Andrew Carrah presentation 25 Feb 2009 to Reuters Institute on future business models for news media.

1. Business Models for the News Media
Andrew Currah
Wednesday February 25, 2009

2. Themes
(1) The changing and
challenged business model of
the news media
(2) The social and democratic
impacts of a digital news
media landscape
(3) Potential business models
for news publishing in the 21st
Century

3. Publishers face an economic drought
* Foundations of print and broadcast journalism are
crumbling due to structural and cyclical factors
* Enders Analysis forecasts a 12% decline in UK
display advertising in 2009
* At DMGT, year-on-year advertising revenues are
down by over 23%
* Digital revenues are not increasing fast enough

4. Publishers face an economic drought
* Foundations of print and broadcast journalism are
crumbling due to structural and cyclical factors
* Enders Analysis forecasts a 12% decline in UK
display advertising in 2009
* At DMGT, year-on-year advertising revenues are
down by over 23%
* Digital revenues are not increasing fast enough

5. They are searching for a digital oasis
‘These may well be the last
‘
presses we ever own’
(Alan Rusbridger, 2009)
* Newspapers and broadcasters are investing in
sophisticated ‘digital fortresses’
* A messianic belief that digital newsrooms will
become engines of productivity and profitability

6. The digital audience is exploding
* The web is becoming the dominant
communications platform of our civilization
* Already, over 23% of humanity are communicating
and accessing information on the web
* Everyday, a further 860,000 people are connected
* Since 2000, connectivity has increased by 1300%
in the Middle East, 1100% in Africa, 820% in Latin
America

7. The digital divide is steadily narrowing
* Opening new markets for media brands worldwide

8. So the digital future appears bright
* Global digital success of media brands
* With limited marketing, news sites have amassed
vast audiences worldwide
* US newspaper sites now attract an unprecedented
67 million unique visitors per month

9. News is becoming more visual

10. News will be enriched by public data
* Websites today are separated from the ‘deep web’;
trillions of pages are invisible to Google
* The news could become far more immersive,
relevant and engaging when combined with
material from networked public databases
* The promise of professional news reporting,
supplemented with user-generated mash-ups

11. And by the emerging ambient web
* Journalism is also being reshaped by the rise of the
‘ambient, real-time web’...
* ... as John Batelle puts it, the trail that is left by the
new generation of ‘auto-digitizing hominids’ (e.g.
twitter, facebook)
* Due to the speed of updates and the ubiquity of
devices, the web is moving from a static to a
dynamic state ... transforming newsgathering

12. Unfortunately the web does not pay
* The glut of web content is deflating the value of
online advertising inventory (90% less than print)
Even digital
magnets such as
Facebook are
struggling to
find a workable
revenue model

13. Digital news is not profitable
* Publishers are struggling to convert their massive
audiences into significant revenues
* News consumption is fragmented, fleeting and
mediated by search gatekeepers
* According to McKinsey, revenues per user are, at
best, only 1/20th of the equivalent in print

14. Digital news is not profitable
* Publishers are struggling to convert their massive
audiences into significant revenues
* News consumption is fragmented, fleeting and
mediated by search gatekeepers
* According to McKinsey, revenues per user are, at
best, only 1/20th of the equivalent in print

15. Publishers are betting on new tools
Geo-location may help by serving
tailored adverts to specific markets
and consumer groups
Metadata may help to create
a more powerful, comprehensively
networked archive of news content

16. The long-term outlook is uncertain
* Even if technologies such as geo-location and
metadata are successfully deployed, revenues are
unlikely to replace the profits of earlier generations
* The business of news is struggling to come to terms
with a very different kind of digital consumer...
characterized by a more transient approach to news

17. Digital attention is narrowing
The web is exploding:
everyday, 1 billion new
pages, 20,000 hours of
video uploaded to You Tube
But we spend over 30% of
our time online at only 20
websites... operated by 10
entities (none of which are
commercial news sites!)

18. Digital attention is narrowing
The web is exploding:
everyday, 1 billion new
pages, 20,000 hours of
video uploaded to You Tube
But we spend over 30% of
our time online at only 20
websites... operated by 10
entities (none of which are
commercial news sites!)

19. The web is transforming reading...
Google Generation study by UCL
researchers, 2008
‘It is clear that users are not reading online in the
traditional sense; indeed there are signs that new
forms of “reading” are emerging as users “power
browse” horizontally through titles, contents pages
and abstracts going for quick wins. It almost seems
that they go online to avoid reading in the traditional
sense’.

20. And rewiring the brain of consumers
‘Certainly if you had all the world’s news
and information directly attached to your
brain, or an artificial brain that was smarter
than your brain, you’d be better off’
(Sergey Brin, Co-Founder of Google).

