Entries Tagged 'Media economics' ↓

Twice in recent weeks I’ve had conversations with fellow journalists that settled on the old advertising-versus-subscription myth: “There are just two types of revenue for news organizations – advertising and audience.”

Each time, I told them that split is too simplistic – and doesn’t match how The Bosses have historically managed the business.

I’m usually willing to cut slack on this issue – I was basically stupid about news-industry finances until I left the newsroom. But given its increasing importance, I want to elaborate on those conversations and weave in some stuff from my business-of-journalism class.

Don’t think about “advertising” or “audience” revenue. Think about why people are willing to pay you; what they are actually paying for; and how you organize to serve those customers.

(Credit-where-due note: This piece borrows heavily from the late Tom O’Malia at USC and the inestimable Clay Christensen at Harvard Business School.)

For our examples, let’s take the largest revenue category at most shops – advertising. The very notion of it as a monolith  masks the “why” and “what” questions above: The problems of, say, car dealers differ radically from those of cell-phone companies. So let’s throw out the framework of “advertisers” and instead think of separate groups of customers, and their different needs.

The “how” question? Let’s build our internal organization structure around “lines of business” – or the specialized teams (sales people, designers, product managers) who serve particular groups of customers.

Tom used to illustrate the concept like this:

The customer may seem self-explanatory: “The advertiser.” Nope. Get more granular: Used-car dealers versus human-resources recruiters. Ad buyers at Target and Best Buy seeking distribution for their Sunday sales circulars versus your neighbors publicizing their garage sale.

The benefit they receive should be similarly nuanced. This is the job the customer is hiring you to do on their behalf.

That job is not “exposure to my audience.” Remember: No one wakes up in a cold sweat at 5 a.m. thinking, “My God! I have to buy an ad in the morning!” But lots of business owners wake up in a cold sweat thinking “Where am I going to get some new customers?” – or “How am I going to find that left-handed Django engineer?” or myriad other problems.

You need to understand your customers’ problems – and how your products can help fix those problems. Those solutions can (and should) stretch far beyond mere publicity. The live-events line of business is often about making direct introductions between sponsors and certain attendees; the digital classifieds business (car sales, help-wanted postings) has evolved well beyond mere listings to using algorithms to matching specific shoppers with specific listings. A used-car dealer trying to move a lime-green Honda Civic doesn’t really care about people looking for brand-new minivans.

The sales channel is how you connect the dots – how you convince the customer that you have a product that can solve their problem – that you can deliver value to them.

In other words, don’t think of a single bucket of revenue called “advertising” – think of it as six, seven or eight different buckets, each with its own unique value to the paying customer, each requiring its own measurement and management.

Print and digital ads sold to local retailers to promote their wares? Let’s call that local display, and let’s have a dedicated team of sales reps who spent most of their days out of the office working with those clients.

The same kinds of ads sold to national cell-phone companies and really big local advertisers like the big hospitals? Let’s call that major accounts – retail, and have them work closely with our sales team in New York.

Garage sales and other general listings tucked back in the want ads? Let’s call that classifieds – other – and since most of those customers only buy a couple ads a year, let’s keep the costs way down by handling all those business over the telephone and via email.

And so on, through categories like “help wanted” and “automotive.” You could tell how seriously each line of business was being taken by The Bosses: You just looked at the quality of the managers assigned to the category. General classifieds (the garage sale and lost-pet ads) almost always had the youngest managers, and the sales teams never left the building. They sat at a phone bank with headsets on, waiting for the phone to the ring.

In theory, the best leaders and sales people got promoted over time to the biggest and toughest accounts – major local retail and the car dealers. (Theory isn’t always practice, of course: I remember flummoxing one allegedly senior rep when I kept asking why her account, the largest health-care and hospital group in town, was down 30 percent year over year in their spending with us. Have they changed their strategy? Do they have a new leader who hates our company? Are they shifting everything to radio and TV? Time after time, her only answer was “I don’t know!” until finally she yelled at me: “Look, all I know is that no insertion orders have come out of the fax machine!” No wonder that sales team had the reputation for being mere order takers, better suited to work at McDonald’s. My buddy Bill eventually fixed that.)

