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    Where’s the Innovation in Business Models?

    by Chris O'Brien
    March 13, 2008

    I’ve been following closely a theme that has developed here in recent days. It began last week with David Sasaki’s post about the legacy of the Knight family, continued with Dan Gillmor’s call for more entrepreneurial thinking in journalism, and was amplified by J.D. Lasica’s call for newspapers to innovate or die.

    All great thoughts, and worth reading to the word. But I have a particular interest here. As a business reporter at the San Jose Mercury News the past nine years, I’ve been living at the tragic center of the events being addressed to some degree by each of these posts. (Though I missed the era covered by Benjamin Melançon’s post on Gary Webb).

    Last Friday morning, I was one of many Mercury News employees who carefully watched their phone for two hours waiting to see if they got a call informing them their career was done. And make no mistake: In this day and age, getting fired from a newspaper for most people means your journalism career is finished.

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    My call never came. And that means I have now survived six rounds of buyouts and layoffs. Since it peaked in 2001, our newsroom has been cut by almost 60 percent.

    The posts I referenced correctly identify the need to innovate. And indeed, there is tremendous innovation occurring in journalism these days (alas, most of it outside newspapers). I had been part of a group hoping to finally bring that inside the Mercury News, but our project, Rethinking the Mercury News, has been stopped for now.

    But as I’ve watched these grand experiments in journalism, I’ve also felt some frustration. Don’t get me wrong: The various projects (including many being chronicled in this blog) are inspiring, groundbreaking, and I believe have made great strides toward a new, and possibly better journalism.

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    My problem lies with an issue that David Sasaki identified near the end of his post:

    “The Knight Foundation is single-handedly making citizen media both more serious and more respected by giving financial support to some of the field’s most innovative thinkers. But is this a sustainable model for the transformation of media? What happens when the News Challenge’s five-year funding period concludes? All of the News Challenge grantee projects are impressive, innovative, and important, but not a single one is turning a profit, nor do they seem poised to any time soon.”

    I see tremendous energy going in to breaking new ground in gathering news, telling stories, and creating community. What I don’t see is an equivalent amount of innovation occurring around the business models that will support journalism going forward. What I tend to see, over and over, is people experimenting wildly on the content side, and then falling back on the same old business model: Selling ads.

    This model is dying.

    A couple weeks ago, I sat on a “Newsroom of the Future” panel at Berkeley’s J-School. The moderator started the panel by asking whether newspapers have an “audience problem or a technology problem?” The answer is neither. More people read the content of the Mercury News than ever. And technology represents an opportunity to deepen our connection with those readers and enhance our impact on their lives.

    What we have is a business model problem. Even as our audience has exploded, our revenues have cratered. It’s hard enough for newspapers to experiment with their content. But playing with revenue models is the real third rail. Almost all the money still comes from print. Which means ads.

    But all this fails to impress advertisers. For the dollar they pay us to advertise in print, they pay a dime to advertise online.

    What truly surprises me is what I see (or don’t see) happening outside of newspapers. Even the most innovative minds I know will describe their dazzling vision for new content, and then insist they will pay for it because this content will optimize things for advertisers. This is true for countless Web 2.0 companies. Even Facebook, for all its hype, can’t seem to figure out any other business model than some twist on selling ads.

    Is this it? Is this what we’re stuck with? Why is there all this energy around reinventing the content and almost none being directed toward reinventing the business models? It represents a failure of imagination.

    And it’s not just a newspaper problem. It’s a media problem. The New York Times this week looked at the growth in people watching television shows on their computers. Guess what? It’s playing havoc with those TV business models:

    “The four and a half billion we make on broadcast is never going to equate to four and a half billion online,” said Quincy Smith, the president of CBS Interactive.

    And according to Jeff Zucker, CEO of NBC Universal:

    “Our challenge with all these ventures is to effectively monetize them so that we do not end up trading analog dollars for digital pennies.”

