On both sides of the Atlantic, the newspaper business is experiencing its own episode of back to the future, reverting to a past whenbillionaire sugar daddiesbuy and prop up ailing titles.
The motivations sit on a continuum from a public service minded sense of noblesse oblige all the way to treating media as something akin to a US super-carrier, as the ultimate tool to project power. The new class of owners include former KGB agents, hotel developers, hedgies and, of course, this week, Jeff 'Vishnu' Bezos, the creator and destroyer of retail business models.
Historians will simply say, twas ever thus, and point to the fact that we're merely returning to an older model of ownership. But could newspapers have responded to the digital tsunami in any other way than they did?
The newspaper industry had a clarion call on how to respond to disruption, but like most disrupted industries, the industry has failed to adopt these strategies.
Newspapers are only the latest in a long line of industries that have been rocked by technological change. Clayton Christensen has studied hundreds of companies across a number of industries that have faced disruptive innovations, and in 1997, he wrote the Innovator's Dilemma: When New Technologies Cause Great Firms to Fail.
Clark Gilbert is former professor of entrepreneurial management at Harvard Business School and began working with <Christensen to apply the Innovator’s Dilemma to newspapers more than a decade ago in 2002. Unlike other industries, which simply did not see the disruption coming, newspapers recognised the threat posed by the internet, but Gilbert said, “Unfortunately, threat-induced response also leads to very rigid behavior.” He added:
We found that despite recognizing the problem, most companies aggressively "crammed" the new business into the old business model and sales processes. For example, most newspapers tried to force their online sites to make money by selling the same types of advertising to their traditional print advertisers. The early online advertisers were different and the type of advertising they sought was much more focused around the interactive and direct targeting attributes of the new media.
Threat had motivated action, but it was resulting in an aggressive replication of the newspaper business. Newspapers had spent a ton of money, with little to show for it. In an effort to defend their core market from attack, newspaper companies were missing the new emerging market altogether.
More than a decade ago, Gilbert also had statistical evidence that should have been a warning to newspaper executives that digital-legacy integration was not the answer to their problems. In fact, it was exactly the wrong thing to do. He said:
In our large sample study, sites that separate their online organizations from the newspaper were more than twice as innovative than sites that remained integrated into the newspaper. More importantly, these sites gained 60 percent higher market penetration!
Fast forward to 2013. Three years ago, Gilbert left Harvard Business School to become the CEO of Deseret News. While on average US newspapers earn 17 percent of their revenue from digital, The Deseret News and Deseret Digital media earns 45 percent of their revenue from digital, according to the American Press Institute (API).
In April, I heard Gilbert speak at the International Symposium of Online Journalism in Austin about how he has applied the insights from the Innovator's Dilemma to the Deseret News in Utah, and he laid out why integration was absolutely the wrong approach to disruption.
“In industries that are being disrupted, 9 percent of companies make it,” he said. Of the 9 percent that made it, 100 percent had set up a separate disruptive business unit.
A separate physical location.
Separate profit & loss.
Separate direct sales.
Separate content product and technology teams.
Separate management structure.
However, it is important to understand that while Gilbert says integration is a mistake, potentially a fatal one for your company, he is not simply advocating a digital first strategy. Key to his strategy is a dual transformation, creating a new disruptive digital company while also transforming the traditional print product.
In his transformation of the legacy print and broadcast business, he said that it is important to understand that in the age of digital media, generalists are not as valuable as specialists. Local media should excel in this age, but instead they have suffered.
To help the newspaper find its USP, Gilbert used detailed market research to identify six core coverage areas. Yes, they slimmed down the legacy product, but they ploughed savings back into covering these six core areas that allowed them to create a differentiated product.
For the disruptive digital business, they are creating a company that looks beyond the twin revenue streams of advertising and paid content that dominate the income mix of most media companies.
“Its divisions include, but are not limited to, e-commerce, marketplace services, digital consulting and other emerging revenue streams in which tablets, mobile and social are integral parts,” the American Press Institute reported.
Instead of one struggling company, Gilbert is trying to create two dynamic companies. They do meet, but he keeps the interaction at a minimum. Otherwise, the legacy business often “suck(s) the life out of” the digital disruptive business, he told the American Press Institute, adding, “You don’t get excellent from either if they’re integrated.”
Of course, the US isn’t alone in examples where splitting the legacy and digital business delivered better results. In fact, one of the pioneers is Scandinavia’s Schibsted. In 1999, it decided to split its digital divisions from its newspapers, and it has gone to build one of the most successful media companies in the world by building one of the most successful digital classified businesses in the world. With operations in 28 countries, US analyst Ken Doctor reported in February of last year that Schibsted earns 36 percent of its revenue from digital.
Looking at the recent newspaper buyouts by billionaires, the real question should be whether they will do the same thing as their previous owners, sinking millions into a disrupted business or whether they will heed Gilbert’s research and create a separate disruptive digital unit. Maybe that’s where Bezos will breath new life into the Post with a resurrected Post Digital.
Update: Anderson has added this additional comment on why separating out the digital business isn't necessarily enough.
There is a quote from Clark Gilbert that I didn't include, which is that separate digital and legacy businesses are a "necessary but not sufficient" condition for surviving disruption.
In the late 1990s, I worked for an Advance Internet regional news website, the internet division of Newhouse Newspapers and Conde Nast. We were so separate that we were only to have contact at the managing editor level and above. We had separate sales staff, tech staff, etc, etc. It didn't prevent the newspapers from beig disrupted. The Newhouses are going to three day a week publishing and slashing print staff now in New Orleans, Portland, Cleveland, etc, etc, to much anger from not only from journalists but also the communities those papers serve.
One major difference I see between the separate digital divisions at Advance and those that Gilbert, the Dallas Morning News, and Schibsted created is that the digital divisions are thinking not just about editorial innovation but also commercial innovation. In Dallas, they have bought a number of digital marketing and advertising companies that have added proper digital ad and marketing services products that the paper simply did not have. Digital advertising is booming, but the problem has been that newspapers simply haven't captured that revenue. In the English speaking world (and in Russia, China and the Spanish speaking world), most of that digital revenue has gone to search and social.
Put simply, the market for advertising changed, and news organisations simply didn't have any products to serve the needs of digital ad buyers.
TheMediaBriefing's Jasper adds: Another good example of European businesses separating out their digital and print operations is ZEIT ONLINE, the digital spin off from German weekly Die Zeit.
Managing director Christien Ropke told our Digital Media Strategies conference in February that the unit accounts for between 18 and 19 percent of the group's total revenue, with digital businesses such as online classifieds and a university course database. You can find our report on his chat with Patrick in this slide-deck roundup of the whole event.
Kevin Anderson is a journalist and digital strategist who has worked for the Media Development Investment Fund, The Guardian and the BBC.