report no. 05.2006 1

Business Models of Newspaper Publishing Companies

www.ifra.com/wherenews Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Foreword 2

On 28 March 2006 Ifra started the new and maybe even how to influence the more multi-faceted research project “Where likely futures they will face. NEWS?”, the media futures research initia- The results of the project will provide tive, which will run for at least three years. the basis for workshops around the world “There is a void of understanding about to train newspaper managers to understand how people will use media and where they the options they face and how to adapt to will get their news 10 to 15 years from now, them in terms of organisation, technology where and how people will be receiving it, and market development in their specific re- where it will come from, where the com- gions. panies that provide it and that provide the Ifra has decided to start publishing first technologies behind it will be,” said Ifra CEO research reports that provide an insight in Reiner Mittelbach. “In order to fill this gap the process of publishers’ orientation de- authentic and credible research into trends velopment in a changing world of multiple and scenarios together with the involve- media. The first reports will present new ment of many participants is required. Ifra is knowledge in following areas: one of only a few such organisations in the > Existing and Potential Business Models world with the membership and resources to of Newspaper Publishing Companies undertake such a task.” > The Development and Application of The kick-off meeting at the end of March Business Strategies in Newspaper Pub- 2006 gathered industry experts from all over lishing Companies the world representing publishers as well as With this new report we are pleased to suppliers to the industry. During this first publish the first document of a series to meeting the working group agreed on the come within the framework of the “Where scope of the project, the research methods NEWS?” project. The actual report has been and the first steps to be taken to accomplish prepared and written for Ifra by Prof. Dr. the project. Robert G. Picard and Dr. Cinzia Dal Zotto Since the future of media usage is from the International Business School in strongly dependent on the development of Jönköping, Sweden. Prof. Picard is Director society, technology and markets, the proj- of the Media Management and Transforma- ect will analyse those conditional and en- tion Centre (MMTC) at the Jönköping Inter- vironmental questions before researching national Business School, while Cinzia Dal the changing media consumption behav- Zotto is the Research Manager at MMTC. Ifra iour. The identification of long-term social, commissioned this research project to Prof. technical and market trends will be based on Picard and his team. The project ran from solid research of facts and developments in spring 2005 until March 2006. the saturated newspaper markets of Europe For further information on Ifra’s “Where and America. NEWS?” project, contact: Scenario planning will complete the Manfred Werfel methodology of Ifra’s “Where NEWS?” proj- Ifra Research Director and Deputy CEO ect. With a better understanding of the range E-Mail: [email protected] of possible futures, publishers can make bet- ter decisions on how to position themselves, Darmstadt, May 2006

Imprint Reports from the media future research initiative “Where NEWS?”. Published by: Ifra, Washingtonplatz, 64287 Darmstadt, Germany; www.ifra.com; Tel. +49.6151. 733-6; Fax +49.6151.733-800. Chief Executive Officer: Reiner Mittelbach. Research Director and Deputy CEO: Manfred Werfel. Research Manager: Harald Löffler. Republishing – also of excerpts – only with express permission of Ifra and acknowledge– ment of origin.

Price: This report is sold at the price of 280 EUR* per copy. For Ifra members, the price is covered by the membership fee that entitles them to an allotted number of copies. Ifra members may order additional copies at 13 EUR* per copy. * plus 7 % in Germany and for companies and persons in the European Union that do not have a VAT number. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Table of contents 3

Table of Contents

Executive Summary ...... 4

Introduction ...... 5

The Nature of Business Models ...... 7

Business Models and Innovations ...... 9

The Characteristics of the Newspaper Business ...... 10

The Characteristics of Electronic Business ...... 11

The Project ...... 12

Results ...... 13

Existing and Future Business Models ...... 18

Investments in Future Technologies and Products ...... 22

Discussion and Conclusions ...... 25 Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Executive Summary 4

Executive Summary

The long successful newspaper business they see a clear trend towards more coopera- model is under pressure. Advertising and read- tion. The majority of respondents believe con- er markets are mature or are declining in large tent generation, distribution, and advertising parts of the world. The ongoing digitisation of activities will be the areas in which most co- media channels will lead to an even wider range operation develops. Targeted advertising is ex- of consumer and advertiser choice. Because their pected to become the main area of cooperation, budgets for time and money are finite, one can although advertising is ranked as second most expect tough competition between the different strategically important organisational unit. The media channels as well as within individual me- editorial department is ranked number one as dia. a strategic organisational unit, but cooperation Newspaper publishers have started to react to involving content generation is ranked second. these changes. The Internet has already become This reveals an unclear operational topic of the nearly standard publishing channel, despite companies’ strategies and way of thinking. the fact that no large-scale commercial break- Publishers indicate that home and mobile through has yet happened. Many new product broadband, editorial management, and customer launches, product makeovers, and provisions of relationship management systems are the most value-added services for readers have been in- important technologies for developing their stituted and predictions indicate that the chang- businesses. Publishers thus seem to recognise es have just begun. The developments provide the importance of innovation and customer fo- reasons to examine how newspaper publishers cus for value generation. Contradictions exist, foresee their revenue streams changing in the however, because these publishers rank mobile future, how they want to develop their business devices and services low as revenue source even models, and how this will be reflected in their though they are considered among the most organisation structures and activities. important technologies for the development of In order to introduce the reader to the sub- publishing companies. Furthermore, innovation ject of investigation, this report first explores in could be enhanced although collaboration in depth the nature of business models, the mean- product development. However, publishers are ing and the importance of innovation, and the not targeting product development as a coop- characteristics of newspaper and electronic eration activity. businesses. Then, the results of a study of Ifra The results of this study reveal that, in gen- member publishers and top newspaper company eral, newspaper publishing companies are still executives from the most important newspapers focused on the traditional printing business. in countries around the world are presented. Cost saving is in their focus. In order to create Publishers perceive their market as highly value, it will be useful for them to develop par- competitive compared to 15 years ago and iden- allel business models based on business oppor- tify predictability of market developments, de- tunities offered by new technologies and to find creasing return on investments, and increasing ways to exploit network relations and speed up cost of technology as the most important chal- their capability to react to and anticipate chang- lenges for their companies. The main revenue es. Newspaper publishing companies, however, stream today still comes from the traditional are often too anchored to their traditional busi- printed newspaper business. However, the re- ness and late in recognising and exploiting new spondents expect contributions to the revenue opportunities. This is seen in the fact that ex- stream from Internet activities to increase. perimentation is considered to be the least im- Most of the respondents agree that the edi- portant force playing a role in investment deci- torial and advertising portions of their organisa- sion making at a time when the dynamism of tions are the most strategically important units the media industry requires an entrepreneurial for their business. When looking at the future, spirit. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Introduction 5

