A recent report about the global newspaper industry published by Price Waterhouse Coopers (PWC), and aptly titled “Moving Into Multiple Business Models,” identifies the key questions newspaper execs should be asking themselves in these troubled times.
* Is your brand identity clear - both internally and externally - and focused on what differentiates you from your competitors?
* Are print and new media run as separate operations or as simply two different distribution mechanisms for the same core activity?
* Do you have an integrated paper and online advertising sales team?
* Are you using online to extend your core audience beyond the traditional print readership?
* Will video journalism and print journalism co-exist online?
* What does your audience want from you - and do you know what they will pay for?
* Can areas of non-differentiation be outsourced?
* Have you identified non-core activities that should be downsized or stopped?
* Are you investing today with a clear view of the payback on that capital allocation?
* How will you deal with the cultural aspects of change so as to maximize quality and minimize inefficiencies?
* Have you maximized the mass-market nature of your total readership (print and online) in discussions with advertisers?
* What sort of business will you be running in five years’ time?
In my conversations with people inside numerous U.S. newspaper companies recently, I’ve heard some of these issues discussed, but not most of them. For example, too many metro dailies still keep their print and online operations separate — not a good idea.
Integrated ad sales teams, a multimedia content (and advertising) strategy, outsourcing generic aspects of the operation, and effective brand management are never near the top of the strategy discussions I’ve been part of, though that doesn’t necessarily mean that industry execs aren’t aware of them.
The one question every U.S. newspaper company has addressed repeatedly is downsizing. But the PWC list is a reminder that papers have many other avenues to pursue besides cutting staff if they want to survive the transition to tghe new media age.
Source: bnet.com
Showing posts with label business model. Show all posts
Showing posts with label business model. Show all posts
Wednesday, September 16, 2009
Thursday, September 10, 2009
A newspaper business model that's working
We make community news free and have watched profits soar.
By Dan McDonough Jr. and Alan Bauer
It's widely reported – and has become generally accepted – that the newspaper model is either dying or already dead, when, in fact, thousands of newspapers across the country are doing quite well. Thousands of newspapers deliver for their readers and advertisers every day. Thousands of newspapers are positioned to embrace – not be destroyed by – emerging technology.
But we don't get to read much about those newspapers. Sure it's news when giant corporations crash and burn and lives are disrupted. Stories that report on incompetent leaders who, ironically, receive outlandish compensation are widely read. Documenting the downfall of powerful entities, whether they are governments or businesses, is a legitimate pursuit. But, as any respectable journalist knows, when you tell only half the story, the story is incomplete – or just plain wrong.
In this instance, the half that receives little to no attention from big media involves the men and women in the newspaper industry who write the stories, sell the ads, print and deliver the papers and update the websites every day, without fail, for media companies that are far from dead.
The National Newspaper Association (NNA) last month reported on a study that showed community newspapers were far less affected by the challenging economy than the industry in general (or the economy in general, for that matter). The Suburban Newspapers of America and NNA's reporting group showed 2008 fourth-quarter advertising revenue of $428.7 million, only a 6.6 percent decline from the same quarter in 2007. The Glennco Consulting Group estimate was much worse, however, for the overall newspaper industry. There it showed decline in fourth-quarter advertising expenditures of 21 percent, according to the NNA.
So while advertisers cut their spending by 21 percent across the industry, the impact to community newspapers was less than 7 percent.
In addition, 26 percent of the SNA/NNA reporting group launched new products in 2008. Indeed, many community newspaper companies are growing.
The fact is that gains among progressive community newspaper companies are offsetting a large part of the massive losses being suffered by the staid, big newspaper companies.
"Community newspapers certainly are not immune to the economic downturn that is affecting all businesses, but, as the primary and sometimes sole provider of local news in a community, they remain strong and viable," NNA president John Stevenson said in the article.
