The Praized Blog

I was doing more thinking about Rob Barrett’s Latimes.com presentation I heard at the Kelsey conference last week. The decision to re-center their online strategy around hyperlocal is one of the sanest, most courageous and possibly most difficult strategic decisions I’ve heard come out of a traditional media group in a long long time.

Why? I was re-reading this blog post conclusion I wrote 15 months ago, “In a few years, you might find only authoritative international newspaper brands (New York Times, Le Monde, The Guardian, La Stampa, The Globe & Mail, etc.) and strong hyperlocal newspapers. All the ones in the middle will either have evolved or died.”

I suspect that building one of those big international newspaper brands is perceived as the holy grail of the newspaper industry and you can easily imagine that, for many years, the Los Angeles Times management team believed they would be one of those. Moving their online strategy to hyperlocal wasn’t a very sexy and exciting decision but it’s exactly what is needed to make the LA Times brand succeed online.

Very interesting first half-day yesterday at the Kelsey Group’s Drilling Down on Local ‘08. The theme of the conference is “Marketplaces”. It regroups products such as classifieds, auctions and vertical sites. Here are highlights from the first two sessions:

As an introduction, the Kelsey Group’s team provided us with some background information on “Marketplaces”. Neal Polachek first described the local end game as “better search, discovery, and engagement”. He even quoted the Cluetrain Manifesto’s “Markets are conversation”. He also talked about their latest global ad revenue forecast for 2007-2012, stating that the biggest category winner would be Internet and the biggest loser would be newspapers. As I wrote last week, the Kelsey group believes that Verticals will capture a large chunk of online advertising by 2012. Matt Booth then talked about three specific verticals (travel, automotive, home services) that have had a tremendous impact on offline/online business and media spending. For example, Matt showed two juxtaposed graphs showing the decline of newspapers’ automotive revenues vs. Autotrader.com’s revenue increase. Peter Krasilovsky finished the intro by stating that it’s now time to “uncouple” print and online media bundles. As print revenues decline, you need to have online-only ad products to compensate. Peter added that you also want to “verticalize” your offer to expand your revenues.

The second session “Remaking the Los Angeles Times (Online)” starred Rob Barrett, Senior VP of Interactive Media, GM, LATimes.com. He started by mentioning that most of what he’s currently working on is not very visible online now. He spent the first couple of years at the LA Times refocusing the online business. His main focus has been to build the display ad business (as opposed to classifieds). It’s going to generate $25M in revenues this year. Barrett says it’s now “time to finally break the newspaper paradigm online”. The LA Times’ online strategy needs to be local as opposed to national as it will allow them to differentiate their offer versus other “national” newspapers like the New York Times. They’ve realized that local users are key to online revenues as they generate more monthly page views and twice the display revenue per page views. Their product approach is “we want to own Los Angeles”, i.e. be integral to life of Angelinos, be the source of news and information about Los Angeles to the world and be an information retailer by creating, aggregating and curating LA content.

The Latimes.com web site is slowly transforming itself into a hyperlocal social network. All content pieces are going to be tagged and indexed by category and geography. By targeting on demographics and on geo, the LA Times is hoping to raise their average CPMs and improve ad effectiveness. They are creating the best targeting machine for the LA DNA. Barrett then showed us pilots of various new vertical sections that are very promising:

• The Travel section: http://travel.latimes.com
• A hyperlocal arts & entertainment guide: http://theguide.latimes.com
• Hollywood backlot to show pictures of movies shooting: launching next week
• User-generated photo and video content: photos & videos, http://yourscene.latimes.com
• The Homicide map: http://www.latimes.com/news/local/crime/homicidemap/

From the press release:

Cox Enterprises, Inc. today announced that its subsidiary Cox TMI, Inc. will acquire Adify Corporation. Adify will operate as a stand-alone company and will continue to be led by Russ Fradin, CEO and co-founder of Adify. (…) Adify is the premier technology and media company focused on vertical online advertising. The company’s comprehensive technology and services allow major media companies, venture-backed businesses and entrepreneurs to build and operate targeted ad networks that support their advertisers’ goals. Vertical advertising networks offer marketers the reach, targeting and quality that brand advertisers increasingly seek in the online advertising space. More than 100 premium ad networks currently operate on Adify’s technology platform.

