Top Online Media Execs See Bright Future

By: Steve Outing

What’s to become of online news publishing in the next two to three years? Well, if 20 of the industry’s European leaders know what they’re talking about:

* A business model will emerge for online news operations that works, and makes money.

* The industry will fairly quickly begin to tap its revenue potential. (Sites are current tapping only 20%-30% of their revenue opportunities, the group estimated.)

* Media-company top management ranks will see a swift change, with traditionalists replaced by executives who understand how the Internet fits into the big picture.

* Advertising will remain the dominant online revenue source, with paid content supplementary.

* Most pure paid-content models on the Web will be shown to be failures.

* Better integration of print and online will finally take shape.

Those are a few of the findings in an interesting new report, the “IP Zurich Report: Interactive Publishing Industry Europe 2003 – 2005,” by the Interactive Publishing GmbH consultancy. The report (free executive summary; full report, $840) coalesces and analyzes the comments of 20 industry “thought leaders” who gathered for two days of meetings in Zurich, Switzerland, in mid-January.

The European group (which also included two Americans, former WSJ.com Publisher Neil Budde and Morris Digital Works Vice President of Strategy and Content Steve Yelvington; and Derrek Fattal of Ha-aretz in Israel) was a mix of journalists and media business executives, and was led by Interactive Publishing partner Norbert Specker and Dr. Peter Kruse, a trainer and scientist.

Specker explains that the motivation for the meeting and subsequent report was “to send a positive message to the industry” about online media’s prospects for the next few years. Indeed, the industry could use some cheering up. Specker’s annual Interactive Publishing conference was not held this winter, for the first time since its inception in the mid-1990s, in part because of dour economic conditions, when companies spend less on industry conferences. Instead, he invited these experts for a smaller gathering and picked their collective brain.

The principal reason for the exercise, Specker says, was to examine this discrepancy: while Internet user numbers continue to grow at a healthy clip and the Internet infrastructure is ever more reliable and fast, the strategic outlook for online publishing at this point in time is depressed. “There’s a disconnect,” he says.

THE business model



Overall, the group expressed considerable optimism for the future of online publishing, although there was disagreement on when success will be reached. The executives can’t define the ideal business model yet, but they’re confident that media companies will figure it out.

Specker and Kruse identified two subgroups among the participants: optimists and pessimists. But for both of them, the overall outlook was the same — that the industry’s brightest days are ahead. The optimists, Specker explained, think that within three years the industry will be far along toward its ideal business model; the pessimists still expect that goal to be reached, but think it will take longer.

The group was split almost evenly among optimists and pessimists, with the optimists tending to focus on the advertising-supported model for online media as the continued driver of the industry. They believe paid content will play a supplementary and complementary role. Pessimists tended to put a higher importance on paid-content services and were skeptical that advertising could support online media, but didn’t have lots of ideas yet about how to make paid content work. While the ad model for news sites has problems — such as there not being enough ad money around to support every media site currently publishing — this expert group felt confident that they could find solutions and convince the advertising community of the value of Web sites.

New management coming soon



A fascinating outcome of the meeting was a strong belief that news-media companies are about to see a wave of new executive appointments. Many existing media-company top executives remain mired in offline-media-first thinking, but this group felt that these people are on their way out in the next two to three years — replaced by individuals from the online generation, who have spent their media-industry careers working in the Internet era.

Specker says his sense was that the group was not “wishing” for top-management change at their specific companies, but rather reflecting on structural changes that are becoming necessary for all media organizations’ survival. It’s not just the poor economy of the last couple of years that’s caused problems for all media enterprises, says Specker; it’s a core change that’s taking place in the industry that requires action. Media companies must integrate their various platforms — print, online, broadcast — at all levels. Chief executives must be equipped to treat all platforms equally and appropriately, and to find profitable means for having them work together.

When the optimists were asked why they were hopeful, one of the answers was that they expected this change (for the better) in top company leadership.

Specker says he picked up some serious “conviction” in this year’s online-leaders group. They believe that an upheaval is coming for the online publishing industry, and they look forward to it. “Media companies look at their online departments differently now,” he says. They’re viewed as more integral to the company whole.

Change in the ad model



“No more page impressions!” That’s one of the stronger messages sent by the Zurich online leaders in the area of advertising. While the ad industry wants and needs improved metrics to assess online performance, news Web site leaders say that other ad-sales techniques make more sense in the long run. Fattal, from the Israeli newspaper Ha’aretz, reported success in selling fixed ad spots by position and time posted on the home page — advertisers pay a fixed sum regardless of how many ad impressions are served. Models that are closer to newspaper or television ad metrics — where branding reach is of higher importance that specific ad-clickthrough numbers — may be in order. From the report: “Find a concept to sell the audience and skip the model of visits and page impressions.”

The group also felt strongly that online publishers need to do a much better job at “selling themselves” to the advertising community. The group’s advice? “Lobby, lobby, lobby: tell everybody about the great audience online publishers have. … The online edition has been proven to be an effective ad channel. … We need to increase revenues by developing the market and also to increase the share that content providers take, as opposed to, for example, the portals.”

