I commend to your attention Jay Rosen’s blog post suggesting that news companies take the “full stack” approach to a media niche and Ken Doctor’s post examining newspapers’ chances of finally starting to grow revenue just enough to keep pace with inflation.
The posts don’t seem related. Jay looks primarily at digital startups, using legacy media mostly for contrast. He starts out talking about a “complete, end-to-end product or service that bypasses existing companies,” citing a post by Chris Dixon about the software industry.
But mostly Jay focuses on a single point of the full stack, suggesting that news organizations need “a full stack intellectually speaking.” I’d love to see Jay expand on that full intellectual stack, but he zeroes in further, on the very identity of news organizations: “That means defining the beat the way no one else defines it, and coming up with a mission that differs from the industry standard.”
It’s a thoughtful post and I recommend reading it. I’m going to take it in a different direction.
But first, a quick overview of Ken’s piece, which I also recommend. No one is taking a more detailed look at upheaval in the news business, particularly the newspaper business, than Ken is. This piece asks when (and whether) the newspaper industry can level out after being in a revenue free fall since 2007. Ken’s idea of leveling out is not just to stop losing revenue, but to keep pace with inflation, which Ken projects at 1 percent for 2015 (after a 2.5 percent loss for 2013; 2014 numbers aren’t out yet).
Ken speculates about the chances for growth in 2014 and 2015 in three areas: reader revenue, digital advertising and the “third stream,” an eclectic grouping of revenue sources such as commercial printing, events and marketing services (spoiler alert: He’s not optimistic).
So here’s where I stretch to relate (I hope) Jay’s full-stack thinking to Ken’s analysis of the newspaper industry’s chances to grow.
Let’s start with the point that newspapers were never a full-stack operation. We were at the mercy of newsprint companies, which many times in my career threw budgets into havoc with huge price increases. (I was always puzzled why we never developed a futures market in newsprint, letting companies lock in low prices and/or hedge against price increases.)
On the other end, we didn’t control delivery, turning that over to boys and girls (for the first part of my career) and adults (more later in my career) who were independent contractors. I remember feeling guilty when we would go to court to fight (successfully) against worker comp claims filed by teen-agers injured delivering our papers. When I was at the Kansas City Star and Times, we actually went to the Supreme Court in a battle with our carriers over who controlled our routes, then (after we lost) paid them millions of dollars to buy the routes back. And then we hired the carriers back as independent contractors. We wanted to own the routes, but we still didn’t want to deliver the papers.
I never was thinking about the full-stack metephor until reading Jay’s post, but much of my career, especially the past decade, I have been calling for newspapers to pursue a full-stack approach. In the 1980s (it might have been 1990), I unsuccessfully urged colleagues at the Kansas City Star and Times to follow the lead of cable TV companies and sell modems to customers of the StarText program we were testing, which offered stories to subscribers the night before they would appear in the newspaper. In those days before the World Wide Web, most computer owners (including me) didn’t have modems, and I thought we would have a much bigger audience by offering to sell and install modems for customers, rolling the cost into the subscription price, rather than just selling our service to those with modems. I don’t know whether my approach would have made StarText successful (it wasn’t), but it was my start of thinking about a bigger stack than newspaper executives were thinking of.
From 2005 to 2008, working on the American Press Institute’s Newspaper Next project, which might not have been the full stack, but it called newspapers to think bigger about how they did business. N2 drew a lot of interest and several companies tried different recommendations of N2, but no one implemented the full stack of N2 recommendations.
In 2009, I published my Blueprint for the Complete Community Connection, which was as full a stack of business ideas for a newspaper (or other community news organization) as I’ve seen from anyone. Again, the idea generated interest, but no one tried to implement it.
If that stack wasn’t quite full, I added to it later in 2009 with my suggestion for mobile-first strategy, in 2010 with my call commissioned obituaries and other life stories and in 2011 with a long list of revenue ideas for newspaper companies.
In two recent jobs, I argued unsuccessfully that we needed stronger technology development operations, both to develop better tools for executing on a full-stack approach and because I was convinced that technology solutions for media companies following our paths would be another revenue important revenue source.
I’m not saying my ideas would have saved newspapers or would have been the path to prosperity for digital startups. I’m sure some of them would have failed.
What I am saying is that Ken’s discussion of potential revenue streams for newspapers is nowhere near the full stack that Jay is advocating or that news companies need to consider.
I may have been unduly pessimistic about the potential for revenue from subscriptions or paywalls. But I was exactly right in 2013 when I said new revenue streams hold more promise for newspapers than paywalls. Ken, who used to be a paywall optimist, now warns: “Don’t expect much growth in circulation revenue for full-year 2014” (he and the Newspaper Association of America both lump digital subscription revenue with print subscriptions). The private numbers I have seen on paywall revenue agree with his outlook.
Ken is more optimistic (but still kind of gloomy) about that “third stream,” which I was blogging about in 2013: “Growth in marketing services should be real, and ramping up, but it’s unlikely to throw off the big dollars needed for the up turnaround. The other new revenue sources are good, but won’t grow a lot.”
Doctor (and NAA, whose numbers he’s using) have a narrow view of that third stream. A full-stack company should pursue such revenue streams as transactions, events, commissioned content, technology solutions and far more. Ken’s right that the current third-stream efforts of newspaper companies won’t grow a lot. But you need a full stack of revenue sources beyond advertising and subscriptions. The sideline efforts we’ve seen so far aren’t nearly enough, but a full stack has great potential.
