newspapers

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

Expanding Into New Territories

In defining business strategies for modern medias such as online newspapers, the most difficult part is finding the right combination of revenue streams. Advertising, pay-per-view, flat fee… All are part of the new spectrum media companies now have to deal with.

The gamut looks like this:

As we can see, newspapers mostly consist of one product line, confined to the mainstream, value-added news category. By going digital, this segment is likely to lose most of its value (expect a 60% meltdown as expressed in revenue per reader). Therefore, for these companies, it becomes critical to expand into new territories already taken over by other players. For instance, big media outlets endowed with strong brands should go into commodity news and participatory/social contents. This doesn’t mean a frontal attack on Facebook or Twitter, obviously; instead, the new reality dictates using and monetizing through them (see last week’s Monday Note on Facebook monetization).

Ancillary publishing should also be considered a natural expansion: news outlets retain large editorial staffs that could be harnessed to produce high value digital books (see this earlier Monday Note on Profitable Long Form Journalism). The “Events” item, on the list/graph above, is more questionable, but it remains a significant source of potential income tied to the brand’s notoriety. I left aside the classifieds business: except for a few media groups (Schibsted all over Europe or Le Figaro Group in France) that boarded the train on time, positions are now too entrenched to justify an investment to gain a position in that segment.

Advertising is likely to remain the biggest money maker for the two dominant categories: Commodity/Participatory/Social Media and Mainstream Value-Added. Unfortunately, in its digital form, advertising has run in deflationary mode for the past decade due to flat (at best) CPMs, with huge inventories putting further pressure on prices.

Print doesn’t look great either as investments shift en masse to digital; this reflects the growing imbalance between time spent by users on print and advertising investments in the medium. According to Nielsen Media Research, the Internet now accounts for 38% of time spent but only for 8% of ad spending; newspapers are on a symmetrical trend as they captured 20% of advertising dollars for only 8% of users’ time. More

New media valuations metrics

On September 22, the Norwegian media group Schibsted announced a transaction to make it the sole owner of the French free classifieds site LeBonCoin.fr. The valuation for the deal? €400m ($540m). I must admit it : I fell from my chair(*). Not that I look down at Le Bon Coin, au contraire. In a previous December 2009 Monday Note (Learning from free Classifieds), I explained why news media should give a closer look to such sites. In my view, they could draw inspiration from five key components: a crystal-clear interface, deep concern for its users, a proprietary value proposition, software that keeps working, and a free model… with paid-options.

Still… Four hundred million euros! In last week’s deal, Schibsted bought back the 50% stake owned by Ouest-France, the French regional newspaper group. The deal nets €140m for the Breton group – now facing a €100m restructuring of its… paper-based classifieds. The deal involves an asset swap: Ouest-France gives up a 59% EBITDA business (Le Bon Coin), and increases its stake in the company Schibsted exits, Car & Boat Media, valued at €120m, a 29% margin business. Analysts I spoke to wonder: Is this really the best move for Ouest-France? Obviously, they’re selling off a jewel. And, no less obviously, they never fully grasped the free classifieds site’s potential.

Now, let’s consider two aspects of this deal: the context for media economics, and asset valuation.

Context. The €400m valuation for Le Bon Coin, a four-year-old business, is to be viewed against the backdrop of French media goings-on. To name but one example, Le Parisien, a powerful daily, is to be sold for around €120m (the family owners wanted €200m). Last year, it made about €240m in revenue and lost €6 m. Together, Le Parisien, and its national/regional edition, Aujourd’hui en France, have a combined circulation of 477,579 and a readership of 2.23m (that is an astonishing 4.7 readers per copy). Translated into an ARPU (Average revenue per User) equivalent, Le Parisien makes 496€ per buyer of the paper per year, and €106 per reader per year. Let’s keep those numbers in mind.

According to the Schibsted press release, Le Bon Coin is valued at 22 times 2009 revenue of €18m, and 11 times the 2010 expected revenue of €36m.

