Ken Doc­tor’s In­sider View on Pub­lish­ing’s Hottest Top­ics

The Insider - - CONTENT -

Any­one who’s any­one in the pub­lish­ing in­dus­try knows Ken Doc­tor of New­so­nomics - a highly re­spected me­dia ex­pert and an­a­lyst who fo­cuses on the busi­ness of news. I’m de­lighted I was able to con­nect with Ken dur­ing his busy travel sched­ule to cap­ture his in­sights on the state of our in­dus­try, where op­por­tu­ni­ties can be found and the chal­lenges lay ahead.

Wel­come Ken. Let’s talk about some of the hot top­ics of 2015 and how you see them play­ing out in 2016…

GAYLE MOSS I en­joyed read­ing your ar­ti­cle on New­so­nomics: The 10 ques­tions into 2016… and was par­tic­u­larly cu­ri­ous on your views about the ad block­ing so-called cri­sis we’re in. Some pub­lish­ers seem to be mov­ing to na­tive ad­ver­tis­ing to com­bat the prob­lem. What are your thoughts on na­tive?

KEN DOC­TOR I look at it as ba­si­cally com­mer­cial sto­ry­telling, but there is a lot of con­fu­sion. There are a lot of dif­fer­ent words that de­scribe it. The most au courant term these days is “branded con­tent”, which is a fine term and ba­si­cally means that it’s com­ing from a com­mer­cial brand, as op­posed to a me­dia brand whose first ef­fort is to in­form peo­ple. It is com­mer­cial speech. As long as com­mer­cial speech is well la­beled and pre­sented as such, I have no prob­lem with it.

Let’s just look at the terms here. You have branded con­tent which I think is the best term right now. You also have the term “na­tive con­tent”, which means is that it is ad­ver­tis­ing speech pre­sented in a way that flows eas­ily, some­times seam­lessly, within ed­i­to­rial, es­pe­cially on a mo­bile phone. A good ex­am­ple of na­tive con­tent is Quartz.

Quartz, a very good busi­ness news start up, was one of the early pioneers in na­tive con­tent. As you read down the news flow on Quartz, it will say very clearly, “Spon­sored Con­tent”, but the ty­pog­ra­phy doesn’t change much from the ed­i­to­rial. The idea was that peo­ple were go­ing to con­tinue to read up and down the stream and that na­tive con­tent would not be in­tru­sive in the way that or­di­nary ads have long been in news­pa­pers or mag­a­zines or on­line.

How­ever, oth­ers have used na­tive to ob­scure the fact that it is com­mer­cial speech. In terms of la­bel­ing, The New York Times has made the big­gest pub­lic pro­nounce­ments about that, of how things are la­beled and whether they have a border around them. That is

the crit­i­cal ques­tion here -- of not try­ing to de­ceive or con­fuse read­ers.

The other term is “con­tent mar­ket­ing”, which is just sim­ply say­ing that ad­ver­tis­ers or brands are us­ing con­tent, as op­posed to price/item ads such as, “Come buy this car for $30,000 dol­lars.”

I think the con­tro­versy is pretty easy to dis­miss, as long as pub­lish­ers do the right thing and are very clear in la­bel­ing the pre­sen­ta­tion. The busi­ness im­por­tance of this is huge and grow­ing. If you look at the ma­jor­ity of the digital ad world, it is in­creas­ingly pro­gram­matic, mean­ing driven by tech­nol­ogy. 65% of all ads are pro­gram­mat­i­cally driven. This is a field that is ab­so­lutely dom­i­nated by non-pub­lish­ers. 71% of all the digital ad­ver­tis­ing in the US goes to ten top com­pa­nies that cre­ate orig­i­nal con­tent.

What branded con­tent ads al­low pub­lish­ers to do, over the last two or three years, is to say, “We’re not go­ing to try to com­pete with Google and Face­book in terms of tar­get­ing. They have bet­ter tar­get­ing than we’ll ever have. In terms of beat­ing Google and Face­book on price, what we’re go­ing to do is be an agency. We’re go­ing to work with the top brands. We’re go­ing to help them cre­ate re­ally good com­mer­cial sto­ry­telling that works for our au­di­ence, and we’re go­ing to charge print-like rates to do that.” That’s what we’ve seen out of The New York Times, the Jour­nal, the FT, The Wash­ing­ton Post, Hearst, Time Inc. etc.