Ken is right in being pessimistic about newspaper companies’ chances of growing digital advertising revenue: “The industry may be lucky just to stay even in digital ads in 2014.”
Newspaper companies have done a lousy job of selling digital ads, as Ken notes: Only $3.42 billion in 2013, most of it bundled with print ads. Newspapers’ digital ads grew only 1.5 percent in 2013 and Ken doesn’t expect them to do much better (or even as good) in 2014 or 2015.
But digital advertising represents a huge opportunity for a full-stack media company: projected at $52.8 billion this year and growing at 13 percent annually, Doctor says. A full-stack company can pursue digital advertising more aggressively and more successfully than the abject failure of newspaper companies.
It may be too late for newspapers. I don’t anticipate anyone investing what it would take to pursue a full-stack strategy. But I think a full-stack strategy, correctly identifying your niche and mission, as Jay suggests, can be the path to success for digital startups or for legacy media willing to adapt to survive.
Steve, thanks for another good column. I harken back to a BuzzMachine piece written a couple of years ago by Jeff Jarvis who, if I recall correctly, speculated the next great revenue stream for digital news organizations might well be online retailing. I find it interesting to see a few of my independent news site colleagues going that very route now. I’m uncomfortable thinking about that alternative as part of the “full stack,” but maybe it should be.
Joe Zlomek
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Steve: Thoughtful piece, and well-connected. Let me clarify a couple of things. In Jay’s emerging full stack notion, there’s good merit. I’ve written and spoken about the news industry’s need to move beyond its current thinking — including its self-defined Third Stream — and have offered business models from companies as diverse as Quartz, Schibsted and The Guardian. I quite agree the re-envisioning of customer relationship — and the money that may flow from it — is fundamental, and will write more about that this year.
On paywalls: they aren’t an either/or proposition. Paywalls 1.0 has been a good idea, transitioning largely print readers to paying for digital access. My point is that it is only 1.0. Without both investment in content and Paywalls 2.0 product, it simply won’t create a ramping revenue stream. My analysis of them is just that, a look at the numbers. My relative optimism or pessimism on that, or other topics, is less important than the reality of the data.
Ken
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Thanks for your response, Ken! We’ll just disagree on whether paywalls are an either/or proposition and whether Paywalls 1.0 has been a good idea. The data I’ve seen certainly don’t support that.
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I’m skeptical about the third streams, unless they related directly to news content, which most of them don’t. Ads in print or on websites/apps do that, but what do “marketing services” like advising people how to place better Google ads have to do with local news coverage? Same for commercial printing, or “scrap sales” (that’s actually listed by NAA as a third-stream component). In the 80s and 90s, I worked at The Berkshire Eagle which actually owned a fitness club and a courier service, which were mainly distractions from our real business, along with an ambitious real estate development project that was the owners’ complete undoing. But the point is that any of these things could stand alone. They’re more like the bacon at the side of your stack, they’re not integral to the stack. Or, they’re more like starting a restaurant to make money to support your money-losing lawn care business. Nobody would do that.
Like you, I am also pessimistic about newspapers. They have made only incremental changes, not only during the last 20 years of disruption by the Web, but during the 70 years of disruption by radio, TV and cable before that. (Process color! Narrower web widths!) Strategic changes to the business model are beyond their comfort zone or resource capabilities. They are still living the monopoly dream. You can buy them for 3-5 times cash flow, which sounds like a great investment until you figure out how fast that cash flow is shrinking. People who are looking at buying a local newspaper should look at the alternative cost of starting up a kickass (full-stack) news organization in that market. It can probably be done for 1x the newspaper cash flow, and be profitable in a year or two. And that would include launching a weekly newspaper, as part of the stack.
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Excellent points, Martin. I think that fitness clubs and courier services and such don’t fit into the stack. But if you have a sales staff calling on businesses in the community, selling a full range of marketing services (beyond just ads in your newspaper or website) definitely fits into the stack. And you’ll design your site differently, to be a portal to life in the community, not just news stories with ads trying to intrude, and that presents entirely different opportunities for that sales staff.
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But the hard part (especially in the smaller markets) is to find or train salespeople who can actually do that, in a media environment that is shifting with the speed of light. And then there is the “already spending enough money with you” problem. Sales is still a social function. Historically print salespeople had the problem that they could get a merchant’s attention for 15 minutes, which was enough to sell them their weekly ad and maybe a special section ad, or two. But we tended to stuff their bag with 10 different things to sell. And the merchant would either say, “time’s up,” or, “I’m already spending enough with you. Suzy from the radio station is waiting in the hall.” On top of this you have backward looking corporate types who say, “85% of our revenue is still from print, so sell the hell out of print and stop leading with that digital stuff.” (Not a direct quote, but I’ve heard that expressed.)
So what happens (as I understand it) at publishing companies that have developed robust marketing services consultancies, is that they are often free-standing units with their own sales force. That makes them the bacon, not the stack. On the other hand, outfits like the New London Day, while contracting with a marketing services entity, have fully integrated big data/SEO selling capabilities in their sales force, which is the way to go as you suggest.
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Not saying it’s easy, but the merchant’s unwillingness to spend time with sales reps is probably a reflection of the value that the products are delivering.
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[…] him for many years and I know that he is devastated after what happened, and I think the whole news organization feels horrible about what happened,” “Today” show co-host Hoda Kotb told FOX411. […]
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