    Even Google’s YouTube is stuck in a rut. According to a Bear Stern’s analyst report issued last week, YouTube is bringing in $90 million in annual revenues. But while I was attending the TV of Tomorrow Show in San Francisco this week, I sat in on a panel where Jeff Richards, vice president of Digital Content Services for VeriSign, estimated that YouTube’s bandwidth costs were nearly double that revenue. If true, it would dwarf the sinkhole faced by newspapers.

    There is an enormous, untapped opportunity for innovation around the business model. This is where the conversation needs to go. There needs to be a new revenue model that will support some form of authoritative journalism, one that ideally exists in tandem with an expansive community journalism element and that is able to be optimized for any platform used by its audience (print, online, TV, mobile, etc.).

    While there is far too little happening on this end, there are some efforts to identify a way toward a more sustainable journalism that are worth noting:

    • Newspaper Next: Sponsored by the American Press Institute, Newspaper Next just released the second version of their research called, Making the Leap Beyond Newspaper Companies. Newspaper Next has been instrumental in pushing newspapers to look beyond ads for revenue. And they map out how to get there by creating a framework for newspapers to begin identifying opportunities.
      At the same time, the latest report chastises newspapers for being too timid when it comes to innovation, especially on the revenue side: “On the business side, too, innovation must happen faster because core revenues are declining steadily. But even when launching new products for consumers, companies are mostly sticking to existing business models.”
    • VillageSoup: Ask Richard Anderson, one of the founders, what kind of business he’s in, and he’ll tell you community hosting. Not journalism or media. Though he does publish two local newspapers. Richard is also a News Challenge winner. He sees businesses as members of the community who buy subscriptions to the site (which include the ability to run ads, but also many other services).
    • ProPublica: Paul Steiger’s new public interest journalism project, funded by foundations and a few rich people.
    • The Public Press: An embryonic effort by Michael Stoll to build a non-commercial news organization in the Bay Area (disclosure: I’m one of many, many folks who have advised him on this project).
    • The Next Newsroom Prototype: This represents maybe some of the best, most comprehensive thinking I’ve seen on the business and content side. (Note: This is different than my Next Newsroom project). But this draft plan, formulated by Chris Peck and Bill Densmore (with contributions from many others) contains a number of intriguing concepts, such as a community ownership plan and new ways to think about delivery of the print product. And its overall goal is to de-emphasize the dependence on ad sales. Read and it and steal some of these ideas. Better yet, print out a copy, and give it to your friendly, neighborhood venture capitalist.

    I’m sure there are others like this out there. There need to be more. Lots more. If you know of someone taking an innovative approach to the business, or finding a new way to sustain journalism of any flavor, please post something about them below.

    Tagged: advertising business models mercurynews minnpost newspapernext
    • Amen.

      As reporters raised on the mantra follow the money, the funding model should be our number one concern.

      I’m glad you made this post, on these projects, with this perspective. Maurreen Skowran’s article on Poynter about AngryJournalist.com covered some of these and an additional one in the category of “someone’s actually doing what we’ve been talking about” – Charles Lewis’ Fund for Independence in Journalism (although I didn’t catch the long-held dream of endowed newspapers in his call for not-for-profit journalism with foundation support. (His holding up of the Corporation for Public Broadcasting and National Public Radio as examples for newspapers do not inspire me. Follow the money? Government and corporate support.)

      The NewStandard News is a project I’ve mentioned that did completely reader-funded hard news articles on a five to six day a week schedule– the most consistent and rigorous public interest journalism, over the course of four years, that I’ve seen come out of anywhere. It did not succeed financially, but I am sure it could have in its niche if it hadn’t been starved of attention from we people who should have been most interested in it. Had you heard of it?

      Then there’s the Fund for Authentic Journalism that I help with that funds the Narco News Bulletin (reporting on the drug war and democracy from Latin America) to publish on a less ambitious but more sustainable schedule, overwhelmingly through personal donations of readers.