Fi­nally, an­other big ben­e­fit of branded con­tent is that ad block­ers won’t work against it be­cause of the na­ture of how it’s pre­sented. Branded con­tent makes the com­pe­ti­tion with Google eas­ier, it fetches high prices, and it avoids ad block­ers; that’s why we’re go­ing to see more and more of this.

A com­pany like the New York Times will do about 20% of its digital ad busi­ness in branded con­tent this year. Bloomberg, which I just met with to­day in fact, has about 30% of its busi­ness in branded con­tent. This has be­come a big part of the busi­ness in just a cou­ple of years.

GM You re­cently said in a ra­dio in­ter­view that ad­ver­tis­ing was the great­est busi­ness chal­lenge for pub­lish­ers and that it has fallen into a death spi­ral. Can you elab­o­rate on that?

KD In terms of print ad­ver­tis­ing, all it takes is sta­tis­ti­cal anal­y­sis. It’s been go­ing down es­sen­tially seven or eight per­cent, and it will do that again this year. This will be about the fifth year in a row. There hasn’t been any growth in news­pa­per ad­ver­tis­ing over­all, and clearly not in print, since 2007. That is the def­i­ni­tion of a death spi­ral.

The hope ten years ago was, “Yeah, we see print ad­ver­tis­ing is go­ing to go down. You can look at this line go­ing down on this chart, but this line is go­ing to go up.” But even though digital ad­ver­tis­ing it­self is grow­ing still at a 12% an­nual com­pounded rate in the US, news pub­lish­ers are es­sen­tially flat. They’re just not get­ting any in­crease out of digital.

What that means over­all is not that ad­ver­tis­ing goes away as a rev­enue source, and clearly branded con­tent is as­cend­ing for the rea­sons that we just talked about, but that ad­ver­tis­ing for many news pub­lish­ers be­comes the sec­ondary source, and reader rev­enue be­comes the pri­mary source.

GM Let’s talk about read­ers a lit­tle bit. You’ve been quoted as say­ing that pub­lish­ers are pro­duc­ing poorer qual­ity prod­ucts these days, but charg­ing their read­ers more. Loyal read­ers are still putting up with it, but at what point are they go­ing to rebel and say it’s enough?

KD It is hap­pen­ing. It’s hap­pen­ing every day. I think it’s how we ask the ques­tion. It’s like ask­ing, “Will news­pa­pers ever go away?” They are go­ing away. They have gone away. They are shad­ows of what they were, and that’s not just the num­ber of printed pages, but in the vol­ume of sto­ries, and es­pe­cially knowl­edge­able sto­ries in any com­mu­nity. That process is hap­pen­ing every day, and if you look at the vol­ume num­bers, the paid cir­cu­la­tions of these news­pa­pers are de­clin­ing roughly at the rate of three to five per­cent a year, in terms of print paid cir­cu­la­tion.

I like to use this anal­ogy. Tell me an­other in­dus­try that has a two-liter bot­tle of Coke that they sell for a dol­lar, and then they turn around and re­duce it to one liter and dou­ble the price. That is in a nut­shell ex­actly what the daily


news­pa­per in­dus­try has done. The huge and sad irony of it is that pub­lish­ers don’t have enough pride in their own prod­uct to say, “Look, we cut the prod­uct, and we made the prod­uct worse. Maybe we had to, but that’s what’s re­spon­si­ble for the loss.” It’s not digital, not young peo­ple and not the in­ter­net. It’s the fact that in print, and print would de­cline nat­u­rally be­cause of digital read­ing habits, they have has­tened their own de­cline. I’ve quoted off and on, Molly Ivins, who said ten year ago, “I don’t mind be­ing in a dy­ing in­dus­try, but it re­ally pisses me off to be in one that’s com­mit­ting sui­cide.”

It’s ex­actly true for most lo­cal pub­lish­ers. There’s a big distinc­tion be­tween lo­cal and na­tional that we need to make. The in­ter­net has been very good for na­tional me­dia. If you’re a na­tional me­dia com­pany, you’re re­ally a global me­dia com­pany, by the na­ture of the in­ter­net and a bil­lion English speak­ers around the world. The ad­van­tages of mas­sive free dis­tri­bu­tion through the in­ter­net are great but you have to have a na­tional fo­cus. You can sur­vive be­tween na­tional and global.

