Waving – or drowning?

Why the media and advertising industry has struggled to come to terms with digital technology.

“Anyone in media worth their salt has at some point woken up in a cold sweat and thought Holy shit! If I don’t get my head around this, I’m history!”   Agency CEO

The migration to digital has been a long and painful road for the media and advertising industry – not that the journey is ever completed.  The shift in the competitive landscape has been seismic: only 13 years after its foundation in California, Google became the UK’s largest media business by advertising revenue, superseding ITV’s 40-year hegemony. Facebook – half Google’s age – commands more UK consumer attention than the websites of all the UK’s print media combined.

It’s not just the media owners who have struggled to adapt. Ofcom data shows that the share of digital advertising taken by ‘display’ actually fell between 2005 and 2010, and hovered around the 10% mark, with search taking 60% (Google on its own taking half the total online spend). Martin Sorrell’s nostrum – that advertising share adjusts over time to reflect the share of consumer’s time spent in each medium – is taking an age to come good in digital.

While teaching at London Business School for the past academic year, I spoke with many industry leaders to understand why it has been so hard.  They identified five key areas of difficulty:

-       Skills and decision-making

-       Structures

-       Finance

-       Language and definitions

-       Metrics or exchange-rate mechanisms

Skills and decision-making

Those in command of mainstream media and ad agencies can give you a ready and accurate account of how a newspaper is printed, a TV show is cast and edited, or a TV commercial is written and approved. Ask them how to decrease page-download times, or build a secure return channel for online competition entrants, and you’re likely to be met with silence or bluster. Gifted technologists attracted to marquee media brands have often found themselves frustrated by bosses who did not understand their work or constraints. The digital marketing manager of a major national brand commented that 80% of her time is spent explaining her department’s work to colleagues.

For those in power, the kinds of radical re-orientation demanded by digital were not congenial. Who, having spent 20 years scrambling up the corporate pole, would willingly suggest that their own budgets or span of control be reduced in order to promote digital expansion? The failure of incumbent leadership to grasp the challenges of digital is exemplified by the decision of ITV plc to go outside television and hire Adam Crozier (Saatchi, Football Association, Post Office) to lead its reinvention. Similarly, Time Inc, the world’s largest magazine business, this year turned to digital ad executive Laura Lang as its CEO: a woman with zero previous experience of publishing.

Structures

Cilla Snowball, Group Chairman at AMV BBDO, identifies five different structural approaches to bringing digital competence to a business: from ‘Infusion’, where everyone is expected to demonstrate digital skills; through a ‘separate department’ of go-to experts, to ‘separate division’; or a ‘partnered entity’, where a business hooks up formally with a digitally expert associate; to the separate company, where the digital question is pushed away to an entirely different corporate entity.

She recalls the exasperated lobbying of younger AMV managers wanting to set up a separate ‘AMV Digital’ in Shoreditch. With hindsight – and only with hindsight – AMV’s decision to opt for ‘infusion’ has been right: it remains now, as it was pre-web, London’s largest creative agency. Other businesses have tried some, or indeed all five, structural plays over a ten-year period, and there have been memorable failures.

Under City pressure to ‘do something’, Emap, the then powerful magazine and radio player, shifted abruptly in 2000 from ‘separate department’, where each Emap business had its own local digital team, to a centralised  ‘separate company’ – Emap Digital. It lasted two years, and cost the business about £100m. It wasn’t only publicly-quoted companies that succumbed to these pressures: Telegraph Media Group’s ‘Euston Project’  lasted an even shorter time, and lost the company £40m, plus its editor-in-chief, Will Lewis.

Many top agencies bought digital start-ups, then tried the ‘Partnered Entity’ or ‘Separate Division’ approach – only to see the founders leave and the cultures fail to gel. As with all the issues raised here, there is simply not a right answer to the structural problem.

Finance

As one expert memorably put it, the dilemma for media owners is this:

‘I either invest too little, and lose share; or invest too much, and lose profit. And even if I spend just the right amount – I’m still making less money’.  

The sums do not add up. Companies’ five-year capital expenditure timeframes sit ill with digital development that tends to be continuously reiterative, and in a market which is changing with much greater rapidity than in the past. And these investments need to be funded from offline revenues that, especially in print media, are declining.

Firms used to showing a return on investment in the form of profit, find themselves competing with start-ups playing by alien rules -audience accumulation followed by exit: the most egregious example being Facebook’s acquisition this year of Instagram – a one-year-old ‘business’ with no revenues – for $1billion.