Introduction

Business models are the bases upon which to some elements disappears. A situation may firms conduct commerce. They are created and then arise in which such models may be rein- understood by stepping back from the business troduced successfully for the same or a different activity itself to look at its bases and the under- product or service. lying characteristics that make conducting com- The contemporary newspaper business mod- merce with the product or service possible. A el developed in the mid- to late-nineteenth cen- business model involves the conception of how tury, replacing a very different model that was the business operates, its underlying founda- based on a specialised audience rather than a tions, and the exchange activities and financial mass audience. During their first 100 to 150 flows upon which it can be successful. years of publication, U.S. newspapers served a Business models can also be described as relatively small audience – about 15 to 25 per- “The long time the architecture for product, service, and infor- cent of the population depending upon location, mation flows, including a description of vari- literacy, degree of economic development, and successful newspaper ous business activities and their roles. They in- other social factors. The audience represented clude a description of the potential benefits for the politically, socially, and economically active business model the various business actors and the sources of members of the community. Papers were highly revenues. In terms of modern communications, dependent upon circulation sales for their in- is coming under business models need to account for the vital re- come and the price of papers and subscriptions sources of production and distribution technolo- was very high. The business model was there- pressure.” gies, content creation or acquisition, as well as fore based upon circulation sales to this group recovery of costs for creating, assembling, and and the little advertising that existed was pri- presenting the content. marily for raw materials and imports available Understanding the business model under to merchants and manufacturers rather than re- which a firm operates or will operate is espe- tail advertising. cially important when new products or services In the last half of the nineteenth century “During their first are developed or the industry is in a state of the market began to change as urbanisation, significant change. In these situations the fac- the industrial revolution, wage earning, and years of publication, tors that support a business model change si- literacy created social changes that resulted in multaneously. As a result, business models that discretionary income and leisure time among an newspapers served may once have been successful may become less increasing amount of the population. Newspa- successful and be abandoned. Business models pers began changing to serve this larger – and a relatively small that seem appropriate for new products or ser- soon – mass audience. New sections to serve vices may not produce the support and struc- diversionary interests and attract more read- audience.” tures necessary as the business milieu changes ers were added to newspapers (entertainment, and may then be altered or abandoned in favour sports, comics, etc.). Papers were sold at a very of other models. low price. This altered the business model to put The long time successful newspaper business more emphasis on advertising revenue and to model is coming under pressure. Advertising produce a large mass audience of interest to re- and reader markets are mature or are even de- tail advertisers. clining for newspaper publishers in large parts The magnitude of this change in the business of the world. The still ongoing digitisation of model can be seen in the fact that advertising media channels will lead to an even wider range provided one-half of the revenue of newspapers of possibilities for consumers and advertisers in the United States by 1880. That amount rose to choose from. As their budgets for time and to two-thirds by 1910 and to about 80 percent money are finite, we can expect tough compe- in the year 2000. tition between the different media channels as The growth of readership and advertising well as within individual media. support continued rather steadily until the years Some individuals make the mistake of as- after World War II. When television appeared, suming that failed or abandoned business mod- it began to provide diversion and other infor- els can never again be successful. This is not mation in forms increasingly attractive to those always the case if the conditions under which parts of the mass audience who were not part they failed are no longer present or if resistance of the politically, socially, and economically ac- Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Introduction 6

tive members of their communities. As a result, ably not decline to the 15 percent level of the a portion of the reading audience began leav- early nineteenth century. However, somewhere ing newspapers behind and many readers be- in the range of one-quarter to one-third of the gan spending less time with newspapers. That population seems realistic. problem has been exacerbated with the rise of As this change takes place a new business “Changing audience multiple networks and stations, cable, and other model will evolve. It may look less like the cur- electronic information and diversion opportuni- rent model and more like the model of the ear- and use patterns will ties that have developed in recent years. ly history of the industry. Or it may take on a The average reader of newspapers is relative- whole new rationale with additional factors in- continue.” ly old and newspapers are experiencing difficul- volving new communications technologies. ties reaching younger audiences. Furthermore, Today, most newspaper publishers do more demographic and socio-demographic factors in than just that. Internet publishing has become the industrial world indicate shrinking societies, almost a standard publishing channel, despite individualisation, and less inclination to read. the fact that the large-scale commercial break- Buying a newspaper is no longer a matter of through has not yet happened. In the past years “Predictions indicate course. This means that it will become more dif- we experienced many new product launches, ficult to attract advertisers, especially those who product makeovers as well as an orientation to- that the changes have have their target groups in the age group of 14- wards value-added services for readers, such as 49. The classifieds markets will to a substantial selling tickets etc. just begun.” extent move to the internet. The newspaper market is very dynamic and As the changes continue in the twenty-first predictions indicate that the changes have just century, changing audience and use patterns for begun. This is reason enough to examine in newspapers will continue. One can expect that which areas newspaper publishers see their main there will come a time when newspaper reader- revenue streams in the future, how they want to ship will look much more like its initial position develop their business models and how this will rather than the position at its mid-twentieth- be reflected in their organisation. In order to do century height. Given the facts of greater in- that we need to explore in depth the nature of come, literacy, and world outlook, it will prob- business models first. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies The Nature of Business Models 7

The Nature of Business Models

Business models are formulae through which see. Similarly, decision-making in environments costs and revenues are defined. These constitute with higher levels of change usually involves the criteria that managers use to set priorities successive approximations and a continuing or to decide what possible innovations are at- search for alternatives, as the prediction of the tractive or unattractive. Models are vital tools consequences of a certain choice is much more representing the essential characteristics of real- unreliable. ity as well as imaginary ideals, thereby playing Driven by rapid developments in the fields an important role in decision making. They are of knowledge and technology, consumers’ pref- “Models are tools the way we conceptualise the world by focusing erences and the ways they adapt to change are on the most important parts and reduce less sig- shifting. Media businesses have to constantly representing nificant information so we can establish mean- adapt to remain aligned with their mutat- ingful patterns. While this function of models is ing social environment. This in turn requires a the essential true generally, what is often ignored is the rela- change of the underlying business models at a tionship between the starting point and devel- faster rate. Put simply, as mentioned above, the characteristics of opment of specific models and the underlying models that worked in the past may not nec- assumptions and context that guide their cre- essarily work today and today’s models, in all reality.” ation. It is this relationship that determines the likelihood, will not work in the near future. This legitimacy and impact of models. implies that behind changes in business models In the development and application of busi- should lay a meta-model, which explains nature, ness models particular attention should be paid exploitation, and duration of business models. to the context. In fact the environment within The identification and application of this meta- which businesses operate shapes the assump- model will enable businesses to change their fo- “With digital tions that underpin their business model. Fur- cus from a fixed state of being to a process of thermore, it is the context that determines valid- becoming, and to adapt themselves naturally to technologies, ity and usefulness of business models. As they their changing environment. are only relevant within the context in which The meta-model is context-independent and information can be they are considered, a change in context requires therefore universal. It provides a constant foun- a simultaneous change in business models. The dation on which to build contextually relevant, provided to readers in context of an event includes the circumstances specific but dynamic business models. This and conditions which “surround” it. In the case meta-model is based on a concept of business a new condition.” of newspapers, the traditional business model explained by three interrelated strands which are is based on circulation and advertising activi- the (1) way of thinking, (2) operational system, ties because providing information to the read- and (3) capacity for value generation (see figure ers is realised by printing the information on 1). These strands are interdependent. However, paper. With the support of digital technologies, the distinction between the way of thinking, op- information can be provided to readers in a new erational system and capacity for value genera- “Remain aligned with condition, i.e., through the Internet. This new tion is of critical importance in exploring and condition is reducing newspaper circulation, the understanding the concept of business. the mutating social foundation of revenue in the traditional news- paper business model. Consequently, the busi- environment.” ness model needs to be adapted to the changed conditions, i.e., to the changed context. In fast-moving environments such as the media industry survival and speed of adapta- tion become dominant issues. Furthermore, the temporal focus tends to be different in different environments. In stable environments develop- ments are predictable, and therefore a focus on the distant future is possible. In dynamic envi- ronments the focus tends to be more on the near Basically, businesses are the product of a future, as continuous changes make long-term certain way of thinking, which guides their de- developments difficult if not impossible to fore- cisions and development. Goal of the operation- Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt The Nature of Business Models 8

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al system is to translate the way of thinking into generation must be represented. Innovation is an active business. The third component – ca- the critical factor to represent value creation pacity for value generation – arises from the re- within a business. lationship of the business with its environment. Every business must ultimately create value for its key stakeholders and this capacity for value

Additional reading about Business Models:

Robert G. Picard: Changing Business Models of Online Content Producers. In: International Journal of Media Management, Vol. 2, No. 2, 2000, pp. 60-68.

Robert G. Picard: The Economics and Financing of Media Companies, New York 2002.

