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THE NEW NEWS on PRINT MEDIA TRANSFORMATION by Frank Arthofer, Niki Aryana, Anna Green, Alannah Sheerin, and Neal Zuckerman

THE NEW NEWS on PRINT MEDIA TRANSFORMATION by Frank Arthofer, Niki Aryana, Anna Green, Alannah Sheerin, and Neal Zuckerman

THE NEW NEWS ON PRINT MEDIA TRANSFORMATION By Frank Arthofer, Niki Aryana, Anna Green, Alannah Sheerin, and Neal Zuckerman

igital technology is no longer the This framework is still useful, but it’s time Ddisruptive force in print media—it is to rethink specific steps. Most companies the driving force that shapes content have made near-term and medium-term creation and distribution. The distinction moves. Some of these efforts have worked, between print and digital is not relevant some no longer work, and some are works anymore: publishers have become, with in progress. But consumer behavior and varying degrees of success, digital media the industry continue to evolve. Companies companies. But the industry continues to need to take stock of changes in the com- evolve, pushed by changing consumer petitive environment, the outcomes of the behavior and business innovation. Trans- steps they’ve already taken, and the moves formation, therefore, remains an impera- they should be considering to stay relevant tive for many companies. over the longer term.

In late 2012, BCG presented a transforma- tion game plan for companies in the throes What’s Changed? of a digital sea change in how people con- Three developments in particular have sume print media and how advertisers shaped the print media landscape over the reach them. (See Transforming Print Media: past three years. Managing the Short Term While Restructuring for the Future, BCG Focus, December 2012.) More print media companies have been Our framework involved three stages: near- forced to stand on their own two feet. In the term moves to raise cash for the journey; continuation of a move that began well medium-term steps to establish new lines before 2012, more media companies have of business, primarily in adjacent seg- separated their print and other media ments; and longer-term actions to develop assets. () and the skills and build the organization and split in 2013, Time War- culture the digital world requires. ner spun off Time Inc. in 2014, and Tegna

For more on this topic, go to bcgperspectives.com and Gannett went their separate ways in millennials’ sources for 24 news topics— 2015. Those transactions generally created including music, TV and movies, sports, value for shareholders, but they left print crime and public safety, and national media companies to fend for themselves in politics—found that Facebook was the the digitally disrupted marketplace. number one source for 13 topics and the number two source for 7, meaning it Company performance has been mixed. ranked first or second for 20 out of 24. A Most print media companies are embrac- 2015 survey by Pew Research found that ing digital or multichannel models. Hearst more than 60% of Facebook and Twitter Magazines’ US digital operations account users get their news on social networks. for more than 30% of overall US profitabili- BuzzFeed is a major source of news and ty. Company has set a information for 14- to 25-year-olds, and goal of doubling its total digital revenue, in- 75% of its traffic comes from social media, cluding advertising and subscriptions, to according to digital information clearing- $800 million by 2020. The company an- house DMR. Snapchat, through its Discover nounced the addition of 67,000 digital platform, has emerged as an important subscribers in the first quarter of 2016, curated news source for millennials. bringing its total to 1.2 million. Gannett has pursued an acquisition strategy, completing The incumbent news media brands have the purchase of Journal Media Group, and taken notice and are beginning to embrace has added nearly 10% to its market capital- these platforms: ization. (Gannett also recently made an made its debut as the first major US news- $800 million bid to acquire Tribune Pub- paper brand on Discover in early 2016, and lishing.) Time Inc. and News Corp have approximately 20 other media outlets are focused on adding digital assets, with Time now on that platform, including CNN, Cos- Inc. acquiring Viant and HelloGiggles, and mopolitan, and National Geographic. News Corp purchasing , Unruly, and Move, Inc., which operates Realtor.com and other digital sites. Funding the Journey In 2012, we described three categories of But overall financial and stock perfor- near-term moves that could help compa- mance among public companies has been nies fund their transformations. It’s fair to mixed. Several have struggled to communi- say that more than three years later, just cate their transformation strategy or have about all the cost-cutting and short-term not yet shown financial gains. After mod- shareholder value levers have been pulled, estly outpacing the S&P 500 in the first half particularly in the mature media markets of 2015, print media stocks as a group un- of North America and Western Europe. In derperformed in the past year. other, less developed markets, some room may remain. But many companies cannot Digital incumbents, such as social media cut further without affecting their prod- sites, are now a bigger competitive threat ucts. They have taken the restructuring than digital attackers. Thanks in part to steps open to them, and they don’t have the rise of mobile as the dominant channel the financial flexibility to significantly in- for media consumption, news media crease dividends or buy back shares. aggregators (such as Flipboard, Circa, Newsy, and Pocket) have given way to That leaves revenue and its two principal mobile-first social media platforms (Face- sources: consumers and advertisers. book’s Instant Articles and Snapchat’s Discover, for example). These platforms Consumer Revenue. To support subscrip- have become the go-to destinations for tion sales, many newspapers have erected news, especially for younger consumers, paywalls, substantially reversing the de- and are therefore a material threat to cline in consumer spending for newspaper traditional news media brands. A 2015 content—although it should be noted that survey by the American Press Institute of one reason for the paywalls’ success is the

