The publisher race for viable long-term business models

Dominic Finney, director at digital consultancy FaR, looks at the changing business models that are arising for the newspaper industry and considers what the long-term models could be.

What is without doubt is that we are in the middle of real change for publisher’s business models. And nowhere is this more true than for newspapers whose business models are suffering from a toxic mix of declining readership in print, reduced advertising revenues and publishing costs that simply weren’t designed to compete in the new world of digital content creation and distribution.

What newspapers in particular are actively looking for are new business models; especially with regards to content charging, creation and distribution models, that will help enable them to establish sustainable business models.

The two fundamental levers that newspapers have at their disposal are charging for content, whether that is through subscriptions or advertising and, reducing the cost of content, whether this is through cost cutting or through developing more cost effective ways of producing content and distributing.

With regards to the revenue model the poles really are split between The Times paywall and The Guardian’s international play for ad revenue. On the content management side you have Trinity Mirror’s staff cost reductions and their development of automated content creation tools against the FT’s continued investment in high-end journalism.

Clues as to how this will all play out in the long run are, counter intuitively, less likely to come from newspaper’s themselves. This, I believe, is largely due to the fact that they are neither in control of the changing dynamics affecting their industry from a digital perspective or amongst the companies with the freedom to build publishing models from the ground up that can take real advantage of this changing marketplace – though it has to be said they are adapting fast and starting to make both aggressive and smart plays amongst the emerging technologies and platforms.

So I would argue that it is worth looking outside of their core market, to companies such as Huffington Post, Flipboard and Pulse, for signs of what the emerging business models could look like. And the current trends do point to some markedly different publishing models, with the over arching trend for digital specialists being the establishment of content and audience aggregation models.

A prime example of this is the Huffington Post, which uses the power of the crowd to build a network of cost effective producers of content. Its model is therefore underpinned by cost effective production of content, that also taps into the type of news and interests that consumers seek online. Interestingly, aligned to this crowd based aggregation model, which is itself tied to the ad-funded model, is the need for scalable audiences. This is why you are seeing the Huffington Post’s rapid International rollout as it seeks to hit a critical mass of users, so that the cost of content production and distribution is far outstripped by the ad revenue delivered.

It is also worth noting that the Huffington Post has had to take a pragmatic and in some ways traditional approach to expansion. At times, it has had to employ country specific publishing teams and partner with well established publishing operations, such as its joint venture with Le Monde in France. This shows that digital publishing operations have as much to share and learn from the traditional publishers.

The companies less tied to the traditional publishing models are the dedicated content aggregators, as these companies, rather than focusing on producing content, simply aggregate content from other providers. The advantage of this model is the even lower cost of content delivery and the increased scalability of the model as it is just a case of distributing the content.

One of the more interesting companies following this model is Flipboard, who have built an elegant interface through which to search and view the type of content an audience requires. By focusing on tablet devices such as the iPad, Flipboard are distributing the content in an environment designed to show off the content.

The key learning that this business model offers is that choice and personal control of content can build audience scale rapidly. By providing an interface where audiences gain access to numerous publishers and therefore read the majority of the content they require in one place, they can also potentially take away the demand for individual publications.

There are two fundamental learnings that newspapers could take from these new models. First and foremost, to be aware of their own strength and value in this new market. The quality of the service and content they provide is unique in many ways and this is proven by the fact that these new digital operations, one-way or anther, seek to access their content.

Secondly, that in the new digital economy radical distribution and commercial models are the ones that will eventually come to dominate a market (though it has to be said there are usually a fair few casualties along the way). And therefore one could argue that the logical strategic play is to radically develop a publication’s business model in order to aggressively compete in this new market.

So I would argue that newspapers need to think even more long-term about their futures and make even more aggressive plays in order to ensure they have a viable share of the future market. Especially as their competitors are currently competing from an advantageous position in the digital market place as their business models enable them to produce content at a much lower cost, whilst at the same time providing them with the freedom to aggregate content from whatever sources they see fit.