Hard economic lessons for news
I’m working on a talk that I hope will become the canonical link to my essential message about the business rules and realities of news. I continue to be astonished at the economic naiveté I hear in discussions of the business of news. (Look at this comment thread and and this one.) Here is my answer, the basis of a talk — to be delivered in tweets, in the model of John Paton — and a lesson for my classes. Work in progress. Thoughts so far; please join in….
RULES FOR BUSINESS MODELS
* Tradition is not a business model. The past is no longer a reliable guide to future success.
* “Should” is not a business model. You can say that people “should” pay for your product but they will only if they find value in it.
* “I want to” is not a business model. My entrepreneurial students often start with what they want to do. I tell them, no one — except possibly their mothers — gives a damn what they *want* to do.
* Virtue is not a business model. Just because you do good does not mean you deserve to be paid for it.
* Business models are not made of entitlements and emotions. They are made of hard economics. Money has no heart.
* Begging is not a business model. It’s lazy to think that foundations and contributions can solve news’ problems. There isn’t enough money there. (Foundation friend to provide figures here.)
* There is no free lunch. Government money comes with strings.
* No one cares what you spent. Arguing that news costs a lot is irrelevant to the market.
* The only thing that matters to the market is value. What is your service worth to the public?
* Value is determined by need. What problem do you solve?
* Disruption is the law of the jungle and the internet. If someone can do what you do cheaper, better, faster, they will.
* Disrupt thyself. So find your weak underbelly before someone else discovers it. Or find someone else’s.
* The bottom line matters more than the top line. Plan for profitability over revenue, sustainability over size.
REALITY CHECKS FOR NEWSPAPERS
* Circulation will continue to decline. There can be no doubt.
* Cutting costs will reduce product quality and value, which will further reduce circulation, which will further reduce ad revenue. A vicious, unstoppable cycle.
* Low-cost competitors and abundance will continue to reduce the price of advertising.
* Local retail will continue to consolidate, further reducing ad revenue. Blame Amazon.
* Classified categories—real estate, auto, jobs, merchandise—will continue to become more self-sufficient. They will need market mediators less and less.
* There’s a cliff coming: the end of a critical-mass of circulation needed to maintain inserts. That will have a big impact on newspapers’ P&Ls and will take away a primary justification for still printing and distributing paper.
* Some readers are not worth saving. One newspaper killed its stock tables, saved $1 million, and lost 12 subs. That means it had been paying $83k/year to maintain those readers. In creating business plans, the net future value of readers should be calculated and maximized.
* Once fixed costs are sliced to the bone, they will rise again.Cutting alone does not a business strategy make.
* “The newspaper model is broken and can’t be fixed.” SaysJohn Paton.
* Scaling local sales is the key challenge. Google will pick low-hanging fruit from the 6 million businesses that have claimed their Places pages. Facebook’s fruit will be businesses that use its free Deals. Each will use distant sales. Groupon and Patch will attack the challenge with the brute force of local sales staff.
* There will always be new competitors. For content, attention, advertising, and advertising sales.
* You no longer control the market. You are a member of an ecosystem. Play well with others.
* Abundance will drive down prices in digital even more than in print. That’s the lesson Google tries to teach media (and government).
* The question about pay walls is whether they are the *best* way to make the *most* money. It’s not a religious matter. It’s a practical question of whether circulation revenue will net more than equivalent advertising, whether one can afford to give up audience and growth, what the costs are to support pay.
* Scaling local sales is the key opportunity. I think the answer will lie in productizing services for local merchants (across all these platforms — not just selling them space in a media site but also helping them with Google Place pages and Foursquare and Facebook deals and Twitter specials) and establishing new, independent, entrepreneurial sales forces. The key challenge then will be holding down the cost of sale and production.
* There is huge growth potential in increasing engagement.Facebook gets roughly 30 times the engagement of newspaper sites, Huffington Post’s engagement is also a multiple of newspapers’. If we are truly community services, then we must rethink our relationship with the public, becoming more a platform for our communities, and that will multiply engagement and, with it, audience, traffic, and data. We have not begun to extend and exploit the full potential of the value news organizations can have in relationships with their communities: more people, more value, more engagement equals more value to extract.
* There are still efficiences to be found in infrastructure. If the presses and the distribution and sales arms of papers are not in and of themselves profit centers, they should be jettisoned and their tasks outsourced. If other tasks — including editorial tasks — can be consolidated, they should be.
* Journalists should do only that which adds maximum value.That’s not telling the public what it already knows. It’s not exercising ego. It’s not production. It is reporting, vetting, curating, explaining, organizing, teaching…. Do what you do best and link to the rest.
* There is growth to be found in networks. The more members there are in the ecosystem, the more content there is to link to (without having to go to the cost of creating it), the more opportunities there are for free promotion (links in), the more opportunities there are in aggregated and joint sales. See our work on new business models for news in the local ecosystem at CUNY.
* There are efficiencies to be found in collaboration. Working with the community and with other members of the ecosystem enables a news organization to specialize and increase value and to do more with less.
* There are other revenue streams worth exploring. Local bloggers are making considerable shares of their revenue in events. Newspapers are going into the real estate business and are alsoselling merchandise.
* We have not begun to explore new definitions of news.