The Tribune company’s Chicago Tribune is laying off 20% of its newsroom. That’s got to hurt.
The Boston Globe is asking itself: What went wrong? The Globe belongs to the New York Times company, which publishes the eponymous paper.
Not to be outdone, the NYT itself was the victim of a great piece / hit job by Vanity Fair, which by the way, very well could be the best magazine out there (despite the fact that the rag now publishes, oh I’d say 2 articles per issue, apparently), if anyone still read magazines, that is.
Anyway, for what it’s worth, I think it’s absurd to blame newspapers for not “doing more sooner”. The more they would have done, the sooner they would have shrunk their businesses and gone out of business. Seriously, would the train companies really fared better had they dived into the airline business? Probably not. Would record labels really be bigger companies generating more revenues if they dove into digital music? Nope.
The truth is: before the Web came around, companies profited because they took advantage of an inefficiency.
Newspapers prospered and profited because they exploited the inefficiency of capturing data, aggregating it all, then publishing it to the masses. At its core, the web flattens the world and removed that inefficiency. It creates others and others are exploiting those inefficiencies. Google is doing it one way, Amazon in another, Apple yet another… and in our own little way, WatchMojo.com in yet another. That is how innovation and entrepreneurship works.
Here’s a fact: you don’t need that many people to do a job that you used to need to do the same job, thanks to the Web.
The newspapers are bloated, and I cannot think of any other 150 year old industry that wouldn’t be. Unless they are willing to accept massively leaner company structures, smaller top lines and probably lower bottom lines, I don’t think they will survive. It is a shame, it is a loss, but isn’t this what capitalism is all about? Aren’t these the “freedoms we fight for?”
I came across this 2008-era study on why online video presents a major opportunity for newspapers which concludes:
While still a small percentage of total and local online advertising, online video represents an enormous opportunity for newspapers to grow revenue and audience.
As the CEO of an online video content producer, this begs the questions:
Who is most likely to invest in and acquire online video startups: TV media companies or print ones?
Both have their reason to go long on web video, but when you start to look at what is actually happening in the marketplace, you realize that we’re seeing a case of
1- those who don’t learn from history are doomed to repeat mistakes,
2- people tend to react to ensure their short term survival, which can be explained by the fact that professional managers who run companies don’t share the long term views of investors and founders.
Survival - To Some: Avoid Getting Murdered; to Others: Fear of Cannibalization
Here’s how I read it:
A - Newspapers
The “supposedly clueless” folks running newspapers seem get it, and as a result, are starting to adjust their product to offer more video. McClatchy features some of our content across their websites. I am sure they’re not alone (in either supplying video or supplying their reader our content).
B - Magazines
The magazine guys are being reluctant, because magazines might very well survive - albeit in a radically leaner and smaller existence - the digital revolution, whereas newspapers won’t unless they drop the papers from their monikers and reinvent themselves as simply news - or rather, content - companies. And to do so, naturally, the Web must be central to their strategy and online video can be the savior. For more in this, read “who’s more doomed: newspapers or magazines?”
Incidentally, before I started WatchMojo.com, I was the VP of Ad Sales for an online men’s lifestyle magazine and I think magazines would do very well diving into video content, but they’re set in their ways. The upside for magazines is probably even bigger, because unlike news, magazines can produce evergreen content which has a longer shelflife, and thus, higher ROI. I speak to magazine executives about partnerships, investments, and yes, full on acquisitions… and it’s like they get it but don’t want to hear it. Or, maybe it’s just me. Probably both. Maybe they’re just too focused on the ever-shrinking size of their magazine. Who knows.
After all, do you really think that publisher of Maxim and Blender Alpha Media Group’s EBITDA would have fallen from $28M to $8M in one year if they would have focused on video? Probably not. Video inventory would more than make up the falling print sales. But again, don’t listen to me people.
C - Television
TV executives view online video much the same way that the print (both magazine and newspaper) executives saw the web early on: as a threat. Over the past few years, we’ve seen some exercises that seem to serve as tactics to shut up the critics who question the lack of digital strategies, but they are not strategies at all. Ultimately, television executives know that down the road the future of television might suffer from the same fate that print media did at the behest of the Web, but since this is a few years, lest a decade away, current executives cannot be bothered.
Digital Dimes vs. Analog Dollars
Yes, online video fetches a premium relative to text content online, but relative to traditional television revenue, online video is a joke. To a disruptor company like ours that seeks to create high quality content and distributes it online, the income is incremental and welcome. To an established company, it is not. This is why this comment from Doug Poretz caught my attention:
Content Is More Important Than Distribution Channel.