What it means: A bit late blogging about this news, but wanted to come back to it as it validates two of my key predictions for 2007 and 2008. I said in December 2006 that 2007 would be see more site “verticalization”. I also wrote in December 2007 that 2008 would be the “year of ad networks”. Adify sits at the confluence of these two major trends. They’ve seen amazing traction in the marketplace. Why would Cox buy them? I see two reasons: i) it’s a great business to be in, major growth to be expected in the next few years, and ii) it provides Cox with access to many ad networks to push their own ad networks (newspapers, television, autotrader, etc.) as an optional backfill, thereby extending their reach tremendously. Very smart strategy!

A few weeks ago, with the release of the latest revenue numbers from the Newspaper Association of America, we were treated with very Chicken Little-esque headlines including “Decline Of US Newspapers Accelerating“, “NAA Reveals Biggest Ad Revenue Plunge in More Than 50 Years “ and ”NAA to newspapers: advertise this“. 

Highlights of these articles included:

• “Total print advertising revenue in 2007 plunged 9.4% to $42 billion compared to 2006″
• “Signs that online growth rate is beginning to slow as well. Internet ad revenue in 2007 grew 18.8% to $3.2 billion compared to 2006.”
• “But an even more important reason why paper ads are declining is that their cost-to-value ratio is way out of whack with what advertisers can get elsewhere, particularly the Internet.”

One reader in Techcrunch (a former journalist) had an especially enlightening comment:

Across the board, three dynamics are pretty consistently hammering nails into the dailies’ collective coffin faster than might be occur otherwise:

* Despite talk about fundamental disruption in the business, there’s still an attitude that this is a storm to be ridden out rather than a complete sea change. Even when the folks at the top (owners, publishers) get it, there are many, many layers of upper and middle managers who don’t — and who are afraid of losing head count because that somehow diminishes their authority.

* Sales has been given increasing control of the organization. Mind you, sales are crucial — but it’s hard to find a group of folks less strategic than salespeople on commission.

* Too many lifers. When you get into key operational areas (marketing, product development, news management) you find a lot of people who’ve been in the daily news business their whole careers, which isn’t necessarily bad, but nor is it a hotbed of innovation. What’s more shocking is the number of people you run across who’ve been at the same paper for 15, 20 or 25 years.

Chris Anderson, Wired’s Editor-in-Chief, had a different take on things, one that I definitely agree with:

The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there’s still a lot of money there and what is required is strategic change, not giving up the ghost.

Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business).  Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.

What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I’ll bet some private equity firm out there is looking at the chart above and licking their chops.

With all this doom and gloom, I was pleasantly surprised when the Canadian Newspaper Association released their numbers last week.  Highlights from the Financial post and The Windsor Star:

• “Revenue at Canadian newspapers fell about one per cent last year”
• “The healthier financial picture in Canada reflects newspapers that are doing a better job maintaining their readership numbers”
• “a 30 per cent rise in online advertising revenue offsetting a two per cent drop on the print side.”
• “The ongoing challenge for newspaper companies (…) is to figure out how to use print content in digital form across various platforms such as home computers or mobile devices.”
• “The narrative about newspapers in the U.S. has been consistently negative in recent years, and that negativity has unduly influenced perceptions of the health of the newspaper industry in Canada”

What it means: as I don’t know the intricacies of both regions in the newspaper industry, it’s very difficult for me to comment on the why of those major differences.  But it’s something we also see in the directory industry, where Canada (or by proxy Yellow Pages Group) usually experiences better financial results than its US peers.  From a newspaper usage perspective, I do have one recent ”focus group of one” anecdote though.  Ever since I got my HTC Touch with a cheap unlimited data plan from Bell Mobility, I find myself reaching for the phone much more often than the printed newspaper when I have a few minutes during the day.  Radio-Canada (the French CBC) has become my default source for mobile news as they refresh their feed very often, have tons of original content and have a mobile-specific version.  If I (a self-proclaimed newspaper junkie) am reaching for the phone instead of the paper, it’s a sure sign that mobile will be next opportunity/challenge facing the newspaper industry and I think it will be the same in the directory business.

