How Digital Media Screwed the Media Business

This is the text of a speech I gave at the PSFK London conference on Friday, June 1, 2007. It’s about how media owners now face some very harsh realities against both technology companies that put the power to publish in the hands of the ‘audience’ and smaller, cheaper to run media startups.

There’s a little story about the first stirring of how a new kind of cheap to produce, easy to distribute media would start to affect both the existing, traditional media and the society around it.

I’m not talking about what happened when blogs appeared on the scene in 1998/99.

Instead, let me take you back to one summer in early 19th century England, June 1817 to be precise.

At that time there was great poverty and distress created by the conflict between unplanned economic industrial expansion and the older way of artisan life.

On dozens of occasions weavers and other workers in the midlands and the north assembled with a few guns and home–made arms to attack the authorities that enforced rigid and terrible working conditions.

But nothing much came of these uprisings until a man called Jeremy Brandreth gathered 200 or 300 men from Pentridge to march on Nottingham.

The organisers connected with other groups and urged them to join the uprising.

But these other groups frequently failed to show up or were broken up by the authorities before they could get to any kind of assembly point. The distribution of the information was going out fast in some places and slowly in others.

The WEAK POINT in the organisation was always the LINKS between them.

Eventually the Pentridge group just marched on Nottingham alone. Brandreth was arrested with 36 others, imprisoned in London and hung. The event later became known as the Pentridge Uprising, and largely disappeared into obscurity afterwards.

BUT – only a few years later, with the invention of an affordable letter press, factory and farm workers were able to start affecting the course of public debate by printing and distributing weekly newsletters (including The Political Register or “The Two Penny Trash” and the Black Dwarf). These became a rallying point for insurgency, not just because they were printed and distributed, but these pamphlets – not unlike blogs – were read to the workers in ‘reading rooms’ (the RSS feed of its time).

Only two years later The Peterloo Massacre in 1819 began as a protest rally, which saw 60,000 people gathering to protest about their living standards, but was quelled by military action and saw eleven people killed and 400 wounded.

Those pamphlets had become the backbone of demonstrations that eventually led to the freedom of the press and parliamentary reform.

I’m no historian, but it would appear that this was one of the last times in history when the existing system of information distribution was undermined and radically changed by a new system. The new technology, the pamphlet, was CHEAPER, FASTER, and was not designed to support any kind of full-blown media enterprise – it was a means for social discourse and social change.

Digital media is cheaper to create, so it has the potential to undermine traditional media which, although creates a more polished product, is slower and more expensive. In the past these economic were masked because not enough people were online to consume digital media. But now they are.

We got a taste for the emergence of this trend last year when the UK Press Gazette magazine closed. It turns out that the magazine’s website, at 110,000 unique users a month, was much more popular than the printed version which only managed 4,639 in sales. Of course, all the effort went into the printed title.

Admittedly its readership – journalists – were used to getting it free so subscriptions were hard to maintain.

But it faced two key issues, which faces the media today. Firstly, a smaller, cheaper to run competitor – holdthefrontpage.co.uk – which could undercut it on classified advertising.

The second issue was a fundamental inability to realise that despite their relative success online, the high costs of a traditional media structure (sub editors, art editors, photographers, expensive offices, an MD on £133k, a finance director on £82k) could not be supported.

Anyone who has ever read an A-List blog like TechCrunch or Guido Fawkes, knows that online publishing long ago found in blogging a very low-cost, high impact model of publication – but like PG, few publishers are able to deal with the reality of this fact.

Meanwhile in the US and elsewhere, tiny blog sites are being networked together to create fascinating new media models of the future – Gawker, TechCrunch, PaidContent, GigaOm, Weblogs Inc, The Register. There remains many publishers who just don’t realise that their businesses – with parking slots for the CEO and lavish expense accounts for the ad sales staff – could one day be under threat from this “digital pamphleteering”.

But the Classified advertising world, long associated with the news media and a substantial revenue source, is not sticking around for old times sakes.

Craigslist – which has taken £60m of ad revenue a year out of the San Francisco newspaper market – and GumTree.com in the UK, are examples of how classified advertising is becoming virtually self-organising. No one needs media companies in the middle any more. In fact media companies can’t create the really smart tools for classifieds any more. That’s why over 60% of the online advertising market is in sectors like Google Adsense – a market created not by media people but by a technology company which in fact owns no media production of its own.

Craigslist is now in 192 cities, and only charges for want ads in three of them, and only $25. Craigslist competitors, like the New York Times, charge $300. Craigslist has little overheads. It employs 18 people in a run-down office in San Francisco and turns over about $10m a year. And there is no indication that he will sell his business to a “real” media company. The New York Times owns a massive building, employs around 10,000 people. You do the math.

Craigslist is not the only way people are connecting. Take for instance the growth of Freecycle on Yahoo Groups. All for free, all facilitating the exchange of goods, monetised for Yahoo! by contextual advertising.

Now, admittedly, the media business can get it right. Everyone considered it a very smart and shrewd move when Rupert Murdoch bought MySpace for $580m in 2005. Much cheaper than the $165bn Google paid for YouTube less than a year later.

And News Corp has been quick to try and monetise it put it in the service of the wider media group of which it is now part.

This April MySpace said it was joining forces with online recruitment site Simply Hired to launch what it claims will be the UK’s largest online jobs channel. The deal is expected to feed around 1m job ads to the local UK version of MySpace. IN the US Simply Hired aggregates around 5m job adverts for the social networking website.

However, the problem is, is that advertisers themselves tend not to want to pay. Advertising jobs is notoriously expensive for businesses so they typical try to route-around any obstacle, looking for a free or cheaper route.