On the one hand, we have a great but money-losing news media brand, Le Parisien, likely to be sold for 0.5 or 0.6 times its revenue. And, on the other, a classifieds website, Le Bon Coin, valued 11 times its revenue.

Isn’t there an imbalance here? An excess of sorts?

Asset performance provides parts of the answer: strings of losses for the newspaper (although clearly getting better) against a whopping 59% EBITDA for the classifieds sites and its ultralight production structure (20 people).

But the real answer is elsewhere: expected growth. More

Too many journalists ?

An unpleasant question: Do we have an excess of daily press journalists? And, if so, how does the surfeit vary from country to country?

Two years ago, Earl Wilkinson, the managing director of the International Newsmedia Marketing Association (INMA), produced a chart showing how the growth in the number of journalists employed by US dailies had not prevented a decrease in circulation:

A former journalist himself, Earl is a strong advocate of editorial differentiation; therefore, he is not against large newsrooms. But the fact remains: on the US market, the size of the newsroom isn’t a shield against readership erosion. With the possible exception of India,  the era of big editorial cathedrals is gone. In France for instance, according to a 2009 study conducted by the National Center for Scientific Research (CNRS), the number of journalists almost tripled in two generations, about 50 years. For the same time period, the number of copies sold per 1000 inhabitants shrunk by 66%, from 360 about 120 per 1000 people.

I took the OECD report titled The Evolution of News and the Internet and fed it to Excel. The output shows the following trends:

#1: editorial workforce. If adding journalists has proven unable to reverse the trend in reader depletion, in any given market, the more numerous the journalists are, the better the newspaper industry holds. The chart below covers seven countries, with two superimposed data sets. First, in blue, the number of journalists per 100,000 daily copies sold; second, in red, paid circulation per 1000 inhabitants.

Sweden and Norway show the most favorable ratios: strongest readership and the biggest editorial staff per copies sold. Italy shows the worst numbers: relatively few journalists for the lowest readership. More

Le Monde’s escape velocity

In rocket scientist parlance, escape velocity is the speed needed to break free from Earth’s gravitational field. Last Friday, by an overwhelming majority, Le Monde’s staff voted to escape the black hole of French politics — or, at least, to give their paper the  best chance to do so.

Disassembling the utterly complex chain of ownership control at Le Monde would take most of this column. Let’s just say the newsroom, which historically controlled 22% of the company, gave a resounding 90% vote for a triumvirate including the head of Lazard France, Matthieu Pigasse (41); the co-founder of Yves-Saint-Laurent, Pierre Bergé (80); and Xavier Niel (43), the founder of Free, France’s largest non state-related telecommunication company. Together, the investment banker, the philanthropist, and the telco maverick are likely to become the main shareholders of the most prestigious French newspaper — one that is facing a severe cash crisis (see last wee Note Le Monde on the Brink). The journalist’s choice was supported by most constituencies in a position to influence the group’s fate. Only one voting body chose the other bid; technically it can trigger a deadlock for the ultimate vote at the board level, scheduled for this Monday; this is a highly unlikely scenario, one that would immediately lead to a bankruptcy filing.

Two years ago, such choice would have ben unthinkable. On paper, the other bid, led by Claude Perdriel — owner of the left-leaning newsweekly Le Nouvel Observateur —, supported by the Spanish group Prisa and by France Telecom-Orange, would have got the prize. But their offer got mired in politics, and Le Monde’s staff reacted strongly against it.

Nicolas Sarkozy’s involvement doomed the Perdriel bids. When he summoned Le Monde’s current CEO, Eric Fottorino, to warn him, it felt like George Bush telling the New York Times’CEO: “You have two choices, here is my preference, be careful.” For any journalist, this type of ultimatum is the perfect repellent. Especially when, hoping to influence the decision, the executive branch pushes every lever.

