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Legacy news organizations (newspapers, magazines, and broadcasters) are confronting three critical relevance challenges as the digital world matures: Changing business configurations and characteristics, declining value of traditional news and informational content, and unhealthy attitudes toward audiences. These challenges will need significant attention if they are to be successful in the new information environment.   During the twentieth century news products were widely used, fast-moving consumer goods. Because media operated in relatively inefficient markets, news organizations were cash-producing investments with high cash flows that yielded high profits. Newspapers had asset-heavy balance sheets and excellent equity positions. The business drivers of the legacy news industry in the latter half of the twentieth century were g rowing consumption in absolute audience sizes (but declining penetration that most executives ignored). Companies changed high prices for advertis...

There has now been enough experience and research to draw conclusions about how news is transitioning to the digital world and what it means for news companies. If one objectively views the developments, one sees that the current developments are is neither as bleak as some journalists portray them nor as rosy as some digerati frame them. Instead, we have reached a point where digital news is becoming workable in commercial terms, but is not yet mature enough to erase the industry's business challenges. News consumption in the digital environment is significant and audience reach is now 5 to 10 times larger across digital platforms than for print editions of most newspapers.   Many large news organizations are now generating 15-25 percent of their revenue from online, tablet, and smartphone platforms and benefits are starting to appear for some mid-sized players as well. If we look at what has occurred in the past decade, there are some important lessons to embrace about news ...

Facebook is wrestling with a business challenge more traditionally found in legacy media: how do you translate consumers that don’t think they have a commercial relationship with you into relationships that that other firms will pay for? Despite 955 million active users and increasing revenues, the company has lost a third of its share value since its IPO in the spring.   The exuberance that surrounded its IPO and overpriced its shares has worn off and investors are realizing that being big isn’t enough to ensure business success. Its latest earnings reports show the firm lost money, $157 million, in the second quarter on income of $1.18 billion. Facebook’s challenges are symptomatic of a long line of “successful” digital firms that are experiencing monetization problems, including Yahoo, You Tube, AOL, and Twitter. Despite large numbers of users globally, they still lack effective business models to generate revenue levels congruous with their size. They may provide...

The income streams of digital news providers continue to grow and many have now reached the point of sustainability. Fundamental financial and business problems, however, are keeping publishers from moving out of print and becoming digital-only operators. This leads many publishers and journalists to continue bemoaning the fact that digital media do not provide as much income as print and many still argue that organized, regular newsgathering and distribution cannot survive in a digital-only environment. They point to the fact that digital advertising produces only about 15 percent the income of print advertising—largely because it does not appeal to retail, display advertisers--and that paid circulation for digital products is growing slowly. Their analysis is flawed, however, because publishers do not require as much revenue online as offline because the costs of digital operation are so different. Editorial operations account for only about 10-15 percent of total costs of opera...

Making small digital news providers sustainable has become the holy grail of journalists and the search continues for workable business models and revenue streams. Advertising may produce some revenue, but it will never generate sufficient resources to support digital journalism because so little advertising money is available for sites with small audiences. About three-quarters of all online advertising goes to the top 10 sites and Google, Facebook, Microsoft, and Yahoo account for about 60 percent of all online revenue. This leaves very little advertising expenditures to be contested among all other players--of which news providers are only a small fraction. At the same time, the prices paid for online advertising are falling because there are so many sites offering advertising, the advertising inventory is nearly infinite, and audiences continue fragmenting. This means the majority of funding for start-up digital journalism must come from elsewhere and online news sites—especially s...

Netflix used to have a charmed life. This year, however, poorly thought out strategy and lurching decisions are stripping away many of its advantages and making it vulnerable to competitors. Established in 1997, its founders saw opportunities in creating an Internet-based DVD-by-mail distribution system. It was designed to be a competitor to physical video stores, making it more attractive by offering a larger selection and using a unique IT driven distribution system that combined distribution centers across the country to serve customers within 24 hours at highly attractive prices. The DVD-by-mail service became a hit, ultimately devastating the market of physical stores such as Blockbuster. By 2007 it had delivered more than 1 billion DVDs to customers. That same year it launched on-demand video streaming service so customers could also select a video and stream it to a PC (and later other platforms) for immediate viewing. The company allowed viewers a h...

What do you do when your industry is changing? What do you do when your innovations are fueling the changes? Those problems have plagued Eastman Kodak Co. for three decades and the company’s experience provides some lessons for those running legacy media businesses. Eastman Kodak’s success began when it introduced the first effective camera for non-professionals in the late 19 th century and in continual improvements to cameras and black and white and color films throughout the twentieth century. Its products became iconic global brands. The company’s maintained its position through enviable research and development activities, which in 1975 created the first digital camera. Since that time it has amassed more than 1,100 patents involving electronic sensing, digital imaging, electronic photo processing, and digital printing. These developments, however, continually created innovations damaging to its core film-based business. Digital photography created a strategic dilemma for the com...