I was reading this weekend in the Globe & Mail a long article about billionaire Sam Zell and his purchase and subsequent re-engineering of the Tribune Company, one of the large US newspaper groups. The article as a whole is very informative but I was especially intrigued by this excerpt:

Since taking over, Mr. Zell has attempted to raze the culture by replenishing the senior management team with trusted lieutenants and giving his properties more autonomy: Local papers will decide what they do in a particular market and they will also be responsible for creating and meeting their own budgets. Most importantly, though, in some people’s minds, he’s showed up. “I’d say when he came to visit our shop, what a lot of my managers came away with was we didn’t often get visits from executives before. And when they did, they couldn’t pronounce the names of the local cities,” said Digby Solomon, publisher of the Daily Press in Newport News, Va. “It’s not as though the people who have been running newspaper companies are stupid, but I think in any sort of business, you get trapped in a particular way of thinking, and it’s just very difficult to shake loose from that.”

Flickr picture by William Couch.

The Daily Press fits the mould of what Mr. Zell has described as his “petri dish” model – using smaller papers as testing grounds, or incubators, for new ideas that could be rolled out to the chain’s larger papers. The paper has already taken one gamble, replacing its front page with virtually all local news, rather than the conventional format of national news being afforded the prime placement. It may not sound like much, but this is the kind of change that gives newsrooms pause: There were serious concerns about people cancelling their subscriptions. In the end, none did. “Everyone was afraid to test it,” Mr. Solomon conceded. “But this isn’t a heart transplant – if we screw it up, we can change it tomorrow.”

What it means: very interesting to look at the various strategic imperatives Zell is implementing inside Tribune Company. He’s obviously starting with a clean slate (and a now private Tribune Company) which gives him more freedom but the idea of having decentralized decisions centers, the whole local/hyperlocal angle, and the creation of a culture that rewards risk-taking are all steps in the right direction. Using smaller newspapers as a testing ground is also smart if you can iterate and migrate successes quickly to larger newspapers.

Found Silobreaker this morning via Doc Searls blog. It’s a news aggregator with a semantic layer on top. It also has a very interesting user interface, makes me feel like it’s a newspaper from the year 2015.

According to their web site, “Silobreaker is an online search service for news and current events that delivers meaning and relevance beyond traditional search and aggregation engines. Its relational analysis and explanatory graphics provide users with unparalleled contextual insight into the news stories of the day. More than a news aggregator, Silobreaker provides relevance by looking at the data it finds like a person does. It recognises people, companies, topics, places and keywords; understands how they relate to each other in the news flow, and puts them in context for the user.” This page explains the technology behind their engine.

I especially like the semantic tools that help the readers make sense of the showcased news. The “network” helps you explore the relations between entities, the “Hotspots” feature allows exploration at a geo-location level, and “Trends” graphs the evolution of certain keywords in time.

For example, explore news about “facebook” through the various keywords attached. Pretty cool!

What it means: one of the big challenges of the future will be making sense of the deluge of news information found on the Web. I think Silobreaker is a step in the right direction. There’s definitely a need for some improvements to make it really useful to me as a news junkie. Right now, it feels too much like one of those hypernational news sources (CNN, New York Times, etc.). Those sites already do a good job of aggregating top of the news information. I’d love to be able to save a specific country or region as my default page and I would like to be able to quickly drill down from the home page to various topics/sub-regions. Wouldn’t this tool be amazing from a hyperlocal point of view, especially the network search? Being able to see the various relationships in your own neighborhood news! Can someone do a mashup between Topix and Silobreaker?

Continuing our series on the atomization of content and business models, today I look at the newspaper industry.

