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Getting More Bang For Our Bucks

(Includes correction with the right 3rd graph)

Two important questions in our times of large public debt and lagging economies: Is it effective to inject public money in support of the ailing media industry? And, in order to ensure the best readers’ bang for the taxpayer’s buck, are some models better than others?

Last week, I chatted with Rasmus Kleis Nielsen, a Research Fellow at the Reuters Institute for the Study of Journalism at the University of Oxford, and a communication professor in Denmark. With Geert Linnebank, a former editor-in-chief at Reuters, Rasmus wrote a compelling report on the subject: Public Support for the Media, A Six-Country Overview of Direct and Indirect Subsidies (PDF here). Together, they review public support systems for Finland, France, Germany, Italy, United Kingdom and the United States. A large part of the report looks at the funding of public radio and television channels, which varies widely from one country to another. In this column, I’ll limit myself to public sector funding for the print media.

When it comes to supporting its print press, Finland is a big spender. It invests 22 times more public funds per capita than the United States, nine times more than Germany, five times more than the United Kingdom, four times more than Italy, and three times more than France, see below:

Supporting the press sector is a big deal in Finland, then. In theory. Because, in Finland, like in all Scandinavian countries, newspapers enjoy a huge reach: 79% of the population. This might tempt you into thinking there is a direct relationship between subsidies and penetration. Actually, there is none: According to the report, Germany, which spends 11% of what Finland does, has a newspaper reach of 72%.

Using readership stats provided by the World Association of Newspapers, the picture looks like this:

Combining the two sets of numbers leads to a compelling result: While spending much more than any other country, the Finns get a much better performance. According to the Reuters Institute report, they perform 13 times better than Italy and France, the clear losers of the subsidies systems, as shown here:

We can draw three conclusions from these data sets.

1 / There are no Keynesian mechanisms in evidence when it comes to correlating public spending with print media penetration. The US spends only 16% more per capita than Italy, but have 94% more readers per thousand people. As for Germans, they spend 40% of what the Italians do, but have almost three times more readers. Practically, it means there is no hope to reverse the declining trend by beefing up subsidies.

2 / The Finnish performances is more a matter of editorial product than of public policy. I happen to know quite a bit about the kind of journalism practiced in Nordic countries. It is a fiercely independent, aggressive (in the best sense) kind or reporting. A couple of years ago, I was a jury member for the Schibsted Journalism Award (see my June 2009 column about it). I saw editors making choices, strategizing their coverage, assigning substantial resources to it, and striving to beat their competition. In addition, they provide very efficient public service journalism, lifting the veil on administrative shortfalls and occasional abuses by officials.

From a pure industrial perspective, Scandinavian media companies have once and for all decided competition had to stop right after the newsroom doorstep. For a long time, printing and distribution have been mutualized. Newspapers and magazines have not been spared by erosion, but they are in a much better shape than in most countries.

3 / Contrary to the cliché, internet growth doesn’t cause a decrease in print press penetration. Finland (again) and the UK have both strong readerships and a high number of online users (respectively 57% and 37%).

The Rasmus Nielsen report explains in great detail the complexity and diversity of public funding for media. In passing, it kills long lasting prejudices such as European media being massively state-funded, or an American public sector unsupportive of the media industry.

And there is no one-size-fits-all model.

Still, some ideas emerge — as long as you think media ought to be somewhat subsidized. Which I do, for several reasons:

  • Quality information plays a critical role in democracy.
  • Good reporting remains quite expensive to produce. Remaining able to preserve non-commercial formats (such as NPR or the BBC) leaves no choice but public support.
  • The industry — especially the print press — is in the midst of a radical and costly transformation, and many organizations don’t have enough capital to undertake it.
  • We are facing an historical wave of mediocrity in the information business with wealthy aggregators eager to repackage anything that fits their obsession with eyeballs. (I’m appalled to hear Le Monde is about to strike a deal with the Huffington Post.)

Having said that, for public support to work, critical conditions must be met:
1 / Tight management. Sounds obvious, but too often public money means outrageous waste (as often seen in public broadcasting).
2 / No open-bar. Meaning: no open-ended funding. If money is supposed to help a precise restructuring, it must be tied to measurable results.
3 / Sanitization. Subsidies should rather be indirect than direct. For instance, a tax break as opposed to a grant for a specific company falling below a certain level of advertising (as is the case in France).
4 / No life-support funding. Only support for transformation.

frederic.filloux@mondaynote.com

Gunning for the Copyright Reformers

Going after copyright reformers is risky business. To digital zealots, defending copyright is like advocating the return to the typewriter. (I personally like typewriters; I own several and I recommend a wonderful 1997 Atlantic piece on them at Longform.org). Going after sworn copyright opponents is what Robert Levine does in his just-published  book Free Ride — How the Internet is Destroying the Culture Business and How the Culture Business can Fight Back.

The pitch: Digital corporations are conspiring to promote the free ideology that has been plaguing the internet over the last decade. With their immense financial firepower, the Googles and the Apples and the Silicon Valley venture capital firms that funded Napster did whatever it took to undermine the concept of copyright. From lobbying the United States Congress to funding free-culture advocates, they created a groundswell for rip-and-burn products that would sell their MP3 devices. They got lawmakers and pundits to pave the way for a general ransacking of intellectual property — from music to journalistic content. Once Levine makes his point, he explores possible solutions to restore value to creativity (We’ll address these in a future column).

Needless to say, Robert Levine has produced a non-politically correct opus. And that’s what makes his book fascinating.

To start, the author reframes the famous quote, “Information wants to be free.” Free Ride recalls the complete sentence as far more nuanced. This is actually what tech writer Stewart Brand said at an 1984 a hacker conference:

“One one hand information wants to be expensive because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”

Few quotes in recent history have been more twisted and misinterpreted than this one. Everyone jumped on Stewart Brand’s distinction between collecting information and making it available to the audience. While the cost of the former remains high — at least for those producing original information, or content — the marginal cost of broadcasting it fell dramatically, and that is what sparked the idea of a zero-cost culture. Yet, “media products have never been priced according to their marginal cost,” Levine says, and therefore, free is an idea that’s hard to defend.

As described in Free Ride, US lawmakers played a critical role in opening the floodgates of piracy and copyright violation on the internet. On October 28, 1998, Bill Clinton signed the Digital Millennium Copyright Act. That law, says Levine, gave a “safe harbor” to internet service providers and some online companies. No longer liable for copyright infringement based on the actions of users,  Levine writes that the “safe harbor made it easier for sites like YouTube to become valuable forums for amateur creativity. But it also let them build big businesses out of professional content they didn’t pay for.” That, he says, is how Congress created YouTube. (Google purchased it in 2006 for $1.65 billon).