Kazem Chaharbaghi, Christian Fendt, Robert Willis: Meaning, Legitimacy and Impact of Business Models in fast-moving Environments. In: Man- agement Decision, Vol. 41, No. 4, 2003, pp. 372-382. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Business Models and Innovations 9

Business Models and Innovations

In order to create value for the stakehold- Company leaders often fail to adapt to the ers companies usually focus investments on im- different situations in which they find them- proving products which fulfil customers’ needs selves. For example, in sustaining situations, and whose profit margins are most attractive. being analytical and problem focused represents However, companies end up paying exclusive the best way to innovate. On the contrary, for attention to their best customers and ignoring situations requiring disruption, being experi- disruptive forces emerging in their market. A mental – and therefore flexible and entrepre- “Very few innovations key reason why managers’ attempts to create neurial – is determinant. Supporting sustaining growth through innovation fail is that they do innovations and fostering disruptive innovations occur in the business not apply theories when making decisions. This at the same time represent the essence of long results in random, unpredictable and often risky term growth. Those companies that succeed do model category.” outcomes. According to theory organisations so by adopting in parallel a business model that should segment their markets by “customer jobs eventually disrupts their core business model. to be done” in order to identify new growth op- A distinction should be made between “dis- portunities. This contrasts with the traditional ruptive innovation” and “breakthrough inno- practice of market segmentation based on cus- vation”. Practitioners sometimes use these two tomer characteristics or product type, which words as synonyms. However, they mean very “Being experimental, can mislead innovation towards dimensions of different things. A breakthrough innovation product performance that are irrelevant to the knocks down barriers and equates to dramatic flexible and reasons why customers use the product. improvements in the performance of a prod- Too often theory is associated with the word uct or service. For example, the transition from entrepreneurial is theoretical, which connotes impracticality. In analogue to digital and digital to optical tele- fact, a theory states cause-effect relationships communications represent breakthroughs. These important.” and explains the reasons behind them. When innovations can cost billions of dollars. The managers take a certain action, they expect to incumbent leaders in their industries usually achieve certain results. A manager’s world will stay on top when breakthrough innovations oc- never be perfectly predictable, but the conscious cur. On the other hand, a disruptive innovation use of good theory, the result of identifying brings a simpler, affordable, more convenient cause-effect relationships, makes outcomes more product to market. The disrupter usually beats “A disruptive foreseeable. the market leader and her/his innovations often Most innovations occur in the resources involve new business models. innovation brings a category such as developing new products and Serial disruption can be the recipe for con- technologies. Some innovations occur in the tinuous growth. This means that on a regular simpler, affordable, process category and lead to better ways to and rhythmic basis new disruptive innovations getting things done. Very few innovations oc- are launched even if new growth is not really more convenient cur in the business model category. These are needed. As the market needs time to understand innovations that enable a business to profitably and accept disruptive innovations, it is critical product to market.” sell products or services to customers who never that managers launch them perhaps five years before could afford them. However, many of the before the revenue growth is needed, so that highest-impact innovations can be classified they will be substantial enough to keep revenue as new business models. New business models growing when the core business starts to level increase chances for an organization to disrupt off. To succeed in this, managers must con- and defeat other players. In general, most com- stantly monitor the market and act proactively Additional reading about Innovation: panies have only one business model and all according to theories. products, services and processes must conform to it. This constraint limits an organisation’s po- Clayton M. Christensen: The Innova- tential to capture and build new markets, i.e. to tor’s Dilemma, New York 2003. innovate. Robert A. Burgelman, Clayton M. Christensen, Steven C. Wheelwright: Strategic Management of Technology and Innovation, 4. ed., Boston 2004. Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt The Characteristics of the Newspaper Business 10

The Characteristics of the Newspaper Business

Though an online newspaper can now be re- and interdependent. Thus, we can say that use garded as an institutionalised genre, its associa- patterns and preferences of audiences are clear- tion with the printed news genre is still impor- ly changing. The increasing number of news tant. Research has demonstrated how the printed genres and their interdependency will most and online newspaper genres are interwoven in likely accelerate this change, making news con- such a way that they cannot easily be dissolved. sumption a natural ingredient throughout the In today’s media landscape modern newspapers day of news consumers. Beyond the personal cannot cope without an online presence, which computer, mobile news genres are already mak- allows them to provide news updates, cross-ref- ing news always more ubiquitous. Developing erences, and additional services. Even though audience expectations associated with ubiqui- “The printed and research shows negative pay-offs associated tous media might enhance the transformation of with seven years of online investments, the fi- newspaper companies into media organisations online newspaper nancially constrained newspapers have no plans that provide a range of services not traditionally to withdraw their online presence. This confirms linked to the news genre. All this has, of course, genres are the importance for firms of relying on a meta a direct impact on the type and number of busi- business model as base to develop specific busi- ness models adopted by newspaper publishing interwoven.” ness models relevant to the changing environ- companies. ment. In order to cope with the decreasing circu- A Scandinavian study1 suggests a number lation figures we therefore expect newspaper of institutional factors, which are involved in publishing companies to identify a “theory” on the shaping online news into a distinct genre. which to base their future actions. Considering The emergence of new communicative practices the impact of new technologies on their mar- “Develop a way of in response to the mutual shaping of the news kets, newspaper publishing companies should genre and the new media has been outlined. The develop a way of thinking which allows them to thinking which allows emergence of sequential dependencies between quickly recognise new opportunities. Given the online and printed news, suggesting a type of interdependency and complementarity of their to quickly recognize genre interdependency, has also been demon- offline and online businesses, newspaper pub- strated. The adoption of new media is therefore lishing companies should create an operational new opportunities.” transforming the nature of newspaper organisa- system which exploits every possible synergy tions’ business. The ongoing diffusion of per- between the two businesses and considers the sonal computers,and mobile telephones, as well sharing of non-specific content with other com- as the advent of new technologies such as the e- panies to decrease costs. In order to maximise paper, induce genre changes that are reflected in their capacity to generate value, newspaper pub- the way news is produced and consumed. News- lishing companies are expected to follow a total paper organisations need to pay attention to the customer focus strategy. This means to consider way new information technologies change the not only the best customers – the ones who pro- conditions and open opportunities for news pro- vide the highest returns – but also all the other duction. The most competitive newspapers will customers. Therefore, in order to satisfy both old probably be those that can successfully identify and young readers, newspaper publishing com- a business model to manage the genre repertoire panies need to operate offline as well as online. of interdependent digital genres emerging with Furthermore, to keep and expand the customer changes in technology and the audience’s ev- base, innovation is required (see Figure 2 as a eryday life. summary). Research has reported that audiences view the printed and online genres as complementary

1 Carina Ihlström and Ola Henfridsson: “Online Newspapers in Scandinavia. A longitudinal study of genre change and interdependency.” In: Information Technology and People, Vol. 18, No. 2, 2005, pp. 172 – 192. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies The Characteristics of Electronic Business 11

The Characteristics of Electronic Business

The Web enabled electronic business, and its The third aspect of the generic business model commercialisation has brought profound chang- underlying electronic business is total focus on es and opportunities for businesses. As a result customer requirements. This is the result of in- of these developments, new rules of how busi- creased transparency and competition, which nesses should operate, a generic business model, have shifted power towards the customer. The have emerged. Key aspects of the business mod- fourth aspect of the electronic business model el underlying electronic business are a focus on concerns the exploitation of network advantag- new technologies and new market opportunities, es. Information and communication technolo- “With increases in an explicit focus on speed, a total customer fo- gies enabled businesses to harness the power of cus, a principle of exploiting the advantages of networks, and thus to quickly access new mar- transparency and networks, and a way to organise businesses. kets by facilitating the use of co-operation and Being enabled by dramatic advances in in- alliances. The fifth and last aspect of the generic competition, power formation and communications technologies, the model underlying electronic business points out first aspect of electronic business is obvious. In that businesses should have flat hierarchies and shifted towards the order to exploit the opportunities related to new encourage an entrepreneurial working style and technologies, businesses should constantly scan commitment. customer.” the changing business environment and com- In terms of the three strands of the meta- petitive landscape, and act accordingly. The ex- model presented in the previous section, the plicit focus on speed is related to the first aspect focus on new technologies and market oppor- and it implies that companies move fast, experi- tunities as well as the explicit focus on speed ment, and sustain growth in order to maximise are related to the way of thinking. The mind- capitalisation on business opportunities. Once set of constantly scanning the environment and an opportunity is identified, usually as a result looking for new opportunities provided one of “The assumption of constant scanning, businesses should move the essential visions for electronic business. fast and secure the “first-mover advantage”. However, speed - together with the network of extreme and sustained growth .FUB /FXTQBQFS &MFDUSPOJD #VTJOFTT
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and organizational aspects - is also related to subsequent treatment of electronic business has the operational system. Speed, the exploitation brought a much more rational and realistic view of networks, and flat hierarchies have repre- of technology, and businesses started to focus sented in fact the principles guiding operations on traditional business fundamentals again. One within the electronic business industry. Finally, lesson that can be drawn from this is that, while the total customer focus is related to value gen- developments in technology may allow a busi- Additional reading about Electronic eration. In the context of the late 1990s, with ness to do new and different things, i.e. to be Business: completely new business opportunities arising innovative, the theoretical fundamentals still through technological advances, customer ser- need to be in place to ensure at least a chance Pablo J. Boczkowski: Digitizing the vice could be enhanced to unprecedented levels, of success. News, Innovation in Online Newspa- thus creating greater value (see figure 2). pers, Cambridge 2004. Electronic business led to mixed results dur- ing the past decade. Even if enormous changes Paul Timmers: Business Models for took place in areas related to digital products, Electronic Markets. In: Electronic services and distribution channels, changes in Markets, Vol. 8, No. 2, 1998, pp. 3-8. business basics, such as management, opera- tions and finance, were more gradual or even H.I. Chyi, Geogre Sylvie: Competing minimal. Businesses started to realise that the with whom? Where? And how? A traditional economic principles still held. The structural Analysis of the Electronic assumption of extreme and sustained growth Newspaper Market. In: Journal of underlying the electronic business model proved Media Economics, Vol. 11, No. 2, 1998, invalid. Many aspects of electronic business and pp. 1-18. its underlying model continue to affect busi- ness life. However, after the initial craze, the

