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POWERVERSUSEMPOWERMENT:CONSUMERVALUEATTHECENTREOFNEWSMEDIASTRATEGYPresentedbyMichaelGill,CounsellorwithDragoman,formerCEOandEditorinchiefoftheFinancialReviewGroupandChairmanofAustralianAssociatedPress.Bandung,December2016ABSTRACT:Influentialandoftenhighlyprofitablemediainstitutionshavebeendisruptedseverelybytheeffectofdigitalmediaonadvertisingandconsumerbehaviour.Manyintheindustryforecastfailureforthemajorityoftraditionalnewssourcesandsomeassertthatthereissimplynobusinessthatwillemploysubstantialnewsgatheringstaff.Theauthorbelievesthatfewincumbentsrespondeddirectlytothedigitalimperativeandveryfewactedwithconfidenceinthevalueoftheircontent.ThepaperoffersacasestudyinAustralianbusinessmediathatsoughttoputcontentatthecentreofthebusiness.Twentyyearson,thedigitalevolutionthatmade“disruption”fashionableisentrenched.Inwealthiercommunitiestheadventofubiquitousbroadbandandpowerfulmobiledeviceshasdrivenandiscontinuingtodrivefundamentalchangesinbehaviour.Somelesswealthycommunities,notablythatofChinaandincreasinglyofIndiaand–soon–Indonesiaareexperiencingthebenefitsandpitfallsofhighcapacitydigitalinteraction.Yetdespitethefactthatmediawasoneoftheearliestimpacted,itseemstodaythatmediamanagementsremaingenerallyinastateofshock.Thisisespeciallytrueofthenewspaperbusiness,butisalsoincreasinglytrueofbroadcasttelevisionandradio.Onereasonforthisisinthecultureofthoseinstitutions.InAustraliaandinmanyotherplaces,newspapersandbroadcastmediahavebeenpowerfulforalongtime.Theyhavehadastrong

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influenceinsocialandpoliticalaffairsand,generally,littlecompetitionintheirbusiness.Thesefactorswereheightenedduringthe1980swhenownershipregulationofbothnewspapersandbroadcastmediawasrelaxed,leavingthebulkofnewspapersinthehandsoftwocompaniesandmostofthetelevisioninthehandsofthree.Overtime,manylargecitiesinAustraliacametobeservedbyonlyonenewspaper–oftenpartofanationalchain-andbytelevisionandradionetworksthatarelargelynationalinfocus.Profitswereup,butthecontestovercontentbecamemarginal.Astheinterneteraemergedinthe1990s,Australia’sestablishedmediareportedstrongandsometimesrecordprofit.Yetthecultureatitsheartwaserodedand,inmanyways,entrenchedfatalflawsthatwouldbeexposedbydigitalmedia.Putsimply,mediawasmanagedasanadvertisingchannel.Whenreadersbegantoturnawayfromsomenewspapers,circulationswereboostedbyvariousdevicesinordertoinduceadvertising.Mypointbeingthatthepaidsaleofcontenttoreaderswasnotapriority.Thecoremeasureofreaderengagementwasnotreallyameasureofsuccess.Asaresult,therewaslittlecriticalmanagementofthequalityofcontent.Contentiscentralindigitalmedia.Yetthatwasnotatallthebasisfornewsmedia’sresponsetotheemergenceofdigitalconsumers.Thecriticaldecisionforincumbentmediamanagementfacingitsfirstdigitalcommitmentswas:doweintegrate?Formany,thisissue–whichbecameadebateinmanycases-wassimplyaturfwarinwhichpeopleusedtomanagementcontrolwereupagainsttheinnovators.Insomesensesthatwascertainlytrue.Buttheheartofthisquestionisaboutthenatureofchangeandthevaluesonwhichconsumerchangeshifts.Theprominenceofmanagementconsultantsinheadingnewdigitalsilosofaugustpublisherswascertainlyafactorinwhatfollowed.

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Indeed,oneex-McKinseydigitalconsultantissaidtohaveappliedtheinfamousdescriptionofthevillageofBenTre’sdemolitionduringtheVietnamwarasametaphorfornewspapers.(“Wemustdestroythevillageinordertosaveit,”thejournalistPeterArnettreportedastherationaleofaUSMajorinthedestructionofthatVietnamesetown.)Mostpublisherschosenottointegratedigitalmedia,buttocreatenewoperationswithseparatemanagementandfinancialgoals.Inmostcases,thedigitaldivisionswereheadedbypeoplewithlittleexperienceinmedia.Interestingly,almostallofthosepeoplecameupwithasimilaranswer:pursueanaudienceatallcostsandwithoutimmediategoalsforsustainability.Contentwasmadefree.Successwasmeasuredbythenumbersofpageviewsoruniqueusersortimespentonthesite.Largeamountsofmoneywerespentonexperimentsthatproducedlargelosses.Yet,eventodayanddespiteevidencetothecontrary,thefundamentalassumptionsof1996areentrenched.Thatis,manypublishers’digitalstrategyreliesontheassumptionthatlargeamountsoftrafficwillsustainthebusiness.Ihighlightthedecisionoverintegrationforasimplereason:ithadaprofoundeffectontheindustryfromwhichmosthavenotrecovered.Itentrenchedthenotionthatdigitalmediaisseparateandthatcontradictorybusinessmodelsareanacceptablemeansofresolvinguncertainty.Today,thereiswidespreadacceptancethatintegrationofdigitalplansintotheorganisationintotalisessentialineverybusiness.Aglobalexecutivesurveypublishedthisyearfoundthat:“…… nearly 90% of digitally maturing organizations — companies in which digital technology has transformed processes, talent engagement, and business models — are integrating their digital strategy with