You look at the Times, the Jour­nal, the Post, the FT, Bloomberg… these kinds of com­pa­nies all have a sub­stan­tial fu­ture and they’re fig­ur­ing out the busi­ness. Lo­cal com­pa­nies just keep get­ting smaller and smaller and less and less rel­e­vant in terms of their news prod­ucts and ad­ver­tis­ing.

GM More and more, we see au­di­ences want­ing to par­tic­i­pate in the news, and yet in 2015, there were a num­ber of pub­lish­ers who were killing com­ment­ing on their site, mov­ing read­ers off to so­cial to have their con­ver­sa­tions, and tak­ing their ad­ver­tis­ing money with them. What are your thoughts on that?

KD I think you have to have a good and smart level of di­a­logue on your site and do what needs to be done to cre­ate that com­mu­nity, be­cause it’s re­ally a com­mu­nity. There are ba­sic tools for mon­i­tor­ing the com­mu­nity for out­ra­geous be­hav­ior, but also for mak­ing it easy for peo­ple to find the bet­ter com­ments, or the smarter com­ments, the more rel­e­vant com­ments and the more timely com­ments. Ei­ther you in­vest the re­sources to help cre­ate a ca­pac­ity to do that, or it makes sense to aban­don it.

In the old days you had let­ters to the ed­i­tor and they were highly mean­ing­ful in a lot of pa­pers, es­pe­cially smaller pa­pers, and you had com­mu­nity op-eds. The abil­ity on the in­ter­net to do that ten times bet­ter is there, but it takes re­sources. It takes smarts and it a will­ing­ness to man­age; rel­a­tively few com­pa­nies have been will­ing to do that. I think they have, in a sense, taken an easy way out, and said, “Well, ev­ery­body just uses Face­book.” They al­low that as part of the much greater out­sourc­ing of lo­cal news and in­for­ma­tion to Face­book. I think it’s a symp­tom, not a big part of it, but it’s a symp­tom of the prob­lem.

GM Speak­ing of Face­book, they had quite the an­nounce­ment on their rev­enue in Q4, and in TechCrunch they sug­gested that maybe In­stant Ar­ti­cles had some­thing to do with it. It just seems con­trary to me that Face­book is mak­ing bil­lions a quar­ter on ad­ver­tis­ing, and pub­lish­ers that have all the con­tent around which that ad­ver­tis­ing makes money are just hand­ing it over to them for free. It al­most seems like an­other type of sui­cide Molly Ivins men­tioned.

KD I think it doesn’t need to be, but I think with Face­book,


with Ap­ple, with Snapchat, and with Google in some dif­fer­ent ways, this is not, and shouldn’t be con­sid­ered an all or noth­ing propo­si­tion.

With Face­book In­stant Ar­ti­cles, for in­stance, the pro­gram has hardly got­ten started, and it has had very lit­tle im­pact on Face­book in terms of its traf­fic or its rev­enue, and also - and I’ve talked to pub­lish­ers about that - very lit­tle im­pact with pub­lish­ers so far. In fact, Face­book is just not pre­pared to be a re­ally good part­ner, and hasn’t done a very good job pro­vid­ing some ba­sic an­a­lyt­ics of what kind of ben­e­fits there are to pub­lish­ers of In­stant Ar­ti­cles.

But if you look at the model and step back from it, you can say, “This isn’t Google 1998,” or, “This isn’t Google 2005. This is Ap­ple and Face­book 2015/2016.” In this new model, we have seen a move­ment, which is a sig­nif­i­cant move­ment, where pub­lish­ers can sell ad­ver­tis­ing, in the­ory, on Ap­ple and on Face­book, ad­join their con­tent and keep all the rev­enue them­selves. That is man­i­festly dif­fer­ent than what the sit­u­a­tion was with Google.

Se­condly, we heard it an­nounced by Ap­ple a cou­ple days ago, that it’s go­ing to au­then­ti­cate those pub­lish­ers that have pay­walls. If you’re on The Wall Street Jour­nal for in­stance, and you go to Face­book, come June or so, you’ll be able to read more of The Wall Street Jour­nal, but only if you’re a paid cus­tomer. So we’ve have seen move­ment in terms of Ap­ple and Face­book. We’re go­ing to see some move­ment in Google in some other ways. These are not all or noth­ing propo­si­tions.