These "strong and viable" companies recognized and adapted to the changing economy in a way that larger newspapers – for the most part – are not. They adapted to evolving reader habits and emerging business models. They abandoned the traditional, head-in-the-sand mentality of denial and exploited the opportunities presented by their often larger, but undeniably obsolete, brethren.
At Elauwit Media, we learned long ago that people don't want to "pay" for their news anymore.
We know that, for advertising to be effective, people have to actually see the ads. Our business model and philosophy of making sure "Everybody Gets It. Everybody Reads It." pushes us to bring local news not found elsewhere to everybody who has an address in town. It fills a very specific need for our readers and it works so well that, for the past two years, we have been listed among South Jersey's 10 fastest-growing privately held companies. We've gone from a start-up in 2004 with $100,000 in revenue to a thriving company with revenues in excess of $2.4 million in 2008.
That's certainly not the story we're hearing about newspaper companies today. But that's the story of so many of us smaller newspaper companies that have adapted to the changes in the market.
This success is no great mystery – it's the American way. Ingenuity, creativity, and the entrepreneurial spirit always have been rewarded. The newspaper companies that have altered circulation methods and policies, have focused their content and developed news delivery methods to fit today's audience and advertisers are thriving. They found new streams of revenue and ways to reduce costs that didn't eviscerate their core products.
In other words, they ran their businesses the way businesses ought to be run. For instance, huge regional daily newspapers would do better to stop requiring people to subscribe and instead deliver the paper to everybody in their target demographic (the market that key advertisers want to reach). If big newspapers would charge the advertisers, not the readers, they could still turn things around. That would be a bold way to evolve. It is highly doubtful they'll do that. We did.
So as the giant media conglomerates continue to watch their kingdoms crumble, and the self-styled scribes of truth chronicle their every misstep and blunder, the rest of us will continue to vacuum up their former readers and advertisers. We'll continue to grow. We'll continue to adapt. We'll continue to profit. And we'll do it all while upholding the standards of journalism that make newspapers so important. And therein lies the future of newspapers – one that's not so gloomy for everyone.
Source: csmonitor.com
By Dan McDonough Jr. and Alan Bauer
It's widely reported – and has become generally accepted – that the newspaper model is either dying or already dead, when, in fact, thousands of newspapers across the country are doing quite well. Thousands of newspapers deliver for their readers and advertisers every day. Thousands of newspapers are positioned to embrace – not be destroyed by – emerging technology.
But we don't get to read much about those newspapers. Sure it's news when giant corporations crash and burn and lives are disrupted. Stories that report on incompetent leaders who, ironically, receive outlandish compensation are widely read. Documenting the downfall of powerful entities, whether they are governments or businesses, is a legitimate pursuit. But, as any respectable journalist knows, when you tell only half the story, the story is incomplete – or just plain wrong.
In this instance, the half that receives little to no attention from big media involves the men and women in the newspaper industry who write the stories, sell the ads, print and deliver the papers and update the websites every day, without fail, for media companies that are far from dead.
The National Newspaper Association (NNA) last month reported on a study that showed community newspapers were far less affected by the challenging economy than the industry in general (or the economy in general, for that matter). The Suburban Newspapers of America and NNA's reporting group showed 2008 fourth-quarter advertising revenue of $428.7 million, only a 6.6 percent decline from the same quarter in 2007. The Glennco Consulting Group estimate was much worse, however, for the overall newspaper industry. There it showed decline in fourth-quarter advertising expenditures of 21 percent, according to the NNA.
So while advertisers cut their spending by 21 percent across the industry, the impact to community newspapers was less than 7 percent.
In addition, 26 percent of the SNA/NNA reporting group launched new products in 2008. Indeed, many community newspaper companies are growing.
The fact is that gains among progressive community newspaper companies are offsetting a large part of the massive losses being suffered by the staid, big newspaper companies.
"Community newspapers certainly are not immune to the economic downturn that is affecting all businesses, but, as the primary and sometimes sole provider of local news in a community, they remain strong and viable," NNA president John Stevenson said in the article.