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the company’s overall strategy. Managers in these digitally maturing companies are much more likely to believe that they are adequately preparing for the industry disruptions they anticipate arising from digital trends.” - Aligning the organization for its digital future, Gerald C. Kane, Doug Palmer, Anh Nguyen Phillips, David Kiron, & Natasha Buckley, Deloitte University Press 25 July 2016. FairfaxMedia,thecompanyinwhichIworked,employedabout10,000people.YetinthatcompanyIwastheonlymanagertomovefromafulltimenewspaperroletoaseniordigitalrolewhenthedigitaldivisionwascreatedin1996.Therewasnoeffortmadetoco-ordinateorevenleveragetheresourcesandexperienceofthetraditionalbusiness.Overtime,thegapwidened,asitdidinnewspapersallovertheworld.Therewereexceptions.TheWallStreetJournalaimedforintegrationfromtheoutset,thoughitsexecutionprovedtobechallenging.OfthepeopleIwasabletomeet,onlyTheEconomiststaffseemedtohaveaconfidentgrip.Theirviewwaspragmatic,ifdisconcerting.“There’snomoneyinit,”Iwastold,“sowhywouldwejumpin?”Asitturnedout,doingnothingforabitwasthewisechoice.Twoprominentexamplesareworthreview.In1997TheFinancialTimeshadadigitalmodelinwhichallcontentwasfree.ItsthenCEOtoldmethatft.comwouldmakemoneybecauseofajointventurewithafinancialservicesprovider.TheideawasthattherichinvestorswhoreadtheFTwouldbefunneledinft.comtothefinancialservices,whereft.comwouldtakeacommission.AtthetimeIfoundthisideastrange.Itoldtheft.comCEOthatinmyexperiencepeoplewhoreadtheFT(andthenewspaperIworkedfor)wantedindependent,reliableinformationonwhichtheymadechoices.Sotheassumptionthattheywouldbeherdedtoaninvestmentstruckmeasbothunlikelyandpotentiallyobjectionable.

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TheFT’sdecisionnottointegrateitsdigitaloperationshighlightedanotherissue.Thenewspaperhadbeenveryprofitablebecauseitsaudienceattractedadvertisingathighratesanditsreaderspaidsignificantamountsforthecontent.ForquitealongtimetheFTwasalsointheunusualpositionforabusinesspublisherofhavingincomefrom(veryprofitable)listings:itchargedmoneyforinvestmentproductsandlistedstockstoappearinitspages. Onequiteoddaspectoftheft.cominitiativewasinitsstyle.TheFinancialTimeshadsolditsclassicbuilding(BrackenHouse)nearStPaulsin1987andthemovetoamodernbuildingatSouthbankcoincidedwithwhatmanyfeltwasanaggressivechangeinenvironmentandmanagementstyle.Sothedecisiontolocateft.comat1Poultry,anewbuildingintheCitylocateddirectlyoppositetheBankofEngland,wassomethingofastatement.Launchedin1994,ft.comwentthroughanumberofiterationsbeforeanaggressivemarketinglaunchin1997-98.Thetimescouldnothavebeenbetter,sincetheemergingdigitaltechnologywavehadgatheredcommercialmomentum.Overthenextfewyearstheproliferationofdigitalstartupsandrelatedsharemarketenthusiasmdrovehistoricallyunusualrevenuestobusinessmediaglobally.TheseboomyearswerecappedoffbyafeverofadvertisingaroundthefearthatglobalITsystemsthathadnotbeenupgradedwouldfailastheendofthemillenniumpassedattheendof1999.Despitetheboomtimes,TheFinancialTimesGroupwasdrivenintolossesbyft.comanddidnotrecoveritspreviouslevelofprofituntil2007,justintimetobepitchedintotheglobalfinancialcrisis.TheFT’srecovery,whichremainschallenging,beganwiththeintegrationofft.comandagradualimpositionofwhatarenowsubstantialsubscriptionfees.TheFT’sowner–Pearsonplc–hadlongbeenmovingawayfromitsdiverseconglomeratestyleandfocusedonitseducationbusiness.Finally,inJuly2015theFTwassoldtoJapan’sNihonKeizaiShimbun–theJapanesebusinesspublisherownedby

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itsstaffthathadbeenconsideringitsoptionsforglobalpublishingforsometime.ItmaybeironicthatthechangeinownershipwillcoincidewiththeFTmovingbacktoBrackenHousein2018,displacingaJapanesebank.“Rather than chasing scale and advertising, The Financial Times has built its digital business around an audience-driven subscription model.” - http://digiday.com/publishers/inside-financial-timess-digital-strategy/ IncontrastwiththeFT,TheGuardianhaslostmoneyfordecades.Untilrecently,itslosseswerebalancedbyincomefromtradepress.LiketheFT,TheGuardiansawtheopportunitytoreachaglobalaudiencethroughdigitalchannelsandmadethatitsfocus,fullyintegratingitsdigitalteamfromitsearliestefforts.ItalsoaddedlocaleditionsforUSandAustralianreaders.And,overall,TheGuardian’sdigitalproducthasbeenatriumph,ranking10thintheworldwith42millionmonthlyvisitors.Allofitsdigitalproductisfree.Solongasitsothercommercialventureswereprofitable,TheGuardians’lossesweremanageable.Butfrom2007theScottTrust,whichholdsalloftheassets,begantosellcommercialactivitiesandbymid-2014theTrustheldabout840millionpoundsincash.WhenIvisiteditsmanagementin2014,itwasclearthatthefocusofthebusinesswasoneditorialexpansion.Whenitssustainabilitywasquestioned,executivesexpressedtheviewthattheearningsonitscashenabledtheTrusttolose40millionpoundsayear.Itwasnotclearthattherewereplanstoavoidlossesortobuildfurtherresources.Inanycase,therewasaflawinthestrategy:itdidnotenvisagevolatility.Inmid-2016TheGuardiangroupreportedalossof69millionpoundsandanother104millionpounds’reductioninthevalueofitsassets.Itscashwasnow765millionpoundsandoperatingassetsasidefrom

