In the previous issue of the Note, we run a story titled “Why publishers should grab the iPhone business“ Today, I’m glad to report that the Associated Press did it. AP announced last week that it was lining up to 107 partners to make stories available for the iPhone. The service will deliver local news from participating member newspapers and national and international news from AP. The reports will be organized by ZIP code (and we hope could be geolocalized for the future GPS embedded phones). Companies that help connect advertisers with networks of Web sites will be among the sellers of ads for the service and will share revenues with the news providers, AP statement said. The next logical step would be to develop specifically designed readers that will allow pages storage and fast offline reading.
This is called having one’s head buried in the sand very, very deep. In preceding articles, we have seen the extent of the shift (and the upcoming shrinkage) the western press is about to experience. And, in parallel, how much newspapers from emerging countries are booming.
Guess what? In a survey made by Zogby International for the World Editors Forum, (details on the Editors Weblog) 56% of editors think that most of the news will be free in the future, whether it is print, online or mobile. But the most amazing is this: only 48% Western European editors — they are supposed to be in struggling mode — believe that news will tend to be free, versus 61% of news executives from emerging markets such as Latin American, Asia, Eastern Europe, Russia, where paid press still enjoys great successes. Let’s grab the shovels and head for the sand dunes.
Another interesting finding of this report: almost nine editors out of ten think that newsroom integration is inevitable. What strikes me is there could even be a discussion about this integration question: a) we all know the business is massively shifting towards digital; b) most of the resistance comes from the oldest dead-tree personnel; c) therefore what a better instrument to dilute this resistance-to-change culture than blending the most conservatives forces of a newsroom into younger, fresher minds? Having said that, integration must be done with extreme care, taking into account many elements such as the size, the age of the structure and the people, the cooperation of senior news executives (most of them, yes, will have to be replaced in the process). I’m not saying it is simple, I’m saying it is inevitable and that it must be anticipated, planned right away.
Last week in Beverly Hills, one man was grinning. Marcelo Benez, advertising director of La Folha de San Paulo is a happy man. His mission is to use every possible features allowed by modern printing machines, to offer his advertisers a variety of special formats. This goes beyond the limits of the publication itself : pop-up that surge from a page, complicated origami glued inside the paper, poster-like ads 16 times the size of a broadsheet page (“we don’t sell by the inch-column, but by the meter sometimes”, he laughs). That led to a stream of exclusive campaigns for the launch of products and services. A French daily for instance, does less that a dozen of “special operations” per year. By contrast, La Folha took up 287 of such events last year! Results are stunning : in 2007, the overall Brazilian economy grew by 5.4% ; for the ad market the growth was +9% and la Folha de San Paulo made a +19.3% progression in ad revenues.
Or, is it “shrink to survive” ? Last week in Beverly Hills, California, this was the speakers’ motto at the 78th Word Congress of the International Newspaper Marketing Association. This just in: the “N” of INMA is about to refer to “Newsmedia”. This is supposed to make it less of dinosaur. Well, let’s stop crying on our congenital reluctance to change, whether we are The New York Times or Le Monde (which, by the way, was again on strike last week).
Earl Wilkinson is the executive director of INMA. As such, he crisscrosses the world for about 6 months a year to look at new ideas, new successful ways of dealing with the current media shifts. Together with Alan Mutter, former editor turned entrepreneur and blogger, they converge on key facts:
Newspapers have been complacent when faced with changes in the media ecosystem. They are stuck with a major misallocation of resources. As circulation declined they kept adding journalists (Wilkinson displayed convincing charts for these trends). And, in the audience-brand-content triumvirate, 90% of resources have been allocated to content. Publishers allocated ridiculous small amounts of energy to the value of their audience or of their brand.
The corporate goals and structures are in question. The obsessive quest for fat profits (in the US at least), the pressure from Wall Street, are proven to be incompatible with the necessary “trial and error” approach required today. (For once, that statement doesn’t come from unionized, conservative personnel.) In some instances, the rational thing to do is taking major newspapers private — as long as the debt burden remains reasonable. (On the subject, read Alan Mutter analysis on the reasons to take the New York Times private).
On the shareholders issue, the case studies presented at the INMA congress expressed a unanimous principle: all successful strategies have been implemented in the context of patient, focused — often unique — shareholders. The more numerous they are, the least are the chances for a swift adaptation (examples from Europe or Latin America are meaningful).
Today, the choice is to accept to be smaller — much smaller — in order to restore nice margins, or, in order to preserve the size of newspapers institutions, to expect only slim profits. Well, that’s for American newspapers. In some European countries like France, the goal is more modestly a cure from the chronic red-ink syndrome.
The “shrink to grow” movement has found its evangelist. His name in Chris Zook. He is head of global practice for the consulting firm Bain & Co and the author of “Unstoppable”. This is an excellent book about redefining businesses, filled with case studies.
Here are some of his views:
- The newspapers industry is no different from a “turbulent company”, that is a type of corporations shaken at the very core of their business model. A fast growing type, actually. The number of so-called “turbulent” companies has quadrupled in the last 30 years. According to Bain & Co, two companies out of three will have to rethink their core activity at some point. If we look at the Fortune 500 companies over a 10 years period, 30% have gone through a redefinition of their core.