Online publishers also need to “educate advertisers about the damaging effects of pop-ups and other intrusive ad spots” — a sentiment that’s dear to my heart. The group felt that bigger and more intrusive is not better. Specker says this points out how important it is for publishers — not the advertising industry — to develop new online ad formats that work for advertisers and consumers. We don’t know yet which online ad formats will be accepted by consumers, so it’s the job of publishers to lead the experimentation.

Show us the money



The Zurich thought leaders see strong potential for future online publishing revenues. In fact, the group estimated that less than 30% of earning potential has been realized to date. They believe that advertising revenues will grow substantially, but at the same time the emphasis on free content will be reduced.

Their thoughts on paid content were interesting. Initially, the group identified paid content as being an important element in the future ideal business model. But in a later brainstorming session, it became less so — an indication that the industry as yet has not come up with effective ideas about how to profit from paid content. From the report: “It will be discovered that for most sites, putting up a pay wall does not lead to a scalable business.”

While this is nothing new in online publishing, the group felt that multiple revenue streams will be critical for future success. A combination of generating new revenue streams and getting better at cost control should create “profitability across the online publishing industry” in the next two to three years.

We’ve heard this before



One of the things that struck me about this report is that these online-news leaders are saying some of the same things that they (as well as pundits like me) have been saying for years — but these are things that the industry as a whole has yet to effectively implement. For example, in the area of content, the group felt strongly that there is a need for news sites to create more unique content and use less content repurposed from other media platforms within a company. Current online-news content, according to the group: is too general and aimed at a mass audience; lacks entertainment value; is too often redundant to what’s published in print or broadcast; and lacks quality and credibility.

That’s an old complaint that dates back to the mid-1990s, but online-news publishers for the most part still haven’t addressed it.

The group also emphasized the need for a more integrated media strategy at news companies — at all levels, from editorial to advertising, to marketing, to production, to technology. They particularly emphasized the need for integrated sales departments, and think that there will be progress in the area of print sales people selling online placements as part of cross-media advertising deals. Within this two- to three-year time frame, advertisers will begin to get the message that “online and paper together reach a much more interesting critical mass than paper alone.”

While that describes some elements of the vaunted “media convergence” we’ve been talking about for many years, perhaps this industry-leader group exercise indicates that the industry will actually accomplish some of these things in the next few years — and not just talk about them even longer. Let’s hope so.




Letters



Softening up consumers

I read your article about the “Power of Google.” The relationship that online newspapers have with Google is free marketing for a free product. This is part of softening up consumers for the widespread introduction of paid content.

Before the Internet came along people did two things

1. They read newspapers.
2. They paid for newspapers.

The same will happen online, especially when you consider the approach of the Tablet PC, paper-thin screens, and ubiquitous wireless networks.

We are currently working on a solution called the JapanNewsPass, which will place all Japan-related news behind a single payment gateway. No free content at all. I am certain that U.S. publishers are also considering the same ideas.

If money is coming into the an online news site from subscriptions then news sites will pay to promote those sites and can make a realistic revenue-sharing model with Google.

In the end it comes down to the strength of a brand. Do we go to Google for news or do we go to The New York Times or The Wall Street Journal? Many of the existing newspapers already have a well-known brand so Google is good for the initial marketing phase, not for much else.

Mark Devlin, CEO and Publisher
CRISSCROSS KK


An opening for the alts?

Thanks for a wonderful article! One thing you did not point out is that if this trend continues, it leaves open greater opportunity for the alternative news sources (e.g. AlterNet) to reach a larger audience. While I can’t foresee the sustainability of such ventures, I think it contrary to the “alternative” ethos to restrict access to information by pricing it. It will be interesting to see what emerges — especially with the continuing popularity of blogging (as a news source) and RSS [Rich Site Summary] feeds (for convenience).

Christina Buu-Hoan


An immodest solution

Steve, with respect to your suggestion that either the news industry should negotiate collectively with Google or that some other solution be found, I wanted to (immodestly) point out that we already have more complete content of daily newspapers than any other source (because no newspaper Web site posts all the content of the printed version). Everything we ever did was paid. We do not need to “switch” from anything to talk about paid serving of content. We are well positioned to be that intermediary, if there is something to intermediate meaning if there is revenue at the end of the rainbow.

The fact that we have PDFs and not HTML is not an issue and in fact can be an advantage when it comes to presentation of the output. So, if Google wants to spider our content and then use the fact it is available in PDF to present a more user friendly layout, we could do that. The PDF segmentation engine such as X-CAGO’s or a different one, offers the ability to have articles available as database with advantages over spidering of Web sites (going in reverse from XML to HTML is obviously not an issue).

That said, while we are talking to Google it is not clear whether they have a game plan for Google News and are just not telling or they do not have much of a plan and are waiting to see what happens.

Miljenko Horvat, President & CEO
NewspaperDirect Inc.




Other recent columns

Paid Content Trend Is Dangerous, Wednesday, Jan. 27
New Year Resolutions: Fix Archives, Ban Pop-ups, Wednesday, Jan. 8
2003 Predictions for Online News Biz, Wednesday, Dec. 18
Walking the Convergence Talk, Wednesday, Dec. 11
Convergence For the Common Good In Rochester, Wednesday, Nov. 27
Have Newspapers Lost Help-Wanted Ads For Good?, Wednesday, Nov. 13
Previous columns




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