Archive for January, 2009

Charles Foster Kane

Charles Foster Kane

Newspapers are still the best-staffed news organizations and remain journalism’s brightest hope—if they can only break their addiction to print.

It’s one of my favorite lines in Citizen Kane, the 1941 classic about a newspaper publisher. Kane is responding to his top financial advisor who just pointed out that Kane’s newspaper empire is losing a million dollars a year.

Charles Foster Kane: “You’re right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in…60 years.”

Turns out he was right, give or take a few years. Sixty-eight years after Kane uttered those words, the newspaper industry is staring death in the face.

Last week brought more news of impending doom. The Minneapolis Star-Tribune filed for bankruptcy protection, the Hearst Corporation announced it would close the 146-year-old Seattle Post-Intelligencer unless a very unlikely buyer is found, and a few weeks earlier, E.W. Scripps made the same announcement about the Rocky Mountain News. A month before that, the venerable Tribune company, owners of the Chicago Tribune, Los Angeles Times, Newsday and other major papers, also filed for bankruptcy.

We know the problems have surfaced everywhere. While some papers continue to make an operating profit, those profits are shrinking, and many papers are still being crushed because the profit isn’t enough to fund the debt that was taken on by the paper’s buyers. This is the case in places like Philadelphia and Minneapolis, as well as with the entire Tribune Company. Once immensely profitable regional newspapers like the San Francisco Chronicle and Boston Globe are losing a lot of money. The Chronicle is rumored to be losing more than a million dollars a week!

Newspaper companies need to turn the tide and turn it fast if they want to stay in business at all. It’s time to go on the offensive and renovate their businesses around the changing needs and demands of their customers. The difficulty lies in that much of their future may not involve paper, and the industry is having a hard time changing its name.

If they don’t, they will become what the railroad industry became. The railroads could have survived as major players in the business of transporting people, had they believed they were in the transportation business, not the train business. They would have invested in cars, buses and airplanes. But they didn’t, and while there remains a railroad industry today, it’s much smaller and less significant than it was.

That’s what will happen to the newspaper business unless the remaining players decide they are not in the newspaper business at all, but rather the news business. And if they want to stay in the news business, they need to get much more aggressive about giving people news the ways they want to get it. I say “ways” because the future of news will not be about one form of delivery. Studies now show us that consumers no longer get their news from one or two sources, but from many sources in many ways: from computers to BlackBerries and iPhones, to television and radio, to screens in elevators and at coffee shops throughout the day.

Luckily, since they are still the most adequately staffed local providers of news and information, newspapers have some time to take advantage of their strengths and move quickly into new and still developing platforms. But to do this, they’ll need to be nimble and fast.

By definition, news has a short shelf life. So in many cases, consumers want to know about news as soon as it happens. That could be the kind of news that everyone wants, like the plane landing in the Hudson, or it can be very personal, like one of your stocks just went way up or down, or the road you normally use to drive home from work is closed because of an accident. The fact is, the consumer now wants to participate in deciding how and when they get each type of news and who they get it from. This is their world.

The most difficult thing for the industry is creating all new business models to pay for that news, so they need to be aggressive in learning how to monetize news delivered over each of these new forms. The advertising model may not always work. Certain types of advertising that supported news, like classified ads, are gone from the newspaper and won’t be coming back. So now it is imperative that the industry find a way for the public to pay for the news it gets.

But they can’t start by making the public pay for the cost of producing a printed newspaper, when all they want is digitally delivered news. The public won’t pay for the industry’s problem. Face it, printed papers are old news.

Frankly the industry hasn’t done a very good job of convincing people that it can create a new business model. Doing so takes time and money, and newspaper companies are already low on both. Public newspaper companies have been crucified by their investors. The McClatchy Company, which made the biggest bets on the future of the industry by buying The Knight-Ridder chain, has seen the value of it’s stock drop 98 percent over the past five years—that’s what you would call a real no-confidence vote from the shareholders.

So here’s the rub: the newspaper companies need to develop business models that support newsrooms, not newspapers. And it’s likely going to be the private companies who don’t have to satisfy the public need for improved quarterly earnings that can lead the charge. They have to envision what the news business will look like in the future and build business models that support that, without the added burden of supporting a delivery system most users don’t care about. And they have to invest heavily in news gathering and news dissemination. The goals are both speed and context. The newsroom has to be part CNN Headline News and part The Economist..

The business transition from newspaper to news company is painful, but it’s the path they have to take. The new news companies will be built around what they cover, not how they distribute the news. There will be a news company, or more than one, covering subjects like national or financial news. There will also be newsrooms covering San Francisco or New York news. And each will have a news-gathering operation and a news-editing operation that will disseminate the news they gather over all platforms, from print (if there is a market for print) to TV, radio, mobile, and the internet. In each case, they will be paid for that content, either directly or through advertising sales. They might not even own the products that consumers use to get the news—certainly not the iPhones or BlackBerries, and not even necessarily the radio or TV stations or printed newspapers . They just have to be good at gathering and disseminating. If newspaper companies want to stay in business and stay relevant, they will need to leave the distribution game to someone else.

So, Mr. Kane, prepare to lose some more money, if you have it. If you can be a bit patient while you do that, you might still be business when it’s over.

The Next Great Media War

Posted: January 6, 2009 in Uncategorized
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Who will win the battle between content providers like Viacom and distributors like Time Warner Cable? Viewers, of course.

