Don't Panic

Out with the Old, In with the New Journalism Models

A recent piece, by Ken Doctor on WashPo, laid out an analysis of the ideas and sentiments swirling around the NAA gathering in San Diego a couple weeks ago.  Namely, how to push Google and other big players into paying royalties to newspapers for indexing and displaying snippets of their content.

I address his idea of "fair share" in another post here.

Ken put forward two main objectives and suggested a reboot in approaching them.  This is a good start.

"The two big needs: maintaining the free flow of global news and information and figuring how to pay people to create journalism and other useful content we all need."

Admittedly, this is a vast and complex scope.  To narrow it we have to make some basic assumptions.  We're talking about news and information traditionally called journalism covering local, State, National and International affairs.  The topics would at least include government, politics, economics, health, environment, science, technology, business and the softer topics such as sports, entertainment and lifestyle.

Here are few questions that have to be answered from a consumer perspective:

What value do consumers place on current news and information?

How much time spent viewing satisfies their 'need to know'?

How many sources are required to satisfy that need?

How much does the answers to all of the above depend on the varying degrees of importance or interest in singular news events ( and by type: investigative vs. hard vs. soft news)?

Under the current model of news consumption and delivery, consumers mostly pay for consumption by contributing their attention, which is sold by publishers to advertisers.  The perception from consumers POV is that news information is mostly 'free'.  They aren't forced to calculate the currency value of their attention.

The Ties That Bind

News and information content has been inextricably tied to advertising with a few exceptions in the non-profit sector.  There are some unintended consequences of this arrangement that have to be addressed, and in my opinion are at the root of the problem facing the formation of new models.  It's the problem expressed in the anecdote of a person looking for his keys under a street lamp because the lighting is better than in the dark area some distance away where he presumably lost the keys.

One can't study the problem of creating a news and information publishing that is tied to advertising without studying the enormous changes occurring in advertising itself and how the web has upset the old system.  Advertising is the economic foundation of traditional media.  As it goes, so goes the rest.

Craigslist, ebay, Monster and others through the distribution efficiencies of the web offered a classified (buy/sell/trade/employment) environment for consumers and businesses that has displaced classified sales from the pre-web economics at a ratio of probably 50:1.  It may be higher.  So, not only did they take the market share for the category, but they shrunk the overall market size in total sales.

Search engine contextual ad programs have done a similar thing.  The difference is that this strikes closer to the bread and butter forms of advertising affecting all traditional media.  Realizing that consumers are shifting more and more of their attention to using the web for all kinds of content, and using the product and services research capability, companies large and small have to dedicate more and more of their marketing and IT budgets to building a web presence and then marketing that presence online.  Google has been one of the chief beneficiaries of this shift.  Because of the incredible distribution efficiencies of the web, Google and others have been able to grab market share for advertising at lower prices than traditional media vendors and do so very profitably.  Thousands of other providers (device producers, software companies and IT services) have been able to sell their wares to help companies build and deliver their web presence, none of which went to traditional media or ad agencies.

The next wave that is already showing signs of maturity is directories, local as well as non-geographic specific.  Traditional media players have been so slow to enter this arena that it's debatable whether or not they can catch up fast enough to claim sustainable market share.  There is tremendous first mover advantage.  Google has a huge head start, as does Yelp, City Search, Superpages, Yellowpages and others.  Local publishers have some advantage if they move on it, because they can bundle many other local services that larger aggregators can't do as easily.  All said, Google is the one to watch given their ability to control search results.  They are able to reach and serve small businesses that don't have the investment for a website and promise them top search rankings.  Directory advertising will take the market share directly from traditional local display advertising.

You'll notice banner ads missing from this mention of new ad formats and delivery.  They're a carry over from the traditional mindset of how advertising worked.  They may be okay for a transitional period, and may linger for awhile.  They just aren't as useful from a consumer perspective in light of all the new forms that are in development or will be in the next ten years.

Research and Buying Decisions

Consumers Can Ignore Most Advertising

Consumers are able to do real research, really fast now as the first leg of a buying decision.  They use  web search for this task.  Traditional advertising has relied on consumer ignorance for effectiveness.  It focuses on persuasion techniques that usually misinform, or are at best incomplete.  Research was time consuming and only a handful of people would do it thoroughly.  Now it's fast, albeit not always reliable, but that will progressively change.

Consider this consumer challenge.  If you had to buy a vehicle, would you be better served by spending an hour on Consumer Reports site gathering data for unbiased third parties and peers, or watching TV ads and browsing a daily newspaper?

Advertising in traditional forms provides very little actual utility for consumers.  That means it has gradually become less effective for advertisers.  The greater the facility for consumers to inform themselves through quick and meaningful research, the less impact traditional advertising has.  The less impact it has, the more incentive for companies to find other ways of reaching consumers, which means trying a new model to present products and services.  The first step is to cut out the less value-contributing middleman.

Trying to sustain an old advertising model is futile.  Trying to support journalism with that model is futile too.  Journalism has to be redefined and segmented from a demand side equation in order to determine value.  What is the most valuable news content for consumers and how does that break out by consumer segments and which publishers can deliver it in high quality form?  There will be competition among publishers, but much less redundancy.  There will continue to be an element of advertising, but the traditional form will be a small percent of that pool.

If popularity of news content was driven by marketing to acquire consumer attention in the old model, quality through specialization will drive popularity in the next wave.  Distribution has always been king, but the oligarchy of control has been obliterated.  Smart distribution is key now.  I suppose consumers will pay for high quality content if it clearly serves their needs and can be accessible easily when they need it.

Because journalism has been tied to a supply-side model (trad media/advertising) with its cost and delivery buried in an economic world unrelated to its purpose, in order to succeed, it has to reinvent itself to serve a demand-side model that produces direct income first, and indirect second.

New Journalism Models

I've been building examples of these over the past couple of years looking for the right combination of income that is directly related to the value of content, as well as income components once removed.  My conclusion is that journalism will be delivered by smaller organizations that are vertical in nature and then band together through network confederations to achieve economies of scale.

If you examine the operating finance of a typical newspaper and strip out the non-journalism costs, further strip out the non-essential management costs, and hire a team of journalist to cover a vertical category of news, you create a hyper-efficient, high quality content stream.  The job losses we see now comprised of journalists are because newspapers are holding onto their legacy structures that carry non-essential journalism expense.  I repeat—the bulk of costs in a newspaper operation supports sales, marketing, production, distribution and the administrative resources to manage all those things that have nothing to do with journalism.

In that sense, start up enterprises, that aren't tied to legacy bias, have a better chance to emerge and prosper.  Traditional companies can make the same investment by creating these start ups themselves.  Just like they could have created Craigslist or Google, but didn't.  Why they are not doing this with a vengeance of urgency and largess is anybody's guess.  My guess is that they don't like the idea of giving up the power they have accumulated over one-hundred fifty years.  They don't like the idea that fulfilling the noble role of the fourth estate isn't going to make them rich.  That they will have to learn to collaborate instead of using command and control methods.  Power, wealth and control is not theirs, and that has to sting a bit too much to be pursued.

Journalism and journalists will thrive in the new era of media not tethered strictly to advertising.  The new forms will be smaller, but have greater independence.  The concentration of wealth behind the few large media enterprises is passing.

Google, Newspapers and Consumers, Oh My

Try as I might, I can’t understand the premise that underlies the demand from publishers that Google News owes them a royalty for indexing their content, presenting the title and summary, and sending visitors to their sites.  It doesn’t create a premise, legal or otherwise that they would be obliged to pay a fee to the content producers for presenting their content in summary form.

Let’s look at the logic behind the players in the transaction.

• Consumers want news and information.  They use Google News because of the diverse selection.  It is in essence, not the end product, but the high-utility filter for consumers to find what they are looking for, much like all search.
• The content producers want visitors to discover their content.  Google News does that for them.  Without charging them, Google is a feeder for their content that attracts the traffic they seek.
• Google News serves Google by providing one more high-value utility for consumers that reinforces its brand.  Like it’s search and email, as well as a host of other services, it provides this free of charge to consumers.  It isn’t providing the content, but merely its location.

Consider a mapping analogy.

Let’s say that cash strapped municipal and State governments looking for additional funds decided that Rand McNally, map producer, owed them royalties for indexing and documenting their exact whereabouts; showed all the roads leading in and out of their locations, and provided summary descriptions of each locale.  Couldn’t they argue that a lot of capital and effort goes into building great cities and States and that Rand McNally should pay them for the privilege of telling consumers where they are and how to get there?  After all, who could have anticipated the boom in interstate travel, and since people really need maps and Rand McNally exploited that need, they should share the wealth in fairness.

Newspapers tried unsuccessfully to embargo content in the early days of radio and TV news.  Ever since they have accepted that local radio and TV news departments used newspapers as a news lead source.
If the “fair use” principle applied, they would have made the case in a compelling manner.  They haven’t and most likely can’t.

Ken Doctor suggested in a recent piece that maybe instead of pushing fair use we consider fair share.  He says,

"So fair share would simply recognize that the first stage of web monetization has been, well, a bit simple. There's little nuance to it, with way too much value accruing to the search and aggregation players, and far too little to the content producers. There's nothing particularly evil about this; it's just what happened."

It's true, but I don't believe the burden falls to the search engines and aggregators to adjust the balance through compensation to content producers.  If Google isn't charging consumers for this service, and they are within the legal limits of fair use, then why would they be obliged to pay anyone for it?

Ken argues that because Google is incredibly successful at selling billions of dollars in ads that they should share the wealth, after all, they are benefiting from the arbitrage of search utility for consumer attention and content producers are providing the content that is searched and presented in snippet form.

Here's the rub in that argument.  Even if Google sold ads on Google News, fair share is a modified interpretation of fair use with a compensation component.  To be fair it would have to apply to every site on the web AND all forms of media.  Would it apply just in cases whereby the snippet aggregator monetized the host environment?  What if there are intrinsic benefits that accrue to the aggregator, but no direct monetization?  Whose responsibility is it to create such a complex system for measuring, calculating, collecting and distributing proceeds?

Sorry Ken, it ain't gonna happen.  There isn't a moral or ethical imperative that binds Google or any other search engine or aggregator (including the newspapers' sites) to subtract income from their service to compensate producers of content.  Even as a voluntary gesture it would be wrong-headed for them to offer anything.  That would only prolong bad strategies we've seen and stifle innovation so desperately needed.

Journalism that truly serves the common good will not only emerge, but I believe will be better than ever imagined under the old system of traditional media.  Giving capital to the old infrastructure won't get us there.  New media organizations will hire many displaced journalists as well as new ones.  The new media structures probably won't resemble anything we now know.  That doesn't mean they won't be better.  It will take time and many incumbent players will shrink or disappear.