- For newspapers, redefinition of the core means: smaller companies, less frequent publication (the seven days-a-week paper is over, meet the few days-a-week publication). It also means a major shift on the revenue pool toward the online business. In countries where the sector has reached its maturity (US, Western Europe), 80% of newspapers will experience such a massive transformation.
- The magnitude of the downsizing will be severe. Christopher Zook cites industrial companies that reduced their size by a factor of ten over few years, to refocus on their main activity, take a dominant position in their core market and increase dramatically their intrinsic value. As a result, these companies regained strategic positions on their core business.
Well. Not so fast: Applied to the newspaper industry, the case for a “shrink to grow” approach is questionable:
a) The trouble in the newspaper industry doesn’t come from increased competition in its own field, say better newspapers. Rather, we have a complete collapse of the “core” business, a migration of readers from ink dots on paper to pixels on PC screens.
b) This migration will expand as the bandwidth penetration increases. Alan Mutter draws a perfect correlation
between the broadband development in countries and the fall in circulation and advertising that ensues.
c) The digital products that now represent the only growing segment of any news activity (look at what happen to mainstream TV) generate no more than a fifth or a tenth of the print revenue per reader. As we explain in Monday Note #32 the industry is trading dollar for pennies (or euros for cents).
Background: this Sunday May 4th Microsoft withdrew its offer to buy Yahoo for $44.6bn. Saturday, Microsoft CEO Steve Ballmer had invited the two co-founder of Yahoo, Jerry Yang and David Filo for a final discussion. In a last move, Ballmer sweetened his proposal by $5bn, to $33 a share. Yang and Filo demanded $37.
So, Microsoft walks away from a bad deal. Incompatible cultures, incompatible computer systems made this a terrible idea, to say nothing of probable delays due to regulatory reviews.
Steve Ballmer could have issued a terse letter: We withdraw our offer because we couldn’t agree on price. We’ll continue on our own path and wish you the best of successes. Steve Ballmer.
Instead, Steve Ballmer sends a long letter to Yahoo’s CEO, Jerry Yang. First mistake. Second, and much worse, this is a bitter, angry, accusatory letter. Accusations and veiled threats.
This raises a number of questions.
First. To quote Ballmer: “By failing to reach an agreement with us, you and your stockholders have left significant value on the table.” If this is true, trust shareholders and their attorneys, they’ll see it without Ballmer’s help and sue Yahoo’s Board of Directors. What does such a statement do for Microsoft shareholders or employees? It just makes their boss sound petulant, entitled. You should have seen we were your only salvation…
Second. Explaining at length (6 paragraphs) why a subcontracting some search and advertising to Google was a terrible idea. Again, is this rising graciously from a muddy playing field or is this trying to throw more mud at the adversary Ballmer couldn’t bring to heel?
Third. Accusing Yahoo! and, indirectly, Google of fomenting the creation of an advertising monopoly. How does this look coming from a repeat monopolist?
Fourth. Is Ballmer angry because, after the Vista fiasco, after failing to achieve any traction in Cloud Computing (ironically called Microsoft Live), or in Search, or in Advertising, his leadership could be questioned?
Fifth. Is Ballmer secretly relieved or is he so insulted by this defeat he’ll go an bomb another country?
What to expect? Perhaps Microsoft will turn to better targets: Intuit, Adobe, SAP… They’ll have to do something and Ballmer will have to explain what got to him going in and going out of this ill-conceived sortie. – JLG
Google’s markitecture isn’t so different from Microsoft’s. Just like the old champion, Google tells us we can have the best of both worlds: Everything in the Cloud, applications and data. What? You want to work off-line? No problem, we can do that too. Your data and your applications also on the desktop, re-connect and everything is in sync. Another all pros and non cons con.
Like any good preacher, Google doesn’t confuse what you say and what you do. It is well aware of the problem with the new religion: editing this column with Google Docs is great but what happens if I lose my connection? What happens if I’m on a plane? The solution is a browser extension, Google Gears.
Suddenly, they Cloud applications just work, connected or not. Two months ago, Google Reader, a free (and very good) blog reader gets a Gears update. My (large) set of blog subscriptions is now synched to my desktop and equally readable off-line or on-line. Just recently, we see Google Docs get its own Gears extension. As I start writing this on-line, the Cloud docs synch automatically to my desktop. I cut off my Net connection and I continue typing off-line. Back on-line, the two off- and on-line versions re-synch on their own. It seems to work as expected.
Microsoft’s Outlook isn’t that different. On the desktop, you have a local copy of your mail, calendar, address book. If you answer mail off-line, or change a calendar entry, everything will synch back at the next connection with the Exchange server. And, you don’t need Outlook. From any browser, you get to the Exchange server and take care of business. This sounds very much like the on-line/off-line modes extolled by Google.
Where are the differences?
Google: Yes, we have no choice. The truth is we must provide desktop software. We’ll call it a browser extension, but software running off-line on the desktop is what it is. The Desktop vs. Cloud dichotomy? A question of nuances.