21. And rewiring the brain of consumers
‘Certainly if you had all the world’s news
and information directly attached to your
brain, or an artificial brain that was smarter
than your brain, you’d be better off’
(Sergey Brin, Co-Founder of Google).
'What the web seems to be doing is chipping
away my capacity for concentration and
contemplation. My mind now expects to take in
information the way the web distributes it: in a
swiftly moving stream of particles. Once I was a
scuba diver in the sea of words. Now I zip
along the surface like a guy on a jet ski' (Nick
Carr).

22. And rewiring the brain of consumers
‘Certainly if you had all the world’s news
and information directly attached to your
brain, or an artificial brain that was smarter
than your brain, you’d be better off’
(Sergey Brin, Co-Founder of Google).
'What the web seems to be doing is chipping
away my capacity for concentration and
contemplation. My mind now expects to take in
information the way the web distributes it: in a
swiftly moving stream of particles. Once I was a
scuba diver in the sea of words. Now I zip
along the surface like a guy on a jet ski' (Nick
Carr).

23. However, there is some continuity
* The age of connectivity does not spell the
immediate death of print or broadcast news
* The edited news still has wide appeal
* The World Association of Newspapers confirms:
Newspapers reach 1.7 billion people each day
Print advertising will increase by 17% by 2013
Continued growth in emerging economies
(e.g. Brazil, Russia, India, China)

24. Paper also has an enduring appeal
‘The newspaper is an island of peace in
the digital chaos’ (Hamlet’s
Blackberry, William Powers, 2008)
‘Paper’s great strength is that it allows the mind to
settle down into that peaceful deep-dive state in
which we do our best thinking. This state is much
harder to achieve when we’re reading in the digital
medium, where there is endless information, and so
many possible tasks to undertake at any moment.
On the internet, there is no beginning and no end’

25. Paper also has an enduring appeal
‘The newspaper is an island of peace in
the digital chaos’ (Hamlet’s
Blackberry, William Powers, 2008)
‘Paper’s great strength is that it allows the mind to
settle down into that peaceful deep-dive state in
which we do our best thinking. This state is much
harder to achieve when we’re reading in the digital
medium, where there is endless information, and so
many possible tasks to undertake at any moment.
On the internet, there is no beginning and no end’

26. Some blogs are becoming newspapers
* Selected blogs and
adverts printed for
specific localities
* Proving popular
with local merchants
in the downturn

27. Business models still have to evolve
‘The reality is that resources for
journalism are now disappearing from
the old media faster than new media can
develop’ (Paul Starr, 2009)
* The digital revolution is exposing the news media
to severe pressures, amplified by the recession
* ... cementing a variety of changes at every stage in
the value chain of news; from the way it is presented
to how it is sourced and gathered

28. Newspapers kept afloat by giveaways?
‘I’m struck in these times by all the things that are
being offered on the front pages of newspapers...
They are almost becoming more dominant than the
stories themselves’ (Andrew Marr, 2009)

29. Broadcasters looking for new revenue
‘The tentacle-like growth of clandestine advertising in
American TV shows in the form of product
placement has taken another controversial step with
the introduction of McDonald's products into
regional news programmes’ (The Guardian, 2008)

30. Broadcasters looking for new revenue
‘The tentacle-like growth of clandestine advertising in
American TV shows in the form of product
placement has taken another controversial step with
the introduction of McDonald's products into
regional news programmes’ (The Guardian, 2008)

31. Cost pressures are reducing bureaux
‘The first thing that news publishers
do when they are in financial trouble
is to close foreign bureaux’ (Robert
Thomson, Editor of WSJ)
* 2002-2006: the number of US newspapers with
correspondents abroad fell by 30%
* Reducing the breadth of coverage; resulting in a
‘windsock’ model that closely follows the audience

33. The world through a windsock
... Number of seconds that US network and cable TV
news dedicated to stories by country in Feb 07 (e.g.
death of Anna Nicole Smith received 10x more
coverage than the IPCC report that month)

34. A new age of digital windsocks?
The digital revolution makes
it easier, but also more
urgent, for publishers to
follow the audience (and
hence, advertising revenue)

35. Following the digital consumer
A new measure and
language of success is
taking root in the digital
news organization
* Publishers can now monitor the clickstream in
real-time, showering journalists with rich data
* The modern newsroom features provocative
‘league tables’ where stories compete for attention

36. The digital windsock in action
The immediacy of the
clickstream influences
editorial decisions
* Emerging evidence that coverage and resourcing
decisions are following the clickstream
* The result is that the attention of the audience is
further funneled around quirky, tent pole stories

37. Life in the clickstream
According to The Onion, the clickstream is
‘destroying morale and escalating tensions’ among
journalists, who are under pressure to ‘craft articles
with those magical ‘click and send’ qualities’.
The situation is apparently so dire, the article
continues, that staffers at the New York Times
(including four Pulitzer prize winners) have
‘requested transfers to the Home & Garden and
Travel desks’, where their digital profile is more
likely to bloom.