The book’s most spectacular deconstruction involves Lawrence Lessig. The Harvard law professor is one of the most outspoken opponents of tough copyright. For years, he’s been criss-crossing the world delivering well-crafted, compelling presentations about the need to overhaul copyright. When, in 2007, Viacom sued YouTube for copyright infringement, seeking more than a billion dollars in damages, Lessig accused Viacom of trying to overturn the Digital Millennium Copyright Act. It was a de facto defense of Google by Lessig who at the time was head of the Center for Internet and Society at Stanford University. What Lessig failed to disclose is that two weeks after closing the deal to acquire YouTube, Google made a $2-million donation to the Stanford Center, and a year later gave another $1.5 million to Creative Commons, Lessig’s most famous intellectual baby. To be fair, Levine told me he didn’t believe Lessig’s positions on copyright were influenced by the grants from Google. Moreover, Google set aside $100 million to fight the Viacom lawsuit. Numerous examples throughout Free Ride show how technology companies are committed to influence public policy. Ironically, Lawrence Lessig’s newest crusade at Harvard is about corruption in Washington.

Robert Levine’s book could be disputed on a few items.

- One, he’s too kind to the music industry. (His view may have been influenced by his tenure as executive editor of Billboard magazine where he witnessed first-hand the self-inflicted deterioration of the music industry.) The music business missed all the trains: (a) it defended the physical model up to the last minute even as its annihilation seemed unavoidable; (b) it extended as long as it could the double screwing of consumers and artists alike (sadly, poor analog artists have been replaced by poor digital ones).

- Two, he tends to forget the general complacency of content creators toward all forms of digital looting. I’ve often described in the Monday Note how publishers – blinded by the short-term appeal of the eyeball count – became consenting victims of all sorts of aggregators (see my Lenin’s Rope series).

- Three, the advent of free content has in fact unleashed talent. Unknown authors have been able to rise from obscurity thanks to direct access to the audience. And some have found alternative ways to make money (more on this in another future column).

Lastly, the unfolding of technology made the relaxing of copyright unavoidable. The Digital Millennium Copyright Act may have accelerated the transition but it didn’t cause the upheaval. Today, BitTorrent file transfer for music and movies accounts for about 10-12% of the internet bandwidth consumption, and YouTube accounts for 11%. Pirated content represents almost 100% of the former and about a third of the latter. Huge numbers, indeed, and huge losses for the music and movie industries. But Netflix with its legitimate content now accounts for 30% of the entire internet traffic (Hulu has less than 2%) and iTunes is growing faster than ever. And some economists do consider that giving up a large quantity of content for free is the price that must be paid to preserve a marketable share.

The music industry paid a terrible price during the digital transition, with a drop of 50% of its sales in one decade. But it would be unfair to make lenient lawmakers and internet pirates the main culprits. Unbundling played a critical role as well, just as in the newspaper industry. Being able to buy a single song on iTunes (instead of an album), or hoping that a single article on a web page will generate enough viewers to pay for itself (instead or purchasing an entire bundled newspaper) caused a great deal of damage.

As plagued as it is by piracy, the movie industry is immune to the notion of unbundling, which partly explains why box office revenue between 2006 and 2010 rose by 30% outside the United States and by 15% in the US/Canada market. Although the number of moviegoers is slipping, the industry has been able to find its way into the digital world.

Robert Levine’s book is a must-read that reframes the debate on the evolution of copyright. In an unusual way, it encompasses a European view on the issue (Levine lives part-time in Berlin). That makes the book even more interesting as countries explore ways for content creators to finance their work while not killing the formidable creative freedom unleashed by the digital world.

frederic.filloux@mondaynote.com

Free Ride, By Robert Levine is published by Bodley Head in the UK (available now on Amazon UK)and by Doubleday in the US (available oct 25 on Amazon US) and is also available the iTunes iBook Store.

10 Years of Apple Stores: the non-celebration

Apple and understatement aren’t close relatives. Not that they don’t have a right to strut a bit: after all, under its returning co-founder, Apple 2.0 performed the most stunning corporate turn around ever — and shows no sign of slowing down. As a result, product launches, developer conferences and quarterly earnings announcements all turn into opportunities for the company to blow its own horn.
So, when the 10th anniversary of the first Apple Store came by, I expected a big celebration: fireworks, decorated stores, laser engravings on Anniversary Edition iPods, a coffee table book with a Steve Jobs foreword, a speech, a video… Yet, on May 19th, nothing happened. At least publicly.
All we got was a leaked internal poster celebrating 10 years of achievements and learnings:

An eyeful or an eye-chart. You can get a more legible PDF version from ifoAppleStore.com. Or, courtesy of Tech Evangelist Joey deVilla, a version obligingly rendered in text with paragraphs. Longish as it might be, the document is worth reading: it rings true and proud; it is manifesto of Apple’s retail philosophy — and of its impact on the entire company.

I decided there had to be a reason for the official quiet. I wanted to make the anniversary a Monday Note topic, but hearing the silence and unable to ascribe a meaning to it, I decided to bin the topic for a while.

The wait didn’t last long: Ron Johnson, Apple’s Sr. VP or Retail Operation announced his departure right after the June 6-10 WWDC. Divorce papers the morning after the anniversary… The muting of the celebration made (some) sense.

But why did Ron Johnson leave?

Under his tenure, Apple Stores have become the envy of the retail industry, breaking one record after another: revenue per square feet, year-to-year growth, store size, foot traffic and architectural design. (See here for a neat set of Apple Store statistics.)
With such a record, one can easily see Apple’s “retail guru” standing up, declaring “My Job Is Done” and leaving on a high note.
Then, sparing us the rote “spending more time with my family” explanation, Ron states he always wanted to be the CEO of a major retail chain. JC Penney just happened to need a new CEO, this was an opportunity to fulfill a long-time ambition, to become his own boss.

All very logical, but, for a number of reasons, the polished tale doesn’t quite ring true.

