traditional media companies to digital ... 2Morgan Stanley: Fairfax Media Company Update August 7, 2012 ... Invest in ag
Paywalls Alone are not a Panacea
continue supporting the size of the current industry.
Given plummeting ad revenues, the need for publishers to reform their business models has never been greater. Ongoing disruption in industries such as TV and music, teaches us that when new technology is harnessed in the right way, improved consumer experience can underpin a willingness to pay, but simply erecting paywalls is not the answer. Some large players have achieved global reach and scale based purely on high quality content, but small-medium players
Exhibit 1: U.S. Newspaper Revenue Trends 2003 - 2012 Revenues (US$b) 50 45 40 35 30 25 20 15 10 5 0 2003
2006
2009
2012
need to critically review their target Print Ads
audience, content mix, delivery platforms and user experience if they are to develop, maintain and monetise a loyal readership
Online Ads
Circulation
Source: Newspaper Association of America, 2012 State News Media Report
and / or advertiser base. They also need to
Exhibit 2: Australian Newspaper Revenue
improve efficiency and develop more
Forecasts 2013 - 2017
sophisticated pricing models. Many of these publishers need to be much bolder if they are to survive. Newspaper publishers are scrambling to plug the fundamental shift in industry revenues from traditional media companies to digital substitutes. Total newspaper ad revenues have fallen nearly US$24 billion in the US from 200312, as online ad revenues are failing to make up
Revenues ($m) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2013
2014
2015
2016
for rapid print losses. Circulation revenues
Print Advertising
Digital Advertising
remain relatively steady, shedding less than
Print Circulation
Digital Circulation
US$1 billion over the same time period (Exhibit 1). Forecasts show only digital revenue streams will exhibit positive growth over the next five
Source: PwC Global entertainment and media outlook: 2013 - 2017
Consolidation and Centralisation
years, with digital advertising growing at CAGR 6% and digital circulation growing at CAGR 84%
Significant consolidation efforts are underway,
(Exhibit 2). Consequently, there has been a
both externally across the newspaper industry
major push by publishers into online business
and within publishing organisations, as the
models, positioning themselves to capitalise on
centralisation of processes and divisions
the $2.3 billion digital pie over the next five
continues. The convergence of publishing with
years. Given the shrinking pie, this is unlikely to
online means that the global industry will no
2017
longer be able to support regional industries with
Online boasts 112.6 million monthly global
hundreds of players, but will shift towards a
unique browsers. Huffington Post uses the
global playing field with a handful of large online
same strategy, while keeping a large part of
mastheads. Large scalable publishers such as
their cost base variable through hiring
NYT and WSJ have demonstrated profitability,
contractors.
with Exhibit 3 revealing the divide between
ii.
Balance paywall subscriptions with ad
global and local reach. However, what does this
revenue: the New York Times is a good
mean for small-medium players, and what
example of a quality mass market paper
strategic questions should they be looking at?
which has successfully made the transition
Inevitably, some publishers will be successful
to online. The newspaper has generated
through traditional strategies (e.g. world-class
subscription revenues greater than ad
content), while other players may look to grow
revenue, far surpassing the breakeven
the size of the pie through creative initiatives to
number of online subscribers required.
enhance customer value propositions.
iii.
content publishers can charge premium
Exhibit 3: Latest Digital-Only Paying Subscribers
Premium content, low traffic required: niche subscription fees and higher CPM rates
1
given the targeted audience. Analysts2
Online Subscribers ('000s)
believe that the AFR may become a
1,000
profitable digital media business in 2-3 years
800
if it follows the trajectory of the FT.
600
Subsidise publishing costs with additional
400
revenue streams: complementary high
200
margin revenue streams can subsidise WSJ
NYT
FT
The Times
The Economist
The Herald
The Australian
The Age
SMH
AFR
0
Source: Company reports, news releases
online and offline publishing costs. For example, Bloomberg news content is subsidised by sales of their trading platforms (their dominant revenue stream) and data packages. Other companies are organising
Business Model Variations Emerge
complementary events and ‘freebies’ as part
We have identified four promising ways in which
of subscription packages and incentives.
publishers have tried to deal with the current
While the paywall has been used as a
challenges in the industry:
means to convert revenues online, it is clear that this is solely dependent on quality
i.