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TheGuardianitselfvaluedatabout200millionpounds.Unlesssomethingchanged,TheGuardianhadadecadetoliveatbest.Notsurprisingly,abigcomponentofthelosswasfallingprintadvertising.Therewasalsoalesserfallindigitaladvertising–largelyattributedtotheincreasinglyeffectivecompetitionofaggregatorslikeGoogleandFacebook.AtthispointTheGuardianremainscommittedtofreecontentandratherthanimposeafeeithasinvitedreaderstobecomefinancialsupporters.Sofar,50,000haveresponded,asmallnumberofpeopleandmostlikelyaninsignificantfinancialresult.InthemeantimeTheGuardianisreducingcosts–largelybycutting250jobsfromitsglobalheadcountofabout2000.Ofthoseretrenchmentsabout150aresaidtobecomingfromitseditorialstaffof725andthebalancefromcommercialactivities.Onedetailthatishardtounderstandisthatthelateststaffreductionisonlyhalfofthenumberaddedsince2012,whenTheGuardianlastmaderetrenchments.Soitwouldappearthatdespiteitsownclearexperience,TheGuardianhasbeeninvestingveryheavilyincontentthatitcannotsustain.Whichbegsthequestion:howdoesTheGuardiandecideitsfuture?Isthereanyclarityoveritspurposeandvalue?Itmustbesaidthat,oncurrentpublicknowledge,thejuryisout.“the Rodney Dangerfield of commercial journalism: It gets no respect.” - http://www.niemanlab.org/2014/02/the-newsonomics-of-the-guardians-new-known-strategy/ OneofthegreattechmanagersisAndyGrove,ofIntel.Groveisknownforhisresponsetotheintenselyinnovativenatureofthesemiconductorbusiness.“Onlytheparanoidsurvive,”hesaid.Yetanotherremarkhasimpressedmeforitsrelevancetomedia.Grovesaidthatintech,“hewhocommoditiseslast,wins.”

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Bybreakingdownmediachannelsthathadmonopolycharacter–broadcastlicences,printinganddistributionassets–digitalmediashiftspower.Whenthatshiftisaccompaniedbyhighcapacityconsumerdevices,likesmartphones,theeffectforincumbentbusinessesisnotmerelydisruptive.Itistraumatic.Becausetheissueisnotsimplytechnical;itiscultural.Theempowereddigitalconsumertranscendsthepowerofmediacompanies.Inmanywaysthecultureofnewsmediaisaboutpower.Traditionally,journalistshavestoodintheshoesofthecollectivepublicandwiththatauthorityobtainedtheprivilegeofaccess.Digitalmediaprovidesaccesstoprimarysourcesandinmanywaystheintermediaryjournalistisredundant.Today’spoliticians,governments,corporationsandcommunityorganisationshavethemeanstocommunicatedirectlyandcitizenshavethemeanstoobtainindependentviewsfromwithintheirownnetworks.Sothereisarealreasontoquestionthepowerofjournalismtoday.Yetpowerisalingeringculturalcharacteristicofindustrybehaviour,whentoday’simperativeisvalue.Thevalueofjournalismhaschangedforobviousreasons.Itisnotclearthatmanyjournalistsandeditorshaverespondedtothatchange.Myexperiencehasledtothebeliefthatnewsjournalismremainsvaluableandinmanywaysmaybemorevaluablethanever.Digitalmediademandsthatweunderstandthatvalue;thatwequestionourassumptionsandtestourinitiatives.Aboveallthatwealignresourceswiththevaluerecognisedbyconsumers.Thatisthechallengeinanindustrythathastypicallybeensubjecttoverylittleuncertaintyoveritsessentialvaluetotheconsumer.Today’smediamustbesurethatitsproductisvaluabletothosewhopayforit.CASESTUDY:AUSTRALIANBUSINESSMEDIA1998-2011From1July1998IwasbothpublisherandeditorinchiefofTheAustralianFinancialReview(AFR).InDecemberofthatyearmy

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dutiesalsoincludedthemanagementofFairfaxMedia’sbusinessmagazines.Intotal,thesepublicationsemployed600peopleattheirpeakandwhilethemajorityworkedonTheAustralianFinancialReview,thenichemagazinesrangedoverbusinessandinvestmentandITandoperatedinAustralia,theUK,Singapore,HongkongandIndia.IhadbeendeputyeditoroftheAFRuntil1996,whenIjoinedasmalldigitalstrategygroupinmanagementthatdevelopedstrategiesandsomeproductsforFairfax.InthatroleIconceivedanddeliveredasitethatofferedthefirstweb-basedrealtimeAustralianequitymarketsinformation.InegotiatedacommercialcontentaggregationjointventurewithDowJonesandledaFairfaxinvestmentinaUS-basedinvestmentdataaggregationplatform.Aswasthecasewithmanypublishers,Fairfax’sdigitalstrategygroupbecameaproductgroup.Forreasonsofhistoryitsnichebusinesstitleshadembarkedonsmallwebsitedevelopmentsoftheirown.ButwhiletheAFRwebsitecontentwasproducedinthenewspaper,theproductmanagementandstrategywaswithFairfaxDigital.FairfaxDigital,likemanyothernewspaperdigitalgroups,chosetopursuestrategiesinwhichthenewscontentwasofferedfreeonlineinordertoattractconsumertrafficthatwastobemonetisedinadvertisingandothercommerce.Fairfax’sdigitalstrategypresentedanumberofchallengesformeinmanagingthebusiness.Mostobviously,theAFRwasanichetitlewithapremiumaudience.Itsvaluereliedonpremiumpricinginbothcontentandadvertising,valuethatwouldbeerodedbyofferingthecontentforfree.Between40and50%ofAFRrevenuecamefromcontentpricing–thenewspapersubscriptionwasaround$800ayear.Asaresulttherewasaprolongedstrategystandoff.Intheabsenceofanactiveinvestmentstrategyfordigitalmedia,Ibegantodevelopprocessesandmethodsformanagingadigitalfuture.Myearlierexperienceledmetofocusonstrategiesinwhich