I can understand newspaper companies’ frustration with losing market share and facing heavy numbers of closures.  I can’t understand their logic that Google is somehow obliged to make up their losses by paying them for sending traffic to their sites.

For Local Media, Local Economy is the Answer

This morning I read a piece in Business Week (BW) that projects a slowdown in local business ad spending online.  Fair enough, ad spending is trending downward everywhere.

The premise of the article, "local business not supporting local media" is the inverse framing from what it needs to be.  The frame needs to be: can local media serve local business and local people?  It can and will have to if local media and businesses combine to remake vibrant local economies.

The BW piece suffers from the common pitfalls of analysis of national–leaning perspective.  Here’s a quote from the article:

What happened to the "everything is local" adage? The concept of local is morphing quickly in a world where instant global communications and social media widen our circle of friends and acquaintances to include the world. In essence, we've become national—if not international—citizens.

The author gives examples of national/international web companies, Craigslist, Yelp and OpenTable that barely are able to monetize their local leverage.  What’s wrong again with this framing?  These are not local companies, they just happen to be web companies applying technology designed to provide local content and scale large enough to monetize a fraction of the action and still generate income to support their far-flung operations.

In other words the problem of the analysis framing has to do with the fact that success is measured only in terms of what a remote web company can achieve on a local level (many localities networked) given the superiority of the technology they provide.  Keywords: remote and technology.  This bias comes naturally to a Silicon Valley journalist.  They are, after all, exposed to a constant parade of technology superstars.

Let’s imagine what this looks like from a purely local perspective.

In the new economic paradigm local economies will thrive and prosper based upon the vitality and engagement of local citizens, local businesses and local media.  All of which will consume all things local first.  This doesn’t mean that national and international companies are excluded.  It just means that local first is the means to reclaim the value of economics for local interests.

According to Bureau of Labor statistics, there is an average of 40,000 enterprises per one million local populations.  Some are chains and some are homegrown.  Local first focuses on the homegrown enterprises first.

When products and services provided by locally owned enterprises are sourced first for consumption and trade, promising economic progress begins to occur for the local economy.  I’ve worked with the BALLE folks for years in the Bay Area and can testify that their research and programs offered are thorough, inspiring, insightful and effective.  Rather than repeating this knowledge in this post, go here to the BALLE site for information.  See also Michael Shuman’s (founder and Board Member for BALLE) book, The Small-Mart Revolution, for a thorough analysis and guide to jump starting a local economy using local first practices.  My own development of Oasis CMS and the integrated local business directory was inspired by BALLE and the concepts of Shuman, whereby local directories represent a foundational starting point.

Local media coordinates both sides of a two-sided market.  See the diagram.  In the past, this has meant selling advertising in all its forms to local businesses (and a smaller fraction to national too) by attracting attention of local consumers.  In a traditional media world, that worked well and made media folks wealthy.  Just selling advertising doesn’t work so well today.

It’s the advertising model that has changed dramatically because of the web.  Attention is higher than ever.  It’s the arbitrage of attention buying/selling, i.e. advertising sales that has changed.  That’s because the utility of advertising has changed in a way that favors digital exchange, because of the power it shifts to consumers and businesses.  The results of the change haven’t killed traditional media, but has wounded them severely enough to instigate a restructuring.

Local media have a distinct advantage in proximity and presence in the local community and economy.  Their weakness to date has to be the foot dragging on imagination.  They have to imagine a service role to the local economy beyond the scope of any one previously imagined.

Local media have to embrace an expanded meaning for the term 'service'.  While selling advertising is a form of service, it’s only one slice of the service equation.  The Newspaper Next project helped expand the role of service definition by proposing that media look at ‘jobs to be done’ satisfaction for local consumers and businesses.  (I think it’s unfortunate that they used Newspaper in the project moniker, since the findings are unconstrained to one medium.  The methodology they introduced is extremely helpful in getting beyond advertising).

If local media are to advance the prospects of a local economy, the definition of service has to include being the instigator, coordinator and (one of the) resource providers for local first initiatives.  It’s a collaborative model that extends beyond ownership and control, and that I believe, is the biggest challenge for local media companies who are accustomed to owning media to extract ad value.  Local media will provide tools and resources for local businesses and consumers, but for the most part income will derive from the services provided rather than products owned.  In other words it’s a remaking of local media’s role in community from powerbroker/owner to empowering others in the local network through collaboration.

From a purely non-news model, the early success of Craigslist in San Francisco demonstrates this spirit.  Craig Newmark created a platform that solved a number of consumer and business needs.  His income followed at a much later stage after the efficacy was demonstrated.  There are others who provide similar, if not superior, classifieds technology, but miss the collaborative authenticity Craig and his team created. (You can read a related piece on why Craigslist didn't kill newspapers here).  Local media have to do this too in ways that are uniquely local serving.

Think of service outside the scope and definition of the industrial era economic skew, which implies servitude and is measured in productivity standards reflective of manufacturing edicts.  The definition of service in that old paradigm stems more from the Latin root word servus, to mean slave.   Service was something that a company provided after a product was purchased.  Recast service to mean idealist, facilitator, coordinator, resources scout, change instigator, network builder, value-generator and maintenance provider.   Service is the thing, not the afterthought.

Local media, local populations, local businesses and the local economy are interdependent and offer a new role for everyone.  Local media can assume this new role and prosper.  They just need imagination and the commitment to create through collaboration.

Added this slide presentation 3/4/2009 after several people asked about what process I use for developing strategy.  You can click on the full screen view for best viewing (lower right corner).

Strategy Process

View more presentations from Terry Garrett. (tags: local economystrategybusinessm...)

Village Voice Media (VVM) Puts a Turd in the Punchbowl

Ed Kohler at his blogsite posted a fascinating analysis of how the VVM folks have apparently rigged their visitor stats through manipulation of Digg's system.  While this isn't new news about media companies doing unethical things to boost ratings, it's always a blow to an already damaged credibility of media at a time when they need to build strength on an honest reputation.

In the end it's a silly enterprise to rig the numbers for a host of reasons.  But the obvious reason (assuming one has no compunctions for unethical behavior) is that it doesn't really help financially. 

It's sort of like you need a million bucks within a short time and you decide to knock over 7-11s on a spree to raise the dough.

VVM is a big company leveraged at a time when high leverage is lethal.  Most likely they've been negotiating forbearance agreements and new terms with bankers.  They made it clear last summer they couldn't raise bond for the SFBG predatory pricing lawsuit they lost at trial (and that was only about $20MM).

Most likely they are suffering the same declines as other major metro papers in sales and profitability.

In short, they need to accelerate cash flow to cover the cost of capital (current operations and indebtedness, essentially the cost of staying in business).  They can cut expenses only so far (see the flurry of announcements from VVM recently).  The real bully in the financials is the cash flow need for servicing the cost of indebtedness to bankers for financing past acquisitions.  What makes this so burdensome is that it's sort of like when you run you up your credit card limits while you have that great job with lots of upside income—and then you lose that job and take one making substantially less.  Now you're paying off old debt that has no utility for generating new resources or new income, and it conversely drains your available resources today.

Since VVM is privately held we don't know much about their financial condition.  Well, we do know enough to know they are in the same predicament on loss of print sales as everyone else and that they have to carve out new sources of income from digital (at least).

For every $1MM in income from digital ad sales, they need about 50MM visitors to their sites.

Of course digital ad sales is but one stream from increased visitor traffic, but it's the major one for them if it's hit and run traffic.

Let's say you owe bankers $150MM (I'm just throwing a number out there).  Let's say the bankers would like to get at least interest payments for the next few years.  Let's say the bankers are generous given the financial climate and adjust interest rates down to 4% (who knows where they're willing to go these days, right?).

Now you pay the bankers $6MM+ a year to stay even (sort of like making that minimum payment on the credit card bill, minus any principal).

So, that calculates to 300MM visitors to just pay the debt service.  A few million extra visitors from Digg doesn't even put a dent into that nut.

Well, at least the VVM web folks were trying.  Now, knock it off so you don't spoil it for everyone else trying to earn an honest buck and make the web a credible medium for commerce.

The Delusion of Profit

Peter Drucker called this one many years ago.  His definition for profits proves to be more important now than ever.

First, Drucker asserted that profits are an accounting illusion.  In reality, profits are the cost of staying in business today, i.e. today's cost deferred to future payment.  It is the seed corn, or surplus that must be planted for later growth.  To consume it in the form of executive bonuses and shareholder dividends without first calculating the true and necessary needs of staying in business drains the vitality of capital formation and wealth-producing economic activity.  At the very least, since profit is capital, and capital is a resource, and there are no free resources, the cost of capital plus inflation have to be deducted from any distribution of surplus just to avert creating an immediate deficit.  But even that short changes the investment of capital needed for future job creation.

The auto industry and the newspaper industry are two good examples of ascribing a past tense value to profits.  (In another post I named a few of the other problems that have plagued the newspaper industry in creating a new business model.)

Take a look at newspapers.  Incredibly profitable up until the past five years, right?  Great investment in the last twenty years, right?  Wrong.

The fall of newspapers was inevitable and was apparent for many years before the internet or mobile technology.  The fact that newspapers continued to be profitable long after they began their decline is evidence that profit, as defined by most businesses, is not a true measure of a business' health and a prosperous future.  The average business has a life cycle of about thirty years before it encounters either obsolescence or major restructuring.  Newspapers and by relation magazines have been in existence for over two hundred years (not counting some of the earlier, isolated ventures).  The longer a business survives beyond the thirty year cycle, the higher the risk of future cyclical adjustments to prosper and extend into the next period.  Newspapers have responded to several such cycles of technological innovations over the two hundred year run, and benefited tremendously from the late 19th and early 20th century changes.

The advent of radio and television first dented newspapers' reign as media giants.  As I've illustrated in previous posts on the topic, newspapers and magazines decline became most obvious after 1955, but was obscured by the accelerated growth of advertising, local retail and service industries and continued profits of the industry.  The digital revolution which began around that time signaled that newspapers should have begun their investment in that new technology then.  But they didn't and it has made all the difference in the world toward their current predicament.

The next generation of businesses as well as any sovereign economy will have to tap into Drucker's definition of profits in order to remake our economy into a wealth-producing one instead of a deficit-producing one.  As we surely have learned by now, their is no future in mounting deficits.

When Newspapers Make the Daily Show Punch line...

I wrote this post then caught the Daily Show on Tuesday night.  As anyone who watches Stewart regularly knows, being the butt of a joke there is no laughing matter.  Anyway, I show it here to drive home the point that it's common sense now that newspapers are considered past tense.

The tighter the vice grip of bad economic times combined with new technology disruption of traditional media markets, the fiercer the response.  Although, these days the teeth are missing.

Newspapers have a history of trying to stomp out new technology competition before it can grow.  It hasn't worked.