To understand how it works, here, you have to keep in mind how the executive branch keeps the French medias under the tightest possible leash. When a government-friendly columnist is unhappy about his employer, he calls Sarkozy’s chief of staff (nicknamed the vice-president) who, in turn, calls the head of the broadcast network to express his concern. It always works like a dream, especially when the CEO of a network (radio or TV) is a government appointee or, for a private company, when the main shareholder is a FON — Friend Of Nicolas). More

Le Monde on The Brink

Within two weeks, the French newspaper Le Monde will run out of cash. By this Monday at noon, candidates to the takeover of the most prestigious French daily will have disclosed their offers. By June 28, the staff will vote and make the final decision for the fate of the 66 years-old paper.

More importantly, the newspaper’s independence will be under severe pressure.

Le Monde is the textbook example of the evolution of French press over the last years:

  • A steady erosion in readership.
  • A lack of budget discipline, made worse by loose governance.
  • The core newsroom’s reluctance to support the digital strategy
  • The collective certainty the “brand” was too beautiful to fail and that a deep-pocketed philanthropist will inevitably show up at the right time to save the company.
  • An difficulty to invest into the future, to test new ideas, to built prototypes, to coopt key talent or to invest in decisive technologies.
  • A bottomless investment in the heavy-industry part of the supply chain, in costly printing facilities.
  • An excessive reliance on public subsidies which account for about 10% of the industry’s entire revenue. Compared to Sweden, French newspapers have 3 times less readers, but each one gets 5 times more subsidies.

To a large extent, these characteristics are shared by most French newspapers. This could explain the dire situation of the Gallic press. As of today, four major properties are on the block, or urgently looking for saviors:

  • Le Monde seeks at least €100m (for a first round).
  • Le Parisien, a popular daily, is for sale; although quite good from an editorial perspective, it is not profitable and its family ownership wants to refocus on sports-related assets.
  • La Tribune, the n°2 business daily, is looking for a majority investor.
  • Liberation is also facing a  cash stress.

Le Monde’s situation is by far the most critical and the most emblematic. Here are the key elements : In 2009, the Groupe Le Monde had a revenue of €390m, an operating profit of €2.2m, and a net loss of €25 m. It is crumbling under €100m in debt, the result of a failed acquisition strategy. Its arcane shareholder structure includes Lagardère Group for 17%; the Spanish group Prisa (owner of El Pais) for 15%; the newsmagazine Le Nouvel Observateur for 5%; its staff for 22% and various other entities for the rest. Its main assets are : The daily Le Monde and its weekly magazine; Le Monde Interactif (including Le Monde.fr); three other magazines; and a printing plant. Over the last three years, it looked like this:

Over the last fifteen years, Le Monde’s management proved unable to come up with a cogent strategy. The group tried to expand into the regional press and into the magazine sectors without any coherence behind such moves. The only tangible achievement was the creation of Le Monde Interactif, this against most of an internet-adverse newsroom. In fact, Le Monde’s digital unit had to handle 34% of its ownership to the Lagardère Group in order to get sufficient funding. More

Managing the magazine component of newspapers

This is the second part of a series about the evolution of print media. Part I here.

A few years ago, the founder of the French daily Liberation was asked what he would do if he had unlimited resources to run his paper: “I would do a magazine everyday”, he said. During the late 80′s, “Libé”, as it was called, stood at the forefront of the transition from a traditional daily newspaper to a magazine-like concept, with long pieces, narrative journalism, reportages… Later in 1994, Libé launched a daily full-page featuring an in-depth profile including a photograph specifically shot for the occasion. It was a brilliant magazine-style piece, done under a demanding editor who did not hesitate to rewrite the story to give it rhythm, breadth and, sometimes, fun. (Usually, in France, dailies don’t get that much editing.) Amazingly, even though it has lost some of its luster, a feature that largely inspired the competition still survives 16 years later.

Magazine writing is still an appealing attribute for a daily paper. Just take a quick poll among your friends: the most notable articles they’ll recall from a newspaper will be magazine-like treatments. From a pure editorial perspective, the “magazinification” of dailies make more sense than ever. Breaking news and even developing stories have been captured by the web and by the mobile internet. In itself, this shift would justify a massive resource reallocation in favor of digital medias.

