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Om Malik wrote an interested article about Ning, its high valuation and the commoditization of the social network. The most interesting part of the article explained:
There have been much smarter people than me who figured this out a long before I did. One of them, David RD Gratton recently channeling Thomas Vanderwal, recently wrote “Beyond communities of Interest, communities don’t exist.”
Much like content, the real value of a network is the people in it
Technology enables an “interest community” to engage, share, interact, etc., but without an existing expression of interest, the technology is value-less. Technology makes community interaction more efficient and more powerful. Also, more importantly, technology makes that network measurable. Billions of social networks are hidden, and technology uncovers them and shows their value to the world.
It’s absurd how much interaction occurs on a daily basis
If FaceBook, LinkedIN or MySpace could capture ALL of my daily interaction with friends, business partners and family, my interaction on the digital side would be enormous. Social networking sites merely uncover (and facilitate) existing social needs/interaction.
Content: Digital Media as Interaction: Social Networks
Is this a good metaphor? I don’t know, but in the same way that digital tools have enabled a more robust media experience, social networks have enabled a more robust social experience. The winners will differentiate themselves by focusing on specific communities because differentiating on the technology side will become increasingly difficult.
The Audit Bureau of Circulations recently released a report which explains daily newspapers experienced a 2.1% circulation decline. I’ve already started the countdown for the next uninformed blogger to scream “newspapers are dead.” Well, they are not…
A decline of 2.1% is certainly not good, but on the positive side:
However the average weekday decline of 2.1 percent in the latest period was not as steep as the fall of 2.8 percent reported for the six-month period ended in October, or the six months ended in March 2006, when the decline was 2.5 percent.
There is light at the end of the tunnel
If you look at the Top 20 list, you will see that the New York Post, USA Today, WSJ, New York Daily News, and several others experienced circulation growth. Additionally, if this report discussed smaller town and niche publications, readers would find these types of newspapers are still growing strongly.
Metropolitan Papers Will Continue to Experience the Most Decline in Circulation
Metropolitan papers are certainly in trouble. They face competition from online and offline sources. From local competition, to niche subject specialists, to online classifieds, to little value add on national/international issues, the outlook is bleak. If anyone has any ideas for this segment, we are all ears.
Victor Keegan, over at The Guardian, writes an interesting article titled “To the average Joe, Blogs just aren’t cutting it.” He had used the recent Sifry “State of the Web” report as a starting point for this article. My favorite excerpt was:
If there is lesson here it is that blogging, for all its undoubted success in politics and the arts, hasn’t taken off in a way that many people, myself included, thought it would.
Keegan makes a good point: not everyone can write a blog. It’s a lot easier to communicate with people via online social networks and the like. I’ve found out that writing a quality blog takes time, networking, research and good old fashion analysis. I’m certainly not one of the most popular blogs on the internet, but I do use the blog to summarize my findings and thoughts about the topics I cover.
Blogging takes time, time and more time
Considering the amount of time I spend writing on the blog, it is absolutely a losing business proposition. Pramit Singh asks “Do we really need blogs?” Absolutely. While blogging is not everyone’s outlet to internet publication, it does make sense for some people. I use this blog to formulate thoughts and to publish my opinions that are very relevant to a select group of people. My clients enjoy reading my blog and despite the fact it probably takes 10 to 15% of my time (and makes no money), I still do it.
Blogging takes professionalism and diligence
Blogging isn’t just about posting your interests. Like any journalistic pursuit, it is about adding value to a given set of facts. Being professional and diligent about adding value to these facts takes time and most people don’t care to spend the time.
Adding value is different than self-expression. That’s why everyone can’t and won’t blog.
Amid the glitz of on-line media pundits who proclaim that their way is the new superhighway and the only route to the promise land, let me inject some practical rules of day to day business, especially on the local level.
Rule One: The small, local business owner is stressed. She has to run her business, serve her customers, make her payroll and hopefully generate a profit.
Rule Two: How much extra time does a local business person have to work on their marketing plan, to go on line and sort through what might or might not work for them? Answer: NOT MUCH!
Rule Three: Local businesses have paid their bills, created growth and profits and reared and educated their children, by relying on local media outlets to deliver their information. They can’t risk jumping ship unless they are certain the other boat will float.
Rule Four: Local businesses want results and service. When it breaks they want it fixed by a person they can talk to, that they can touch. In other words, local businesses need and want local services.
Rule Five: Local advertising, local readership and audience, is traditional media’s to lose. If management realizes that they are going through a transition and provide the needed leadership, they will grow and prosper.
Google understands what they are up against and they know that poor management and lack of leadership from Traditional Media will cause more harm that anything New Media can create.
Topix officially announced opening its doors. Topix is a citizen generated journalist site. Go check it out. Read the founder’s blog post.
Don’t forget the competitors:
My ending comment: Success in the local news aggregation will be driven by relationships with local papers. Agree? Comments?
Edit: Mike Orren wants me to clarify “local papers.” When I refer to local papers, in this post or any post, I am referring to niche publications that deliver some sort of unique content to readers. These can be alternative weeklies, small town papers, etc.
