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;Â 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.
