Money has no heart
Anthony Muchoki
Hard economic lessons for news
http://www.buzzmachine.com/2011/04/25/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?
* 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.
* 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 newspaper model is broken and can’t be fixed.” Says John Paton.
* 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. A vicious, unstoppable cycle.
* Falling circulation will continue to reduce ad revenue.
* 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.
* Once fixed costs are sliced to the bone, they will rise again. Cutting alone does not a business strategy make.
DIGITAL RULES
* 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.
OPPORTUNITIES
* 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 also selling merchandise.
* We have not begun to explore new definitions of news.
This entry was posted on Monday, April 25th, 2011 at 8:39 am and was tagged jrc, newbiznews, newspapers, tow-knight, twitter.
59 Responses to “Hard economic lessons for news”
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Andy Freeman says:
Unique gives you pricing power; customers won’t pay you more than someone else charges for the “same” thing from someone else. Value as perceived by customers is how much you can charge – it has nothing to do with costs.
Good only comes in in so far as it is valued by customers and doesn’t help at all with unique.
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Jeff, I totally agree with your points. Here in Spain there is a lot of naiveté and many journalists hope that when our country’s economic crisis is over, newspapers and traditional media will be again the big-buck businesses they were. I keep on telling them it’s impossible and media has to transform and adapt in what is going to be a painful process, but it seems no one has learnt from what happened to music industry and all the business models that are changing from atoms to bits. Thank you for sharing these thoughts!
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* Value is determined by need. What problem do you solve?
I’d lose this one. The others are pithy, direct, unambiguous. This one, not so much.
Just having the business model list handy when in a discussion would be great, since so many of the bad arguments can be answered with one of those phrases.
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“You can say that people “should” pay for your product but they will only if they find value in it.”
How about, “… but they will only if they find more value in it than in your competition.”
@DanFarfan
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“Business models are not made of entitlements and emotions. They are made of hard economics.”
I think “made of” is the wrong phrase, as long as “emotion” is on the table. The sales process will always contain emotion. The business model will always contain sales.
Perhaps a phrase that focuses this point on “foundation” instead of contains.
“Successful business models are founded on economics, not entitlements and emotions.”
There’s a bit of poetry in that version. Although I doubt you want to make the necessary but less pleasing distinction in *every* statement between “business models” and “successful business models.” So, I suppose the better wording is,
“Business models are founded on economics, not entitlements or emotions.”
@DanFarfan
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“Government money comes with strings.”
reword:
“Even Government money comes with strings.”rewrite:
“Take Government money and the rest of the camel will be in your tent, forever.” Ask a charter school if they are subject to more state regulations now or the year they opened. -
Disagree with @jayackroyd – “What problem do you solve?” is the absolute key to your existence that you MUST understand. We, for example, didn’t even set out to solve a problem/need, not even to create a business. A need existed and found us; we happened to be listening, and responded. That’s how our service continues to evolve – we keep listening, and responding. (You might need a line along those lines, too.) “Filling a need” also speaks to the fact that “I want to” is completely devoid of meaning.
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“RULES FOR BUSINESS MODELS”
reword:
The Truth about Business Modelsrewrite:
The Truth about Models and MartyrsThis will allow you to pit what the old school newspaper warhorses say, believe and do head to head against your business model wisdom.
@DanFarfan
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Or maybe a slight rewrite… of my rewrite
“The Truth About Business Models and Newspaper Martyrs”
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“Some readers are not worth saving.”
“Cutting costs will reduce product quality and value, which will further reduce circulation. A vicious, unstoppable cycle.”
These two argue against each other. The stock tables was a $1m cost that was easy to cut once understood. For the second one to be valuable, it must have an adjective. “core costs”?
The message is good, “Connect the dots between every cost and the revenue it contributes.”
Perhaps you want to highlight the vulnerability of NOT having a deep, accurate understanding of that connection with something such as this:
“Randomly cutting costs…”
or even…
“Haphazardly cutting costs…”@DanFarfan
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Amen. Very candid and insightful summary of the status of the “great dislocation” being caused by Digital Media.
The only slight disagreement concerns the future – or lack thereof – of the “link economy”. The idea of sending folks off your site simply because you cannot afford to produce everything they might like to consume is a vestige of the past. There is no reason publishers cannot simply bring the content their visitors want into their sites rather then send visitors away to a place they can’t make any money. It just does not make sense in a media business. Rather, content to “route” to where it is in demand and infrastructure needs to exist to make sure content owners are paid when their content is consumed on another’s site. Its not that hard – we are building it and it works just fine….