Let's take a trip down memory lane to 1929—1935.  In 1929 before the stock market crash and the Great Depression, newspaper revenues were $800 million.  (As a troubling side note for newspapers, that equates to $107 billion in 2007 dollars as relative share of GDP, which is more than double actual revenue in 2007.  That in turn signals a decline of more than 50% in economic power for newspapers.)  Radio revenue in 1929 was $40 million, which had grown ten-fold in only two years.  (By 2007 radio had grown to four times it's economic power based on relative share of GDP.)

Newspapers didn't like that.

During the depression newspaper revenues dropped 45% and conversely radio revenue doubled by 1933.

Newspapers really didn't like that.

After the 1932 elections, newspapers fought back any further attempts by AP, UP and INS to sell news to radio.  It threatened their control on scarcity of news channeled through their newspapers.  In other words, they arranged an embargo on news content in radio until after it was first published in newspapers, thus an attempt to ensure newspaper-first readership.

It failed.  Of course as one might expect, radio responded by creating their own news gathering force.  A lot of negotiations took place to reach a compromise to reduce competition for newspapers and lower news cost for radio.  Ultimately radio, fueled by attracting national ad sales, developed their own programming and news operations (although many smaller, local stations still just read the newspaper on the air).

The corollary to this is that information technology fuels the next wave without regard for the sanctity of the preceding form.  Newspapers profited from any number of innovations throughout a several hundred year history.  This most recent wave of progress for information technology pushes newspapers and magazines into the marginal zone.  Peter Drucker in 1973 predicted the eventual demise of newspapers by 2010 based on technology before the desktop PC and the internet.  Here's what he said about what happens when a business becomes marginalized.

"A marginal business always goes down disproportionately more whenever the economy goes down, and it comes up disproportionately less whenever the economy comes up.  With every turn of the business cycle, it becomes weaker.

And once a business has become marginal, it is exceedingly difficult to reverse in this downward drift; in fact, it is almost impossible."

It's time for newspapers to stop wasting resources on ways to stop or slow the digital progress.  It's inevitable.  Most newspapers have at least realized this, but are still fumbling around with new models too modestly.  As news organizations, newspapers can reform and emerge as part of the new landscape or they can go away.  The redundancy of news presentations based on controlled scarcity plus the fundamental change of advertising has sealed the fate of traditional media, and newspapers are first in line to gradually disappear.

I've argued in another post that newspapers have to right-size (get much smaller) intentionally with an eye toward the next 2-3 years and reap whatever profits they can and wring needed cash to remake themselves.  Gotta hurry.  The market will not wait.

Here's an excerpt from a Mckinsey Quarterly interview with Richard Foster on the creative destruction that's occurring:

Richard Foster: Let’s start by looking back. In the 1970s, we had the “Nifty 50”—invulnerable companies that couldn’t possibly lose, and of course they all did. It will be the same today; there will be surprising losers, and survival will come down to simple things, like cash and margins. If you’re a low-margin company without a lot of cash or perhaps with too much leverage, you will not make it. Someone will figure out how to do better.

If Your Company Culture Ain’t Broke, Make it Better

It’s quite amazing how a jumbo crisis brings out the wisdom that has been dormant just below the surface.  I track articles on company culture because of my personal and professional interest in the subject.  In this current crisis, the number of articles has zoomed into the stratosphere.

This is good news.  It means that people are doing what knowledge workers do best—think.  And what they’re thinking about is how to motivate and mobilize people who’ve had a bucket of fear dumped on their heads.

Conscious development of company culture means you have to think about it, plan it, put it in place and measure how well you’re doing it.

You can be a nice, fair, smart person.  You can hire nice, fair, smart people.   You can work together day in and day out.  You can have successes in your business.

Then a crisis hits.  What happens now?  How engaged is everyone to create solutions, to adapt to the crisis?  The solutions are bound to feel unfair to someone, because they appear fairer to someone else.  Niceties and smartness become relative.  Informal cliques become coalitions and before you know it your company becomes fragmented into opposing views that have very little chance of reconciling.

When a culture is superficial, a crisis sandblasts the veneer off and it exposes the natural human tendency of self-preservation.  Social interaction is a learned behavior, whereas self-preservation is a natural behavior.  The first tendency of self-preservation is to seek allies.  That means associating and identifying with others who represent your same plight and point of view.  If the foundation of your company culture isn’t established consciously and spoken regularly, then the coalitions will rise up.

All the talk about innovation and new business models is obviously needed.  The degree of established company culture determines whether any good comes from that talk.

This is the perfect time to focus on your culture.  It has to come first, or at least in tandem with the other changes you’ll inevitably have to make.

What we can learn from Google and Craigslist

Recently I heard a remark that demonstrates the "I refuse to learn anything new that doesn't agree with what I already know" paradigm infecting many traditional media companies.  I was making a point about new business practices, specifically Google's, and was met with the response, "Well, you're using the exception to the rule, there's only one Google."

The obvious weakness in that remark is that it signals that following the herd is somehow wise, and studying the cutting edge of success is a waste of time, because Google is just lucky.

Both Google and Craigslist (Amazon too) offer many lessons in new business management practices worth our attention and study.  Jeff Jarvis and Umair Haque provide many posts more in depth than this one.  My intention is to encourage you to pay attention and understand what these companies have done that is replicable in your own organization.

For starters, both companies have cultivated company cultures that transcend making a quick buck.  That certainly goes against the grain of contemporary business mindsets that are focused on the short term and really don't have a philosophy that extends beyond profitability and forcing new sales growth.  The main thrust of Google's and Craigslist's success has been their investment and allegiance to the customer, particularly the consumer.  Google also encourages employees to expand and experiment and facilitates it—OMG, actually make mistakes.  Their consistent investment into education of their employees and customers is nothing short of trail blazing.

In the case of Google, there are many search engines and as a matter of fact Google wasn't even the first.  So, there have to be reasons why they emerged as the leader.  Could those reasons be inherent in their culture, their strategies, their management practices, their fiscal management?

Here is a snapshot of their financial performance over the past four years drawn from their 10-K SEC filings (thanks to my friend Ken Norton for doing the tedious work of inputting a blinding array of numbers.  Some assumptions were made in account classifications).

Click on image to enlarge.

This is a breakout of the numbers in table format for download or open in new window.   Download Google FSB Tren…table 04-07

Indeed, Google is fortunate to combine getting it right on so many fronts, any of which they could have failed on.  I don't think it's luck.  It's systematic hard work and exploiting opportunities that were available to competitors, but somehow Google had the foresight to act on them.  No doubt they will have failures as they go.  That's part of the journey—part of learning.

Same for Craigslist.  I've been fascinated with Craig's life philosophy that guides the business.  That philosophy seems to be shared by the small number of managers and employees that work with him.

A new chapter for business management is being written.  Study it while it's in process.

The Digital Conversion and Print Periodicals

A few weeks ago I attended a publisher conference in Santa Fe.  It was probably the best one I remember for the alt-weekly crew.  It was a smaller gathering of publishers-only and the continuity strengthened the take-away value.

It took a little time to absorb what I observed among this group of earnest publishers grappling with a media and financial rug being pulled out from under them in recent years.  I was surprised to hear the diversity of experiences and interpretations of the market disruptions occurring.  I knew there were differences based upon market size and maturity of product.  But what I observed in individual perspectives were differences based upon personal interpretations of the bigger picture and how people respond psychologically to major change.

It's been years since I've read news in print form.  Sure I pick up publications from time to time to study what's going on, but it's more an analyst's view to see how the business is doing.  I'm not in love with, nor do I have sentimental attachment to the medium.  I realize what a huge difference that makes when assessing the current market situation and the dilemma facing publishers who own newspapers and magazines.

One of my favorite anecdotes portrays our unwillingness to close off options and open to other ones that might be our salvation.  The Bushmen of the Kalahari have an ingenious way of capturing monkey prey for dinner.  They rely on the monkey’s innate refusal to close off an option even when faced with imminent death.  The Bushmen bore a hole in the trunk of a tree and place food deep inside the hole.   The hole is just wide enough for the monkey to slip his hand through to grab the food.  However, once he makes a fist to hold the food it doesn’t slip back out.  That’s when the hunter approaches with his bow and arrow.  The monkey makes for a good sitting target as he won’t let go of the food to flee the scene.

So, what options are publishers holding on to?  That print will either rebound when the economy does, or it won't decline in 'my market' the way it is elsewhere.  The corollary is that I don't have to do much to change my organization.  Interestingly, a survey of homeowners just after the housing price bubble burst revealed that nearly 7 out of 10 homeowners believed that the depreciation of home values affected others, but not them.

What is it in our nature that makes us think we are somehow immune to major shifts?  How do we apply our thinking to interpret data and circumstances that produces such powerful rationalizations?

I can think of two companies that held on like the monkey does, and how outside observers can so easily see the mistakes, but the insiders can't until it's too late.

Kodak had faced major market disruptions of new technology twice in its illustrious 150-year history.  It rose to the challenge quickly and emerged stronger than ever both times.  As early as 1981, Kodak had accurately analyzed the market and knew that digital photography was the future having developed the technology themselves.  But, they rationalized that by "enhancing" traditional chemical and paper photography with digital they could remain competitive and maintain market share.  It was that fatal in-between strategy that killed them. They couldn't accept that print photography was going to shrink to one-tenth its previous market size and that digital photography would rule the day.  Keep in mind Kodak had enormous resources of capital and research facilities.  It was lack of vision and acceptance of market realities that prevented them from acting on what they knew.

Swiss watch makers behaved similarly when semiconductors became readily available.  It was commonly known in the watch industry that digital watches were more reliable, more accurate and could be produced more cheaply than traditional watches.  The Swiss developed a quartz-powered watch.  But, they had so much investment in traditional watch making that they decided to slowly introduce the quartz-powered watch over a long time and keep the price high as a luxury item.  The Hattori Company in Japan, also traditional watch makers, viewed using quartz-powered watches differently and immediately established Seiko as the world's number one brand for standard watches.  Swiss makers were nearly pushed out entirely.

Print periodicals, if they will exist at all in five years, will be much smaller in market share than they are now.  We can debate how much smaller, but my bet is closer to what the print photography share shrunk to.

While it's hard to face this reality, waiting and hoping that something will change to reverse the trend is fruitless.  Publishers need to right-size print operations immediately to free up resources for development of the new.  The in-between strategy employed by Kodak and Swiss watch makers doesn't work.  There are ways to right-size and extract a few years profit out of it before it dries up completely.

Let go of the food.  You'll find it somewhere else.  The world needs independent thought and journalism that cuts against the grain.  It would be a shame to lose this voice, if even for a while.  No doubt someone will create the new model and the voice will survive.  I would love to see it come from this group of eccentric, creative people.

