Having witnessed the news industry’s responses to mild recessions, short-lived epidemics, shocking terrorist attacks, and stomach-churning economic meltdowns over the past 30 years, there are at least five core truisms that I want to apply to today’s pandemic-to-recession likelihood.
In the process, I would like to predict how these truisms might play out in the context of 2020.
1. Trends and ideas that lurk in the shadows of good times leap forward during bad times.
After 9/11 and the Great Recession, the leaps forward were deeper embraces of digital.
Especially after 2008-2009, the disproportionate reliance on advertising in the business model was further exposed — yielding the fledgling digital subscription models and print/digital subscription packages.
In 2020, the lurkers are the ideas of eliminating print altogether, e-commerce, and work-from-home (WFH).
What could tip publishers in these directions? Experiments related to the coronavirus on all three fronts.
Print is being propped up in many markets by advertising revenue. If those monies go away, the primary economic reason for print’s continued existence go away. Also keep an eye on print carrier liability and obvious barriers getting print newspapers in readers’ hands. If the go-to response is not to find a workaround but to “go digital” (a common refrain in last week’s member survey), that seed will be more firmly planted post-crisis. This is especially true of publishers where the economics of print are weakest.
E-commerce is not new. Yet looking at what has happened in China in recent months and what is already happening in Western markets now, e-commerce is about to explode. What does that mean for news publishers? Watch for a leap forward in the content-to-commerce revolution. The rise in e-commerce could be a tipping point in shrinking the runway between content consideration and the last click for news publishers that have only flirted with this concept (magazine publishers have a longer history).
As for work-from-home, the shotgun marriage of recent weeks forcing companies to operate with home-based employees will be a giant lab experiment with repercussions post-crisis. Look for cost-minded CFOs and people-minded HR managers to see what work functions require an in-office employee post-crisis. A positive view of this is the crisis pushes media companies into more flexible work environments. A more cost-minded view is that perhaps media companies don't need the physical presence they long assumed.
Dating to the SARS virus in China in 2003, we saw the genesis of online delivery that became the powerful e-commerce platforms. What are those lurkers or innovative responses in 2020?
2. Advertising is overwhelmingly hit in an economic downturn, while reader revenue is stable.
Marketing budgets are highly discretionary. They are often the first to get cut and the slowest to return — a truism stretching back through recessions, depressions, wars, and terrorist attacks.
But that broad statement is not universally true across advertising categories. Crowdsourcing responses from last week’s INMA member survey, suddenly down categories include events, travel, luxury, entertainment, and retail. Programmatic advertising has been negatively impacted, too. Not surprisingly in the moment, food and grocery advertising has felt no impact.
One publisher pointed out that while cruise advertising is down, they are trying to focus companies to market domestic travel. Someone clearly is trying to make lemonade out of lemons.
Another publisher said advertising is more in the “pause” phase than the “cancel” phase. We would gently suggest that “pause” is related to coronavirus; “cancel” will come with economic contractions.
Meanwhile, keep an eye on the rise of food delivery and e-commerce purchases of goods and services during the coronavirus shutdown to be trends in the market that could accelerate the declines of the “restaurant experience” and brick-and-mortar stores afterward.
While I will leave the reader revenue point mostly alone, there is an important nuance to be put forward: Could there be actual upside to digital subscriptions in this downturn? Compared with 2008-2009 when circulation bases were littered with readers tempted by deep discounts, promotions, and giveaways (the nature of the business more than a decade ago), today’s subscriber is paying premium prices and is more deeply engaged than paid readers of the past. Could there be a mild surge in subscriptions because of the crisis?
3. Companies that were marginally viable in the good times often die in the bad times.
The myth of the last global recession was that newspapers and magazines died a horrible death because of that downturn. That was short-term nonsense. Marginally economical newspapers and magazines died. No. 2 and No. 3 print publications died.
Long-term, you can say hundreds didn’t make it. But it wasn’t because of a recession. It was that they couldn’t turn around their culture and business model over time.
In 2008-2009, publishers that entered the recession at 15%-30% profit margins took their lumps and survived to fight another day – albeit at reduced margins that never recovered. Publishers that were eeking it out at 5% margins or less pre-recession didn’t make it to the recovery.
Unfortunately, there are a lot of marginal publishers in 2020 dancing around break even in the best economy in a half century. Market caps are shrinking. Pressures to merge will intensify. One publisher’s weakness is another publisher’s opportunity to gobble up market share at pennies on the dollar.
The biggest differentiator between winners and losers post-recession won’t be who had the bigger brain but who had the bigger bank account or access to capital going into the recession. It’s usually as simple as that.
I would have predicted this regardless of how we got to recession, but there will be far more news brands that disappear in the upcoming downturn than 11 years ago unless there is some kind of mighty source of intervention (government, benefactors).
4. Consumers flee luxuries and the ostentatious during recessions in lieu of basics and inconspicuous.
This observation is partly about affected advertising categories and partly about how you position your news brand. Consumer behaviour has shifted to caution and concern. React accordingly.
Creative styles trend muted, restrained, or subdued in bad economic times. A “buy now and get smarter” should be replaced with “support our journalism” and empathetic messaging. Or focus on the reader’s needs more than what you produce.
Strategically, your first concern for your brand should be reputation and helping customers through the coronavirus crisis. Prioritise public interest over sales generation.
Publishers lowering their paywalls for coronavirus coverage not only gets non-subscribers into your editorial environment, it communicates your purpose-driven mission. Now match your actions with words that match the moment.
This will impact car styles, clothing styles, restaurant styles. Fords and Toyotas win over Mercedes and BMWs. Middle-class clothing brands trump high-end brands. Hamburger joints over tasting menus. Even among upper-class demographics, ostentatious is out.
I love how restaurants forced to close in-house dining are rallying to curbside pickup. What is the publisher equivalent of this?
“Nothing fancy” in this environment.
5. Opportunities exist in a down economy and an up economy. Don’t myopically focus on shrinking.
Faced with dire circumstances, publishers in the past focused virtually 99% of their energy on cost-cutting and 1% on growth opportunities. Will 2020 be a repeat of industrial management of the past?
Hopefully, you have a contingency plan for 25% to 50% sudden declines in revenue. Hopefully, that is a combination of cost cuts and smarter utilisation of resources. Hopefully, that involves an acceptable level of loss over a fixed period of time. Hopefully, that is pre-targeted priorities.
Yet you need dedicated teams looking strategically at the opportunities in decline. Separately, you need to look at what the opportunities likely will be after we hit bottom and start to grow again.
Decline opportunities, for example, are focused on productivity, efficiency, and the home. Think goods and services for home offices, video services, and collaboration tools. What you do at home is crucial: music, gaming, groceries, fitness, and a range of subscription services — including media brands. Goods purchased via e-commerce, already rising, will rise even faster.
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These are five principles I’ve learned from previous economic downturns — notably 9/11 and the Great Recession. My guess is these principles can be applied to the current moment.