In the agency business, costs rose, while the basis of charging – historically linked to the amount spent – was undermined by an unprecedented fall in advertising costs, causing a frantic search for new business models which – particularly in creative agencies – still continues.

Language and definitions

The language firms use to frame their competitive sets and define successful behaviours, limits their ability to embrace new market definitions and new ways of working. Incumbents tried to apply the language of 20th-century business on to the new technology: thus the internet was initially described by many advertisers and agencies as a ‘direct marketing medium’, as though it were a rival to the Royal Mail.  The effect of this lazy thinking was to create a market gap into which smart entrepreneurs rushed to offer advertising clients digital services and steal share from the giant networks.

Similar self-delusion was evident on the media owner side, with companies measuring their online performance against that of their offline competitors, often (willfully) oblivious to the inroads on consumer attention made by online-only entrants with different models – such as YouTube in TV. And an executive who made a successful transition from selling offline to online classifieds, recalls how the regional newspapers used to refer to ‘our advertisers’, using phrases like ‘we own this market’. What they believed to be permanent ownership turned out in fact to be an expiring leasehold. The number of consumer media players to profitably export a legacy business model onto the web can be counted on one hand.

Metrics

Advertising  has for half a century been traded on the basis of sample-driven audience research controlled jointly by the media owners and the agencies coming together in Joint Industry Committees (JICs). Funding, while shared, falls more heavily on the vendor, but decision-making about modifications to the currency is always shared in these fora. And the currency for planning and buying in each is the same: demographic data based on sampled (claimed) viewing/reading/listening to an agreed methodology.

Students at LBS with no exposure to the industry are astonished to learn on what small samples buying decisions in seven or eight figures are made. (As one digital agency executive commented: ‘I’m in touch directly with more consumers, who bought my client’s product last Thursday, than there are individuals on the BARB panel’) The point is that the planning data are a currency, and like any currency, the value depends on the consensus in the marketplace.

With so much financially dependent on these consensus-based models, it is not surprising that change comes only after much deliberation and politicking. The pace of change exasperated some media owners to the point where they have absconded. The FT, for instance, has created its own measure of total audience across all channels.

The industry blew its best chance to create a JIC in the late Noughties: Mark Cranmer, a respected agency leader (now CEO of Isobar) was brought in to chair negotiations. But this coincided with the 2008 financial crash, snapping agency wallets shut.  Critically, the largest player, Google, saw no need to underwrite a JIC audience measurement system which would only have the effect of undermining its competitive advantage. No cash, no JIC. The resultant compromise, manfully maintained by the Association of Online Publishers, has failed to gain the status of the other media currencies, leaving marketing directors unable to ‘read across’ online and offline media.

This last may sound like a secondary point, but marketing directors – many of whom enjoy the same job security as Premiership football managers – need to be able to account for their spending, usually their business’s biggest discretionary cost. Allocating budget to online without comparable metrics increases risk for them. Google’s dominant position has been built not on national blue-chip advertisers, but on hundreds of thousands of SMEs, who typically neither have the budget for traditional display, nor care about reach/frequency metrics so much as sales generated.

There are few success stories; businesses which have shown the agility to surmount these obstacles. BSkyB’s untethering of its premium programming from its home subscriptions business shows characteristic boldness in an industry leader. At the other end of the spectrum, Future Publishing has punched way above its weight on the Apple Newsstand – a position achieved by a management under the severest pressure to demonstrate new revenues. While at holding company level, News Corporation has shown itself willing to take risk, experiment and learn: for example, pursuing divergent paywall tactics in its 3 major newspaper markets (London, New York and Sydney), while launching the tablet-only paper the Daily. WPP has diversified geographically  into growth markets where offline media is still in vigorous growth, and emphatically joined the revolution in 2007 by buying digital intermediary 24/7 Real Media for $650m.

The list of losers is longer. All regional newspaper groups have failed to find a winning formula; the jury’s still out on the nationals. Perhaps most alarmingly that list must now include Yahoo and AOL: two giants of the first decade of the web, neither looks guaranteed to survive the 2nd. If digital native businesses like these, with multi-billion online revenues, cannot adapt and prosper, what hope is there for legacy media businesses.?

And that’s before we confront the next wave of development: mobile. As the CEO of one of the UK’s most successful media companies commented:

‘The past has been easy compared with what faces us now: how do we survive in a mobile world of small screens, big processors, and new consumers?”

 

 

 

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As easy as ABC

Why do publishers lie about their circulations?

People outside the print media may find it baffling that so much effort has to go into policing the circulation claims of publishers.

