New Business Models for Media Companies

  • Matt Lindsay
  • 10.03.2016

Changes in the way we consume news have affected all aspects of media. Innovation in business models, products and pricing strategies can alter the playing field dramatically. Media companies are adapting and inventing solutions on the fly with some success, but many are still searching for that elusive new business model that will allow media companies to be profitable while preserving quality journalism that set them apart from the competition.

There are many examples of industries that have been transformed through innovation after an external shock from technology, deregulation or customer preferences: Following deregulation, airlines developed dynamic inventory and yield management that added millions to their revenue and bottom lines. Hotels, rental car companies, and other industries followed their lead. Mobile phone carriers moved to multi-year contracts, combining periodic phone upgrades and monthly network charges into one monthly fee due to customer dissatisfaction with per-minute pricing.  Other mobile players created month-to-month billing option for customers that wanted less commitment. Cable companies created packages for customers with mixtures of video, high speed internet, voice and mobile services in one bill.

It is very possible that a media company, either new or existing, will invent a business model that turns the chessboard over. In the meantime, the best approach is to develop strategies that maximize the performance of existing business models and revenue streams. Using existing tools, it may be possible to attain that goal.

Revenue: Ads vs. audience

One dominant trend affecting the news media industry is the movement toward audience revenue as demand for targeted digital advertising grows.

In other parts of the world, media companies have always been more reliant on their audience. Newspaper publishers have produced high quality, premium products that sell at impressively high price points. A revenue mix of 60 percent audience and 40 percent advertising for American media companies is realistic, but companies must determine how much revenue is required from the audience to support the journalistic mission and what will still attract advertisers.

Digital-print dynamics

Another trend affecting the media industry is the increase in digital content consumption. Several of our clients have had to adjust allocations between digital and print platforms. One lesson we have learned is that a customer relationship across multiple platforms is much stronger than a single-platform relationship. Publishers can leverage the synergies between print and digital in their competition with digital-only businesses.

Analyze this.

The role of digital analytics is evolving rapidly, and many consider them to be fundamental to the digital publishing business. However, questions regarding what elements of big data and analytics processes should be completed internally and what elements should be outsourced are not settled.

The rapidly changing technology landscape and falling costs for some technologies such as data storage usually makes outsourcing those items an attractive option in the short term. There will always be a new shiny technology that promises to solve the big problems facing publishers, but just because something can be done does not mean it should be. Optimizing a process is secondary to deciding what the right process is to begin with.

The Long View

The innovation and evolution necessary for long-term success will come from media companies themselves and not from outside technology companies and platforms. If a media company relies too heavily on Facebook, Twitter, Snapchat or the next technology darling, it will never have the independence necessary for journalistic integrity or economic vitality.

The good news is that several media companies are innovating and evolving their products and services to meet the needs of their customers. There may not be a “eureka moment” that immediately changes the media business landscape, but there will be incremental progress in refining the media business model, and that progress will ultimately prevail.

 

ABOUT THE AUTHOR

  • Matt Lindsay
President, Mather Economics