Gregg Freishtat
CEO, Vertical Acuity-
The way I express this is that there are now two creations of value: the creation of the content and of the public for it. There needs to be a marketplace for the exchange of value in both. Doesn’t matter where it appears. Indeed, better to go to where the people are then to still — as media have — make them come to us.
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Joe says:
Hey Jarvis: are you still bullish about lazy aggregation as the future of economic success in media?
http://blogs.forbes.com/jeffbercovici/2011/04/25/google-traffic-to-demand-media-sites-down-40-percent/
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Fantastic!
I’d add one to the top section (or maybe modify “should is not a business model”): Risking your life is not a business model. As difficult as your job is, as deserving as you might be, there is no inherent requirement for people to give you money.
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Use the phrase “model dead” to describe a business (or industry) crippled by a business model that’s no longer rational, plausible or even living.
Then if you want to have a section that injects a bit of whimsy into the mix, invoke Jeff Foxworthy with a series of these:
“If you’re paying an employee to type something into a computer that your customer can and will type for free, you might be model dead.”
“If your employees spend their day answering questions your customers shouldn’t even have, you might be model dead.”
“If copy/paste masquerades as value added, you might be model dead.”
One by one, bridge the gap between the old-fashioned and the newfangled.
… of course just like with the “redneck” schtick, the “might be” adds to delivery.
)@DanFarfan
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Out of curiosity, which paper was the stock tables killer?
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Jane says:
Name of the newspaper is The Star-Ledger. As in Pulitzer Prize-winning paper in Newark, N.J. that you described on Twitter as “looking like a witch under water.”
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Harry says:
You say: Local retail will continue to consolidate, further reducing ad revenue. Blame Amazon.
Yet retail began consolidating long before Amazon, as Federated and Macy’s bought up local department stores, not criticized by local newspaper owners who themselves planned to sell out to Gannett/Knight-Ridder. If consolidation was good for them, it was good for retail, too. By the time they realized their mistake (if they have), it was too late to save those dozens of full pages of competing store ads. They won’t be back, no matter what Amazon does.-
True. Now the consolidation is occurring up the supply chain, eh?
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This is a great post. At Kapost, we recognize these realities and that’s why we’re making tools to allow publishers to continue to create content but much more efficiently. Want to have a bunch of freelancers instead of writers on staff? That’s what we enable.
Great post Jeff, you really captured the issues.
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Joe says:
Ah, the great “let’s have our local government covered by Susie Homemaker in her spare time” model of newsgathering. I’ll pass thanks.
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More sky is falling from Jarvis. Newspaper sites are all dominating their local markets right now. Most big papers have their newsroom costs from digital revenue alone. Papers have adapted, but Jarvis will never give them the credit, because it’s not in his vested interests to do so.
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Want to invest in a newspaper company? Feel free.
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David says:
Uh, I’ll challenge the “most big papers have their newsroom costs from digital revenue alone.” That is far from the case.
Truth is, a lot of newspapers are using accounting tricks to make it appear their “digital” revenue is growing in leaps and bounds because their publishers are being pressed to show digital growth. But they use the same sales staffs to push it and they do thinks like bundle the ad sales as a trifecta of inserts, display ads and online ads. Of the three, online ads produce the smallest amount of revenue. But when the account for it, they can simply slide more of the revenue as coming from online than the other categories. It makes for a nice presentation for the owners, who also seek to believe the place is simply migrating its revenue from print to online.
I am close to the publisher of a major, privately held U.S. newspaper. And when I asked what percentage of the paper’s revenue comes from digital vs. print sources, he replied, “I can make the books look however you want.”
And when I asked him if the digital revenue could support the current journalistic operation, he said, “Not even close. Not here, not anywhere, not at current staffing levels.”
Now maybe someone has real numbers out there to show that’s changing, but moving money around into different categories doesn’t really prove newspapers have adjusted to this new reality.
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David,
And I’m close to some newspaper publishers as well. Want to know what one told me? They had about $3 million in digital costs last year and made $45 million in digital revenue. Does that match the mammoth numbers of yesteryear? No, but that’s what they’re making with a site getting appoximately 300,000 uniques and 1 million page views a day, on average, right now.
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I meant to say newsrooms now at most papers have their costs covered by digital revenue alone. It’s fact.
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Yes, Joe, I’ve said that long since. Happened at the LA Times a few years ago. Nothing I say argues with that. You just want to argue with me.
