online publishing

Trying a Simple Model

Advertising still dominates the newspaper revenue model. Depending upon the particular country, it is not uncommon to see print dailies getting 70% to 80% of their revenue from advertising. In the early days of the digital era, when business plans were driven by “eyeballs”, everybody hoped to replicate the tried and true print advertising revenue model. Now, the collective hallucination has dissipated; a more down-to-earth vision prevails: publishers willing to preserve high quality (read: costly) journalism recognize they have no choice but getting their users to pay for it, one way another. The pendulum has swung back.

It’s a chicken-and-egg problem. You’ll be able to charge readers if you put yourself in a position to propose exclusive, unique contents. To do so, you’ll have to put together an strong line-up of professionals, as opposed to a blogger army whose output no one will ever pay a dime for.Next questions include: how much to charge ? Is it 10 (dollars euros, pounds), 20 or more?  What free-to-pay conversion rate to aim at? Can we shoot for 5%, 10% or more of the overall audience? How does a full digital operation look like?

Let’s dive into numbers for a back-of-the-envelope exercise.

First, assumptions: The following is based on my observations of markets in Europe (France, UK, Scandinavia) and the United states; numbers may vary but I trust none are widely off the mark.

In the print world, costs break down as follows:

Newsroom........................25%
Production, printing............25%
Distribution....................20%
Marketing promotion.............20%
Administration..................10%
...............................100%

Now let’s move to a fully digital operation derived from a traditional one in terms of journalistic firepower and standards.

To produce it, we’ll settle for a 200 staff newsroom, with writers, editors, data journalists, information-graphic designers, videographers, etc. We removed the staff working on the dead-tree model. With 200 dedicated people working for an online operation, you can really shoot the for stars. Such a setup costs between $25 and $30 million a year, all expenses included. Let’s settle for a middle $27 million.

Production costs fall sharply as the carbon-based version is gone. The old 45% production and printing line morphs into a conservative 15% for serving web pages and applications. We’ll assume all other costs (marketing, promotion, administrative) remain at the same level.

The cost table now looks like this:

Newsroom...............27M$......40% of the total
Production, technical..10M$......15%
Marketing promotion....20M$......30%
Administration.........10M$......15%
Total Costs............67M$ 

Now, let’s turn to the revenue side.

First: advertising revenue. We assume a real audience of 5 million Unique Visitors per month. By real audience, I mean no cheating, no bogus viewers, reasonable SEM and excellent SEO. People come to the site, stick to it and come back. Each user sees at least 20 pages a month. That’s on the high side. By comparison, Google Ad Planner gives the following page views per UVs:

NYT.........15 pageviews per user and per month (distant paywall)
WSJ.........14 (some paid-for section)
FT.com......11 (strict paywall)
Guardian....14 (free)

20 pages is therefore an ambitious goal. I’m convinced it can be achieved through high-performance recommendation engines (look at what Amazon does in terms of its ability to get people to click on related items).

5 million UVs multiplied by 20 pages views gives (thank you) 100 million PV. Now, let’s assume each page generate a CPM (for several modules) of $20. That’s an average as not all pages yield the same amount: parts of the inventory will go unsold, but pages served to high value, paid-for subscribers will generate twice that amount. This translates into a yearly revenue of $24 million, that is around 5 advertising dollars per visitor per year.

Again: it will vary, but it is consistent with what we see on the market for high quality, branded, publications. (By contrast, even the greatest blogs only yield one or two dollars per user).

Two, subscription revenue. Since our audience is solid and loyal to the brand, we will assume 10% of all readers will be willing to pay. Make no mistake: that is the transformation rate a newspapers such as the New York Times is aiming at (it is currently at 1%, still a long way to go). My take is a general news operation will be price-sensitive, meaning the transformation rate with a $9.99 a month price will be significantly higher than with $15 or $20 per month; by contrast, a specialized publication is less rate-sensitive and can be pricier.

In my model of a general news product, I set the price to $10 a month, which makes the one-tenth conversion rate more realistic. Then, I factor in two items:
- 15% taxes (it ranges from 8% in the US to 20% in France)
- a 13% cost of platform including transaction, database, etc (that’s should be a goal as Google OnePass charges 10%); this line is distinct from the technical costs applied to the entire digital operation.

