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October 28 2010

14:00

The Newsonomics of the third leg

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Most publishing stood proudly and stably on two feet, for decades.

You got readers to help pay for the product. And you got advertisers to pay as well. While American newspapers dependably got 20 percent of their revenue from readers, European ones have gotten more than 30 percent and Japanese ones more than 50 percent. In the consumer magazine, trade, and B2B worlds, the splits vary considerably, but the same two legs makes the businesses work.

Even public radio, seemingly a different animal, has followed a similar model. Substitute “members” for subscribers and “underwriters” for advertisers, and the same two-legged model is apparent.

In our digital news world, though, the news business has been riding, clumsily, a unicycle for more than a decade. Revenue — other than the Wall Street Journal’s and the Financial Times’ — has been almost wholly based on advertising. So, that’s why we’re seeing the big paid content push. “Reader digital revenue in 2011!” is the cry and the quest, as the News Corp. pay walls have gone up, Journalism Online hatches its Press+ eggs, The New York Times prepares to turn on its meter, and Politico launches its paid e-newsletters. They all have the same goal in mind: digital reader revenue.

The simple goal: a back-to-the-future return to a two-legged business model. (See Boston.com’s New Strategies: Switch and Retention). We’ll see how strong that second leg is as 2011 unfolds.

While two legs are good, and better than one, consider that three would be better still. Three provide a stronger stool, and a more diversified business. We’re beginning to see a number of third legs emerging. So it’s look at the emerging newsonomics of the third leg.

The clearest to see is foundation funding. Foundations, led by Knight, have been pouring money into online startups. The startups, of course, are selling advertising and/or sponsorship, and some are selling memberships, as well. In addition to those same two legs, foundation funding provides a third leg — at least for awhile. Our 2010 notion is that foundation funding isn’t a lasting revenue source, but a jumpstart; that may change as we move toward 2015. We may well see foundation funding turn into endowments for local journalism, so it may become a dependable third leg.

Make no mistake: It’s not just the new guys who benefit from foundation “third leg” funding. Take California Watch, the Center for Investigative Reporting’s statewide investigative operation. Barely a year old, its dozen-plus staffers have written stories that have appeared throughout the traditional press, from major dailies to commercial broadcasters to the ethnic press. California Watch work — at this point wholly funded by foundations, though CIR, too, is looking back to the traditional legs for future funding — then is used by the old press both to improve quality and cut their own costs. So, indirectly, the old press derives benefit from this third leg of foundation funding.

Take a couple of examples from the cable industry. We’ve seen the Cablevision model, as the New York-based company bought Newsday, took the website “paid” and bundled it with its cable subscriptions. The notion, here: Cablevision is driving “exclusive” value for its cable (and Triple Play) offers by offering Newsday online content, content not otherwise available without paying separately (or subscribing to print Newsday). Newsday.com sells advertising, and online access, but the real value being tested is what its content does to spur retention and new sales in Cablevision’s big business: cable.

Similarly, Comcast — a pipes company fitfully becoming a content company as well as it tries to complete its NBCU deal — is making a big investment in digital sports. Headed by former digital newspaper exec Eric Grilly, ex of Philly.com and Media News, it’s a big play. Well-deployed in five cities — Chicago, Boston, Philadelphia, the Bay Area and Washington D.C. — and headed for nine more, all in which it runs regional sports cable networks. Comcast Digital Sports now employs more than 80 people and is producing more than 50 hours of programming a week in each market.

While Comcast is ramping up advertising sales and may test paid reader products as well, it’s that same third leg — the cable revenue — that is the biggest reason behind the push. “We want to provide value to the core business,” Grilly told me last week.

In the cable cases, news production can be justified because it feeds a bigger revenue beast. Thomson Reuters and Bloomberg’s large news staffs do the same, feeding bigger financial services businesses.

Lastly, let’s consider the new Associated Press-lead push for an industry-wide “rights consortium.” While its daily newspapers try to stand taller on the two legs of digital ad and reader revenue, the business that could emerge from this new company is about syndication. In that sense, it could be a business-to-business-to-consumer (B2B2C) push, aimed at a third growing revenue source for all, as news content un-tethered from publishers’ own branded sites is used — and monetized — across mobile platforms, mixed and matched in all kinds of ways.

Maybe, overall, it’s a regeneration process for the news business, as the old legs have grown weaker, the environment is forcing evolutionary experimentation. Over the next several years, we’ll see which third legs survive and prosper, and which others become dead ends.

Photo by This Particular Greg used under a Creative Commons license.

August 12 2010

14:00

The Newsonomics of TBD

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Thirsting for good news, the welcome given TBD.com by news observers has been a bit overwhelming. In a desert of too-scarce good news about the news business, TBD represents one of the potential oases, like its smaller — and largely nonprofit — counterparts from San Diego to Austin to the Twin Cities to New York.

Most of the first appraisals have focused on the site’s product innovations. Let’s now take an early look at the size of this possible oasis and the unique business model under it, to gauge what kind of a test it may be. Let’s look at the Newsonomics of launching what is the nation’s first combined local online news startup/24-hour news channel.

That combination is the most basic to understanding the business of TBD, informing both TBD’s cost structure and revenue models. If TBD turns profitable within two to three years, it may become a prototype for digital/video/TV city-based news businesses.

While there may be two dozen or more metro news channels in the U.S, none has yet combined with a online news site to the extent that TBD is doing. The only parallel may be Cablevision’s News 12, its longstanding Long Island/Connecticut/New Jersey-oriented station that got a new cousin when the parent company bought Newsday from Tribune in 2008. In a post on that acquisition, I noted the potential synergies in the deal:

  1. Joint ad sales.
  2. Synergistic news-gathering and production.
  3. Monetizing cable-produced news video through Newsday’s site.