Thinking in terms of “lines of business” also allows you to spot new opportunities. For years, the newspaper industry treated subscriptions the way grocery stores treat milk: A loss leader. Those 99-cents-for-13-weeks circulation come-ons did not make a dime of profit. (In fact, on balance, it cost about 25 to 50 cents per copy to simply print and deliver each day’s edition; the subscription fee typically didn’t even cover those costs.) The real profits were in the advertising.

When ad revenues started plummeting in 2006-07, it took counter-intuitive thinking, and heavy-lifting analysis at The New York Times to figure out the digital-subscription puzzle: Very few people are willing to pay anything for news. But a smaller, passionate group of super-users values us so much that they will pay a lot. Hence the nearly-universal metered-wall – which a lot of people (me included) though was the height of stupidity when The Times launched it in 2009. (Tim, I apologize for all those nasty things I said.)

The point of all of this: Don’t fall into the trap of limiting your thinking to the traditional notions of “advertising” or “audience revenue.”

Instead, think of “specific jobs my organization can do to solve a problem for someone who is willing to pay us for it.” Examples? That’s another long post for another day – but here’s a hint.

If you’re able to shift your organization thinking, you – and your journalism – will be better off for it.

Got a question? Want to argue a point? Ask in the comments below.

More musings after another session of an entrepreneurial journalism course:
Four years ago, when I first taught my AU class (with the insightful Bill Day), traditional media were reeling from a double-whammy – the secular collapse of classified revenues, driven by pure-play Internet companies and the general economic downturn.
American’s grad program was awash with students from traditional media backgrounds. As Bill and I coaxed them to think through the business potential of new ventures, many of their proposals reflected what they knew: big organizations requiring multi-million payrolls and other cost-prohibitive expenses.
Through four versions of the class, that has shifted slowly, but inexorably. Today’s students tend to be younger, much more familiar with digitally native ventures – and much more comfortable pitching small, focused ideas that can be executed with very little investment.
So instead of 40-person organizations that were attempting to re-invent the newsroom of the past, this year’s group produced compelling ideas like:
– A tiny operation that combined concert listings with Storified reviews of the show from earlier stops on the tour to help users decide whether to shell out the bucks for tickets. (Watch for a test launch soon.)
– Community-driven sites combining the power of talk boards with tight editorial focus to help nurses in North Carolina, or schools struggling to pick educational technology in Georgia.
– A hyperniche sports site – not all sports in an area, not even high-school sports there. Just high-school football in the D.C. area. (Too niche, you think? It emulates successful sites in other football hotbeds.)
In fact, only one student dared to pitch a project that needed to generate millions a year in revenue to survive. That’s a tough putt – but she made a compelling case that her idea (an extension of existing video efforts at her current organization) made both editorial and financial sense. All she needed, she said, was 20-some employees.
(Any validation she wanted came the following Monday morning. Unbeknownst to her, her company had been considering a remarkably similar idea. They announced it to the world barely 48 hours after she had finished her pitch. Except they weren’t spring for 20-some employees – they were hiring 75.)
Ideas like these are what give me hope for the future of journalism. As Clay Shirky and Jeff Jarvis suggest (and teach), the future will be smaller, nimbler, and more collaborative – dozens or hundreds of small organizations rather than two or three massive ones.
I’ve left out a description of my favorite project from the class, lest I jinx it.

Let’s just say this: The premise of the class is that students must develop a project as a thought exercise. In other words, if I were to try something like this in the real world, how would I generate revenue? What problems would I seek to solve – both for my audience, and for my paying customers.

Someone in the class must not have read the word “if.”

YouTube is becoming one of those “gradually, then all at once” phenomena – like the rise of always-on high-speed internet a decade ago, or the gradual-then-sudden collapse of newspaper ad revenues from ’05-’08.