The only one that is all-in is re­ally The Wash­ing­ton Post, which has a wholly dif­fer­ent strat­egy at this point, of ubiq­uity. The other pub­lish­ers I’m talk­ing to I think are han­dling it right, where they’re test­ing, and not do­ing any great dam­age to their busi­ness to see what will hap­pen.

GM Let’s talk more about mon­e­ti­za­tion and pay­walls.

The New York Times has ob­vi­ously had some suc­cess, but what about the av­er­age pub­lisher?

KD In the news­pa­per world, the me­tered model has worked, but again, it’s not all or noth­ing; it’s worked in a lim­ited way, with some very dif­fer­ent ex­pe­ri­ences across the board. About half of US dailies have pay­walls.

If you look at the top per­former, The Bos­ton Globe, it has 65,000 digital-only sub­scribers. That’s a good num­ber. They have moved their pric­ing up from the equiv­a­lent of 57 cents a day to 99 cents a day. They’re get­ting 65,000 peo­ple to pay them $365 dol­lars a year now for digital-only ac­cess to The Globe. That is a sig­nif­i­cant achieve­ment. Now, that’s the high end of it.

As we take that apart and try to un­der­stand that, a lot of peo­ple will say, “Well, 65,000, that’s noth­ing com­pared to The New York Times that has a mil­lion.” This is the es­sen­tial dis­par­ity be­tween the value of na­tional me­dia and the value of lo­cal me­dia.

Lo­cal me­dia com­pa­nies have re­duced and re­duced their value propo­si­tion to their read­ers, and most of them have far fewer than 65,000 digital-only sub­scrip­tions. What most of the news­pa­per com­pa­nies have done, is they’ve used the me­tered pay­wall to do some­thing that’s very im­por­tant, which is to say, “The news­pa­per con­tent is not free. If you’re a sub­scriber in print, or if you’re digital-only, you now have ac­cess to it, if you want to read more than ten ar­ti­cles a month”. That is im­por­tant. I think it was smart, and in fact for two or three years, that ac­tu­ally grew cir­cu­la­tion rev­enue for them.

The prob­lem with it is twofold. One, they haven’t in­vested in the prod­uct and in the digital ex­pe­ri­ence over­all. And two, they haven’t in­creased their value propo­si­tion.

Those that are do­ing less, ba­si­cally have held on to their print-only sub­scribers, by charg­ing them for digital ac­cess a lit­tle longer. They have gained a few points in

cir­cu­la­tion rev­enue, but it’s not a win­ning strat­egy, and they’re look­ing for a new strat­egy at this point.

GM What other mon­e­ti­za­tion strate­gies do you think have legs?

KD The num­ber one is in an area that we’ve seen lit­tle ef­fort re­cently, but we may see more of, which is e-com­merce, or you can call it ser­vices.

Take a look at a new app called Vurb for in­stance. This is an app that says, “Hey, you live in a lo­cal city, ev­ery­body lives some­where, you’ve got all these apps, you’ve got Open Ta­ble for restau­rants, and movi­et­ick­, and StubHub for buy­ing tick­ets. Come to this one place, and you can find all your lo­cal apps, or your apps that ac­cess lo­cal in­for­ma­tion and lo­cal com­merce.” Of course, this is a com­merce play for them. They plan to take a per­cent­age from those trans­ac­tions.

Now, iron­i­cally, this is a com­pany that is par­tially funded by Ten­cent, the Chi­nese e-com­merce com­pany. This is some­thing that lo­cal me­dia should have done a long time ago; it gives them a new op­por­tu­nity to re­de­fine “lo­cal”. Lo­cal has al­ways been for news­pa­per com­pa­nies far more than just news; it’s al­ways been about com­mu­nity and a place to find things. Now the mo­bile phone al­lows these com­pa­nies to rein­vent it, but news­pa­per com­pa­nies have just shown so lit­tle imag­i­na­tion in do­ing that. But I think that’s one op­por­tu­nity that is big.

An­other area is events – events in terms of be­ing a con­vener in lo­cal is­sues and com­mer­cial fairs. It is an­other form, per­haps, of ad­ver­tis­ing or reader rev­enue and find­ing other sponsors who will come in on that. But it is a live and in-per­son kind of con­nec­tion where some com­pa­nies are find­ing a good new rev­enue source.