38. Life in the clickstream
According to The Onion, the clickstream is
‘destroying morale and escalating tensions’ among
journalists, who are under pressure to ‘craft articles
with those magical ‘click and send’ qualities’.
The situation is apparently so dire, the article
continues, that staffers at the New York Times
(including four Pulitzer prize winners) have
‘requested transfers to the Home & Garden and
Travel desks’, where their digital profile is more
likely to bloom.

39. The windsock makes economic sense
* It offers a quick route to clicks and advertising
* It favours processing over news gathering
* It can be fuelled with content from the wires or PR

40. But it also carries a civic price
* Cut backs are leaving large parts of public and
private life without any mainstream coverage
* Digital anchors are a dying breed; consciously
navigating the clickstream requires economic shelter
* Only a handful of publishers enjoy the cross-
subsidy required to prioritize aspects of editorial
integrity and public service over clicks

41. Are we facing a democratic deficit?
‘I think, we have to face up to the
prospect that for first time since
the enlightenment, you are going
to have major cities in the UK and
western democracies without any kind of verifiable
source of news. That hasn’t happened for 200-300
years and I think, it is going to have very profound
implications’
(Alan Rusbridger, Editor, Guardian, 2008)

42. Welcome to a new era of corruption?
‘More than any other medium,
newspapers have been our eyes on
the state, our check on private abuses,
our civic alarm systems. It is true that they have
often failed to perform those functions as well as
they should have done. But whether they can
continue to perform them at all is now in doubt’
(Paul Starr, 2009)

43. Even Google thinks so!
‘People are consuming more and
more media on the Internet but
paying less and less... That's bad
for Google. We are critically
dependent on high-quality content. We have a moral
imperative to help preserve a free press’
(Eric Schmidt, CEO, Google, 2008)

44. Can the web fill the gap?
Some evidence that networked users are building
digital platforms that can perform a watchdog role

45. Networks vs. hierarchies in media
Celebrates the wisdom of
crowds and the power of
networked information
production - versus the
‘outdated’ business model
of media that defined the
20th Century

46. A distributed model is also flawed
* The web can be gamed by activists, vocal
minorities and vested interests
* Clicks are fungible commodities that can be
manipulated, generated and sold
* The mentality of the mob vs. a community of
professional reporters and editors

47. The web is no substitute
‘We need a few big dogs with enough
money to choose principle even
when it does not make economic
sense... There is no substitute for the
professional, civil service style, relentless,
independent thinking, reporting and observation that
developed in the big newsrooms after the Second
World War’
(Steve Coll, CEO, New America Foundation)

48. So how do we sustain a confident, viable and
independent news media in an environment that
appears unable to provide the resourcing that such
public service journalism would require?
* Cross subsidy?
* Efficiencies and productivity?
* A retreat to paid firewalls?
* Endowing publishers as charitable trusts?

49. (1) The ‘freemium’ philosophy
* A model that combines free with premium; free
content backed up by paid subscriptions
* Strong demand for geopolitical intelligence; and
proven success by the Wall Street Journal and the
Financial Times
* Can it be extended to general interest news?
(discussions underway at News International about
including The Times in the WSJ model)

50. Possible benefits
* A dedicated core of customers could sustain
healthy subscription revenues
* Advertising inventory would become more scarce,
potentially pushing up rates
* Behavioural targeting could also increase margins
(e.g. FT.com charges a 10% premium for this)

51. (2) The case for endowments
* Anchoring the publisher in a non-profit mould that
is better placed to resist the clickstream
* Endowment provides a financial bedrock that is
supplemented by sales, advertising, syndication, etc.
* Readers may be willing to pay more in tax
deductible contributions than current subscriptions
* Philanthropic support of specific kinds of
journalism (e.g. Pro Publica)

52. Costs and dangers
* The sheer scale of funding required; e.g. $2 billion
for the Washington Post
* Donations might be laced with expectations or
vested interests
* Preserving an outdated model of production - at
the expense of smaller, grassroots models of media
* Challenge of balancing innovation with
conservatism; e.g. avoiding the subsidization of
inefficient business practices

53. The End
Thanks for listening