      Skowran’s column riffing on AngryJournalist.com is also a must-read alongside Chris O’Brien’s post here.

      It makes the point eloquently that we must do what Jay Rosen tells us the Internet is so good at: helping likeminded people find each other and collaborate.

      Not only must we do that to save news-not-so-much-on-paper-anymore, but I think a key role of journalism is to bring other people together to collaborate to change the world on which we report. Otherwise, what is the point of journalism?

      I think we need new technology to do this really well: democratically moderated communication, to allow discussions to scale without an elite of gatekeepers. Working toward a network of everyone that makes collaboration in our own best interests easy and natural is the purpose to which I dedicate my life.

      A few weeks ago on Idealab I urged non-profit and for-benefit organizations and groups to form their own media and jump-start the movement toward news funded by people who care most about what’s going on in the world (because they want to make things better).

      (This expansive, potentially all-inclusive constituency is what we mean by People Who Give a Damn, the name of the organization I’m helping start to build democratic communication tools and a network that uses them.)

      Follow the money means news in the interest of all people is going to have to be funded by all people as directly and as closely as we can achieve.

    • So strange to be reading this article and thinking the same thing yesterday! After reading in Editor & Publisher how the drop in newspaper circulation could have been impacted by the National Do-not-call list, I got to thinking that even the marketing model–telemarketing–for newspapers had gone the way of the dodo

      And that there’s *got* to be some innovation, some out of the box thinking, to get the newspaper business out of its ad-and-telemarketing 20th century ways.

      And I’m not sure that relying on the community to pick up the slack to do the reporting is right (from an ethical standpoint) either. That’s perhaps putting an undue burden and responsibility on the members of the community.

      Journalism, perhaps, needs to innovate in its business practices. Perhaps it’s time for business schools to be helping the business end of journalism create new paradigms for marketing and revenue. Maybe that’s why I’m thinking that guys like Sam Zell aren’t the worst thing to happen to journalism. Sure, it truly sucks now with all the cutbacks–but that might actually be the result of prior years of bad management. We really don’t know if someone from way outside the priesthood might actually, in the long run, do a bit of good.

    • Abe Maslow

      You didn’t “reference” anything. You referred to it.

    • It’s tough to monetize content when its value isn’t understood. Audiences are growing, but as those readers are cherry-picking stories that they’re interested in reading and expecting it all to be available for free, are they really thinking about the fact that the reporter, editor and webmaster who brought it to them might have kids to feed and a mortgage to pay?

      A lot of people don’t really understand the difference between reporting and commentary. They don’t realize that the news reports they see on TV are often (though not always) straight from the newspaper, which bears the expense of actually gathering the news. Most citizen blogs, with rare exception, are commentary and rely on other sources to do the reporting.

      Newspapers have never had to market themselves. In rare instances when a newspaper (or its associated media) advertises itself, there isn’t much beyond “It’s a newspaper! It’s got news in it!”

      In my opinion, “newspapers” need to do a better job of distinguishing themselves from the thousands of other sources of information out there. Even if people don’t want a print-and-ink paper every day, they need to understand the importance of the work that the newspaper does, and if they do, they might be more inclined to go out of their way to support it.

      That’s not the solution, by any stretch. But it certainly couldn’t hurt.

    • Hi Chris,

      Greetings from Minnesota. I remain convinced that our biggest enemies in the news business are toxic nostalgia and our sense of doom. The innovation is happening, although much of it, as you point out, isn’t coming from newspapers (the word “paper” should be a clue to our continuing mental confinement). Journalists around the world have worked, are working and will work under conditions far worse than what’s happening in the American journalism job market today. What’s most threatened, it seems to me, is journalism as a middle-class profession and the large, sophisticated newsrooms that emerged really since the 1960s. The business people I talk to, particularly those who do Internet stuff, are puzzled by our pessimism – we’re providing the content people want, so why should we be worried?