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limited competition in many markets (par- digital ad bundles that generate more ticularly those that are small and midsize). revenue across publishers’ portfolios and Newspapers may not have much more generate higher ROIs for advertisers. In room to increase subscriptions to existing many companies, print sales teams and offerings. Magazines, on the other hand, digital sales teams, which used to oper- compete in a much broader competitive ate separately, have been merged. landscape—with one another and with digital players; they have not experimented •• Restructuring Ad Sales. Media as extensively, or had as much success, with companies are reorganizing ad sales paywalls. One notable exception is the New teams to reflect their advertisers’ focus Yorker, which introduced a paywall in the on audience and consumer segments. fall of 2014 and generated more than Some publishers have realigned sales 100,000 digital subscribers in the first year teams by industry (one team focuses with no material decline in print subscrip- on telecom, another on apparel, for tions or unique digital visitors. example) rather than by brand to de- liver customized solutions to advertis- Some companies are also attempting to re- ers. Newspapers have merged local and inforce the value of their publications to national advertising sales to provide a consumers by bundling content with other sufficiently large-scale alternative to products, such as consumer-focused events. other national media. Companies are Entertainment Weekly holds about a dozen also recognizing the need to recruit new events a year, including movie premieres at kinds of talent, including people with SXSW and the Toronto Film Festival. The analytical skills in areas such as pro- Essence Festival attracts more than 450,000 grammatic sales and those who under- people annually to New Orleans and is ex- stand broader marketer needs and can panding to South Africa in 2016. The New deliver more comprehensive and more Yorker is advertising the 2016 version of its targeted marketing solutions. annual festival as a three-day “eclectic line- up from the worlds of film, fiction, politics, •• Creating Private Markets for Pro- comedy, science, fashion, food, and more.” grammatic Sales. Many advertisers now believe that the programmatic Publishers are also bundling their content buying of is the most effective—and with that of other companies (including most cost-effective—way to reach target competitors) through consortia or third customers at scale, and they are backing parties. Next Issue Media, which launched this belief with budget. Programmatic, in 2010 (and was recently renamed Tex- or automated, spending on display ad- ture) offers consumers access to a selection vertising (desktop and mobile)—a of magazines for a one-month period in re- $9 billion market as of 2015—is ex- turn for a flat fee. The newspaper industry panding by almost 30% a year. Spend- has launched its own cross-title bundle, ing is expected to exceed $30 billion in Blendle, which has nearly 1 million regis- 2019. (See The Programmatic Path to tered users after its first two years of oper- Profit for Publishers, BCG Focus, July ation in Europe and will launch in the US 2015.) Many large print publishers in 2016 with up to 20 titles. generated more than one-third of their digital ad revenue through program- Advertiser Revenue. Companies have made matic sales in 2015. Publishers have a number of moves to generate more rev- built new capabilities and created new enue from advertisers and develop new rev- positions to capture opportunities in enue streams. Four of the most common— this growing market. and successful—are the following: •• Developing New Ad Products. Many •• Bundling Print and Digital Ad Sales. publishers are aggressively investing in Print media companies have grown developing and selling new advertising more sophisticated in selling print and products and capabilities. Native adver-