These "strong and viable" companies recognized and adapted to the changing economy in a way that larger newspapers – for the most part – are not. They adapted to evolving reader habits and emerging business models. They abandoned the traditional, head-in-the-sand mentality of denial and exploited the opportunities presented by their often larger, but undeniably obsolete, brethren.
At Elauwit Media, we learned long ago that people don't want to "pay" for their news anymore.
We know that, for advertising to be effective, people have to actually see the ads. Our business model and philosophy of making sure "Everybody Gets It. Everybody Reads It." pushes us to bring local news not found elsewhere to everybody who has an address in town. It fills a very specific need for our readers and it works so well that, for the past two years, we have been listed among South Jersey's 10 fastest-growing privately held companies. We've gone from a start-up in 2004 with $100,000 in revenue to a thriving company with revenues in excess of $2.4 million in 2008.
That's certainly not the story we're hearing about newspaper companies today. But that's the story of so many of us smaller newspaper companies that have adapted to the changes in the market.
This success is no great mystery – it's the American way. Ingenuity, creativity, and the entrepreneurial spirit always have been rewarded. The newspaper companies that have altered circulation methods and policies, have focused their content and developed news delivery methods to fit today's audience and advertisers are thriving. They found new streams of revenue and ways to reduce costs that didn't eviscerate their core products.
In other words, they ran their businesses the way businesses ought to be run. For instance, huge regional daily newspapers would do better to stop requiring people to subscribe and instead deliver the paper to everybody in their target demographic (the market that key advertisers want to reach). If big newspapers would charge the advertisers, not the readers, they could still turn things around. That would be a bold way to evolve. It is highly doubtful they'll do that. We did.
So as the giant media conglomerates continue to watch their kingdoms crumble, and the self-styled scribes of truth chronicle their every misstep and blunder, the rest of us will continue to vacuum up their former readers and advertisers. We'll continue to grow. We'll continue to adapt. We'll continue to profit. And we'll do it all while upholding the standards of journalism that make newspapers so important. And therein lies the future of newspapers – one that's not so gloomy for everyone.
Source: csmonitor.com
What Media Companies Could Learn From Microsoft: Smart Bundling
The media industry is desperately trying to find new business models for the online age. A lot of the current discussion revolves around micro payments: Is it possible to get users to pay small amounts for each newspaper article? The metaphor “iTunes for news” seems to become a favorite model of many media people, and major players such as News Corp. are already planning to roll out micro payments.
I think they couldn’t be more wrong about this. It’s actually amazing that traditional media companies seem to be largely blind to the factors that made their traditional business models successful.
One factor is the control of distribution channels (I blogged about this earlier). This is difficult to replicate in the digital world, because digital content is so easy to replicate and distribute.
But the second element is actually much easier to implement for digital content: Bundling.
When you buy a CD (if you are still old-fashioned enough to do that), you pay $15 or so for a collection of around 10 songs. Chances are that you are only interested in one or two of these songs. So why don’t you just buy the single? Mainly because the music industry since the 50s consciously pushed the album format, suggesting more value. Look, you only pay $1.50 per song on the album, but singles often cost $5 or more for just one song.
How about your newspaper (if you still read one)? How much would you be willing to pay for today’s front page story in the New York Times? How much for the top article in the business section or sports section? A dollar? A few cents? Nothing at all? This probably depends strongly on your interests. On any given day, there are probably a handful of articles in a newspaper that you would be willing to pay for specifically. Most of the rest are worth almost nothing to you. But you are willing to pay a couple of dollars for the whole thing.
This is bundling at work. It’s extremely difficult to set the right price for a piece of content, since different people will see very different value in it. Therefore, it’s often the most profitable solution to sell bundles of content items at a relatively low total price to extract the maximum value from customers.
