Jul
26
The Media Investment Game
Filed Under B2B, Big Data, Blog, data analytics, healthcare, Industry Analysis, internet, online advertising, Pearson, Publishing, Reed Elsevier, STM, Thomson, Uncategorized, Workflow | Leave a Comment
The past week demonstrates triumphantly that human ingenuity knows no bounds in finding fresh ways to invest in content and software marketplaces, with appetites apparently undaunted by the many examples available which show how hard it is to get growth in traditional media and how hard it is to get margins in the newer variety. Pearson’s results, despite positive underlying trends and signs of more normal market conditions in the US, failed to set investors alight. The mean machine at Amazon, trying to cope with the margin constriction of online retail while desperately seeking other sources of value add profits in logistics and AWS got a chilly response from markets. And yet, during the week, a number of unrelated deals demonstrated a continuing hunger for media and information marketplace assets that belies the difficulties and provides new exemplars of market reconstruction and consolidation at work.
We are all used of course to the cellular division process employed by McGraw Hill and News Corp to create a Good Bank/Bad Bank division of assets that enables the bit with prospects to be revalued and become a new growth point. This week we could call this the Murdoch Gambit, as Twentieth Century Fox, aka Good Assets, went after Time Warneur while the latter was in process of casting its Bad element, aka Time Inc, overboard. The acres of screenspace devoted to discussing this rather obscured remarkable goings-on in the wholly less glamourous but once far more profitable field of building and construction industry information. A few weeks ago McGraw announced that it was selling its properties in this area, clearly not relishing the build to a workflow-based BIM marketplace, with market players only slowly migrating to towards a new world of data handling. Last week Reed Elsevier went one further, by selling its RS Means building costs division to Warburg Pincus (who own the competitor, Gordian Group) and including 49% of Reed Construction in the deal. This demonstrates two interesting possibilities: Reed really are a portfolio player now, with a clear strategy on the rules of investment engagement and a determination to let others share the risk when retooling and re-investment becomes necessary; and private equity is becoming recognised again as a good place to go for those re-investment activities. Warburg Pincus in particular can point to their years of patient market and service development work at GlobalSpec, now a key element in the IHS positioning at the front of the Engineering information market.
And this was not the only interesting news from Reed Elsevier. For a start, it’s revenues are now 82% “digital”, a figure that only financial analysts seem to care about, long after the rest of us had assumed the figure was 100%! And for a moment midweek we could have been forgiven for thinking we were returning to the “Happy Families” consolidations of the 1990s as Reed (Lexis) sold its Polish law assets to Wolters Kluwer, who with equal solemnity sold their Canadian assets to Lexis. It all made perfect sense. Neither Thomson Reuters or Lexis ever made Germany work, yet WK did. Poland was the same, only smaller. Canada was much more comfortable for Lexis, which had considerable assets there already. One can only wonder why rationalisation sometimes takes so long. Whatever the answer, looking at the assets as a portfolio investment manager and not as a committed investor in certain markets and geographies certainly aids the thought process and clarifies the rules. One of Reed’s mantras in recent years has been reducing reliance on unstable advertising marketplaces. This week’s results indicated that advertising is now down to 2% of gross revenues. Mission accomplished then, since Reed are clearly not interested in the marketing services environments which will succeed old-style advertising, and which created what for me was Deal of the Week: the sale of Bizo to LinkedIn. When we look back for benchmarks of the recognition of marketing services online as a wholly new service concept, then Russell Glass’s company, itself a breakout from ZoomInfo, will be the measure.
So should we expect more weeks like this as the industry vertically restructures and consolidates? Will Wolters Kluwer seek a revaluation of its wonderful health portfolio by floating it separately from the less vibrant business, law and tax divisions. Informa, who recently announced a very logical and much more service-centric structure, could take a similar view, since the relationships between, for example, their academic research and their trade exhibitions businesses are pretty tenuous. My guess however is that the real control here will not be the investment savvy of the suits at head office, but market tolerance and utility. In markets where data availability inside workflow driven models becomes the expectation, and each offering must be content complete in order to compete, there will seldom be more than two competitors. The portfolio investor decision is the oldest on record: stick, or …twist.