Added for other reading on the topic:

Seth Godin's piece on NYT

So you're twiddling your twangy twaddle on twitter, eh Bob

Bob Boze Bell is one of my favorite people.  We've been friends since the early 80's (that's 1980's for me, for Bob I'm not sure) when we both worked at the New Times alt-weekly in Phoenix.  In the photo, Bob is on the left being lectured by an over-grown leprecon on the hazards of drinking whiskey before breakfast.  (On the upside, apparently it doesn't stunt your growth.)
 
Bob sent me a message from Twitter announcing sheepishly that he was taking the twitter plunge.  He will now be stalking following me.

Bob was blogging before blogging was cool.  His blog is personal.  Really personal.  I admire him for exposing his vulnerability the way he does.  Cathy, his wife, is a strong woman.

I have to admit I don't understand the popularity of Twitter.  By that I mean it doesn't appeal to me.  One man's noise is another man's bliss.  I have to meditate 30 minutes a day just to clear the mind chatter.  I'm online all day performing one task or another.  It's too much detail already.  I'm looking for ways to consolidate, not find smaller chunks.

Bob, I have just one question for you,  WWWED?

You can check out Bob's bigger, longer and uncut version here.

News Content Economics

I've spent the better part of two weeks rummaging through all of my notes and late night, barely decipherable writings and sketches of the news and advertising media landscape.  The result is the following slide presentation.  I decided on this format because it forced me to be coherent and concise.

The danger is that it appears over-simplified.  On the bright side it's more accessible and will hopefully provide a better foundation for discussion of points that need clarification and expansion.

There is one section in particular that is, for me, under-represented.  That's organizational culture development.  In my opinion traditional media companies are so out of touch with this it's killing them.  Technology is fairly simple to imitate in a short time.  So are practices that rely on understanding the market.  Rallying the troops around a unified vision that they created, and one that will actually work, is a whole new ballgame for traditional media players.  They don't know how to do it.  It will take a huge commitment to learn at this late stage.

Unfortunately, the top-down mentality extends to faulty logic and behavior in other areas too.  In the words of Dan Ariely, it's "predictably irrational", but very human nonetheless.  There are five basic behaviors and mindsets that have contributed significantly to the current failing of traditional players to muster a proper business model.

1. "Not invented here" thinking.  Since we didn't create it, conceive it, plan for it, it must not be that valuable.  We can watch it for awhile, but don't have to really do anything.  Digital will happen when we say it will happen.
2. Creaming the market, i.e. take the highest-profit part of the market.  In other words, resting on laurels, wanting to be compensated for what they achieved in the past.  Profit harvesting is another way to say it.  Many publishers have told me they won't try a new idea if it doesn't cash flow something similar to their current product line.
3. Emphasis on quality of the product or service from the perspective of producer instead of the consumer.  Quality is always defined by the value derived by the consumer, not what the producer puts into it no matter the costs or effort.  Consumers really don't care and aren't bothered to think about it.
4. A corollary to "creaming" and quality is the concept of premium pricing.  Traditional players have routinely raised prices over the past thirty years to maintain excessive profits and bloated budgets.  (As a personal note, in 1987 I earned the equivalent in today's dollars $222K annually.  I was in no way worth that much in a market that wasn't suffering from profit bloat derived from premium pricing).  The fall from those inflated and unjustified price levels is very painful now as many are discovering.
5. Traditional players have tried to maximize instead of optimize—trying to apply their products to everybody within reach.  The product ends up serving no one really well.

Please feel free to shoot back comments, arguments, clarifications, anything that promotes getting something going.

This is better viewed in full screen mode.  Just click the full screen toggle button on the player.

News Content Economics

View SlideShare presentation or Upload your own. (tags: magazines news)

Interview with Jody Colley

This is the first interview of the series with managers who have transformed organizations using the principles of management by responsibility.

Jody Colley has been the publisher of East Bay Express, an alternative weekly newspaper and website, for a little over one year.  Prior to this position she was the ad director for the SF Bay Guardian.

It's an understatement to say that transforming a publishing company culture in the middle of the most disruptive markets in memory is challenging or difficult.  It's seems damn near impossible.  It's made especially difficult given the fact that the East Bay Express was owned by Village Voice Media before being purchased by the current owners who recruited Jody for the job.  Good choice in my opinion as you'll see when you hear what she has to say.

She was shy about submitting a photo, but upon first impression she looks like Pam Beesly (Jenna Fischer) on The Office with that sweet, honest, Midwest demeanor.  She quickly reveals compassion, dedication, determination, intelligence, creativity and a keen understanding of human psychology.  (She had no comment about Michael Scott or Jim Halpert.)

We spoke recently from her office in Emeryville, CA.

Q: What are the primary values that determine staff interrelationship behavior in your company today?

Jody:  Respect. Every employee is considered a valuable asset to the company’s success, no matter their experience or status within the company’s hierarchy. Every position in the company is considered equally important; without each individual’s contribution, we could all potentially fail at meeting our goals.

Diversity. When hiring, I look for people who are different from the staff already in place, who break our current mold. As a small business, I want each of our employees to bring their unique backgrounds, experiences and personal interests to the company so we are aggregating everyone’s knowledge and skills. Diversity plays an essential role in our ability to represent our company in the best possible way to our consumers. Diversity also helps us overcome unexpected challenges, where we have personnel, regardless of their position or experience, with unique expertise to lead us through specific challenges.

Fear-Free Employment. I do not believe in using fear as a management tactic. Using fear as a cattle prod to achieve your objectives means, as a manager, that you’ve failed in all other options to motivate employees, or that the employee in question is not a good fit for your company. Also related to fear free employment, I firmly believe in promoting an environment where employees are given enough leeway to make mistakes. Obviously, they need to learn from those mistakes and avoid repeating them, but most of us learn or have our greatest successes come from initial failures.

Purpose and Power. I believe in equipping staff with both a sense of purpose (why are we doing this) and power (what’s my role in this). Employees should feel fully vested in the product, which will give them a sense of pride in their work as well as the work of others within the company. They need to own their role in the process. Once they do, they begin to manage themselves, and find greater reward and confidence in their work performance. And when they believe the company’s overall goals are truly beneficial to its consumers, they have a greater sense of pride in the work that they do.

Communication and Education. It is critical that you continue feeding the minds of your employees with new information. The more they learn about the company or your industry, the more productive and well rounded they are as employees. The more that employees understand your business goals and challenges, they more involved they become in helping you succeed. I am a firm believer in cross training, in understanding jobs within the company outside of one’s own responsibilities. Similarly, learning as much about your consumers’ worlds as you can makes you a stronger representative of the company. But education offers greater rewards than just increased productivity, it is also key to retention of employees, and advancement within your organization. It’s not enough for employees to know what to do, they need to understand why they are doing it. Armed with this information, employees will often find more efficient ways to improve the work process. 

Q:  Did those values exist initially when you began with the company?

Jody:  For the most part, I didn't see evidence of these values when I began with the company.

Q:   Describe the values that existed with the previous owners when you came in.

Making money was the only value that seemed to exist. Making money is essential to success, but if you do not have other corporate values in place, it can be a very short-sighted way to run a company. An employee’s only value might be a number that’s on a sales board. Hitting that number may ensure you keep your job, and may even reward you financially, but for many people that is not enough to make a long term commitment to an organization. And without other values, employees could be tempted or encouraged to cut corners, to make decisions that help them immediately, but hurt the company in the long run. It is not just employees that could suffer, relationships with your consumers could be put in jeopardy if your company’s priority is always what makes us the most money, today.

Evidence of the failures of the previous management’s tactics were obvious. Employee turnover was radically high (on average one person per week verses almost none now), and there were hardly any strong relationships built in the community.

Q:    How did you know what values you wanted to see in your company?

Jody:  I wish I could say it was getting a Management and Human Relations degree from a Nazarene University in the Heart Land that taught me sound business values, since that would justify the very expensive tuition I paid. However, I believe I am applying very human values, ones that instinctively seem right. Most people have a good moral compass which guides how they live their every day lives. The business world shouldn’t be any different. People shouldn’t have to step out of character when they show up at work each day.

Q:    Did you sense that the staff wanted the same thing?

Jody:  At first, I honestly was not sure. Because they had been previously exposed to a “fear” environment, I got very little feedback. They were either afraid to communicate with me at all or afraid to have a dissenting opinion. I forged ahead, knowing most people would eventually respond positively, and confident that those who did not were likely not best suited for our company in the long term. I also knew I had a lot of work to do to earn their trust, and to show them that the new ways of running the company were effective. 

Q:    How did you deal with the differences?

Jody:  People needed to learn that the company was as much theirs as it was mine. If someone had a unique interest, like art, they could be involved in seeing our company reach out to the arts community. If they were interested in environmental responsibility, they could be involved in positioning our company in the Green community. I can only take leadership so far, but eventually I have to empower them and trust them. In return, they reciprocate the trust, and are more supportive of my efforts as I am of theirs.

Unfortunately there were a few employees who never successfully made the transition from the old ownership to the new ownership. They tended to only be focused on immediate rewards, did not operate well as a team member, and seemed disinterested in playing a larger role in the company. In fact, the team as a whole did not fully gel until these individuals parted ways with the company.

Q:    How did you initiate the conversation about what you wanted to do to change things?

Jody:  I first needed to learn a conversation was necessary. I had never worked in an environment like theirs, so I took for granted that people were already of the same thinking as me. Once I understood the magnitude of change that was needed, I incorporated “change” into every conversation, every meeting, and every decision I made.

For example, our company offered extraordinarily poor customer service. It would not have been uncommon for our clients to have experienced frustratingly high turnover in their assigned account executives (to the point where they had no idea who to call for help), incorrect billing on their accounts, errors in their advertising where the onerous was on them to catch, and dishonest representation of the product they were buying. In this case, the change needed was to instill sense of pride in our work and love of our customers. Anything short of that was a failure, and morally equivalent to stealing their money. I had to reinforce the new idea that we haven’t sold anything until the ad is successfully delivered, the client is happy, and we’ve received prompt payment. We also strive to produce the best quality product that we’re capable of, and once we do, we critique what we could have done better the next time. We measure success by whether or not we’ve secured a long-term relationship with a client.

Q:    How was that received?

Jody:  It was a relief to the employees, who were previously put in the uncomfortable position of constantly handling client complaints, or being instructed to be dishonest with their clients. Given a choice, people would much rather prefer to develop relationships with clients much like they do friends, based on trust and honesty.

Q:    What was the second step after you began introducing new ways of thinking about culture?

Jody:  It actually took a full year to change the corporate environment. Much of it was discovery on my end. When I would identify a behavior that concerned me, I would talk to the individual to understand what they were thinking. Often times I would get the answer, “I don’t know, that’s just the way we’ve always done it”. So, I learned that my job was to get people to really think about their decisions, why are they doing that, and what’s the long-term repercussions of that decision. It wasn’t enough to answer a simple question or quickly fix a problem, I wanted to make sure the employees truly understood what they were doing.