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contentvaluewastheprimarydriverandonaudiencemetricsthattestedthoseassumptions.Ihadalreadyconcludedthatthestrengthofprintchannelsforadvertisingwastobeerodedbythemassaggregationanddataanalyticsthatthewebwouldbring.Likeanyorganisationwithastrongcommercialhistoryandreputation,newspapershadentrenchedculturesandanironictendencytoembracetheirpastsomewhatmorecloselythanisthecaseinotherworkplaces.AneditorofTheNewYorkTimesonceobservedthatnoworkersanywhereweremorepoorlyinformedabouttheirownindustrythanjournalists,whichinmyexperienceisnounderstatement.Inanycase,anddespitetherealitiesoftheirwork,journalistswerenotinclinedtoquestiontheirworkhabitsandpreferences.Thatwasmystartingpoint.Regardlessofwhatstrategywaspursueditseemedtomein1998thatitwouldbeessentialtomaximisethevaluecreatedfromourcoreresources–thetimeofpeopleemployed.Inmakingchoiceswewouldalsoneedtoknowmuchmoreaboutconsumervalue,sincethequotaofspecificcontentdemandedforanewspaperhasabinaryrelationshipwithrelevantadvertisingvolume.So,forexample,theadvertisingofcommercialpropertyintheAFRwouldfluctuatefromweektoweek,creatingsometimesextremeworkloadsforspecialistpropertywriters.Littleadvertisingvolumepursuedpagesallocatedtogeneralbusinessnews,yetthiswasthecorecontentoftheAFRandwhich–attimessuchasprofitreportingandsoon–demandedlargeallocationsofeditorialspace.Inadigitalworldwithnomanufacturingcosts,editorialspaceisunlimited.Thecriticalresourcetomanageistime–thetimeofthewritersandeditors.HavingbeendeputyeditoroftheAFR,Icametothetaskofmanagingitstransitiontomultimediawithknowledge.Iwasalsoveryconsciousoftheneed,ingeneral,tomaximisetheresource

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investeddirectlyinvaluethatwastransparenttoconsumers.Thesetwofactorsledinitiallytoquestionsaboutorganisationandprocess.Themanufactureofdailynewspapersmaybepurelyadailyeventandinmanycasesthisishowitismanaged.Advertisingissold,editorsaresuppliedwithpagespopulatedwithadvertisingandatacertainpointtheeditedpageimageistransmittedtoprintersandthepapersshippedtoconsumers.Inanextremecase,staffcometoworkandcompletethatwholeprocessfromscratch.Thenews,ineverysense,iswhatarrivesintheday.InmanywaysthisishowtheAFRoperatedin1998.ManagementofthenewsprocessattheAFRin1998wasmarkedbyinheritedpractice,muchofitderivedfromthelargerproductionmetropolitannewspapersthatwereprimebrandsoftheFairfaxgroup.Editorsconvenedforbroaddiscussionoftheday’seventsbeforelunchandreconvenedintheeveningtodecideataround6pmwhatprioritieswereallocatedtowhichpage.Thefinalnewspaperwasduetocompleteataround8pm.Unlikethebigmetropolitanpapers,theAFRwasnationalanditsproductionrequiredanearlyprintingstartatfivelocationsaroundthecountry.ItoldameetingofeditorialleadersthatinmyexperiencethemanagementandprocessesinplaceattheAFRin1998producedthree“worstcase”outcomes.Byjammingthefinaldecisionsandprintdeadlineclosetogetherandtheendofthedayweproducedeffectsthatmaximisedstressandpressureonstaff.Thesefactorsalsolimitedflexibilityandcorrectionoferror.Finally,thebatchingofcontentattheendofthedayinanarrowwindowalsomaximisedthecostofhandlingtheworkandincreasedthecostofmanufacturinganddeliverydelaysfromtheprintplant.Wehadtochange.Webegantheprocessofchangewithamappingofthework.Thisshowed,amongotherthings,thattherewasaveryheavyrelianceon