The latest up before the beak was the Wall Street Journal Europe: accused by the Guardian’s Nick Davies – scourge of  WSJ’s owner, Rupert Murdoch –  of cheating; and cleared, (kinda), by the UK Audit Bureau of Circulations.  The ABC said that there was ‘no clear evidence’ [my emphasis] that copies claimed by WSJE had not been paid for. It noted that payments were ‘complex and at times circuitous’; and added that it would be reviewing its own rules to see if they could be improved. The WSJE’s publisher, Andrew Langhoff, had already paid with his job, for offering editorial coverage to the company which apparently bought many of these copies, for perhaps one cent each, to gift to students.

The WSJ European edition, conceived as a counter-attack to the FT’s incursions into North America, has been a failure. Its average daily sale in Jan-June last year was a trifling 74,800 – but on closer scrutiny, many of those copies were either given away or sold at less than 5% of the published price: in effect more than half that 75K claimed circulation is bobbins. More people buy Mountain Biking UK magazine.

The most egregious UK national paper in this respect is The Independent. It is tiny – outsold by the Liverpool Echo. But it blows its numbers up with 53,000 bulk copies (free or virtually free) each day, to underpin a headline daily circulation figure of 128K. This compares to zero bulk copies at its 3 rivals the Telegraph, Times and Guardian.

The reason some publishers go to extraordinary – and sometimes illegitimate – lengths to maintain the appearance of a sale greater than the actual, stems from the unique two-sided nature of  (most) print media. Other media are either ad-free and paid for by the consumer – the BBC, all books; or free to consume and funded purely by advertising: commercial TV and radio (Sky is the exception that proves the rule – and its ad revenue is dwarfed by its subscription income). Only newspapers and magazines combine the revenue streams, and advertising revenue has been used, since the 17th century, to reduce the purchase cost to readers, and sustain historically handsome profit margins.  That’s why these businesses have been so hard hit by the shift of advertising to the web; and why they are so desperate to export their hybrid, bundled model to digital iterations.

Very crudely speaking, the higher your number of paying customers, the easier it is to sell advertising.  Within living memory (but then, I do remember black-and-white television…), gaming the audit system was relatively easy.  There was the music/clubbing magazine, whose ABC certificate was restated after a whole container full of undistributed copies was discovered quayside in Ibiza; and doubtless there were others not so careless or unlucky.  However, in recent years the ABC has made great strides in toughening both audit rules, and the audits themselves. (Declaration: I was a director of ABC, 2008-2010).  It is now very difficult indeed to fool the audit. The one exception remains copies distributed on mainland Europe. The costs of proving actual sale to individual copy level would far outweigh any benefit.

But the idea that advertising buyers are duped by pumped-up headline ABC numbers is misplaced. Around 4 in 5 display ads in British newspapers and magazines are bought by the top 5 agency networks. These sophisticated buyers deploy huge sums of money, and are certainly capable of scrutinising an ABC certificate.  (In any case, press planning, and pricing, is shaped more by data from the National Readership Survey, the UK’s largest piece of regular media research, consisting of random interviews with adults, and which has no statistical relationship to the ABC. But that’s another topic).

So why  – to return to the question – do publishers inflate their numbers? Buyers don’t fall for it. Readers don’t care: none could tell you the sale of their favourite title. The unhappy answer is that they are lying to themselves, to keep up the publishing company’s own spirits and pride. (I recall the frustration of the MD of a globally-respected newspaper, when his proposal to eradicate surplus copies from the ABC was met with horror by, of all people, the board of the parent company. Their potential embarrassment at being associated with a paper whose sale was apparently shrinking, outweighed the extra profit the move would deliver to shareholders). It is noticeable that even The Independent has been reducing the bulks in its numbers, and perhaps this is linked to a growing corporate confidence as that company’s two other titles, the Standard and the i, confound the doubters, (such as myself) with their differentiated and radical strategies.

Telling yourself that things aren’t as bad as they seem, is a deep human need. As a plank of corporate strategy, though, it is pure poison. I was lucky enough to hear Sir Terry Leary speak a few years back about how he had led Tesco to the world’s 3rd largest retail business. His number one rule, which underpinned all other decisions, was ‘understand the truth of where you are’. This, he noted, was ‘not as easy as it sounds’. Every day spent kidding oneself about the real sales performance of a publication, is a 24-hour deferral of seeking a route to renewal.

Decisions, decisions…

A company I work with just asked me for my tips on decision-making. Here they are:

Are you in charge of the decision-making team? In which case, do not let them know what you think – unless, of course, you’re always right. The team instinct is to conform to the leader’s wishes; it takes a genuinely brave individual to stand apart from them. In articulating your own initial preference, you will stifle the expression of alternatives.