Q:    What were the most challenging new things you introduced?  (Challenging from the perspective of designing the ideas and articulating them to staff.)

Jody:  It was (and still somewhat is) difficult going from a very departmentalized organization to one that is much more integrated. We have a small office within one large open space, where every department is within earshot of the other, but there was rarely any interaction, and certainly no understanding or cooperation, between departments. They had different managers, different meetings, and different goals. Each department was at odds with the other. I had to collapse that vertically aligned organizational structure, flatten it out, and shake it up.

Q:    How much was the staff involved in creating new systems and ideas?

Jody:  All I could do is create a new environment, but it was up to the staff to embrace it. It took a little time, but every month that passed, you could see old walls between departments start to vanish. We instituted monthly staff meetings, where people could share what was going on in their worlds. We started weekly management meetings, to do the same. We created joint outings, such as parties or BBQ’s, to bring the entire staff together in a relaxed (not forced) environment.

When problems arose, instead of blaming someone for messing up, they are asking what broke down in the process. We worked together to improve training or create new procedures to prevent it from reoccurring.

The results of this improved cross-department communication are very apparent. More than ever, we’re all working toward common goals, and our product seems cohesive and well executed on all levels on the company. There is relatively no “in fighting” in the organization, as we are all aware of each other’s limitations, and working together to overcome them. 

Q:    How do you gain their trust?

Jody:  You have to be consistent, extremely fair, patient, communicative, open to adopting other people’s ideas, and honest. You have to show them you have both a good mind (qualified for the job at hand) and a good heart (strong character), by which you’re going to make the best decisions for the company at all times. You also have to trust them, in order to get trust in return.

We also created a very employee friendly work environment, giving our staff free gym membership, organic fruits and vegetables, bicycles, access to free tickets and other goodies. We also were diligent to make sure the there weren’t any weak links in the team. If there was someone not performing or not suited for their position, we removed them. It only takes one bad employee to ruin it for the rest, and create a less than ideal work environment.

We also incorporate the staff’s input into some of our biggest decisions. For example, right now, we’re soliciting input on a new company Mission Statement, as well as a new office location. When they see their ideas taken seriously and incorporated into how the company is operated, they start to have tremendous trust that the company takes them seriously as employees.

Q:    What are some things you would have done differently?

Jody:  I probably could have acted faster to remove some employees in the beginning months that were obviously not going to fit into the new corporate culture (and ultimately they all eventually left the company on their own after coming to the same conclusion).

Q:    What progress have you seen in the first year?

Jody:  We have laid an amazing foundation from which to grow. There isn’t one employee on staff that isn’t very good at their jobs, very committed to the company, and excited about any opportunity to improve and learn. We went from having tremendous turnover to rarely having any, which means we can be improving upon our skills rather than just expending our energy on training new hires. Clients have noticed an incredible improvement in our product and in their relationship with our company. They have a sense of confidence in doing business with us again. With this foundation, we should expect exponential improvements over time.

Q:    Where has there been less progress than you expected?

Jody:  I like to say that we are the “biggest little company there is”. It’s an exaggeration, but it means for a small company with just over a year of new ownership/structure, we’ve accomplished some pretty amazing things. I really couldn’t say that there is an area where we haven’t progressed as fast as hoped. That’s not to say there aren’t areas of improvement, because there always will be.

Q:    What’s the next step for you?

Jody:  Now that we have a solid foundation from which to build, I need to keep the education going. I plan on doing a lot of staff training over the next year. We have lined up guest speakers from various industries, advertising agencies, online sales training, and much more.

Though we have begun the process of getting involved with various business groups in our territory, we still have much work to do in this area. All of our employees should be actively involved with a targeted business or community group within the next year. Not only is that a good way for us to connect to the community, but it also helps us gain experience beyond what we can learn in house.

We need to make sure our corporation is on the right track. We are going Green, and are looking into energy efficiencies like running on solar power. And we want to build upon our commitment to our community, being a good corporate citizen and giving back in any way we can.   

And we want to make lots of money.

Management by Responsibility (MBR)

    For over twenty years I’ve been facilitating a program that creates company culture, called Management by Responsibility (MBR).  When I first implemented it in the 1980’s, it was regarded by the management at my company as ‘touchy-feely’ and irrelevant to producing income.  To me it was spot on relevant to producing income.  I quickly became aware of the philosophical divide in business thinking that creates company culture and thus behavior of companies internally among employees and also externally with customers and vendors.

    MBR is a program for setting up process.  It’s not dogmatic or exacting in implementation.  It represents a philosophy that says, “Each person takes 100% responsibility for his/her life, in every respect whether at home or at work.  The act of taking 100% responsibility and becoming self-aware of how this plays out creates psychological maturity.  The more developed one’s psychological maturity, the higher is one’s ability to enjoy interrelationships with others and to achieve personal potential.”

    Using Maslow’s hierarchy of human needs, you’ll see the correlation of MBR’s aim to the self-actualized stage.  Most companies in the 80’s and even today are contrived to emphasize the lower stages of survival, security and social acceptance.

   Business management during the 20th century focused on preparing the workplace to meet the criteria of an industrial age mentality and structure.  It has been very top-down and mechanistic.  That doesn’t work today as evidenced daily in the statistics reported for business performance.  It certainly doesn’t provide the innovation required for progress in a fractured and disrupted global economy.

   I’m going to present a few interviews with folks I know who have employed the MBR philosophy in their workplaces so you can get a feel for what it is and how it works.  I’ll also add articles and metalogues (thank you Gregory Bateson) on the topic of company culture, innovation and productivity.

Newspaper, magazines and e-ink technology

There’s an article, A No-paper Newspaper I ran across in Newsweek online.  The author, Daniel McGinn, ponders the fate of newspapers (is this speculation really still happening?) and can the e-readers, Kindle et al, save newspapers from falling into the abyss.

Here’s an excerpt:

Millions of us already read paperless newspapers and magazines on the Web, but e-newspapers, read on devices like the Kindle, would offer different benefits for both readers and publishers. For consumers who already spend too many hours staring at PC screens, e-newspapers would offer portability and an uncluttered reading environment, blissfully free from e-mail bells ringing or IMs popping up mid-paragraph. Among publishers, there's real hope readers will pay subscription fees for those benefits (something few Web readers do), and that advertisers will pay considerably more for ads on e-readers than they do on the Web. If these new streams of cash materialize, they could help an industry that's seen revenues fall sharply as readers and advertisers have begun abandoning high-margin print products. E-newspapers would also eliminate printing and delivery costs—typically half of what publishers spend to put out a newspaper.

If you own a newspaper or magazine and you want to make a digital play, and you are sure that you know how to create quality articles that I may want to buy:

Then why are you talking to me about putting ads on my Kindle? I don’t want ads.  Just sell me the content I want—news and features.

Why are you talking about eliminating just printing and distribution costs?  Why do you need a full production department to flow content to digital?

If you don’t sell ads you don’t need a sales department.

What does the news department cost when it’s really pared down to produce meaningful, in demand content?  I don’t mean a package of stories I have to buy at a certain time on a certain day—just good stories, each of merit on its own that I can buy.  In the era of atomized news, articles on topics that interest me, I don’t need a self-contained package of articles of which 90% don’t interest me that I have to pay for because someone determined it was the right news recipe.

And what does it cost to have just enough administrative services to take care of the business of getting those stories to me and manage the internal affairs of your content-publishing company?

If news is atomized and technology devices can distribute it that way, why can’t newspapers and magazines figure out how to atomize their content and sell it that way?

Next excerpt:

The biggest problem, though, is that e-readers work best for "linear reading"—reading long pages of text, as in a book—and not as well for the buffet-like browsing behavior that makes reading a newspaper one of life's great pleasures. Instead of offering well-designed pages that entice readers to skim a story they might otherwise skip, today's e-newspapers merely list headlines or tops of articles, which makes it hard to decide what's worth reading. As a result, although some analysts predict Amazon will sell a half million Kindles in its first 13 months on the market, they estimate only a few thousand buyers have used the device to read a newspaper.

Daniel made a big assumption here, reading a newspaper one of life's great pleasures.  The declining readership suggests that a lot of folks don’t find it pleasurable and won’t pay for it.

He’s right Kindle is primarily designed to contain a book library and text-formatted docs.  My guess is that newspaper content is being filtered through a conversion process that still treats it like a whole package of related content (by date only) trying to simulate as closely as possible the print version.  Wrong approach.  Think in database terms: discrete fields of data that allow the consumer to relate data by manipulating filters.  For example, I may want to see all stories by a date and time, or range of dates.  I may only want stories within a specific topic.  Let me see a list of those with a short sample of the content (like Amazon does with books).  If I choose one that I want, then charge me for that one at a price that reflects that piece, not the aggregated bundle price of articles I don’t want.  Sell it to me for 3 cents.

Look, newspapers and magazines are thinking like the record companies.  Because it worked for them to sell multi-song compilations in CDs for $15, they assumed consumers had no options and used that supply-side logic that says we make it that way so that must be consumer preference.  Along came iTunes and atomized the catalogues and will sell me a song for 99 cents.  Publishers have to shift to demand-side thinking, atomize their inventory and sell me a single article for a reasonable low price.

Last excerpt:

The biggest worry is whether consumers who've grown used to reading newspaper Web sites for free can be persuaded to pay $10 or more a month for an e-newspaper subscription. "Free tends to win out once it's been established in the customers' minds," says James McQuivey, an analyst at Forrester Research. "I know there are people whose hearts and souls are invested in saving the newspaper concept, but it's breathing its last breath already, in my opinion." As this technology evolves, newspaper junkies like me will be rooting hard that the e-reader evangelists can prove him wrong.

There’s too much assumption packed in that excerpt to address in this post; so, I’ll follow up with more on pricing in a separate post dedicated to it.  The most glaring assumption is that consumers want to continue receiving their news in a bundled package from a branded publisher on a daily basis.  Maybe some will, but it’s the wrong model in my opinion if it’s the only model you support as publisher.

I don’t think e-ink technology will save newspapers and magazines, because it relies on supply-side thinking and infrastructure, and that is what has killed the medium.

Small is Beautiful again

My brain really starts whirring when I catch up on Umair Haque's blog.  A few years ago when I starting reading his work at Bubblegeneration my head hurt, sort of like a brain freeze.  But, hey, if you study it often and long enough you finally grasp it and the freeze thaws.

Umair for me revives that feeling I got from E.F. Schumacher's Small is Beautiful too many moons ago.  An economist who understands and advocates for the human dimension in economics?  Rare indeed. 

