Oops! We Forgot to Atomize Our Business Model!

A couple of news articles caught my eye last week. Mediapost reported on a TV exec seminar hosted by Havas’ Media Contacts unit. Talking about the online video revolution, Mediapost says major TV providers are moving aggressively online–and not only to their own online destinations, but in an array of “distributed” online content options to deliver their programming directly to consumers regardless of where they are on the Web.”

In addition, TorrentFreak discussed data from Mininova (one of the largest torrent listing sites) showing that “ 50% of all people using BitTorrent at any given point in time do so to download TV-series, quite an impressive number. In total, over a billion TV-shows are downloaded every year, and this number continues to rise.”

Our friend the Atom

Flickr photo by Marshall Astor

What it means: recently, all savvy media industry strategists have been talking about content atomization and clearly, in the TV industry, TV channels are being atomized by new Web technology. Whereby, in a traditional cableco world, channels used to be the basic content building blocks (think about how your cable TV subscription is structured), TV shows have become the new atomic element.

But there’s a problem.

The content is being atomized but the main TV business model (30-second ads) was built to be part of a larger element, the TV channel. Ads used to fill, i) the “empty spaces” between shows and ii) planned 3-minute interruptions during the show. In the first scenario, those empty spaces don’t really exist anymore as shows become the basic element and BitTorrent is disrupting the second scenario by offering easily accessible ad-less versions of your favorite programs.

Guess what. Someone forgot to atomize the TV business model while they were busy atomizing the content.

So, how do you atomize TV’s business model? Is it all about product placement, sponsorships, pre-roll ads? Do you move to a user-paid subscription model for individual shows? And BTW, is the future cableco the equivalent of a RSS reader for online videos?

And what does it mean for other media, newspapers for example?

In the case of newspapers, from a content point of view, news articles are the new atoms. This is the way news information travels online. But, in that situation, newspapers’ business model has been blown to bits (no pun intended). Let me explain. Like TV channels, newspapers are inserting ads in the empty spaces around news articles. These spaces don’t really exists anymore, so how do you monetize? News article sponsorships? A-la-carte article user-paid
subscriptions? This one is not easy as journalism ethics (rightfully so!) have kept news article and ads completely separated. How do you bring ads closer to the article without breaking readers’ trust?

What about radio?

For the traditional FM radio industry, individual songs are clearly the basic atom of content. But those are so easy to find online through legal (music streaming services, iTunes) or illegal means (BitTorrent again). As for their business model, radio stations insert ads around songs. Again, these slots don’t exist in an atomized world. Maybe radio stations should invest in original content or better DJs (Wired calls them robo-DJs in “Why things suck”)? Can radio stations move online as trusted brands and become real music aggregators/recommendation engines? It might be too late. So, is FM radio as we know it screwed? Maybe more than people think. That one again is not easy to solve.

And finally, directory publishers?

As for directory publishers, their business model is currently in the ranking of directory listings. But those individual listings might be the new content atoms. And if they are, it means that the ranking structure does not exist anymore. Is it now the merchants’ phone number and a pay-per-call model? Is it pay-per-click to individual merchants? Given that directory content is all about advertising, atomizing content does not impair a directory publisher from atomizing their business model but it just needs to be properly executed. I believe pay-per-call and pay-per-click to individual merchants might definitely be the way to go.

Conclusion

If you’re atomizing your content, don’t forget to atomize your business model! This blog post raises important questions about future traditional media business models. I don’t have all the answers at this point but I meant this post as a wake-up call to stimulate deeper strategic thinking in all traditional media firms.

Why Topix Introduced User-Generated Content

I love that slide coming from Chris Tolles‘ Web 2.0 Summit presentation. Tolles is the CEO of Topix, a well-known hyperlocal news aggregator. It clearly shows why Topix decided to allow user-generated content in their site back in April.

Web2Summit Topix Chris Tolles

In it, he tries to extrapolate the number of daily local news stories coming out of traditional media outlets (newspapers, radio and local TV) and comes up with a grand total of 22,293. Given that there are about 43,000 zip codes in the US, this means every zip code gets 0.5 stories per day on average. Not much if you’re trying to build zip-code driven news aggregator. Smart move.