First, with 326 Apple Stores, the job isn’t quite done. Exceedingly well done so far, but not complete. For example, after the US, China is now Apple’s second market, it is where Apple experiences its largest year-to-year growth. According to ifoAppleStore.com, the site that does an excellent job of documenting the life of Apple Stores, Apple will open 25 more stores in China by the end of 2012. My own observations of Apple’s third market, Western Europe, lead me to believe Apple is very far from reaching saturation there. For example, with a population of about 36 million, California has 49 Apple Stores. France, with a population of 62 million, only has 7. Per capita GDP differences ($47K vs. $34K yearly) don’t account for the disparity. We can safely assume this applies to Western Europe as a whole, showing how much headroom Apple Stores still have there.
No one knows what the saturation is, fortunes have been lost by those who believe trees grow to the sky, but there is no reason to consider Apple Stores are “done”. One could just as easily call today’s Apple Stores network ‘’a good start’’.

Second, Apple Stores are always evolving. This gets us much closer to the real explanation than my previous point. The never ending stream of changes, the attention ranging from architectural design to minute furniture details all bear another man’s imprint: Steve Jobs’. We’ll recall he picked Bohlin Cywinski Jackson as the architects for Pixar’s elegant headquarters — and kept using the firm for most Apple Stores building or renovation projects. In the process, several Apple Stores became architectural icons. Then, when it came to interior design, Jony Ive, Apple’s Senior VP of Industrial Design took a lead role.
For the ever changing details, watch Steve Jobs proudly take us through the first Apple Store in this 2001 video. And compare with today’s setup.
For amateurs of minutiae, ignore the main checkout podium where MacBooks run transactions and, instead, take a look at a standard product display table. Your friendly Apple Store employee just performed a painless cashectomy using the newer iPod Touch-based portable Point Of Sale terminal. Now, where is the printer for your receipt? Affixed under the table’s main board, upside down, invisible. No unseemly display of non-Apple appliances. For the occasional cash transaction, foreign visitors mostly, a few tables also carry a barely visible cash drawer cut in the side.

Recently, stores reduced space dedicated to accessories, peripherals and, with the Mac App Store in mind, boxed software. This resulted in more room for something called Personal Setup, where an Apple employee helps a customer get started with his/her new purchase.

You get the idea: “Apple”, meaning Steve Jobs, is never satisfied, always looking for ways to improve its stores or, for that matter, anything else Apple.

In the end, in spite of his signal contribution to Apple’s success, Johnson must have felt disenfranchised. Coming in, he brought with him expertise and contacts “Apple” didn’t possess. Over time, Jobs’ keen interest in the matter turned into heavy involvement in every facet of the operation. Apple Stores became Steve’s brainchild, not Ron’s. Hence his decision to look for an opportunity to be really in charge, as opposed to working for a gifted, focused and strong-willed visionary.

Now, why did Ron Johnson pick JC Penney?

He doesn’t need the money, we’re told he made about $400M working at Apple. And JC Penney, to say it politely, isn’t the most attractive of US retailers. Once an American icon, JC Penney is now a tired chain. All the better, some say: Ron Johnson will bring some of the Apple magic and revive the company. This is drawing a very superficial comparison:  the two kinds of retail establishments couldn’t be further apart. Apple runs with a very small number of SKUs (Stock Keeping Units), a very short product line. Conventional retailers tens of thousands of different products. Apple is willing to spend tens of millions on a single store, JC Penney never did and very likely never will. Apple products are often elegant, if not iconic, not something that can be said of JC Penney’s merchandise.
Further, it looks like Ron’s CEO title isn’t exactly endowed with full meaning: Reuters and the WSJ let us know his role will be “limited”, at least initially, “focussed on marketing and merchandise selection, while Ullman [the real CEO and Chairman] will oversee the more common executive responsibilities of accounting, finance, corporate strategy and logistics…”
The Ullman in question is Myron (Mike) Ullman, age 64, a veteran retail executive with experience at LVMH’s DFS (Duty Free Stores) business unit and RH Macy, among others. He also sits on the Board of Directors of companies such as Starbuck’s and Global Crossings, and of several Bay Area charitable organizations.
Another unexplained datum is Ron’s start date: November 1st. The most likely but hard to confirm explanation must lie in a paragraph of his Apple exit agreement.
When that date comes, we’ll see if Mike Ullman really handles the reins to Ron or if the Apple alumnus finds himself working for yet another strong-willed boss.

Back to the Apple stores and to Ron Johnson’s legacy: quoting David Berman and his quarterly DeeBee Index, USA Today reports Apple contributed to 20% of “all sales growth by publicly traded retailers in the U.S”, this for the first three months of 2011. One has to qualify the number a bit: it relates to publicly traded retailers only, not to the entire US retail sector. Still, keeping in mind the likes of Walmart are all publicly traded, Apple’s share is surprisingly high.

We’ll now more in a few days, when Apple releases its numbers for Q2, the April to June 2001 quarter.

JLG@mondaynote.com

Google’s SOE (Strategy of Everything)

As a Venture Capitalist, I occasionally hear entrepreneurs lay out a Strategy of Everything, a plan to be all things to all people. (SOE rhymes with TOE, the Theory of Everything, the Holy Grail of mathematical physics, only less attainable than the sacred object…)

In practice, “all things to all people” invariably becomes too many different services in too many market segments. “We don’t know what will work or for whom, so we’ll spray and pray. We’ll shoot arrows in the dark and when the sun rises, we’ll paint a target around the one that lands in a good spot. We’ll declare victory and raise a second round while claiming that this had been our strategy all along.”

VCs hate SOE. It’s a grand way to waste large amounts of capital. We’re measured on capital efficiency and, as result, tend to tell entrepreneurs with SOE dreams to go pitch our competitors.

From this perspective, Google’s strategy doesn’t make sense: They, indeed, are trying to be all things to all people. They even brag about it on one of their sites where they arrange their products as a Periodic Table of Elements. The real thing (see ptable.com for example) looks like this:

Google’s product line adopts a similar look:

Granted, Google’s table contains neat interactive features: If you hover over a category at the top – Mobile, Search, Data APIs — the related products light up. Well done. More proof of the breadth and depth of Google’s ambitions and skills.

So: Is this the type of SOE I just made fun of?

Yes and no. Yes, Google wants to be all things to all people, and, no, this is nothing to laugh at. Google continues to construct the largest computing infrastructure on the planet but still manages to generate large amounts of liquidities. At the end of March 2011, it had more than $36B in cash. Google is extremely capital efficient.

Let’s look at it from another angle.