Here's a excerpt from a recent post leading into Google's release of Chrome:

Imagine what would happen if GM and Ford collaborated to invest in the components and architecture of a better public transport network -- and then licensed it for free to cities, states, and countries.

Imagine what would happen if pharma players directly invested in better hospitals and clinics -- instead of in trying to own the relationship with doctors, and furiously outspending one another when marketing blockbusters.

Imagine what would happen if Wal-Mart invested in town squares and parks -- instead of just in featureless warehouses draining what little vitality remains in already bleak exurbs.

Imagine what would happen if P&G and Unilever invested in people's opportunities for education, global mobility, and meaningful, authentic relationships with others  -- instead of just trying to control distribution channels, and then push-market more stuff to you.

That's a radically different vision for a better kind of business. One where the value that's created is authentic, durable, and meaningful to humans; one where your "unfair advantage" isn't simply just the flipside of my disadvantage; one where that illusion no longer narcotizes an entire economy.

Hopelessly naïve - right? Wrong. Today's revolutionaries are already bringing this vision to life, and using it to topple yesterday's most powerful and privileged incumbents. Radically better is not just what business must - and will - become: it is what business is already becoming.

Who's breathing life into this vision? And why should anyone do so - isn't it irrational for companies to make moves like those above?

We're going to need economists and thinkers like Umair to challenge traditional mindsets around business management and the workings of new media.

Being Penn Jillette (for 60 seconds)

    Not since the days of combing the personals section of an alt-weekly, especially the adult section, have I found myself laughing so hard at human nature.  At least the personals section folks were fascinating for their creativity.  The guy looking for someone with a German Shepherd and a tennis racket to have a little kinky fun still holds a special place in my memory file under, "What the hell?'.

    What sparked my laughing-till-I-cried episode recently is a iPhone app called Tipulator—the fun tip calculator.  It sells for 99 cents on iTunes.

Now hear my voice shift to Penn Jillette's Bullshit rant voice (on Showtime)

File this under:

{'What the fuck?'}

 

Tipulator was released on August 10th and has sold nearly 3,200 downloads to eager iPhone users.  This has to be an experiment to see just how gullible people are; that marketing really does work; to prove if you build it they will come. 

The developers tell prospective buyers that Tipulator makes tipping fun and easy.

Halle-fucking-luyah, I was ready to blow my brains out and afraid to go into restaurants, all because of the painful, arduous task of tipping the server.

Image shot for Tipulator from iTunes, my highlights added.

    "Normally boring task of calculating tips"?  Damn, it's not like we're asking you to vote.  How about we arrange for the guy with the German Shepherd and tennis racket to pay you a visit next time you have to calculate a fucking tip.

    Holy fucking shit, really, are people so math-challenged that they can't figure simple percents and divide 3-digit totals by single-digit numbers?  How the fuck can they afford iPhones?

    38 buyers have posted reviews.  They call it "simple to use, elegant, intuitive"...  It's a calculator performing multiplication and division dammit, not a fucking NASA project!

    Okay, ranting is done.  Whew.  Damn, I don't know which was more fun, pretending to be Penn Jillette for a minute or running across the cast for the sequel to Idiocracy.

    Look for my new app on iTunes called Tip-you-later.  It's a cloaking device to help you skip out on a check at just about any restaurant.  But hey, at least for 99 cents it will actually save you some money.  And it is kind of a NASA project if you want it to be.

Prediction Markets—Wisdom of Crowds

In the early 1990s I recall sitting in a small gathering of editors and news directors at the Poynter Institute discussing citizen journalism.  Jay Rosen and Buzz Merritt were taking us through the ins and outs.

It seemed like the most logical thing in the world to me.  We were already experimenting with it at the Weekly Planet (now Creative Loafing) in Tampa-St. Pete.  And yet as I listened to the veterans of the media industry resist the notion that their readers and viewers had something to contribute, it was too hard to coordinate, etc., it reconfirmed that traditional media companies were stuck in a top down paradigm.  They were stuck regarding their own management structures and in relating to customers.  It's the equivalent of "if we want your opinion, we'll give it to you".

Too bad for them, because that condition has marked their current degradation in standing as leaders in innovation embracing new media and new business practices.  Witness their plummeting valuations.

If a company or an industry can't engage customers and employees in harnessing the power to create new opportunities amidst major market disruptions, then it seems they are doomed to fall—hard.

One very useful web application that can serve as a catalyst on both fronts is prediction markets.  I've been following this topic for the past few years and I'm fascinated by the prospects.  I have to say that when I mention it to media folks I usually get a blank stare or silence.

For background on prediction markets check out Wikipedia's article (it's a mediocre article, but good starting point).  For more info and a good platform to learn more check out Inkling Markets. They're a small development team and have created an excellent UI for consumers and businesses.  I use their platform for my Oasis Prediction Marketplace.

The greatest advantage for news media organizations making prediction markets available to readers/viewers/listeners is that it engages them in discovering context of news items.  I haven't seen a news media company using it perfectly that way, but the potential is evident.

The same advantage exists for internal uses.  Prediction markets can engage employees in the idea generation and execution phase of strategic planning and implementation.

Again, prediction markets serve as catalyst for engagement.  There has to be follow through in order to realize the advantages.  More later on this...

Think Directory Income

The news of declining online revenues isn't surprising.  (See this recent article in Ad Age) I think too much emphasis is on banner ads and classifieds.  That's just like the print model—display and classifieds.

I've been focused on directory advertising for many years now as a scalable solution for local publishers.  God knows I'm not alone as directory projects have exploded in the past five years.  Publishers have to think of directory forms of advertising and content as an interstitial to display and classifieds (if that helps in positioning it).

Banner ads are just not that helpful in terms of income for most local sites—the ceiling on inventory is too low to accommodate local advertisers.  Do it, but realize the limitations.  You can only sell a limited number of ads at any one time and the prices aren't that great.

Classifieds broadens scalability, but has so much competition by established pure-play sites that it limits income and the feature-rich tools needed by advertisers and consumers.

Directories are high-utility for consumers.  Sites like Yelp add the social network component in a big way.  I don't think that a publisher has to duplicate all the social features of Yelp, because ultimately it is the utility that must work for the consumer first, which in turns brings results for advertisers.  Some consumers will really be attracted to social network features and many others won't care so much about that as they will in finding what they want quickly and reliably.  If they trust the site publisher, then that credibility can offset a high mixture of user input—some for sure, but not as much as Yelp provides.

Directories come in many shapes and sizes.  The main advantages are:

• You can offer listings to customers and non-customers.  Great way to expand your customer base.  You can support thousands of advertisers instead of just a few.
• They can provide and present more information in a better display than banner or classified ads.
• They're relatively easy to maintain.
• Directory applications are relatively inexpensive.
• They provide valuable, legitimate links to your advertisers' websites, which supports their search engine value.
• While you can package them with print sales, they should be considered a web pure-play first.  That being said there are other digital products that they can be packaged with for sales.

There are on average 40,000 businesses per 1 million population in the US.  Most newspapers, whether dailies or alt-weeklies, transact business with a mere fraction of that number.  You have to scale big at lower prices to survive, which means you have to open your horizon to businesses you never imagined fit your portfolio.  And you have to imagine sales transpiring in ways that don't fit the current display or classified-selling paradigm.

Web Disruption of Media and Advertising Markets Part 2

Here’s a disruption example from the grocery, packaged food goods business.  Up until the late 1970’s, manufacturers dominated the relationship between themselves and the grocery retailers.  Big brands ruled the day.  Grocers designed stores to accommodate the number of brands and products, and consumers accepted that offering.  As segmentation entered the picture, that is niche products and brands targeting narrow segments of consumers likes, it produced an abundance of goods and encountered a scarcity of shelf space.  As consumers liked the segmented differentiation and demanded more, it exacerbated the tension between abundance (products/brands) and scarcity (shelf space).  Within a few short years grocers were charging shelf slotting fees to manufacturers.  It inverted the relationship.

Applied to the situation in media and advertising.

Media companies have controlled the production and distribution of content, and thus controlled the channel for advertisers and consumers.  Content was often redundant and largely undifferentiated, and was geographically partitioned.  The web inverted that.  Now abundance of content meets abundance of production and distribution means.  There is no scarcity, because there is no gatekeeper or filter to limit the flow.  The web exposes the limitation of traditional media.  The only scarcity that exists now is with the consumer’s attention.  That’s why power has shifted to them.

So then what about more highly differentiated products like alternative weeklies, or magazines like Vanity Fair or GQ, or channels like ESPN or CNN?  Or even geographically isolated areas where web-user statistics indicate lower acceptance?

Remember that consumers have more content selection via the web, which dilutes the value of differentiation that is based on the old definition.  Their longstanding differentiation (more specialized traditional media content) may slow down the erosion of market share for a while, but with lower barriers to production and distribution, selection opportunities continue to multiply.  What was highly differentiated in the old media becomes less so every day.  Consumer attention is fragmented across the array of choices.  Media companies that rely upon carrying advertising for income have a harder and harder time convincing consumers to devote attention to them and the same with advertisers to spend money with them.

Web Disruption of Media and Advertising Markets Part 1

The web disruption of traditional media is more powerful than anyone imagined it would be ten years ago, or even five years ago.  Newspapers have been the hardest hit.  It marks the tail end of a fifty-year decline that is now being accelerated.  It has and will hit all media and advertising to varying degrees depending upon their stage in life cycle and response to new opportunities.  I've condensed many conversations I've had with consumers and media folks over the past few years.  Here goes...

Power Shift to the Consumer

If a consumer knows what he wants or needs, he can search for information on the web and gather more information in an hour than he could have in months before the web.  That’s power shifted to the consumer.  For the business selling goods, it’s a direct channel to the consumer without the requirement to lure them in through traditional advertising.

This in from Pew Center research 8/6/2008, Deborah Fallows:

The percentage of internet users who use search engines on a typical day has been steadily rising from about one-third of all users in 2002, to a new high of just under one-half (49%). With this increase, the number of those using a search engine on a typical day is pulling ever closer to the 60% of internet users who use email, arguably the internet's all-time killer app, on a typical day.

The Disillusionment Phase

If consumers are still influenced by advertising, I mean wowed by it, moved to buy something they didn’t know they wanted or needed, then it’s only for a short while.  Holes have been punched in the veil.  Many consumers have escaped and more will as time passes.  This is the ‘disillusionment phase’ for all players—a splendid one for consumers.  The web represents utility.  With direct connections of consumer and source, higher utility value is created.

If I owned a major consumer products company spending millions on advertising I would…

Cut my traditional media ad budget in half immediately (half again within a year).  Then apply part of those resources into building a digital marketing and sales framework with a small team of say six people.  Include a designer, writer, usability expert, engineer and two developers.  Work them like dogs.  Apply some of the shifted resources to our employees in the form of idea incentives, say through an internal prediction market, but with real cash.  Invest in the best ideas with the remainder of shifted resources.