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tising—which integrates the sponsor’s Move, Inc. in 2014. Condé Nast’s parent content substantively and stylistically company, Advance Publications, acquired with the editorial product—is showing the data analytics firm 1010data in 2015. particular success. Business Insider expects native-advertising revenues to Whether digital operations are acquired or reach $21 billion in 2018, from about $8 built, they do best when they are grown billion in 2015. Many publishers are and managed outside the core business. using content recommendation services, Emerging businesses need dedicated re- such as Outbrain and Taboola, to shape sources and, more often than not, new and drive traffic to their native-advertis- kinds of talent. The organizations, process- ing programs. They have also created es, and cultures of traditional publishing studios to produce branded content for can stifle them. their clients. Time Inc.’s The Foundry is one example; Condé Nast’s 23 Stories is A few growth areas in particular have been another. successful for print publishers.

Branded content has emerged as an import- Medium-Term Growth ant growth engine not only for the near Transformations are ultimately about es- term but for the longer term as well. Pub- tablishing new sources of growth and prof- lishers such as The New York Times and it, so print companies need to demonstrate Condé Nast have aggressively entered the new digitally aligned business models that branded-content business. And companies rack up gains in the medium term (one to such as Unilever, GE, and Red Bull are ac- three years). Publishers have tried various tively building in-house media capabilities, moves in the past few years. In our assess- pulling editors and journalists from publish- ment, entering adjacent areas that build on ing companies and working with agencies existing capabilities is still the best route to and publishers to develop content. growth. Axel Springer is a prime example of this kind of success. The company has In our view, playing a role in the future of expanded into digital businesses such as branded content is a big and multifaceted content sites and online communities. business opportunity for media companies. Buoyed by its digital division, which ac- At the very least, they need to meet the counted for 67% of revenue and 72% of growing demand of consumers and adver- earnings in the first quarter of 2016, Axel tisers by developing a core offering that Springer reported sixfold year-over-year marries two capabilities: integrating native growth in net profit in that period. ads seamlessly into consumers’ interactions with media and working with brands to de- That said, buying rather than building new velop creative content for distribution businesses has been the more successful through media platforms. path for this kind of expansion. Legacy me- dia companies often lack the technology To develop those capabilities, publishers and the marketing capabilities, and in are complementing their editorial expertise some cases the digital audiences, to devel- with people hired from advertising and oth- op new businesses themselves. And they er marketing companies, and editors are can struggle to create effective new digital learning a new juggling act of managing ed- channels that will attract new customers. itorial content and business considerations. Growth through acquisition, joint venture, Publishers considering this route should en- or partnership is better suited to many sure that their branded-content ventures companies’ current circumstances and has are transparent to advertisers and audienc- allowed them to capture revenue more es alike and that the editorial brand and quickly. Hearst Magazines acquired digital voice are closely aligned. We see attractive agency iCrossing in 2010. News Corp opportunities to build adjacent businesses bought social news agency Storyful in 2013 in three areas related to branded content: and digital real-estate-listings company full-service branded-content offerings, na-

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tive-ad sales on media companies’ private site to actually making a purchase is harder exchanges, and content management ser- still. Even for successful e-commerce busi- vices for marketers. (See Branded Content: nesses, margins are typically razor thin. Growth for Marketers and Media Companies, BCG Focus, July 2015.) Plenty of media companies have tried to build over-the-top and subscription video Events have become a big hit for advertis- models, but it is early days yet, and few ers, too. In addition to profitable events for companies have found that linking print consumers, many publishers organize brands to television and film businesses events for advertisers (business confer- leads to financial success or increases their ences and networking events, for example) audience. About 20 traditional print brands that make money and contribute to brand currently have streaming Roku channels, building. Some are completely supported but most are ad supported rather than sub- by sponsors; others have high ticket prices. scription based and so require large audi- For example, The Atlantic Ideas Festival in- ences to operate profitably. While many of cludes events in New York City and Aspen these companies have hired talented video at which thought leaders discuss a variety executives to lead their efforts, high-caliber of topics. video requires capabilities that newspapers and magazines generally lack. Traditional print is far from dead—profit- able business opportunities can still be found. For example, T: The New York Times People, Organization, and Style Magazine celebrated its tenth birthday Culture in 2015. Although print-advertising reve- In 2012, few print media companies had nues slid overall in 2015, T Design, part of the right people, organization, and culture the T family of publications, increased ad to embark on a successful digital transfor- pages by 57 pages, or 75%, year over year. mation. After taking some steps to address these long-term concerns, companies are in Publishers are offering new print products much better shape, but they need to keep to drive incremental revenue, especially in pace with a fast-changing industry and the premium segment. Time Inc. launched marketplace. a bespoke US edition of Wallpaper, a maga- zine that focuses on design, architecture, People. Many print media companies have and culture, but has announced that initial- experimented with leaders from outside ly it will be distributed only to a select their traditional ecosystem, hiring top group of affluent readers and targeted talent from the TV, digital media, and even commercial venues. Another global news- consumer product industries to help propel paper player, recognizing that the majority ad sales teams, run titles and brands, and of its print demand now occurs on the create businesses outside of core print weekend, has bundled weekly special sec- properties. Roles on both sides of the tions (such as City and Arts) into the week- editorial-publishing divide continue to end edition and has raised the subscription evolve, and the divide itself at many and newsstand price and advertiser de- companies is so blurred that it’s unrecog- mand for its transformed premium edition. nizable.