When a colleague and I first negotiated a YouTube syndication/revenue share agreement back in 2007, most of the media world treated YouTube as a novelty, a place for keyboard cats and 14-year-olds’ rants. Certainly it would never be a venue for serious content, or for real ad dollars.

Today? Media companies are falling over themselves to expand their YT presence. Talent is flocking to its burgeoning content channels. A knowing acquaintance talks of regularly cashing $10,000-a-month revenue-share checks from YouTube for his guerrilla content operation – and of people he knows who often add a zero to that figure. (Why no link? I’m respecting a confidence, folks.)

Oh, and before my friends on the broadcast side of the media business feel too smug about their record-breaking political season?

Local TV makes strong revenues (and high rates) because of its oligopoly power over geographically targeted video ads – and because there are inherent limits on its ad inventory (only 24 hours a day, only certain hours during the day with high viewership around local content, only x minutes of ads per hour). To media companies, those both feel like protection against the sort of collapse that roiled the newspaper business.

Except:

We all know the Obama campaign in particular spent boatloads on YouTube this cycle.

And I just saw my first-ever LOCAL business running a pre-roll on YouTube. Something is afoot when local businesses in the sleepy backwater of Nielsen DMA 43 start changing their ad-buying patterns.

I’m not predicting an imminent collapse in broadcast revenues. (Ad dollars do follow the audience – but usually much more slowly than new ventures would like.) But YouTube has nearly unlimited ad inventory, and breathtaking targeting abilities. Change is coming.

Two must-read blog posts from erstwhile colleagues prodded me into finishing this entry, which I started far too long ago.

It’s for all those friends of mine – unemployed, underemployed, or just feeling dead-ended in their traditional newsroom gig.

There’s a  type of job out there you might be good at. It has a title you’d probably never think to look for. Your skills might match it anyway.

“Product manager.” (Here’s an example.)

Terrible title. (Could it be more bureaucratic?)

Great job, though — especially in terms of influence and power.

Product managers get to decide what functionality to add to a website (think commenting and audience-photo submissions for a newspaper site).

They’re at Ground Zero of the launch of new freestanding brands (think of a locally focused entertainment product), or managing the digital equivalent of an old warhouse.

At its core, the role is about representing the customers (note the plural, please) in all decisions – designing a site, deciding what functions a mobile app should have, figuring out what forms of content and advertising a new digital venture should have.

Years ago, when I first started developing new products, I was struck by the similarity of product management to  the role great section editors play – especially over how to allocate your staff and what the highest priority was at the moment.

In other words, if you’re inquisitive, smart and decisive, you can be a great product manager.

Many of the great ones I’ve known and worked with started their careers in newsrooms. They’re always asking questions. They’re voracious readers of anything related to the topic at hand. They know what the competition is up to. And they’re always, always pitching new ideas.

I’m not the only one who has latched onto that analogy. Matt Sokoloff – a long-time product manager for the Orlando Sentinel and Tribune Interactive, now a Reynolds Journalism Institute fellow at Missouri, uses it with students all the time.

“A good journalist can write a good article. But a great journalist can write a great story,” he says. In the same way, “a great product manager can build a great product.”

A couple caveats – both around the idea that you can’t simply waltz into the job and play everything by ear.

Section editors and street reporters tend to rely on experience and intuition (at least they did back in that other century, when I had those jobs).

Product managers risk disaster if that’s their main research tool. They need to use real data – and if none exists, run tests to generate some. (See Eric Ries’ excellent The Lean Startup for more.)

Second, about that plural noted above: Almost every product has multiple customers – and the ones who actually pay are highly important. For most news media, that means the advertisers, not just the audience. And even those segments have sub-segments that you must understand.

Understanding all those nuances takes enormous work. But then being good at a beat, or running the best features section in the state takes work, too.

Leftover stuff:

It’s worth noting that both of the blog posts that prompted me to finish this screed tie back to perhaps the most-brilliant piece of the year about entrepreneurial journalism: David Skok and James Allerton’s remarkably thorough three-part discussion with Harvard Prof. Clayton Christensen.