No paywall: focus on high traffic flow to
reader and advertiser offerings.
drive advertising revenues and CPM rates. Invest in aggressive SEO traffic acquisition,
Monetisation in Different Forms
featuring content that appeals to a wide
A publisher’s ability to price appropriately (and
global audience – for example, the UK’s Mail
creatively) to reach and monetise the right online
1
Company articles
2
Morgan Stanley: Fairfax Media Company Update August 7, 2012
3
Simon-Kucher & Partners Global Pricing Study
3
audience can help turn small-medium quality
methods , publishers will need to analyse
content newspapers into a global niche player.
whether micropayments will enhance
Paying for online content is now readily
accessibility or end up commoditising their
accepted by readers, with attitudes improving
content.
3
across younger generations . Readers now can also pay through time, information or money,
Don’t Write Off the Print Model Too Quickly
allowing for various monetisation scenarios.
Local papers operating as a quasi-monopoly,
However, finding the right model won’t be easy,
might survive on print as they have done in the
as 64% agree that payment for content online
past. In this context, local advertising is
should exempt them from advertising exposure.
perceived as an information channel - with
Successful digital publishers have been able to
nearly half of readers who ‘very often’ read
balance these needs, by minimising the
inserts and ads, stating it helps with purchasing
intrusiveness of advertising or increasing its
decisions and the majority preferring print
relevance through targeting. With the majority of
advertising to the online format. Strong local
consumers sceptical about whether the quality
publishers such as The Sunday Tasmanian,
of information from their local newspaper is
maintain healthy revenues, which will support
unique and relevant, the onus is on media
news operations, while a strong local brand
companies to convince, and price accordingly.
commands a loyal readership following and
Despite its importance, only 38% of media
subsequent advertising dollars. These
companies have a dedicated pricing function -
publishers may have slightly longer to decide on
3
the lowest among surveyed industries . Making Payment Easier A key indicator of future longevity is the rate of
the best business model for them and would be advised to take a more cautious approach. Selecting the Right Model
readership conversion from print to paying for
The transition from print to online is proving
online content. There are several payment
challenging for Australian newspapers, with
structures that a publisher could implement,
News and Fairfax both taking highly publicised
typically ranging on a scale from monthly
cost cutting measures, despite the introduction
subscription fees to micropayments (individual
of paywalls for some of their titles. In light of
payments for articles). Google Wallet launched
this, caused by plummeting ad revenues, the
its micropayments service for web content in late
call for business model reform has never been
2012 aimed at educational sites first, before
stronger. This disruption behaviour reminds us
planning to branch out to news. This will allow
of other industries including pay TV and music
news providers to control which parts of a
that are still undergoing continual business
document require payment. Unlike iTunes and
change. In these cases, when technology is
the music industry, part of the reader experience
harnessed in the right way, consumers benefit
lies in the browsing and learning experience of
from greatly improved experience through
newspapers, raising some key questions in
technology, driving a willingness to pay.
applying this model to the immersive experience
Technology could be a facilitator for new
of news consumption. While surveys show
revenue channels and another chance to prove
readers prefer micropayments to other
the relevance of news content in a new era. In a
previous article, Pay TV as a crystal ball, we
our clients. We have offices in Sydney, Melbourne
discuss the projected path for the newspaper
and Singapore.
publishing industry and draw out a few lessons to be learnt from the come-back of Pay TV. When planning their strategy for survival and profitability, newspaper publishers should consider some of the issues already mentioned, including consolidation; cutting overheads; greater automation; and partnering with global players. When it comes to selecting the optimum monetisation model, here are some of the questions publishers should consider:
Does your forecast customer base enable you to cover costs? Is your forecast realistic?
Are your operations sized appropriately?
Do you have niche capability? Will audiences pay for your niche expertise? How large is that audience?
What balance of print vs. online do you require? What and how much should you be investing in each medium?
What data do you have on your readers and how can it provide strategic insight for you and your advertisers? Could this aid in monetisation?
How will you effectively convert customers from browsers to full access subscribers?
What other capabilities could you exploit to expand into new revenue streams?
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