A great example for this from another industry is Microsoft Office. This suite of productivity programs today completely dominates the market. Most people would probably agree that that’s not because Microsoft had the best programs –some people still have nostalgic feelings for WordPerfect and Lotus 1-2-3. It’s because Microsoft sold the most attractive bundle of adequate programs at a very nice total price.
Here’s a simplified example that explains why this is smart: Let’s assume that User A wants to do a lot of word processing. He’s willing to pay $250 for a good word processor. He also wants a spreadsheet program, but is only willing to pay $50 for it.
User B is a finance guy and needs a good spreadsheet, for which he is willing to pay $350. He has no use for a word processor, but will pay $50 for a presentation program. And User C, a consultant, is willing to pay $200 for a presentation program, $100 for a word processor and $50 for a spreadsheet.
So, if you’re a spreadsheet vendor, what’s your ideal price? You could charge $350 and only sell to User B. You could charge $50 and sell to all three users, but that would leave money on the table. It’s really difficult to set the right price.
The best solution for this is to sell a bundle of a word processor, spreadsheet and presentation program and charge $300 for it. At this price point, all our fictional users will buy the whole package and will be very happy, because they get a solution at a price they are willing to pay, but with much more overall functionality. The vendor could only make more money if he were able to charge each user an individual price (what economists call perfect price discrimination), but in most markets, that’s impossible.
Microsoft is great at coming up with bundled editions of its software. There are five different versions of Microsoft Office, all with different elements and at different price points, but of course all based on the same code base. Of course, it’s dangerous to overdo this. The seven different versions of Windows Vista were just confusing.
Obviously, bundling works for software. It also works for most forms of content, and it can work particularly well for digital content, because it’s so easy to build bundles of digital content at almost no additional cost.
Unfortunately, the music business largely missed the boat on this. By allowing Apple to sell individual songs through iTunes, the music industry broke the album model, and there’s probably no way to get it back. The new subscription models that some record labels are experimenting with are of course nothing but another form of bundling, although at a much lower average price point.
Newspaper publishers don’t seem to get bundling at all. That’s probably because in the world of the physical paper, they can only sell a very limited number of different bundles (maybe a local and a national edition). Even the only two newspapers that successfully charge for online editions, the Wall Street Journal and the Financial Times, only sell one or two different online bundles. That’s simply stupid. Why isn’t there an expensive Pro version of the FT with full access to all market data, maybe even bundled with additional data sources? A cheap student version? A standard version just with the news and opinion columns? A version for people who want to read the FT primarily on their mobile device and just want the most important headlines? This kind of creative price differentiation would certainly extend the number of subscribers dramatically.
And the same applies to other parts of the media industry: Why doesn’t Hulu (or iTunes) sell an attractively priced subscription for its most popular shows, for instance a bundle that gives you The Office, Family Guy and Saturday Night Live, but also throws in a number of less well-known shows? If that’s the easiest way to get these shows, many people will sign up. The TV industry seems to believe that many people are going to pay $2 or more per episode on iTunes, they are almost certainly wrong. Nobody does that in traditional media. People pay for a satellite or cable subscription, which is a classic bundle. Deciding for each show individually if it is worth $2 is simply too much work. Pay-per-view only works for big-ticket items, and there’s no reason why this should be different in online media.
It’s really remarkable how little media companies seem to get the basic rules of bundling: Sell a bundle of products that have different value to different people at a price that seems really, really attractive when compared to the prices of the individual items. Make sure that you offer different editions that appeal to different target markets. That’s all. Just ask Bill Gates.
Source: Andreas Goeldi
I think they couldn’t be more wrong about this. It’s actually amazing that traditional media companies seem to be largely blind to the factors that made their traditional business models successful.
One factor is the control of distribution channels (I blogged about this earlier). This is difficult to replicate in the digital world, because digital content is so easy to replicate and distribute.
But the second element is actually much easier to implement for digital content: Bundling.