Since then, we haven’t seen a lot of that synergy in New York, as the cable news site and Newsday.com remain separate, with those who don’t subscribe to either having to pay for direct access. A cursory look at the sites doesn’t betray much sharing, but there may be more under the hood.

It is those three principles, though, plus an all-important fourth one — promotion — that should define this next, and bigger, experiment, as TBD.com and TBD TV (which has been rebranded from the former NewsChannel 8) take flight.

Let’s look first at the costs of TBD. TBD has added 50 new positions, all additional to the approximately 50 jobs ported over from the former NewsChannel 8. Jim Brady, TBD’s general manager, outlined the 50 for me: “About 30 doing news, including 15 reporters, six editors, two senior editors, six community engagement people. Another 20 doing tech, sales, product, and design.”

That tells us that the nut for TBD is about $3.5-4 million, salaries and operating costs combined. It needs to find new revenue — exclusive of what the former NewsChannel 8’s sales staff of seven brought in — to get to profitability. Profitability is a key goal for this for-profit company, and one key to proving out the model for use in other metro areas. The cost side is one of the areas that distinguishes the TBD experiment; it’s two to four times bigger than most of the local online news startups we’ve seen.

Key to our understanding here is that TBD — the website and the cable news station — is one organization. Brady is in charge of the P&L of it, though he has a dotted-line relationship to the ad sales heads. While it adds costs to do 24-hour cable news as well as 24-hour digital news, it offers more revenue opportunities as well.

The key synergy: a kind of virtuous circle of promotion to stoke growth of audience and advertising dollars.

“They have the big megaphone [of promotion],” points out Phil Balboni, now CEO of startup GlobalPost, but also a veteran of New England Cable News, which he built and operated. “They can push TBD on every program. Within a short period of time, they will get great brand awareness.” So, yes, TBD TV pushes people to the website, but TBD.com also pushes people to the cable news channel. And WJLA, the ABC7 affiliate also owned by Allbritton, promotes both. JLA’s been the second-ranked station in the broadcast market.

The idea: Big promotion drives in samplers. Then the site must convert a good 20 percent of them to regular customers.

So what does TBD need to get to profitability — and make itself the model to match? Let’s quickly look at the two big qualifiers, audience and sales.

A big audience: Let’s remember that TBD starts with a significant audience, though one far smaller than WashingtonPost.com, just to drop a name. It gets traffic from both WJLA and the former NewsChannel 8; both of their former websites now point to TBD.com. According to Nielsen, WJLA pulled in about 327,000 unique visitors and 1,516,000 page views in July, while NewsChannel 8 appeared to attract a small fraction of that.

Make no mistake: Gaining attention in a crowded media marketplace won’t be simple — and is one of the reasons for the fast-out-of-the-chute TBD Community Network of 129 bloggers.

The Post is formidable competition. It is a premier regional website (built by Brady and others) and in a June Nielsen report, showed a 5.27-percent increase in unique visitors year over year, to 10,089,000 unique visitors and 106,387,000 pageviews. It zigged — up — while the news category zagged down 2.74 percent overall for the same period.

So figure that TBD.com needs a web audience of between 10 and 20 million page views a month at some point in the next 24-36 months to get to profitability. That’s a fifth to a tenth of the Post’s online audience, which, we should keep in mind comes more from outside D.C. than in within it.

Significant new revenue from both TBD.com and TBD TV: The revenue will be mainly advertising. As a for-profit, TBD.com is taking a different route than non-profits MinnPost and Texas Tribune, for instance, both of which are focusing strongly on membership and corporate/institutional sponsorships. The nonprofits are thinking that maybe a third — or less — of their revenue will come from traditional “advertising.” For TBD, though, it’s all about the sale of advertising. Just as TBD TV is critical to TBD.com site promotion, its own revenue growth will be key.

Figure that as much as 30 percent of new revenue generated out of the new enterprise could come from new TV revenue; to the extent it does, the site’s growth could trend more to the 10 million monthly page views, than 20 million, and still be profitable.

Brady says a new online-only sales staff of four will drive both online-only and bundled sales, working with the established sales force. “You start with a sales force that has relationships with an auto dealer, for instance, ” says Brady. “You don’t need a million uniques to get a meeting with them.”

The questions here are familiar ones for local broadcasters and for newspaper publishers: How do you a traditional ad sales staff — one mainly used to selling “time” — to sell the web effectively? How do you blend the online-only sales force with TV-oriented one? How much do you emphasize online-only sales, or continue a focus on bundling with TV time?

It’s a complex sell, combining sales of space, time, and pay-for-performance advertising. “They need to sell four or five different kinds of advertising,” says Arul Sundaram, an industry consultant who formerly was vice-president of strategy for Internet Broadcasting, which has powered dozens of local broadcast station websites. Beyond selling cost-per-thousand display advertising, Sundaram ticks off various pay-for-performance (largely search-based), video, and mobile ad products that the operation should learn to sell as well.

Pioneering models is a tough business. As the news business looks for new models, the man of the moment is man behind the TBD curtain, Robert Allbritton, CEO of his eponymous company. Allbritton’s gotten credit for seeing, and seeing through, Politico, his first web venture, to on-again, off-again profitablity. Importantly, he’s been credited with allocating sufficient resources, even in cash-negative startup times to create journalistic products that attract audiences.

As Phil Balboni sees it, Allbritton’s move, especially in this economic climate, is “a gutsy statement.” In 2010, especially, no guts, no glory.

January 29 2010

15:00
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