Five game-changers for the local media business model
It was an interesting assignment: Forecast the next three years’ revenues and cash flows based on current activities, then come up “game-changers” that could produce significantly better results.
At Morris Publishing Group — 12 daily newspapers and dozens of digital and non-daily properties — we came up with five that I’ll share here.
This two-part exercise was required preparation for this year’s Morris budget meetings — a week of presentations to the Morris family by the various business units they own.
Both parts of the assignment would be illuminating for any traditional media company — newspapers, radio, magazines, books, television. In these businesses, if you’re honest with yourself about where revenues are likely to go, you will quickly conclude that you will need some major game-changers if you hope to produce meaningful growth.
We wanted to keep the forecast part of it fairly simple. We broke revenue into the following major categories, plus sub-categories:
- Display advertising
- Line advertising
- Specialty publications
- Consumer revenue (including print and digital subscriptions and print single-cope)
- Commercial printing
- Digital advertising/marketing/promotions
About a dozen of us — a mix of corporate execs and publishers — filled out the spreadsheet individually, then we averaged the results. Some of us filled out all the sub-categories, and some of us just filled in the bottom line of each category. Close enough; this is just educated guesswork, not precise science.
Here’s a blank copy of our spreadsheet if you want to try it for yourself: Revenue Forecasting – 2012-2015.
For us, forecasting the track of our two biggest and newest revenue initiatives was part of the exercise. These are our All-Access program involving significant price increases for our newly combined print/digital consumer subscription products, and our new, stand-alone digital sales division, Main Street Digital, previously described here and here. We expect both of these to be big revenue contributors in the next three years.
Even with those factors, the averaged forecast among our group came out very close to flat, although there were both optimists and pessimists. Compared to the last several years in the newspaper business, flat is good. But it’s certainly not good enough; we need a way to return to growth. This exercise — plus forecasts from outfits like Borrell Associates and BIA/Kelsey — show that our core business isn’t likely to provide it.
Which brings us to the game-changers.
Our group brainstormed for 90 minutes or so, trying to figure out where we could achieve some break-out growth. In our group, we pretty much assume — based on plenty of evidence over the last six years — that advertising adjacent to news won’t do it. And we assume that the All-Access program will run into upper limits on subscriber rates in two or three years. So we knew we needed to look beyond those areas.
As a business that’s inherently local, with thousands of customers — both consumers and businesses — and a well-known brand, what alternative business models could we pursue?
Here’s what we came up with:
The idea of a media company selling goods and services is hardly new, but it’s been just a small sideline business for most publishers who have done it. We pictured attempting it at scale, as quite a few magazines have begun to do.
Yoga Journal, for example, has grown e-commerce into a $2-million a year business that’s gone from selling digital content packages to yoga mats and clothing to liability insurance for yoga instructors. A horse magazine is selling a roadside towing service for equine vehicles. Some soft-crafts publications now offer catalogs of several thousand SKUs — patterns, kits and materials. In these cases, the items sold are right in the sweet spot of the particular passions that drive the magazines’ audiences.
For newspapers, it’s hard to think of similar passions. However, we’re thinking the e-commerce offerings might relate either to news or to local living — the latter providing a far larger set of possibilities. We would market them through our existing media channels, and the offerings could be digital goods (single-issue digital publications, repackaged collections of existing content and archives), physical goods bought by us at wholesale and fulfilled by us, or physical goods and services sold by us but fulfilled by a retailer or service business with whom we would partner.
A couple of weeks after our brainstorming exercise, I spotted an article in Ad Age reporting that the Wall Street Journal was headed in a very similar direction with its WSJ Select program. (It’s darn hard to find on the WSJ site, though.)
In our brainstorming group, Mark Nusbaum, president of TU Media and publisher of the Florida Times Union, pointed out that we have thousands of relatively affluent customers in our markets, and that they spend barely $20 a month with us. In e-commerce and in several of the other ideas below, we began to focus on how we could expand on those relationships and win a larger share of these customers’ spending.
Now we’re setting out to figure out the best way to structure the e-commerce business, and what we might sell that would be attractive to people in our markets. This looks like the lowest-hanging fruit among these five new business ideas.
2. Local Transactions
Our traditional business model is built mainly on advertising — an ever-smaller piece of the local commerce pie. Meanwhile, billions of dollars change hands in consumer-to-business transactions in local markets. Advertising is just a small derivative of this huge flow.
How can media businesses get a piece of that bigger action? Five years ago, in the Newspaper Next 2.0 report, I recommended that newspaper companies should attempt to become the Amazon.coms of their communities — the local providers of e-commerce back-end services for local businesses. In our Morris brainstorming session last month, we saw this as still a viable possibility.
National retailers are doing more and more of this, inviting consumers to buy their items on the stores’ websites and pick them up in the local stores. But very few local businesses are set up to do this.
