Why it’s time to get smart about con­sol­i­da­tion

The Insider - - PUBLISHING -

In In­dus­try con­sol­i­da­tion is noth­ing new. It’s been a nor­mal part of busi­ness for cen­turies. In the US alone, news­pa­per con­sol­i­da­tion, espe­cially at the lo­cal and re­gional lev­els, has been on­go­ing since the early 1900s.

It’s hard to know how many news­pa­per ti­tles are re­ally out there as not all coun­tries shared that data last year with the World As­so­ci­a­tion of News­pa­pers and News Pub­lish­ers (WAN-IFRA). But in its 2017 World Press Trends WAN-IFRA re­ported that close to 60,000 mast­heads (dailies, non-dailies, and Sun­days) ex­isted world­wide.

In a glob­al­ized and shrink­ing world, that num­ber is far too high. Too many pub­lish­ers to­day churn out too much over-com­modi­tized con­tent that lowers, not just the value of the in­di­vid­ual pub­li­ca­tions, but the value of the in­dus­try as a whole. It’s a big rea­son why news­pa­pers, espe­cially gen­eral news ti­tles, are so dif­fi­cult to mon­e­tize.

Con­sol­i­da­tion of the news­pa­per in­dus­try is as in­evitable as death, but that doesn’t mean it’s a death sen­tence. Con­sol­i­da­tions can hap­pen in a num­ber of dif­fer­ent ways — some con­struc­tive and some, not so much.

De­struc­tive con­sol­i­da­tion

I prob­a­bly don’t have to pro­vide spe­cific ex­am­ples of con­sol­i­da­tion turned ugly. It’s hap­pen­ing al­most on a monthly ba­sis in North Amer­ica and Europe. The com­mon de­nom­i­na­tor through­out th­ese con­sol­i­da­tions has been an ab­sent owner look­ing to cap­i­tal­ize on the strug­gles of a busi­ness — hos­pi­tals, nurs­ing homes, retail groups, fast food chains, air­lines, and, of course, news­pa­pers have all been vic­tims.

By bor­row­ing against the com­pany’s as­sets, sell­ing off un­wanted prop­er­ties, cut­ting news­room staff, ax­ing pen­sion funds, and slash­ing other op­er­a­tional ex­penses, th­ese profit-driven pro­pri­etors are able to siphon off mas­sive amounts of user data along with sub­stan­tial prof­its from div­i­dends, in­cen­tives, man­age­ment fees, and tax breaks. Once the busi­ness has been ex­ploited to the max, the own­ers who’ve made all their money back, ei­ther bank­rupt it or sell it off.

Con­struc­tive con­sol­i­da­tion

Con­struc­tive con­sol­i­da­tion comes in a num­ber of dif­fer­ent forms. Its goal is to save jour­nal­ism by re­duc­ing in­ef­fi­cien­cies and over-pro­duc­tion to achieve a higher qual­ity prod­uct val­ued by a broader au­di­ence.

Yes, fewer pub­li­ca­tions is still an in­evitable con­se­quence with con­struc­tive con­sol­i­da­tion, but when done with a prin­ci­pled goal in mind, it leads to scarcity of com­modi­tized con­tent with­out sac­ri­fic­ing qual­ity jour­nal­ism. Through the purg­ing of repli­cated, re­dun­dant sto­ries, con­struc­tive con­sol­i­da­tion helps di­ver­sify ed­i­to­rial and raise aware­ness of high-value con­tent pre­vi­ously lost in the del­uge of du­pli­cate news.

Let’s look at a few ex­am­ples of con­struc­tive con­sol­i­da­tion.

Hor­i­zon­tal merg­ers

There have been quite a few hor­i­zon­tal con­sol­i­da­tions over the past years where large pub­lish­ers ac­quire smaller ones — think Gan­nett, Mered­ith, tronc, etc. — not all of them for the bet­ter. But what sets some, not all, of th­ese com­pa­nies apart from the in­ten­tion­ally-de­struc­tive con­sol­ida­tors is their com­mit­ment to news me­dia and its role in the com­mu­nity and so­ci­ety as a whole. Ac­cord­ing to Bernie Lun­zer, pres­i­dent of the NewsGuild-CWA, “The tra­di­tional chains had to down­size, but they still thought like news­pa­per peo­ple — what sus­tains the prod­uct and the com­mu­nity.”

The ac­qui­si­tion of the Fi­nan­cial Times by me­dia gi­ant, Nikkei, was a bench­mark for fu­ture deals. The new owner didn’t ex­tract from the pub­li­ca­tion, it in­vested fur­ther in it, en­abling The Fi­nan­cial Times to ex­pand its mar­ket­ing stu­dio with the pur­chase of Al­pha Grid and en­ter into talks to ac­quire or­ga­ni­za­tions that can help grow its dig­i­tal sub­scrip­tion busi­ness.

