Exogenous Complexity 5: Fees for Online Content
March 7, 2012
I wanted to capture some thoughts sparked by some recent articles about traditional publishing. If you believe that the good old days are coming back for newspapers and magazines, stop reading. If you want to know my thoughts about the challenges many, many traditional publishers face, soldier on. Want to set me straight. Please, use the comments section of this Web log. —Stephen E Arnold
Introduction
I would have commented on the Wall Street Journal’s “Papers Put Faith in Pay Walls” on Monday, March 5, 2012. Unfortunately, the dead tree version of the newspaper did not arrive until this morning (March 6, 2012). I was waiting to find out how long it would take the estimable Wall Street Journal to get my print subscription to me in rural Kentucky. The answer? A day as in “a day late and a dollar short.”
Here’s what I learned on page B5:
As more newspapers close the door on free access to their websites [sic], some publishers are still waiting for paying customers to pour in.
No mention of the alleged calisthenics in which the News Corp.’s staff have undertaken in order to get a story. But the message for me was clear. Newspapers, like most of those dependent on resource rich, non digital methods of generating revenue, have to do something. In the case of the alleged actions of the News Corp. I am hypothesizing that almost anything seems to be worth considering.
Is online to blame? Are dark forces of 12 year olds who download content the root of the challenges? Is technology going to solve another problem or just add to the existing challenges?
Making money online is a tough, thankless task. A happy quack to http://www.calwatchdog.com/tag/sisyphus/
My view is that pay walls are just one manifestation of the wrenching dislocations demographic preferences, technology, financial larking, and plain old stubbornness unleash. The Wall Street Journal explains several pay wall plans; for example, the Wall Street Journal is $207 a year versus the New York Times’s fee of $195.
The answer for me is that I did not miss the hard copy Wall Street Journal too much. I dropped the New York Times print subscription and I seem to be doing okay without that environmentally-hostile bundle of cellulose and chemically-infused ink. Furthermore, I don’t use either the Wall Street Journal or the New York Times online. The reason is that edutainment, soft features, recycled news releases, and sensationalism do not add value to my day in Harrod’s Creek, Kentucky. When I look at an aggregation of stories, sometimes I click and see a full text article from one of these two newspapers. Sometimes I get the story. Sometimes I get asked to sign up. If the story displays, fine. If not, I click to another tab.
When I worked at Halliburton NUS and then at Booz, Allen & Hamilton, reading the Wall Street Journal and the New York Times was part of the “package”. Now I am no longer a blue chip “package.” I am okay with that repositioning. The upside is that I don’t fool with leather briefcases, ties, and white shirts unless I have to attend a funeral. At my own, The downside is that I am getting old, and at age 67 less and less interested in MBA wackiness. I have no doubt I will be decked out in my “real” job attire. For now, I am okay with tan pants, a cheap nylon shirt, a worn Reebok warm up jacket, and whatever information I can view on my computing device.
Newspaper publishing has not adjusted to age as I have. Here’s a factoid from my notes about online revenue:
When printed content shifts to digital form, the online version shifts from “must have” to “nice to have”. As a result, the revenues from online cost more to generate and despite the higher costs, the margins suck. Publishers don’t like to accept the fact that the shift to online alters the value of the content. Publishers have high fixed costs, and online thrives when costs are driven as low as possible.
Net net: Higher costs and lower revenue are the status quo for most traditional publishers. Sure, there are exceptions, but these are often on a knife edge of survival. Check out the hapless Thomson Corp. Just don’t take the job of CEO because it is a revolving door peppered with logos of Thomson and Reuters and financial results which are deteriorating. Think Thomson is a winner? Jump to Wolters Kluwer, Pearson, or almost any other “real” publishing outfit. These are interesting environment for lawyers and accountants. Journalists are not quite as sanguine as those with golden parachutes and a year or two to “fix up” the balance sheets.
A History Lesson: Online Fear and Uncertainty
In the early 1980s, the fear of traditional publishers was fueled by uncertainty. Move one quarter century to the present. Today the fear flames with failed initiatives, money tossed into the mouth of a consultant’s blast furnace, and the artifacts of failed digital initiatives.
No publisher has found the equivalent of putting ink on paper and selling ads, inclusions, or sponsored content in newspaper, magazine, or monograph/book form. Nothing most traditional publishers has worked reliably. Publishing is a blockbuster business just like the motion picture industry.
Money generated by online often carries high costs and returns dribbles of revenue. Ah, the good old days of monopolistic newspapers and 50,000 watt AM radio stations that a local business had to use to complement newspaper advertising. I worked for an outfit which owned printing plants, two newspapers, a couple of top rated radio stations, a door knob distribution company, and a mail order ham business. Top the Courier Journal’s diversification off with computer stores, the CBS-affiliated television station, and a cutting edge database company and what do you have? Not too much any more. The old, highly regarded, paternalistic empire of the Binghams is gone. Gannett and Bell+Howell blew away intellectual capital because the new management “was pretty savvy.” Right.
In the 1980s, few organizations made significant, if any, money with online products.
There were a few exceptions; for example, the Courier Journal & Louisville Times Co. Not only was the newspaper company a leader in online, the CJ was able to generate a profit from its electronic products. What fascinates me is that the lessons of the successes from the early days of online information have been forgotten, ignored, or viewed as irrelevant in the era of Facebook, Google, and Twitter.
For the CJ, money flowed by selling existing commercial abstract and index databases to companies who wanted a commercial database. For the most part, these buyers had only their belief that the future was digital. When I worked at the Courier Journal, we sold a number of scientific and technical databases to a firm with a core competency in direct mail and a hunch that online sci-tech information would be a billion dollar baby.
