News media companies must create new business models to survive

By Kirk MacDonald

Pyrrhonian Partners

Toronto, Ontario, Canada


The vitriolic public debate between media company owners and journalists has reached a crescendo. Who’s right? In one sense, both the owners and the journalists. 

“Newspapers are equal parts business enterprises and civic institutions,” according to Penelope Muse Abernathy in her book, The Rise of a New Media Baron and the Emerging Threat of News Deserts. “The newest generation of media barons — the investment portfolio managers — are not journalists nor do they share journalism’s civic mission. Their priority is maximising the return on the assets in their diverse portfolio.”

In the current media environment, successful newsrooms have to look beyond journalistic ideals.
In the current media environment, successful newsrooms have to look beyond journalistic ideals.

Maximising shareholder return for news media companies is becoming increasingly difficult and being done mostly on the cost side. This is an industry that has collectively reduced the number of journalists from 68,160 in 2007 to 41,400 in 2015 as ad revenue declined from US$46.2 billion to US$18.2 billion. This affected not only the quality of newspaper coverage but the valuation of newspapers.

Conversely, journalism’s civic mission is challenged as coverage capabilities decline with the accelerating decline of newsroom resources. Hearst Corporation’s president and CEO Steven R. Swartz captured the moment with this comment in his year-end letter to employees: “2017 was another great year to be a consumer of media products but less so to be a provider of content.”

The solution is disruptive innovation.

This is an industry that desperately needs new business models. Trends strongly suggest print ad revenue is not going to recover and the decline may be accelerating. If that assumption is correct, newsroom resources won’t recover either.

Take a step back in history to the ‘90s and the case study of Encyclopedia Britannica framed in Blown to Bits: How The New Economics of Information Transforms Strategy by Philip Evans and Thomas S. Wurster.

Britannica was the market leader in hard-bound printed encyclopedias in 1990 with sales of US$650 million. Between 1990 and 2000, sales collapsed by more than 80% due to the advent of the CD-ROM, such as Microsoft’s Encarta. Months passed without a competitive response. Britannica was put up for sale in the mid-‘90s. After 18 months of trying to find a buyer in the technology, media, and information sectors, it was sold at a discount to a financier.

Then along came Jimmy Wales and Wikipedia in 2000.

As it turns out, Britannica’s fate was a precursor to today’s environment. And once again Wales is at the centre of another new business model worth analysing. More on that later.

First, what are we trying to solve for?

  • Revenue stability.
  • News coverage resources.
  • Technology capability and resources.

Revenue stability: With the exception of news media companies with a national footprint, the idea of generating incremental revenue with paywalls while reducing the quality of the content offering through newsroom headcount reductions are at odds. Increased digital revenue is not replacing the loss of print dollars. Absent a change of strategy, revenue stability will remain elusive.

Here is a short list of alternative revenue models that aren’t being widely adopted:

  • A membership model that is aligned with the civic mission of newspapers. The Guardian is a shining example of the effectiveness of such a model, where readers contribute to support news coverage, mitigating its losses.
  • Native or custom content models included in the fastest growth advertising projections. The New York Times has created scalable revenue in this segment while regional newspapers have just dipped their toes in the water.
  • An investment in digital operations and first-party data integration with more precise targeting through the use of log-file data. The result is higher retention rates of digital advertisers through improved campaign performance.

News coverage resources: This is where Jimmy Wales re-enters the picture with the WikiTribune pilot nearly 20 years after upending the venerable Britannica. In my experience, this is also where there is the greatest newsroom pushback. Here is a short list of ways to increase news coverage resources:

  • Crowdsourcing content has many benefits. Frederic Filloux describes it as “smart curation.” It has the capability of broadening coverage in areas newspapers have had to eliminate while also supporting the civic mission of a newspaper. Such an innovative approach to news would necessitate a new organisational structure and new roles for editors along with built-in safeguards against “fake news.” Wikipedia goes as far as installing an “arbitration committee” to verify crowdsourced updates of its encyclopedic entries. In addition to building and licensing a multi-media content management system, The Washington Post also built a platform to vet and manage subject matter experts who are contributors. 
  • Increasing video and audio coverage. According to Activate’s Michael Wolf, in 2018, consumers will spend, on average, five hours a day viewing video and another two hours a day listening to audio. Entering into video and podcast partnerships would be a highly cost-efficient way to expand news coverage and also engage the community through increasingly popular storytelling platforms.
  • Acquiring a small community blog (or blogs) that immediately plug a coverage hole caused by headcount reduction. Or, using content automation, which is being used by the Associated Press and others.

Technology capability and resources: There is no other way to say it other than news media companies in general are way behind the curve in technology capabilities for the modern age. (The exceptions are The Washington Post and a handful of other companies.) Here are some areas where they could improve:

  • Adopting an omni-channel content management system.
  • Acquiring a small-data company or, as an alternative, outsourcing data management.
  • Building or licensing a proprietary data management platform (DMP) that sits beneath a header bidder and on top of an ad server(s), a supply-side platform (SSP), a demand-side platform (DSP), and a decision engine (log files).

The underlying message for both owners and journalists is to find common ground in innovating and together build a bright future.

The Rise of a New Media Baron and the Emerging Threat of News Deserts lists three types of newspaper owners over the last century: founders, corporate managers, and investment entities run by portfolio managers.

Investment entities are often charged with harvesting profits rather than reinvesting in the future. Yet I am fairly certain portfolio managers are all for new revenue, content, and tech models increasing the asset value of their holdings. I know that feeling is embraced by corporate managers as well. What I do not know is the level of discourse. It appears it needs to be heightened.

About Kirk MacDonald

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