The Project

The goal of the project is to investigate the face and telephone interviews through which current and planned business models of news- a more detailed view of business models and paper publishers in order to understand publish- plans were gained. Publishers from Asia, Africa, ers’ expectations regarding the development of Europe, Latin America, Middle East and North their businesses. In the study 42 publishers and America were included. All were members of top newspaper company executives worldwide Ifra and most were from the most important answered e-mail questions as well as face-to- newspapers in their countries. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Results 13

Results

Company Information Newspaper Titles and Circulation 2000–2004 Company Identity and Perception According to the World Press Trends 2005, Newspaper companies have evolved as they the total number of daily newspapers pub- have added new types of media activities and lished in the world increased by 4.6 % while expanded their ownership. The question of how their combined circulation grew 4.8 %. Almost they perceive themselves today becomes signifi- all of this growth, partly because of improved cant in strategic decisions about business mod- development and partly because of better sta- els and their future activities. tistics, came from the developing countries. The When questioned if they perceive their com- number of published titles increased by 26.9 % pany to be predominantly a newspaper publish- in Africa, 21.8 % in South America and 5.5 % er, 69 % of the respondents answered yes. The in Asia, while elsewhere this number grew only remaining 31 % of the respondents answered slightly or declined. Circulation rose 11.1 % in negatively, partly because their companies were Asia and fell in every other region, though cir- also involved in the TV industry – such as the culation recovered in Africa and South Amer- Standard Group in Kenya – or because they ica in 2004, after suffering from the economic consider themselves to be a media company downturn of 2001-2003 (Table 1). providing not only news but also entertainment Newspaper circulation is growing in the – such as News Limited in Australia. developing countries not only because popula- 48 % of the respondents perceived their tion is expanding quickly but also because more company to be bigger than other newspaper people can read newspapers and can afford to publishers in their market, 21 percent indicated buy them, especially in India and China. Over they were about the same size as other publish- the last five years circulation growth in Asia has ers, and 31 % indicated they were smaller. been more than enough to offset the slow de- cline in circulation which is taking place in the developed countries.

Change ( %) 2000 2001 2002 2003 2004 2000,04 2003,04

Number of Dailies Africa 67 68 68 77 85 26,9 10,4 America, North 1610 1606 1601 1600 1599 -0,7 -0,1 America, South 680 707 747 819 828 21,8 1,1 Asia 2182 2048 2095 2212 2303 5,5 4,1 Australia, Oceania 76 76 74 73 74 -2,6 1,4 Europe 1674 1661 1659 1669 1691 1,0 1,3 Total 6289 6166 6244 6450 6580 4,6 2,0 Circulation of Dailies Africa 2579 2445 2231 2208 2341 -9,2 6,0 America, North 62303 62153 61569 61487 61343 -1,5 -0,2 America, South 11655 11444 10749 10249 10897 -6,5 6,3 Asia 197746 202640 206877 211062 219655 11,1 4,1 Australia, Oceania 3868 3804 3736 3717 3680 -4,8 -1,0 Europe 98741 101199 100024 98479 97144 -1,6 -1,4 Total 376891 383685 385186 387202 395059 4,8 2,0

Table 1. Newspaper titles and circulation 2000–2004 Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Results 14

Growth and Development in South and South East Asia Based on an interview with Thomas Jacob, International Development Director, Associated Newspaper Ltd of UK

Newspaper markets in the developing ploded, the revenues have not followed suit Thailand countries of Asia are undergoing signifi- due to a fragmented audience. Here the market is freer. There are two cant changes. Thomas Jacob, an industry English language newspapers which are veteran, who has been involved with Asian Indonesia very competitive, the Bangkok Post and the newspapers for more than 20 years, ex- The market was deregulated in Indo- Nation. There are also a number of Thai plains that the newspaper markets in Asia nesia following the overthrow of Suharto language newspapers with high circulation can be segmented into 4 main geographi- regime. Many entrepreneurs and business such as Thai Rath, The Daily News and Ma- cal areas: (1) North Asia with Korea, Japan, houses launched new newspapers, maga- tichon. The Nation group launched a Thai Hong Kong, China and Taiwan, (2) South zines and TV stations. None of these new paper called Kom Chad Luek in this highly East Asia with Philippines, Indonesia, Thai- newspapers and TV channels is making competitive and still enjoyed a rapid rise in land, Singapore, Malaysia, (3) South Asia profits apart from a few big well known circulation. Most of the Thai language pa- with India and Sri Lanka and (4) the Mid- titles. pers are not audited by the Audit Bureau of dle East. A brief description of the market Circulation. trends in these regions follows. Singapore Singapore Press Holding (SPH), one of Hong Kong India the most profitable newspaper publishing Is one of the most open and competi- The English newspaper situation was in companies in the world, is the dominant tive newspaper markets in all of Asia. There some ways similar to the US, with each ma- player, publishing all but one newspaper are both Chinese and English language jor city having one predominant newspa- title in the country. The flagship paper is newspapers. The two main English papers per, The Hindu in Chennai, Deccan Herald The Straits Times. In addition, the group are South China Morning Post (SCMP) and in Bangalore, Times of India in Mumbai, brings out a business daily, an afternoon the Hong Kong Standard. Hindustan Times in Delhi similar to New tabloid, three Chinese and two Malay pa- The launch of Apple Daily, by Jimmy York Times from NY or the Chicago Tribune pers. Few years ago Metro Sweden tried to Lai, an entrepreneur who started the Gior- serving the Chicago area. However, the enter the market with a free sheet but did dano clothing chain, changed the news- competitive landscape has now changed not succeed as foreign companies are not paper situation in HK. Prior to the Apple with major publishers trying to expand to allowed to own more than 3 % of a media Daily launch the Chinese papers used to other geographic regions initiating price company. The Government then allowed be pretty dull and staid. Apple Daily with wars and marketing campaigns to win read- the TV broadcaster Mediacorp to publish a its racy content, liberal use of colour and ers. Times of India started the trend when newspaper and allowed SPH to start two TV graphics, celebrity news and support for the it launched editions in Delhi and Ban- stations. However, after a short period of pro democracy movement quickly grabbed galore more than a decade ago and soon experimentation, Today, the free sheet from a major chunk of the circulation pie. Apple became the largest newspaper publisher in Mediacorp was brought under the joint Daily’s rapid growth forced other newspa- the country. India, which did not have any ownership of SPH and Mediacorp. Circula- pers to take notice and many of them be- significant new newspaper launches for de- tion is rather stable in this market. came more colourful and modern. Circula- cades, has suddenly witnessed a flurry of tion is decreasing in general. activity. The competitive intensity, which Malaysia can be termed as quite mild until few years There are three major English newspa- Taiwan ago, also reached a higher level with the pers. NSTP, the oldest publisher, publishes There are two English language news- launch of new dailies DNA and Hindustan New Street Times, a broadsheet, which papers, which do not have a big impact Times from Mumbai. Deccan Chronicle, converted to tabloid size to stem decreas- compared to the Chinese-language papers. fresh from its IPO success soon followed ing circulation. Star, a quality tabloid, leads The two large groups - the China Times and with expansion into Chennai, the tradi- the circulation battle among English papers the United Daily News (UDN), dominate the tional stronghold of the Hindu. A boom- while The Sun converted from a paid to market. The Apple Daily from HK has start- ing economy and the opportunity to raise free sheet. ed publishing from Taiwan and is in the funds from a well-developed financial mar- There is also a vibrant market for Ma- process of shaking up the entire market. ket have also contributed to the growth of lay and Chinese language dailies. Utusan, the newspaper industry in India. Circulation belonging to UMNO, is a leading Bahasa Korea has grown 17 % within the last 5 years. It publisher. NSTP also publishes three Ba- It is a large newspaper market with ten will grow even faster in the future as GDP hasa papers, Berita Harian, Harian Metro to twelve big newspaper companies with is growing by 8 % now. and The Malay Mail. Sin Chew Jit Poh, many of them owned by the Chaibols, who Internet does not have a high penetra- Nayang Siang Pau and China Daily are the used the newspapers as a political weapon tion yet and radio is not part of the media largest Chinese papers. English dailies tend before the crisis. Circulation has tradition- mix like in the Western countries. The situ- to get the largest share of the advertising ally been very high. However, the situation ation is expected to change with the issue pie, while language papers tend to have has changed now as a free sheet, Metro, en- of a number of FM radio licenses this year. political influence. Circulation is stable or tered the Korean as well as the Hong Kong Though the number of TV channels has ex- decreasing. markets. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Results 15