How many people here are now getting frequent emails from their LinkedIn contacts advertising jobs? LinkedIn is a social network where in theory you have to pay to really promote a job, but people easily get around the restrictions.

Linked in is typical of social networking sites, which are simply putting buyers and sellers together.

The similar Facebook is also taking off in the UK. What are many of the groups being formed there? Ones where people can buy and sell goods and place advertising in Facebook Marketplace. All for free.

In the public sector too, Media business face increasing pressure because of the simple economics of digital publishing.

Job searches on the government’s Jobcentre Plus website have now reached a new high. The website now handles over 70m job searches a year, accounting for over 14% of the overall recruitment market in the UK.

Then there is the increasing threat from search engines.

Last month Simon Waldman, director of digital strategy for the Guardian Media Group and chairman of the Association of online publishing in the UK and group, pointed out that members had experienced 67 per cent growth in turnover of their digital businesses in 2006, with aggregate turnover for AOP organisations now standing at £575m – equivalent to the size of UK radio advertising.

However, he pointed to Google’s UK revenue of £872m (an 81 per cent increase year on year). In other words, the old media business is not in any way leading the market, it just happens to be part of it. You’ll note that Channel 4 made similar noises about Google’s increasing domination not long ago.

The old media business must now contend with technological giants, as well as nimble, low-cost start-ups on the west coast of the US and in Europe. And many of those startups are fascinated by, what? Classified-style advertising. In the US last week Trulia.com, a residential real estate search engine, closed $10m in financing. Here in the UK were have several startup equivalents, Zoomf.com, Nestoria, OneOneMap. All after the same revenues and all hungry for classified data to either upload or crawl on other sites. Rightmove has been quoted at £320m. Zubka.com, where you can advertise jobs and get a commission for recommending people is gaining in popularity. In areas like travel, startups like WAYN.com are happy to answer the need for travel coverage by allowing the users themselves to create it.

Waldman even predicted more court cases between publishers and search engines as media owners struggle to protect their intellectual property.

The trends highlighted in the US are being reflected here in the UK. The Pew Internet Foundation has shown that in the US there’s not a great appetite for reading newspapers among 18-30 years olds. Meanwhile, the existing newspaper readership is slowly dying off, newspapers are cutting expenses and sacking journalists.

The rot has even set in at the august Time magazine.

In January this year Time Inc said it would cut 289 jobs in an effort to rein in costs so it can invest more heavily in the Internet and new media. The cuts include 172 editorial employees. Last year it shed about 550 jobs. Ann Moore, Time Inc’s chief executive, told staff the world’s biggest publisher was making progress on the internet. But she added: “We need to continue to evolve to meet the cost pressures and challenges presented by our rapidly-shifting industry.” It’s also put 18 smaller magazines up for sale. The core of her strategy has been to take Time Inc’s best-known brands and move them on to the internet.

Of course, in this country newspapers and magazines are clamouring to try and make their web sites really work and earn more. Of course, if you’re Richard Desmond, owner of the Daily Express, it’s easy. He is happily upping his salary while largely ignoring the Internet. It probably won’t be around much longer as a result and will die with its readers fairly shortly no doubt.

Meanwhile the new readers, the new viewers, are going behind the back of the old media, and taking to each other. That’s what social media is, and there are plenty of technology firms – Digg, Blogger, Flickr, Vox, Facebook – which are happy to facilitate that conversation, and more importantly the real commerce that results from this. Some are even suggesting that Twitter, the very simple tool for public messaging across IM, SMS and Web could easily monetise via classifieds.

The media can of course fight back. The newspapers can make a case for being the right place to hold that conversation. Sites like The Guardian’s Comment is Free , or the Telegraph’s new “My Telegraph” blog initiative.

As Alan Rusbridger, the editor of the Guardian, said in a speech to the Royal Society of Arts last year: “This is the beginning of a complete inversion of the newspaper model. It’s not us telling you it’s us saying to you ‘why don’t you take part and we’ll give you the space.’ ” That’s Comment is Free.

The alternative is the New York Times, where comment sits behind a subscription firewall, which probably makes less than $10m dollars a year.

Now, granted, I doubt Comment is Free is making that much money either. At least it sounds like it’s on the right track.

But meanwhile, the media business still faces the problem of what to do when digital media just doesn’t bring in the same amount of money, even as more of their readers and viewers consume it.

Rusbridger has a graph he likes to trot out at speeches which plots the falling revenues of old media against the rising revenues of digital. The problem is, he points out, is that there is a black hole between the two where no one knows if the new revenues coming in will match the revenues of old, and thus maintain the old infrastructures.

In some respects all of this may be irrelevant to brands, marketing and advertising people. Who cares how the consumers get to learn about your product, right? It doesn’t have to be via a site or service run by an old media company, or one that perhaps also reports the news.

It could be via a cute campaign on a social networking site, or a clever YouTube video, which goes viral. The ‘old’ media business as was does not have a God-given right to survive, it needs to earn its keep and deliver the audience if it’s to survive.

On the cold facts, this is unarguable, but there is also the fact that for a society to work well, citizens have to be informed across a range of subjects. Politics and culture is always worse off with citizens who aren’t informed. Sure, we would try rely on ‘crowdsourcing’. We could hope that Digg.com could keep us up to date on current events in Iraq, because there are a lot of bloggers with a balanced view out in the green zone, right?

It may not be that extreme a result of course. It may be that the media business, and especially media businesses connected with news gathering, shrink to a new leaner, light-weight model propogated by the A-List bloggers of the world. Anything from less parking spaces for the board directors right down to getting rid of large offices, staff and capital outlays altogether.

Whatever happens, let’s hope the new models to come serve our democracies and our markets as well as the old model.

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