I’ve been engaged in this business long enough to know one thing: content is king. Compelling presentation is important, as is selection of the right distribution channel, but if the audience doesn’t immediately sense value in the content they are seeing, they will move on to the next site. That means a provider of high quality content can virtually come from nowhere to capture the attention of an audience and dethrone an industry leader. Bloomberg versus Dow Jones is an early example. More recently, the simple graphic presentation of Google is more than trumped by the value of the content it provides, and because of that, Google changed the way people use the Internet.
It makes sense therefore for investors to consider which entrenched leaders might not be as entrenched as once thought, especially when smaller, hungrier, more innovative and more aggressive competitors develop new ways of providing high value content.
No, I don’t wake up every day and try to put CBS, News Corp., Disney, ABC, etc. out of business. I don’t even think it’s possible (or maybe I am being coy and diplomatic, who knows)… but I do think that we can build a library that will be worth a bundle and a business that boasts the industry leading return on equity, whereas all of those companies will see a loss of revenues, profits and value in years to come.
The problem, of course, is time. The guy currently running a traditional media company can’t be concerned with the mess he will leave behind for the guy running the ship in 10 years, so too bad.
Strategy is Relative
In this context, while it makes a lot of sense for the TV based media companies to invest and acquire in new media studios, I don’t think they will.
If one were to play the conspiracy theory card, one would wonder: did CBS acquire Wallstrip for a mere $4M specifically to shut it down? Probably not. But all of a sudden, it’s not that crazy of a thought. If Wallstrip was creating a video product that would compete with CBS’ television offerings, it would almost make sense. I don’t actually believe this, by the way; we’re just trying to make a point.
Yet for the print guys, particularly the newspapers (McClatchy, Tribune, NYT, etc.), online video makes a lot of sense. It’s a matter of both economics and survival. The problem for these companies is the massive debt they carry, and the losses they’re seeing. In Canada, Canwest is on the verge of missing a second consecutive interest payment. Not sure if this allows them to pull the trigger on a big online video deal even though the prevailing logic is considerable.
As I’ve argued before, while digital sales are not enough to make up for losses in traditional revenue streams, they just might if you embrace video content, since video can fetch up to ten times the rates that text content garners. Cost per thousand (CPM - more on online lingo here) prices for text content ranges from $1 to $20 but for video content can go from $10 to $100.
This is why 2009 will mark the year that traditional display banner ad inventory will make way for all sorts of rich media placements featuring video.
Social Media Inventory = Warm Bucket of Spit
We’re not talking about social media pages, which get about $0.01 to $1 for text and $1 to $10 for video. We’re talking about professional content. As far as advertising revenue potential goes: user-generated content (UGC) is dead on arrival, though in terms of publishing in general, UGC is growing more powerful than ever. The problem with UGC’s “value proposition” is that direct marketers (who might not mind UGC’s low quality and raciness) don’t like the low performance whereas branded advertisers (who care less about the ROI in the short term) cannot take the risk to market alongside it.
Those Who Can Won’t and Those Who Want Can’t
Newspapers, on the other hand, have another problem. They lack the DNA to tackle video, and therein lies the irony of online video: “those who can won’t and who who want can’t“.
Add it all up, and I think you see where the buyers will be found, hint: not in tinseltown.
The Grinch Who Stole Q1
Tech Crunch has been making the rounds and the projections for Q1 2009 online advertising are bleak:
Display advertising revenue is going to fall of a cliff in January according to a number of content sites I’ve spoken with who rely on advertising for revenue. “Sales through December were mostly strong as advertisers used up their marketing budgets,” said one sales exec. But, he added, “there are few buyers for this next fiscal quarter, and those few that are buying are looking for steep discounts.”
Just how bad will it be? I’ve heard estimates of 30%-80% revenue drops over the next three months from companies that serve a variety of content (games sites, tech news, celebrity news, political news, etc.). The median pessimism point is around 50%. The people I’ve spoken with work at large public companies and small one-person blog shops. Absolutely no one I spoke with said they expect an up quarter.
Negativity Begets Negativity
At some point (and we’ve passed that point, folks), the bad news becomes a multiplier effect for more bad news:
- a media buyer sees this kind of article, uses it to lowball a publisher,
- the publisher sees little bright news, so they give in,
- the rates fall downwards, the bookings become rarer and rarer,
- next thing you know, indeed, we’re in a down quarter.
D stands for Deflation…
The web economy and online advertising sectors represent tiny pieces of the bigger picture. The buzz word in 2009 will go from subprime to deflation… so if we operate in a climate (or think that we do) of falling prices, then I wonder why we’re shocked to realize that ad rates and overall ad revenue might fall. I think at the macro level (all marketing) this might - and will - happen. From AdAge, via MediaMemo:
… and Display Advertising!
