Winter is coming. How many times have we heard that on HBO’s hit drama Game of Thrones? But though we have sat through five series so far, not to mention any amount of torture, murder, and all-round unpleasantness, the sun is still obstinately shining. The battle-weary inhabitants of Westeros must be beginning to wonder if those thermals were really such a good investment.
Here’s my warning. Winter really is coming for many of the world’s news publishers. Indeed, this year’s Digital News Report suggests that for some of them it is already here.
The economic challenge for any legacy newspaper company is simply stated: it is to grow digital revenue far and fast enough to offset the inevitable declines in print revenue, and at sufficient margins to defend – or increase – profitability. Many publishers have responded to this challenge by putting their faith in a model based on audience scale and digital display advertising. Surely advertisers would pay handsomely for the privilege of connecting with the vast audiences that all that free digital distribution would unlock?
Most of the new digital news providers were launched with business models which were parasitic versions of the same idea. They aimed to rewrite and repackage other people’s journalism for much less money than it cost to originate it, and then to use superior technology to out-compete the legacy companies in distribution and advertising monetisation. Again the result would be rapidly growing audience and revenue.
These models now look suspect. Digital display advertising is quite different from print advertising. Publishers enjoy far less pricing power, and even the largest of us are dwarfed by those who dominate the field, players like Facebook and Google whose immense scale allows them to undercut everybody else. The concept of adjacent display – carried over from print – makes little or no sense on smartphone, which is increasingly the platform on which people get their news. Consumption is also switching rapidly from the publishers’ own environments to Facebook, Snapchat, and other social media platforms; the Digital News Report suggests as much as 46% of news is now seen on social and messaging platforms in the US, 35% in the UK. This too puts direct and indirect pressure on pricing. Finally, the end-user’s experience of digital display advertising is often grisly, with sites overloaded with intrusive ads, and even some quality publishers giving over space to third-party ‘content discovery platforms’, who sell space to God knows whom. No wonder so many users are opting to block ads altogether.
We believe that there is a good business to be built around offering digital advertising experiences which users actually find useful and enjoyable.
There is another way. At the New York Times, we believe that there is a good business to be built around offering digital advertising experiences which users actually find useful and enjoyable. T Brand Studio, our branded content studio, didn’t exist two-and-a-half years ago. Today its staff includes 70 journalists, videographers, designers, and engineers. We recently opened a second centre of operations in London.
We expect T Brand to deliver more than $50m in revenue this year. Smartphone advertising revenue – driven by new flexible multimedia ad units which present inside the content stream –
is currently doubling year over year. Video, sponsorship, audio, virtual reality, and other innovations at the frontier of storytelling are all also part of our advertising growth strategy. Display still has a place, but we believe that the digital advertising of the future will be dominated by stories conceived by advertisers, clearly labelled so they can be distinguished from newsroom journalism, but consumed alongside that journalism on their
This is a more compelling and creative vision of digital advertising than conventional digital display, and it requires new skills, talents, and technologies, and substantial fresh investment. Audience scale and global reach will still count, but the audience which publishers will need to find will not be super-light users, the one-and-dones who spend a few seconds on many different sites, but truly engaged readers and viewers who are prepared to devote real time to content of real quality and relevance. If this is the right direction of travel, many of the coping strategies adopted by the majority of news publishers in recent years – clickbait and other forms of audience-gaming, an obsession with the top-line number of monthly uniques – will prove to be not just ineffective, but actively counter-productive because they damage brand and reputation, and point newsrooms at the wrong audience
targets and user experiences.
The plain truth is that advertising alone will not support quality journalism.
In the developed world, adjacent display advertising in print and interruptive advertising in television and video have been the principal sources of funding of professional journalism. Both are now challenged and likely to come under increasing pressure in the years ahead. The plain truth is that advertising alone will not support quality journalism. News publishers with digital models, which rely solely or even mainly on advertising, will either have to find other sources of digital revenue, eke out a marginal economic future with very low levels of content investment, or go bust.
At the New York Times, we are building a digital subscription business of scale. Far from plateauing, the rate at which we are adding net new subscribers quarter-by-quarter is faster today than it was three years ago. I expect digital subscription revenue to overtake digital advertising revenue this year. Combined with other digital revenue streams related to the Times brand and our core business, together we expect them to approach half a billion dollars of revenue in 2016.
The Digital News Report suggests that few other news publishers are enjoying our success. It notes that the number of people paying for news in the US has fallen, and that some paywall strategies – like that of the Sun in the UK – have been abandoned. I’ve often heard the editors and CEOs of other newspaper groups say that the New York Times, and the handful of other successful pay models, are special cases from which they have little or nothing to learn. Indeed, there is a real air of defeatism in the industry about even the possibility of getting readers to pay.
It’s perfectly true that we have natural advantages – a large domestic market with few other national rivals, a strong pre-existing tradition of home delivery subscription, and a vast global opportunity. Most important of all is the fact that we continued to invest strongly in quality journalism when most of our competitors were decimating their newsrooms. But this is also about a mind-set: although we think there are powerful civic and commercial reasons for allowing very extensive free access to Times journalism – our pay model is far more porous than others – we believe that every story we do should be worth paying for.
Digital advertising will not be enough. Membership, freemium models, e-commerce, and events will be helpful, but again not enough. All news publishers need to ask themselves whether the journalism they produce is worth paying for. If not, they will suffer the same fate as a baker whose bread is not good enough to buy. Low-quality journalism adds little to plurality and democratic debate and, though it is lèse majesté to say so in our industry, society will probably not miss it very much.
All news publishers need to ask themselves whether the journalism they produce is worth paying for.
If you conclude instead that your journalism is worth paying for, or can be made so by increasing rather than cutting newsroom investment, the task then is to acquire the brand and direct marketing strategies and skills needed to shape the offer and take it to market. This is a mighty challenge on its own. Once print and TV news enjoyed such privileged distribution and prominence that it largely marketed itself. Now, we must go out and actively seek audiences like everyone else. That requires humility as well as considerable effort and expense, but there is no alternative if we are to build sufficiently large, deeply engaged audiences.
And there’s something else. The separation of advertising sales from editorial decision-making, and the need for absolute clarity about what is newsroom content and what is commercial messaging, both remain essential. But, beyond these critical segregations of duty and of user experience, newsrooms and commercial divisions of news organisations must become far closer strategic partners than is generally the case today. An editorial strategy with no revenue context is a forlorn hope. A strategy created solely by the ‘business side’, whatever that is, is a waste of good Powerpoint.
Newsrooms and commercial divisions of news organisations must become far closer strategic partners.
Editorial and commercial leaders need to work together on integrated strategies which combine editorial mission and standards, user experience, innovations in data, technology and creative design, and radically new approaches to monetisation. Not five different strategies, not even ‘aligned’ editorial and commercial strategies, but a single shared way forward. Until very recently, there was a sense that the editorial leadership of news organisations should somehow be protected from the business model challenges which this industry faces. Carry on down that road for much longer and you will founder.
Editors need to co-create and co-lead the necessary transformation of both news report and business. At the New York Times, we have one strategy and Dean Baquet, our executive editor, and his senior newsroom and editorial colleagues, are just as responsible for devising and implementing it as I am as CEO.
In the coming storm, newsrooms and commercial departments who try to ignore reality, or each other, will catch their death from cold. Those who put quality and audience experience first, and figure out how to work effectively as a unified team will be well placed, not just to survive, but to grow stronger.