The Search For A New Business Model

5 Mar

THE PEW RESEARCH Center’s Project for Excellence in Journalism released the findings from a fairly extensive study about newspapers’ efforts to find their footing as the business model changes. Following is a very small sampling from the long report.

From the project’s site, journalism.org, March 5, 2012:

A new study, which combines detailed proprietary data from individual newspapers with in-depth interviews at more than a dozen major media companies, finds that the search for a new revenue model to revive the newspaper industry is making only halting progress but that some individual newspapers are faring much better than the industry overall and may provide signs of a path forward.

>snip<

The industry is inhibited by several obstacles that executives themselves candidly acknowledge. One involves the difficulty of changing the behavior of people trained in the ways of a mature and monopolistic industry. Still another is the unavoidable fact that the part of the newspaper industry that is growing, digital, continues to provide only a small part of the revenue, while the part that is shrinking, print, provides most of the money — a paradox that is difficult to navigate and hard to resist. One pervasive feeling is that 15 years into the digital transition, executives still feel they are in the early stages of figuring out a how to proceed.

“We have all these [new] products we are working on that we believe are going to deliver results that are part of our sustainability,” said one executive. “But we need to eat today.”

Another senior executive, capturing a sentiment articulated by many of his peers, talked about a culture of “inertia” that made change more difficult.

Another executive told us bluntly, “There’s no doubt we’re going out of business right now.”

The problem, he explained, is the dilemma that faces many trying to innovate inside older industries. If you changed your company and did not succeed, that could hasten the end of the enterprise. “There might be a 90% chance you’ll accelerate the decline if you gamble and a 10% chance you might find the new model,” he said. “No one is willing to take that chance.”

>snip<

The good news for the newspaper industry in this data is that the percentage of digital ad revenue is growing at a double-digit pace. Overall, for the last full year for which papers had data, digital revenue at the papers studied grew 19% on average.

The bad news is that print ad sales, which still account for 92% of the overall ad revenue of the papers that provided data, fell by an average of 9%.[1] Thus the actual dollar gains were outnumbered by losses by a factor of 7-to-1 for those papers. These tallies of overall print and digital ad revenues included the last year from which the papers had complete data (2010).

We found that the highest rate of annual digital ad revenue growth occurred at those papers with circulations of 50,000 and above. At those papers, digital revenue grew 20% on average.

>snip<

In our interviews, we asked executives to identify the biggest internal and institutional obstacle at their companies to forging a successful business model.

The response was nearly unanimous. Officials at 10 of the 13 companies said their biggest challenge was the continuing tension between people in their organizations who are advocating a more aggressive digital approach and those more aligned with the legacy tradition. In essence, they described a conflict between going faster and going slower. (One other executive didn’t cite this as a problem at his particular company, but said it was the crucial issue for the industry at large.)

In other words, there remains a continuing disagreement over how to proceed.

“Probably the most difficult thing is to change a corporate culture because you don’t really have the power to do it,” noted one executive. “You can change CEOs, executive VPs, digital VPs. You can wave this magic wand all you want. But at the end of the day, the troops in the field hunker down. From our company, and I would venture for other organizations as well, the most difficult thing to do is change it. “

>snip<

The core cultural issue, executives told us, is the tension between the old ways and the new ways — and some of that stems from newspaper leadership that came of age in the days of monopoly newspapers and 20% profit margins.

>snip<

Culture change is a huge issue for the industry, warned another official who added that it’s happening at a slower pace than people think.

At one company, an official colorfully described the challenge of implementing culture change across the organization as “a contact sport, one collision at a time.”

One major reason why these collisions may still be occurring is that, despite all the travails, the print newspaper still provides the overwhelming majority of the revenue at every paper examined. Thus some of the resistance to change, executives acknowledged, was based on practicality. “We spend 90% of our time talking about 10% of our revenue,” one said. At his company, he explained, they focused much of their energy on a digital model that still wasn’t paying the bills.

John R. Kimberly, a professor of management at the University of Pennsylvania’s Wharton business school who was interviewed as part of the research, says these internal cultural tensions are “not at all atypical of industries that are undergoing disruptive change…The unhappy saga at Kodak, that’s a great example.”

“The problem is not hard to understand at one level,” Kimberly said. “You have developed a set of skills that have been valued and all of a sudden, this isn’t so valued anymore.” The pace of change at each news organization, he said, will largely depend on “who are going to be the leaders and who are going to be the followers.”

>snip<

The differences over pricing reinforce probably the strongest underlying finding of this study. The people who run the newspaper industry are unsure of where it is heading or what it will look like.

These executives stand on the front lines of a business that is also a civic institution, that has a larger purpose than making money, and that prospered for so long that its success was an impediment to innovation.

All that has been radically transformed in less in than a decade. The high water mark for newspaper employment and profitability came in 2000, a mere 12 years ago. The change since then is breathtaking by any measure, and it was hastened by the worst recession in 80 years, a recession that for newspapers has not eased.

The leadership that remains in these companies is trying to innovate while also protecting the old business that pays most of the bills, and each year newer technologies pose yet more challenges. It should be no surprise, then, that the dominant perception about the future is uncertainty.

>MORE

 

Selected tweets about the Pew study from Steve Buttry’s Twitter feed (March 5, links go to Pew story):

  • Most papers “are still largely print first operations” in sales. #DigitalFirst sales staffs “are a distinct minority.” bit.ly/yOXUiB
  • Hmmm, one paper had 63% digital ad revenue growth, another 50%. Wonder what company they might represent? bit.ly/yOXUiB
  • This Pew graphic headline is wrong: “Digital Gains Can’t Make Up for Print Losses.” They can. They just haven’t yet. bit.ly/yOXUiB
  • Not if they’re stacking digital dimes. MT @kevglobal: zite.to/xxUWvH < Pew: for every digital $, papers are losing 7 in print

 

Other takes on the Pew study:

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