      Of course we’re worried. My newsroom, like yours, is shrinking. It’s hard for me to imagine anything other than a nonprofit model for big newsrooms in the future. NPR has managed to build and sustain a worldwide network of journalists. Minnesota Public Radio is far more entrepreneurial than many for-profit companies. If people want what we do, then we’ll figure out a way to get it to them. If they don’t want it, then our society has bigger problems than me losing my job. In the meantime, I’m going to keep trying to prove to the public that they need us, every day, everywhere.

    • What we need to focus on is what drives revenue online: transactions. Content about things people want to buy does make money online. Tons of blogs and niche sites are finding this out.

      Built a transactional site and use the profits to do real journalism. Just a thought.

    • The biggest problem I see on the business side is that newspapers are the kings of un-targeted advertising.

      Sure readership is down. That doesn’t help us any. But the fact that the newspaper goes to everyone hurts more. Don’t twist that into my suggesting that only some people should get the paper.

      Why would I want to advertise my Lexus dealership to a household with an annual income of $45,000? Likewise, why would I want to advertise my discount clothing store to a household with a $450,000 annual income? In both cases, I wouldn’t.

      Instead, businesses choose to advertise either in market-specific magazines (we know, or at least can reasonably guess, who reads the New Republic, The Economist, 5280, etc.) or in an increasingly affordable direct-mail manner.

      Businesses pay for impressions. Businesses pay a lot more for known impressions.

      Maybe print different editions with different ads in various parts of the city. Track all of your users online and know as much as you can about them and target ads to them specifically when they’re online.

      After all, you don’t really think Google gives away Gmail, Blogger and Picasa because they’re nice, do you? They data mine the heck out of their users so they can send targeted advertisements directly to the consumer.

      It seems to me that papers are only looking at one side of the problem: drawing people to the site. They’re not doing anything with them once they’re there.

    • Great feedback. Thanks all for sharing your thoughts. There are a couple things that I think are worth highlighting here.

      First, Benjamin’s comment about journalism being about connecting people. I agree, but this also points to a huge opportunity on the business side as well. If we can help people connect to other people — and businesses — in their community to help them get information or figure out how to do things in their lives, then there is way to take a first step away from ads. (I am also beginning to think that the NPR/non-profit model is a powerful one for us to consider).

      Ken’s point about marketing is essential. Newspapers spend precious little to market what they do. No other industry would spend so little to promote their product (journalism) to their community and expect to survive.

      Transactional, is a key word in Tom’s comment. What transactions could a news company enable that people would pay for? What I like about the Newspaper Next process is that asks us what a company was trying to accomplish by running an ad, i.e, hiring someone. And then it asks us to think about how else a news company could help someone find a new employee besides running an ad. Would a business pay a commission for each employee found through such a service?

      Finally, here’s what I take away from Will’s point: Newspapers need to move away from being so focused on a single product. Even if we’re talking about print, we need to become a series of print products that target more specific niches (some are already doing this). Become more targeted. This is an incredibly hard concept to a newsroom to accept, when its identity is wrapped up in a single thing: the newspaper.

    • Hannah Bae

      Hi Chris!
      You probably don’t remember me, but I was interning with Knight Foundation last year and I’ve finally discovered this blog. Fascinating stuff.
      As someone who’s just getting started out in journalism (and hearing from all her older colleagues that this is a “dying industry”) this post really spoke to my concerns about how the next generation of journalists in going to get paid. Finally, someone who’s thinking about the business of journalism, as well as the content!
      I liked especially that you listed some people who are doing something about this problem.
      Hope all is going well with your News Challenge project!

    • Hannah: Yes, I do remember you and glad you found this blog. And don’t despair, as this blog shows, there is a lot of exciting things happening in the future of journalism. But there’s a lot of work yet to get us there…

    • When are the editors and the advertising folks going to sit in the same room and work with each other? I’ve been to over 200 newspapers trying to get change on the advertising side. It’s blocked by every dept., editorial (that’s not our job), production (we don’t have time), IT (we don’t have enough people), accounting (no one understands how to change that in our system)and add to that a reward system for advertising management that makes Online the enemy.