In most Asian countries, advertising ac- Financial Challenges counts for 50 % (in India up to 80 %) of the Respondents were asked to rank the chal- total revenues among English newspapers. With lenges they believe they will face in the future regards to the future advertising expenditure, it and 73 % indicated that predictability of mar- is expected to rise as much as the GDP grows ket developments would be the most important (GDP is expected to be four times the actual GDP challenge (Table 2). 60 % said a decrease in their in twenty years’ time when more than 250 mil- return on investment would be the second most lion people will belong to the middle class). The important challenge. The increasing cost of tech- NP publishing industry will therefore grow for nology was ranked third while the restrictions the next five to ten years, TV will start to lose on credit possibilities fourth, by 53 % and 70 % a bit as satellite and digital TV are fragmenting of the respondents respectively. This ranking of the market. The targets for strategic investments financial challenges can be clearly seen in the will concern the production of quality content scores for the mean (average) answers by pub- and quality image (improvement of presentation lishers. These figures indicate an urgent need for design, of colors for classified audience). This is developing a portfolio of products in which not already happening in India where Mario Garcia only the existing newspaper – currently a cash has been re-styling two newspapers. Another cow – but also a few innovative products for the target is the training of staff, as they are not future – the rising stars – are included. prepared for the changes that are needed.

Predictability of Decreasing ROI Increasing Cost of Restricted Credit Market Development Technology Possibilities Mean 1,33 2,03 2,83 3,43

% ranking 1 73.3 % 20.0 % 5.0 % 3.6 % % ranking 2 20.0 % 60.0 % 20.7 % 0.0 % % ranking 3 6.6 % 16.6 % 55.2 % 21.4 % % ranking 4 0.0 % 3.3 % 20.7 % 75.0 %

Table 2. Primary financial challenges in the future

Other TV Internet Advertising Radio Free NPs Maga- Other Mobile NPs Freesheets zines Ranking General 123 4 5 6 7 8 9 Mean 2,89 3,19 3,79 4,19 4,81 4,85 5,37 5,46 6,95

Ranking Develo- 123 4 5 7 8 6 9 ped Countries Mean 2,32 2,82 4,10 5,25 4,67 5,10 5,71 5,96 7,53

Ranking Develo- 124 9 5 3 6 7 8 ping Countries Mean 1,64 2,40 3,58 5,29 4,90 5,19 6,42 6,48 8,10

Table 3. Ranking of importance of competitive threats today

Internet TV Other Free Advertising Radio Other Mobile Magazines NPs NPs Freesheets RankingGeneral 1234 5 67 8 9 Mean 2,62 3,56 4 4,15 4,23 5,19 5,5 5,71 5,85

Ranking Develo- 1345 2 76 8 9 ped Countries Mean 2,45 3,70 4,00 4,16 3,65 5,20 5,16 5,80 5,89

Ranking Develo- 1134 9 58 6 7 ping Countries Mean 3,14 3,14 4,00 4,14 6,16 5,16 5,83 5,40 5,71

Table 4. Ranking of importance of competitive threats in the future Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Results 16

Competitive Environment When publishers ranked the importance of Perceptions of the competitive environment threats in the future, a different picture emerged influence choices involving business models with the Internet, television, other newspapers and one-third of publishers considered the mar- and free newspapers being viewed as the most ket structure in which they were operating to be important competitive threats (Table 4). highly competitive, 31 % reported it to be com- Comparing the rankings of current and fu- petitive, another 31 % reported their market to ture threats, one sees that that the Internet, free be moderately competitive, and 4 % considered newspapers, mobile, and other threats all move it to be a monopoly. 80 % of the respondents up in the rankings (Chart 1). However, the low agreed that, compared to 15 years ago, the mar- position of mobile in the ranking shows that ket structure has become more competitive. publishers do not recognise mobile devices as a real threat. The rise of mobile technology is Competitive Threats generally evident, but interestingly, mobile is Other newspapers, television, the Internet, ranked higher by respondents in the develop- and advertising free sheets were ranked as the ing rather than developed countries (Charts 2 most important competitive threats currently and 3). faced by publishers (Table 3).

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Competition and Business Model at The Stampen Group Based on an interview with Gunnar Springfeldt, Development Director, Stampen

The Stampen Group (SG) is the sec- vertising channels such as outdoor, prod- that its value should double within the ond largest Swedish newspaper group fo- uct placement and events. next five years. The company expects to cused on daily morning newspapers and The company is facing these threats restructure the printing and distribution Internet-publishing. According to Gun- by keeping the organizational struc- activities. At the moment SG owns 60 % nar Springfeldt, development director at ture flexible and alert first of all in or- of VTAB, a printing company in western Stampen (the holding company of the der to keep an eye on Metro. Metro is- Sweden and 40 % of VTD, a distribution Stampen Group), the market structure, in sued a Housing supplement in Stockholm company. As to the editorial content the which the newspaper is operating, is very which is delivered once a week to every trend goes in the direction of content competitive for three major reasons: (1) household. The product did not succeed sharing. the advent of Internet, (2) the emergence in Göteborg but destroyed the market, Strategic investments need to be of free newspapers and (3) non-tradition- so that prices have decreased now. To made in new technology, especially that al companies moving into the industry. enhance its flexibility, the company has concerning CRM systems. Further invest- Especially the classified market is facing introduced a new organisational structure ment areas can be multiplatform systems, high competition from the Internet. How- (matrix organisation) in the advertising mobile publishing systems, new forms of ever, classified advertising can be found department: customers are divided ac- advertising, and new printing presses if also on TV (i.e. TV4) and on the yellow cording to the services they need. production is kept in-house. pages. 15 years ago SG was the market Like most newspapers in Sweden, Along with journalism the core stra- leader: competition came only from the Göteborgs-Posten (GP) switched to tab- tegic activities of the newspaper are mar- printing side while on the advertising loid format in 2004 in order to target keting and advertising. In line with that, market SG enjoyed a monopoly. younger audiences. For this purpose the the customer database together with the Today’s threats are represented by (1) newspaper launched an SMS subscription creative skills of news selection would television, which will grow in the Swedish campaign to which it received 4700 re- never be outsourced by SG. However, in market as the cost of entering the market plies. GP invested a lot of effort in the order to increase the flexibility of the or- is decreasing and a lot of niche channels website, too. GP believes that general ganisation the number of fixed employ- are emerging, (2) Internet, where advertis- content needs to remain free. Only spe- ees has been decreased, while more and ing is increasing, and (3) mobile phones, cific content could be charged for (such more freelancers are hired. In this way which are starting to deal with news and as that available in online communities) costs problems and strict labour regula- advertising (in this segment the US is be- since it has higher relevance for the sub- tions are being avoided while the quality hind Europe). However, the emergence of scriber. Mobile services carried out by GP of the newspaper is not directly affected. new information channels is viewed by are free so far with only one exception, Staff reporters remain especially for local SG not only as a threat but also as an op- GP Sports, which costs 40 Swedish Kro- news. As possible outsourcing targets the portunity. If on one hand new life styles nar per month. company would consider printing activi- affect newspaper reading, on the other At group level the company is looking ties, IT, distribution, administration, cus- hand they open up new promising ad- for new sources of revenues as it thinks tomer service, and advertising sales. Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Existing and Future Business Models 18