When you buy a CD (if you are still old-fashioned enough to do that), you pay $15 or so for a collection of around 10 songs. Chances are that you are only interested in one or two of these songs. So why don’t you just buy the single? Mainly because the music industry since the 50s consciously pushed the album format, suggesting more value. Look, you only pay $1.50 per song on the album, but singles often cost $5 or more for just one song.
How about your newspaper (if you still read one)? How much would you be willing to pay for today’s front page story in the New York Times? How much for the top article in the business section or sports section? A dollar? A few cents? Nothing at all? This probably depends strongly on your interests. On any given day, there are probably a handful of articles in a newspaper that you would be willing to pay for specifically. Most of the rest are worth almost nothing to you. But you are willing to pay a couple of dollars for the whole thing.
This is bundling at work. It’s extremely difficult to set the right price for a piece of content, since different people will see very different value in it. Therefore, it’s often the most profitable solution to sell bundles of content items at a relatively low total price to extract the maximum value from customers.
A great example for this from another industry is Microsoft Office. This suite of productivity programs today completely dominates the market. Most people would probably agree that that’s not because Microsoft had the best programs –some people still have nostalgic feelings for WordPerfect and Lotus 1-2-3. It’s because Microsoft sold the most attractive bundle of adequate programs at a very nice total price.
Here’s a simplified example that explains why this is smart: Let’s assume that User A wants to do a lot of word processing. He’s willing to pay $250 for a good word processor. He also wants a spreadsheet program, but is only willing to pay $50 for it.
User B is a finance guy and needs a good spreadsheet, for which he is willing to pay $350. He has no use for a word processor, but will pay $50 for a presentation program. And User C, a consultant, is willing to pay $200 for a presentation program, $100 for a word processor and $50 for a spreadsheet.
So, if you’re a spreadsheet vendor, what’s your ideal price? You could charge $350 and only sell to User B. You could charge $50 and sell to all three users, but that would leave money on the table. It’s really difficult to set the right price.
The best solution for this is to sell a bundle of a word processor, spreadsheet and presentation program and charge $300 for it. At this price point, all our fictional users will buy the whole package and will be very happy, because they get a solution at a price they are willing to pay, but with much more overall functionality. The vendor could only make more money if he were able to charge each user an individual price (what economists call perfect price discrimination), but in most markets, that’s impossible.
Microsoft is great at coming up with bundled editions of its software. There are five different versions of Microsoft Office, all with different elements and at different price points, but of course all based on the same code base. Of course, it’s dangerous to overdo this. The seven different versions of Windows Vista were just confusing.
Obviously, bundling works for software. It also works for most forms of content, and it can work particularly well for digital content, because it’s so easy to build bundles of digital content at almost no additional cost.
Unfortunately, the music business largely missed the boat on this. By allowing Apple to sell individual songs through iTunes, the music industry broke the album model, and there’s probably no way to get it back. The new subscription models that some record labels are experimenting with are of course nothing but another form of bundling, although at a much lower average price point.
Newspaper publishers don’t seem to get bundling at all. That’s probably because in the world of the physical paper, they can only sell a very limited number of different bundles (maybe a local and a national edition). Even the only two newspapers that successfully charge for online editions, the Wall Street Journal and the Financial Times, only sell one or two different online bundles. That’s simply stupid. Why isn’t there an expensive Pro version of the FT with full access to all market data, maybe even bundled with additional data sources? A cheap student version? A standard version just with the news and opinion columns? A version for people who want to read the FT primarily on their mobile device and just want the most important headlines? This kind of creative price differentiation would certainly extend the number of subscribers dramatically.
And the same applies to other parts of the media industry: Why doesn’t Hulu (or iTunes) sell an attractively priced subscription for its most popular shows, for instance a bundle that gives you The Office, Family Guy and Saturday Night Live, but also throws in a number of less well-known shows? If that’s the easiest way to get these shows, many people will sign up. The TV industry seems to believe that many people are going to pay $2 or more per episode on iTunes, they are almost certainly wrong. Nobody does that in traditional media. People pay for a satellite or cable subscription, which is a classic bundle. Deciding for each show individually if it is worth $2 is simply too much work. Pay-per-view only works for big-ticket items, and there’s no reason why this should be different in online media.
