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How To Innovate Your Media Business Model

2014 January 15

My first media job was in New York, where I learned the radio business.  My company, Katz Media, had an outstanding training program, where for three months we were drilled in the basics of radio formats, research techniques, sales skills and marketing strategy.

So when I first arrived in Poland in 1997, I felt well prepared.  Surely, in a newly capitalist economy, where the entire concept of a media business was novel, my experience and expertise would give me a leg up.  Alas, I found that often the opposite was true.

You see, I had not only changed geographies, but business environments, with important structural, cultural and economic differences.  I found that what I had learned as eternal truths in New York were often, in fact, principles derived from circumstance, not necessity. Today, every media business is facing a similar dilemma and everyone needs to adapt.

A Tale Of Two Models

It used to be that the business of publishing content was dominated by two models: free and paid.  TV and radio broadcasting, historically, were fully ad supported, while movies relied almost 100% on box office receipts, with some residual revenue on the back end. Newspapers and magazines were hybrids, earning money from copy sales and ads.

As the media market matured, the water muddied a bit.  Paid channels like HBO came to the fore and increasing TV fragmentation made it easier for films to garner ad revenue. The one constant has been that marketers have been more willing to pay for consumers than consumers have been willing to pay for content, so free models have dominated.

Yet the “free vs paid’ dichotomy is misleading, because neither represent a full model.  To truly innovate your business model, you need to look at the full range of how you create, deliver and capture value.  What makes media today so exciting and so full of opportunity is that the options are exploding in each area.

Creating Media Value

It used to be that publishing was focused on owning and controlling content.  Print publications would maintain a large staff and license a certain amount of output from contributors.  Broadcasters would produce or procure programming and so on.  Rights were almost always exclusive, at least during a specified time period.

So it’s important that many of the new media juggernauts, such as Huffington Post, Bleacher Report and RealClearPolitics emphasize curation.  By collecting and linking to content they feel is interesting, they’ve been able to build successful businesses.  All have been acquired, in whole or in part, by major media outlets for major money.

Others, such as Forbes and Business Insider, have been able to create value by building large networks of contributors (disclosure: I work with both), many of whom are not professional journalists, but subject matter experts in a particular area.  Amazon Video has taken a slightly different tack, developing new programing through crowdsourcing.

Still another way to create value is through satellite brands, where a major media outlet syndicates its own content to a vertical brand it owns.  Ted Turner pioneered this strategy with thematic cable channels in the 80’s and others, such as The Wall Street Journal, have used a similar approach with verticals like All Things Digital.

Delivering Media Value

For a long time, business strategists argued that to attain competitive advantage, you need to dominate the value chain.  So, not surprisingly, the wisdom of marrying content with distribution was taken as gospel in media circles.  TV networks built studios; newspapers delivery infrastructure and magazines sophisticated databases of subscribers.

But of course, distribution was the first thing that the Web blew apart, starting with the walled garden model of AOL.   Rather than having to go through proprietary distribution, whether that be a delivery truck or a technology platform, consumers can now access the content they want through a web browser and everybody is on a fairly level playing field.

While many legacy media companies complain about this, it’s generally a good thing for everybody.  Consumers, of course, get more choice, but content producers benefit as well.  The truth is that distribution was generally a loss leader and companies invested in it mostly to get better ad rates.  It was rarely a stand-alone profit center.

Nevertheless, there are ample ways to innovate distribution.  Firstly, zero cost distribution has opened up a wealth of opportunities for content producers, such as the burgeoning video ecosystem that’s building up around the web.  Some, such as Politico, have repackaged reporting as e-books and others have profited from events and conferences.

Capturing Media Value

Incumbent businesses have generally been very protective of their traditional revenue streams.  The movie studios waged a legal battle against video recorders for over a decade, before they realized that video sales were a goldmine.  The music industry thought the Internet would kill its business, but now is minting digital money.

The truth is that for all of the talk about “trading analogue dollars for digital pennies,” the reality is just the opposite.  Never before have so many media brands become so valuable so fast.  Even AOL and Yahoo—often thought of as has-beens in the digital game—have multi-billion dollar valuations.

And the reason is that there has never been so many ways to make money.  In addition to advertising and subscription revenues, affiliate programs such as Amazon Associates make it possible for web sites to earn as much as 10% on e-commerce sales.  Other opportunities, such as sponsored content and native advertising, also show promise.