Existing and Future Business Models

Sources of Revenue Streams that the traditional newspaper will remain the The conventional newspaper business still primary source of revenue, followed by Internet, is the primary contributor to the income of free newspapers, and radio (Table 5). newspaper publishing companies, providing ap- These results show that newspaper publish- proximatley 78 % of the total revenues on aver- ers do not believe in physical distribution any age (Table 5). Significant incomes are received longer, but rather in digital distribution. In fact, from distribution services and free advertising they rank the Internet as the tenth source of papers in the average company and important revenue streams today and as the second source contributions come from magazines, production in the future. However, even if publishers rank services, free newspapers, and other print prod- Internet solutions higher in the future, they still ucts. When asked to rank what they believe will see the printed newspaper as the first source be the most important sources of revenue in 5 of revenues now and in the future. Publishers years, two-thirds of the respondents indicated recognise the importance of digital technology

Ranking current Mean % Ranking future Mean % Newspapers 1 78,62 1 40,25 Internet 6 1,52 2 8,25 Free Newspapers 5 1,95 3 6,75 Free Advertising papers 2 4,43 5 4,25 TV 11 0,14 6 2,83 Radio 9 0,90 4 5,92 Magazines 7 1,43 8 1,83 Mobile 12 0,05 10 0,42 Other print products 8 1,00 11 0,33 Branded books 10 0,67 12 0,08 Production services 4 2,76 7 2,50 Distribution services 3 4,38 9 1,17

Table 5. Sources of current and future revenue streams as % of company turnover

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In % Ranking Developed Developing Ranking Developed Developing current Countries Countries future Countries Countries Newspapers 11 1 11 1 Advertising Free Sheets 22 54 6 Distribution services 35 2 97 Production services 43 5 75 6 Free Newspapers 54 33 5 Internet 66 22 4 Magazines 78 3 86 Other print products 8 7 11 11 7 Radio 9104 48 2 Branded books 10 9 12 11 TV 11 11 6 9 3 Mobile 12 12 10 10

Table 6. Sources of revenue streams in developed and developing countries and of business diversification. However, they business model (see Figure 1), the majority of do not show the willingness to act accordingly newspaper publishers seems to have a tradition- as other products such as branded books, TV, al operational system which does not give evi- radio, mobile or other printed products are not dence of a change in the way of thinking. ranked high. The increased ranking of radio and 68 % of the publishers reported that their TV (Chart 4) is due to a higher importance given online and offline businesses in their companies to these two mediums for the revenue streams in are integrated and 32 % indicated that the two the developing countries (Table 6). business activities are separated, although half of those reported that they plan to integrate the Contribution of Advertising and operations in the future. Circulation to Revenue Streams Among the companies that have also on- Strategically Important Units line operations the contribution of Internet to and Core Competences the company turnover comes nearly entirely Publishers ranked the traditional core of from advertising. These companies expect the newspaper content and business activities (edi- situation to remain the same also in the future. torial, advertising, circulation, and distribution) Further, the number of respondents expecting a as the most strategically important units in their contribution to the revenue stream from Internet organisations (Table 7). activities increases. However, the main source The following table shows the core compe- expected to contribute remains advertising. In tencies of the newspaper publishing companies particular, the Indian companies in the sample as perceived by the respondents (Table 8). The reveal to expect revenue streams coming from respondents have identified editorial as well as Internet operations in which advertising plays content generation and content management as the major role. the prevailing core competencies of their com- As for the print newspaper activities a gen- panies in the field. The Scandinavian publish- eral trend towards an increasing importance of ers, together with the editorial skills, stress the advertising for generating revenue streams can importance of a reliable journalism. be identified up to now. In the future the re- spondents expect this trend to slow down as the Internet activities will contribute to the revenue Ranking Mean streams, too. In India the trend towards the in- crease of advertising as the main source of rev- Editorial 1 1,48 enue in the newspaper business is very clear and Advertising 2 2,26 continues also in the future. Circulation 3 2,61 Company Organisation and Activities Distribution 4 4,48 Three quarters of the respondents reported Production 5 4,78 their company uses a functional structure with Pre-Press 6 5,44 units divided into activities such as production, Information Technology 7 5,57 marketing, and sales. One quarter reported a di- visional structure based on media or projects, Table 7. Evaluation of strategic importance of internal regions, etc. Thus, referring back to the meta- functions Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Existing and Future Business Models 20

Perceived Core Percentage of Ranking Cooperation Percent Competence Respondents Activity Engaged In Editorial 30 % 1 Advertising 68 % Content Generation 20 % 2 Content Generation 64 % Advertising 15 % 3 Distribution 64 % Content Management 15 % 4 Content Syndication 36 % Distribution 10 % 5 Printing 32 % Journalism 10 % 6 Product Development 23 % 7 Marketing 18 % Table 8. Core competencies of newspaper publishing 8 Consumer Sales 14 % companies 9 Technical Investments 14 %

Outsourcing Table 9. Ranking of types of cooperation currently found in Publishers reported a significant amount companies of current outsourcing but that they are non- strategic activities such as telephone marketing, pre-press, printing, transport, information tech- Cooperation Activities nology, catering, and security. The majority of publishers indicated that Asked what functions they would never out- were engaged in more than one type of coop- source, publishers universally indicated editorial eration with partners (Table 9). Cooperation in activities and a number of them indicated that advertising, content generation, and distribution they would prefer to keep sale of advertising in- are the most common types. side the company. Publishers reported that they expect to co- operate increasingly with partners and the ma- Content Sharing jority of them expect to cooperate mainly in 70 % of the publishers reported sharing edi- content generation, distribution, advertising, torial content with other companies. The prac- printing, and content syndication in the future tice was more common in European countries (Table 10). than in Asian countries. Most share content at When current and future cooperation ac- local or national level. Among the publishers tivities are compared, cooperation in the areas not sharing content today the majority plans of content generation, printing, and technical to share content with other companies in the investments are seen as becoming more impor- future. Content sharing might indicate a news- tant in the coming years (Table 11 and Chart 5). paper publishing companies’ attempt to reduce Results are similar for both developed and de- costs. However, it appears contradictory that veloping countries. This reveals the willingness publishers share editorial content when they of newspaper publishers to save costs but not consider it as their main core competence. It to generate revenues through collaboration. In would therefore be interesting to analyse what fact, product development is not considered as kind of content newspaper publishers are shar- an important area for collaboration with part- ing or prepared to share. Furthermore, this result ners and is even ranked lower than today as tar- reveals that newspaper publishers are predomi- get of cooperation activities in the future. nantly a medium to transmit information and not content companies as they claim to be.