      As an expert in classified advertising, about 30% of the revenue of newspapers, this is indeed a transactional business. They pay the newspapers a ridiculous amount of money to sell something, and newspapers put it in print and online with no guarantee of any results. This has to change.

      Look at your Alexa.com ratings. Craigslist.com it higher than the New York Times. And Ebay blows them both away. You could only imagine what MySpace and YouTube do to newspaper online Alexa numbers. Most papers under 100K circ hardly register at all. It’s the reason many auto dealers are running to Ebay motors.

      According to Alexa.com , half the people who come to the Merc website, go right to the classified ads.

      What if those ads were charged on a transactional basis instead of the ridiculous per line per day, or forced 30 day portions we dictate. And can run online until they get results. Why not.

      What if that Macy’s ad linked to transactions, and the newspaper got part of the sales instead of ROS useless charges.

      What if, heaven forbid, that when someone read a story about the football game, Ticketmaster hit him up for local tickets and newspapers got a share of the sale.

      Every newspaper has the history of their town for the past 100 years, it would seem that information is valuable to someone somewhere.

      You can’t give it all away for free. Your editorial content has value. It has resale value.

      Reading a newspaper use to be a neccesity. Now it’s a guity pleasure. How are you going to get back to being something someone needs everyday? Get that and those advertisers will be back.

    • Wow. Thanks goodness. I read this 10,000-word mess The Future of Advertising and thought I was losing my mind. There is NO future in ads, that business model is dead.

      As I <a href=" tried”>http://charlotte.johnlocke.org/blog/?p=2284“>tried to explain before stumbling on Chris’ broader take, “Advertisers confuse an audience with a captive audience. Just because I visit a Web site does not mean I will see a single ad on it. I control the javascripts, not the advertisers. … This should sound familiar.

      The record industry decided that it had a captive audience for hit singles and tried to force 10 other songs and $18 price-point on the music audience. How’d that work out? People used technology to route around that business model and end up with a distribution model that they wanted. Digital advertising is nothing more than a form of digital rights management, and advertisers and content owners are once again pricing themselves out of the market.”

      Either you understand this, or you do not.

      PS — Go Tar Heels!

    • Gary Lewis

      We’ve all heard stories of organizations unable to answer the question “what business are we in?” Maybe it would help to look across industries to identify points of similarity. For example, journalists and adjunct (contingent) faculty in colleges and universities might really be in the same (and a new) business. Learning, maybe?

      Schumpeter famously wrote about creative destruction. There’s mega pain during the destruction, but even greater opportunity to forge new institutions. And it gets instantiated through entrepreneurial turmoil. Which, I guess, is a call to build as well as to observe, research, reflect, and write or teach.

      By way of disclaimer, I should add that my interest is institutional change in higher education. So my remarks about journalists and news should be viewed cautiously.

    • Ben

      We are working to give journalist in Africa advanced mobile phones / small digital recorders (i.e. the flip video). The local journalist use these tools to produce reports in their area and use the mobile and internet network to publish the content to http://www.AfricaNews.com. We are now working to engage 300 individuals spread across 33 African countries.

      In addition to general reports about politics, business, sports and culture, our team works to bring out stories about individuals doing great things. We try to focus on what is possible and profile the people and the projects working to make it happen.

      We feel this project helps generate better news and information on Africa. If anything, we work to make the process local and empower individuals in a way that they can tell their own story. The mobile reporting tools are great in terms of capturing this local perspective (no big camera crews, lights and other annoyances) and this really comes out in the reports we get in.

      Needless to say, this entire process does cost money. Simple as that.