Word-of-Mouth the Most Powerful Selling Tool; Traditional Media Advertising Still More Credible than Online Ads

Nielsen just released the results of their Nielsen Online Global Consumer Study (found via Eric Baillargeon’s blog). In it, “Nielsen (…) surveyed consumers on their attitudes toward thirteen types of advertising – from conventional newspaper and television ads to branded web sites and consumer-generated content.” Excerpts:

The Nielsen survey (…) found that while new platforms like the Internet are beginning to catch up with older media in terms of ad revenues, traditional advertising channels continue to retain the public’s trust. Ads in newspapers rank second worldwide among all media categories, at 63 percent overall, while television, magazines and radio each ranked above 50 percent. (…)

Nielsen Online Global Consumer Survey - all media

Although consumer recommendations are the most credible form of advertising among 78 percent of the study’s respondents, Nielsen research found significant national and regional differences regarding this and other mediums. Word of mouth, for example, generates considerable levels of trust across much of Asia Pacific. Seven of the top ten markets that rely most on “recommendations from consumers” are in this region, including Hong Kong (93%), Taiwan (91%) and Indonesia (89%). At the other end of the global spectrum, Europeans, generally, are least likely to trust what they hear from other consumers, particularly in Denmark (62%) and Italy (64%).

The reliability of consumer opinions posted online – which rated third, at 61 percent overall – also varies throughout the world, scoring highest in North America and Asia, at 66 and 62 percent respectively. Among individual markets, web-based opinions such as Blogs are most trusted in South Korea (81%) and Taiwan (76%), while scoring lowest, at 35 percent, in Finland.

What it means: a few weeks ago, I blogged about the fact that word of mouth might actually be the biggest opportunity directory publishers have seen in the last few years given that the Web was becoming a big word of mouth machine. These numbers clearly show that i) traditional word of mouth is still the most trusted source of advertising and ii) online word of mouth is not far behind. It’s also interesting to note the differences in the various geographical areas.

Hot or Not Changes Business Model

Katie Fehrenbacher from GigaOM has the story:

Hot or Not, the online dating and rating site, is about to end its main revenue stream — subscriptions — and focus instead on online ads and transactions, like selling virtual flowers. Hot or Not founder James Hong, who has gotten rich off of the subscriptions of his cash-cow, emailed us to say that the company plans to soon make its subscription-based ($6 per month) “meeting” section free to users. (…)

Hong says the online dating industry is reaching a “strategic inflection point” as the growth of the amount of paying subscribers for these sites becomes saturated and are forced to generate more revenue from existing subscribers. Over the long run, the result is fewer new subscribers, and a disappearing userbase, Hong says.

It’s not necessarily a new idea. While subscription-based online dating is still the dominant business model, we have covered free online dating sites PlentyofFish, OkCupid, and Iminlikewithyou.com. And Hong admits that they are a little late into the free ad-based game, but that “we are optimistic that it is not too late for us to change, as long as we have the courage (or insanity) to do so.” (…)

What it means: it usually takes large “cojones” to make such a move, i.e. reinventing yourself as you see your industry reach a ceiling and possibly a declining point. Reminds me of the BCG Matrix, where eventually you have to take your cash cows and either transform them into a new rising star or they become dogs. Makes me thing of Kodak, who did not see the inflection point. Makes me think of traditional media as well. TV, Radio, Newspapers, print directories. How do you know when you’ve reached a ceiling and face a declining future in one of your core products? And have you invested enough to be prepared for that moment? Many questions, but no easy answers. James Hong offers some perspective in his blog on why he can “afford” to do this move.

Is Hyperlocal Dangerous for News Organizations?

(via the Los Angeles Times)

News organizations confronted with declining revenue and increased competition are entering an era of more limited ambition in which they will drop a broad worldview for more narrowly focused reporting, according to an annual review of the news business being released today by a watchdog group.

The Project for Excellence in Journalism reports that the struggle to create sustainable media brands is driving “hyper-local” coverage in newspapers; encouraging citizen journalism on the Internet; and giving rise to opinion-driven television personalities like CNN’s Lou Dobbs and Fox News’ Bill O’Reilly. “The consequences of this narrowing of focus involve more risk than we sense the business has considered,” said the report from the project, an arm of the Washington-based Pew Research Center. “Concepts like hyper-localism, pursued in the most literal sense, can be marketing speak for simply doing less.”

The review describes print, radio and television news operations as weathering “epochal” changes — with audiences splintering so radically that is has become difficult to accurately measure new viewing and reading habits. Daily newspaper circulation declined 3% in 2006, for instance, but the increase in online readership is more difficult to quantify. The three television networks collectively lost an additional 1 million viewers — about the average in each of the last 25 years — but YouTube and other online services created a new delivery vehicle for the networks’ content.

Traditional newsrooms remain the primary source for information, and the report suggests that news organizations need to be more aggressive about mining revenue for their work. The old-line media may have to form consortiums to force Internet “aggregators,” which compile content from other sources, to pay licensing fees for news and information, the report says.

Tom Rosenstiel, director of the Project for Excellence in Journalism, said that most news organizations would have to shrink their staffs but that much more thought needed to go into how the reductions are made. “The current thinking, hyper-localism, seems problematic,” he said in an e-mail response to a question. “In an era of globalism, how can you suggest that the L.A. or Boston market does not need its own specialized foreign reporting that informs the local economy, the local culture and more, in a way that is different than what generic wires would cover?”