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“hand-off”actions.Thatis,manytasksreliedonapriortask’scompletionandthe“handoff”ofthetasktothenextperson.Oneoftheproblemsofthe“hand-off”isuncertainty.Forexample,whenalltheelementsofaprintpagearecompletebutoneandthatoneisdelayedbecauseahand-offfailedtooccur,thenthewholepageisdelayed.Ofcourse,apaper’sproductionrequiresthateachpagebecompleteand,giventhephysicallimitationonpage-makingprinttechnology,pagesmustbedeliveredinareliableflowifthetightproductionanddeliveryschedulesaretobemet.Hand-offswereexpensiveandhighlightedtheneedformuchbetterprocesses.Manyofthestaffbecameactivelyengagedinchange.Somewerekeentoimprovetheirownlives,sincethestressesoftheestablishedmethodswereconsiderable.Somecouldseeotherbenefits,suchastheopportunitytohavebettermanagementoftheirstories.Someweresimplyinterestedintheideaofimprovement.Forthosereasonswehadahighlevelofstaffownershipinaprocessthatbroughtaboutconsiderablechange-muchofitinthedisciplinesrequiredofeditorstomanagetheirownandotherpeople’stime.Bytheend1999theAFReditorialprocesswasmuchrefined.Planningforfutureeventswasaweeklytask,designedtohighlightknownmajornewseventscomingupandtoensurethatworkwasdoneinadvancetopreparespecialistcoverage.Majoreditorialprojectswithlongleadtimeswereplannedandmanaged,thetwoelementscomingtogetherwiththeeffectofensuringthatonanygivendaytheAFRhadstrong,freshandpreferablyuniquecontent–ratherthanadependencyonwhatevershowedupontheday.Editorswererequiredtomakefirmdecisionsoncontentplansbeforeluncheachday.Thisallowedtheflowofcompletepagesearlythroughthedayandleftmuchgreaterflexibilitylateinthedaytoaccommodateimportantchangesorlateevents.Stresslevelscamedown:staffwereabletogohomewithoutfearoftheirworkbeingundoneinalatenightrush.Productionflows

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becamemuchsteadier,soqualityimprovedandlossesonlateprinttimesdisappeared.Thefinalimprovementcamewhenwecouldshiftsomeoftheeditorialresourcefromthenowsmootherproductionworktoanexpansionofwritingstaff.Qualityimproved,staffwerehappierandwecouldinvestmoreinvaluablecontent.Whiletheeditorialstaffexploredimprovementandvalue,weshiftedfocustolookintothevalueinadvertising.Likemostnewspapers,AFRadvertisingwaspricedaccordingtoitsdisplayandproximitytothefrontpage.Yetitwasevidentthatquiteafewadvertiserswerespecificallyinterestedinnichesegments,likeproperty.Sobeganaprocessthatsawarestructureofthenewspapertohighlightsegmentsandgenerallytoimprovetheutilityofsegmentationforreaders.Veryquicklywelearnedthatadvertiserssawconsiderablevalueinspecialistsegmentationwiththeresultthatcompetitiondroveuppricestoprimelevelsinwhathadotherwisebeendiscountedadvertisingspace.Byreducingthecomplexityandimprovingworkflowswewereabletoincreasetheresourcesforcreatingcontentandimprovequalityatthesametime.Andbyimprovingthedisplayofspecialisedcontentwemadeadvertisingvaluemoretransparent,increasingrevenue.Overallthefocusonvaluedeliveredsubstantialimprovementsinprofitandgaveusclearerinsightsintothebuildingblocksforadigitalfuture.Intheperiodfrom1998to2005therewasconsiderableinnovationinproduct,muchofwhichfocusedonspecialisationandprocessestoimprovetheuniquevaluesrelevanttoreaders.Researchwasrefinedtotestourassumptionsonaregularbasisandtotrackbothcurrentreaderacceptanceandthesignsofmigrationtodigitalsources.Thebroadresearchtrendsreflectedhighandrisingmetricsforaudiencereachandasurprisingattachmenttotheprintproduct.

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In2006,afteraprotractedinternaldebate,managementofbothdigitalandprintproductsoftheFinancialReviewGroupwasconsolidated.Theprincipaloutcomeofthatboarddecisionwasanimmediateefforttoestablishacommercialbasisfordigitalproduct.Thegreatestinitialhurdlewasacquisitionofdigitalskills,asthespecialistsinFairfaxDigitalhadnoexperienceofintegratedorpaidproductandwereinanycaseoccupiedonotherwork.Asweresearcheduserrequirementsforbusinessandinvestmentinformation,twoprioritiesbecameapparent.Usershadquiteclearideasofwhatwasrequiredandwerealsoclearintheviewthatdigitalproductwouldnotimmediatelysupplantprint.Theexpectationforthedailybusinessmedia–TheAustralianFinancialReview–wasthatadigitalproductwouldoffergreaterdepthacrossallofitssectoralandothersegments.Thispresentedanumberofcommercialandlogisticalchallenges.Butfirsttherewastheproblemoftechnicaldesign.Usersofafr.comweremostlikelydrivenbyoccupationalandinvestorpurposes.BothrequiredarangeoforiginalcontentspecifictoAustralianneedsandeachexpectedintegrationofothercontentandrelevantdata,suchasmarketpricesandannouncements.Anumberoforiginalfeatures,notablysomerelatedtoinvestmentanalysis,wereincorporatedintothedesign,whichwassegmentedheavilyintointerestssuchascompanynews,miningnews,propertyandsoon–aswellaspackagesonpublicpolicyandpoliticalnews,economicsandanalysis.Perhapsthemostdifficultissuewaspricing.Thereweretwobasicdriversofthepricing.Onewasthecostofextracontenttomeetthedemandformuchgreaterdepthdepthandsegmentation.Theotherwastheabsenceofanadvertisingmodelforsuchacontent-heavydigitalproduct.Intheend,wepricedthetotalpackageattheestimatedARPU(averagerevenueperuser)oftheprintproduct–butalsoofferedsegmentedpackagesatlowpricesforthosewhoseinterestwasspecificto,forexample,property.