      – We build and maintain AfricaNews.com
      – We work to identify and engage individuals for the network
      – We work to provide members with as many reporting tools as we can afford
      – We have developed training materials that help improve the quality of the reports
      – Our editorial team in Accra work to train, guide and coach the contributors on a daily basis
      – etc.

      One way we generate income is via our “Really Simple Reporting” program. For a reasonable fee, organizations can commission their own mobile reports. We put together a briefing on a project, event or theme and send this out to one of the local journalist in the field. They can then make a visit to the location and collect the necessary text, photo and video. The report is then uploaded and edited before we send it off to the client.

      Our partner organizations use these mobile reports for their own websites, newsletters and other communication. These reports are often used in the effort to better communicate with stakeholders – the partners, clients and donors that would be interested in knowing more about what is happening on the ground.

      Although these commissioned mobile reports do not qualify as ‘news’ they are often quite interesting, relevant and fun to watch. The local journalist becomes involved in interesting local projects and often times they gain considerable exposure as a result of the process. These commissioned mobile reports also mean we can pay the local journalist for the work that they do. In this way we can help make a career in media more sustainable.

      http://www.africa-interactive.net / http://www.africanews.com

    • Shifting frames and possibilities involving how the individuals and the different communities deal with and relate to information and knowledge, have (once again) changed the rules of the game for “business-as-usual” models. Similar to what is fueling the debate regarding shifts not only with funding but with other content, quality validation and participation issues in education. “One model fits all” seems to be no longer the case. Depending on how we look at it, it could also open new frontiers of possibilities.

      Maybe the question is what business/service/community are you in? What is your project and how does it relate to other colleague’s projects? Are there other ways to generate win-win situations? The quality of the contributions I’ve been exploring here has kept me engaged a lot longer. It is very infrequent to find this in any of the off-line or on-line media today, not to mention the extended offer in simplified sports and yellow press related info-tainment where in the end, there is little distinction aka branding. And Ad searchers and potential customers might as well just browse-search for the product or service provider on-line directly. No need for the old ad type mediation anymore, if that’s all there was to sustain the rest of the content, and the rest of the content is not attractive or distinctive anymore.

      There could still be multiple layers and multiple players to cater for, but then as you state, the thinking paths shouldn’t be restricted by the main line “business-as-usual” options at hand. Granted, it’s tough.

    • This is great Chris!
      I think a lot of us operate on faith that if we do what we’re doing well enough, opportunities for financial sustainability will just appear. That’s a “model” that has actually worked for lots of people. There’s the “model” that you build a big enough community, and someone else will buy you out and eat the operating losses.
      It seems that there is a campaign going on to convince us that advertising must be inextricably linked to mass media to be sustained. In “Telecommunications, Mass Media, and Democracy”, McChesney notes that in 1926 only “4.3 percent of US stations were characterized as being ‘commercial broadcasters'”. Just a year later, as the networks were taking hold, McChesney notes that this campaign had already begun: “‘Without advertising, broadcasting would not exist’ the FRC stated with apparent disregard for the several score noncommercial operations still in operation.”
      We are again in a time where a large percentage of media is not ad-supported, but voluntarily user-generated, and while we’d all like to think that the “volunteer model” that is sustaining it will be replaced with one that actually enables people to make a living from their journalism, its possible that this model is what it is.
      Gather is another site that was exploring a new business model, which still depends to some extent on advertising.

    • Great post and exactly to the point.
      My four cents:
      1. Advertising on the web is a loser.

      2. Advertising in Print + web + marketing material and intelligence for local advertisers is a winner.

      3. Newspaper can use their social capitol to create new stuff that people will willingly buy. A paperback summarizing and giving background on the crisis du jour.

      4. Newspapers should look into going into the education business. We have the skill sets, they have the money. They have a legacy overhead that doesn’t make sense. We have no legacy overhead.

      And while they are firing and underpaying talented people, our talented overstressed people should get together with their overstressed talented people and redefine the meaning of trade schools, “higher education” and eventually K-12.

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