Respected newspapers such as the New York Times and Washington Post have placed high hopes in replacing declining print advertising with ads on their websites. Indeed, as audiences online have expanded, newspapers have seen their online revenue grow by more than 30% a year. But the Project for Excellence report suggests that the boom in online news audiences and income has begun to wane. A Pew Research Center study cited in the report found that the number of Americans who said they went online for news every day declined to 27% in June 2006, compared with 34% in June 2005. (…)

Today’s report says that the loss of about 4,000 newspaper journalists since 2000, combined with the smaller number of pages devoted to news, “suggest that American newspapers have reduced their ambitions.” Newspapers have traditionally served a “complete diet” of news to the public and alerted television, radio and other media to stories, the report found, suggesting that more study is needed to determine “what is lost and what is left uncovered.” (…)

The Project for Excellence report says that the ethnic media sector is one of the few experiencing solid growth. Spanish-language newspaper circulation, for example, jumped 900,000 to 17.6 million in 2005. That was the most recent year with available data. (…)

What it means: is hyperlocal all about reduced ambitions or increased relevancy and differentiation? I think it’s all about the latter. I personally believe that we will see a polarization between what I now call hypernational news sources (very credible news organizations that cross borders like the ones I mentioned here) and hyperlocal ones (very relevant local news and content sources). Those in between will possibly lose a lot of their former luster. Smart news organizations will own one or two hypernational brands and a multitude of smaller hyperlocal brands. Hypernational content will flow into hyperlocal vehicles.

Reports on Newspapers’ Death Are Greatly Exagerated

The World Association of Newspapers has just released global circulation data to try to debunk the myth that newspapers are dying.

Highlights:

  • Global newspaper circulation up 9.95 percent over five years and 2.36 percent over twelve months
  • Daily newspaper titles surpass 10,000 for first time in history with more than 450 million copies sold daily
  • In excess of 1.4 billion paid-newspaper readers
  • Total free daily circulation more than doubles in five years from 12 million copies in 2001 to 28 million in 2005, an increase of 137 percent
  • Combined paid-for and free newspaper circulation increased globally 9.95 percent over five years, and 2.36 percent over one year, in 2005, the most recent period for which full-year figures are available
  • North America showed a five-year circulation increase of 0.70 percent and was virtually stable over one year
  • Europe showed a 2.12 percent increase over five years and a one-year increase of 4.18 percent

Via the Center for Media Research

What it means: while the chairman of the New York Times Company is looking at how to best manage the transition from print to Internet, the World Association of Newspapers releases data showing some growth on the print newspaper’s side. What I find interesting is the data about free newspaper growth. On the Web, it’s very rare that the user ends up paying for content. TV, radio, business directories are also subsidized by advertisers. Does this mean that part of the problem is on the consumer pricing side (i.e. what would happened if all newspapers dropped their prices)? Or is this just a new consumer segment? I’d be curious to hear from newspaper experts.

Local TV Online Revenues Up 41%

A new survey by the Television Bureau of Advertising reveals interesting elements about local TV online revenues.

Highlights:

  • Local television’s online advertising revenues were up 41% in 2006 to $399 million (2007: $618 million).
  • Many stations are using the Web as a publishing platform by also offering classified and directory advertising.
  • Seven categories comprised half of all online ad spending (in particular, Real Estate, Health, High-Tech and Automotive).
  • TV station share of the local online ad market was 7% in 2006, up from 6% (+17%) in 2005 and 4% (+75%) in 2004.
  • Local newspaper and radio websites share of local ad revenue declined in 2006. Newspaper sites went from 43% in 2005 to 36% in 2006 (-16%). Radio websites went from 4% of local ad spend in 2005 to 2% in 2006 (-50%).
  • A key driver of growth was video advertising. In 2006, 72% of TV station websites sold video ads, and 80% plan to in 2007.

The report recommends that local broadcasters:

  • rethink the mass-media mentality with an eye toward viewing the Internet as a mass of niches
  • hire a dedicated online sales force
  • give strong consideration to launching a real estate section
  • consider spin-off sites that may not be branded to the station (new verticals)

You can read the 31-page .pdf report here.

(via Broadcasting & Cable and the Television Bureau web site)

What it means: online revenues are starting to be more substantial in local TV but they are still much smaller than what you find in local directories or newspapers. I wonder if it wouldn’t be more efficient for local TV to partner with local radio, newspapers and/or directories to leverage each other’s strengths instead of competing. The critical mass of multimedia content attached to a mashed-up TV/Radio/Newspaper/Directory site might make this a very interesting destination in a hyperlocal context.