But the cost of presses, trucks, buildings, and commodity news are not covered and won’t be. Big cuts have to be made. And entrepreneurs may be in a better position to build from the ground up.
This isn’t an emotional argument, Joe. That’s the point. Hard realities.
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[...] his blog today, Jeff Jarvis offers up some “hard economic lessons for news” and he takes the time to tell newspapers about how badly things are for them, as if that [...]
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John Robinson says:
I’d add “Hope is not a business plan.”
“When the economy comes back, we hope ads will too.”
“We hope readers will get annoyed by so much noise out there that they will look to us to make sense of it.”
“We hope that readers will know that we’re trusted and accurate.”Hope, hope, hope. It’s not a strategy, a tactic or a business plan.
Hey, I hope I win the lottery, but it isn’t going to happen, even if I buy a ticket.
Love the post, by the way. Sent links to all the decision makers here, further endearing myself to them.
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mutant_dog says:
The physical paper needs to skew its content to the demographic cohorts who do not connect to the electronic Web. My wife and mother-in-law, to name two. In rule form, differentiate your content according to the medium.
The (democracy-)killer question is, who will pay for investigative (non-partisan) reporting ? Any thoughts ?
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Jeff, I came to some similar conclusions in research I did about the future of newspapers some years back, and posted in:
2050 milestone: Mid-sized and smaller local news organizations (such as newspaper publishers) have undergone a revolution in many regions of USAmerica and other developed nations
http://www.jrmooneyham.com/s2081ref.html#section12.5 -
Nanker Phelge says:
Jeff, is this advice similar to the advice you gave the Ann Arbor paper more than a year ago? Wouldn’t it make more sense to invest in a better product and charge for it?
The WSJ, FT, and several other papers have had success doing this. I’ve yet to see a newspaper thrive with online ads alone. The Guardian, the most visible proponent of free online media, is in more trouble than almost any paper of its size – and that’s after letting Google sponsor some of its technology coverage in a really dubious deal.
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Jeff I really love this post. However in my opinion what you see as naiveté I see as hardened denial. The newspaper business is doomed because of their failure to embrace the strange (to them) and unfamiliar (especially in their hiring practices). In addition, all of the recent cuts at many newspapers targeted the entirely wrong levels of employee. Instead of giving the axe the thick slow moving middle-management tiers, you had big cuts at the very top and the bottom levels. Effectively papers cut off their heads and tails but left the fat ass in place.
These folks are so entrenched in their beliefs that many of them persist in viewing new forms of communication like social media are passing fancies. You can see it in the way they execute their “digital strategies”, often tepid and half-hearted ( with a “how can we slap an ad on that” twist). Whatever ground-breaking revolutionary ideas some underling might come up with is whittled down to extreme mediocrity by the time the ideas see the light of day. If they ever do.
Unfortunately while your lessons are exactly what needs to be absorbed and processed thoroughly by many news institutions I know they will bounce off the middle management structures like pong balls. I hate to say this but the wrong people in many of these institutions lost (or are losing) their jobs and until the right ones do, nothing will change significantly. The fat ass has to go first!
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You have absolutely no idea what you’re talking about. Newspapers have adapted. Their sites all dominate their markets. They have the best of both worlds – print and digital revenues, and trusted brands. Cut and paste aggregators have only one and they’ll be easily drummed out of the market before long.
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Derek says:
Joe (or whatever your name really is), I know exactly what I am talking about. I compete with these sites one some level everyday (read that point, I said “I”, not me and my staff). Just because a newspaper’s site may be number one now means nothing going forward. You say trusted brands… Trusted by whom? Baby Boomers?
I like the fact that you feel the way you do. It just reenforces my position. You’re obviously a member of the fat ass group I mentioned earlier. Let’s compare notes in about 10 years.
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Let’s do it, “Derek”, absolutely. I’ll take my well funded, established brand of trusted content and put it up against your one or two-person, cut-and-paste, no-original-reporting sweatshop any day of the week. Let’s indeed talk in 10 years Derek. I’ll come look you up at whatever Kinko’s or Starbucks you’re working at.
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Derek said: “Just because a newspaper’s site may be number one now means nothing going forward.”
Wow, with that kind of sound business logic, you must have a real crackerjack site “Derek.” No, brand name and market position mean absolutely nothing. Keep up the work son.
Woodward and Bernstein – look out for “Derek” and his falling dominoes of journalism revolution domination -
“I’ll take my well funded, established brand of trusted content and put it up against your one or two-person, cut-and-paste, no-original-reporting sweatshop any day of the week.” LOL! I Love it!