Google’s one and only goal is to sell advertising. The path to this goal requires ‘‘radiation pressure’’: Google wants to make sure we don’t escape their ads. They want to insert themselves into all aspects of our lives, to find out much as they can about as many aspects, activities, and relationships as possible. In Eric Schmidt’s memorable Freudian slip at the D9 conference a few weeks ago: We know where you live… (The video is a bit long, not boring… and prescient.)

It’s that simple and complex — and breathtakingly audacious. And not without a downside.

The first general problem is quality. When you’re constantly pushing out new applications and services that compete on so many fronts, quality suffers. Bugs are inevitable, support is erratic, apps suffer from a “UI by — and for – Engineers” syndrome.

I have had several misadventures using Google Apps for Business, the paid-for variety. After waiting for days for the billing system to become “unstuck,” I finally contacted Customer Support — a needlessly complicated process. The suggested work-around was bizarre: Open an anonymous browsing window in Chrome. Things didn’t get much better. The billing system, which is clunky and displays inscrutable error messages, wouldn’t let me use Google’s own Checkout payment system — the same system I used when I purchased a domain name weeks ago. Ah well…

Regarding the UI, log onto Gmail and go the Settings page. What you see below is just the first of 13 settings tabs:

How does a normal human manage such complexity? Google’s engineering culture has made it the large-scale computing king, but these computer scientists don’t seem to have a feel for what lesser mortals experience.

Another problem is The Crack in the Wall. Google saw that smartphones were destined to be bigger than PCs. Android is a Google-scale success that shows what the company is capable of. But Google’s failure in social networking as Facebook and Twitter succeeded shows that you can’t man all the crenels in the fortress wall. Whatever the reason — management bandwidth, cultural deafness, lack of attention, arrogance as the toxic waste of success — Google either didn’t see Facebook or failed to develop the right service at the right time. And now Facebook has more than 750 million users worldwide. It’s become a kind of black hole sucking in Web traffic:

Facebook doesn’t have the kind of explosive revenue growth Google experienced at a comparable age, but they’re building an amazing ‘‘Overnet’’, a superstructure one level above the Internet.

Finally, Google is perceived as a threat. Following the lead of the European Union, the US FTC wants to take a close look at possible anti-competitive practices. On its official blog, Google responds with “Supporting choice, ensuring economic opportunity”. It reminds us of Steve Ballmer claiming that Microsoft is all about choice

Antitrust legislation is above my pay grade, but perceptions such as the one eloquently put forth by Bill Gurley have become pervasive. In The Freight Train That Is Android, Gurley argues that Google’s strategy is to flatten (kill or disintermediate) anything/anyone that stands between its advertising business and us, the eyeballs.

Does the FTC investigation confirm Google as Microsoft 2.0? Different times, different technology, but the same irrepressible need to dominate. Microsoft “ran” the PC industry, Google rules Internet advertising. Such dominion isn’t illegal per se, but many people and governments are unhappy about present and future consequences.

The Microsoft 2.0 moniker is a bit misleading. Microsoft built a franchise that’s easy to understand and manage: Windows + Office. With the possible exception of games, they haven’t fared well in other pursuits. The core business is likely to continue producing nice profits for a long time. PCs aren’t going to disappear overnight, and even if Web apps keep getting better, they aren’t yet as functional and pleasant as desktop apps.
Google, on the other hand, is much more complicated. They don’t make money from a simple Windows + Office combo. Indeed, they have to give away their products – smartphone OS, email, (excellent) maps, photo-editing, and many more — in order to sell ads.

This leaves Google with an interesting combination of threats. Actually, a chain of threats.

First, the need to be “all services to all people” exposes the company to sloppiness and to silos, to UI by and for engineers, to “featuritis”, to products that don’t interconnect.

Second, as if the threat of mediocrity wasn’t enough, the 360 degrees of products have only one role: sell the real thing, advertising. As a result, Google has to use its products/services to kill or disintermediate everything in the path of its advertising.

Third, for all Google’s “Don’t Be Evil” motto, the company has now reached a point where the more it excels, and it often does, the more it is perceived as a threat by individuals and governments around the world.

This is what a “successful” SOE yields.

JLG@mondaynote.com

Trifling Twitter

When a member of the old guard barges into their cozy backyard, the Digerati jump up and strike indignant poses. And when the intruder’s point is missed, its author gets crucified. This is what happened to Bill Keller, the New York Times’ executive editor, when he dared to write a column critical of Twitter. In short, Keller’s well-documented piece, titled “The Twitter Trap“, contends the medium’s shallowness encourages superficial exchanges to the detriment of in-depth discussions. When, as a minor provocation, he twitted “#TwitterMakesYouStupid. Discuss“, someone keyboarded back “Depends who you follow” — and should have added: “… Depends also on how you follow people”.

I will stop short of joining the crowd of zealous Bill Keller critics. But I’m not fond of the piece, either: on several counts, I consider it misguided.

1 / Twitter is in fact small, and therefore cognitively inoffensive. Officially, the micro-blogging network (we ought to call it a media) born five years ago has 200 million users. This supposedly huge user base allowed it to raise about $360m in capital, including a last round of $200m led by Kleiner Perkins, the Valley venture capital grandee, on a $3.7bn valuation. Stunning indeed.
Now, let’s get back to Earth. Over the last 18 months, traffic has stayed flat. Time spent is eroding: 14 mn 6 sec per user in March 2010 vs. 12 mn 37 sec in March 2011. Contrast this to more than 6 hours spent on Facebook. (According to a recent cover story in Fortune, Mark Zuckerberg is said to pay less and less attention to Twitter’s evolution). Despite occasional news cycle-triggered traffic outbursts (the Spring unrest in Arab countries is a good example), such spikes don’t really translate into audience gains. As for the number of accounts, half are idle. And, as usual on the internet, the usage is extremely concentrated: 10% of all users account for 90% of the twits.
In the latter figure lays Twitter’s peculiar character: as they get better at using the medium, its most powerful users’ voices becomes louder than ever.

2 / Twitter is controlled by the user. The most notable fact in Twitter’s evolution is the increasing sophistication of its users. The top ten percent have become good at finding the best “relevancy niche”, i.e. a sector in which they’ll be able to rise above the crowd. Many do so by mastering all the available tools: they look a their retweets data, monitor who retweets them, and watch their ranking.
Symmetrically, the passive audience (reading more than actually twitting), has become adept at continuously refining their feed selection. Prattlers prone to comment on the Saturday night sports games tend to be abandoned to the benefit of those who stick to their expertise. Trimming subscriptions has become mandatory on Twitter (as it is on Facebook).

