pretentious worldview is no big challenge; it only requires minor adjustments to the daily mix. And probably a bit of reorganization. Le Monde is notorious for its uneven workload distribution. On one extreme, we have toilers who feed the beast on a daily basis, always on the edge of burn-out; on the other, there are those who maintain a more epicurean approach to their job. Among the latter, some will have evidently to be let go; others will have to accept changes to their working conditions and contracts.

The industrial problem is far more critical. In the next few months, management will make decisions likely to seal the paper’s fate. These decisions will pave the way to a new era, or lead to extinction. (So far, the latter has been the unfortunate “natural” course: we’ll recall Le Monde was on the verge of bankruptcy last Summer).

The new shareholders — who define themselves as owners — were first viewed as saviors. Plenty of money, a strong industrial and financial track record for Xavier Niel and Mathieu Pigasse. As for the older Pierre Bergé (81), he was portrayed as the gentle philanthropist who arranged for Le Monde’s staff to retain a minority stake in the new capital structure. These idyllic feelings quickly evaporated as the paper’s management proved unable to present a well-thought-through strategic plan to their new bosses. After dawdling for a few months, the owners jumped to action, the hard way. Xavier Niel, the entrepreneur, lost patience and launched one of his former lieutenants on an expeditious cost-cutting operation. The gent — a French-Israeli entrepreneur — went after low-hanging fruits such as management perks, travel expenses and stationery (really!). In passing, as a way to squelch resistance, the new owners resorted to the classy expedient of leaking juicy details about the cost-cutting operations. They knew media reporters would parrot every bit of gossip without bothering with lowly fact-checking. Good old eighties tactics: publicly humiliating management.

Until then, people at Le Monde had only seen pictures of cost-killers; they got a rude wake-up call: gone is the era of passive shareholders and out-of-the-way board of directors. The general manager of the group was demoted two weeks ago, and the current editor has been stripped of its top attributions and is about to leave.

Now comes the hard part. The cost-killer is back in Israel but the really important decisions remain to be made.

#1 The printing plant. Le Monde still owns a cathedral that is both obsolete and costly to operate. The facility, controlled by the omnipotent Printer’s Union, is plagued by productions inefficiencies and loses its clients one after the other. The plant currently employs 300 people where 100 would be more than enough. That’s about €12m a year in potential savings. The choice is between injecting dozens of millions of euros to modernize the plant or closing it down. By any measure, this is a no-brainer: the plant has to be closed. Any Western publisher dreams of dumping his printing plant (many groups such as the Norwegian Schibsted no longer own any printing facility).

In Le Monde’s case, as part of the industry’s restructuring plan, the French government has set aside adequate funds and is ready to pick-up most of the tab. (For the long run, the Sarkozy administration wants to reduce the subsidies that accounts for 12% of the French dailies revenues but, in the interim, will provide financial support for transitions towards more durable structures.) This could free Le Monde to hand over its print job to the new facility built by Le Figaro eighteen months ago — one that begs for an accelerated amortization (see our story about Le Figaro’s strategy).

#2 The digital strategy. Last summer, investment bankers came up with the following valuations for the Groupe Le Monde: €10m for the newspaper itself, €30m for the magazines and €80m for its digital subsidiary, Le Monde Interactif (MIA). Problem is: 34% of MIA is owned by Lagardère Groupe, a diversified media company still in search of a viable digital strategy (despite numerous and costly acquisitions). The reason for this odd capital structure? The old guard at the newspaper was reluctant to fund Le Monde Interactif, which had to find external financing.

Now, Le Monde faces a weird situation: a third of its most valuable asset is controlled by another company and, with each passing quarter, the price for that stake goes up. Any new management would have to make sure it reassumes full ownership of such a critically important business unit. The urgency could justify a bold arbitrage move such as selling the cultural weekly Telerama acquired years ago. No synergies whatsoever have emerged from that takeover — except siphoning cash from Telerama to the perennially money-losing daily.

Le Monde needs to regain control of its digital strategy both from a capital and a product aspect. Le Monde Interactif grew up feeling like the illegitimate offspring of a noble family. No wonder why it now fiercely defends its autonomy. With a dual ownership – largely played by MIA’s management for its own political ends – and a profitable operation, the digital arm of Le Monde operates in its own ways. Unfortunately, not for the best results. Editorially speaking, the site remains below the newspaper’s standards, and it doesn’t look good when compared to the Guardian Unlimited or the New York Times Digital. Its content is uneven (to say the least), often remotely related to the paper’s editorial treatments; many blogs are weak, and the entire interaction with readers is messy. In short, a platform with great potential, technically and financially strong, but one that calls for more discipline and a greater strategic editorial alignment with the flagship.