Joe there are people who can’t wait to take effete old-schoolers like you down. You’ll never be able to compete with us because your cost structure is going to remain too high. Market positions can change hands almost overnight, did you not learn anything from Craigslist? Oh and Joe there are a LOT of “trusted” brands that have gone down the tubes so if that’s what your banking on, your business is already dead (you just don’t know it yet).
Sit back and settle down old man before you pop an artery. Have cup of chamomile tea.
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Quaking in my boots, Derek. I’m sure your one-man news operation will drum us all out of business.
You’re just another dork sitting around staring at a computer screen. You’re not out in the real world, reporting real stories about real people. You’re not a real journalist. I am. And there is a flight to quality Derek. That’s something your nerd generation doesn’t know. Many, many more little startups like yours go away than the big boys.
Does your dinky little operation get 2 million pageviews a day like my place does?
Lol, didn’t think so. -
Wow “Lol” ? Joe how modern of you! Hey buddy you keep reading that “”things the young people are saying” manual and you might just learn a few new tricks after all.
By the way (I would type “BTW” but you might not have learned that one yet) Joe, (AKA Mr. Hypocrisy) what are you sitting in front of right now to type your little jabs. A Teletype? Here’s one you might know… Go sit on your hat!
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Hey Derek, are you still all haughty about the future of lazy aggregators like you being the example of economic success in the media world?
Sorry bro, but looks like you’ll have to go out and get a real job after all instead of sitting around ripping off the work of real reporters.
http://blogs.forbes.com/jeffbercovici/2011/04/25/google-traffic-to-demand-media-sites-down-40-percent/ -
Typical Troll style trying to sneak in the last word when you think no one is looking. Nowhere in any of my comments did I ever say a company like Demand Media was the future. What I did say is that the newspapers were going to have continued problems from the idiot lazy fat ass middle management tiers left in place after all the “restructuring”.
Joe let me ask you something, how many papers with Twitter accounts actually follow-back some of their readership? How many communicate with them? Your answer (if you are being non troll-ish for a minute) would be a very few, if any. This is one of the ways Jeff means that papers should engage their readership! Talk to them! Listen to them! Interact WITH them! You just don’t get it and I am wasting my time with you.
Go ahead and get the last word in Joe, but I’m telling you… You might be winning the present in your market but you’ve already lost the future. Good luck douchebag!
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yes yes YES! love this post. it’s the VALUE that you’re preaching at the beginning that my professor, Steve Buttry, is preaching to us in our Seminar in Journalism class at American U right now. so important. working for a traditional news outlet a bit hesitant of change can be a bit frustrating sometimes when I’m learning from people like Buttry and reading great posts like this from you.
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[...] tweeted the post from which this quote was printed earlier today and I have to say, Jarvis’s hard, pessimistic [...]
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[...] Hard economic lessons for news [...]
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[...] Hard economic lessons for <b>news</b> « BuzzMachine [...]
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michael brooke says:
I am digging this post…and as a magazine publisher I am taking a good hard look at what I am doing and where I am going.
Will share with all the folks I know who are on the same page! -
Anonymous Coward says:
You know what this post is missing? “Tweet this/Share this” buttons. (on the mobile version, at least)
Thanks, Jeff. Lots to think about. I’d love to argue but I’ll need more time to find holes in this post. (a lot more time, if first impressions are any indication)
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[...] and how traditional publishers are doomed? Regardless, media consultant and author Jeff Jarvis has come up with a breakdown of what he calls “hard economic lessons for news,” and it makes for somewhat gloomy reading. That said, however, there are some glimmers of hope amid [...]
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nakedtruth says:
This is a hilarious manifesto written by someone who’s never worked outside the insular world of newspapers being chewed over by many similar characters.
All due respect, of course.
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Dick Tofel says:
Jeff, I think I agree with every point until you get to “Opportunities,” and then agree with some (and especially the last).
But I’d add one more maxim:
Not all journalism society needs to have published amounts to a business. -
“Tradition is not a business model. The past is no longer a reliable guide to future success.”
Discuss in the context of “all bits are equal” as a regulatory model for the Internet.
Gotcha.
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>>>“Tradition is not a business model. The past is no longer a reliable guide to future success.
Agreed! In this time of immense change, it’s vitally important that the Internet continues to function exactly how it did in 1995.
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[...] el gurú de los medios Jeff Javis publicó un artículo muy determinante sobre cuáles NO son los modelos de negocios de los medios, cuál es la realidad que ellos [...]
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