However, we have business relationships with hundreds or thousands of these local businesses, and credit-card accounts with tens or hundreds of thousands of local consumers. And we have more digital know-how than most of these businesses.
We’ll be exploring the idea of providing a white-label platform on which local businesses can offer their products and/or services, sell them directly online, and either provide delivery or in-store pickup. The sales might be processed through the credit-card accounts we already have with many of these customers.
Our role would be similar to the one Amazon has with thousands of online sellers. We would provide the shopping cart, process the transaction and collect a small percentage of the sale. And we might include (as an upsell or not) online marketing support — whether through advertising, landing pages, a marketplace or some other approach.
This differs from No. 1 because the goods and services would be sold under the local businesses’ brands — not ours.
This operation, like No. 1, would be a business of its own kind, with very different activities and functions from those of a newspaper. It would need its own team, separate from the core business, to make it successful.
We’ll be going into research mode on this possibility in Q1. It’s a fairly close cousin to the previous business model, so presumably it might be built on the same e-commerce platform.
3. Super-Serve Our Customer Base
This is a more extreme version of No. 1, derived from Nusbaum’s insight about the untapped capacity of our core customer base. Our subscribers are older than average. We worry about that, and rightly so. But they are also relatively wealthy people who find themselves with new needs and wants as they advance in age.
Many are near or well into retirement, which creates both challenges and opportunities for them. Our brainstorming group visualized that we might be able to expand our brand or add a sister brand that would become a trusted source of lifestyle solutions, such as healthcare, home care, home maintenance and repair, leisure and travel, legal and financial services and so on.
Outside the media industry, many smart people are creating or expanding businesses to target the burgeoning needs of the huge Baby Boom segment. Why shouldn’t we consider it, too, since our businesses are already well known and generally trusted in this segment of our communities?
Closest to our traditional role as news providers would be a new practice of vetting and endorsing products and services. But it’s hard to see any revenue stream there. Instead, we might vet and co-brand selected products and services from local providers, as a separate function from our traditional news operations. Or we might go a step further by offering products and services under our own brands, fulfilled by contracted providers we have vetted and approved. Sears, The Home Depot and others do this with repair and installation services.
This entire business would need to be kept a safe distance from our core business, leaving the editorial objectivity of our news departments untouched.
4. Back-End Business Services
Small businesses often lack solutions for the back-end necessities of running a business. We could broker those services.
This is another potential business suggested in the Newspaper Next 2.0 report. The report pointed out that many small business operators went into business to do something they love, only to discover that the nitty-gritty requirements of running a business are a constant distraction.
Our new all-digital sales division, Main Street Digital, will be reaching many new SMBs that our core sales teams don’t currently serve. And they will be providing a range of business services going beyond advertising into promotion, reputation management and other services.
It’s not too great a stretch to imagine that we might also offer other non-advertising services through these relationships. These might include accounting, payroll, legal, financial, human resources, IT services and support. We wouldn’t necessarily need to provide the services; this could be done through contract relationships with qualified experts in these fields.
5. Acquire Other Types of Businesses
The previous models are not proven. Here’s a less risky alternative: Diversify our revenue streams by acquiring other types of successful businesses in our markets.
There’s no guarantee that the drastic changes occurring in the media business will provide any sure way to replace fully the advertising and subscription revenues we once took for granted. So now, while our cash flows still remain strong, we could diversify by buying stable, profitable, non-media businesses with solid future earnings potential. (By the way, this is a distinctly different strategy from acquiring sexy startups that may or may never make money.)
The idea would be to target business segments that are largely sheltered from the digital disruptions we’re experiencing in our core business, that have shown more stability in recessions than advertising, and that have organic growth potential. Synergies with our core business would be a plus but might not be a requirement.
Our local-market knowledge and connections could help us to identify good prospective acquisitions and negotiate attractive prices with owners who want to sell to people they can trust.
This strategy has been used successfully at many levels of our industry. The Washington Post Co. enjoyed years of strong earnings from Kaplan, Inc., its educational services division. Woodward Communications, owner of the Telegraph Herald in Dubuque, IA, and several radio stations, acquired two ad agencies that have contributed good earnings. And the Monroe Publishing Co., where I serve as chairman of the board, has just closed on the purchase of a well-established local B2B printing and office services company.
At Morris, we may or may not ultimately decide to pursue all five of these possible business directions. But given the likely future of our industry, they’re definitely worth exploring. And we’ll be doing that.
I’d be very interested to know — what alternative businesses is your media company exploring? Please email me — email@example.com — if you have ideas to share.
Posted on January 9, 2013, in Advertising, Disruption, e-commerce, Media business model, Revenue, Transactions and tagged acquisitions, advertising, back-end business services, diversification, E-commerce, media, media business model, newspapers, revenue, traditional media, transactions. Bookmark the permalink. 1 Comment.