All of the above taken into account, a digital subscriber paying $10 month will generate a net ARPU of $89 a year for the company. Multiplied by 0.5 million paid-for users (i.e.10% of the global audience), this translates into a revenue of $44 million for digital subscribers.

The revenue table now looks like this:

Advertising......24M$...35% of the total
Subscription.....44M$...65%
Total............68M$...100%

$68 million in revenue for a cost of $67 million (all numbers rounded), leaves a mere 2% operating margin. Nothing to brag about. It could easily translate into an accounting loss, especially since it will take a while to reach several of these goals: a 10% free-to-paid transformation rate, a high number of pages per viewers, both are several years (of losses) away for many publications.
But these are the only dials I set on the ambitious side; the rest (subscription price, audience), is rather conservative; for instance if you simply set the subscription rate at $12 a month instead of $10 — that is fifty cents per weekday — the operating margin jumps to 13%.
And I also set aside many things I firmly believe in, like keeping some print operation in the form of a compact, high-end weekly for instance (with a staff of 200, it sounds feasible), developing ancillary products such as digital book publishing, etc.

Once again, while I feel my numbers are well-grounded, others will find this little model simplistic and questionable. The simulation is aimed at showing there is a life after the death of the daily print edition. Success is a “mere matter” of persistence.

frederic.filloux@mondaynote.com

My 2012 Watch List

When it comes to cracking the digital media code, 2011 involved more testing than learning. Media companies seem to be locked in a feverish search mode. Their sense of urgency is reinforced by the continuous depletion of worldwide fundamentals: digital advertising’s encephalogram remains flat (at best); and when audiences grow, revenues do not necessarily correlate. As for legacy media such as large quality newspapers which still draw 70-80% of their revenue from print, they are still caught in a double jeopardy: losing circulation plus looming downward price pressure on ads. We see an unforgiving mechanism at work: on mature markets such as Europe or North America, print media currently absorbs about 25% of ad spending while time spent on newspapers falls well below 10%. On digital media the balance is just the opposite: the web takes roughly 20% of ad investments for 25% of time spent; as for mobile devices, there is almost no ad money spent (<1%), but people spend about 10% of their time on their smartphones — and the growth is exponential.

Last year, we saw many efforts in the “right” direction—”right” being a rapidly redefined. Below is a subjective list of moves, trends, innovations, attempts that burgeoned in 2011 and are likely to become more sharply defined with this coming year.

#1 Paid-for news. Many are trying, but no one has cracked the code—yet. Part of the problem is we are in a model that’s just the opposite of one-size-fits-all. We are likely to witness the emergence of many different ways of charging readers for quality content. Variables in the equation are many and sometimes hard to quantify:

- National vs. local
- General news vs. specialized
- Typologies of contents
- Most Likely Prime time reading
- Most Likely Prime device use
- Target group structure.

Go figure a reliable business model with a so many factors in the formula…

Paywalls come in different flavors. The prize for complexity goes for the New York Times’ Digital Subscription Plan launched March 17. According to the Times, its crystal-clear equation can be summed-up as follow:

Once readers click on their 21st [in a 4 weeks period], they will have the option of buying one of three digital news packages — $15 every four weeks for access to the Web site and a mobile phone app (or $195 for a full year), $20 for Web access and an iPad app ($260 a year) or $35 for an all-access plan ($455 a year). All subscribers who take home delivery of the paper will have free and unlimited access across all Times digital platforms except, for now, e-readers like the Amazon Kindle and the Barnes & Noble Nook.

Weirdly enough, this overly complex and pricey scheme seems to work: by the end of Q3, the Times had harvested 324,000 paid digital subscribers. This has to be viewed in the context of a site getting 47 million Unique Visitors per month on average, and 33 million in the US alone. As for mobile access, 11 million iPhones apps and 3 million iPads have been downloaded.

To watch in 2012: how fast the NYT will recruit new paid digital subscribers. To get a good view of the key elements in NYT’s digital revenues, see Ken Doctor’s analysis in Newsonomics. Plus, after the sudden resignation of its CEO (Janet Robinson), the NYT might be entering a new era; she could be replaced by a predominantly digital person.