In addition, Le Monde Interactif prides itself with a rebellious online appendage: LePost.fr, a website targeted at young audiences. Originally designed as a kind of innovation lab, LePost in fact became a place for gossip and unverified stories (labelled as such!) — and for bleeding money (€2m operating costs for €200,00 revenue in 2009). This excrescence only needs to be sold or closed-down. (Its staff could be efficiently reassigned to beef up Le Monde’s  presence in social and participatory medias.)

Within five years, Le Monde will be read mostly on mobile devices – smartphones tablets – and supported by a mixture of free and paid-for contents. In the meantime, the newspaper will undoubtedly continue to lose some of its readers, even though a core audience, mature, educated and affluent, could slow down the process. The paper’s pricing/distribution therefore needs to be reassessed. It is likely that it could sustain significant price hikes without major readership erosion, probably coupled with distribution focused on major cities. At the same time, the weekend edition — a strong advertising vehicle — should be expanded.

There is no room for procrastination. Le Monde needs to act decisively to preserve its brand and editorial influence. It needs to reconsider its perimeter to address a critical issue: the Paper of Record is now challenged; it must morph into the Permanent Media of Record, online and offline. This requires a serious rethinking of asset allocation.

Why I felt I shouldn’t even think about the editor job:

1 / The editor’s job, as it is now defined, has been stripped of any influence on the company’s strategy. Such a job needs a say on essential matters such as the printing plant, or the way Le Monde controls its digital unit. We need to know the new owners will involve the editor in such matters. For their defense, most journalists are totally divorced from any kind of management culture. In my case, I don’t believe a media can be effectively managed solely by making decisions for the main editorial or the home page.

2 / The selection process is just terrible. First, candidates have to declare themselves publicly. Then, they are auditioned by a kind of ad hoc committee. Next, they are presented to the owners and to delegates from the newsroom. Finally, the appointee has to be approved by a majority of 60% of the staff. The result is the primary factor in picking a candidate will be his or her ability to get those staff votes. For the selection committee, using other criteria bears the risk of being discredited. Good luck with that.

The need to appoint an editor aligned with the newspaper’s core values is understandable. But, rather than electing an editor by popular vote, it would be much better to have a candidate: (a) probed and interviewed by a selection committee led by the board of directors — like in most companies — and, (b) approved by a board of trustees whose mandate is promoting the paper’s independence and integrity.

3 / There is no shortage of candidates inside and outside. The owners might prefer an outsider, which could further complicate the game. (The triumvirate is said to put a high priority on hiring a forty-something. Such focus is questionable: Alan Rusbridger, the Guardian editor, 57 years old, is at the top of his game on all facets of the paper’s business.

Unfortunately, the process as it stands today carries a high risk of morphing into a bitter campaign. The bloodied winner will then face a gauntlet of frustrated apparatchiks only too eager to question his/her authority since, of course, the defeated candidates won’t leave. It can’t work that way. Especially for a media group facing such daunting challenges.

frederic.filloux@mondaynote.com

Key Success Factors for a tablet-only “paper”

Can it fly? Last week, Rupert Murdoch announced he was plotting a tablet-only newspaper. Or rather, an iPad-only paper — at first; other tablets would follow. The Daily, as it is to be called (how modest and innovative) is to be blessed by Steve Jobs Himself at a media event introducing the new venture. Initially, rumors pointed to a December 9th date; the latest gossip now says the unveiling could be delayed over “issues”. In any case, this is big news: a major media group, crossing the Rubicon to get rid of both paper and web, riding the Apple promotional machine (details and speculations in this story from The Guardian).

Well before the iPad was introduced last Spring, many of us had dreamed of a news product encapsulated inside a self-sustaining iPhone application. The advent of the iPad, with its gorgeous screen, only made the dream more vivid. Then, reality interfered. Even with the combined installed bases of the iPhone and the iPad’s, numbers didn’t add up, the dream news product wouldn’t make real money. Could it work this time under Rupert Murdoch’s rule?

Let’s return to Earth and tally the project’s pluses and minuses.