Some new business lines are not working For example, magazine editors are increas- as well. The notion of using media proper- ingly playing new internal and external ties as the basis for building commerce roles. In the former, the editor is an integral businesses (in the oft-discussed three- member of a brand team, instrumental in pronged digital business model of “content, both the editorial and commercial sides of commerce, and community”) has not paid the business. He or she needs to maintain a dividends for companies that have pursued close relationship with the publisher; to- it. Differentiation is difficult, and persuad- gether, they present a united front to the ing consumers to move beyond visiting a industry and to advertisers by partnering

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on the development of an editorial envi- which topics and formats work in which dis- ronment shaped by both editorial content tribution channels has become a prerequi- and advertisements. Externally, the editor site for publishers looking to increase en- is taking on the role of lead ambassador gagement. through interviews and appearances at consumer and advertiser events and in Culture. Speed is a digital necessity, as is branded social media activities. As one ad- the ability and willingness to test (quickly) vertiser put it, “You want an editor who multiple new ideas and concepts, recogniz- transcends what the brand stands for.” And ing that some will fail. The most successful an executive at a leading ad agency said, publishers today place lots of small bets “The next-generation editor is balanced be- and double down on those that show tween consumer and marketer—running a promise. Organizations must learn to business in partnership with a publisher.” celebrate not just the big successes but also the calculated failures that provide lessons Organization. Publishers have come a long and direction. They need to develop ideas way, but most have yet to embrace an that not only add to the bottom line but editorial model that fully integrates print also reenergize a brand. and digital. An integrated newsroom, in which a piece is written once and pub- lished multiple times in multiple places, is orporate transformations in in- the next frontier. Integrating editorial Cdustries undergoing disruption are teams, creating a distinct center of excel- rarely one-time undertakings. Technologies lence in one place as opposed to multiple continue to advance, consumers and com- locations, and eliminating cross-property panies embrace new applications, new duplication are all crucial to effective and (and some old) players bring innovative efficient editorial output. ideas to market. The disruptive impact spreads and evolves. Companies need to Publishers also need to hire more data and revisit their circumstances and strategies in analytics experts and integrate them into order to keep up. Progress must be fol- their organizations. Collecting and analyz- lowed by more progress. If anything, for- ing data have become the key to determin- ward-looking companies should have a ing how to acquire audiences and make greater sense of urgency today to develop money from them, but data and analytics new services and solutions and build the have also become critical to producing the organizations and cultures they need in an insights that publishers need in order to de- evolving environment. velop content. For example, understanding

About the Authors Frank Arthofer is a principal in the New York office of The Boston Consulting Group. You may contact him by e-mail at [email protected].

Niki Aryana is a senior partner and managing director in BCG’s London office. You may contact him by e-mail at [email protected].

Anna Green is a partner and managing director in the firm’s Sydney office. You may contact her by e-mail at [email protected].

Alannah Sheerin is a principal in BCG’s New York office. You may contact her by e-mail at [email protected].

Neal Zuckerman is a partner and managing director in the firm’s New York office. You may contact him by e-mail at [email protected].

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