Why it’s time to get smart about consolidation
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.
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 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.
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.”
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.