While paid newspaper circulation has fallen 17 % in the US and over 30% in Europe between 2006 and 2010, according to WAN-IFRA, it has increased at a rate of 16% during that same time in Asia. Besides, PwC, in its Global Entertainment Media Outlook, is optimistic about the upcoming growth in the less mature Asian markets.
While the sun goes down in the West it is going up in the East due to growing revenue and per capita rent, higher literacy ratios, prestige of reading in growing societies as opposed to being almost old fashioned in more mature markets, new editions in local languages, the reduced penetration of internet, relaxed censorship (e.g. Myanmar) and new newspaper products (e.g. Ebela, launched in Calcutta in 2012 for young people, sells 300,000 copies a day). Those are all elements which favor both circulation and revenue growth.
Having gone through newspaper crises in both the European and American markets, I question whether or not Asian papers will be properly equipped to deal with their future as presented in the following charts. The first one presented by The Economist shows how the revenue of newspapers has evolved over the years as a percentage of their total revenue.
The second chart, presented by Clark Gilbert at two conferences I attended, shows that in a period of 60 years US newspapers’ revenues have not increased at all, even if we include digital revenue.
To avoid the same pain in the world of media in Asian markets, we should ask ourselves two questions: first, will Asian media be affected by the same ‘perfect storm’ which has hurt Western companies, or will it be spared? Secondly, if the situation evolves as we fear, will traditional Asian media be able to dodge the bullet, survive, and continue to grow their bottom lines?
Can geography or culture protect us from the ever emerging digital world?
It is very common for traditional media in different parts of the world to consider their situations as ‘different’. In one Arab country, some media executives told me they would escape the threat because of culture and language differences. A few months later it was reported that Arab readers who were not satisfied with the online edition of their newspaper were choosing other online properties for good content, even if it was in English or French. The statistics, elaborated by an Arab organization, were quite convincing.
Another example of this was a situation I was involved in three years ago in the Americas. I had done a seven-year revenue and P&L projection for a media group who considered my forecast too pessimistic. They believed their particular circumstances would slow down the damage suffered in other markets. For 18 months they were right. But in a three-month period things changed quite dramatically when the perfect storm arrived to the market: a serious economic downturn, better and cheaper internet access because of a new market entrant and the explosion of smart phones. In fact, Earl Wilkinson is right when in his conferences he states “there is not a single exception on the planet.”
In mature Asian markets such as Japan, South Korea or Australia some of these forces are already negatively impacting newspaper circulation. Although in some cases it may take more time, I believe all Asian markets will eventually experience their own perfect storm. As I posed above, the question is what the Asian media will do to withstand the storm when it comes.
The good news is that newspapers in Asia are doing many good things. Regarding their print activities, they are extending the penetration of their products and their brands. The case of the Hindi Rajasthan Patrika which went from a presence in just one state in 1995 to eight in 2013, with 33 print centers is an excellent example of ambition and management. Other cases abound in the region. The moment to grow has been well identified and managed. The markets were growing, newspapers grew with them and good monetization has been the reward.
As it concerns to digital media, there has been a rapid evolution. As Dawn McMullan expressed in his summary of INMA’s South Asia Conference 2013, “the debate on whether to have a multi-media newsroom is over. Today, it’s all about how soon, and how effectively.” Most newspapers in Asia are working on their digital editions and even offering sophisticated mobile responses.
But the real question is will that be enough? Will it ensure that when the contraction of their markets arrives, will they be properly equipped to face it and move forward? Will their revenue diversification really guarantee the sustainability of their businesses?
Four illusions along the digital path
The first illusion which has negatively affected Western newspapers is the idea that a reduction of print revenues could be compensated with digital advertising in their online editions. In fact, relying solely on newspapers’ web sites to compensate for lost revenues in print would be an incomplete answer by Asian companies since inevitably a sites’ initial growth in traffic and revenues will be followed by a different stage, described by Larry Kilman: “while newspaper websites attract massive numbers of people, a major challenge remains frequency and intensity of the visits.”
Based on my experience helping bring media companies into their digital futures, I know that when they hit this wall in frequency and intensity it has the effect of limiting the growth of digital revenue. Minimizing the situation with smart social media strategies is intelligent but not sufficient. Total revenues may decrease dramatically without a strategy to go beyond online editions.
The second illusion Asian media should discard is that online ads will continue growing constantly at the expense of traditional ones, as if the sum of print and digital were always the same and the only movement were ‘from traditional to digital’. That illusion would give traditional media the message that by moving their activity to digital they will somehow maintain revenues. The bad news is that at some moment ad spending, all kinds included, will start to decrease as a percentage of the economy in favor of promotions (defining promotions would entail another discussion), shown by Borrell Associates.