GM We’ve been watch­ing what you called “Bil­lion­aire Bingo” with Buf­fet, Be­zos, and Henry buy­ing news­pa­per prop­er­ties over the past few years, and more re­cently with Nikkei buy­ing Fi­nan­cial Times, casino mogul, Shel­don Adel­son, ac­quir­ing Las Ve­gas Re­viewJour­nal and Alibaba Hold­ings tak­ing own­er­ship of South China Morn­ing Post (SCMP). Do you see this con­tin­u­ing dur­ing 2016, and any thoughts on who you think might be primed to be picked up?

KD I think ba­si­cally ev­ery­thing is for sale, which is a scary propo­si­tion. The thing about it - and I’ve writ­ten about it sev­eral times - is the low prices of these en­ter­prises, num­ber one; and num­ber two, the fact that the old brother­hood of news­pa­per chains, where peo­ple kept the prop­er­ties es­sen­tially in the fam­ily, has been bro­ken up. It is to­tally un­pre­dictable who would buy a news­pa­per. I sug­gested when the Adel­son pur­chase went down in Las Ve­gas that the Koch brothers could well re-ap­pear. They were very in­ter­ested in buy­ing The Tri­bune com­pany. They could well ap­pear, and this is like pocket change for them. You could buy all of Tri­bune Pub­lish­ing for $650 mil­lion. It’s un­pre­dictable how many peo­ple are go­ing to want to get into it, ei­ther for rea­sons of po­lit­i­cal in­flu­ence, or ego. Or, in the case of John Henry, and Glen Tay­lor, re­ally a com­bi­na­tion of civic in­ter­est, and a be­lief that they can turn around these busi­nesses long term.

It is un­pre­dictable, I think, at this point. The most pre­dictable part of this is, we’ve got two com­pa­nies, Gate­house and Gan­nett that are both fu­eled with fund­ing that says, “If you can buy prop­er­ties cheaply enough, where you can buy it es­sen­tially at a mul­ti­ple of three to four times an­nual earn­ings, and then you bring your cen­tral­iza­tion mojo to these com­pa­nies,” which is what they’re both do­ing, “and you can make your money out, you can make more profit in four years than you’re pay­ing for the prop­erty,” that is the fi­nan­cial dis­ci­pline they’re bring­ing to it. So most com­pa­nies are look­ing for more pa­pers, and we’ve seen a num­ber of in­di­vid­ual, in­de­pen­dent, fam­ily-owned pa­pers suc­cumb over the

last few years. A paper like

The Colum­bus Dis­patch, for in­stance, is a good ex­am­ple of that.

GM If you were a bil­lion­aire, would you buy a news­pa­per, and if so, which one?

KD I’ve been urg­ing pub­lish­ers to think about busi­ness in­tel­li­gence, also called an­a­lyt­ics, or data science. It is be­com­ing the cen­ter of every me­dia busi­ness. You have to have knowledge of your cus­tomers and what they’re read­ing and want to read, and sim­i­larly of your ad­ver­tis­ers and what they want and how well you’re per­form­ing. With­out that core of busi­ness in­tel­li­gence, you’re fly­ing blind at this point and by 2020 you won’t have any busi­ness left.

I urge peo­ple to ven­ture into an area that many of them are scared of be­cause they think about all these nerds that are data sci­en­tists. They need to learn how the smarter pub­lish­ing com­pa­nies have, just in the last two or three years, har­nessed data science to re­ally have an un­der­stand­ing of their busi­ness.

The par­al­lel here is that Google and Face­book and the oth­ers are all based on a lot of knowledge. They have all the data mov­ing through there. Their abil­ity to op­ti­mize their busi­ness pro­cesses and to do it quickly isn’t based on hunch, which is what has long been val­ued in the me­dia world. What I tell pub­lish­ers at every op­por­tu­nity is that the new world is both hunch and munch, that the ed­i­to­rial in­tu­ition and the ed­i­to­rial judg­ment is as im­por­tant as it ever has been, and this is what still dis­tin­guishes pub­lish­ers from tech com­pa­nies. It’s the com­bi­na­tion of munch­ing of the data to ac­tu­ally get to a level of busi­ness in­tel­li­gence that will help dis­tin­guish their busi­nesses in the years ahead.

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