#2 The Web App Movement. The boldest move of the year was made by The Financial Times: in June, it unveiled a web app for iPad and iPhone, independent of Apple’s closed ecosystem. Among its many advantages, the web app allows the FT.com to foster a close relationship with all its customers. In five months, the FT.com has collected over 250,000 paying digital subscribers. Its entire digital operations now accounts for 30% of its revenue. (More on the FT.com’s economics in this PaidContent story.)

To watch in 2012: The outlook seems quite good for the FT.com. Its marketing division is working hard to tap into a huge database of 4 million registered users, including 1 million for the independent web app, half of them putting it on the home screen of their device.

#3 The Apple’s Newsstand is another item of the 2012 watch list. The project responded to publishers’ wish to see their prestigious titles rise over the crowd of garage apps, and to be able to propose long term subscription plans. In October, Apple came up with its digital kiosk, which is essentially a shortcut for publishers apps displayed in a wooden shelf. For good measure, Apple added an exclusive feature: automated downloading. In short, it is a success for magazines who register massive hikes in their digital sales, but much less so for dailies which remain a bit shy. (We been through this in a previous Monday Note)

==> To watch in 2012: the key issue for a massive move to Apple’s Newsstand remains customer data. Either Apple and the publishers will be able to work out a scheme in which about 70% of the customers will agree to provide their coordinates (see Apple’s Newsstand: Wait for 2.0), or the independent web app movement (FT.com-like) is likely to gain traction.

#4 The switch to Digital Editions, as opposed to dumb PDF, might play a critical role in the development of tangible revenue for the industry. Here, I spoke highly of great examples of tablet-specific applications such as BloombergBusinessWeek+ or the Guardian’s iPad version.

To watch in 2012: the adoption of Digital Editions will depend on three factors: 1) The publisher’s willingness to invest significantly on projects not profitable in the short-term, 2) The advertising community’s ability to understand that digital editions will bring their clients much higher benefits than PDF versions or even web sites will do, 3) The acceptance by various Audit Bureaus of Circulation that reader engagement is incomparably higher for designed-for-tablets editions (for more on the subject, read our recent column Unaccounted For Readers.) If these three items are checked, 2012 is likely to be The Year of Digital Editions.

#5 The Huffington Post contagion. Its acquisition by AOL for $315m has propelled the HuffPo to new highs. The content—largely based on unabashed aggregation and legions of unpaid bloggers—remains mediocre, but no ones really seems to care. As in the pre-bubble era, only eyeballs and hype count. The HuffPo has plenty of both. (OK, when you look at the numbers, as Ken Doctor did in this piece, you’ll see a HuffPo visitor brings 3.5 times less money than the NYT does…).

To watch in 2012: This is the year where the Huffington Post will go legit. Everyone is now kissing Arianna’s ring. Including large media company, such as Le Monde, ElPais, DieZeit and a couple of others in Europe that will help Arianna to go global. As appetizing as an alliance between Alain Ducasse and McDonald’s. Sometimes the search for strategy goes haywire…

frederic.filloux@mondaynote.com

The Best of Curation

I love talking about the things I enjoy using. The emerging ecosystem in which a bunch of smart people curate long form journalism is definitely one of those things. The companies are called Instapaper, Longreads, Longform. I love the material they find for me and I’m in the debt of developers who wrote neat applications that help me manage my very own library of great stories.

My reading selection process for long articles (say above 2500 words) goes like this. It starts with installing the Read Later bookmarklet, developed by Instapaper, on all my internet browsers. When I stumble on something I have no time to dive into, I hit the ReadLater tab in the by browser’s bookmarks bar (below):

This causes the piece to be stored in the cloud. (There is another service/app of the same kind called Read it Later. I just got it this weekend and haven’t had much time to use it yet.)

Then, I loaded the Instapaper app on my iPhone and my iPad, it works just fine. The stories I don’t have time to read at work are now available on my two nomad devices for my daily commute, my chronic insomnia, after-dinner relaxation or long flights. Unsurprisingly, topics center around business stories, medias, tech; but they also extend to neurosciences, and in-depth profiles of creative people in a wide range of fields. In doing so, I have re-created my own serendipitous environment; as I open the app, I always find something interesting I put aside a couple of weeks earlier.