3 / Twitter’s pervasiveness has nothing in common with what we observe on Facebook or Google. As a business, Twitter’s trajectory looks more like Yahoo’s (unfortunately in a more precocious way) than a Google’s or Facebook’s. Zuckerberg’s social network enjoys unabated growth and much better monetization: it extracts about $3 in revenue per user (and makes a profit at it) versus $0.25 for Twitter.
This gap allows Facebook to continuously roll out new features. As a result, its already faithful users end up even more solidly anchored, increasing their time spent on the service. Twitter, on the other hand, has yet to show a sustainable business model, and its small core of heavy users remains difficult to monetize. This results in a hard to break vicious circle: no cash-flow => no investment capacity => costly investments due to a theoretically large user base. Twitter’s inability to introduce new sticky features is likely to further concentrate the twitterer base, while the broader circle of less involved users will tend to look elsewhere for excitement.
It will be difficult for Twitter’s management and investors to find their way out of this decaying orbit.

Already, Twitters’s limitations are visible in the way users consume online news. According the a study conducted by the Pew Research Center for Excellence in Journalism and based on Nielsen data (PDF here), Twitter is an insignificant referral (1%) for news when compared to Facebook (5%) or Google (30%).  However, the use of Twitter deserves to be encouraged in the newsroom (and taught in journalism schools), since:
a) it is an effective promotional tool for value-added stories;
b) it allows reporters to actually pinpoint their most loyal audience – and establish a relationship with it;
c) it doesn’t kill value like RSS feeds do (see a previous Monday Note on that matter).

Twitter will increasingly be a one-to-a-few medium, with a small base of hard-core users, increasingly selective about the contents they broadcast and who they follow. In passing, this trend will further reinforce the ongoing news sites traffic concentration where about 5% of the users account for 75% of the page views. (As an example, the Pew Research study indicates that 85% of USA Today.com users visit the site less than 3 times a month. And for the top 25 American news sites, “power users”, i.e. visiting a site more than 10 times a month, account for only…. 7% of the total).

Bill Keller’s handwringing about Twitter largely miss the point. Twitter remains largely controlled by its users, on both emitting and receiving sides. That is not the case for the search business that relies on sophisticated and secret algorithms to serve contents supposedly tailored for us – without our knowledge of this invisible editing (see this enlightening TED video by Eli Pariser on what he calls the “Filter Bubble”). What Bill Keller ought to worry about is the algorithm-powered news stream, designed to maximize its audience — and the advertising revenue. Therein lies the real danger for the brains of our children and their ability to learn how to judge by themselves. In comparison to the AOL Way (I’m referring to the stats-based news master plan exposed by Business Insider), the use of Twitter is a trifling matter.

frederic.filloux@mondaynote.com

Media & tech: Reconcilable Differences

Media and tech worlds must work together. There is not a shred of a doubt about it. The former have lost the dual battle for growth and economic performance; the latter are attracting eyeballs and endless funding. Still. When combined, their relevance to society can be greater than the sum of their respective parts.

Last week in New York, I was asked to share my views on the matter. This was before an audience of 350 media executives gathered for the Inma World Congress. Most were looking for ways to effectively partner with digital companies. As I worked on my speech, I asked my tech world contacts how they see us, the media crowd. Here are some quotes, from people who requested not to be identified.

“You guys, are geared to compete rather than collaborate. You’re not getting that collaboration is the new name for the game”. “Even among yourselves, you are unable to cooperate on key industrial issues, shooting yourselves in the foot as a result”. “Your internal organizations are still plagued by a culture of silos. The winners will be the ones  who break silos”.

Tech executives also underline they see media companies as co-managed with unions – the consequence being a wage system that discourages rewarding valuable individuals. Media companies are also viewed as having a tech-averse culture. “Media don’t understand that their business has become engineering-intensive. Their investment in technology is grossly insufficient”.

Symmetrically, I collected adjectives summing up media people’s perception of the tech world. “Arrogant, condescending”: true, old media people always have the feeling of being looked down upon by the guys in chinos. “Nerdy, left-brained”: well, it goes along with the flip-flops and the hoodie… “Wealthy”, (I’ll come to that later). “Alien to the notion of value for content”: also true; and that might be the most difficult obstacle to a reconciliation.

More than anything else, techies view the contents news outlets painstakingly put together as an annoyance. They don’t have a clue, nor are they interested in getting one, to the complex, costly and often dangerous process of collecting original information. “Euro-ignorant”: let’s just recall what the geographic distribution looks like in large tech corporations. The often-used EMEA  acronym encompasses Europe, Middle East, and Africa, i.e. from Germany to Burundi. Practically, when landing in Silicon Valley from Paris, you’re often made to feel you’re dropping in from the Third World.

“Contract Nuts”: when a 30 pages contract lands in your inbox from California, written in knotty legal English (even for a France-based deal), stipulating the relevant jurisdiction will be the Santa Clara County Superior Court, you can’t help but feeling a bit bewildered and put off. In dealing with tech companies, the amount of money spent in legal fees suddenly appears out of proportions. We have no choice but getting used to it.

The only identical critic, evenly spread on both sides, concerns bureaucracy: medias point at intricate technostructures staffed with legions of people working on the same subject; tech people mock news media needing six weeks to sign the innocuous non-disclosure agreement covering a routine project.

Let’s stop for a moment on the financial issue. Three key factors differentiate the tech from the media world.

1 / Size. The combined revenue of the US newspaper + magazine industry, all sources combined is about $60bn. This is sector is facing the following: Apple (most likely $100bn in revenue this year); Google ($29bn last year); Microsoft ($62bn) or Yahoo ($6bn). As for stock valuations over the last 10 years, consider the graphic below. It shows the performances of three mostly newspapers groups with market values above $1bn: Gannett Co. (market cap: $3.5bn), The Washington Post Co. ($3.33bn), The New York Times Co. ($1.13bn). Over the last 10 years, their stock prices went like this :

Now, on the same 10-year scale, let’s superimpose, Apple, Google, Microsoft; the scale flattens quite a bit:

You get the point. The media industry faces dramatic value depletion.

2 / Access to cash. Technology companies have access to a huge pool of money. After years of disappointing results, the Venture Capital industry is red hot again. In a previous Monday Note, I mentioned Flipboard – great app for the iPad, 32 people, no revenue –  with a current valuation of $200m, roughly the equivalent of the McClatchy Company with its 20 newspapers, 7700 employees, 24% EBITDA for a revenue of  $1.4bn.