Apr
27
Digital Newspapers and Advertising Don’t Work
Filed Under B2B, Blog, Industry Analysis, internet, mobile content, news media, online advertising, Publishing, Search, social media, Uncategorized | 1 Comment
Well, Ken Doctor says it, and Neil Blackley draws it to my attention, so it must be right. Ken, now the doyen of newspaper analysts, notes on his Newsonomics site (http://newsonomics.com – a site whose title banner is replete with a photo of the Flame-Haired Temptress herself) that not only are digital revenues failing to grow significantly for newspapers in the age of paywalls, but that the contribution of digital advertising, the supposed rising graph line which will cross over the falling print advertising line in years to come, is now itself down to a growth rate of 1.5% in the US. In a country where online advertising now surpasses both broadcast and cable television advertising in revenue terms with a revenue base of $42 billion, newspapers command an $18 billion advertising market (IAB 2013 full year report). Ken shows that newspapers report this differently – the NAA report for 2013, also published last week, shows ad revenue of $ 23.7 billion, but even on this basis, says the sage of Santa Cruz, “as digital advertising overall grew by $6.2 billion a year, newspapers digital ad take increased by only $50 million – less than 1% of that $6 billion dollar growth”. And it also means that the growth trend measured year on year is in steep decline. The digital advertising market for US newspapers grew in 2010 at 10.9 %: in 2013 it increased at only 1.5%.
Like a good industry commentator Ken lets his readers draw their own conclusions from all of this, while pointing out, inter alia, that 10 companies dominate 71% of the digital advertising market – and none of them are newspapers. He indicates also that digital classifieds growth has diminished to 2%, and high growth sectors like mobile, digital video, search and performance -based advertising are not places where newspapers have developed any strength. And, crushingly, he indicates that his own estimates of circulation revenue growth were around 5% for last year, based on the outcomes of paywall subscription models becoming so widespread in the US market. In fact revenue growth was only around 3.7%. Factor in inflation and growth becomes very hard to find, in my view. And it also seems to me probable that there is a parallel experience in Europe. Paywalls have not increased revenues significantly, and digital advertising growth is in decline . Ken is an ex-newspaper man and a very polite one as well – my question after reading his summary of these two reports is more direct: If we can now see that the business model is bust in all respects, are newspapers as we once knew them destined for the Dustbin of History?
The answer to this depends on whether you think that the only business model for newspaper publishing was the advertising/circulation model developed in the last days of print. What we have seen so far in the digital age has been a huge effort to keep that model going by other means. So we transfer the print to online, without fundamental format change, and we expect the advertising model to follow it. And then, when people use the digital network as it was meant to be used, and copy stuff to their friends, and comment upon it, we place it behind a paywall in order to control and charge them for doing that, and we intersperse the text with display advertising which is easy to avoid, gets low footfall and is unattractive to advertisers. Or, as with Schibsteds or Axel Springer in Europe, we buy up all the classifieds and put them into mega-sites to which users go as needed and which are – rightly – fully separated from the whole business of newspapers. Car.com, the last site in the US which stated a link to the interest of the newspaper world in needs-based advertising is now for sale.
But even if many newspaper managers find it hard to get their heads around the fact, there are other newspaper business models that will be worth a try once the present models have been proved, at the cost of the redundancy of many good journalists, not to work. If, as I anticipated in a recent blog, the Guardian is brave enough to go to a membership model, with privileged members getting to write and comment alongside their peers, then it may be possible, from their 80 million plus registered online users, to find 5 million prepared to pay £50 a year for citizen journalist privileges, for the peer review of fellow opinionated opinion-formers and to have access to the iconic brand as “members”. While Vice and Buzzfeed at all will thrive as ways of giving content to social media users for re-use, some brands will be able to go forward as communities, like the New York Times, within which sub-communities thrive under a trusted brand umbrella. As advertising becomes a social media fulfilment, with stated needs satisfied by machine-to-machine matching services (aka data analytics) and ad spend generally declining as a way of bringing products and services to people’s attention, people will seriously wonder how the late days of print were so dominated by advertising. One thing is certain. Newspapers will get smaller as revenue vehicles, their role will be commentary and explanation and background rather than breaking news, and none of this will happen at all unless they get a grip on what happened to format in mobile and social media contexts. And then, again, I find myself ending up with a line I have worn thin with overuse these many years: none of this gets to happen unless they can reconnect with the users they have ignored, understand again the behaviour and requirements of users online through observation and intuition and be prepared to change every facet of their performance and activity in order to work in a digitally networked world.
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