I wrote about how newspapers have an incredible amount of value online. Technology companies largely ignore this. Many a self-proclaimed Web 2.0 evangelist have declared the “death of newspapers.” This post summarizes my initial thoughts on the online newspaper revenue model. I decided to start because Mark Glaser over at MediaShift wrote a recent article entitled “How the Online Newspaper can Become a Community Hub.” I agree with his key points which are focused around incorporating the community in the news creation process and structuring the online site around niche areas.
Community and interactivity are key for local newspapers as they move online
The New Media viewpoint is that local news agencies are no longer gatekeepers of information and that the user is now in control. While I don’t agree that the user is fully in control, newspapers must realize that incorporating an actively participating community is key for online success. The internet benefits content creators because it lets users interact with content. Interacting with content means more personalization and more consumption time. These are the types of things that drive online revenues, assuming the right advertising strategy.
Online Newspapers should create a social network focused on their community
Online social networking features are the tools that will enable community members to interact with news. It won’t be easy at first. The majority of newspaper readers probably haven’t done much more than submit letters to the editor. Newspapers should give readers an online platform to interact, rank and participate in commentary and article submission. The cost of managing comments might be high at first, but as users become more familiar with online social network features, participation becomes more transparent and technology gets better, the community will bear the cost.
Online Newspapers should create a wiki business model
Local newspapers sit on huge repositories of information. Everything from local sports information, to political history, to development history has, at some point, been in a newspaper article. Additionally, local communities look to newspapers as primary news sources for local information. Taking the social network model to the online newspaper means creating wikis that allow users to maintain information about niche community topics that are relevant for them. Think: County High School Soccer team record and history repository; or County Governor Campaign History. Enable users to pick and choose the topics that are most important to them and empower them with information.
Because social networks and wikis create loyal and active users, this business model will drive participation and interaction online-key components for monetization success.
Obviously the advertising model needs to get much more creative than in the past. This will be the focus of my next post. Please comment.
Update 1: “Be the Platform“
There is a lot of information floating around about the Hispanic market. I’m referring to:
- PEW/Internet Latino Report
- State of News Media: Ethnic Markets
- Aspen Institute: Ethnic Media
- Latino Printing Network’s State of Hispanic Print and Hispanic Owned Publications
- Ethnic Media in America Poll
- Captura Group: US Hispanics Online
The Hispanic market is already an attractive niche
In case anyone didn’t know this already, the Hispanic market is the fastest growing demographic in the country. Hispanic newspapers generate $1 billion in revenue and have seen Y/Y growth of close to 10%. Additionally unique interests of the Spanish speaking community make this market valuable from an advertisers perspective. Univision is the leader in Hispanic TV reaching 98% of the Hispanic market with its television presence. Look at the chart below (ref) to see how Hispanics are the leading minority consumers of ethnic news.
Few New Media companies are in the market
While newspapers and television reach the vast majority of 1st generation Spanish speakers, overall only 1/3rd go online. The 2nd generation bilingual community is a much stronger demographic and 3/4ths go online. Because the small number of players in this space, we believe Hispanic oriented New Media companies will be incredibly valuable for companies looking to create a New Media portfolio in the Hispanic segment.
Several startups and established players include:
First, there was the troubling news about the SF Chronicle. Then Scoble made a ridiculous, uninformed hyperbole claiming “newspapers are dead.” I’ve already written about the inability of “newspapers are dead” (NAD) crowd to intelligently analyze the newspaper industry. Some people are looking at ways to save newspapers. The newspaper industry is facing a transition, not its death.
Let’s look at some FACTS about the industry
Here are the facts (ref, ref2, ref3, ref4):
- Newspapers are a $59 billion industry in North America
- In the US, advertising growth is flat, with online growth (up 35% Y/Y) covering the loss (down 2%) in revenue from print
- Baby boomers have spending power of $2 trillion and 52% read a newspaper on a daily basis
- In 2005, US dailies had a 53 million Weekday circulation and a 55 million Sunday circulation, representing a change from 1960 of -9.4% and +15.9%, respectively
- Newspapers control 19% of the total advertising market in the US
- Larger dailies sell for 10 to 14X EBITDA and we have seen most transactions occur at the high end of this range
Newspapers are NOT dead and will adapt
Sure, print subscription is in slow decline, but niche properties and constantly changing demographics will always provide support. Local newspapers will always be an authority on the news for their given geography. Newspaper reporting contributes to the vast majority of news. Online is another medium and distribution method. It will not kill off newspapers. Newspapers survived Radio, Television and they will survive the Internet. They will adapt with the internet and demonstrate the value of their demographics and advertising relationships.
Newspapers have an incredible amount of value
I’m very glad no one in the NAD crowd is an executive or has enough money to buy newspapers. They would waste our time as advisors. We know for a fact that newspapers are valuable because we’ve sold newspapers to every major company in the industry. When private equity folks call us and tell us they are looking for newspapers at 3 to 5X EBITDA range, we have to laugh and have to tell them the truth.
People who analyze the industry with tunnel-vision and broad sweeping generalizations scream uninformed and demonstrate an inability to correctly understand an industry that HAS value.