My second source of good stories is the Editor’s Pick on three long forms curation sites. Instapaper has it own Browse section and my two favorites are Longreads and Longform. There are two other such sites I use less often: The Browser and Give Me Something to Read. They’re all built on the same idea: a self-organized community of thousands people (see graph below) who pick up articles they like and put them on Twitter (and also on Facebook and Tumblr); the feeds are then re-aggregated and curated by the sites’ editors. The process looks like this :

This system combines the best of Twitter (gathering a community that selects relevant contents) with the final responsibility of human editors. Just as important, Read Later and Read It Later rely on hundreds of third party applications that use their APIs (a piece of code that allows apps to talk to each other).

Then two questions arise :
– Does this model benefit publishers ?
– What kind of business models can the aggregators hope for ?

To the first question, the answer is yes and no. From their respective sites, these companies play a referrer role as they send traffic back to the original publishers. But when it comes to apps for smartphones or mobiles, these services become value killers: their content is displayed in the apps without advertising. See screenshots from the iPhone Instapaper app below:

As for Read it Later application, it proposes (below) a web view and a reformatted text-view. No need to be a certified ergonomist to guess which one will be used the most:

For good measure, let’s say Apple is not the last entity to add features that kill value by removing ads; below the same NYT web page in normal and “Reader” mode:

For now, publishers don’t seem to care much about this type of value hijacking. The rationale is such apps are still limited to early adopters. In a study released last week, Read it Later said it recorded a total of 47 million “saves” between May and October 2011 (and 36% growth between the first and the last month.) Weirdly enough, most of the “saves” recorded involve tech-related stories from blogs such as LifeHacker, Gizmodo (both are part of Gawker Media) or TechCrunch. Long form journalism appears too small to be accounted for. Equally weird, when Read it Later gives a closer look at data coming from the New York Times, we see this:

Great writers indeed, but hardly long form journalism. We would have expected a predominance of long feature stories, we get columnists and tech writers instead.

Similarly, Longreads.com gets about 100,000 unique visitors a month, founder Mark Armstrong told me. For this last week, publishers altogether got 21,230 referrals form Longreads’ curated picks. Despite this modest volume, Longreads’ 40,000+ community of referrers is growing rapidly at the rate of a thousand every two weeks or so.

Let’s talk business model. The Longreads team includes former McCann Erickson creative director Joyce King Thomas (story in AdAge here). She seems more interested in good journalism rather than in loading the elegant Longreads with a Christmas tree of ads. In short, Longreads’ business future lies more in a membership system than in anything else — maybe some sponsorship, Armstrong acknowledges. The contents Longreads promotes through its links addresses a solvent audience, one that knows great journalism comes with a price and so do good tools to mine it. It shouldn’t be a problem to extract €10 or $20 a year, directly or via an app.

Having said that, I remain a bit skeptical of Longreads’ avoidance (for now) of the classic startup venture capital mechanism. Because barriers to entry into its type of business are low, Longreads ought to quickly build on its momentum and on the undisputed quality of its product. This means promotion and also technology to extend the reach of the service and to secure control of the distribution channel–and to make it more mainstream.

frederic.filloux@mondaynote.com

Apple’s Newsstand: Wait for 2.0

Can Apple crack the digital news market the way it did with music? The comparison might not be relevant. Here is why:
– Today, in the new business, imperfect as it is, the transition from print to digital is much more advanced than the music industry’s similar transformation was when, in 2001, Apple launched the iPod. There are thousands of web sites now. They come in all shapes, from powerful pure players to paid-for legacy media. Many already make serious money, showing evidence of strong strategic thought.
– The two industries are structured in different ways. In the news business, there is plenty of players; the market is more scattered than ever, unlike the music business in which securing one of the few key distributors is the only way to a sizable market share.
– Technically, when compared to the news business, the music market was easy to standardize: very few digital formats as opposed to many and complex web sites and applications.
– The foray in the music business was driven by Steve Jobs himself. From the outset, he was really fond of music. By and large, he was not a news freak (nor did he liked journalists very much). For Apple, digital news was meant to be a second class business.

For all of these reasons, Apple had no hope to succeed organizing the news business the way it did with music. That’s why it came up with an ultra-simplistic approach for its Newsstand: aggregating pre-existing news applications while taking advantage of its control of the server side (iTunes) and on the device side (iOS).

In its first iteration, Apple Newsstand is no more than a super-shortcut for news related applications. Once a publisher offers subscriptions in iTunes and selects to go for the Newsstand, its app automatically migrates to there. First you get a  push message such as this one….