The New Year’s Eve drama between Time Warner Cable and Viacom was the opening salvo in what promises to be a long and brutal battle for the future of our major media companies. It’s media’s version of the Hatfields and McCoys: Content vs. Distribution. Who should make more money?

At stake is how content creators will be compensated and control over the relationship with the consumer of that content. How this plays out could have a major impact on which companies own the future of media.

Based on last week’s dramatic showdown, we’re seeing the beginning of the shift of power from the companies that deliver content (broadcast networks, cable systems, satellite systems, etc.) to the companies that create and own it.

Large media companies will be watching as customers change their consumption habits, advertising revenues drop, and creative talent goes in a hundred directions.

This is all your fault of course. You, the consumer, empowered by all kinds of new technologies–from iPods and iPhones to Hulu and Slingbox–have begun to expect that you can view video programming whenever, wherever, and however you want to. And naturally, you want to be the judge of what content is good and how much you’re willing to pay for it.

This is what the Internet does. It eliminates middlemen. If you live in California and you want to buy a sweater from a boutique in New York, you go their website and buy it. Forget having to find the one store in your state that might carry that sweater, or poring over catalogues hoping to find it. Those days are gone. And at some point, many of those businesses in the middle may be gone, too.

That’s what is beginning to happen to content—the middleman is disappearing. But the fact that all video will be available on the Internet doesn’t mean everyone will see everything. In fact, it could mean that it will be even harder for programming to distinguish itself or even get the chance to be seen by large audiences. There just isn’t enough time for you to check out everything on the web, meaning companies that know how to package and market video content for you will still exist. And it will still be more efficient to deliver some programming, like live sports and mass market programming, down one-way delivery systems like cable and satellite. So networks and cable systems will exist and control some of what we see.

But as the business models for the new digital platforms – Internet, satellite, telephone–evolve, they will create opportunities for new forms of advertising or methods for consumers to pay directly for content (iTunes, etc.). In the end, the power of the good content providers should continue to grow in this equation.

That’s a huge change. Historically, the distribution platforms have played the dominant role in controlling what programming you would see on your TV. First the broadcast networks dominated because so few were licensed. Then the cable systems grew in power because once you became a cable customer, then everything you viewed on your TV came through that pipeline.

But if that cable system didn’t want to carry your programming, they didn’t have to. As they grew and picked up significant percentages of the viewers in a particular market, their leverage with the programmers grew. What cable and satellite systems carry isn’t only based on audience acceptance. It’s about their business. If one content player demanded more money from the cable company than another, it didn’t always get to you. Try to find the NFL Network on your cable system.

Still, we assume that most systems wanted to keep their price as attractive as possible so they aren’t thrilled with anything that raises the price to their consumers, especially if they don’t get that extra money.

With the advent of first satellite TV and now the Internet, the power is beginning to shift. Suddenly the cable system isn’t the only way you can get robust digital programming into your home. You can install a satellite dish from one of two major players – DirecTV and the Dish Network – and they will bring you hundreds of channels. And, in a growing number of markets you can get a competitive digital television service from your phone company – particularly Verizon and AT&T.

Of course, now much of today’s programming is also showing up online, where it can be viewed in several places by someone with no TV hookup at all. There are a growing number of people pulling the plug on either satellite or cable and getting all their TV programming from the web.

That brings us to last week’s face off.

Viacom threatened to pull its 19 cable TV networks—including Nickelodeon, Comedy Central, and MTV—off Time Warner Cable systems, serving 13.3 million people around the country, at midnight on New Year’s Eve if Time Warner didn’t agree to increase its payments to Viacom by between 22 percent and 36 percent per channel according

Viacom is king of the content side, with roughly 25 percent of all cable viewers watching their networks during the day. On the other hand, ratings of the Viacom channels on Time Warner Cable are down—fewer people are watching those (and many other) channels than last year. So if the content you are producing is less relevant, why should you get more?

Meanwhile, Time Warner Cable’s parent company, Time Warner, is the second largest provider of content, with 16 percent of all viewing on cable on their various networks (CNN, HBO etc). So it’s on both sides of this issue, and on the programming side it’s Viacom’s major competitor.

Viacom already received about $300 million from Time Warner Cable, according to BernsteinResearch, but that’s only about 2.8 percent of TWC’s overall video revenue. And since they are providing a quarter of what is actually being viewed on that cable system, Viacom wanted a bigger slice.

Truth be told, Viacom had a lot less to lose than in the past because it now has new ways to get its programming to its audience via the Internet, satellite and through the phone companies.

So it wasn’t a surprise when the details of the deal started to trickle out. According to “An executive with knowledge of the negotiation said that Time Warner had given in and agreed to pay a higher fee to MTV Networks.”

And according to the Wall Street Journal’s reporting, the major concession Time Warner Cable got from the new deal related entirely to its attempt to tap into the new digital revenue streams. It will be allowed to put some Viacom programs up earlier on TWC’s own video-on-demand service.

But both are merely incremental moves on the seismic shift that is violently shaking up the media world today. The changes coming are so dramatic and widespread they will be hard to keep up with, both for businesses and consumers.

Just as you will struggle over which new devices to buy and use—iPhone or BlackBerry Storm?—media companies will struggle with how to create and pay for content in a world changing so quickly that no one knows how to get it paid for.

At the same time the large media companies will be watching as customers change their consumption habits, advertising revenues drop, and creative talent goes in a hundred directions.

If this was football, it would be like changing the field, the ball, the number of players and the rules at the same time. Maybe we could even throw in a BCS Playoff system to decide who wins.