Why Are Publishers Trading Digital Dollars for Analog Dimes?
In 2008, Jeff Zucker complained that media companies were “trading analogue dollars for digital pennies.” As chastened media executives repeated the quote over time, it eventually became amended to “trading analogue dollar for digital dimes for mobile pennies”.
It seems quaint now. Clearly, if the eye-popping valuations of companies like Google and Facebook are any indication, there is a ton of money to be made in digital media and, as The Economist reports, traditional media companies are starting catch on.
While many old media giants, like The New York Times, continue to cling to outdated business models and struggle, the fact is that there never has been a better time for the media business. There are more opportunities to make money and to connect with the audience now than ever before. Publishers should stop whining and get on with it.
Déjà Vu All Over Again
We’ve been here before. In testimony to congress in 1982, Jack Valenti, the Chairman of the Motion Picture Association of America (MPAA) warned, “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”
At issue was the famous Betamax case in which the Supreme Court ruled that people recording movies and TV shows at home did not constitute copyright infringement. Along with Mr. Valenti, Clint Eastwood and a host of other Hollywood power brokers argued that VCR’s would mean tragedy for both content producers and consumers.
They insisted that Congress act to stop the scourge of this new technology that, in their view, meant nothing less than the end of the entertainment industry. Congress demurred and, ironically, in the years to come video sales became an enormous revenue stream for studios, putting untold billions into the pockets of Mr. Valenti’s constituents.
Box office sales didn’t suffer either. In 1982, the top grossing movie was the legendary E.T. the Extra Terrestrial, which earned $435 million. In 2012, no less than 4 films grossed more than $1 billion. Nevertheless, just last year, the MPAA and other content producers lobbied for the SOPA legislation in order to curtail digital media activity.
How The Worm Has Turned
While many (but certainly not all) incumbent media businesses continue to resist change there is every indication that digital technology represents a great opportunity for the industry.
One sign of the times is Jeff Bezos’s recent purchase of The Washington Post for $250 million, a paltry sum compared to the $315 million paid for The Huffington Post in 2011 by AOL, another digital media firm. Further, as I noted above, the success of companies like Google and Facebook shows that there is serious money to be made in digital advertising.
In fact, as revenues from newspapers continue their decline, Henry Blodget at Business Insider calculates that, with its digital business growing at an average rate, The Washington Post could support 500 journalists solely on digital revenues.
Clearly, the worm has now turned. The Economist article reports that, just like video cassettes a generation ago, digital revenues are becoming a vital revenue stream for content producers. Nevertheless, many traditional media companies seem to prefer analogue dimes to digital dollars. Why is that?
The Paid Media Myth
A common media non sequitur is that subscription revenues are somehow superior to ad revenues. After all, the story goes, paying customers are far better than casual interlopers freeloading on content. Paywalls go up, advertising income goes down, but the hope is that, in the end, integrity will win out.
This is just silly. The simple fact is that media has been primarily ad supported for generations. Broadcasters (at least before the cable era) built their businesses completely on ad revenue, magazines supplement print and distribution as much as 95% and newspapers are lucky to break even on copy sales. Free is, in fact, often a step up.
As I’ve noted before, the golden rule of media is this: Marketers are willing to pay more for consumers than consumers are willing to pay for content. Anybody who ignores that simple principle either isn’t thinking clearly or is just not paying attention.
The Great Media Opportunity Of The 21st Century
Probably the most disheartening thing about the state of the media business today is that while executives distract themselves with the red herring of paid vs. free media, they are ignoring genuine gold mines.
First, the obvious: Online video is positively booming. So after years of non-TV media executives salivating over TV revenues, now they can actually get a piece of the action. Unfortunately, many are too busy building elaborate paywalls to take notice.
Second, even within video, the opportunities are exploding. Until recently, there were two models to finance broadcast video content: advertising and subscription. Now, companies like Amazon, Microsoft and Intel are financing original content to support their technology platforms. Other venues such as YouTube and Kickstarter also offer new possibilities.
There are also exciting opportunities outside of video. Affiliate networks, such as Amazon Associates, offer content producers a cut of every sale that results from traffic that they send, creating a direct link with e-commerce. As I’ve argued before, this most likely is part of what motivated Bezos’s purchase of The Washington Post.
As Vivaki’s Rishad Tobaccowala has pointed out, the future does not fit into the containers of the past. Whining over defunct business models is not only foolish and a waste of time, it can also blind you to significant business opportunities that are there for the taking.
Breaking Down The Chinese Wall
It has long been a valued tradition in publishing to maintain a “Chinese wall” between the editorial and business sides of publishing. The thinking was that you don’t want business interests to influence editorial decisions and corrupt the integrity of the product.
Unfortunately, it also had the opposite effect. Media executives could wear bright red suspenders and talk deals just like their Gordon Gecko-like Wall Street brethren. The problem is that a media product is very different from a financial product. It has a soul and a meaning.
The function of management is no longer so much to organize work as it is to direct passion and purpose and business-side media people need to adopt the editorial mission as their own. Surely, a paywall does not help inform the public any more than trying to outlaw VCR’s helps entertain movie viewers.
Consumers understand that distinction and have more choice than ever before. The result is that big media today is often caught in a classic profit paradox and, in chasing after analogue dimes, many media companies are missing out on big digital dollars.