The Core Competence of Associated Newspapers Based on an interview with Thomas Jacob, International Development Director of ANL

Associated Newspapers Limited (ANL), One of the main core competencies of As- owned by Daily Mail and Genrel Trust, is the sociated Newspapers is the ability to quickly publisher of the Daily Mail, the largest mid react to changes, and to be focused on set goals market English daily in the world. Other titles (the company preempted Metro Sweden’s entry include The Mail on Sunday, Evening Standard, into the London newspaper by launching its London Metro, Ireland on Sunday and the ad- own free sheet). Monitoring the external envi- vertising publication Loot. Associated New Me- ronment and training the staff are the neces- dia (ANM) is the new media publishing division sary conditions to maintain those core compe- of Associated Newspapers. tences. www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Existing and Future Business Models 21

Rank Cooperation Activity Percent Who Will Cooperation Current Future Engagein the Future Activity Ranking Ranking 1 Content Generation 81 % Advertising 13 2 Distribution 76 % Content Generation 21 3 Advertising 67 % Distribution 22 4 Printing 67 % Content Syndication 45 5 Content Syndication 62 % Printing 54 6 Technical Investment 52 % Product Development 68 7 Marketing 43 % Marketing 77 8 Product Development 33 % Consumer Sales 89 9 Consumer Sales 19 % Technical Investments 86

Table 10. Ranking of types of cooperation intended in the Table 11. Comparison of current and future cooperation future

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Mergers and Acquisitions pany. These results support the observation that Half of the publishers reported they believed consolidation is still taking place and probably that their company would be involved in merger growing in this industry sector. Furthermore, the and acquisition activities in the future, with a concentration trend is in line with the search for quarter considering them a possibility. Most re- economies of scale which emerged in the analy- ported they believed that their newspaper pub- sis of cooperation activities. lishing company would acquire another com- Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Investments in Future Technologies and Products 22

Investments in Future Technologies and Products

Important Factors in Technical Innovation and Meeting Future Demands Most Important Technologies Respondents were asked to choose one 95 % of publishers indicated that technical among factors they would consider as most im- innovation is very important or important for portant in order to meet future demands. Two- the newspaper industry but only 82 % believed thirds of the publishers reported internal reor- it was important for their company. Half of the ganisation, research, and new technology are publishers reported that their company is ad- the most important factors. One quarter report- dressing innovation by cooperating with other ed that human resources issues were their most companies in research and development and one important factor in meeting future demands. third indicated they were addressing innovation through strategic alliances.

Challenges drive De Telegraaf strategies Based on an interview with Harry Bouwman, Manager New Media, De Telegraaf, NL

De Telegraaf has been in existence since certain issues can virtually meet and add their 1893 and is at the moment the largest newspa- views to the stories. Omni-presence is the recipe per publisher in the Netherlands. The newspaper to use; anytime, anyplace, any device, it is up can grow organically but cannot acquire new to the reader how and when he gets informed titles as there is a regulation that does not allow by De Telegraaf. Investments have to be made Dutch newspapers publishers to own more than in technology, especially customer relationship a certain market share in paid circulation. Other management and intelligent tracking software. legislation puts up hurdles for big publishers to Involving readers in the news cycle is of emi- expand into television and radio. Until recently nent importance. the publishing industry in the Netherlands was The challenge for the future is to be able to doing well but decreasing readership and adver- market the news and the brand De Telegraaf. tising income have made changes necessary. Also for the advertisers De Telegraaf will play Current threats for De Telegraaf are con- a new role: not just sell millimetres in the pa- sidered the non-traditional publishers such as per but to sell communication solutions via our companies which do not own printing presses broad as well as targeted audiences. In order to but (internet) services like Yahoo, Google, MSN do that the company needs to (re)train its people and communities. accordingly. Technical tasks can be outsourced The strategy for De Telegraaf is to turn from but creativity cannot, especially not in the 24/7 a news publisher to a news and entertainment news cycle. Training can enhance creativity, firm, that is to change from a one-moment pub- which in turn builds the core competence of the lisher to a 24/7 operator. Breaking news will still company: the ability to bring the news, the un- be leading but services and special products, expected, to the reader in a form she/he likes like classified sites and communities will be part to have it. Content will have to be addictive for of the new offering. The news editor will choose the readers and this is only possible when con- timing and publication channel (print, online, tent is really relevant to the readers. Innova- mobile) to deal with the interest and emotions tions are now expected to come not only from of the readers. Readership depends more and technology, and therefore for instance from the more on how news is presented, in which for- possibilities that broadband has opened up, but mat, in which package it is included. However, also from the users themselves who want to be as breaking news can be found everywhere involved in the creation and follow up of the (from the Internet, radio and TV to outdoor me- news. The importance of interactivity will, for dia like digital billboards), the publisher must advertisers as well, play a major roll in the fu- concentrate on providing background and cre- ture of publishing news. ating “communities” where people interested in www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Investments in Future Technologies and Products 23

Ranking Mean Ranking Mean Broadband Home 1 2,87 Computer/CRM 1 3,71 2 4,00 Broadband Mobile Competence Develop- 2 4,25 ment/Recruitment CRM Systems 3 4,43 Advertising Systems 3 4,30 Editorial 4 4,50 Print Equipment 4 4,33 Flexible Mobile Displays 5 4,55 Editorial and CMS 5 4,75 Printing 6 4,69 Digital Internet 5 4,75 Compressed Format 7 5,09 Marketing/Distribution 7 5,27 Advertising Systems 8 5,18 Digital Mobile 8 5,44 New Media 9 5,31 Mail-room Equipment 9 5,60 Micro Payments 10 6,08 Pre-Press 10 5,82 Table 12. Most influential technologies in the next 5 years ICT 11 6,20 Production Management 12 7,20

Publishers ranked broadband home and Table 13. Strategic investments targeted in the next 5 years. mobile services, CRM systems, editorial man- agement systems, and flexible mobile displays as the technologies they believe will play the customer data (data warehouse) and investments most important role in the development of their in specific customer relations management sys- businesses in the next 5 years (Table 12). It is tems (CRM) as the most important (Table 13). interesting here to recall that publishers ranked Investments in competence development and mobile devices and services as the least impor- strategic recruitment, advertising systems, print- tant revenue source not only currently but also ing equipment and editing and content manage- for the future (Table 5 and Chart 4). These two ment systems (CMS) were also seen as important. contradictory results might reveal the publish- Again, in contradiction to the results in Table ers’ uncertainty about the future role of mobile 12—in which publishers ranked mobile technol- devices as information channel. Further, the fact ogies as one of the most important for the de- that both broadband home and broadband mo- velopment of their business in the future – pub- bile are ranked high might mean that publishers lishers do not rank mobile devices and services expect them to merge. as important strategic targets of investments in the next five years (Table 13). Apparently, pub- New Products and Branding lishers have a clear investment strategy for the When launching new products or new ser- first 4 but not for the rest of the targets (Table vices in the market, three-quarters of the pub- 13). This unveils the publishers’ lack of knowl- lishers expect their companies to react as early edge in the related fields, i.e., digital and mobile movers, while only one-quarter think that their technologies, and a dangerous misalignment be- company would wait until the market is care- tween strategy and competence. fully identified, explored and tested by other ac- tors. In this issue culture most probably plays an important role. Because the publishers inter- viewed are primarily from leading companies, they would be expected to take leading roles in technology adoption. When asked if the future of the newspaper Ranking Mean brand will be the one of an umbrella brand for Fit with Business Model/ 1 2,29 new products and services or if on the contrary Core Competence business expansion will create new brands, Return On Investments 2 2,56 about half of the respondents think that busi- Shareholder Value 3 3,38 ness expansion will create new brands for new products or new media. The other half believes Risk of Missing Future 4 3,50 Opportunities that the newspaper will be used to endorse new products through its logotype, its name, brand Branding Opportunities 5 3,57 identity or other features. Pro-Activeness 6 3,64 Reflecting on the areas, which they would Follow Competitors‘ 7 5,45 consider the most likely targets for strategic in- moves vestments during the next 5 years, the respon- Experimental Interest 8 7,12 dents ranked investments in computer systems for collection, storage and processing of detailed Table 14. Factors driving strategic investment decisions Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Investments in Future Technologies and Products 24

