azeem.azhar

Thanks to a great conversation with Umair and Ditlev this afternoon, and a dogmatic column by Libby Purves which–if I boil it down–stated: ‘Good stuff needs to be paid for. Don’t pay for something then it can’t be good’ , I thought I’d offer one take on the newspaper industries options

It is possible for people who want to create useful or valuable content to do it for ‘free’ : that is free at the point of delivery. Great creative-common’s licensed photographs on Flickr are put up their by people who are happy not to be paid in cash for those particular activities.

A bike by Lulazzo

I don’t care what their motivation is (marketing, a hobby, a desire to humiliate somone) but the fact is that they do. Wikipedia is valuable–and is free in most contexts. My blog happens to be free. And in it you’ll find some commentary you won’t see elsewhere: http://azeemazhar.com/?p=317 and http://azeemazhar.com/?p=304 (both read in excess of 1,700 times).

Neither is the issue that people won’t pay for access to valuable intellectual property or content. They obviously will. People pay $1500 a year for Gregor’s oil analysis. They happily pay 2 and 20 to a hedge fund manager. (And even if they should pay less, we generally accept that premise that we should pay for measurable performance.)

(And before I am accused of being a free content zealot, note that I pay for more ‘content’ than the average person–last year: FT, Guardian, The Economist, The Week,  dozens of magazines and books; and over $1,000 on various investor content services).

I think the issue for newspapers has been that they haven’t yet worked out what is valuable and what isn’t. I don’t know how much I would pay for access to Libby Purves’s column any more than I would pay for access to the fifth and sixth songs on a Village People album. In fact, I can tell you (on the basis of this column) that I know far more insightful and interesting bloggers who write ‘for free’ (3Quarks, Fred Wilson, Epicurean Dealmaker).

Nor have newspapers (in general) established a particularly strong economic chokepoint on my consumption experience. Sky has done that brilliantly in TV. If I want football, I can’t go anywhere else. If I want movies I can go elsewhere and we frequently go to ITunes, Lovefilm or the three amazing cinemas we have within walking distance. As a result we are not a Sky household. If I wanted football, rest assured I would be on a Sky tariff. Sky has a clear choke point which means consumers–of a particular type–have few other choices. But note: if you care not for sport or movies, Sky’s appeal is distinctly less strong.

What is the ‘sport’ equivalent for The Times? Honestly? And what is it for a rising cohort that doesn’t have the same newspaper loyalty that their parents did. It isn’t an easy question to answer–and I certainly don’t have that answer.

It might be individual bundles of columnists. Anatole Kaletsky‘s economic writing is a great example of a columnist one could bundle. But how many could you bundle? And what do you do with the expensive staples (like domestic reporting?) And can this fill the revenue hole?

And how far can you unbundle before your business model–the way you configure yourself to deliver value to customers–has to change. Is it business as usual–cut a few costs here, trim a few perks, raise your prices, exit some markets? Or is it, as the record labels are finding it, time to really change what it is you do and how you do it?

Stepping past the religious debate of whether  ‘content needs to be free’.

Newspapers need to find ways of being compensated for the value they provide–like the hedge fund manager who is increasingly paid on his results. And this means they need to work out what value they actually do provide–and it is clear that they do.

My biggest worry for the newspapers is not that paywalls will or will not work (whatever that means). But that they don’t recognise the phase change. What is in the lake is not hot ice, it’s water. It is that the papers and their publishers won’t experiment heavily with new models.

As a CEO or Chairman of a publisher, you would want to see experimentation at the edges.

You face a world of uncertainty: either the world is only shifting slowly, in which case an incremental shift will do; or the world is changing discontinuously, and you should build an architecture for experimentation and start to test things. At the very minimum, this is about portfolio insurance. You live in the world where the grey swan does fly over head which sufficient frequency to suggest he is white. Google did not exist 11 years and a month ago. Yet now it has profits of $6bn a year (compare that to revenues of $2bn for the NY Times–both of whom are in the information business).

There is an old McKinsey framework–the three horizons, which is as helpful as many in describing innovation and the ‘alchemy of growth’. This framework may or may not work particularly well for industry that might be facing a Christensen-esque disruption (it is after all the ‘Alchemy of Growth‘ not the ‘alchemy of survival in the face of a shrinking revenue pool’) but it will be a framework senior media executives are familiar with.

Horizon 1 is the here and now : the extension and defence of core businesses. Horizon 2 is the building of emerging businesses; and horizon 3 is the creation of viable options. Successful companies execute appropriately on all horizons, with those in faster moving industries spending proportionately more time in the later horizons. The challenge for newspapers is the time compression: what should be horizon 3 issues have (after years of non-experimentation) queued up immediately behind horizon 1 options.

Make no mistake: paywalls are a short-term solution to a horizon 1 problem: defence of a core business, as are customer retention measures like subscription plans or marketing initiatives. The Board of Directors and the CEO will want to see more: the creation of viable horizon two businesses as well as options in horizon three. Those horizon three options may conflict with, contradict or challenge horizon 1 plays (and, frankly, each other). That is the nature of experimentation.

Smart Boards will recognise the need to experiment broadly, as surely as they defend their existing businesses rigorously and reasonably. (But don’t sue Grandma!)

And in that experimentation, surely, will a  plethora of models emerge: where content owners pay for distribution, where distributors pay for content, where users pay for adverts or to avoid ads or for content, or pay distributors for content; where distributors bundle content from publishers professional and amateur, where amateurs fill pages in newspaper for the love of the act; where foundations sponsor reporting, and citizens sponsor investigations; where some newspapers try just to be conduits and others just to create content.

And out of that experimentation–if and when it happens–will come a new range of business models and profits can start to flow once more.

[Disclaimer: My new business could be one way for newspaper, advertisers,  bloggers and readers to experiment with new models.]

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