We also built and rebuilt databases in such a way that the revenue from commercial distributors of our content yielded a profit. We used a number of methods, and for the most part, our tactics worked. Prior to my arrival at the database unit of the CJ, some of the methods were money pits. With some fixes, the potholes were filled in, and the databases generated revenue and a profit.
Gannett bought part of the CJ in June 1986. The database unit, which I subsequently quit to join the Bill Ziff outfit in Manhattan, ended up in the semi-capable hands of Bell+Howell. You remember the motion picture outfit! I do. Well, the CJ’s databases have “slip slided away” and now are operated by ProQuest whose owners include some of the original direct mail managers who bought our sci-tech databases.
What’s been lost at Gannett and Bell+Howell is lots of money, particularly with regard to electronic products. I was reminded how predictable the cycle of moving content to electronic form and worsening financial reports are coupled. I read a longish write up on the Journalism.org site. The story, analysis, and Dear John letter was “The Search for a New Business Model.” I am confident that legions of readers will find the information new, fresh, insightful, and prescient. (A few years ago, this type of lengthy report would have sold from hundreds, maybe thousands of dollars. Today, it’s free. What does that tell me? Free is what’s needed to gain traction.)
Here’s an example I noted from the free write up about the search for a new business model:
…the shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract with alarming speed, according to the study by the Pew Research Center’s Project for Excellence in Journalism. Cultural inertia is a major factor. Most papers are not putting significant effort into the new digital revenue categories that, while small now, are expected to provide most the growth in the future. To different degrees, executives predict newsrooms will continue to shrink, more papers will close and many surviving papers will deliver a print edition only a few days a week. But some papers are performing quite differently than the norm, some much better and some far worse. These variances suggest that the future of newspapers, rather than being determined entirely by sweeping trends, can be significantly affected by company culture and management-even at papers of quite different sizes.
The write up contains a hefty amount of data, statistics, and comments. Examples: Some newspapers have figured out that daily deals can generate revenue. Yep, local advertising is an opportunity, and newspapers should be in a position to capitalize on this trend. Makes sense, but the problem cycles back to the desire to be in the “real newspaper” business. This is the “dead tree, sell ads, and burn fuel to deliver the goods” business. Management changes won’t fix this mindset. Some people are just into making print outputs. That’s okay if one is a craft printer in Carcassonne, France. Elsewhere print is proving to be more and more like the business school chestnut about buggy whips.
The report by the Project for Excellence in Journalism is a wealth of information, but not much of it is shouting good news. One key point is that this type of report, a cornucopia of data and commentary, would have been a for fee product not long ago. Today, the information are provided without charge. Why? The print information is no longer “must have”. The information is “nice to have”. Who wants to read about a Sisyphusian challenge. I don’t, and I have a couple of clients who don’t want any more bad news about traditional publishing either.
Exogenous Complexity
Here’s the exogenous complexity which bedevils newspapers, some magazine publishers, and even the specialty publishers.
First, the customers are shifting from the type of reading which I do at age 67 to a high speed graze and go approach. Contemplation is not particularly popular. Most of my neighbors do not subscribe to the print daily newspaper and a couple of the people working with me eschew print magazines. Reading on a mobile phone or an iPad is just fine. Without customers for print products, what do you get? Well, not many customers to whom to sell an old fashioned output.
Second, the “real” journalism industry itself is fretting because it is no longer in charge. In the old days, Barry Bingham Sr. and his son could have a direct impact on quite a few issues. Today, the impact is fuzzier, more Facebookish. What a bummer. From the arbiters of taste, thought, and social behavior to the margins of influence. Bad for the ego. Most of the publishers with whom I have worked believe the pre digital way still has a role to play. Well, maybe.
Third, the information today is just different. I know that I am losing touch with some topics because I don’t watch YouTube.com videos. I don’t post to my Facebook page which is managed by a librarian in Lexington, Kentucky, for me. I don’t send “tweets,” but I do pump out messages about new stories in Beyond Search using a software robot. The reality which I accept is that text is not where the future lies. The key is yapping at conferences, doing podcasts, posting images to Pinterest (the 2012 version of Life Magazine in my opinion), and being distracted by fragments of information. Looking for content is tough today because everyone in the chain can filter, censor, shape, summarize, and modify information. Facts are not permanent. Facts are Silly Putty.
My thoughts on the exogenous complexities for traditional publishers’ online fees are:
- The potential buyers of the traditional publishers’ online content make decisions based on nice to have versus must have
- The competition in the datasphere is not narrowed to a particular company or key player. The competition is fluid
- Technology imposes conceptual and financial hurdles. Each try raises the hurdles. Missing a hurdle makes the next hurdle more difficult to scale; that is, technology and financial failures do not make the competitor stronger
- Information itself is undergoing a radical shift. Traditional publishers are into print. The new content is different: different formats (video, social), different rhetoric (crunchy, a blend of opinion, speculation, facts, and links), different celebrities (Robert Scoble, Arianna Huffington), and different technologies (rich media, blogs).
These factors are complex, far more complicated than producing a daily newspaper was in 1985. Traditional publishers are trying but their successes are weighted with factors beyond their control and, in my opinion, beyond some manager’s comprehension.
Unless traditional publishing finds a solution to exogenous complexity, many of those engaged in traditional publishing have to do more than reinvent themselves. A career shift may be necessary.
Stephen E Arnold, March 7, 2012
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