It’s really remarkable how little media companies seem to get the basic rules of bundling: Sell a bundle of products that have different value to different people at a price that seems really, really attractive when compared to the prices of the individual items. Make sure that you offer different editions that appeal to different target markets. That’s all. Just ask Bill Gates.
Source: Andreas Goeldi
Friday, May 1, 2009
Innovations in Newspapers 2009: Murdoch stresses developing readers' trust
IN the new Innovations in Newspapers 2009 World Report, Rupert Murdoch said newspapers will succeed depending on the relationships they develop with their readers, regardless of how news is delivered. The Innovation International Media Consulting Group released the annual survey today (27 April) for the World Association of Newspapers.
"Our success will still depend on the bond of trust between readers and our content, not on how many platforms we use," said Murdoch, noting that the report depicts the state of the news media and how it is being reinvented in the digital age, "I believe newspapers have a wonderful future."
However Murdoch articulates that the real enemy of newspapers is not "competition from new technology, it is the complacency in our industry among people who have enjoyed monopolies, who have to compete for an audience they once took for granted, who don't trust their audiences and who have not responded constructively to challenges from readers who no longer think editors are omnipotent oracles."
Murdoch stresses that gaining the trust of readers will empower papers whether print or online. He says, "Our role is to give our readers great journalism and great judgment." John Temple, ex editor, president and publisher of the Rocky Mountain News, similarly said last week that journalism schools need to create storytellers, and not necessarily digital gurus. With the Internet, there is a definite increased stress on speed and quantity and many argue that there is a decrease in quality. To Murdoch and Temple, the crucial point to remember is that good journalism is what will carry on the industry.
Source: WAN press release
"Our success will still depend on the bond of trust between readers and our content, not on how many platforms we use," said Murdoch, noting that the report depicts the state of the news media and how it is being reinvented in the digital age, "I believe newspapers have a wonderful future."
However Murdoch articulates that the real enemy of newspapers is not "competition from new technology, it is the complacency in our industry among people who have enjoyed monopolies, who have to compete for an audience they once took for granted, who don't trust their audiences and who have not responded constructively to challenges from readers who no longer think editors are omnipotent oracles."
Murdoch stresses that gaining the trust of readers will empower papers whether print or online. He says, "Our role is to give our readers great journalism and great judgment." John Temple, ex editor, president and publisher of the Rocky Mountain News, similarly said last week that journalism schools need to create storytellers, and not necessarily digital gurus. With the Internet, there is a definite increased stress on speed and quantity and many argue that there is a decrease in quality. To Murdoch and Temple, the crucial point to remember is that good journalism is what will carry on the industry.
Source: WAN press release
Monday, December 15, 2008
Media: Don't Cut Jobs, Cut Bad Business Model
Behind the current flood of job cuts are broken companies requiring a more enterprising fix.
The recession is prompting massive layoffs in all media sectors, even at the biggest players. The sheer magnitude denotes a scramble for survival that masks the urgent need for major restructuring. However, the intense focus on cutting rather than building is unlikely to leave media players as they prepare for digital growth.
Job losses in an unreformed legacy structure only address part of the reinvention equation. It also requires the closing of some traditional operations and the launching of new operations to accommodate new skill sets and growth paradigms. It is unclear how much of the latter is occurring in a market driven by fear.
Even more overwhelming than the most recent unemployment numbers, bordering on 7% nationally, is the dearth of efforts to innovate for better times. There is a troubling lack of evidence across the domestic business landscape that funds from the federal bailout or cash reserves being hoarded by corporations are being put to work for the future.