Check out this recent study regarding search engine marketing and brand awareness and equity.  Search presence counts big time for consumer products and will only increase in importance over time.

And if I owned a newspaper…

Lots of shedding that feels like shredding.  Newspapers are manufacturing businesses focused on the value chain links of production, manufacturing and distribution.  Trouble is the product is an information product that is tooled for past consumption behavior.  Not much future in that.  There will be a massive thinning of the herd so to speak.  You have to go where the consumer is going.  That means newspapers have to do something similar to what I described for the consumer products business.

How do newspapers shift if the income for digital is so much less right now than what they are structured for creating newspapers?

Change the structure.  That means major downsizing and reallocation.  You can’t put a full-grown chicken back into the egg.

But some consumers still want a high-quality newspaper.  Won’t it be self-fulfilling demise if publishers cut back on quality by shifting to digital?

The quality standard is based on a past-looking definition.  Change the definition to a forward-looking one.  That probably means changing the production value chain link and ultimately the product to the new definition, which can be high quality.  It seems apparent though that demand for any printed product, high quality or not, will continue to diminish in the near future.

The digital income is trifling compared to print, which means loss of jobs.

Businesses and people adapt.  Loss of jobs, people finding new ones, shareholders losing value, investing and rebuilding are the risks and adaptations experienced in a market economy.  Media has by its nature for the past one hundred years served two customer sets, consumers and advertisers.  Maybe they still will do that, albeit quite differently.  Media and advertising players have controlled the equation of abundance and scarcity.  That’s changing.

Strategic Development

“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.  It is capable of being presented as a discipline, capable of being learned, capable of being practiced.”

Peter Drucker 1985

    Aside from my personal experience in business I've learned a good deal about innovation from Peter Drucker and Clayton Christensen and owe a nod of gratitude to them for much of what you'll read here as I've applied their concepts to media and publishing.
   

    In my AAN presentation, I emphasized innovation as the primary focus of an organization's efforts. Rarely is it a flash of genius or being kissed by the muses.  It's systematic hard work and over the past twenty years or so much has been learned about how to go about it.  The practice of innovation has to be built into the DNA of your organization.  If culture sets the stage for inculcating the value of innovation and to welcome it, strategic development starts the process of putting meat on the bones.
   

    First, I'll offer a couple of quick, super-compressed definitions of innovation and strategy development.
Innovation, whether applied to a product or process, i.e. a resource, changes the yield of that resource.  Meaning it increases the value obtained from that resource by a consumer or end-user.  For example, an innovation applied to an internal process creates a higher yield for the end-users, or internal consumers; something that enables them to better perform their job or derive greater satisfaction in some meaningful way to them.  The same applies to your external customers.  It warrants stating, innovations are more than just improvements.  Think of innovation as being super-improvements or bundles of improvements that fundamentally alter something.  (That being said, don't lose sleep over whether or not your improvements merit the name innovations.  Just keep aiming high and increasing value.)  Innovation starts with demand-side thinking—the consumer.
      

    Strategy development has two primary parts.  The creative ideas that respond to demand-side needs and create the supply-side solutions in the form of products and processes.  Secondly, the operations and ability to implement those ideas effectively, and routinely measure your efficacy.
   

    For the first part, two kinds of employees are critical.  You need real public-facing, market savvy people who have an intuitive sense of what consumers and advertisers want and need.  They are the visionaries.  They also know where to dig to substantiate their findings.  The second type is an inventor; someone who understands what the technology of any product or process requires and can think outside the box to create never before used concepts.  And by technology, I'm not just referring to high-tech, but to related techniques.  This is the person who discovers new possibilities.
   

    On the operations front, you need the ability to implement the best ideas in a coordinated fashion that everyone can grasp.  These are folks who know how to manage resources of the company and get the most out of them.  They can also set up accurate and timely measurements to reflect progress or lack of it and move to action to correct, abandon or strengthen accordingly.
   

    Depending on your culture, your approach to starting the strategy process will vary.  Since I advocate whole organization mobilization, I favor a process designed to include management and staff from the beginning.  There are two steps in preparation to get everyone on the same page.  Establishing a historical perspective on what your company has accomplished over the years, successes and failures, and where you are now informs everyone with the same knowledge—a common recorded history.  This is particularly helpful for newer employees who may have only a vague sense of connection to your past.
Next you have to define the scope of your plan by knowing your major objectives.  I think mission and values statements are important, but it's the objectives that make them actionable.  Where do you want be in two-to-three years?  Click on the image to get a list of important questions to ask at this stage of initiation.

    It's worth spending a moment on reconsidering what growth means, since that's usually the main objective that pops up in strategic development.  It has, after all, been the driving force in American economics and business.  "Grow or die" is the mantra.  Growth in that conventional sense means expansion, or getting bigger.
   

    This is the perfect time to reevaluate that standard.  Growth metrics for newspapers— circulation, pages, and sales income—are either slowing or declining.  (I'll suggest that net profit, operating cash flow and return on assets are more useful metrics in the post on financial thoughts).  The natural reflex is to spur growth again using those metrics, which means more or less revitalizing old strategies.  The problem is that the decline is driven by the demand side; meaning that growth (stated in the terms above) becomes increasingly more difficult and costly.
   

    Taking a whole organization view, what else could growth mean?  What new definitions of growth and new metrics would support innovation?
   

    Learning new things is an example of growth.  Of course your organization has to value learning in order for everyone to know it's encouraged.  It can't be confusing.  Experimenting with new ideas and making mistakes is a part of learning.  You have to dedicate time and resources.  If the pressing urgency of the 'old' (legacy products and processes) commands all the attention and learning and trying new things gets pushed aside, then learning is not really important and employees won't do it.  The more companies face financial tightening and job insecurity rises, the more employees will take their cues literally.
   

    Shedding or getting rid of things is another measure of growth.  Nearly every organization has systems and processes that either serve a purpose that no longer exists or are ineffective in getting that thing done the best way.  Take an example of getting rid of things in a room in your house.  That same room looks bigger and in most cases is more useful after you purge the things you don't really use that much.
   

    Intensifying is another.  The Japanese are wonderful at this.  The Chinese invented the fan and the Japanese pleated and folded it.  They did the same things with electronics through miniaturization.  Artists do this by combining inexpensive and common materials into creative expression that produce an end product worth many times its parts.  The aim of all this intensifying goes beyond efficiency—it's about quality and creating something of lasting value or beauty.  That fundamentally changes the value of resources.   

     Once you loosen the straps of a one-dimensional definition of growth—getting bigger—you're more likely to pursue strategies that contribute to your long-term success.  It's not a choice between growth or no-growth; it's more about redefining growth.

    The next two images (35, 36) underscore the importance of generating ideas for better serving customers and non-customers.  Check out the Newspaper Next website for some great tools in doing this.  They've worked closely with Clayton Christensen.  While they are focused on dailies, the tools and concepts are very helpful in understanding the process.  I use my own tools developed over the years, and really the main thing is to have a systematic process.

 

    I offer the example shown in the two images (37, 39) of a magazine client of mine that publishes an annual directory of resources for readers in which the advertisers buy enhanced listings and display ads.  An idea sprang from the sales department that they could create an online directory to complement print.  We defined how it would be useful and valuable to both sets of customers.  In that you'll find assumptions and risks that have to be sorted and resolved.  Then it has to meet financial criteria—is it worth allocating resources to this?  Using simple break-even analysis spreadsheet tools, we concluded it was and it's now in development.  This process doesn't have to be lengthy, complicated or costly.  But it does have to be methodical and thorough on the points important to the organization.

   

    These days strategy needs to be thought out in a relatively short period and measured, evaluated and adjusted in shorter cycles than is the convention of yearly.  I like quarters or using project management milestone cycles (more later in a post dedicated to project management).  My hope is that you grasp the importance of creativity and systematic process required for innovation, and that your strategic development harnesses innovation.

How we get things done

   

The diagram shows the main areas of concentration for developing your strategy.  Let's start with organizational culture and then move through the other areas.  The Alt-Weeklies (AW from here out) have usually shared the attitude that dailies are big dumb oafs because their organizations are sluggish and incapable of changing or innovating.  Like most mature businesses they do suffer from organizational lethargy.  And they are gradually awakening to this reality as they watch their profits slip away along with key parts of their business.  Some of them are making progress initiating new projects, some aren't.  But just because AW are younger and more vibrant in many ways doesn't mean they're immune from the same stagnation in organizational creativity and innovation.

    All the folks I know in the AW industry are mostly hard-working, earnest entrepreneurs.  The biggest failing I observe is that most AW organizations perform below standards of excellence when it comes to getting things done effectively. Often the price is undue wear and tear on staff and finances.  Organizational culture sets the pace for getting things done and how inspired you feel to get up every day and do it again.

    Your cultural habits and behaviors determine how you're going to respond to markets and changes.  You can have the best strategy possible and still fail to execute properly to reap the full benefits of the strategy.  The strategic development process itself is determined by the quality of culture.

The Three Management Structures for Organizations
   

This table describes the three ways that companies are governed: hierarchy, heterarchy and responsible autonomy.  While hierarchy has reined as the most common structure since human history has been recorded, heterarchal structures are emerging as more and more businesses recognize the benefits.  In truth, most companies are a blend with responsible autonomy as the smallest portion (largely in use in R&D driven environments).

    The main thing I want to emphasize about culture is that it both reflects and determines a lot about where an organization is going and how it will get there.  In order to create a strategy and execute it a business enterprise needs systems and levels of coordination (communication, leadership) that propel it towards success.

    The table below shows a distinction between two blends: 1) dominant hierarchy/aims at results over people concerns and 2) heterarchy/hierarchy blend/balances results with people concerns.  There are of course an infinite number of permutations and blends, but this is one example for contrast of two of the most common found in AW organizations.

    Culture itself is somewhat abstract and exists whether or not it is consciously developed.  Just as an individual has values and beliefs in what reality is, and that in turn determines his behavior, so is it true for an organization.  The dynamic is more complex because it's a collective of many individuals with different views of reality.  Leadership styles, use of power, delegation of authority and others (shown in the next table) define culture and the common ways employees behave to get things done.

    I've used a management and staff training program called Management by Responsibility (MBR) for over twenty years.  It's the most effective way I've found to alter culture because it focuses on behavior and action.  Many companies have embraced the concept of mission and values statements to inform everyone about culture, but without action they are just lofty statements for wish fulfillment.  You change culture by changing the behavior of its members through what they do, how they do it and how it's coordinated.  The following tables show the MBR grid of management: seven dimensions of functioning and five levels that represent the orientation to those dimensions.  A similar grid exists for staff and individual functioning.

There are four slides which you can download and open in PDF.