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The2006launchofafr.comwasafailure.Theprincipallessonofthatfailureisnowwidelyunderstoodasafirstprincipleindigitalproductmanagement:makeiteasy.Primarily,theerrorwastotrytobuildacomplexaggregationoffunctionsandpackagesinamarketthatwantedasinglepackageinasimplewebsite.Anincidentallesson:technologyisnotthedriver.Inthiscasethetechnicalsolution–anapplicationusingFlashtechnology–wascorrect.Butitwasthewrongsolutionforthemarket,aswastheattempttoofferclientsavarietyofpackagepricepoints.Versiontwoofafr.comrequiredasinglepriceandasimple,familiarcombinationofdesignandfunction.Onereasonforthecomplexityofthe2006afr.comproductwasmyownattempttohedge.Confidentthatcontentvaluewascentralandadvertisingunreliableindigitalmarkets,I’dfixedonacontentdrivenpricethatwashigherthantheprintsubscriptionbyalargemargin.Facedwiththeobviousconcernsaboutthatpriceinamarketthendominatedbyfreenewspaperwebsites,I’dallowedtheAFR’snichesegmentationtointrudeasoftoption.Packagingsegmentsinthewaypay-tvsubscriptionswerebundledofferedtheappearanceofpriceandvaluechoice.Butitwasnotwhatcustomerswanted.Thelesson:makesurethere’sgreatvalueinthecontentpackage.Thelaunchofafr.comrevealedanotherfundamentalissue.Ourincrementalarrangementsforproducingnewspapers,magazinesandwebsitesimposedaconsiderablecost.Wehadsixtechnologyplatformsonwhichworkwasproducedforvariousproducts.Eachplatformwasindependentoftheothers.Allintegrationsofcontentweremanual.Ourdigitalplandemandedmuchmorecontent,buttheexistingITcomplexitymadethatveryexpensive.Wehadtofindawaytominimisethecostofhandlingcontentsowecouldmaximisetheinvestmentinoriginalcontentitself.EstablishedsuppliersofmediaITweretooheavilyinvestedinprintsystemstoofferanalternativeandnewplayerswerefocusedpurelyondigitalproduct.

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Happily,someverycapableItalianssawtheopportunitytohelpincumbentmediamakethemultimediatransition.ThroughcolleaguesinEuropeIdiscoveredthatEidosMedia,aMilanesefirm,hadcreatedaplatformnamedMethodethatenabledafocusonthecontent,ratherthanthechannel.Forme,thismeantthatwecouldinvestinspecialisedpeoplewhocouldthencreateanythingwechose–inanymedium–whileworkingattheirdeskandwithouttheneedforanotherpersontoreworkcontentfromoneITplatformtoanother.IttooksometimetoassesstheMethodesystemandtobesatisfiedthatitcouldintegrateeverything–newspaper,magazineandwebcontent–inasingleworkflow.(Itcould,butwewouldbethefirsttodoallofthoseinonesystem.)Moretimewasrequiredtoestablishandobtainapprovalfortheinvestmentrequired.ThentherewasthearduousprocessofdesigningamodernworkflowandinstallingitinanewITsystempluslinkstoallofourexistingdatabasesandcustomerrecognitionsystems.Afterahugeeffortoveralongperiod,ourworkplacewastransformedtoatrulymultimedia–“medianeutral”–environment.Theplatformdeliveredtwocriticalcapabilities:humaninterventionintheworkflowwasreducedtoqualitymanagementandediting;andtheflexibilitytoaddonsegmentsornewcomponentstothewebsitewaseffectivelyassimpleasithadalwaysbeenwithprint.Latein2009,afr.comwasrelaunchedinparallelwiththenewcontentmakingcapacityenabledbyMethode.Oncebeddedin,Methodeenabledustoavoiddouble(ortriple)handlingcausedbyouroldITsystems.Dailyoutputfromthesamenewsroomstaffnumbersalmostdoubled.Simplerdesignandpricingofafr.comwereessentialimprovements,butextracontentwascriticaltowhatquicklybecameapositivereception.FromNovember2009afr.comattractedsubscribersinbignumbersandbyMarch2011themonthlygrowthhadbeensteadyforoveryearatanannualrateof50%.

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Theessenceofthisstrategywastofocusonthevalueofthenewsbusiness.Inprint,halformoreofthatvaluewasinadvertising.Butthedigitalmarketofferedlittlecertaintyforthatkindofbalance.FRG’sdigitalopportunitywasincreatingauniquehighvaluecontentproductthatcouldsupportahighvalueapproachtojournalism.Adecisiontakenbackin2006provedtobefundamentaltothelatersuccessofafr.com.Fairfaxhadbeensyndicatingcontenttoacommercialaggregator,factiva,whichdistributedcontenttobusinesses.ManyofthoseclientsinAustraliawereinthecoreoftheAFRmarket,sothefactivasyndicationwasalmostasseriousacommoditisationofcontentvalueasmakingcontentfreeonline.Iterminatedthesyndicationagreement.InMarch2011FRGwasexperiencingthesecondyearofitsmultimediaoperationandthesecondyearofeffectsfromthemostdisruptiveglobaleconomiccrisisin90years.ItisnotpossibletodaytoknowwhetherthestrategywouldbesuccessfulastherehavebeenfundamentalchangesandI’venodirectknowledgeoftheirresults.ButasofMarch2011thesignsweregood.printproductanddigitalproductwereprofitable.Therewasasteady,stronggrowthindigitalsubscriptionsthatimpliedbyextensionasoundbasisfortransitiontoadigitalfuture.Printsubscriptionswereweaker,butadequate,andatthatstageadvertisinginprintremainedsufficienttojustifythemanufacturingcosts.Advertisinginafr.comwassurprisinglystrongandby2011exceededalldirectcompetitors,allofwhichofferedcontentforfree.“the kind of bottom-line payoff that most other smart digital-transitioning publishers can still only dream about” - http://www.niemanlab.org/2015/02/newsonomics-the-financial-times-triples-its-profits-and-swaps-champagne-flutes-for-martini-glasses/