The piece takes Christensen’s groundbreaking research on disruptive technology and applies it to the business side of news. It’s a true must-read for anyone interested in the future of our business – and it’ll be required reading for the next group of students I’ll be teaching at AU.

Finally, if you want a condensed, rigorous look at those ideas, get your boss to send you to API’s upcoming session on disruptive innovation for news, part of its Transformation Tour.

My friend and former colleague Bill Day and I just finished a great six-week course in entrepreneurial journalism for 18 graduate students in American University’s Interactive Journalism master’s program.

We set out to be intentionally provocative, because Bill and I have seen too many great ideas for projects and products turn into smoldering wreckage because of miscommunication between journalists and business folks. (OK, and partly because Bill and I just like being provocative.)

So we taught it as if it were a master’s level business-school class. We used case studies about interesting media start-ups. We taught the ABCs of financial statements (yes: We made journalists look at numbers) and the grandular details of different revenue models. And we required every student to pitch a sustainable news-and-information venture.

We heard some terrific ideas. But as Tom O’Malia*, a serial entrepreneur and director emeritus of the Lloyd Grief Center for Entrepreneurial Studies at USC,  reminds anyone who will listen: Ideas are cheap.

Entrepreneurial ideas are only useful if they can be refined into a workable business concept – one that has real, paying customers, and delivers clear value to those customers.

Tricky distinction, especially for reporters.

No, your audience is usually not a paying customer. (We won’t get into the tiresome paid-content discussion here – but even at newspapers and magazines, subscription fees from the audience are a small portion of revenues, and an even tinier portion of the profits. The real paying customers are the advertisers.)

We were gratified at how quickly the group caught on.

Many of the ideas were terrific, and got only better by the final pitch session. We’re going to be intentionally vague about the specifics – several folks are still working on their ideas with an eye towards actually executing them in the real world. Suffice to say our interest was piqued by proposals to:

• Mine rich internal archives of entertainment reviews at a major media company
• Connect reporters and people who have compelling information to, um, share. (“Leak” is such a loaded word, wouldn’t you agree?)
• Attack a classified-advertising niche that has largely – and strangely – been left untouched. So far, anyway.

Great. But you know what was even better?

The weak ideas – the ones that started life as “Hey, kids! Let’s put on a website!” (All credit to Mark Potts for that line.)

Over just two months, those weak ideas got better. From vague beginnings emerged sharp proposals to create:

• A unique alliance around a hyperlocal site to provide modest, yet stable, funding that doesn’t rely on local ad dollars.
• Community and hobby-driven sites that focus on narrow, but attractive, niches. (All I’ll say about one of those niches: The hobbyists scraped together $15 million to construct a building for their pastime?!? That’s a niche I’d like to capture.)
• A clever blending of non-profit status, cheap technology and Internet cafes to support women in West Africa.

The point here is not that all of these ideas will work. Perhaps none will.

The point is that 18 young people – hard-core traditionalists, inexperienced cubs, even some NGO and government types – innovated. They combined creativity, perseverance and some basic business principles to develop concepts that are worth testing in the marketplace.

And therein lies the future of journalism: Smaller, nimbler, more creative.

*(As an aside: Bill and I owe a huge debt to Tom for graciously sharing his curriculum and research.)

Some of them, anyway.

Over the past month or so, I’ve been plowing through an extensive stack of resumes to fill some openings on my new team at PBS.

Many of the resumes were sort of sad – those of journalists with impeccable traditional credentials, and no clue what I meant when I asked for work samples that showed creative use of different digital story forms in service of the content.

Call ‘em The Lifeboaters:  “This digital thing is going to be huge, and I’d be proud to learn it from your team!”  Umm, sorry. The ship that you want left 15 years ago. The good news: New ships leave everyday if you’re willing to swim out to the meet them. WordPress.com offers blogs for free. Start there, keep playing, and we’ll talk in a year.

A second pile included people who are incredibly good … at a singular thing. Call ‘em the The One-Skill Wonders: Very adept at slideshows. Or digital video. Or shoveling existing text onto a page. Yes, those are useful skills (and, candidly, they’ve been enough to get very good production jobs at many shops for a long time.) But that’s not what my team is trying to do.