Having said that, does it make an economic sense to maintain the large editorial operation needed to produce every single day a product closer to a weekly or even a monthly magazine? To what extent do we need to reconsider the journalistic morphing that appeared a smart move ten or fifteen years ago? More

Euthanazing the paper? Not yet.

I love this year-old Warren Buffet quote: “If Mr. Gutenberg had come up with the Internet instead of movable type back in the late 15th century, and for 400 years we had used the Internet for news and all types of entertainment and all kinds of everything else, and I came along one day and said ”I have got this wonderful idea: we are going to chop down some trees up in Canada and ship them to a paper mill which will cost us a fortune to run through and deliver newsprint and then we’ll ship that down to some newspaper and we’ll have a whole bunch of people staying up all night writing up things and then we’ll send a bunch of kids out the next day all over town delivering this thing and we are going to really wipe out the Internet with this”… It ain’t going to happen”.

As a member of the Washington Post’s board of directors, Buffet knows quite a bit about converting trees into reading material. He saved the Washington Post Company, literally, by suggesting the acquisition of Kaplan Higher Education. Now, Kaplan accounts for 57% of the Post’s revenue and its operating income exactly offsets losses at the newspaper division (see 2009 earnings report).

A week ago, echoing Warren Buffet, Netscape co-founder and multi-board member Marc Andreesen, reiterated his recommendation: “Burn the Boats”. In a statement reported by TechCrunch, he used Hernan Cortes as a model. This is the explorer who, in the 16th century, after landing in Cuba, wanted to remove any other option than moving forward: he ordered the destruction of all ships.

Andreessen gets credits for persistence. A year earlier, he called publishers to “stop the presses tomorrow”, saying to TV host Charlie Rose: “…I’ll tell you what. The stocks would go up. The investors are through [with] the transition. You talk to any smart investor who controls any amount of money, he will tell you that the game is up. Like it’s completely over. And so the investors have completely written off print operations. There is no value in these stock prices attributable to print anymore at all. It’s gone. (…) How many years of chronic pain do you want to take to avoid taking a year of acute pain?” (video and transcript here).

Let’s take a closer look at delivering the final injection to print. In the United States, if we consider the newspaper industry as a whole, it’s a no brainer. As Alan Mutter explains on his blog, “some 93% of the industry’s $45 billion in sales were associated with the legacy print product”. True, but that’s for all US newspapers, including a large chunk of local outlets who offer nothing more than a token presence on the web. More

The 2010 Media Watch List

No predictions, just a few of many hot topics for the newborn year.

Paywalls. 2010 could see a significant number of newspapers jumping into the paid-for option. Among the conditions to be met:

- Grouping around a toll collector. It could be Journalism Online in the US, a big media group in Europe, or even Google — should a truce occur between the search giant and publishers. From the user’s standpoint, the payment intermediary must be friction free, able to operate on any platform (web, mobile) and across brands.
Publishers will have to devise a clever price structure. If a knee-jerk move takes them back to the tired basic-content vs. premium-content duality, they are doomed.
- State-of-the-art web analytics affords much more refined tactics around users, platforms segmentation, etc. In addition, a paid-for system must be able to deal with many sources of income, such as monthly subscriptions, pay by-the-click, metering system based on downloads, time spent, etc.
- Publishers must act in concert. In every market, the biggest players will have to carefully coordinate their move to paid-models: everybody must jump at the same time. This is easier said than done: there is always the risk a rogue player will “cheat”, that is break the pact in order to secure a better market position. Also, too much “coordination” could encourage a disgruntled competitor to sue on anti-trust grounds.Daily newspapers shifting to periodicals. How many dailies in the world will shift from seven or five issues a week to three or two? Undoubtedly, many. This is a better trend than it sounds. For breaking news, print is no longer relevant, but it will remain the medium of choice for long-form pieces. Newspapers publishing a few times a week will gain by becoming more magazine-like in their news coverage; they’ll save their story-breaking capabilities for web versions. In this regard, the mobile web will soon become bigger than the original, PC-based variant.
The “instant web” such as Twitter and its offspring will thrive in 2010. The likeliest offshoot is video-twittering as pocket size camcorders continue to spread (see Gizmodo comparison here). These will be supplemented by an upcoming generation of high-definition devices with Net connectivity through wifi or 3G networks.