…Then the publication is displayed on the store’s wooden shelf…

… where it shows up with a clever updated icon reproducing the publication’s most recent cover or front page.

But the Newsstand’s real killer feature is background downloading. Once you’re subscribed, your issue is automatically downloaded on your iPhone and iPad. This feature was actually sought for by all developers working on news application: everyone dreamed about the iOS device being able to wake up following a request from the iTunes Store and download the latest issue of a newspaper or magazine. At the time, no one knew Apple intended to keep this functionality for itself. As expected, its works fine and proved to be extremely useful.

How did the service perform since its October 12th launch? Magazines are doing well, but newspapers are still absent from the platform. I was expecting to get all the English-speaking publications I’m subscribing to or reading on a regular basis. But the Newsstand is mostly filled with leisure magazines — for now.
Take UK’s Future Publishing: with no less than 50 titles, it went full steam ahead to the Newsstand. Future said it logged two million downloads in four days — but we don’t know how many actual in-app copies purchases it generates. Still, that’s an impressive result for a company that sells 3.2 million magazines every month.

Again for the magazine industry, other data seem similarly compelling. According to Paid Content:

Exact Editions, [an US aggregator of paid-for PDF versions] which says it made about 10 percent of the Newsstand app titles on iTunes Store, says downloads of freemium sample editions jumped by 14x in just a few days, whilst some titles’ actual sales have more than doubled.

And Poynter.org reports the following (emphasis mine):

The week Newsstand launched, the NYTimes for iPad app saw 189,000 new user downloads, up seven times from only 27,000 the week before.

That’s impressive, but it’s nothing compared to the NYTimes iPhone app, which saw 1.8 million new downloads that week, 85 times more than the 21,000 downloads the week before. Nearly one-fifth of the 9.1 million people who have ever downloaded the NYTimes iPhone app did so last week, with the launch of Newsstand.

The NYT’s performance is truly amazing given its subscription system’s weird price structure. It is also surprising considering its iPad application isn’t the best in its class.

Why do magazines take the lion’s share of the Newsstand? Two main reasons. First, when it comes to subscriptions, magazines are extremely inexpensive; for a full year subscription, single issue prices can fall to a symbolic level of 50 cents or less. Second, magazines are best suited to the PDF format that still plagues most of the e-publishing industry. Therefore, without redesign expense, publishers can shovel magazines by the bulk into any newsstand. It limits the reader’s engagement, but no one really seems to care yet. Copies are counted as sold.

By contrast, subscriptions to dailies remain quite expensive since they are expected to contribute a great deal to the bottom line. As for the format, most newspapers can’t be reduced to a zoomable PDF to be read on a tablet (let alone a smartphone).

In order to really take off, daily publications’ digital editions will have to morph into dedicated applications designed for tablets (or smartphones). That is exactly what The Guardian did with is brand new iPad, iOS5-only applications that is by far the best on the market.

This app scores well on many items: navigation is reduced to the basic 10 sections of the newspapers; story layout and readability are optimal; photographs are spectacular (although Apple doesn’t allow The Guardian app to be linked to its photojournalism’s Eyewitness app); pricing is right (£9.99 – $13.99), plus there is a huge incentive with 82 free issues (!!); the app is not autistic as it is tied to the brand’s website and to the social media sphere; finally, it downloads fast (which is appreciable but less of an issue now with background downloading).

From a reader’s perspective, the Apple Newsstand is a first step. There is no decisive momentum — yet.  The real transformation will occur when newspapers and magazines will move to applications really designed for tablets as opposed to unimaginative adaptations of their print editions. This means: approaching the market with new interfaces (such as the Guardian’s or Bloomberg BusinessWeek — our story here); moving to ARPU measurement instead of old-fashioned auditing; and setting up new productions schemes. That’ll be version 2.0. not just for Apple, but for the entire industry.

frederic.filloux@mondaynote.com

The Capsule’s Price

Do encapsulated digital editions make sense? Is the notion of having a “news container”, similar to a newspaper or magazine, a relic of the past or is it still associated with quality journalism? In an era of instant information, is it worth proposing a self-contained, stop-motion shot of the news cycle?

For some, the reflexive answer involves market research, readers samplings and the like. I don’t think so. I’d rather abide by one of Steve Jobs’ sayings:

“It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.”