First, from the user point of view: online (vs. the print version), it’s much more difficult to find the glue that will make your news container (your URL) stick together. if you have a strong brand (the New York Times, for example), people will navigate directly to your site but readers can now access your content via RSS readers, blog posts and news aggregators like Google News. These have been flourishing, reorganizing newspapers’ articles (the new content atoms), into flexible reading formats. For newspapers, it’s a catch-22. You want to be indexed by news aggregators to drive traffic back to your site but you wonder if you’re losing brand equity at the same time. Efforts at trying to get readers to register to newspapers’ sites (to generate potentially valuable socio-demographics information) have been a major failure. Clearly, the only strategy now is building a strong brand online while allowing readers to access your atomized content via a variety of vehicles but that creates problems from a monetization point of view.

Traditionally, the newspaper business model has been found in these three revenue categories: reader subscriptions, traditional display advertising and classifieds. Except for a few exceptions (the Wall Street Journal comes to mind), experiments in paid online user subscriptions have been failures as digital content is much more difficult to sell as an aggregate than print content. Classified revenues are being nuked by free sites like Craigslist or Kijiji, or aggregators like Oodle. Newspapers have been also forced to offer free classifieds, managing to generate some priority placement /enhanced content revenues but not to the previous print level. Online display advertising is working but it does not monetize as well as print advertising.

To better monetize their destination site, newspapers have been looking at various new solutions. One is in-line text ads (double-underlined sponsored keyword ads appearing directly in the article text) delivered by companies like Vibrant Media but, as I mentioned yesterday, the blurring of the line between editorial and advertising content has created ethical issues within news organizations. Already in 2006, in an article called “Is It News…or Is It an Ad?”, the Wall Street Journal exposed the various issues around the product:

“This type of online advertising within the text of an article, known as in-text advertising, has been around for a while. But it used to be relegated to niche sites like the videogamers’ haven IGN.com and ScienceDaily.com. Now it is appearing on some mainstream journalistic Web sites, like those of News Corp.’s Fox News, Cox Enterprises Inc.’s Atlanta Journal-Constitution and Hearst Corp.’s Popular Mechanics magazine. That marks a departure from a long-observed tradition in the print medium of keeping editorial content separate from advertising. “Journalism ethics counselors decry the trend. “It’s ethically problematic at the least and potentially quite corrosive of journalistic quality and credibility,” says Bob Steele, the senior ethics faculty member at the Poynter Institute, a journalism school in St. Petersburg, Fla.”

More recently, Tim McGuire from the Walter Cronkite School of Journalism in Arizona wrote about its use in the Arizona Central web site:

Michael Coleman, Vice-President of Digital Media for AzCentral, told me late Friday that the site has been using Vibrant Media for “two or three weeks.” Coleman described the relationship as a test and said this is not a “Gannett roll-out” of the concept even though some Gannet papers are using the system. “We’ve got a pretty non-committal contract with them, Coleman said. “The publisher made the call, and we decided to try it and see what happened.” Coleman said the experimental aspect of the deal explains why nobody has announced this deal.

Business Week wrote about the phenomenon in December:

Many journalists believe that selling the words in a story blurs the line between editorial and ad content. Some worry it creates an incentive to insert ad-linked words or order up certain types of stories. Forbes’ online arm caused a ruckus in 2004 when it rolled out in-text ads. After an outcry among the editorial staff and negative media coverage, Forbes ended the practice. (…)

Publishers are paid by Vibrant and other marketing companies based on how many times readers scroll over a word. Advertisers only pay Vibrant for how many times a reader actually clicks on an ad. In-text ads draw a higher response than traditional Web ads: About 0.2% of Web users click on posterlike ads known as banners; Vibrant CEO Douglas Stevenson says 3% to 10% scroll over and click on in-text ads, depending on the category.

I think the use of in-line text ads might be problematic thus far because newspapers have been using the technology to better monetize their destination site. I would suggest that the better use of this new ad vehicle would be to monetize a smaller atom of content, i.e. the news article, decentralized from the destination site. Embedding in-line text ads within RSS feeds or other distribution mechanisms might be a small price to pay to allow readers to access news article outside of the newspaper’s site. Another option would be to have RSS ads, like the Feedburner Ad Network.