"It's time to not just address the immediate economic threats, but to start laying the groundwork for long-term prosperity," president-elect Barack Obama said last week. It is essential to look behind the nearly 2 million jobs lost so far this year to determine what, if anything, companies are doing to competitively reposition themselves. With job losses now shifting to the service and creative sectors-- traditionally economic growth drivers--it is difficult to see how companies are managing anything more than trying to get through the next several quarters.
The 12,000 job cuts at AT&T (T) (4% of the workforce), as much a function of its fading wire line phone business as a battered economy, are just the beginning of belt-tightening throughout the $1 trillion telecom industry. After eliminating 1,500 jobs (10% of its workforce), Yahoo (YHOO) is still slashing positions while searching for a new CEO and business strategy. The 850 job cuts (7% of the workforce) at Viacom (VIA) were said to be part of a comprehensive restructuring that was not detailed. About two-thirds of an estimated $450 million pre-tax charge is related to programming writedowns; the overall result will be $250 million in 2009 pretax savings.
"Viacom's long-term health will depend on our shared commitment to adapt, to innovate and to make difficult choices. To compete and thrive, we need to create an organization and a cost structure that are in step with the evolving economic environment," Viacom CEO Philippe Dauman said in a memo last week.
Although Viacom and NBC (GE) management stress the strength of their franchise brands, some of their workforce reductions are aimed at eliminating overlap between their traditional and digital online businesses. NBC is soon expected to announce as many as 500 jobs cuts (or 3% of its workforce) as part of $500 million in cost reductions, which are in addition to the 1,350 jobs lost across all divisions of parent NBC Universal.
Time Warner (TWX) has eliminated more than 1,000 positions, a majority of them from its Time Inc. publishing unit. Disney (DIS) and CBS (CBS) have not made public planned reductions in workforce or operations. None have explained how any reorganization and refocusing are geared to new business lines or future growth.
In fact, much of the cutting has been aimed at trimming core business lines--such as delaying movie releases until next year, reducing the number and size of films and television production. Networks and studios--the more marginal of which could be consolidated--are under pressure to cut operating expenses in programming and production, home entertainment and distribution.
Like Viacom, some will take one-time charges and writeoffs related to content. But without a strategic plan for new job functions, operations and revenues, there can be no meaningful rationalization of existing resources. Just look at Detroit's big three automakers. Taking huge chunks out of their workforce does not reinvent their broken business model, which lawmakers are loath to fund.
Many media concerns, such as Tribune Co., are too dogged by loan covenants and debt payment deadlines they cannot make and are riveted on deep cost cuts and asset sales. Fitch Ratings and S&P say they expect more newspapers and newspaper groups will default, close operations and be liquidated in 2009, leaving some cities without a daily print newspaper by 2010.
Advertising-dependent newspaper and magazine publishers also are bracing for a major falloff in subscriptions next year as consumers cut back. A year from now, the marketplace could be saturated with distressed print and broadcast properties, the sale of which could be the only way for some media companies to make themselves financially whole. But who is buying?
As it turns out, the job cuts so far and other cost reductions will be an insufficient response to a projected 10% decline in advertising revenue in 2009, led by the imploding automotive (about 15% of all ad spending) and financial industries, as well as retail and travel-related businesses. Weakening DVD and home video sales, fixed content costs and dramatic ad revenues losses "carry a high incremental margin" that may need to be addressed with more dramatic action.
"The industry needs to continue to make more moves to reduce variable operating expenses, and soon," says Barclays Capital analyst Anthony DiClemente. In other words, media must provide its own bailout.
Source: SeekingAlpha
The recession is prompting massive layoffs in all media sectors, even at the biggest players. The sheer magnitude denotes a scramble for survival that masks the urgent need for major restructuring. However, the intense focus on cutting rather than building is unlikely to leave media players as they prepare for digital growth.
Job losses in an unreformed legacy structure only address part of the reinvention equation. It also requires the closing of some traditional operations and the launching of new operations to accommodate new skill sets and growth paradigms. It is unclear how much of the latter is occurring in a market driven by fear.