He was only referring to electronic devices and the software that powers them, all being complicated indeed. But great news products have yet to be invented, and developing them can be quite involved, too: they combine interface design, contents structures and… technology (the latter’s importance being largely underestimated by legacy medias).

First of all, a matter of definition. By “encapsulated edition” I mean a decisive evolution away from the Zinio-like PDF replica of the paper product. Some publications have added XML layers that considerably improve the reading experience and allow numerous features — creating files, sharing on social medias. But very few are willing to get rid of the PDF’s bulkiness (for more on the subject, read a recent Monday Note Tear down this PDF). For “PDF-shovel” editions, the result is unsatisfactory: broadsheet newspapers that are six times larger than an iPad screen, 80-pages magazines loaded with ads that you must painstakingly leaf through.

Certainly not the right template for the future.

On the other hand, BloombergBusinessweek+ looks like a good start. I’m a long time reader of BusinessWeek magazine (when it belonged to McGraw Hill, before Bloomberg bought for a few million dollars). Then, last March, Bloomberg launched the weekly’s digital edition. I was curious to see how the switch to digital would look like.

Today, after a few dozens issues, let’s see what makes “BBW+” a great digital encapsulated product.

#1:  Investment in Design. BBW+ obviously gives design a great deal of thought, both in terms of graphics and structure.

Today’s web is plagued by cheap design. Many sites, especially in the tech field, use stock photographs or copyright-free Flickr pics ad nauseam, quickly messed with by some enslaved intern. No such thing is allowed in an app. And BBW invested a lot in graphic design for both print and the digital products. The short video introducing every issue usually features the editor, Josh Tyrangiel, and the creative director, Richard Turley, or Robert Vargas, the art director, as they explain their cover story choices for the two versions of the magazine. (See examples in Coverjunkie, a good graphic design blog). No stock photos in BBW+: most pictures are produced on spec, and it screams. As for infographics, they are redesigned for the digital version. More

The (Overly Personal) Litmus Test

Over the past three weeks, I’ve been followed. By advertising. Like many, week after week, I land on dozens of sites. Some visits originate from my set of bookmarks, others from the usual click hopping that defines internet serendipity.
In numerous instances, I get the same ad in different formats. The advertiser is called Litmus. I’m testing it. Since it sounds like a good product, I’m happy to link to it. Litmus is owned by Salted Services Inc., a Cambridge, Massachusetts company founded in 2005. It specializes in mass emailing analytics and optimization. You send it a test email, it previews your layout in numerous mail readers, flags any rendering issue, measures its ability to go through spam filters (a publisher’s nightmare for legit newsletters) and provides incredible analytics. (In the Monday Note’s case, these analytics are extremely encouraging and a good incentive for Jean-Louis Gassée and I to continue ruining our weekends.)

I’ve been testing Litmus for three weeks now, on advice from my friend Kim Gjerstad, a great WordPress and emailing specialist.  Now, Litmus wants me as a regular customer, and they are stalking me all over the web. Fair enough. How do they do it?  They — in fact, the digital marketing firm they hired — installed tracking devices in my computer. Since I subscribed to their service and since I’m professionally transparent on the internet, Litmus has been able to reconstruct my complete profile. Therefore, each time I visit one of its thousands of affiliates, the site will identify me as a potential Litmus customer and serve me the right ad. (As I write this, I discover I’m also targeted by Litmus competitors — some internet marketing arms merchant is making money on all sides).

After a while, I realized how saturated I was with Litmus ads when my synapses (slowly, I admit) finally added-up the number of pages I saw carrying the company’s rainbow logo. At the same time (but unrelated), I noticed how my advertising environment surreptitiously changed, depending upon the “freshness” of the browser I used. On one, I never delete cookies; on another I regularly flush tracking devices. More

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

Losing value in the “Process”

Digital media zealots are confused: they mistake news activity for the health of the news business. Unfortunately, the two are not correlated. What they promote as a new kind of journalism carries almost no economic value. As great as they are from a user standpoint, live blogging / tweeting, crowdsourcing and hosting “experts” blogs bring very little money – if any, to the news organization that operates them. Advertising-wise and on a per page basis, these services yield only a fraction of what a premium content fetches. On some markets, a blog page will carry a CPM (Cost per Thousand page views) of one, while premium content will get 10 or 15 (euros or dollars). In net terms, the value can even be negative, as many such contents consume manpower in order to manage, moderate, curate or edit them.