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OBSERVATIONS

1. Newsmediaisnolongeramassmarketadvertisingbusiness.Inadigitalenvironment,aggregatorslikeGoogleandFacebookhaveboththeaudienceandthedataatextremelylowcosttoownthemarketanddecideitspricing.Similarly,theutilityoftransactionadvertisingforthingslikecarsandhomesismuchhigherinadigitalproductandsoclassifiedsarelargelydisconnectedfromnewsmediabrands.Virtuallyallformsofadvertisingarenowpricedandallocatedonmeasuresderivedfromdigitalconstructs,aneffectwhichacceleratedtheriseofbuyerexpertiseinadvertisingagenciesattheexpenseofsubjectivevalues.Aninterestingcharacteristicoftheafr.comexperiencewasthattheaudienceandpremiumvaluewasabletomigrate.Mostofthesubscriptiongrowthinafr.comwasinthepreferenceofsubscriberstobuyabundleofprintanddigital:aclearreflectionofthethenentrenchedaudienceresearch.Theaudiencelikedtheprintproductbutwantedadigitalproductwhichmuchgreatercontentdepth.Anotherinsightintothatexperience:nicheadvertisingfollowedthereaders,atpremiumprices.Thestrongadvertisingonafr.comwasdrivenbypremiumpricing,muchofithighlytargeted.Whiletheadvolumewaslow,therevenuewassuchthatitexceededthatofthehighesttraffic(free)investorsiteinthemarket.

2. Despitetheevidence,newsmediatypicallyhavepursuedmassmarketadvertisingasthesolefoundationoftheirdigitalproduct.WhilesomesuchastheNYThavesoughttobuildabusinessoncontentpricing,mostnewspapercompanieshavechosentochasetrafficandadvertisinginwhatsofararefailedorfailingmodels,dependentonshrinkingprintincometosustainshrinkingresources.

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“The Economist has taken the view that advertising is nice, and we’ll certainly take money where we can get it, but we’re pretty much expecting it to go away.” – Tom Standage (http://www.niemanlab.org/2015/04/the-economists-tom-standage-on-digital-strategy-and-the-limits-of-a-model-based-on-advertising/)

3. Editorialstrategiesmaybethedeathofnewsmedia.Free

content,distributionstoaggregatorsandahostofotherstrategieshavebeenusedbynewsmediainthepursuitofaudiencenumbers.Indoingso,editorsoftenarenolongerrequiredtoexercisejudgmentandallocateresourcesaccordingtothevaluesofadefinedaudience.Inmanycasessuccessismeasuredinsimplemetricsthatlargelycomedowntoundifferentiatedtrafficonthesite.Theresult:contentchoicesaredrivenbytrafficnumbers.Theeffect:newsbrandsthatwerebuiltonengagementofademographicandoftenacommunityareincreasinglydisappearingintoafogofpopularglobaltraffic.

4. Yougetwhatyoumeasure.Inmyexperienceeditorialmanagementsandmediamanagementgenerallyisusedtosoftmeasures.ThisIthinkissimplyafunctionoftheirpastandformermarketpower.Circulation,forexample,wasfordecadestheViagraofeditors.Despitethefactthatitwasoftenfake–inthesensethatitwasnomeasureofthecustomer’sardourfortheproduct.IheardofonecasewhereanewspaperwasflyingcopiesofitsnewspapertoremotepartsofCanadainordertofulfildiscountedstudentssubscriptions.AndIknowofonenewspaperexecutivewho,facedwithdecliningreaderinterestsimplyloweredtheaudiencedemographictargettocoverwhatwerefairlydesperateeffortstoinflatecirculationnumbers.Avoidanceofrealityiswellentrenchedinbusinesspracticeandgoesalongwaytoexplainingwhatareotherwisecuriousdecisions.Intoday’senvironmentthemoststriking

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exampleisthewaythatnewspapersmeasurecompetitiveness.Asnotedabove,trafficistoday’scurrency.Yetwhennewsmediarankcompetitorstheypersistincomparingonlytheirimmediatepeers.ThisdespitethefactthattheseaggregateaudiencesaretinyrelativetoGoogle,Facebookandsoon,whichtakeadisproportionoftherelatedadvertisingdollars.“In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook” - http://www.nytimes.com/2016/04/18/business/media-websites-battle-falteringad-revenue-and-traffic.html?_r=2 BothGoogleandFacebookwiselyavoiddirectcomparisonsbywitholdingtherelevantdata.Newsmediashowverylittleevidenceofimposingthedisciplineofaudienceengagementmeasuresthatwoulddriveeditorialdecisionsinthedirectionofconsumervalue.Alongstandingweaknessofconsumerdisciplineinnewspapershasbeencompoundedbythesoftoptionofdigitaltrafficmeasures.Thisdigitalchoicehasacceleratedanalreadyestablishedtrendfornewsmedia’sengagementwithaudiencestoweaken.Insomecasesthepursuitoftraffichasdiminishededitorialqualitytothepointwhereaudiencesseenovalue.Inothers,thelackoffocusoncontentvaluehasledtodrasticandhaphazardcutsinstaffing,tothepointwheremuchcontentissimplyopinion.