Advertising Disintermediation. The media buying side is definitely not the sector to be in for the next decade. First of all, ad spending will continue its adjustment to the actual time spent on various medias. In 2008, print captured 20% of advertising dollars for only 8% of the time spent; in comparison, digital got 29% or our time but 8% of ad spending. Those numbers, those discrepancies tell us the correction is far from over.
Unless they devise smarter ways to analyze web audiences (see below, the audience measurement issue) and, as a result, clearly define the true value of each group of users, there is no longer a need for the media buyers’ costly intermediation. The trend is there: the most agile web sites will go directly to brands and advertisers, they will propose sophisticated integration mechanisms for their sites and mobile platforms. So do social networks such as the 25m users French Skyrock (see our case study).
Anyway, Google will settle the intermediation issue as its boss candidly puts it in Ken Auletta’s books (1): “Google wants to be the agent that sells the ads on all distribution platforms, whether it is print, television, radio or the internet. (…) As our technology gets better, we will be able to replace some of their [large companies] internal captive sales forces”. Media buyers, consider yourself notified: you’re toast.
As for the creative side, we hope advertising agencies will, at last, wake up and think of new ways to integrate their messages in digital media layouts (as in print), rather than trying to divert users away from media sites (see previous Monday Note on the inherent design flaws of the internet). More

Young readers: already hooked on subsidies

I love my country. Among many things, I enjoy its business attitude. In the media sector, it is an unabashed mixture of entrepreneurship, bold risk-taking and fearless independence. You can’t spend a week here without someone telling you : “Hey, you know what? We’re about to send some of our journalists, paid by the Ministry of Foreign Affairs, to train bloggers in Middle East. Isn’t that great ?” (Yeah, indeed — you just received a €14,000 invoice from the state health insurance administration, they recalculated the cost of your health coverage for the past year).
Another one: “We are going to launch a new version of our mega-site, built on CMS x.” (The guy mentions an horrendously expensive proprietary Content Management System)”. You ask : “… Huh, why not using free tools, instead? You hire a couple of engineers, create your own specs, schedule a year of successive upgrades, and you’ll get great results, no?”. The answer is ironclad: “Bah, it’s all government money, you know…  It is part of the Press Modernization Fund… And we’ll even be able to finance the iPhone App from the same moneybag…”

As we speak, there is a big debate at the newly created Syndicat de la Presse Indépendante en Ligne (Spiil). This professional body of online news publishers, is pondering whether to accept subsidies. Pragmatists say big medias have been taking subsidies for decades. Now, the big guys spend huge sums of public money to upgrade their sites and they compete with us. Purists disagree: No way, we are not going to replicate the old MSM (Main Stream Media) behavior. Well, most of those pure players are struggling to balance their P&L while doing good journalism. Now way, I’ll lecture them one way or the other.

Yep, I love France’s profligate attempts to keep its press alive. No country spends more money to preserve the freedom and the plurality of its press: €1.2bn in 2008 (taking into account all forms of aid); that is 12% of the sector’s total revenue. (Just picture the US government coughing up about $8-10bn a year to help its newspapers and magazines industry!). And the percentage is likely to go up: new programs were announced this year (see Media acquisition, the French way) and press revenues are eroding. Between 2003 and 2007, French subsidies rose by 71% versus +21% in Sweden. For added perspective, Swedish readership is three times higher than in France and, as a result, proportionally five times less subsidized. More