Alex springers’ pur­chase of Busi­ness In­sider (now In­sider Inc.) for US$450M in 2015 was an­other sound in­vest­ment for all par­ties. Un­der its new owner, In­sider Inc. added 330 global jour­nal­ists to its ed­i­to­rial team, launched new in­ter­na­tional edi­tions, and had one of its best years ever in 2017, with a 45% in­crease in rev­enues from a monthly au­di­ence of over 400 mil­lion peo­ple — help­ing to boost dig­i­tal prof­its for the Ger­man me­dia gi­ant.

In Jan­uary 2018, Hearst com­pleted its ac­qui­si­tion of Ro­dale’s health and well­ness brands. We have yet to see how this merger will pan out, but if Mark Al­dam, EVP and COO of Hearst, stands be­hind what he shared at the 2018 Mega Con­fer­ence in March, I think the fu­ture bodes well for all in­volved, “The cul­ture of cost cut­ting with­out in­no­va­tion or rein­vest­ment is a death sen­tence in our opin­ion. Cost cut­ting is eas­ier than build­ing. And what we are try­ing to do at Hearst is to build size, ca­pa­bil­ity, and tal­ent with our jour­nal­ists. The num­ber of news­room em­ploy­ees has grown by over 20% over the last three years.”

Ver­ti­cal merg­ers

Un­like hor­i­zon­tal con­sol­i­da­tion where com­peti­tors com­bine, ver­ti­cal merg­ers oc­cur when a com­pany buys a sup­plier and in­te­grates it into their busi­ness.

With this form of con­sol­i­da­tion, one can achieve cross-seg­men­ta­tion of con­tent and ser­vices. We saw this with Hearst’s net­work of in­de­pen­dent ur­ban Rus­sian por­tals cov­er­ing au­to­mo­bile sales, job search and re­cruit­ment, city por­tals, and more. This con­sol­i­da­tion and di­ver­si­fi­ca­tion al­lowed the pub­lisher to share sto­ries with peo­ple lim­ited in terms of mo­bil­ity and ac­cess to in­for­ma­tion, and drive more traf­fic back to its web­sites.

An­other ex­am­ple of ver­ti­cal amal­ga­ma­tion is The New York Times’ US$30M pur­chase of The Wire­cut­ter (and sis­ter site The Sweet­home) in 2016. An on­line con­sumer guide and prod­uct-rec­om­men­da­tion ser­vice for tech­nol­ogy gad­gets and gears, The Wire­cut­ter gen­er­ated an es­ti­mated US$10-20M in rev­enue a year. Twelve months later af­ter the pur­chase, that num­ber had grown by 50%. It was a win-win-win for the pub­lisher, The Wire­cut­ter, and the pub­lic it served.

A vari­ant of this type of con­sol­i­da­tion is when wealthy bene­fac­tors per­son­ally in­vest in jour­nal­ism and com­mu­nity — such as John Henry’s ac­qui­si­tion of Bos­ton Globe and Jeff Be­zos’ pur­chase of The Washington

Post. While Henry cleaned house of en­trenched, old-cul­ture man­age­ment, grew dig­i­tal sub­scribers, and won mul­ti­ple Pulitzer Prizes in his ten­ure, Be­zos rein­vented The Post turn­ing it into a prof­itable ven­ture with a bright and di­ver­si­fied fu­ture.

Con­sol­i­da­tion, ecosys­tems and plat­forms

Al­though there are suc­cess sto­ries upon which we can draw some hope for a more ro­bust me­dia fu­ture, the fact is that news­pa­per con­sol­i­da­tion suc­cess sto­ries over the past decade have been few and far be­tween.

The failed ini­tia­tives typ­i­cally fo­cused on cap­tur­ing economies of scale and grow­ing prof­its, which isn’t enough. What they needed to in­clude was a new vi­sion for the com­bined en­tity, new sus­tain­able busi­ness mod­els, and a new cul­ture fo­cused on qual­ity jour­nal­ism and au­di­ence en­gage­ment.

In my in­ter­view last year with author and fu­tur­ist, Ross Daw­son, he ex­plained what he meant when he said that plat­forms are the fu­ture of me­dia and I think it’s worth shar­ing a sum­mary of his com­ments here.

“One could ar­gue that a news­pa­per in the past had its own plat­form, which was its dis­tri­bu­tion of paper, pri­mar­ily. There, it ag­gre­gated news, ad­ver­tis­ing, clas­si­fieds, and so on. So it was a plat­form in terms of be­ing able to pull all that con­tent to­gether and dis­trib­ute it to all of its read­ers.

“But now, in a con­nected world, we're start­ing to see just how many other plat­forms there are, and sin­gle par­tic­i­pants are find­ing it very chal­leng­ing to be able to play suc­cess­fully in this world. Most promi­nently of course we're see­ing the so­cial plat­forms (e.g. Face­book, Twit­ter) and now the mes­sag­ing plat­forms as be­ing places where peo­ple go for all of their me­dia. The way in which we in­ter­act with peo­ple on so­cial is an en­tirely valid form of me­dia, along with the more tra­di­tional news, en­ter­tain­ment, and ed­u­ca­tion from es­tab­lished pub­lish­ers.