I think the general takeaway here is that newspapers shouldn’t look at the same business models to monetize centralized and atomized content.

Update: The Kelsey Group discusses “Newspaper Next 2.0, a “progress report” by the American Press Institute on the evolution of newspaper companies beyond the print edition.” I took a quick glance at it (it’s a 110-page document) but it does not seem to address many of the business model issues that newspapers are facing. As my friend Peter K. says in the post, “The report has a better fix on consumer-oriented solutions than business solutions. But that’s not surprising for a newspaper industry (i.e. editorial-driven) product. If the Yellow Pages Association commissioned similar research, it would probably be the other way around.”

A couple of news articles caught my eye last week. Mediapost reported on a TV exec seminar hosted by Havas’ Media Contacts unit. Talking about the online video revolution, Mediapost says “major TV providers are moving aggressively online–and not only to their own online destinations, but in an array of “distributed” online content options to deliver their programming directly to consumers regardless of where they are on the Web.”

In addition, TorrentFreak discussed data from Mininova (one of the largest torrent listing sites) showing that “ 50% of all people using BitTorrent at any given point in time do so to download TV-series, quite an impressive number. In total, over a billion TV-shows are downloaded every year, and this number continues to rise.”

Flickr photo by Marshall Astor

What it means: recently, all savvy media industry strategists have been talking about content atomization and clearly, in the TV industry, TV channels are being atomized by new Web technology. Whereby, in a traditional cableco world, channels used to be the basic content building blocks (think about how your cable TV subscription is structured), TV shows have become the new atomic element.

But there’s a problem.

The content is being atomized but the main TV business model (30-second ads) was built to be part of a larger element, the TV channel. Ads used to fill, i) the “empty spaces” between shows and ii) planned 3-minute interruptions during the show. In the first scenario, those empty spaces don’t really exist anymore as shows become the basic element and BitTorrent is disrupting the second scenario by offering easily accessible ad-less versions of your favorite programs.

Guess what. Someone forgot to atomize the TV business model while they were busy atomizing the content.

So, how do you atomize TV’s business model? Is it all about product placement, sponsorships, pre-roll ads? Do you move to a user-paid subscription model for individual shows? And BTW, is the future cableco the equivalent of a RSS reader for online videos?

And what does it mean for other media, newspapers for example?

In the case of newspapers, from a content point of view, news articles are the new atoms. This is the way news information travels online. But, in that situation, newspapers’ business model has been blown to bits (no pun intended). Let me explain. Like TV channels, newspapers are inserting ads in the empty spaces around news articles. These spaces don’t really exists anymore, so how do you monetize? News article sponsorships? A-la-carte article user-paid
subscriptions? This one is not easy as journalism ethics (rightfully so!) have kept news article and ads completely separated. How do you bring ads closer to the article without breaking readers’ trust?

What about radio?

For the traditional FM radio industry, individual songs are clearly the basic atom of content. But those are so easy to find online through legal (music streaming services, iTunes) or illegal means (BitTorrent again). As for their business model, radio stations insert ads around songs. Again, these slots don’t exist in an atomized world. Maybe radio stations should invest in original content or better DJs (Wired calls them robo-DJs in “Why things suck”)? Can radio stations move online as trusted brands and become real music aggregators/recommendation engines? It might be too late. So, is FM radio as we know it screwed? Maybe more than people think. That one again is not easy to solve.

And finally, directory publishers?

As for directory publishers, their business model is currently in the ranking of directory listings. But those individual listings might be the new content atoms. And if they are, it means that the ranking structure does not exist anymore. Is it now the merchants’ phone number and a pay-per-call model? Is it pay-per-click to individual merchants? Given that directory content is all about advertising, atomizing content does not impair a directory publisher from atomizing their business model but it just needs to be properly executed. I believe pay-per-call and pay-per-click to individual merchants might definitely be the way to go.

