Explorations of the Inevitable – Part II

iStock_000005194514XSmall3) The networked digital delivery of all media, especially including newspapers.

This is a big topic and dear to my heart, so I’ve dedicated an entire post to this one.

Regardless of what anyone might think about the ongoing need for paper delivery, the simple cost of physical distribution of media versus networked delivery is a powerful and inexorable economic pressure.

We need to face the fact that the age of paper delivery of information is coming to an end not only due to cultural and social trends and a shift in generational attitudes, but also simply due to the rising costs of fuel, paper and ink.

Publishing content once to a web server, and then buying bandwidth on demand, is always going to be cheaper than printing on paper and driving that paper around.

What we currently have are legacy industries trying desperately to hang onto their old business model while struggling to find a new business model fast enough to save their brands from extinction.

This is the telegraph trying to compete with the telephone. It happens for a little while. And then everybody wonders why it happened at all.

And once it happens to the newspapers, it is going to happen to everything else as well. Distribution via digital media (CDs, DVDs, flash drives) will quickly follow the newspapers into extinction. The costs are prohibitive when compared to the tenths of pennies it costs to deliver the same information from a server residing in a cloud.

Of course, there will always be a need for offline information, and maintaining a local cache of certain kinds of data will always make sense, whether that’s reference material needed when out of range of the network, backups against loss, or bandwidth heavy media pre-cached for future use. But none of those applications requires that the media be distributed physically to begin with.

The “greening” of the data center, with lower power processors, solid state memory and plummeting bandwidth costs, will only accelerate this trend. Finally, the always-on 3G and 4G networks arriving today will cement the transition.

So, what does that mean for entrepreneurs?

Major opportunities still exist, I believe, because enormous amounts of value remain locked up inside major newspaper and magazine brands – not to mention the entire music and movie industries. And because the market still wants those brands and that content, new business models will have to be devised to deliver it.

The value locked up in the legacy providers and is going to die inside the musty tomb of these cavernous, creeping companies if somebody doesn’t figure out how to unlock it and fast.

That value takes the form of trusted, beloved brands (i.e. the New York Times), goodwill, experience, credibility, content editing and production processes that are the best around, and massive amounts of back-stock and out-of-print content that creates the “long tail” of future value.

So, how does the entrepreneur unlock that value? Way back in 1998, when I co-founded Questia Media, the business model was to unlock the value in out-of-print books by bringing that content into a subscription system and then paying publishers based on fractional usage.

Now, with Google scanning books, this business model is all the rage and new revenue sources – like ads – are being wedged in around the content. We’ll see how the experiment proceeds and how Google ultimately settles with the publishers. But the books have gone online.

For newspapers – and television news, for that matter – the proposition is different than books, since their content is of very high immediate value and relatively low residual value. And right now the web-only content providers are kicking their butts in terms of delivering more content faster and with more interactivity without losing their shirts to overhead.

The newspapers are desperately trying to push their fusty editorial content onto the web and have been for a decade, but they’re still finding that they’re losing because they can’t generate the same revenue they’re used to living on.

So their business model is going to have to change and they just don’t like that. Editors get cut, writers make even less, and less popular content goes to the wayside.

An epoch in journalism comes to an end. But another epoch begins.

This new epoch is going to be connected, savvy, extremely fast, much less creditable or reliable at first, and will definitely require new forms of revenue.

Some players are trying to go the non-profit route. They think that a critical, independent free press is worthy of public and private charitable largess. In an ideal world, they’re probably right, but that doesn’t mean it is going to work.

Doing journalism on grants may turn a news outlet into an institution that can be sustained as a non-profit for a time, but I don’t think it will generate great, cutting-edge, market-leading content. Institutions just aren’t geared to confront demand in this way. They’re geared to get more grants – nothing more and nothing less.

So, what forms of journalism will prevail and then what business models will they use? I can’t tell which will win, but I can point out some contenders.

I think one of the likeliest winners in all of this is the integrated media organization.

This is the web-centric organization that deftly combines and leverages existing content – text, audio, video, photography, background research, archival, data visualization, etc. – into a media powerhouse while at the same time cutting deeply into editorial and moving towards self-produced content generators.

We’re already seeing this happen at the most sophisticated sites. I see that trend continuing as the winners gobble up greater shares of the ad revenue that has leaked entirely out of their bigger, older offline brothers and figure out how to keep production values high with a limited, remote editorial staff and razor thin overhead.

The second winner is certainly the ultra-low overhead, ultra-cutting-edge blogger.

Some of this will take the form of “citizen journalism.” But a lot the most successful brands will be professional. These are the small, independent bloggers who are willing to do anything to break the story and who need to constantly one-up their rivals and themselves just to survive and keep their audience coming back for more.

Look for these bloggers to go multimedia fast, toting their video cameras to their political and celebrity ambushes and their narrated drives through hurricanes, tornadoes and civil unrest.

This is gonzo journalism for the 21st century and it is growing in prevalence and importance.

These vehicles have a long way to develop. First and foremost, they’ve got to cultivate their market. This won’t be hard, given the direction media consumption is going.

Second, they’ve got to cultivate sources so that their content can compete with traditional journalism content in terms of relevance and importance. Some of them will have to get serious.

Third, they’ve got to develop an editorial process that guarantees sustainable, quality results. That means building up teams that can reliably generate exciting content, every single day.

This has already started to happen and the winner and losers will begin to emerge soon.

Finally, for better or worse, the age of the sponsored journalist has arrived.

Reality TV can get serious. We’re already seeing TLC, Discovery, Discovery Health and several other channels take up the gauntlet that the newspaper feature, the magazine cover article and then weekly TV news magazines have gradually put down as costs have risen and big names have retired.

Yes, they’re a little sleazy and a lot corny, but on certain topics for certain audiences, they get the job done. They’re going to move their content online and will certainly displace some of the existing in-depth and investigative content being produced by old line contenders.

For entrepreneurs, of course, this turmoil means opportunity.

There are opportunities to get into the fray and launch brands, purchase and re-develop existing brands and publications, develop content and support processes for the existing competitors, and provide the consulting and transition services that this massive changeover is demanding.

Possibly more important, as we’re seeing now, are the entrepreneurs who are eagerly bringing new business models into the chaos – putting ads onto anything that people will look at and offering purchases and transactions at every point imaginable in the consumer’s interaction with the content.

This is a fine line and pushing consumers away from content that relies on intrusive revenue models will certainly happen.

But when all is said and done, the content has to be produced because the demand exists. The only question is a matter of finding the models that are most productive with the least intrusion and lowest cost.

In this brave new world, it is hard to imagine that the new models could be much more intrusive than the standard, 30-second ad plunked down in the middle of the story being shown on one of the 3 major broadcast networks. Or to imagine that they’ll be much less effective, targeted or interactive than the black and white display ad that still dominates the newspaper revenue stream. And that is reason for optimism.

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This blog is dedicated to providing advice, tools and encouragement from one entrepreneur to another. I want to keep this practical and accessible for the new entrepreneur while also providing enough sophistication and depth to prove useful to the successful serial entrepreneur. My target rests somewhere between the garage and the board room, where the work gets done and the hockey stick emerges.