5. Priceiswhatyoumakeit.Oneremarkablecharacteristicofnewsmediamanagementinthedigitaleraisthedecisionsonpricing.Eventodaythereareprominentnewsmediacommentatorswhoassertthattheroleofnewspapersisessentialinourlives.Yetthesamepeoplesaythattheyhavenocommercialvalue.Usually,thisleadstoasomewhatuncertainlobbyforphilanthropyorpublicsubsidy.Asidefrom

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generallytentativesubscriptionpricingofafewnewsmedia,theclearexamplesofconsciouspricingareincaseswherethiswasalreadyavitalelementoftheincome.InthecaseofTheAustralianFinancialReview,eachprintsubscriberwasworthabouttwicetheveryhighsubscriptionprice.I’dimaginethatTheEconomist’scontentpricingisasomewhathighershare,whiletheadvertisingshareofboththeFTandTheWallStreetJournalmightbesomewhathigherthantheAFR.Inmycase,andIbelievetheevidenceoftheotherpublishersImentionheresupportsthisview,Ibelievethatafirmfocusoncontentpricingandcontentvalueprovidesastablebridgefromtheeraofprintmanufacturingtodigitalexpansion.Forexample,TheEconomistinitiallydidlittleonline.It’sfirstresponsetothedigitalerawastoextenditsglobalprintreachandincreasecoverprices,whichitdidverysuccessfully.Itunloadedsomesubsidiaryproductstofocusonthecore.Anditbuiltaprofitablestreamofrevenuefromitscontent-relatedconferencesandbusinessinformationconsulting.Theproblemforverymanynewspapersistheabsenceofcertaintyaboutvalue.Asaresult,traditionalvaluehierarchiesareimposed,manyofwhichareentirelyintrospectiveinnature.Afavouriteexampleisthepresumptionthatcolumnistsarethemostvaluableshareofeditorialspace.Theevidenceisthattheyarenot.Infacttypicalaudienceresearchshowsovermanyyearsverylittlereaderrecognitionofbylines.Andwhensome,liketheNYT,seektotestthesubscriptionpotentialoftheir“mostvaluable”staff,theresulthasbeenswiftreversal.Acombinationofpoordisciplineandthepursuitofundifferentiatedaudienceshasledmanynewsmediatounderminetheirvalue.Increasinglyweseerisingsharesofcelebrityjournalismdisguisedascommentaryinadigitalenvironmentwherecommentaryislargelyworthless.Andasprintincomewanes,theresourcesforcontentofvaluearedistractedbytrafficimperativesorsimplymissing.Products

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andbrandsaredegradedatatimewhentherealneedisdistinctioninworthandrelevance.

6. Valueiskey.TheEconomistisopeninitsviewthatanyadvertisingitgetsisabonus.Itsbusinessiscontent.IncreasinglythatisalsotrueofTheFinancialTimesandperhapsofbothTheNewYorkTimesandTheWallStreetJournal.Theremaybemanyothercases,notablyinmarketswhereadvertisinghasnotbeenabigincomesource,suchasIndia.Butthemostcommonpresumptionisthatnewspapervaluehasshrunkby90%(thenewspaperdollarbecomesadigitaldime).There’snoquestionthatbigslabsofmoney,notablyinclassifieds,disappearedwhenmanufacturinganddistributionlosttheirstatusascompetitivemoatsfornewspaperrevenues.Itisnotclearthataudienceshaveabandonedtheimperativetobeinformed.Obviously,contentvalueisdifferentinadigitalenvironment–ifonlyfortheobviousreasonthatsomepartsofnewspapersexistedtoattractadvertisers.Uptonow,notmanygeneralinterestnewsmediahaveexperimentedwithmodelsbuiltoncontentvalue.Thiswilldemandanewfocus,buttheevidenceisthatpaidcontentisfastbecomingadriveroftherelevantdigitalmarkets.Thereiseveryreasontobelievethatfuturenewsproductwillbefullyadaptedtocontemporarymultimedia(itisamazingtomethateventheNYTdoesnotusevideoprominently),carefullycraftedforvalueinitsaudiencebaseandprofitablypriced.“Engaging with readers is now a mantra at the F.T. Earlier this year, the paper even created an audience-engagement team in its newsroom” - http://www.newyorker.com/news/john-cassidy/the-financial-times-and-the-future-of-journalism

7. Finally,redherrings.Manyconfidentstatementsaboutdigital

mediaaresimplywrong.Myfavourite:“datamustbefree”.

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Dataisnotandhasneverbeenfree,thoughit’snotalwaysbeenclearwhowaspaying.Thepseudo-ideologyofthewebhasconfusedthefactthatmanyorganisationshaveaninterestinpropagatinginformationwiththeself-interestofgettingsomethingfornothing.Unfortunately,thisviewhasbecomeacomfortforthosewhomightotherwisebeforcedtosustainthevalueofwhattheyproducebychargingforit.Itgetsworse,becauseoncethatideaisembeddeditleadstothenextstageofretreat:we’velostcontrol,theysay.

“76% of Americans say they usually turn to the same sources for news” - Pew Research Centre (http://www.journalism.org/files/2016/07/PJ_2016.07.07_Modern-News-Consumer_FINAL.pdf)

TheideathataggregatorslikeGooglehavecontrolofnewsdistributionisonlyrelevantifpublishersbelievetheycanmakemoneythatway.Theevidenceistheopposite.Infacttheyaredilutingtheirownbrandandenrichingthatoftheaggregatorfornocommercialpurpose.Yetmediapersistingivingotherwiselargelyemptyvesselsthevaluablecontent(asidefrompicturesofexoticanimals)thatmakessocialmediawork.ItisnoteworthythatpublisherslikeTheEconomist,who’vemaintainedaconsistentlypragmaticview,donottodaygiveprioritytoaggregators.Bywayofexample,theafr.comproductwasnotopentoaggregatorlinksandwasnotsyndicatedinanywayatall.Asnotedabove,itsfullypricedsubscriptionsgrewat50%perannumfromlaunchthroughtoastrategychangeinlate2011.Inmyexperience,wellfoundedbeliefincontentvalue,deliveredwellandtestedagainsttherealityofuserpaysisapracticaloption.TheEconomist’s2016resultsincludeda32%riseincontentprofitsandinwhichprintadsearnedonly47millionofitstotalincomeof$331mpounds.Profitwasaveryhealthy60millionpounds–onatrendtowarddigital

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transitionthatwillincreaseprofitabilityasmanufacturingcostsdiminish.

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