Conclusion

If you’re atomizing your content, don’t forget to atomize your business model! This blog post raises important questions about future traditional media business models. I don’t have all the answers at this point but I meant this post as a wake-up call to stimulate deeper strategic thinking in all traditional media firms.

Yesterday was Kodak’s annual analyst day and the New York Times seized the opportunity to discuss the progress made in the last few years as the company transitions from a film-focused business to a digital one. In light of disappointing newspaper industry and print directory news, it’s heartening to look at the new opportunities Kodak is seeing in the market.

But to hear Mr. Faraci (Kodak’s president) tell it, the factors that are hurting newspaper publishers in the United States — the migration of advertising and readers to the Internet tops the list — are not having the same impact overseas. “Literacy is growing through the world,’’ he said, noting that it is encouraging more newspaper readership in developing countries.

And even in the United States, he said, Kodak is benefiting from the moves that some publishers are making to recoup at least some of those lost advertising dollars. He notes that The Chicago Tribune and some others are trying “microzoning” — printing several versions of the paper in the same city, each with ads aimed at a specific neighborhood. And, he said, newspapers all over are using more color.

All of that, he said, promises to yield increased sales of Kodak’s high-speed production printers — particularly of the 1,600-page-per-minute printer Kodak is about to introduce. And far more important to the company, the trend can yield a steady stream of orders for inks and other highly profitable consumables.

As Mathew Ingram says regarding the newspaper industry, “… just because newspapers aren’t doing well doesn’t mean that journalism or media or the news business itself isn’t doing well. If anything, people are searching for more and more news all the time. They’re just doing it online instead of on paper.”

Now, going back to the Yell Group news that made their stock price fall 18% this week. The Guardian has more details:

John Condron, chief executive, said the problems in the market came to light as Yell’s sales teams put together about 20 directories, out of 102 it produces across the country, to be published in January, February and March. “I think UK plc, as far as our company is concerned, came back after Christmas and took a very cautious, very conservative view of the future. We seem to have replaced the regulatory pressure on us with recessionary pressures,” he said. “But it is important that we all realise that customers are staying with us and renewing with us, they are just not increasing expenditure.” Under its current regulatory regime, Yell cannot increase Yellow Pages prices by more than inflation minus 6%, which in effect means it must cut rates every year. From April, Yell can increase rates in line with inflation. Its average planned price rise is inflation minus 1%.

Based on those explanations, I think that situation might be more cyclical (stock market nervousness, UK regulatory pressures, etc.) than structural, but it certainly serves as an early warning signal to directory publishers worldwide to get on board the digital train fast, and start re-inventing their business.

I leave the last few words to Charles Laughlin from the Kelsey Group as I fully endorse them:

Amid such a sharp sell off, it’s worth reiterating some truths about the directories business. Yes, print revenues are declining, but directories are still a highly valuable source of leads for small, local businesses. The directory industry remains hugely profitable. It seems to us that many investors got into directories based on an oversimplified story (lots of cash, visible revenue, stable customer base). And they seem to be leaving based on similar reasoning (no one uses Yellow Pages anymore, Google has made the medium obsolete, it won’t exist in five years, and so on). While search is a growing factor in local, search cannot yet replace the volume of leads available from printed directories, and it may be some time before it can. Directories will be a major player in local media for quite some time to come.

As an interesting follow-up to the Why Local is in the Zeigeist story I wrote in September, the latest TrendWatching.com briefing discusses “The Expectation Economy” and mentions a grocery store that tries to stock goods produced less than 100 miles from New York.

Urban Rustic, located in Williamsburg, NY, is a grocery store and café that aims to connect local urbanites with local farmers and producers, much like farmers’ markets do. The store primarily sells food and dry goods produced less than 100 miles from Brooklyn. Anything from farther afield is acquired from sustainable sources. Expectations being set? How about consumers developing a taste for (and demanding) anything and everything organic, eco-friendly, and local?

(Picture from the Urban Rustic web site)

What it means: I believe we will see more and more stores like this one catering to the needs of consumers who want to “shop local”. BTW, this is a great online product vertical waiting to happen. And there’s no reason why it could not be built by local newspapers or directory publishers.