3 / How to spend it. In itself, the cash allocation illustrates the cultural gap. In a tech company, once a project is approved, money will be injected until the outcome becomes clear: success or failure. As I asked an exec in a large tech group what the budget of the project we were discussing was, he answered: “Look, honestly I’ve never seen any spreadsheets on this. This project has been decided at the highest level of the corporation. We’ll pour money into it until it works or closes”.

By contrast, in a media company, investment will be kept at a bare minimum. Any engagement is set as low as possible: temporary staffing,  outsourced work, everything is in penny-pinching mode. Not exactly the “No Guts, No Glory” way…

Nevertheless, the more I’m involved in digital media projects, the more I’m convinced that both worlds need a rapprochement. Medias have a lot to learn from tech companies. The way they conduct projects, their relentless drive for innovation, their bold imagination, coupled with a systematic and agile “Test & Learn” approach…  For the news industry, drawing inspiration from such a culture is a matter or survival.

As for the tech ventures, they must admit they need the media industry more than they like to think. Flipboard, Google Reader, Bing: all aggregators would lose a great deal of their appeal if they no longer had original contents to aggregate or organize.

Over the past fifteen years, we kept hearing stories telling us Google or Yahoo could swallow any old media in a single gulp. It didn’t happen. Nor did these deep-pocketed corporations find within themselves the vision and skills to create a decent news gathering operation from scratch. The reason is simple and complicated: it’s a métier of its own; thousands of people have been practicing and evolving it for decades.

People like me, working on both sides of the fence, strongly believe in the virtues of cross-pollination. On the media side, it might have to start by finding out what we expect from the tech world, whether they are aggregators, distributors, or search engines. Then, we’ll need to change the way we innovate. In a nutshell, screw the bean-counters that will strangle decisive investments while being unable to stop the hemorrhage in their “legacy” businesses; assign small teams on a small numbers of really (as opposed to cosmetically) crucial projects; do more prototypes and less spreadsheets. Be bold and fearless. As the techies like to say: Go big, or go home!

Failure must be an option. Paralysis is not.

frederic.filloux@mondaynote.com


Freemium Revisited: Paying For Content-Based Applications

Last week, Instapaper’s founder Marco Arment gave us a remarkable insight into the economics of content applications. For readers who haven’t used Instapaper on their iPad or iPhone (preferably on both): this application is an absolute must-have.
This is what I call a Real-Life App. Minimalist design, no frills, no “wow effect”. But, in return for the sobriety, unparalleled efficiency. Instapaper was born from a need, not from a marketing concept or PowerPoint vaporware. In last October’s Wired profile,  Arment explained himself: at Tumblr, the blog platform where he was Chief Technologist, a draining job that made concentration difficult, he began to feel the need for such an app.
Reading text longer than a two-page business memo has become everyone’s daily challenge. The inability to allocate time for lengthy, in-depth reading is a contemporary disease – well portrayed in Nicolas Carr’s last book The Shallows.

Hence Instapaper: a service based on a bookmarklet that lets you to save browser pages for later reading. When you want to save a page for later reading, you click on your browser’s Read Later bookmark . Like this:

The pages you save get automagically synchronized with your iPhone and iPad Instapaper apps; they become available for online and offline reading. This makes Instapaper ideal when traveling. For the Kindle, Instapaper features an easy setup to send all your saved stories to the device.

Instapaper is a one-man operation. It has three (modest) revenue streams: apps sales, a tiny one-dollar a month subscription via PayPal, and a small amount of ad space on the website. So far, Marco Arment checks all of today’s smart Internet relevant boxes:

  • a straightforward application with a clear purpose: saving long texts for later reading
  • a clearcut business model, one that doesn’t depends on “eyeballs” hypothetically pimped at bargain-basement prices
  • a remarkable implementation of its own API model: see Instapaper’s API’s how-to page. The Read Later API allows 140 third party applications (news-related aggregators, RSS feeds readers, Twitter apps) to upload and sync pages for later reading on your devices.
  • good execution: Instapaper works flawlessly, exactly as advertised
  • the AppStore ecosystem is a perfect fit for such an ultra-light operation. The developer focuses on what he does best and Apple takes care of the rest: worldwide app distribution, updates… and monthly checks — minus its usual 30% cut
  • it addresses a well identified market: upmarket information consumers, willing to take the time to read quality, long-form text – and willing to pay a small amount of money for the service. This is a solvent niche market. Small revenues but nice margins — as opposed to the thin or inexistent ones ‘‘enjoyed” in mass markets.

Coming back to today’s subject – the monetization of content based applications – Marco Arment sheds an interesting light on pricing strategies.

Credit: Flickr Webstock Photostream (cc)

In the beginning (Fall of 2008), his iPhone app came in two flavors: free for the light edition, and $9.99 for the full-featured one. In June 2009, he lowered the price to $4.99 — where it stands now. When the iPad launched, Arment decided against a free version for Apple’s new tablet. And, last Fall, he ran an experiment: the free iPhone version disappeared from the AppStore for three days. Sales increase immediately. Then he reiterates the experiment:

On March 12 [2011], knowing I was heading into very strong sales from the iPad 2’s launch, I pulled Free again, this time for a month. Again, nobody noticed, and sales increased (although it’s hard to say which portion of the increase, if any, is attributable to Free’s absence, since most of it is from the iPad 2’s launch).

This break went so well that I pushed the return date back by another month. I may keep it out indefinitely, effectively discontinuing Instapaper Free. More

The Communication Paradox

Remember The West Wing, the cult TV series? Its last episodes describe the end of President Jed Bartlet’s term and portray his Chief of Staff and former Press Secretary, C.J. Craig, deluged with job offers as she struggles with the emotions of leaving her beloved President. Emissaries of Fortune 500 corporations, CEOs of fictitious tech companies, heads of NGOs are all making the trip to 1600 Pennsylvania Avenue with high six-figure contracts in hand. Because she’s a smart and generous women – and the series is suffused with utter political correctness – C.J. Craig leans toward a big foundation, eager to build highways in Africa — it could have been worse: a Carbon-Free nuculear plant, for instance.

