The Market Has Not Failed, It’s Just Moved On

Michael Hedges June 6, 2016 Follow on Twitter

Disruptive as it has been, the digital dividend keeps on giving. Ideas have sprung forth like the gentle blossoms of spring. Some are more like weeds, growing wildly in unwanted places. All have been nurtured on a natural attraction to novelty and, of course, money. The response has been beyond the wildest dreams of the wildest dreamers.

After decades of relative calm during which the media sphere concerned itself with slight shifts in shares and shareholders, business models were turned up-side-down. Actually, there were and still are only three; interruption for advertising, subscription and subsidy. Cyclical economics and regulatory pressure may have altered means and methods but these are the three basic three.

None of that has changed but all of it is different. Digital technologies have made it so. The World Wide Web became the World Wild Web where, as the great internet inventors predicted, everything lives and can be preyed upon by everybody. For news media in particular, it has been both opportunity and watershed. The corner kiosk once displayed a hundred or so publications, each competing for retail space with bold and colorful headlines, some intriguing, some shocking, some titillating. Radio and TV channels were also finite, limited by dial positions that listeners and viewers would memorize. Search engines and aggregators replaced kiosks and dials, displaying thousands, hundreds of thousands of choices.

Slicing off a market leaders edge is a time honored business strategy. The exponentially increased access to novel news brands added an unexpected pressure. Traditional media publishers and producers retreated to their caves and growled just as the advertising people threw “digital dimes” at everything new and different. Publishers called for subsidies and broadcasters turned to “programmatic” ad sales.

This year has seen another dramatic turn in the once prosperous media sector. The advertising business continues to shift away from traditional media, print ads heading still lower, and on to – and through – search engines and social media. Legacy brands in the news business, from the Daily Mail to the New York Times and many more, are entering new rounds of cost-cutting, largely content-producing staff replaced by web and mobile developers. Yes, “improving the user experience” is labor-intensive.

Newer native digital platforms aren’t faring much better. Vox, Mashable, Vice and BuzzFeed missed profit projections and answered grumpy shareholders with staff cuts. Salon, one of the earliest independent online news platforms, is gasping for oxygen – traffic, revenue, ideas. The plagues of traditional media have beset new media.

People dryly referred to as “users” or “consumers” are using the Web and mobile technology, in particular, to grab a little control over their daily lives. Huge traffic – and revenues – for Google, Facebook and similar portals illustrates nothing more – or less – than a need for simplicity and, arguably, targeted choices. The significant rise in downloading and usage of ad blocking software and apps is less about the free-for-ads model than control.

The retreat from hard “make ‘em pay” online paywalls is related to rise in subscription video on demand (SVoD). Beneath the yachting set people reasonably understand their own spending limits. As pricing differentiates market leaders and followers, Netflix has set subscription terms. “Users have learned that digital media costs €9.99 a month,” offered business consultant Katia Nettesheim, recently retained by Der Spiegel publisher Spiegel-Verlag, to German media portal meedia.de (May 31). Folks might pay a bit more for video. “The painful truth for print media to face (is believing) their content is more valuable than €9.99 a month. It matters, unfortunately, to the users.”

Rather than bouncing between ad models and paywalls publishers might consider two separate online offerings, one free-for-ads and another subscription-only, she suggests. Since paywalls “endanger” casual web and mobile traffic publishers could offer a “completely detached” subscription product. “A successful paid content offering must conform exactly to the user’s daily routine,” she explained, “whether a quick message overview for traveling or relaxed, lengthy journalistic pieces for the evening hours on the sofa.” People will pay more for “hybrid content offerings,” meaning more videos. “And above all it must be youth-centric.”

Ah, youth. “We don’t want to be the grandpa at the disco,” said Economist editor Zanny Minton Beddoes to the Guardian (May 29). The Economist and Der Spiegel are venerable – and celebrated - weekly print news magazine brands. “The bedrock of this place is the weekly Economist but in the 21st century that is no longer enough.”

The Economist’s business model “bedrock” is print subscriptions, a hard digital paywall and light “nice to have” advertising. “You make money out of things people pay for,” she reminded. Last year Pearson exited its 50% stake in the Economist Group making Fiat Chrysler principal Exor the major shareholder. Ms Minton Beddoes is planning to move the Economist London offices out of the building it shares with Fiat Chrysler and “hedge fund, hedge fund, hedge fund.”

There’s a tendency to scream “market failure” when the market does not comply with top-side demands. Digital natives – from Millennials to GenZ – have no need to be accommodating. They like and they take.

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