Never make decisions when you’re angry. It stops you thinking straight (watch any post-match live TV interview with the manager of a losing Premiership football team, for reliable reinforcement of this truth). If something has made you angry, the best thing you can do – both for yourself and your business – is say: ‘I’m sorry. I am too cross to think about this now. I will return to it tomorrow, when I am back to my usual self.’

If a decision you take causes shock in your team or workforce, you have failed to spend enough time talking about it before taking it.

How important is time? There are tasks in which ‘later – but perfect’ trumps ‘sooner, and basically OK’: painting the Sistine Chapel ceiling, for instance. Is that your line of work?

If you are deferring a decision, ask yourself why. Will an additional week’s sales data, or another 50 completed questionnaires, or whatever, really inflect the alternatives facing you? Or is it just that you don’t like any of those alternatives?

Are you taking too many decisions? You may be withholding responsibility from those below you, who should be permitted more latitude. Or you may be failing to coach them, to give them the confidence to get on with the job.

Betting the farm? If a decision has serious financial or organizational implications, write your future history: a ‘pre-mortem’. Ask each member of the team to imagine that they have greenlighted the project; that you are one year in; and that it has been a total disaster. Ask them to write down, in 15 minutes on one side of paper, what caused the catastrophe. Then read them all out. Your team will intuitively know all the weak points in the proposal and the organization. At worst, this will provide you with a ‘risk register’ for the project if you go ahead.

This tip is included in the best book on decision-making I have ever read: Daniel Kahneman’s ‘Thinking, Fast and Slow’.

Data, not prejudice. When Bob Dylan said ‘Don’t think twice, it’s alright’, he was not referring to your feeling that you should raise your prices, because your product is more valuable than people seem to give you credit for.

 

Years ago I worked as chief bag-carrier for the MD of a public company – David, now Sir David, Arculus, at Emap plc. In my first week in the job, he asked me what I thought the secret of his success was, and, not waiting for my thoughts to collect like hairs in a plughole, answered his own question: ‘Because more than 50% of the decisions I make, turn out to be correct’. At the time, in my innocent youth, I thought he was being absurdly modest.  I now realize he was simply speaking the truth.

So – if more than half your decisions are right: congratulations! You’re doing a great job.

 

 

 

 

Keep taking the tablets

I am going to use this page to share occasional thoughts on the industries I know a little about. I like the words from Voltaire, on the right: truth, in a world in which technology is changing faster than ever. You will not find much prescription here.

With the launch of Apple’s Newsstand (which judging from its appearance, they bought in Ikea), and the Kindle Fire, and WH Smith’s announcement of a deal to sell Kobo’s ereaders in stores, there’s a lot of comment on publisher apps, and how the shift to digital reading is working. The fact that the sentence ‘our publishing strategy will be driven by tablets’ would have been simply incomprehensible 24 months ago, reinforces just how contingent life is for content businesses. As nobody really had a clue in 2009 where the industry would be in 2011, it is well to be cautious in projecting forward.

What do we know about tablet and ereader sales? Very little directly from the two big players, the reflexively secretive Amazon and Apple. Kantar, though, estimates that as of last month, 3.6m people in the UK own a tablet, and around 2.7m of them have opted for Apple. Meanwhile in the ereader market, Kindle, we know, is Amazon’s biggest-selling product of any type.

40% of tablet usage is during commuting, and much of this use – from personal observation – is substitutional. Now that I can board the 07:56 with today’s Times or Guardian on my iPad, there is precious little reason to encumber myself with the (more expensive) paper copies.

In that respect, tablets do little to resolve the problem facing print media – the ineluctable decline of volumes across the developed world. Matthias Dopfner, CEO of German newspaper giant Axel Springer, celebrated recently the 109,000 daily digital sales for his mighty Bild tabloid. But that’s only one-third of the sales lost by the paper version during 2010. Springer, one of Europe’s strongest publishers, saw German newspaper sales fall 6.8% in the first half of this year, a trend that was accelerating through the period; a rate of decline closely matching that of the UK’s quality press market. As Dopfner acknowledged: ‘I see no sign that the negative trend among newspapers and magazines can be turned round’.

It is these sobering numbers which render forgivable the hyperbole rained on the iPad by glass-half-full publishers. The 19th-century business model, that saw them binding together disparate articles and advertising, and selling the bundle on at rich margins, appeared to have been undone by the free internet. Then along comes the tablet, which  seemingly allows them to smuggle that model into the 21st century. (Hallelujah! we get to keep the corporate jet after all). There are a few challenges though.