For many media companies, the biggest opportunity is web video, which is expected to grow almost 40% in 2014.  After years of salivating over TV money, now anybody can compete for those budgets.  The truth is that most legacy publishers really haven’t made much of an effort.

The Future Does Not Fit In The Containers Of The Past

Today, every media business is experiencing something similar to what I did when I moved to Eastern Europe in the late 90’s, except they didn’t need to change geographies to change environments.  The world shifted beneath their feet.  It’s possible that I had it easier, with obvious linguistic and cultural challenges to overcome, I knew I had to adapt.

And in time, I did.  It wasn’t easy, but I learned the new rules and, as I went to do business in other countries—I lived and worked in four separate markets during my fifteen years overseas—I found that every place worked differently.  I eventually realized that there are, in fact, limitless ways to make money in the media business.

So the key to competing in the age of digital is realizing that your business model will not last.  How you used to create, deliver and capture value is irrelevant.  If it doesn’t make you money now, it’s just baggage.  As Vivaki’s Rishad Tobaccowala puts it, the future does not fit in the containers of the past.

Once you accept that, all that’s left is opportunity.

– Greg
 

4 Responses
  1. January 19, 2014

    Hi Greg,

    You mention the potential of videos and I wanted to ask you why you think that.

    I still don’t understand why everybody is talking about their potential in terms of revenues. But I must be wrong as YouTube is there to demonstrate the success of videos.

    I have two points, based on my personal behavior:
    – I am rarely watching videos because they lack the “crispyness” that I am looking forward when reading “content”. I am merely looking for content that has been produced (in the most noble term) by someone in order to teach, train, inform…. in a very concise and effective way.
    – I am reading lots of written news online and, as of today, I find that (some of them) indeed do the work in terms of delivering insights in a crisp way.

    I guess the difference is that anyone can shoot a video and place it online but it is much, much more difficult to “take a pencil” and think about the message we want to convey and how to best put in “on paper”.

    Tx for your insights about this.

    Pascal

    Greg Reply:

    Pascal,

    I see what your saying, but if you’e been reading news online, your probably watching more online video than you think. You’ve never clicked on a newsclip accompanying a story?

    I’d say that there are three very clear indications that web video is exploding and will continue to do so for a very long time.

    1. The Numbers: I linked in some statistics above, but the simple fact is that the revenue numbers are already big and growing incredibly fast.

    2. The Buyers: Both marketers and agencies have mostly combined their TV and web video buying operations at this point. So, in many respects, web video and TV have largely merged in terms of ad budgets that are available.

    3. The Talent: I wrote about this before, but there is an enormous ecosystem building around web content that is making it better and better. It seems that just about everybody in Hollywood is attached to one project or another. It’s not just kids and cat videos anymore.

    So I think it’s pretty clear that this is an enormous opportunity.

    – Greg

  2. Peter Milburn permalink
    February 2, 2014

    Greg

    It’s probably been a few years since I posted here! Psyched to see Tonto is going strong with same insightful take on media biz as ever. I do think of you whenever magazine business model conversations come up. I woke this morning to a bunch of ex Time Incers sharing link below about Time Inc possibly moving from 1271 Ave of the Anericas — a building associated with its rise and dominance. (Walter Mitty movie getting comments too as the lead character works at LIFE magazine.)

    The line in the article recall the secular vs cyclical debate we had coming out of the 2008 financial crisis where you maintained mag ad rev wound “bounce back”. I think enough tine has passed to call this as secular (structural decline due business model and market shifts). You ready to concede my friend!

    “Leaving the Rockefeller Center-area tower would end an association that goes back to the days of founder Henry Luce, when Time and Life were among the most popular magazines in the world. Time Inc. is being spun off from the parent company it helped to create as an industrywide slump in print advertising contributed to revenue declines in five of the past seven years.”

    Full story http://mobile.bloomberg.com/news/2014-01-30/time-inc-said-to-weigh-leaving-nyc-time-life-building.html

    Greg Reply:

    Hi Peter,

    Nice to see you again!

    Well, I don’t exactly concede, but tablets have completely changed the game (social did not). The magazine industry is now indeed going through deep structural change. I wrote a while back here: http://www.digitaltonto.com/2012/5-keys-to-the-future-of-magazines/

    Glad to see you’re doing well!

    Keep in touch.

    – Greg

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