Happily, however, there was a third pile of those resumes: Digital natives (or digital immigrants who work hard to remain conversant) who understand the whiz-bang toys are only useful if they serve the story. They also understand there will be a new whiz-bang tool next year.

My favorite example: One of the candidates is a wizard at a certain vector-graphics program that’s hideously expensive, ridiculously proprietary, notoriously hard to learn – and incredibly useful. Which, of course, leads some to treat it as the Universal Truth to all journalism questions, and to treat themselves as priests.

Not this guy. He wouldn’t bite on my trick question (something about whether this program was the most useful skill he’d ever learned): “The technology is always changing, so I just feel like the ability and willingness to adapt is the best skill someone can have.”

Guess what? He got an interview. So did most of the others in the third pile. They’ll be the ones making up our new team.

It was hard not to notice a few commonalities among them. An awful lot of them passed through Medill at Northwestern, American University in D.C., or Cal-Berkeley. Several also received one of the fabulous summer-long News 21 fellowships.

I’d be horribly remiss if didn’t mention the excellent program at CUNY; as it happens, none of its kids choose to apply. I’d be equally remiss if I didn’t point out that some name-brand journalism schools aren’t on this list – and that’s not an oversight.

The kids in that third stack are solid reporters and great storytellers. When pressed, they talk about technologies as means to an end – tools they can use in service of the story, not as a flashy adornment to it. They also used overly long sentences to offer variations on a motto a longtime colleague used to have on his blog: Semper Gumby – always flexible.)

Of course, one of the people I hired said it far better than I can.

I hope this forms an optimistic riposte to a discerning entry from Wayne MacPhail on PBS’ Media Shift blog. MacPhail makes an impassioned observation that J-schools are failing their students by defaulting to traditional story forms, taught by traditional professors, with barely a mention of the information revolution occurring around us. He’s right.

Too many of my friends – the first-generation digital pioneers now in academe – talk privately about the battles they fight with tenured colleagues who insist that circa-1994 curricula are just fine¸thank you and have served generations of graduates with distinction!

Fortunately for our craft – and for my project – a few schools are taking another path. Some of their grads are going to help us at PBS.

My friends at the Online News Association put together a terrific program at the University of Alabama-Birmingham for entrepreneurial journalists and others interested in starting news and information sites. (Thanks to the Gannett Foundation for the necessary financial support.) 

I spoke a bit about emerging business models to support these kinds of sites (and – plug warning – the work of my partners at GrowthSpur).

You should search on Twitter for the #ONAUAB hash for some of the fascinating discussions that grew out of the sessions. Less fascinating, perhaps, was my presentation – but for those who asked for it, it’s here.

(Why, yes – I used Prezi. My friend Tim Windsor snarks that Prezi screams 2009 the same way a Yamaha DX7 synthesizer screams 1983. But, hey, I liked a-ha.)

Also: Here’s Robert Hernandez‘s excellent presentation on how journalists can use social media tools (both to build audience, and to be better reporters).

And @DannySanchez’s informative riff on free tools doesn’t have a perfect online analog – but he writes about nearly all of those tools (and even more) on his blog, Journalistopia.com.

When you check out Tigers.com this morning, you see video of a brilliant catch … but not of a badly botched call that cost a team a perfect game.

Similarly, if you check out TwinsBaseball.com, you see video of home runs … but not an equally botched call that cost the Twins (disclosure: my favorite team) the game.

All credit to MLB Advanced Media: The glaring videos are available on the sites. You just have to hunt for them. (The Tiggers’ video is on the story-level page; the Twins/Mariners’ um, “infield single” is utterly buried on the site’s video ghetto.) Frankly, YouTube was easier. (Wondering if MLBAM has take-down notices flying this morning.)

A small thing, perhaps, in a world where cellphone and surveillance video is used as a publicity weapon in an international incident, and a major oil company is behaving like Keystone Kops in the Gulf – but one more tiny example of odd results when the economics of publishing change.