The decision by News Corp. to dump MySpace once again reveals the risks of over exuberance toward digital companies that do not have a proven business model or long-term customer loyalty. There are plenty of digital investments that meet those requirements, but a number of the most hyped firms moving toward IPOs and acquisitions do not. They need to be considered with hard headed pragmatism. MySpace was launched 2003 and rapidly became the toast of the digital world as a social networking site and “the place” for musical stars and fans to connect. By 2005 it was the fifth most visited site on the Internet. New Corp., which was anxious to benefit from growth in digital media, jumped at the opportunity to acquire the service and paid $580 million in 2005. It was an enormous price for a company with an unclear revenue potential. Within two years MySpace had grown to be the world’s number one social networking site and was receiving 100 million unique monthly visitors. But it still had rev...

Google announced this month that it is ending its ambitious project to digitally archive newspapers. The project to scan the archives of the nation’s newspapers and make them available online as a searchable historical record was announced in 2008 with the level of hubris only found in online enterprises. "Our objective is to bring all the world's historical newspaper information online,” said Adam Smith, director of product management at Google, announcing the project. Those lofty aims were echoed by Punit Soni, manager of the newspaper initiative: “As we work with more and more publishers, we'll move closer towards our goal of making those billions of pages of newsprint from around the world searchable, discoverable, and accessible online…."Over time, as we scan more articles and our index grows, we'll also start blending these archives into our main search results so that when you search Google.com, you'll be searching the full text of these newspapers as w...

The proposed international treaty on the protection of broadcasters is inching forward after nearly 10 years of consideration and member states of the World Intellectual Property Organization and other stakeholders are moving toward consensus on the central elements of what it is to do and what is the object of the protection. Much of the rhetoric of stakeholders—particularly pay TV channels and sports rights organisations—has led many to believe it is about protecting their business models and revenue. They have done the proposed treaty a disservice. It is about protecting the value creating activities of broadcasters in content selection, packaging and distribution—something that is not protected by copyrights, but can be protected with a neighboring right. What the treaty is intent on doing is protecting the broadcast—in a signal and derivative of the signal—which embodies the broadcasters value creation activities and is the object of the proposed protection. The result may assist ...

A growing number of firms are aggressively pursuing the market for information by providing material that answers online searches and employing strategies so their material appears high in search results. These enterprises are providing high quantity, low quality material on topics designed to produce many search hits and driven by the desire to make money from advertising received as high traffic sites. Some are proving quite successful. Demand Media, for example, uses about 13,000 freelance writers to produce about 4000 articles a day for which it gains about 95 million unique visitors with more than 620 million page views monthly. Its eHow.com site alone gets about 50 million users. Ask.com, Yahoo and AOL are also engaging in the market. When you make a search and are taken to answer.com, dictionary.com, wikianswers.com or hundreds of other sites providing such information to the public, you encounter this mass produced content. The business strategy is working and many of the sites...

Newspaper publishers need to explore new methods of pricing content as they expand their digital portfolios because merely transferring the methods used in print can never bring the success publishers desire. Print newspaper publishers have traditionally tended to set prices based on production and distribution costs and not on value created. Unfortunately, this has made it impossible to possible to obtain a price premium for factors such as prestige, service, experience, and convenience. New digital operations, however, provide significant other pricing options because they differ in terms of whether they maintain the existing content bundle, whether non-payers can be excluded from use, the types of experience they deliver and how they are used. Digital media require significant new thinking because they tend to be joint and complementary products with print. These lend themselves to selling strategies of bundling and versioning that permit uses of bundle pricing, option pricing, mult...

Following hearings on the state of newspapers this past year, the U.S. Federal Trade Commission staff has now prepared a discussion paper of potential policy recommendations to support the reinvention of journalism. It is a classic example of policy-making folly that starts from the premise that the government can solve any problem—even one created by consumer choices and an inefficient, poorly managed industry. Most of the proposals are based in the idea of using government mechanisms to protect newspapers against competitors and to create markets for newspapers offline and online. The FTC’s staff ignores the fact that most newspapers are profitable (the average operating profit in 2009 was 12%), but that their corporate parents are unprofitable because of high overhead costs and ill-advised debt loads taken on when advertising revenues were peaked at all time highs. It also fails to make adequate distinction between longer term trends affecting newspapers and the effects of the c...