More realistically, these contents also carry some indirect but worthy value: in a powerful way, they connect the brand to the user. Therefore, I still believe news organization should do more, no less of such coverage. But we should not blind ourselves: the economic value isn’t there. It lies in the genuine and unique added value of original journalism deployed by organizations of varying size and scope, ranging from traditional media painfully switching to the new world, to pure online players — all abiding by proven standards.

What’s behind the word standard is another area of disagreement with Jeff Jarvis, as he opposes the notion of standards to what he calls “process”, or “journalism in beta” (see his interesting post Product v. process journalism; The myth of perfection v. beta culture).  Personally, I’d rather stick to the quest for perfection rather than embrace the celebration of the “process”. The former is inherently more difficult to reach, more prone to the occasional ridicule (cf. the often quoted list of mishaps by large newspapers). As for the latter, it amounts to shielding behind the comfortable “We say this, but we are not sure; don’t worry, we’ll correct it over time”.

To some extent, such position condones mediocrity. It’s one thing to acknowledge live reporting or covering developing stories bear the risk of factual errors. But it is another to defend inaccuracies as a journalistic genre, as a French site did (until recently): it labeled its content with tags like “Verified”, “Readers’ info”, etc.

Approximation must remain accidental, it should not be advocated as a normal journalistic way.

In the digital world, the rise of the guesstimate is also a byproduct of the structure in which a professional reporter finds himself competing with the compulsive blogger or twitterer. Sometimes, the former will feel direct pressure from the latter (“Hey, Twitter is boiling with XY, could you quickly do something about it? — Not yet, I’m unable to verify… — Look pal, we need to do something, right?). Admittedly, such competition can be a good thing: we’ll never say enough how much the irruption of the reader benefited and stimulated the journalistic crowd.

Unfortunately, the craze of instant “churnalism” tends to accommodate all the trade’s deviances. Today, J-Schools consider following market demands and teaching the use of Twitter or live-blogging at the expense of learning more complex types of journalism. Twenty years ago, we were still hoping the trade of narrative writing could be taught in newsrooms populated with great editors, but this is no longer the case. Now, most of the 30-40 something who plunged into the live digital frenzy have already become unable to produce long form journalism. And the obsessive productivism of digital serfdom won’t make things better (as an illustration, see this tale of a burned-out AOL writer in Faster Times).

The business model will play an important role in solving this problem. Online organizations will soon realize there is little money to be made in “process-journalism”. But, as they find it is a formidable vector to drive traffic and to promote in-depth reporting, they will see it deserves careful strategizing.

Take Twitter. Its extraordinary growth makes it one of the most potent news referral engines. Two weeks ago, at the D9 conference, Twitter CEO Dick Costolo  (video here) released a stunning statistic: it took three years to send the first billion tweets; today, one billion tweets are send every six days.

No wonder many high profile journalists or writers enjoy tweeter audiences higher than many news organizations, or became a brand on their own, largely thanks to Twitter. The twice Pulitzer prize winner and NY Times columnist Nicholas Kristof has 1.1m followers, that is one third of the New York Times’ official Twitter accounts followers.  And Nobel Prize economist Paul Kurgman, who also writes for the New York Times, has more than 610,000 followers. Not bad for specialized writing.

In some cases, the journalist will have a larger Twitter audience that the section where he/she writes: again for the NY Times, the business reporter Andrew Ross Sorkin has 20 times more followers (370,000) than Dealbook, the sub-site he edits. According to its CEO Arthur Sulzberger, a NY Times story is tweeted every four seconds, and all Times Twitter accounts have four times more followers that any other paper in America. Similarly, the tech writer Kara Swisher has 50 times more Twitter followers (757,000) that her employer, the WSJ tech site AllThingsD .

There are several ways to read this. One can marvel at the power of a personal branding that thrives to the mother ship’s benefit. Then, on the bean counter floor, someone else will object this stream of  tweets is an unmonetized waste of time. Others, at the traffic analytic desk, will retort Twitter’s incoming traffic represents a sizable part of the audience, and can therefore be measured in hard currency. Well… your pick.

frederic.filloux@mondaynote.com


Analyzing the metered model

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

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

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

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

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

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

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

—frederic.filloux@mondaynote.com