The good news is that Asian media can learn to play a role in that category if they do it soon enough to learn the ropes and gain a position in the market.
Thirdly, and to complicate things further, the stock of digital pages will inevitably grow and push down the CPMs, or price per thousand of ad impressions. The largest media companies will likely fight the flood of page inventories with different formulas addressed at making their ads more price inelastic. They may take measures such as targeting, propensity, affinity and prediction that we will mention in future posts. The point here is that putting all the trust in digital ads will not prevent Asian media companies from radically shrinking, both at the top and bottom lines.
The fourth illusion Asian media should avoid has to do with paywalls as a means to maintaining size and profitability. For some Western companies, paywalls constituted El Dorado, the panacea against their shrinking revenues. But soon they have realized that while the Wall Street Journal and The New York Times can be considered relatively successful, their practice of “high-quality” journalism addressing local and international audiences cannot be easily replicated by the average newspaper. As Jeff Jarvis from City University of New York says “There are many newspapers that are not very good that are trying to charge and I do not believe that will work.” In my opinion, paywalls have to be tried but the jury is still out on them. They may eventually work in the West and in Asia, but they will not constitute the magic answer to the loss in print revenues. Once again, in terms of revenues, print plus online editions plus paywall will be less than current print in Asia.
Regarding paywalls, let me note that like many Western newspapers, some Asian ones may discover that their original content is a very small fraction of their total offering and that they need to increase value added content for their paywalls to be successful. Investing in better reporting while reducing investment in commoditized content easily acquired from external agencies may be the positive byproduct of the paywall strategy thereby helping media focus on their core function thereby becoming a true local hub.
Three certainties for the digital journey
The sooner Asian media companies embrace the new reality brought by digital the more time and resources they will have to deploy their plans and to invest in their digital future. A three-legged strategy focused on digital editions, on the launch of ad-based digital platforms and on paywalls is not advisable simply because those revenues will be insufficient.
The first certainty is one that companies may try to postpone. Cost cutting is a necessary evil that all media firms (all mature industry companies for that matter) have to go through. No outliers here. I have seen over and over again Western companies postponing decisions to reduce costs and cut personnel. Understandably, General Managers profoundly dislike this part of their job and they procrastinate doing it. Asian media should benefit from mistakes in the West. Cost cutting is not only about reducing the cost of personnel but also about reducing the levels in the pyramid and bringing in news skills and new profiles to change the culture.
Culture changing and skill replacement can be done under pressure but the odds are much better when done with enough time, and with planning. It seems unnatural to talk about cost cutting during the current Asian bonanza. But if the company is convinced that the future will be digital and that the sum of all digital revenues will eventually guarantee its viability, it makes sense to talk about it. One Asian editor told me recently that in his company firing was not an option. Under perfect storm circumstances, it will become one. The good news is that this editor still has time to transform his payroll without taking any traumatic decisions by freezing most new hires in substitution of employees leaving the company, incentivizing retirements, some recycling, etc., as well as acting on other non HR fronts.
Smart Asian newspapers will not bow to the pressure of using the extra cash of the boom years in unnecessary printing plants, personnel, or to build large facilities they could do without. Instead, they will use the money to diversify revenues and to “buy digital ebitda”. In this regard, some examples are encouraging. According to Asia 360, circulation for the Times of India has increased to about 4 million which has contributed to a remarkable increase of cash inflow per year. Mr. Vineet Jain, Managing Director of BCCL, the holding group owner of the newspaper company, has declared that The Times of India could go public since they “do not need the money to grow publishing, but we need it to grow TV and internet.” In principle that is a good strategy which only requires good implementation.
The second certainty for the digital journey has to do with an issue which will reappear frequently in each company: what to sell to clients and how to sell it. For the time being I will ignore the first question. How to organize the sales force will be a topic of heated discussion in Asian companies, and is still present in Western ones.
To simplify, let me say that at the beginning of the digital journey print reps are often trained to sell digital. They will force digital to their print clients, often in bundled products. Neither the buyers nor the sellers are digitally sophisticated and that situation may last for a while. If it lasts too long the company will be losing digital market share. At a second stage, Western companies opt for two different sales forces or for a combination of both. For instance, the multimedia seller (trained print seller) approaches certain clients and the digital-only account executive visits digital-only buyers. In the case of new digital-only products the digital seller is the sole responsible.
Delaying the transition to accept the new digital reality has been a frequent mistake made in the West that Asian companies would be wise to avoid. A delayed transition means no systematic approach to winning new clients, while new digital product offerings are introduced too late to compete. Deciding to change the status quo to gain access to more digital revenues will put the pressure on the top management: who is in charge of the digital sales force, why is compensation different for the two sales forces (attrition among digital reps is higher than in print), how to act with clients on the gray area, how to compensate in a multi-product environment, etc..
