We are living in the Internet age; it has caused tectonic shifts in global commerce and the economics of many industries at a scale not seen since the industrial revolution. Newspapers were in the vanguard of businesses disrupted by the new digital distribution platforms and have a lot to teach other industries that are only now beginning to feel the full disruptive power of the Internet and mobile devices. Because of their experience on the print side, newspapers are more sophisticated than most other businesses in developing new digital revenue streams, and they could emerge as leaders in the digital economy.
Why Newspapers Are Leading
Newspapers managed both advertising and audience revenue streams for decades, and many of these competencies have translated to digital platforms. The migration of advertising from traditional to digital channels has forced many newspapers to derive more revenue from its audience in both print and digital platforms. As a result, they have adopted yield management strategies for growing audience revenue while minimizing customer losses. Among the traditional media, newspapers experienced the most dramatic reduction in advertising revenue. In response, they have aggressively experimented with digital advertising technologies, including emerging programmatic channels. Through leveraging first-party audience data, newspapers will likely be able to further improve the digital advertising revenue streams.
How Other Industries Have Adapted
Many industries that also relied on advertising revenue, in some cases exclusively, are now wrestling with how to develop audience data for the first time. Industries that have had only subscription revenue are now seeking to grow advertising revenue to offset declining subscriptions. In both of these cases, newspapers can offer guidance on how to develop and manage both advertising and audience revenue.
Consider these industries:
Broadcast – both TV and radio – seeks to grow their “known audience” for content promotion and possibly first-party targeting of digital inventory. Most broadcasters are not deploying paywalls for their digital sites, but many are focused on increasing digital advertising revenue, with video pre-rolls being important for their strategies. Obtaining email addresses from their audience to be able to promote their content is an objective many pursue.
Broadcast advertising recovered from the 2008 Recession to a greater extent than newspapers, but the future is uncertain, to say the least. Audience data is not something they are accustomed to managing, and they have relatively little experience with email campaigns and audience acquisition.
Financial services firms, including banks, face challenges by new entrants that use digital channels to reach customers and provide services. The prolonged low interest rate environment of the past eight years has severely reduced a traditional income stream: the interest rate differential between loans and deposits. To offset the loss of interest income, banks grew fee revenue, but new regulations have limited the potential for fee income, while also increasing compliance costs. The loss of fee revenue due to regulation is about $20 billion per year, and the cost of compliance is in the hundreds of millions.
There are many banks at which the number of compliance personnel exceeds the number of loan officers. Banks are now using analytics to segment their customers, calculate lifetime value and offer targeted services to improve customer profitability. These are all tactics newspapers have employed for nearly a decade.
Cable television firms are experiencing the cord-cutting phenomenon, with more than 20 percent of U.S. households now cable-free. This trend also is affecting broadcasters as ratings for traditional television shows fall. Over-the-top (OTT) video, delivered over an internet connection or to a mobile device, affects advertising revenue, but it is the loss of monthly subscription fees that is most significant. ESPN, for example, has lost more than 11 million subscribers in the past five years, which is worth more than $1 billion in cable and satellite revenue. If current trends continue, ESPN will reach a break-even level of revenue in 2021 with about 73 million subscribers, and they will not be able to continue paying for the broadcast rights they have today.
Cable firms have been slow to embrace subscriber yield management, in part because their billing systems are outdated and creating additional rate codes is prohibitively slow and expensive. They are not as sophisticated as newspapers in customer retention practices.
The Only Constant Is Change
While many of these industries have weathered similar challenges before (network television had to adapt to competition from the introduction of cable television), they are likely in the early innings of the changes they will ultimately experience as a result of digital distribution platforms. Newspapers are further down the road with business transformations caused by the Internet age, and they may soon find themselves moving up in the race to develop digital revenue streams. To remain viable, newspapers must continue to look ahead and prepare for the next bend in the road.
President, Mather Economics