The Knight Digital Media Center’s entrepeneurial bootcamp at USC has been terrific. (Search #uscnewsbiz on Twitter to get a feel for how terrific.)

Here’s a bucket o’ links and resources I referred to in the discussion at the Knight Digital Media Center’s Entrepreneurial Boot Camp. (They may be useful, of course, to other journopreneurs.)

• First and foremost: As you think about revenue, don’t fixate on one source – no successful media outlet ever has. Look for several – specific ideas in this link .
• I freely admit that I’m a history geek (How many Virginians does it take to change a light bulb? Four – one to unscrew, three to give you the history of the old one all the way back to the landing of the first English colonists at Jamestown.) If you want to understand the context of today’s media revolution, here are some terrific (I’d say essential) readings.
• The number of independent news and information sites is exploding. To keep up – and to spot trends in sustainability – three sites are particularly helpful:

J-Lab at American University

The New Business Models for News project run by Jeff Jarvis at CUNY

The Collaboratory run by the Reynolds Journalism Institute at University of Missouri

• Several specific essays and blog posts have become intellectual watersheds of the independent-site phenomenon. I’d encourage you to read Jay Rosen’s “the people formerly known as the audience” piece – it reads like a manifesto. Similarly, Jeff Jarvis’  notion of “do what you do best, link to the rest” is critical. If you ever need to remind anyone of what’s at stake, Clay Shirky’s talk at Harvard in late 2009 is calmly frightening. Scared? Good. Now, for a glimmer of hope, read James Fallows’ piece on how Google just might not be the enemy Rupert et al think it to be.
• Enough of the intellectual stuff. Let’s get to work. And because we’re broke entrepreneurs, we’ve got to do it cheaply. Here’s some free and low-cost stuff.
• Finally, something to keep an eye on. It’s no exaggeration to say that Journal Register Company historically ran some of the worst newspapers in America – small-town dailies and weeklies with antiquated equipment, dispirited staffs, crushing debt and Dickensian management policies. New CEO John Paton is dragging it out of bankruptcy with a refreshing “question everything” style. JRC’s Ben Franklin Project set a goal of publishing an existing daily and weekly using nothing but free and open-source tools – and succeeded. It’s brilliant experimentation, worth stealing.

Also: Here’s the link Susan Mernit mentioned to Brad Feld’s VC site.

I’ve been preparing a presentation to the terrific News Entrepreneur Boot Camp at the Knight Digital Media Center next week. I’m part of a panel of folks who have transitioned from the newsroom to business-side roles.

As part of the prep work, I’ve re-read a hefty stack of posts about emerging revenue models for news – advertising-supported for-profits, L3Cs, non-profit structures, even the wishful-thinking paid-content model.

Running through many of the pieces was an irksome thread: A focus on single solutions. Most framed the discussion in terms of “what’s the source of revenue,” as if there were a magic bullet that can solve every operation’s money woes.

There isn’t, of course. What’s more important, though, is there never has been. In times like these, naiveté isn’t charming – and for entrepreneurial journalists, it can be downright dangerous.

No successful news media organization has ever relied solely on a single source of revenue. In fact, the most successful industry segments – newspapers, magazines and broadcast stations – have long had many revenue sources, almost too many to list.

There’s more elaboration – and a rough list of the different sources — in this deck.

Key takeaways:

-  Don’t think too broadly. Even something as seemingly straightforward as “advertising” isn’t a single source of revenue. There are myriad advertising products – each with distinct strengths and weaknesses, sets of customers and sales models.

- As you plan the revenue models for your own proto-business (that’s what start-up journalism sites are, folks), copy the best of traditional organizations. Find multiple streams of revenue.

(Lest this come off as too scolding: I think it’s fantastic to see journalists actually interested in this sort of question. For decades, most of us acted as if the money that powered our organizations was created by magic. Worse, some assumed that it was the result of their brilliant journalism. For a welcome example of incisive, if tardy, analysis, see James Fallows’ terrific Atlantic piece on Google and the news industry.)