Fixing the broken media model with additional services
Even before the economic crash, newspapers and media organisations around the world were finding their business models challenged by the internet.
The rise of new, free online media threatened newspaper circulation and broadcast viewing figures with a corresponding impact on advertising revenues.
The downturn just made things worse and the industry has yet to find a business model which will work in the new landscape according to Mary Lambkin, professor of marketing at the UCD Michael Smurfit Graduate Business School.
The problem, she says, is that the revenue models that served the industry so well for so long no longer work in the majority of cases. Advertising trends over the past nine years tell their own story.“Total advertising spending in Ireland reached €1.2 billion in 2007 and fell to €725 million by 2012, a drop of 40 per cent”, Lambkin points out.
“It is now back up to €915 million but this is still 24 per cent below peak. Print suffered most, down from €500 million to €175 million.”
Another key statistic she notes is that online (or digital) advertising overtook TV’s share of the market in 2015 and now accounts for a third of the total.
The international picture is similar but not quite as stark.
“Global advertising spend fell by 12 per cent from $495 billion to $438 billion during the recession but had recovered by 2012 to $500 billion. It is now growing at 5-6 per cent per annum and now stands at $579 billion [€508 billion]. Digital overtook TV in the UK back in 2010 and accounts for 50 per cent of all advertising; it is set to overtake TV in the US this year. Mobile now equals 50 per cent of digital advertising and is growing fastest.”
Shift to digital
This shift to digital advertising is the crux of the issue for most media organisations.“Newspapers have traditionally had a two-sided business model”, Lambkin explains. “On the one hand they have a B2B business which sells advertising to businesses and on the other they have a B2C arm which sells newspapers to consumers. In the UK and Ireland the revenue split was traditionally 60:40 in favour of advertising while in the US it was 80:20.”
She points out that new media companies such as Facebook earn almost 97 per cent of their revenues from ads, but most traditional media organisations can’t survive on near total dependence on advertising.
One solution that newspaper and magazine publishers came up with was to introduce a paywall to their website that required readers to pay a subscription fee to access content.
“Many of them have tried this but the research shows that for every dollar gained in digital revenue seven are lost in print income. Newspapers like The Irish Times have put enormous efforts into building digital subscriptions but the subscriber numbers are still tiny when compared to the print circulation,” says Lambkin.
Research carried out in the US by the Pew Research Center in 2012 points to a need for newspapers and other media organisations to move away from the traditional model to one that leverages its relationship with its readers to offer a much wider range of services.
The research covered 38 newspapers across the US and found that some were actually prospering in the new environment. One of the newspapers generating the most digital revenue was offering targeted digital advertising tailored to the online behaviour of individual customers. The study forecasts this to be the biggest growth area in local digital advertising but notes that most papers studied “had very little of this kind of smart advertising”.
Another newspaper had built a multimillion dollar a year consulting business based on helping advertisers market themselves online.
Lambkin believes these examples offer the basis of a new business model that will be based on a diversity of services.
“If you look at LinkedIn its revenue streams come from a variety of sources”, she says. “Subscriptions account for just 13 per cent of income. They call advertising ‘marketing solutions’ – that’s a very elegant way of putting it – and that accounts for only 15 per cent of revenue. The majority of the company’s income comes from talent solutions, or recruitment, and sales solutions which account for 72 per cent between them.”
The difficult lesson for traditional media organisations, Lambkin says, is to view the primary product – the newspaper, magazine or broadcast channel – almost as a loss leader used to draw consumers on to its digital platform.
“The need is still there for good journalism”, she says. “But it’s got to be supported in some way. Newspapers traditionally thought of themselves as a distribution vehicle for content; they’ve got to start thinking of themselves as platforms which are open-source and open-access. Facebook has shown what you can do when you build an audience. Newspapers need to invest in the quality of their offline product to maximise their online audience. They can’t compromise on quality; if they do they will drive their audience away.”
The goal is a virtuous circle where an online audience’s growth leads to increased income from advertising and other services.
“The bigger the audience the more value you can offer to advertisers”, she says. “But achieving this means rethinking the business model and the way they have been looking at things up until now.”