News media’s value conundrum: innovate within or outside of the P&L?

By Earl J. Wilkinson


Dallas, Texas, USA


In the literal world of news media, shareholder value historically meant profits. We create news content, sell the carefully crafted unit of circulation at a low price, and leverage circulation volume for advertisers.

In 2000, the average profit margin of a publicly traded newspaper company in the United States was an astronomical 23%. An Australian community publisher told me in the same period that a “tough year” for him was getting down to a 40% margin. In other words, the newspaper’s value to shareholders was as a cash machine. 

That formula has mostly collapsed internationally. Companies in the news media business for high profits are consistently frustrated these days – and some are choosing to exit that business as there are easier places to park their cash. 

As transforming leaderships have replaced the hard operators that managed balance sheets for much of the past century, the focus has been on re-creating value with the assets on hand. There are emerging formulas for this even as the approach is different company by company because the physical and human assets are different. 

There are at least two schools of thought going on here: 

  • Innovate within the P&L: The traditional operators always run out of runway to manage legacy media companies. That’s not a shot at them; it’s simply that they are hard-baked to employ short-term methods or to use shortcuts to goose up the numbers and have done that the past century. New leaderships are committed to creating a new type of news media company – digital skill sets, getting consumers to pay for digital subscriptions, utilising data to become more efficient and effective, injecting new ideas about how work gets done, deciding how to align goals and values behind clear brand structures. 
  • Create new value outside the P&L: Accidentally or purposefully, the biggest stories of media value creation are coming from companies that incubate the “bigger better deal” from media assets. Twenty years ago, this was Schibsted leveraging online classifieds to make it the dominant corporate asset today. Today, it is Fairfax Media in Australia targeting real estate vertical Domain for elevation — and it could very well be 75% of the company’s market cap. 

While McPherson Media worries about tomorrow’s Shepparton News, it has its eyes on Australia’s national agriculture industry. 

Perth’s Seven West Media and Auckland’s NZME, like counterparts at Germany’s Axel Springer, see new value creation with a mash-up of television and talk radio integration into traditional “print” newsrooms with new digital components. This feels like a middle ground between innovating within the P&L and creating new value, but it certainly is not traditional. 

I was struck during the opening weeks of my 37-day round-the-world trip (you can follow along at #INMAOnTheRoad) — visiting media companies in the South Pacific, Latin America, and Europe — by the strategic approach to value creation by Fairfax New Zealand.

Operating in a country the size of New Zealand has its advantages and disadvantages. Yet for Fairfax, the country’s smaller ecosystem seems to give it a faster shot at creating new value outside the traditional P&L. Can its Neighbourly community site be a third-rail idea? Can the company succeed in the fiber optics business (an offshoot of a bigger strategy involving, generally, being in the “recurring monthly subscriber income” business)? Can it leverage scale to re-balance its revenue stack? 

Throughout all my visits in the South Pacific, a consistent theme emerged behind closed doors: You don’t want to be in a fixed-cost business tied to declining revenue streams for too long.

That simple insight is driving companies either to re-think the traditional business (which News Corp Australia does with brutal efficiency as it smartly balances print and digital) or find a path to gently exit the printing business or gently mitigate print exposure. 

Yet with the runway they have in the legacy business, can they birth the next great profit center that will fund great journalism? Or is this a pure shareholder value game disconnected from journalism’s future?

These seem to be central questions among South Pacific media companies looking to evolve strategy in fast-moving marketplaces.

About Earl J. Wilkinson

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