Traditional print media is struggling to make the jump into new/technology media — as is clear to everyone including old media newspaper guys (like me) and the new media guys. Part of the problem is the speed at which technology is changing, and just learning the terminology makes it tough to stay on top of.
The advertising-driven websites make the most sense to traditional media because that’s the model we already embrace. Free distribution niche publications of the ink-on-paper variety are very similar to target websites or blogs as both use a focused topic (cars, knitting, politics, whatever) to allow targeted advertising.
My question is whether local newspapers - whose niche franchise is the news in a small geographic area - can lever this into a larger advertising revenue base. And if they can, how do they go about it?
We are at the beginning of a very competitive online world that has only seen the early stages of competition from print publications. User generated content is valuable, and certainly “citizen journalists” have advantages over reporters/editors. But…
Print Publications still supply THE NEWS
Robert Kuttner, in a lengthy Columbia Journalism Review article, raises some interesting points I want to summarize. They are:
- 5% of blogs are of “journal quality”
- Technology enables the delivery of more relevant content, more quickly to readers
- 85% of online stories are traceable to newspapers
Newspapers will better engage readers than non content-oriented players
Despite the fact that technology is doing some pretty amazing things to the news world, there is still a quality issue. Producing quality news is a time consuming and expensive task. Print publications sit on quality articles they know readers will want to analyze and critique. As they increasingly empower users to participate (through social networking, feedback, and other Web 2.0 features), they will see their user base become more interactive and more valuable.
Sustaining a competitive advantage means owning content, not owning a commoditized technology
The technology of New Media will become a commodity. Everyday another Web 2.0/Video Sharing/Social Networking/Content Aggregator company gets VC funding and promises to be the next MySpace. As content is delivered to smaller, niche segments, the origin of that content will have the largest number of readers.
For example, I’m going to read a Washington Post article if several of my favorite RSS feeds link to it. The more commentary I see on the article from different sources, the more likely I will be to go to the Washington Post site and read the article for myself. Washington Post loves that there are 1000s of content aggregators and feeds talking about its article. This trend brings in more readers and reduces distribution costs for Washington Post.
Newspapers own a key competitive advantage that will position them nicely for the trends in the online world. As they participate in the technology world, they will demonstrate the value of their content and technology companies will have to think twice about not owning content.
After writing “New Media Technology Companies Need to Own Content” I had several conversations with Jeff Maurone about the future of the media industry. Jeff works at MSNBC and added some insightful commentary I wanted to share with my readers. He raised an interesting point about the cost of content creation vs monetization and explained:
An article in the NYT costs orders of magnitude more to create than a piece of user-generated content or what we, at MSNBC.com, pay for an AP story. No content provider online has figured out a way to monetize content in a way that yields margins high-enough to fund content creation on that scale. NYT has 350M PV/M vs. 1M print subscribers yet yields 1/10th the revenue online as they do from print.
The online model can’t yet compete with established content creators
Google wants “proof” of the value of traditional content. The answer is in the chart below:
If the traditional content creators aren’t valuable, then why do newspapers, television and radio dominate the advertising market?
If the NYT has trouble with monetizing its online customer base, how will an individual user create value out of his niche targeted audience? Can New Media do this, or is it merely an expansion into new distribution channels, like Radio and Television were in their times? What will it take to “monetize content in a way that yields high-enough margins” to impact content creators?
Please send me an email to kyle < at > themediaage.com or comment below to share your ideas.
Groupthink is an interesting phenomenon, defined by Irving Janis as:
a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action
Groupthinkers conclude: newspapers are out, online is in!
The attack on today’s print publication says the internet is going to destroy traditional papers, ipso facto. The groupthinkers say online news is free, has better advertising reach, steals print readers, and gets all the advertising growth. I’ve heard this from many different places. I won’t identify names, but I’ve heard several VCs adamantly argue that newspapers are dead; and I think a recent article in the WSJ titled “Red All Over” really highlights this thinking. But really, does this analysis make sense given what we know about New Media?
Online is in for large papers, groupthinkers are out
Contrary to the groupthink “conclusion,” newspapers can participate in change (I know this is an astonishing idea). Sure, major newspaper print circulations are declining, but that decline is a result of a shift involving them. For instance, in a report published by the NAA reveals that top newspaper sites like the WashingtonPost.com command 10 million unique monthly viewers, 200 million monthly page views and an average 15 minutes of browsing time per visitor. The Post has a daily circulation of 670,000 in the greater Washington, DC area. Massive amounts of people consume online news. Consumers shift their habits, but they still value the large newspaper brands as seen by the large online followings.
Niche print publications are very valuable and share similarities to niche online properties
As, I’ve explained in a prior post, New Media is a technology enabled trend which involves rapidly increasing market segments. Subscriptions in large print media properties face declines, because they face smaller market segments. Today, the Washington Post discussed that niche papers continue to see strong subscription growth. Local papers and targeted online properties share similar traits; both can target ads to very specific groups of readers. Niche print publications will move into the online space and be significant sources of growth for the industry as a whole.
People who think of New Media as a unique segment in the industry fail to recognize the value inherent in an established niche market. Technology is making these niche markets more value and thus, the properties that have them, more valuable as well.
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