As you’ll see in a few seconds, there is great irony in the following coincidence: the West Wing’s main writer was Aaron Sorkin, who also happens to have won an Oscar for his Facebook movie script…

Reality beats fiction: Robert Gibbs, Barack Obama’s former press secretary definitely looks less idealistic than the sharp-tongued West Wing character. Having left office in February, Gibbs is said to be in talks with Facebook (story in Times’Dealbook).  The stakes are high: Facebook’s IPO looms. Private stock transactions currently put a $60bn valuation on the company and such lofty expectations come with many PR challenges. And the West Wing “high six figures” will be suitably updated to seven or more…
Gibbs won’t be the first White House hand to move to Silicon Valley. As Politico recalls, Joe Lockhart, Bill Clinton’s Press Secretary, joined Oracle. And former John McCain’s communication chief Jill Hazelbaker is now at Google. Even higher, we have former Vice-President Al Gore: he now is a rain-making General Partner at Kleiner Perkins Caufield & Byers, the venture capital giant and, for good measure, also sits on Apple’s Board. When it is about lobbying, tech firms don’t cheap. They hire the best talent money can buy.

The paradox: Then, why do these high-tech firms do such poor public communication? The answer lies two or three levels below the big hired guns, where talent and decision-making power disappear. There, PR people are mostly employed in stonewalling tasks. And the corpocracy likes them that way. The power structure condones an incestuous hiring process. Senior flacks recruit junior flacks.  And, as in all consanguineous reproductive activities, DNA rarely improves. Most hires are expected to be docile; initiative is strongly discouraged by paranoid upper management layers. More

WebOS Everywhere

by Jean-Louis Gassée

Where have we heard a similar mantra? Despite their apparent divorce from Microsoft, it sounds like HP’s brains have been infected with a mutation of the “Windows Everywhere” virus.

Let’s recap.

Late April 2010, HP acquires Palm for $1.2B. In July 2010, then-CEO Mark Hurd tells us he didn’t buy WebOS just for smartphones, but also for printers and tablets:

“We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP. The WebOS is one of the two ground-up pieces of software that is built as a web operating environment [...] We have tens of millions of HP small form factor web-connected devices [...] Now imagine that being a web-connected environment where now you can get a common look and feel and a common set of services laid against that environment. That is a very value proposition.”

This sends two messages:

- No more Windows Mobile or Windows Phone 7, we “go Apple’’. We’ll own the entire hardware/software combo. (Contrast this with Nokia which is heading in the opposite direction, abandoning Symbian to “go Microsoft”, literally this time.)

- We’ll put WebOS everywhere: tens of millions of HP small form factor web-connected devices.

Mark Hurd steps on a mine, moves to Oracle and, in September 2010, HP gets a new CEO, Leo Apotheker.

Does he change strategy?

Not at all. On February 9th, HP announced its WebOS tablet, the TouchPad, and two smartphones, the Pre 3 and the neat-looking, diminutive Veer.

These products haven’t shipped yet. We’re told “Summer” for the TouchPad and Pre3, and “Spring” for the Veer. I hope to get my mitts on them as soon as I can. I’m intrigued: How will the HP devices fare in a market where Google/Android, RIM, and Apple keep strengthening their positions? To borrow from Stephen Elop’s “Burning Platforms” memo, this is no longer is a war of platforms, it’s a war of ecosystems:

“The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things.”

Regarding product details and the agility of the UI, HP’s announcement is enticing…but little is said about the company’s plans to build a viable universe around these new devices. Perhaps the plan is to announce the products early so developers, content providers, and channels have enough time to evaluate the opportunity and, if committed, be ready when the products ship.

This week, Leo Apotheker went one step further. On page 2 of a meaty Bloomberg Businessweek article, we learn that “… starting next year, every one of the PCs shipped by HP will include the ability to run WebOS in addition to Microsoft Corp.’s Windows… The move is aimed at enticing software developers to create a wider range of applications that would differentiate HP PCs, printers, tablets and phones from those sold by rivals.

On the surface, WebOS developers will have the tens of millions of PCs and laptops HP sells every year as targets for their applications. More devices, bigger opportunity.

But the reality is much more complicated.

First, is this an either/or proposition, run Windows or run WebOS? Or is this a quickboot arrangement similar to Splashtop, a customized Linux software packages that boots in 5 seconds or so, versus the minute or more it takes with Windows. (I checked, after more than a minute no have apps have loaded on my Dell netbook.)

With Splashtop, you can quickly take a look at web pages or Gmail, but you still need to boot into Windows if you want to run Office applications. Splashtop doesn’t appear to be gaining much traction. Early adopters such as Asus (and HP) don’t seem eager to make it a standard offering on their products.

We also have virtual machine solutions such as Parallels and VMware Fusion. These products run Windows within a Mac — and they do a pretty good job of it in my experience. The dueling OSs now both use Intel chips and the virtual machine lets you use both without rebooting.

Rebooting annoys users. Very few use such a procedure — hence the popularity of virtual machines. If users won’t reboot, there’s no opportunity for developers. This leads me to believe that the WebOS “graft” on the HP PCs will be more like a quickboot proposition where you’d first boot into WebOS, and then into Windows. Or, as HP might discreetly hope, you’d boot into WebOS and stay there. If the user finds enough useful applications in the WebOS environment, why boot Windows?

Then we have the Intel chip problem: WebOS and its applications run on ARM hardware. This would force HP to develop and maintain two versions of its OS. It’s feasible, but it adds complexity, costs, and bugs. And for developers, it’s far from ideal: WebOS applications would have to run on two processors and on an indeterminate number of form factors: netbooks, laptops, tablets, printers. (Digressing again on Nokia: The number of target devices and form factors is what caused Nokia to buy TrollTech for Qt, its cross-device development tools and UI. With the MicroNokia deal, Qt is no longer strategic and will be sold to Digia.)

But wait, there’s more. At CES this year, Steve Ballmer announced that the next version of Windows (8?) will be ported to ARM. This is Microsoft’s likely path back into the tablet market it lost to Apple and the coming wave of Android tablets. If we are to believe Bloomberg, an ARM-based Microsoft tablet will be available for the 2012 back-to-school season.

Is this what Leo Apotheker had in mind when he mentioned WebOS on PCs?

If so, here is how the HP PC scene could look like “sometime” in 2012:

- Intel-based PCs and laptops running the “mature” Windows 7.
- ARM-based laptop and netbooks on Windows 8?
- Tablets using a version of Windows 8 with a touch interface?
- Some, but not all, “will include the ability to run WebOS in addition to Microsoft Corp.’s Windows”

Simple, easy to understand. Can you imagine what the sneers and the giggles, at Apple and Google, when looking at such a picture?

On Monday March 14th, HP’s CEO will outline his vision in greater detail.