The dilemma is brutally simple: be disruptive inside or face the consequences of digital disruption outside. A caveat: recognizing the need to change will not be easy because the usual market share indicators of print will not recognize the ongoing losses of market share in digital. One company may boast a 50% of local ad spending market share when in fact, if all digital products and services in that market were included, that percentage may well be below 20%. This realization usually marks an inflexion point in the life of media companies as Clark Gilbert has said about his Deseret News project.
The third certainty is perhaps the most unnatural for media groups. In fact, some print newspapers I respect have failed here. If one company is aware of the three illusions I previously mentioned, and if that company is ready to reduce costs, bring in new skills and change the culture and is also ready to face the conundrum of organizing the sales force under the new situation, it does not imply that that company understands that it has to go beyond its current mission and vision. Very frequently media companies just extend their print activities and their vision into digital: they launch vertical portals or similar projects based in content that they try to monetize as if more content and more advertising were the solution to all problems.
The smarter media companies have moved beyond and into adjacent territories to complement their profitability. There are many tasks a local player can fulfill in its territory which do not have to do with news content, not even with content in the traditional form. Why are some reputable print companies failing here? I guess because they went into soft transformation mode instead of reinventing themselves, which is harder, takes more determination and at times is scary because when in unchartered territories mistakes happen. General Managers want to be on the safe side, and out of fear of seeming ignorant they may postpone bringing the digital topics into the boardroom.
(As an illustration of moving beyond the comfort zone, let us take the case of Schibsted, which could almost be defined now as a media-classifieds company capturing a solid position in Web TV and other areas. In 2005 Schibsted launched Sesam, a Scandinavian search engine, and after pouring the equivalent of several million euros into it, it was closed in 2009. While it was a failure (no discussion here, the investment went from asset to expense), the four years the company spent tinkering with the project brought important lessons on user management, data gathering, analytics and prediction modeling. To a certain degree I am sure that all of Schibsted’s other projects benefited from it, from its huge classified franchise across Europe to its current success in Web TV. With hindsight, was Sesam really a failure?)
In general I do not mention new avenues of revenue since this is a core part of my consultancy, but I can offer some hints. In the following slide it is evident that in the West media clients are splitting their revenues among more promotional platforms. The radio, the TV or the newspaper are encountering a growing number of competing platforms when trying to get money from clients.
If anything, the chart says that a strategy limited to serving those clients with just ads will be shortsighted. In Asia, traditional local media can still create or buy those new platforms to serve existing clients as well as new ones.
The clients in the chart want to sell their products or services. At first they just want to be present in the digital world and they need trusted guidance. Inevitably they will want to engage with their clients to get more business. In this life cycle of a SMB (Small and Medium Business) there are many tasks a traditional Asian media company can start implementing, while learning important lessons to be simultaneously applied across the rest of its existing projects.
A key indicator for the journey
One way to assess a company’s ability to embrace digital is its ratio of digital to total revenues. Measuring the evolution of digitization in the company is key to ensuring that the transformation is under way. It will help boards gauge the company’s evolution and take measures when the rhythm stalls. An Asian editor told me recently that their ratio was 4% and that the new year budget did not establish a ratio goal. While 4% is low, the real problem is that not establishing a ratio goal as a KPI (key performance indicator) is a guarantee that the company will be late to catch its future and it will enter into reactive mode.
It is my personal experience that media groups reaching the 30% threshold have learned the basic digital lessons and have transformed their DNA to the new reality. Some exceptional companies reaching 50% seem well equipped to move safely into their future. In the less developed Asian markets (which excludes South Korea, Australia, Japan and some smaller markets), that ratio is well below the 15-17% average in US and Europe. That difference is becoming less sustainable as the digitization gap between East and West is being reduced year after year. Of course the denominator in the division keeps growing in some Asian markets, but regardless, the Asian ratios need to grow faster to make sure the future is at reach.
Given the critical nature of the ratio of digital revenues, it is important to see it in pure terms in order to accurately assess a company’s path to its digital future. This ratio should not include any revenues coming from estimated upsells obtained by the clout of print, imposed on clients and not appreciated by them since it will only serve to distort the assessment.
Media will be digital or it will not be. There are no outliers, not a single exception. The digital gap between East and West is being reduced as some Asian media companies are now experiencing. Other markets are less affected but they should take advantage of the extra time to reduce total company costs, to bring in new talent, to train and adapt sales forces, to acquire and manage new digital projects, to change the company culture, to increase digital revenues and ebitda, all while maintaining print revenues as long as possible. It is not simple but there is no alternative.
You are free to use this article in your publication as long as you credit the author Fernando Samaniego