On the plus side

1 /  Let’s make quick work of the staffing issue. Media pundits contend you can’t run a serious daily with a staff of hundred as envisioned by Murdoch. Of course, you can have a roaring newsroom with 100 people! As long as such staff is focused on the paper’s core journalistic beats; in an ideal world, a newsroom should be staffed by a relatively small number of dedicated, well-paid, hard-working reporters and editors, managed by a flat hierarchy. This compact crew only needs to be supplemented by a carefully outsourced network of specialized people whose expertise, while highly valued, isn’t used often enough to justify full time employment. Exactly the opposite of our dying print dinosaurs.

2 / The tablet immersive experience. Like no other device before, the iPad has the ability to capture the reader’s attention: iPad “sessions” last much longer than browsing expeditions on the internet. According to TigerSpike, the very design company that built apps for News Corp, the average iPad session lasts 30 to 40 minutes (see story in PaidContent).

3/ The market. Rupert Murdoch is convinced that, soon, an iPad, or a competing tablet, will find its way in almost every household. And he is said to have been impressed by projections of 40 million iPads in circulation by the end of 2011. Spreadsheet magic! Millions of customers… On the revenue side, numbers can work. A 100 persons newsroom should cost no more than $12-15m a year to operate. Assuming $99/year pricing, netting $66 per user after Apple’s fee, plus $10 per user per year of premium advertising (after all, it is a qualified audience), the ARPU can land at around $80, which translate into 150,000 subscribers required to break-even. Sounds appealing.

On the minus side

1 / Closed environment, no links. That is the side effect of the “cognitive container”: an application such as the Wall Street Journal, the Guardian or the Economist, is by definition autistic to the rest of the web. No links to the outside world (except if it has an embedded browser like Dow Jones’ All Things D), and no relation to the social/sharing whirlwind. Some will appreciate the coziness of a newspaper without parasitic external stimuli, other won’t accept to be cut-off from the social Babel. It could be a matter of generations.

2 / The Apple business model sucks (for media). At first, Apple’s 30% cut of the retail price sounds great compared to the physical world where production and distribution costs devour 40% to 50%. Not so simple. First, you need at least five times more readers in the to offset the advertising revenue depletion associated with the move to the digital world.
Second, the tax issue. In many countries, in spite of intense lobbying by media  companies, digital products carry standard VAT. In France, where the VAT is set at 19.6%, internal analysis made by publishers showed that a high volume daily will net less in the AppStore than in a physical kiosk.
Third, Apple’s terms of use. They deprive publishers of two things : first, the ability to set prices outside of Apple-dictated levels (usually too high or too low) and, second, access to customer data, which make any CRM monetization impossible. The latter is, in itself a major deterrent to dealing with Apple. Of course, if Steve endorses Rupert’s project, the conditions could be quite different.

Mandatory

1 /  Exclusive and proprietary content. If Murdoch’s paper — or any tablet-only publication for that matter — is unable to produce truly original content, it is doomed. The internet is flooded by reverberating newsflows of all kinds, and free. Value will inevitably follow uniqueness.

2 / Pricing: simple and adjustable. No one knows what readers will ultimately: the iTunes model (multiple 99 cents transactions) or the cable-TV or Netflix flat-but-fat fees? To find out, the only way is to offer multiple pricing options. Problem is: it goes against simplicity and readability.

3 / Beyond Apple and perhaps beyond the app. For all of its advantages, betting only on the AppStore could be risky. The market will be overflowed by other vendors and operating systems. Hedging one’s bets will be key.
Maybe it would be worthwhile to look beyond the application concept. Instead of an autistic app, why not build adaptative web sites that will adjust automagically to the device used (tanks to the user agent technique)? As screen sizes differ from an iPad, for a Samsung Galaxy Tab, or for the  upcoming Blackberry Playbook (see this video), the tablet-dedicated site could adjust and optimize its rendering. In doing so, the service would remain part of the web, connected to its social features; it could operate on a much better business model than Apple’s, and there would be no hassle with the app store application process, upgrades, inexplicable rejections, etc.

4 / Speedy and simple. On both my iPhone and my iPad, the applications I no longer use happen to be the most complicated and the slowest. One such example is the New York Times app: it needs more time to load than it takes to flip trough several pages of the paper’s web site. On the contrary, the just released Economist applications are great. Two buttons on the main page : Download (10 seconds for the entire magazine) and Read. That’s all. And if I want to change the font size, it is intuitive: I pinch in or out, and the whole layout resizes. Interestingly enough, The Economist gives its subscribers the choice between a great website experience and the magazine look and feed of its sleek application (I’m curious to see which one will prevail, audience-wise). The beauty of this app resides in what that has been removed from it.

Meditate on this: this is at the very core of Apple’ design genius.

frederic.filloux@mondaynote.com