Understandably, he wants to “decommoditize” HP’s PCS, he’s looking for a way out of the life as a Microsoft serf. PC makers are racing to the bottom, a race Leo Apotheker knows he can’t win. Hence “WebOS Everywhere”: a way for HP to better its destiny.

But another “everywhere’’ story won’t work.

Let’s hope he’ll explain instead where WebOS will focus and how it’ll make a difference for customers and app developers.

JLG@mondaynote.com

The Publisher’s Dilemma

Today’s title pays homage to The Innovator’s Dilemma, Clayton Christensen’s seminal 1997 book. In it, the Harvard Professor describes the effect of what he calls “Disruptive Technologies” on pre-existing markets or businesses. Fifteen years after the concept’s emergence, the impact of digital media on the news industry could be added to the list of most quoted examples of disrupted (devastated?) sectors.

Before we go further, let’s pause a moment and reflect on the Washington Post Company’s latest financial statements: the Q4 2010 earnings released last week. The “WaPo” is the only major US newspaper to provide helpful P&L data (multi-publications media houses usually don’t go into the same level of detail).

Here are the key figures for the full year 2010:
- Revenue for all activities: $4.7bn  (+8% vs 2009)
- Operating income: $546m vs. $259m in 2009
- The Kaplan Education division accounts for 62% of the revenue and 61% of the operating income.
- The Cable television business accounts for 16% of the revenue and 30% of the operating income.
- Broadcasting television revenue increased by 25% to $342m (7% of the total) and its operating income rose by 72% to $121m and accounts for 22% of the total operating income (most of the Y/Y growth is due to an improving advertising market, especially in the automotive sector).

For the newspaper division (mostly the eponymous daily): 2010 revenue was stable at $680m (14% of the total) and the operating loss was reduced to $9.8m — against the 2009 hemorrhage of $163m.
In passing, the Washington Post’s situation shows the importance of a diversified structure; without its education unit, the company might not have survived the last few years. The acquisition of Kaplan Inc. was suggested by Warren Buffett in 1984 and it was the best advice the Post’s owners ever got. (The great billionaire sage is due to step down from WaPo’s board later this year).

Let’s now look at the underlying trends: a persistent erosion in circulation (-7.5% in 2010) and the growth in the Post’s online activities.

The good news: on the fourth quarter of 2010, online accounted for 43% of the newspaper’s revenue, the result of seven years of steady improvements:

Now the bad news: this trend is more a reflection of the print’s business continued erosion than of a sufficient growth on the online side. The next chart shows the parallel evolution of print advertising and online revenues (the latter is totally ad-based). These are quarterly figures are from Q4 2004 to Q4 2010.

Over the last seven years, for each dollar added to online revenue, the WaPo lost five dollars on print. During that time, the Post has lost $88m of print ad revenue and it improved its online business by only $18m. This leads us to a key realization, a sobering one: there is no hope current online revenue stream will someday offset the past decade’s tremendous losses.

Let’s face it: the online advertising business model, when applied to the transformation of the newspaper industry, is largely failure. The reasons are well known:
- The profusion of free, news-related contents diluted the perceived value of editorial-rich “trusted brands”.
- More agile competitors, quite adept at using sophisticated audience-catching techniques (that are implemented at a fraction of the cost of a modern printing plant).
- The endless stream of pages with hundreds of URLs added each day ended up destroying any balance in the supply vs. demand mechanism.
- The resulting pressure on prices, as “premium” ad formats slowly yielded to bulk fire sales.
- An unreliable audience measurement system that rewards cheating instead of editorial quality or relevance.
- The advertising community’s inability to base their purchases on solid market analyses.

Still, publishers had the means to attenuate the effects of this unfortunate conjunction.

For instance:
- Cutting down at their inventory by at least 50% in order to revive a sense of market scarcity.
- Investing much more in technology in order to match the sophistication of clever pure players.
- Refusing to sell the lower end of their inventories to bottom-feeding “ad networks” that act as powerful deflationary engines.
- Getting out of the audience-measurement systems that are ridiculously inaccurate and setting up their own system of traffic analysis.

That’s the theory. In reality, all of the above implies a kind of collective action that is beyond the intellectual and emotional reach of the newspaper industry (although it is not a given that such set of measures could have reversed today’s trend).

Which brings us back to the title of this column. Mere adaptive tactics won’t save the traditional news industry in their multi-front war against “disruptive technologies”.

Some radical re-engineering is needed.

For instance, very few publishers of money-losing dailies can elude the following question:  Wouldn’t it be smarter to accelerate the downward spiral of their print activity in order to feed more oxygen and nutrients to the emerging online business? Each time I’m testing the idea with my fellow European publishers, I’m getting a straight answer: “No f**** way, pal. Print is still where the revenue is!”  I politely refrain from saying “so are your losses, pal “. Beyond this thin-skinned reaction lies a more rational fear: brand dissolution into the digital maelstrom. And there is no successful example of the kind of bold move I recommend.

Still.

I don’t see any newspaper surviving without a major structural change in its business. An example: Being published every day will make less and less sense as most of the developing and breaking news is read (and heard or viewed) on a smartphone. On the contrary, long form reporting, or visually rich storytelling could still thrive on paper, a format in which glossy ads will stay in high demand and command correspondingly high prices. Such publications — one or two days a week — have the ability to remain powerful brands vectors.

Don’t dream on it, it’s over


In parallel, newsrooms will have to adapt.
Gone are the football-size open spaces with hundreds of staffers, a small fraction of which work extremely hard and burn themselves out while legions of others parsimoniously manage their output. The next breed of newsrooms will be smaller, more agile and decentralized; it will be built around an inner core of seasoned editors managing in-house or external — and decently paid — reporters and writers (I’m not referring to today’s low cost digital serfs toiling in writing pens, endlessly recycling second-hand material).

Change is also needed on the business side. As the failure of advertising-based  models sinks in, the paid-for model is gaining traction. It is not likely to work on the web but it is finding its way on mobile devices where payment is (slightly) more natural and easier to implement. But prices will have to adjust (downward). Today, the vast majority of publishers are tempted by a mirage: they think they can “protect” their eroding print business by setting high prices for their digital products; others invoke the need to support the industrial costs of print as a reason to oppose low prices on digital.
As long as this mentality prevails, the transition from print to digital will keep stalling — and low-market pure players will thrive. Dinosaurs: It’s time to edit your DNA, or face a world with more HuffPos and no WashPo.

frederic.filloux@mondaynote.com