Microsoft: Yes, we do on-line/off-line dual mode software. So, what prevents us from doing an on-line/off-line version of Office? Well… Three things, size, profits and culture. Once upon a time, we did software that was small, fast and inexpensive. Hard to believe when you see Vista and Office, but true. Our users grew in numbers, our software grew in size and now we are facing someone like us a quarter of century ago, only better financed than we were and with a better computer infrastructure (in English: large number of servers working well together) than we have.
The real debate isn’t between Desktop and Cloud. Everyone agrees the hybrid model is the future. But Microsoft is saddled with heavy desktop software that will be harder to hybridize than Google’s young on-line applications. To say nothing of business model transitions and corporate culture. –JLG
Chris Anderson, editor-in-chief of Wired and author of the Long Tail concept spoke recently at a media forum at the University of Central Lancshire (UK). His takes on evolution of journalism are blunt, but rather difficult to argue with:
- As an alternative to “commodity news” that is pointless to pursue on the Internet, he suggests going after true journalism (original reporting, narrative pieces), and also Internet packaged stories.
- To him, there is an opportunity to make “something that still has value and which people will pay for, either directly or in terms of their attention which can be monetized through advertising”.
- As for news organization, Anderson said jobs will be lost. He even draws parallel with the damages caused to the classified sector by Craigslist and the likes. (He can’t be more right in the light of the latest figures of job cuts in the media sector. A recent report quoted in the Hollywood Reporter says that layoffs in the US media are up 57% for the first four month of the year compared to a year ago. Almost 8000 persons where fired since Jan 1. Last year, total number was 11,700 jobs lost.
Among the subliminal messages the Monday Note is willing to send to the media executives, one is about tactics to boost creativity in their depressed ranks. This is why Google’s experience is interesting to watch. In Business Week, CEO Eric Schmidt gives some clues:
- Don’t mess up with the 20% thing: at Google, engineers are encouraged to spend 20% of their time for projects outside their assigned duties. Schmidt says, they can actually invoke those required 20% whatever the deadline pressure are, their superior must bend to it.
- Track your innovation processes. Use the right tools to measure progress. Add layers of prototyping and testing.
- Listen to people. You don’t “manage” innovation, Schmidt says, and it comes from unexpected places.
In a negotiation process, whether it is for a job interview or a commercial transaction, two related approaches are often used to understand the opponent: perspective-taking and empathy. The first is the cognitive power to consider the world from someone else’s viewpoint, the second is the power to connect with them emotionally.
Adam Galinsky of Kellogg School of Management at Chicago Northwestern University and his team tested these different approaches in a study outlined in this week’s Economist. Results are worth the click
News publishers remain obsessed with the question: what will be the main distribution platform for their contents, and what will be the subsequent business models? For clues, let’s zoom in the iPhone’s recent performances as well as its immediate prospects.
The smartphone introduced a year ago by Apple has become the tool of choice for news-hungry Internet mobile users. According to M:Metrics, a survey company that tracks the use of mobile devices, a stunning 85% of iPhone owners report using it to access news and information contents. That compares to 58% of the overall smartphones users and only 13% of basic mobile phone owners. By the same token, iSuppli, another research firm, found out that iPhone users spent 12% of their time surfing the web versus 2.5% for the regular cellphone users. On the top of this, data shows that iPhone users spent more time, by a factor of 12 accessing a social network (another future important delivery platform for news content).
What does that means for the publishing sector? First : interface is key. Try accessing a newspaper (or even the Monday Note) on a Blackberry : it’s 1985′s teletext! Do it on an iPhone, it works fine. The added development is negligible compared to the costs of the average Content Management System (CMS) and can be accomplished internally as shown by many sites (The New York Times, Condé Nast’s Portfolio magazine).
Second, we see applications beyond the made-for-iPhone sites that could benefit the publishing industry. In the coming months, we’ll see a first batch of true applications created for the iPhone. For example, how about a powerful caching system for publishers? With it, the user stores dozens of pages of favorite sites — or hundreds of book pages — on an iPhone or iPod Touch for a quiet reading off-line. (I still wonder why a publishing company isnt developing such an application itself and giving it away with pre-loaded content. Small development cost — count less than $100k for a first version — add a nice viral demo on You Tube and you get significant PR impact).
What about the business model? Well, the most obvious one is advertising. On the Internet, scarcity of pixels doesn’t imply little revenue. Quite the contrary, actually. For most sites, the bulk of their revenue comes from very few top slots on their homepage, the remaining inventory being sold at bargain basement prices. (On the French market, discounts between rate cards and net prices average 80%). Translating: a single banner ad on an iPhone-optimized minisite can be sold at a high premium CPM. Plus there are other revenue sharing systems to explore: the monthly bill of iPhone users is 24% higher than the average mobile user’s. That’s $228 extra per year.
News providers should devote small, highly focused set of resources (a developer + a couple of junior editors would be fine) to develop content optimized for the iPhone and related micro applications. This applies also to advertising agencies and media buyers who should get into this emerging piece of digital real estate.
Can such a move prevent the possible extinction (as the Economist puts it) of parts of traditional media? Certainly not. But it is better to be in the race than on the bench.