But as we outlined in our 2009: The Year in Online Advertising, yes, display will be weak, but I think publishers are buying into the glass-is-half-empty outlook because of bearish reporting. The truth is, my gut says things will go down a bit differently:
- marketers will push for video ads (and rich media ads in general) in display advertising real estate,
- the definition for video advertising will move away from purely instream ads (pre-rolls or overlays, for example) to include in-banner video ads,
and by mid-year, the actual display advertising figures will be fine (when you include the video / rich media units).
I do agree that traditional display ads will be weak… mainly due to a horrible Q1.
Let’s be honest: CPA and CPC are for suckers
While many are using the downturn to suggest that performance-based advertising units will see a boom, I’d like to point out a truth that most publishers fear admitting: CPA and CPC ads don’t really work for publishers, so even in horrible CPM times, I don’t think you will see a boom in performance priced ads in a downturn. For more on the entire CPC, CPA and CPM and other online ad terms, click here.
CPA and CPC revenue does not pay the bills, and quality publishers generally reject giving up prime real estate to CPC and CPA inventory.
But don’t take this from me, just follow the market: why else do you think Doubleclick, Blue Lithium, aQuantive and Right Media all got bought out (they all pay out largely in CPM terms even if on the back end they arbitrage inventory on a performance basis) whereas Valueclick remains standing, with no one to partner up with. At its peak, Valueclick was worth $3B with talks that it could fetch more. Even before the market meltdown, it was trading at $1B. Today, in the post media meltdown market, it is trading at $562M in market cap, with an enterprise value of $460M. The point being: in my experience dealing with of all the ad networks, from the publisher’s perspective, Valueclick was the most exposed to CPC and CPA and thus, most expendable.
Now this is all just my gut, but my gut has been right before: here’s one example of CBS buying CNET.
All Things Are Relative: At Least We’re Not in Radio, TV or Print!
If online advertising sentiment is this bad, even if the outcome is half as bad, then imagine what the radio, TV or print outlook is right now. Can you really imagine a media buyer paying $1M - let alone $50M, as Dell balked at - to be in print? What about radio or TV, which represent a black box in advertising where you don’t get to even track or target anything?
Newspapers like NYT and Tribune are - or are at risk to - defaulting right and left. TV companies like CBS are seeing declines in revenues. Radio companies are not faring better.
The point I am making is: there is a bull market somewhere at all times - even these times - and that market is online. It’s time to balance the reporting, too. I find it appalling (alright, strong word) that a site like Tech Crunch inflated the bubble on the way up, and is now ringing the bells of doom in the downturn… but that is publishing… and Tech Crunch does it well.
Who does the doomsday scenario thing best? Henry Blodget. Reading his Alley Insider, you’d think he and his talented staff of writers were typing on a ledge somewhere, choosing between the Publish button and jumping out of the window. For a great piece on his comeback, read this Wired piece. Mind you, in all honesty, I am technically guilty of this as well, the title of this piece should be “Will Online Ads Fall by 50%”, and not “What Happens if Online Ad Revenue Falls by 50% in Q1?” - but when I started writing it, I was thinking more of the impact on print… but then I started to ask myself, can this even really happen?
Well, maybe. At the end of the day, we just saw a major evaporation of wealth throughout 2008 in the housing, financial and automotive sector, to think that online advertising will go on unscathed is foolish, but to alternatively expect a 50% decline in what is the only bright spot in all of marketing is equally foolish.
My apologies for the light blogging this week… been working on a couple of special projects.
Though nowhere near as special as this: good read from Business Week on Sam Zell’s deal to take over Tribune.
“It’s the deal from hell,” says Sam Zell, never one to mince words. “And it will continue to be the deal from hell until we turn it around.” Zell is talking, of course, about his $8.5 billion purchase of Tribune Co. in December 2007, a transaction that’s shaping up to be one of the most disastrous the media world has ever seen.
(…)
He loaded the already strapped company with more than $8 billion in fresh debt to pay for the deal, leveraging Tribune to within an inch of its life.
The payments, $1.4 billion by June 2009 alone, have proven crippling. Tribune’s junk-level credit rating has fallen since Zell took over, and some of its bonds are fetching 35¢ on the dollar. Zell has been forced to cut costs far more than he anticipated. It may not be enough to avoid a default. “The colossal debt Zell piled on is forcing Tribune to take more and more desperate actions,” says media consultant Alan D. Mutter.