PDF:Download MBRgrid4.pdf

    You'll notice two icons of the two most common levels of functioning.  Michael Scott, as portrayed in the TV series, The Office, is the typical conformist manager.  That's why we find it so damn funny.  We know him!  He works with us.  We're familiar with his style and while it's funny to watch from the safe distance of a TV program, it's not so funny to actually work with anyone in this mode.  Trump represents the achievement level.  A safe distance from this asshole is our aim in life.

    Most managers function at more than one level across the dimensions.  It's important to know where you and other managers in your organization fit and then set about making the changes to function at higher levels over time.  The MBR program defines a process for doing that.

    Organizational culture development is an ongoing process that takes years to establish and elevate.  As a matter of fact it's a continuous process of learning that really never ends, it just gets easier after a certain point of development.  It's accomplished in tandem with all the other things you have to get done in the course of running a business.  It's needed now more than ever if you hope to stimulate the highest level of innovation and entrepreneurship required to be successful.

Where Did The Money Go?

    This is one of a series of posts to lay out some ideas and perspectives on the state of the alt-weekly business as discussed during the 2007 AAN convention in Portland.  I gave a short presentation on creating context for decision-making in these rapidly changing times.  That will be broken up and presented in these posts.

    I think it's instructive to take a historical view of media and print in particular to better comprehend what is happening now.  [See an earlier post on the specifics.]  Newspapers and magazines were born and experienced explosive growth coincidental to the surge of the industrial revolution, primarily from 1873 to 1910.  Almost all of the innovations required to make this happen were around manufacturing and related technologies.  Other than those, mass literacy as a result of a rapidly growing education system and rapid population growth fueled the social condition to support mass circulation.  Joseph Pulitzer's innovation of mass advertising in the New York World added to economic power to support exponential growth.  Hearst's contribution of newspaper chain development leveraged the economic powers, and for good or bad it fueled even more systematic growth for newspapers and magazines.

Like most industries, the early and intermediate development stages exhibit fierce competition among a crowded field of competitors.  Grand successes and failures dot the landscape; as well do the mergers, acquisitions and consolidations.  Sound familiar to what's happening in the web world?

    Print remained the dominant advertising and audience medium for nearly a century.  That started changing after 1955.  The introduction of other forms of media, news and entertainment slowly eroded print's dominant stranglehold.  The great social divide of 1968—73 combined with advancing technologies of competing media, segmented database marketing and demographic impact of baby boomers introduced a new era.  Think of this as the information age emerging and the industrial age declining in influence.  Alt-weeklies exploited these changes to start and flourish.  Nevertheless, daily newspapers alone lost nearly $43 billion per year (2005 vs. 1955) in relative economic status in ad sales.  If the alt-weekly segment picked up $550 million (1.25%), where did the rest go?

The answer of course is that competing media, both within and without the print world, lapped it up like thirsty dogs.  Direct mail has surpassed newspaper's annual ad sales by 10% (it barely existed before the 1960's).  The impact of entertainment media, film and music, while feeding the ad coffers of news media, also fragmented audience attention to the long-term detriment of newspapers.

Think of everything before the late 1990's as Media 1.0.

In the Media 1.0 universe, audience attention was relatively cheap and abundant. Blockbuster movie and record sales are proof of this in entertainment media.  It was cheaper and easier to achieve economies of scale in production and distribution to invest into marketing to grow sales through acquisition of audience attention than it was to spend on quality (production link in value chain).  Alt-weeklies exploited cheap and abundant attention by using free circulation (distribution economies of scale) and clever guerilla marketing to get readers.  Demographic and psychographic segmentation (target trend-setting 18-34 year olds) exploited the trend toward consumer segmentation in marketing.  It was even evident in consumer products like toothpaste or cereal, where a new product could be launched and incredibly successful based solely on the quality of advertising and not on product quality.  (Captain Crunch was developed by an ad agency and then became a product.)

The Media 2.0 world inverts the value chain equation.  Audience attention, which translates into circulation/readership for newspapers and engagement with readers, is rapidly becoming scarce and thus more expensive and elusive.  The web enables pure play competitors to leverage relatively cheap and abundant production and distribution (scarce in Media 1.0) to snag these attention fragments.  The effect ripples across all media and disrupts the economics for traditional media companies.  Dominant media players in Media 1.0 who were in the fat head of the audience reach scale are now pushed into the long tail with millions of other competitors for attention and ad dollars.

So, what's a newspaper to do?

Several folks at the recent convention have asked me what I think about Hal Smith's presentation in which he advocated greater focus on newspapering and less on the consumer web application.  He mentioned that the disruptive effect of the web has forced publishers to ask what business they are in, to which the common refrain has been, "“we are in information content business".  His answer is "we're in the newspaper business".

I guess I view it as a false dichotomy.  Of course you're in the newspaper business if you publish a newspaper from which you derive the majority of your income and so you damn well better do it well and pay attention to the details.  But the second question you have to ask yourself is "what is it that a newspaper does?"  The answer to that resembles the other choice, "we gather and organize information about community news and events, cultural and lifestyle issues, etc. fashion it into a stylized content presentation which we give to consumers and sell their attention to advertisers".

The biggest problem I have with the framing is that it's a supply-side question, which means there's hardly a wrong answer to it.  The implication in the subtle difference between the two choices is that you may be spending too much time on non-core business function and too little on your newspapers.  The two ways to prove that is to ask demand-side questions first and to accurately measure your performance in operations against the best success standards.  The latter is important under any circumstance and the former is the new question of the day and where the disruption is occurring.

I'll address the performance standards in a subsequent post, but for now let's stick with the demand-side questioning.  Here's the short list for consumers.

• What information do consumers want?
• What does that information accomplish for them, i.e. how do they derive value from it?
• How do they get it, i.e. what is their favorite way of obtaining it?
• Are their preferences for what they want and how they get it changing, and if so in what ways?

    The knowledge you derive from the answers to those questions is critical to the supply-side questions and answers.  In other words, if you start with supply-side questions and answers that merely point out the obvious by picking gnat shit out of pepper, you'll have the false sense of actually having done something important.  What you'll miss is where you really need to allocate resources based on demand-side reality.

    Remember, media operates in a two-sided market as shown in the chart below.

    The reality for newspapers as pointed out in the first part of this post is that consumer demand has been shifting for over fifty years, both in what they want and how they want to get it.  Fundamentally, they still do many of the same things as before, but new generations have different preferences and thanks to expanded choices introduced by electronic media including the web and mobile, older generations are shifting too.

Just in the ways that print dominated in the heyday of the industrial age, electronic media dominates in the information age.  As a matter of fact, a recent Universal McCann study revealed that among 18-34 year olds who are heavy web users that the medium they would most miss if taken away was television (web and email followed).  My guess is they're not talking about the major networks, but about cable.  Newspapers and magazines were fifth on the list below radio.  For the 35-49 year old crowd, newspapers tied for fourth place with radio.

    You could certainly pursue a newspaper-only strategy even in light of the changes and decreasing demand.  After all, it's probable that given the legacy of print and the largess of current ad spending in print that there are a good many years left for clever publishers.  The newspaper that focuses and perfects that product by exploiting other links in the value chain could perhaps pick up market share relinquished by the number of failures likely to occur in the next decade.  The product(s) better be remarkable though, and it probably will barely resemble what you're publishing now.  As a TV metaphor, think HBO quality programming versus CBS, NBC, ABC or Fox.  For folks who love print, are able to passionately innovate and don't have a taste for web or mobile, this might be the best route.  Additionally, your organizational management better be exceptional too.

    The risks assumptions with the single-dominant print strategy are that:

1. Consumers will want what you offer.
2. There is growth potential greater than inflationary gains.
3. You can achieve impeccable business management.
4. Advertisers will want what you have to offer and be willing to pay more than what it costs you to produce it.

    If you pursue a web strategy in tandem with a print strategy, the print strategy has to be the same as described above—aimed at leadership in the field.  The same for web although the development curve can be much longer and incremental.  By that I mean start with simple and single-minded focus on key areas that you can establish leadership in your market with customers and non-customers and grow upstream from there.  More on that later...

History Informs Us, Once Again

It is not worthwhile to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible.

- Mark Twain in Eruption

    During the years 1870 to 1900, daily newspapers quadrupled in number from 489 to 1,967.  Circulation (aggregated) rose from 2.6 million to 15 million copies.  Weeklies grew from approximately 4,000 to 12,000 in number, mostly in rural areas.

    The US population doubled during that period.  The enormous growth of publications signaled something else going on: as Arthur Schlesinger, Sr. called it "the rise of the city".  And that condition was accelerated principally due to mechanization, industrialism and a greatly expanded communications network that included:

1. Widespread use of electricity fueling industry and light bulbs (helps in the convenience to read).
2. Invention of the telephone by Bell (reached one phone per 100 households by 1900) and intercity lines covered the country.
3. Western Union quadrupled its telegraph lines between 1880 and 1900.
4. Railroads expanded its miles of track from 93,000 to 193,000 miles.
5. And probably most important for publications, the federal postal service's expansion of services combined with the Postal Act of 1885 (provided a 1-cent-a-pound rate for newspapers and magazines) paved the way for low-cost delivery of publications.
6. Introduction of the typewriter and adding machine facilitated the faster pace needed to handle the complexity of correspondence and record keeping.

    The socio-economic life of the US greatly changed and thus brought incredible growth and opportunity for journalism, which was seized by the publishing world.

    As an example, Joseph Pulitzer's New York enterprise (NY World in the mid-1890's) showed a $10 million valuation and $1 million net profit.  Translated into 2005 dollars as a percent of GDP, that's $8.2 billion and considering that the World was just operating in the NY market, it makes Google look like retail shoe store.  As the winds of change would have it, even from that lofty perch the World was defunct by the 1930's.

    Newspaper and magazine share of market for ad dollars decreased by nearly 36% (from 1935 to 1980) after the introduction of radio and television.  The fact that newspapers remained strong profit centers reflected the rapid growth in advertising expenditures that outstripped their loss of market share.

    Newspapers have been profit harvesting for the past thirty years.  That practice is over and the plight of the Inquirer and Daily News (as well as many other newspapers) is emblematic of that.

    Socio-economic change similar in scope to the latter part of the 19th century is upon us again.  Print publishing is, after all, a manufacturing enterprise and prospered during the industrial evolution as a result.  Anyone foolish enough to buy a newspaper today with the notion that the profit harvesting will continue or that you can tweak the product to meet the socio-economic challenges of this period will suffer great disappointment.

    The market share for printed products in their current form will diminish greatly over the next decade.  Again, technology merely facilitates and influences the socio-economic trends and is not the cause.  Newspapers have lost touch with their readers and failed to represent the context of a complex society within which news reporting must operate.  Print journalists can restore it insofar as they relinquish their bias for the format and embrace the call of society for context and meaning and deliver it in the ways available to them.