Even more overwhelming than the most recent unemployment numbers, bordering on 7% nationally, is the dearth of efforts to innovate for better times. There is a troubling lack of evidence across the domestic business landscape that funds from the federal bailout or cash reserves being hoarded by corporations are being put to work for the future.
"It's time to not just address the immediate economic threats, but to start laying the groundwork for long-term prosperity," president-elect Barack Obama said last week. It is essential to look behind the nearly 2 million jobs lost so far this year to determine what, if anything, companies are doing to competitively reposition themselves. With job losses now shifting to the service and creative sectors-- traditionally economic growth drivers--it is difficult to see how companies are managing anything more than trying to get through the next several quarters.
The 12,000 job cuts at AT&T (T) (4% of the workforce), as much a function of its fading wire line phone business as a battered economy, are just the beginning of belt-tightening throughout the $1 trillion telecom industry. After eliminating 1,500 jobs (10% of its workforce), Yahoo (YHOO) is still slashing positions while searching for a new CEO and business strategy. The 850 job cuts (7% of the workforce) at Viacom (VIA) were said to be part of a comprehensive restructuring that was not detailed. About two-thirds of an estimated $450 million pre-tax charge is related to programming writedowns; the overall result will be $250 million in 2009 pretax savings.
"Viacom's long-term health will depend on our shared commitment to adapt, to innovate and to make difficult choices. To compete and thrive, we need to create an organization and a cost structure that are in step with the evolving economic environment," Viacom CEO Philippe Dauman said in a memo last week.
Although Viacom and NBC (GE) management stress the strength of their franchise brands, some of their workforce reductions are aimed at eliminating overlap between their traditional and digital online businesses. NBC is soon expected to announce as many as 500 jobs cuts (or 3% of its workforce) as part of $500 million in cost reductions, which are in addition to the 1,350 jobs lost across all divisions of parent NBC Universal.
Time Warner (TWX) has eliminated more than 1,000 positions, a majority of them from its Time Inc. publishing unit. Disney (DIS) and CBS (CBS) have not made public planned reductions in workforce or operations. None have explained how any reorganization and refocusing are geared to new business lines or future growth.
In fact, much of the cutting has been aimed at trimming core business lines--such as delaying movie releases until next year, reducing the number and size of films and television production. Networks and studios--the more marginal of which could be consolidated--are under pressure to cut operating expenses in programming and production, home entertainment and distribution.
Like Viacom, some will take one-time charges and writeoffs related to content. But without a strategic plan for new job functions, operations and revenues, there can be no meaningful rationalization of existing resources. Just look at Detroit's big three automakers. Taking huge chunks out of their workforce does not reinvent their broken business model, which lawmakers are loath to fund.
Many media concerns, such as Tribune Co., are too dogged by loan covenants and debt payment deadlines they cannot make and are riveted on deep cost cuts and asset sales. Fitch Ratings and S&P say they expect more newspapers and newspaper groups will default, close operations and be liquidated in 2009, leaving some cities without a daily print newspaper by 2010.
Advertising-dependent newspaper and magazine publishers also are bracing for a major falloff in subscriptions next year as consumers cut back. A year from now, the marketplace could be saturated with distressed print and broadcast properties, the sale of which could be the only way for some media companies to make themselves financially whole. But who is buying?
As it turns out, the job cuts so far and other cost reductions will be an insufficient response to a projected 10% decline in advertising revenue in 2009, led by the imploding automotive (about 15% of all ad spending) and financial industries, as well as retail and travel-related businesses. Weakening DVD and home video sales, fixed content costs and dramatic ad revenues losses "carry a high incremental margin" that may need to be addressed with more dramatic action.
"The industry needs to continue to make more moves to reduce variable operating expenses, and soon," says Barclays Capital analyst Anthony DiClemente. In other words, media must provide its own bailout.
Source: SeekingAlpha
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