The mark of profitable news organization today is one who has found customers who actually pay, often redefining who the customer is in today’s crowded landscape of media information and analysis. Profitable organizations have either built two sides to their business: offering information to consumers and selling it to businesses – or achieved such enormous scale in their reach that they are too big to ignore in the traditional game of advertising reach. Niche content, with few exceptions, will continue to move online and few – if any – have proved that model can yield significant profit as a stand-alone business.
Traditional Paying Customers
In previous eras, the access to information and news content was more limited than in modern day, such that organizations could achieve enough scale to earn profit from subscription revenue and the advertising income from those who desired to tap the same audience reach. In effect the theory was they had two sets or paying customers: the subscriber and the advertiser. Most would acknowledge this model is less sustainable in societies where Internet access and digital content consumption is widespread (although there are examples of emerging economies and ultra-urban cities with large commuter populations where it continues to prosper or even grow), as consumers increasingly do not pay and advertisers have other competing channels to consider.
A Successful Approach: B2B and B2C
Consider organizations in the modern day who have adopted a hybrid B2B and B2C approach: Bloomberg and The Economist, with Reuters as a third possible example but more complex in its structure to analyze. All three have built business models around providing traditional free or advertising-enhanced news content, but also built profitable businesses selling that information in more lucrative ways.
Bloomberg Has it Right
Bloomberg LLP is an integrated B2C and B2B business news powerhouse. Ranking #45 on the “Forbes Largest Private Companies” in November 2012, the company is private, but it is hard to ignore the public growth and success of an organization which has spread from a core business of providing professional real-time financial news, market data, and analysis service offerings accessed through leased terminals and a corresponding subscription service, to expansion into a syndicated news service, magazine publishing (including Bloomberg BusinessWeek), and sharing of business information via Bloomberg television, radio, and the web. They embody the dual-model approach of selling information to businesses who pay, and the reach to advertisers who also pay.
The Economist Does Too
The Economist Group is a collection of brands, led by its flagship print magazine brand, The Economist, but the company offers insight, analysis and services through multiple channels. According to their 2012 Annual Report, their revenue dependency on print advertising was 46% ten years ago and today is 29%, primarily as a result of selling their business content and insight through other means. Yes, they have approached digital content distribution in an aggressive way, being fast in adopting new reading platforms and keeping their content available only for paying subscribers, but the business growth is due to more than that: the Economist Intelligence Unit business is growing YoY, through corporate subscriptions and continued expansion into new content categories like that of Clearstate, a Singapore-based healthcare information source across Asia. Their CQ Roll Call business is a valuable (paid) source of legislative information, tracking and analysis.
Another interesting point of similarity in both Bloomberg and the Economist Group is that they are aggressively developing themselves as global brands, providing wide global reach for English-language-based news and information. In an economy where most investments and news events happen globally, having the reach and local presence to be notable and desired in local markets provides a scale which helps to differentiate and to ensure access to information which other will pay to access.
Online-first Content Sources Face the Same Challenge
Departing from the traditional example of an isolated, local daily newspaper unable to maintain profitability through the traditional models, let’s consider even modern web sites or content business like AOL and Yahoo (with its latest leadership vision) who aspire to aggregate or create unique content, targeting niche segments, and yet maintain the same business model, changing only the distribution model from paper to screen. The value proposition behind niche or targeted content is for advertisers to better target, but niche targeting at scale has so far only proven profitable for paid search advertising, whereby the information or search results cost very little to generate, less so the case with unique news content. While they have a chance for success due to the scale achieved in aggregate, their strategies are still lacking a crucial component from a proven model of their more profitable peers – enough paying customers.
Some do Make it Work Today
News organizations who achieve significant scale in reaching the masses can be successful, but by definition there is room only for a few. The New York Times Company and Washington Post Company are probably the most successful examples of earning profit through the traditional combination of advertising and subscription sales. Both have not only developed massive brands to achieve notable scale, but both have also diversified their portfolios into other businesses and related properties (e.g. The Washington post owns Kaplan educational services; New York Times Company owns About.com Group and other numerous web properties and a news archives and syndication business, although they still receives about two-thirds of their core revenue from advertising and subscription). It’s not impossible to earn a decent profit margin using a traditional approach, but clearly diversification to ensure alternative revenue streams from other paying customers help, and even these two are the super-stars in a dwindling industry.
Berkshire Hathaway is one such group taking a bet in this space. In their 2012 Annual Letter, Mr. Buffett eloquently describes a similar state of decline for the on-paper news business, but wisely recognizes that while most get their news of interest from other, more instant news sources, few businesses have yet successfully replaced “local” news the way traditional newspapers once mastered. In line with this view, the group has so far acquired 28 daily newspapers across the US, at a total cost of US $344M. Perhaps the logic here is that niche (local in this case) at scale has potential to attract advertising dollars for reach in the same way as the large players mentioned above, but unlike current or future online competitors, these local papers will still need to deal with distribution and other costs that their online competitors do not, hence making them clear short-term profit wins for Berkshire if acquired on the cheap, but still questionable medium-term bets. Some might argue the value play here is in the brands more so than the business model.
Potential remains for the news content industry to evolve in many ways, and more creativity and experimentation is required to truly unlock the opportunity, but perhaps those investors and entrepreneurs contemplating the challenge can learn more from those who are thriving (and profiting) in today’s competitive world of news and information delivery.