Print remains a scale business right through the supply chain, from paper to retailer. While there is much rejoicing in heaven over one reader who buys a digital subscription – seemingly cheaper to produce/deliver – that does not greatly mitigate the threat as publishers lose the scale to compete profitably in the hard-copy world. (One UK-based publisher, Future, recently spoke about accelerating its switch from print to digital in the US market, reflecting these trends).

On the new platforms, we are still in early adopter territory. Look at the best-selling magazines on Kindle. Asimov’s Science Fiction, and Philosophy Now both feature in the Top 10. That does not mean they are brilliant publications (though they may well be); it means that this is an embryonic market, where very small volumes hugely inflect your ranking. What is true though is that the shift from early adoption to mass is occurring faster with every new tech category. So publishers are rightly not waiting for the dust to settle before getting stuck in. Print publishers, by upbringing, hate making their mistakes in public; they like to go through numerous dummies before publishing issue one. On digital platforms, being there is half the battle. Publish, test, learn, adapt, republish has to be the approach, as it has always been for the software industry.

Revenues are low. Pricing is controlled by the platform, either de jure – Amazon dictates pricing in certain categories, for instance – or de facto. The default price in the iTunes app store remains zero, and it is a brave publisher who sticks their prices up beyond the low norms prevalent even in the “high-value” content categories. There is a related issue here, using our commuter as an exemplar. In the past he would have been confronted with a choice, at the station newsstand, of a number of newspapers and magazines ranging in price from 20p to £5 or so. On his tablet, reversioned print is merely one of many ways he has of passing his journey – many of them completely free. Publishers are not competing with each other for the reader’s time on the tablet; they are competing with the entire digital ecosystem.

No publisher would entertain (say) printing in mono for WH Smith, but in colour for Sainsbury; but those are the terms of multi-platform digital publishing. Investment in these divergent platforms carries significant cost for content providers, which is why there has been no rush to create apps for the Blackberry Playbook, for instance.

Speaking of terms, there is the issue of margin. Apple has been much maligned for its 30% take, though if it felt the need to engage, it might well retort that that is almost exactly what publishers surrender to the physical supply chain. The reality is that whatever UK publishers think of these terms, makes little difference. As a very senior Google executive once memorably remarked: ‘Your brand is roadkill on the information super-highway’. The UK market is virtually invisible from San Francisco, and the global terms of trade are decided in negotiation between the West Coast digital platforms and the East Coast publishing giants. Sensible publishers, in any case, attach far more importance to customer data than to margin. (Those UK magazine publishers owned in NY, 3 of the top 5, should be helped by their parents’ relative proximity to the action, as well as by their investments in apps – if they can persuade their local management to desist from reinventing wheels).

These platforms that tend to winner-takes-all: the best search engine doesn’t command 33%, or even 53%, of search – it gets >75%; likewise Facebook, etc. The only reason I can think of for buying a Kobo reader over a Kindle would be price. Yet seemingly it is to be priced in line with its bigger rival. I struggle to see how this is a game that can be won against Amazon: their volumes, both of hardware and the software to consume on it, will drive not only price, but also the ability to upgrade the technology faster and smarter. As the old saying goes: the race is not always to the swift, nor the battle to the strong –  but the wise man bets that way. On the other hand, from WHS’s viewpoint, the more sandbags they (and their suppliers the book publishers) can hurl in front of the inexorably rising Amazon tide, the better. The deal with Kobo is from the ‘my enemy’s enemy is my friend’ chapter of the Art of War.

One final thought about the challenges of tablet publishing: two contrasting treatments of Steve Jobs. He died on October 5th. On 10th I was able to download the New Yorker of October 17th , (an excellent, Amishly plain app, great value at roughly $1 per copy) with memorial cover and three essays, including a brilliant piece by novelist Nicholson Baker. On 12th I downloaded the then current (October) issue of US Wired (another Conde Nast title) – complete with an upfront piece on ‘Apple After Steve Jobs’. To my astonishment, as I read, it turned out to be a piece about how Apple might cope now Jobs had stepped down from the CEO role. So Wired magazine – whose readers are more likely to be Apple adherents than those of any other publication, short perhaps of Macworld – was content to at best baffle, at worst offend those readers, through the “integrity” of its locked-and-loaded “current” issue. People in the business will say ah, New Yorker’s a weekly, Wired’s a monthly. That’s a very producer-centric remark. How fixed-schedule, lower-frequency titles adapt to the immediacy of digital life is just one more sharp-edged piece of the jigsaw. And unlike proper jigsaws, there is no picture on the box, to show you what the endgame looks like.

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