Future Investment Decisions: also to pro-activeness and imitation of competi- No Experiments tors. These results contrast with those reported Respondents indicated that future invest- in Table 2, where newspaper publishers stated ment decision will be driven by their fit with that the primary financial challenges they saw the business model and the core competencies for the future were the predictability of market of the newspaper publishing company (Table development, a decreasing return on invest- 14). The second factor influencing those deci- ment, and the increasing cost of technology. If sions is considered to be financial criteria such it is not possible to predict the developments of as the return on investment, while the third is the market, it seems reasonable for a firm ei- the shareholder value. Branding opportunities ther to be interested in experimentation and to and the minimisation of the risk of missing fu- act proactively or to follow competitors’ moves ture business opportunities are the next most when taking investment decisions. important factors when taking investment deci- Two-thirds of the respondents reported be- sions. Experimental interest is considered to be lieving that investment needs will increase in the less important force playing a role in invest- the future. ment decision-making. A low ranking is given www.ifra.com/wherenews Business Models of Newspaper Publishing Companies Discussion and Conclusions 25

Discussion and Conclusions

Challenges and Competitive Threats: closely as main sources of revenues. The major- Mobile Technologies are not among them ity of the respondents think their company will achieve 10 % to 20 % of revenue share through The volatility of demand and the short life these media. In India also radio and TV appear cycle of products and services in the media as major sources of revenue streams. Altogether, industry are shown in the respondents’ state- newspaper publishing companies do not seem to ments. They identify the predictability of market be much diversified. developments as the most important challenge We can therefore say that there is a shift in for their companies. As second and third most the way newspaper publishing companies think: important challenges the respondents have list- they start to adapt their business model to the ed the decreasing return on investments and the market changes, trying to source more revenues increasing cost of technology. Considering the from advertising than from circulation. Further- “70 % of the current decreasing revenue trend of the news- more, companies are trying to add to the tradi- paper industry in the saturated markets, it ap- tional printed newspapers model a new model respondents reveal pears clear that newspaper publishers urgently for the online business. However, looking at the need to develop a portfolio of alternative prod- figures, this business model development can be to be sharing content ucts which could represent their rising stars for identified only in the northern countries such as the future. With regard to competition 80 % of Finland, Sweden and the Netherlands or in the with other partners.” the respondents consider the environment to be USA. The focus on speed does not seem to be more competitive compared to 15 years ago, present in the “way of thinking” yet. while other newspapers are still considered the most important threat by 41 % of the respon- Core Competencies and Cooperation dents. 17 % and 20 % respectively see Televi- Activities: No clear Strategy sion and Internet as second and third most im- With regard to the organization 82 % of “Increasing portant threat today, while 28 % consider the the respondents agree that the editorial part of mobile media as the least important threat. As the organisation is the most strategically im- importance of to the future, it seems that newspaper publish- portant for their business. When considering ers will pay particular attention to the Internet the statistical mean value, editorial, advertising advertising for and television in the first place, and to other and circulation are ranked as the first, second newspapers, free newspapers, and free advertis- and third strategically most important units re- generating revenue ing newspapers in the second place. However, spectively. Information technology emerges as considering the increasing importance of mobile the less important unit from a strategic point streams” technologies, it appears dangerous for newspa- of view. In line with these results the respon- per publishers not to give those technologies dents identified editorial skills as well as con- importance as competitive threat. tent generation and content management as the prevailing core competencies in the field. As a New Media expected to consequence, these activities would never be grow Future Revenues outsourced, as pre-press, printing, transport or The main revenue stream today still comes information technology would be. 70 % of the from the traditional printed newspaper business. respondents reveal to be sharing content with However, the number of respondents expect- other partners. This trend is not confirmed by ing a contribution to the revenue stream from respondents in the developing countries. When Internet activities increases, even if the main asked in which activities the newspaper publish- source expected to contribute remains advertis- ing companies are cooperating at the moment, ing. In particular, the Indian companies in the 68 % of the respondents indicated advertising, sample reveal to expect revenue streams com- 64 % distribution and 64 % content generation. ing from Internet operations in which advertis- When looking at the future a clear trend towards ing plays the major role. As to the newspaper more cooperation can be seen. Content genera- activities a general trend towards an increasing tion and distribution remain the activities where importance of advertising for generating rev- the majority of respondents think they will be enue streams can be identified up to now. Free mostly cooperating. Cooperation in content syn- newspapers and free advertising papers follow dication, printing, technology investments and Business Models of Newspaper Publishing Companies © 2006 Ifra, Darmstadt Discussion and Conclusions 26

marketing are expected to increase substantial- Opportunity recognition and ly. This indicates a clear need to cut or at least exploitation are lacking share fix costs. According to most of the respondents (64 %), These survey results point out an increasing future investment decision will be driven by trend towards cooperation with other partners their fit with the business model and the core which can lead to the exploitation of network competencies of the newspaper publishing com- relations and synergy effects. The fact that pany. The second factor influencing those deci- newspaper publishing companies are targeting sions is considered to be financial criteria such advertising as the main cooperation activity as the return on investment, while the third is is in contrast with their ranking of advertising the shareholder value. This is not in line with the as second most strategically important organi- need of developing and implementing different zational unit. The same holds true for editorial business models simultaneously, according to the content. This reveals a non-clear operationali- new opportunities offered by the new technolo- sation of the companies’ strategy and way of gies. Even if branding opportunities and the mi- thinking. The increasing cooperation in distribu- nimisation of the risk of missing future business tion and content generation could allow news- opportunities are ranked as the next most impor- paper publishing companies to decrease costs tant factors when taking investment decisions, and therefore have more resources available to newspaper publishing companies seem to be too foster innovations. On the other hand, innova- anchored to their traditional business and there- tion could also be enhanced through collabora- fore late in recognizing and/or exploiting new op- tion in product development. However, publish- portunities. Furthermore, experimental interest is ers are not targeting product development as a considered to be the less important force playing cooperation activity. a role in investment decision making. This is in contrast with the entrepreneurial spirit required Importance of Technology by the dynamism of the media industry. and Innovation is recognized As to the requirements to meet future de- Conclusion mands, 66 % of the respondents consider - in Summing up, the results of this survey re- equal shares - internal reorganisation, research veal that, in general, newspaper publishing and new technology as the most important fac- companies are still focusing on the traditional tors. Technical innovation is considered to be business. In order to create value, it would in- “Publishing important by the vast majority of respondents. stead be useful for them to develop parallel 52 % of the respondents report that their com- business models according to the business op- companies seem pany is addressing innovation by cooperating portunities offered by new technologies and with other companies in research and develop- find ways not only to exploit network relations to recognize the ment, while 35 % address it with strategic al- but also to speed up their capability to react to liances. When looking at the most important and anticipate changes. To meet this purpose it importance of technologies for developing the newspaper would be necessary for newspaper publishers publishing companies’ business in the coming to develop theories, which describe the cause- innovation and five years, publishers indicate home and mobile effect relationship of their actions, so that the broadband and editorial management as well future becomes more predictable and actions customer focus for as customer relationship management systems. more appropriate. For this purpose the meta- From these results newspaper publishing com- business model presented at the beginning of value generation.” panies seem to recognise the importance of in- this report might be very useful. First of all, novation and customer focus for value genera- newspaper publishers need to change their way tion. This is confirmed also by the importance of thinking. Secondly, the new way of thinking given by the respondents to computer systems has to be translated in active business through for collection, storage and processing of detailed an appropriate operational system. Thus, the or- customer data (data warehouse) as well as spe- ganisational structure of publishing companies cific customer relations management systems must be developed accordingly. Thirdly, in or- (CRM) as targets of future strategic investments. der to create value, newspaper publishers must Investments in competence development and keep track of environmental developments and strategic recruitment appear to be considered answer to new market demands with proactive- as critical, too. Contradictions remain, however, ness and innovations. Within this context, staff due to the low ranking given by publishers to training appears to be all the most important: mobile devices and services as revenue source, in particular, the development of entrepreneur- while they simultaneously consider these among ial spirit among managers would enhance flex- the most important technologies for developing ibility, opportunity recognition and exploitation of publishing companies. as well as risk acceptance, which are the typical characteristics of dynamic and changing envi- ronments. Ifra has released the following Where NEWS? reports:

IfraTrack: a recommendation for the interchange of status information 1 between local and global tracking systems in newspaper production published by Ifra in 02.2006

Quality failure costs in newspaper production 2 published by Ifra in 02.2006

The importance of legibility for modern publications 3 published by Ifra in 02.2006

Quality failure costs in newspaper production 4 published by Ifra in 02.2006

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