On paper, Zell’s plan looked great. He would quickly sell the Chicago Cubs, Wrigley Field, and a 25% stake in Comcast SportsNet Chicago to pay off debt, and focus on making Tribune’s newspapers zippier and more ad-friendly. The strategy was based on an innovative financing scheme that used Tribune’s tax-exempt employee stock ownership plan as the vehicle through which to fund the transaction. That would allow Tribune to save big on taxes: It paid $245 million annually on average over the past three years. Zell’s financing arrangement required the billionaire to pony up just $315 million of his own cash to wrest control of the company, with a warrant to buy 40% more for as little as $500 million. (…)
He describes himself, immodestly, as a “grave dancer” who buys properties at fire-sale prices and resells them for a profit. His biggest coup came in late 2006, when he orchestrated a bidding war for his real estate trust, Equity Office Properties. EOP eventually went to Blackstone Group for $39 billion, in what was then the biggest leveraged buyout in history. Weeks later he thumbed his nose at the dealmaking world with a satirical song, posted on the Web, that predicted the credit crunch soon to sweep the globe. It seemed he could do no wrong.
Then Zell bought Tribune and stumbled into a calamity of plunging sales and rising costs. He had expected only single-digit declines in newspaper ad revenue. Turns out he was off by a factor of two or three. “If current trends in advertising are permanent,” he says, “we have a really serious problem.”
He should have seen it coming.
Everytime I think running a startup in the video space is hard - where one site owns 75% market share but is refreshingly (but worryingly) candid about not really having a clue how to make money off videos - I look at newspapers and count my lucky stars.
Sam Zell is at least realistic about the fate of newspapers: he’s here to deliver reality. Some soundbites:
CNBC’s Carl Quintanilla: HOW IS THE AD MARKET GOING TO HOLD UP THIS YEAR?
Sam Zell: WHAT AD MARKET?
Quintanilla: WELL PUT.
Zell: I MEAN, ARE YOU TALKING ABOUT THE PEOPLE WHO BUY ADS? I’M TRYING TO FIND ONE OF THEM.
Quintanilla: YOU’RE ON YOUR WAY, THOUGH, TO EQUALIZING NEWS COVERAGE AND ADVERTISING, RIGHT?
Zell: THAT’S CORRECT.
Quintanilla: YOU’VE LAID OFF SOME PEOPLE IN HARTFORD, BALTIMORE. YOU’RE GOING TO SELL NEWSDAY TO CABLEVISION. HOW MUCH PROGRESS DO YOU FEEL YOU’VE MADE IN GETTING TRIBUNE TO A POINT WHERE IT CAN FINANCE, IT CAN SURVIVE?
Zell: I THINK THE CASE OF “THE TRIBUNE” OR THE NEWSPAPERS IN GENERAL BASICALLY COMES DOWN TO PRODUCING A NEWSPAPER THAT THE CUSTOMER IS WILLING TO PAY FOR. AND THE CUSTOMER IS THE ADVERTISER AND THE CUSTOMER IS THE READER. THAT’S THE CHALLENGE. I THINK THAT BECAUSE NEWSPAPERS HAVE HISTORICALLY BEEN MONOPOLIES, I THINK THEY’VE BEEN INSULATED FROM REALITY. I, YOU KNOW, AM IN THE POSITION WHERE I’M GOING TO HAVE TO, QUOTE/UNQUOTE DELIVER REALITY. I THINK WE CAN HAVE TERRIFIC NEWSPAPERS, BUT I THINK THE NEWSPAPERS HAVE TO RESPOND TO THEIR CUSTOMERS. IN MANY CASES A LOT OF THE THINGS WE’RE DOING RIGHT NOW WERE ALL IDENTIFIED IN FOCUS GROUPS OVER THE LAST EIGHT YEARS. AND THE FOCUS GROUPS WERE MADE, WERE TAKEN, AND NOBODY PAID ANY ATTENTION TO THEM. OUR CUSTOMERS WERE TELLING US WHAT THEY WANTED AND WE’RE GOING TO GIVE IT TO THEM.
Don’t know what is up with the CAPS Lock, you can thank/blame the folks at SAI for that. But then again, I’d be screaming too if my graphs looked like an inverted hockey stick, courtesy of VentureBeat:
If I were a newspaper tycoon, I’d be shorting print and going long video. It seems like a no-brainer to me.
CBS generated $23M from March Madness in 2008. That’s pretty good, because indeed it is icing on the cake.
But interesting to note the following, then:
Tribune’s LA Times expects to generate $25 million in display ad revenue this year, more than tripling the $6 million that area attracted three years ago, according to Rob Barrett, SVP interactive media and site GM at the paper’s website. By 2011, the site will account for about 20 percent of the paper’s cash flow, he told the Kelsey Group’s conference on local media, according to ClickZ.
Read more on PaidContent.org. Those are small numbers compared to offline stuff. But I guess they have no choice, no matter how small the figures might be relative to offline sales.
PLAY
