A new study by two leading analysts of media economics sketches a stiff challenge for legacy news organizations: equipping themselves for what the authors project will be a dramatic tilt of ad spending to the Web.
Penelope Muse Abernathy and Richard Foster highlight the gap between the rate at which people are getting information online and the rate of online spending by advertisers. They say that gap is going to close — and that publishers better be ready.
The study, to be presented Friday at a conference at Yale, contrasts findings by Barclay’s Capital Internet Data Book that “currently only 8 percent of traditional ad budgets in the U.S. are allocated to online” with data reported by analyst Mary Meeker that “Americans consume roughly 30 percent of their content online.”
Abernathy, who holds the Knight Chair in Digital Media Economics and Journalism at the School of Journalism and Mass Communication at the University of North Carolina, and Foster, a former McKinsey & Company executive who is a now senior faculty fellow at the School of Management at Yale, conclude:
As gloomy as that diagnosis sounds, the report includes a range of prescriptions aimed at heading off death at the hands of unrealized online potential.
The authors present their analysis from three main perspectives — that of shareholder, journalist and economist — and urge traditional news organizations to pursue a three-pronged survival strategy over the next five years:
- Shedding legacy costs as quickly as possible
- Re-creating community online — in an attempt to regain pricing leverage
- Building new online advertising revenue streams to replace the loss of traditional print categories
They point out that printing and distribution account for “almost half of expenses” at many newspapers, but say “few — if any — publishers have a game plan or timeline for transitioning a majority of their print readers to online delivery.” That’s so, they argue, “even though several recent surveys of media usage indicate that readers are re-organizing their lives around the new technology — and leaving print behind.”
Abernathy, a former executive at both The Wall Street Journal and The New York Times, said in a phone chat Thursday: “You want to shed those legacy costs not just because they hurt the balance sheet but because your consumers are moving (to new platforms).”
The trick to regaining price leverage with new online communities, she and Foster contend, is doing what niche publishers do — providing “access to a highly desirable (affluent or young, for example) community or a well-defined one (that can be targeted along geographic or political boundaries).”
They say their third recommendation — creating new streams of online ad revenue — will require innovation in local search, digital marketing campaigns and such areas as mailed coupons and loyalty programs.
To the media boss equivocating about taking bold steps, they quote the challenge that Intel executives Gordon Moore and Andy Grove say they faced in 1984.
Before deciding to shut down what had been Intel’s core memory processing business so they could reinvest in microprocessors, they asked themselves:
“If we got kicked out and the board brought in a new CEO, what do you think he would do?”