Commercial media have faced product and price challenges in 2-sided markets for more than a century, but are encountering greater difficulties in getting it right as they try to effectively monetize multi-sided markets. 2-sided and multi-sided markets are ones in which more than one set of consumers must be addressed and there is an interaction between strategies and choices for each set of customers. Prices for one group of consumers affects their consumption quantity and this, in turn, affects the prices for and consumption by the other groups. Optimal revenues can only be achieved by dealing with all groups of consumers simultaneously. Newspapers are a classic example of 2-sided platforms. The first product is the content sold to audiences and the second is access to audiences that is sold to advertisers. This has been the basis of the mass media business model since late 19th century and the strategy has been to keep circulation prices low to attract a mass audience and then to mak...

Media executives around the globe are clamoring for new and alternative business models and industry associations everywhere are holding seminars and conferences on how to create and discover them. There is just one problem: They don’t know what business models are. When you cut through the rhetoric, you find that most executives are merely interested in finding new revenue streams. Even when you consider firms touted as having best practices in that regard, none have been very successful in establishing them. The reason is simple: The dominant thought about business models is highly limited and far too narrow to solve the contemporary challenges of media industries. Business models are not merely about the revenue streams. Instead, they establish the underlying business logic and elements. They involve the foundations upon which businesses built, such as companies’ competences, value created, products/services provided, customers served, relationships established with customers and pa...

Industry, scholarly and policy discussions about the future of the news industry in North America and Europe continue to focus on how news enterprises can sustain themselves in the 21st century. Publishers keep asserting that things will be fine if they can erect pay walls and charge for news online and they argue that governments should provide legal protections for online news so they can make news a viable digital business product. Their approach is wrong and ignores the fundamental reality that news has never been a commercially viable product because most of the public has been, and remains, unwilling to pay for news. Consequently, news has always been funded with income based on its value for other things. Historically, the first collection and dissemination of news was funded in ancient times by emperors and kings, who used governors and officials throughout their realms to collect news and information and send it to the seat of power. Emissaries, consuls, and ambassadors collec...

Pink Floyd was always a unique rock group and understood its music as a form of artistic expression. It evolved from psychedelic music in the 1960s to progressive rock known for rock instrumental and acoustic effects in the 1970s. The group often saw their albums as integrated works of art in which subsequent tracks built upon earlier ones. They considered their entire recording to be art; that the ordering of tracks was part of the expression and should not be altered, and that the album should be enjoyed as a whole not merely as a collection of individual songs. Even the album covers got special artistic attention reflecting their content and experiences. The band felt so strongly about the art of its music that it negotiated a contract with EMI that included a provision to “preserve the artistic integrity of the albums.” Consumers obviously thought Pink Floyd got the art right, helping the group achieve 16 gold, 13 platinum, and 10 multi-platinum albums. Two of its albums sold more ...

The struggle to control prices of digital content sold online continues, with producers and distributors battling over prices for downloads of books and music. In the latest skirmish, Amazon removed Macmillan books from its website after the company protested that online retail was using monopoly power to force publishers to accept prices no higher than $9.99. Macmillan and other publishers have now signed distribution deals with Apple that allows them to price downloads at $12.99 and $14.99. Producers, of course, want higher prices because they produce higher revenue and better profits. The struggle to control prices is not unique to the online environment. In the offline world, producers of books, magazines, CDs, and DVDs have long struggled to gain limited shelf space because there is a large oversupply of products and retailers’ have selection preferences for popular, rapidly selling products. Large national and retailers have also used their bargaining power to push wholesale and...

Efforts to professionalize journalism began early in the twentieth century as a response to the hyper commercialization of newspapers and the “anything goes” approach to news that emerged in the late nineteenth century as a means of increasing street sales through sensationalism, twisting the truth, and outright lies. The impetus for journalistic professionalism originated among publishers who wish to counter the trend and it gained support of journalists who saw it as a means of improving their working conditions and social standing. Journalism training and higher education programs, professional societies for journalists and editors, and codes of ethics and conduct emerged as part of professionalism. These promoted the core values of accuracy, fairness, completeness, and the pursuit of truth. These efforts improved industry practices, pushed out the worst journalists and publishers, and creating some trust in the content of news. They also created environments in which advertisers we...

It is obvious that both the offline and online news providers are in the midst of substantial transformation and that the traditional means of funding operations are no longer as viable as in the past. This is disturbing to the industry because it has enjoyed several decades of unusual financially wealth and few in the organizations know how to find and generate new sources of revenue. The financial uncertainty facing the industry is not unusual, however. We tend to forget that news has historically been unable to pay for itself and was subsidized by other activities. In the past newspapers and other news organizations engaged in a far larger range of commercial activities than then they do today and publishers had to be highly entrepreneurial and seek income from a wide variety of sources in order to survive. The initial gathering and distribution of news was paid for by emperors, monarchs, and other rulers who needed information for state purposes. Later, wealthy international mercha...