“What we can en­vi­sion is a world where plat­forms bring to­gether those who are cre­at­ing con­tent, as in jour­nal­ists and those who col­lab­o­rate with them, to­gether with their con­sumers. A key el­e­ment here is that there are three do­mains which come to­gether to be able to cre­ate high-value con­tent and news:

1. Pro­fes­sion­als, in a news con­text that are tra­di­tion­ally jour­nal­ists and ed­i­tors who have ex­pe­ri­ence in how we pull to­gether in­for­ma­tion, how we com­mu­ni­cate that, and how we vet or fact check in­for­ma­tion

2. Crowds, who are of­ten where news is hap­pen­ing, who bring their per­spec­tives to bear, and who can an­a­lyze and add to the news

3. Al­go­rithms, that can take lower-level data and pull it to­gether into fi­nal prism pieces for au­di­ences

“In the fu­ture we can start to see more and more fluid plat­forms for news pro­fes­sion­als. I think that starts to be­come a more apt term than jour­nal­ist. They're news pro­fes­sion­als who are work­ing with crowds, who are work­ing with al­go­rithms, and who are work­ing with each other, not nec­es­sar­ily in terms of just be­ing an em­ployee of the news or­ga­ni­za­tions.

“In or­der to be able to col­lab­o­rate with other news pro­fes­sion­als around the world and bring to­gether con­tent, some­times they will work in­de­pen­dently and some­times ad hoc for the right news, event or con­tent. News pro­fes­sion­als are sup­ported by a plat­form where con­sumers, in­di­vid­u­als, or or­ga­ni­za­tions around the world can ac­cess their con­tent, and where a fair value ex­change can hap­pen.

“It is pos­si­ble that some of the ex­ist­ing plat­forms to­day, in­clud­ing Face­book and oth­ers, could be en­ablers of this, though I think it is also fea­si­ble for some of th­ese plat­forms to evolve out­side of what we have to­day. This is the space where we can see this po­ten­tial for ex­po­nen­tial value, where we start to see greater and greater value cre­ation for in­di­vid­u­als and or­ga­ni­za­tions — those who are try­ing to un­der­stand the world and make sense of it, to live their lives, and make busi­ness de­ci­sions — and the news pro­fes­sion­als who bring that to­gether so there's a feed­back loop which will cre­ate a pos­i­tive fu­ture for the news in­dus­try.”

And Daw­son isn’t alone in his think­ing. In its 2018 re­port Why Dig­i­tal Strate­gies Fail, McK­in­sey & Com­pany as­serts that all in­dus­tries will soon be ecosys­tems. And those in­cum­bents that have not adopted an ag­gres­sive plat­form strat­egy in their in­dus­try will suf­fer in terms of rev­enue and growth.

The Con­sol­i­da­tion Curve

Based on a study of 25,000 global busi­nesses in 2002 (rep­re­sent­ing 98% of the global mar­ket cap), Har­vard Busi­ness Re­view pub­lished what it calls the Con­sol­i­da­tion Curve — a model that out­lines the four stages of con­sol­i­da­tion ev­ery in­dus­try even­tu­ally goes through.

This frame­work has been used as a pre­dic­tion mech­a­nism by large firms look­ing to strengthen their po­si­tion, and smaller play­ers search­ing for the best ac­qui­si­tion strat­egy for them­selves.

Face­book and Google are ex­am­ples of Stage 4 or­ga­ni­za­tions, sit­ting pretty and prof­itable, while they de­fend their strong­hold through in­no­va­tion and mit­i­ga­tion of reg­u­la­tory threats. Mean­while, main­stream me­dia is still tread­ing wa­ter some­where be­tween Stage 1 and Stage 2 ­— par­a­lyzed by the no­tion that their fu­ture lies in ecosys­tems and plat­forms.

I can un­der­stand the fear, un­cer­tainty, and doubt that in­cum­bent me­dia ex­ec­u­tives feel about this pre­dic­tion. But if it is true, and I be­lieve it is, then they need to get on the train or risk be­ing left stand­ing at the sta­tion hand­ing out printed copies of news­pa­pers no one needs.

For the in­dus­try to thrive in this ecosys­tem-based fu­ture, we need to break down the si­los and work to­gether to rein­vent the in­dus­try and we need to do it now. Fight­ing the face­books and googles of the world is only go­ing to drain us of the lim­ited re­sources we could be putting to­wards cre­at­ing an ecosys­tem of the finest qual­ity con­tent and ex­pe­ri­ences the world has ever seen.

Let’s not let this op­por­tu­nity pass us by. Let’s rein­vent our­selves by build­ing peo­ple-fo­cused ecosys­tems be­fore oth­ers over­take us with their own.

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