Fairfax Media and Newspaper Next

My colleague Jason Wilson has attacked the Finkelstein Independent Media Inquiry report in the context of the Fairfax restructure announced today. Jason writes:

The Independent Media Inquiry bent over backwards to demonstrate the peristence of media power in order to build a case for regulating it further. But the real story is that traditional media are in a death spiral. These have been major social institutions. Despite what many see as their poor performance in recent years, it’s not clear what exists to replace them in that role.

The Independent Media Inquiry investigated whether or not governmental regulation and/or support would be appropriate in the context of the shifting composition of an industry sector. All major media companies in Australia made submissions that suggested that government support would be unwarranted. The report references a number of submissions and introduces and then quotes from the Fairfax submission thus:

Notably none of the established newspapers felt there was a need for government support. The submission by Fairfax Media states:

No one can deny that the traditional media business models have been severely challenged by the growth of the Internet. That said Fairfax does not support the proposition that independent journalism needs assistance by way of Government subsidy or tax breaks as have been suggested by some submissions … Media organisations need to transform themselves to account for the changing needs of audiences as the digital and online platforms continue to evolve. Existing revenue streams need to grow and new revenue sources need to be found and sustained.

It seems that is precisely what Fairfax are doing at present.

Two other points are worth making in the context of the analysis by the Independent Media Inquiry Report. Firstly, the report analyses the democratic function of the news media (what Jason refers to in terms of them having been ‘major social institutions’) from the government’s perspective, not the perspective of individual journalists or companies. I do not agree with Jason that the Independent Media Inquiry was tasked or even should have been tasked with providing an industry with strategic solutions to their commercial problems. Chapter 12 of the report engages with the problem of ensuring industry-wide ‘journalistic capacity’ to produce ‘quality journalism’, which is slightly unconventional for a media analysis. Most media analyses fall into the political economy perspective or correlating ownership or the identity of news producers in general with a normative sense of ‘diversity’. ‘Diversity’ was mentioned in the terms of reference, but this was developed into ‘journalistic capacity’ in the report. Nor does the report explore even a single example of a specific news outlet or business model. Clearly, this would have been inappropriate. Imagine the furore unleashed by the culture warriors at The Australian if the report made forthright suggestions regarding how businesses should operate!?!

 

Is this a ‘desperate’ move by Fairfax?

Here is a brief extract from a discussion I had with Jason and Jonathon on Twitter.
 

Clearly, they both believe, as does Jonathon Green, that Fairfax’s move to be ‘desperate’. Is it?

 

The Long View

The second point to be made about the Independent Media Inquiry is regarding the absence of the kind of suggestions (as noted by Jason) and if they are not in the report, then where such information can be found. A fantastic starting point for anyone interested in how this may (or may not) play out is the Newspaper Next experiment from the the American Press Institute. Proper historical research is required to analyse the last two decades of of shifting business models, as a way to ward off the boosterism of an always future leaning opinion makers. Less ‘this is what you should do’ (or in the case of Fairfax the schadenfreude of the inverse boosterist ‘this is what you should have done 10 years ago’) and more ‘this is what has and has not worked in this context’. The chronic boosterism of ‘internet evangelists’ manifest in the rush to be ‘in front’ of every other voice in the marketplace of opinion means that existing experiments such as Newspaper Next are often forgotten.   

Two major reports were released as part of the experiment, and a third smaller report. One from 2006 announcing the project, another two years later reporting on those media companies following through with the Newspaper Next experiment and a third on using ‘Interactive Databases’ (I’ve uploaded the first two reports to Scribd, because it seems that the API has removed Newspaper Next from its site). I’ve got an academic article in the works that analyses both major reports in terms of the way they discuss ‘opportunity’; it is a curious example of thinking ‘opportunity’ as the necessary restructure of markets (by way of attempting to forge new stabilising social neworks that reproduce markets and therefore stability of revenue streams, etc).

The first report presents some of the conceptual background in thinking about the changes to the US newspaper industry based on notions of ‘disruptive innovation’ and the main points are capture in above diagram (page 19). Some rightly criticised the experiment and the report specifically for being ‘all talk’. Indeed, it does have a certain boosterist tone about it. There is some good ideas amongst all the enthusiasm however.

The second report presents 24 case studies of new products and seven examples of how newspaper companies organized and financed innovation. The most relevant example in the report is The Chicago Tribune. Unfortunately, even at this stage of the experiment it was clear that no newspapers would be willing to ‘make the leap’. As Rick Edmonds at Poynter reported at the time:

However, many of the experiments have stuck too closely to traditional core competencies, making money, for instance, by reverse publishing online material into print, still the comfort zone for the ad sales force. The result: the pace of change is unprecedented but not quick enough; most projects are too small and too slow to develop revenue on the scale needed. So the report urges newspapers companies to “make the leap” beyond news or even news and information.

Then check out this post by Steve Buttry, one of those involved in the Newspaper Next experiment. He was also apparently behind the third report on using interactive databases as a new kind of journalistic product. Steve’s point is that none of the news companies that engaged him or others to make presentations wanted to impliment the Newspaper Next blueprint.

The results were pretty much the same as the response to N2: Executives praised the ideas generally, but lacked the vision, courage and/or freedom to make such dramatic changes in their declining companies. Either N2 or C3 could have led the newspaper industry to a more prosperous future if companies had truly followed them. Instead the business has followed a defensive course of slashing costs, throwing up paywalls and waiting for a miracle.

My point is a very simple one: there has been a huge amount of work carried out in other local, national and international markets on what has worked and what has not worked in attempts to restructure individual companies. It is clear that Fairfax has to undergo a transition to a new business model. It is far from clear what transition model works best.

Maybe I am the only person (at least in my Twitter stream) who thinks that amongst all the commentary about the ‘desperation’ of Fairfax that they actually did something right in holding off from undergoing this transition? Does anyone have any figures on how much money has been wasted at other media organisations on ‘restructures’? obviously some changes should have been made sooner (such as the ‘digital first’ strategy and the integrated newsroom). However, if they had attempted to lock themselves into a new business model even a few years ago would they have the information they have now about what works, what doesn’t and the various different contexts and range of outcomes in between? Business leaders are inherently conservative, they are not going to invest in a company restructure that requires a market restructure at the same time. Not unless they have the ‘killer app’ anyway, but there is no ‘iPod’ solution to the challenges faced by the news industry.

9 thoughts on “Fairfax Media and Newspaper Next”

  1. Glen, I don’t think Jason was suggesting that Finkelstein should have made strategic recommendations to newspapers. From your 3rd para:

    “The Independent Media Inquiry investigated whether or not governmental regulation and/or support would be appropriate in the context of the shifting composition of an industry sector.”

    I think Jason’s point, which I agree with, was that the report’s characterisation of the ‘shifting composition of an industry sector’ was skewed. It drastically understated the existential threat to newspapers from online (relying on one study in particular from Hal Varian). In doing so it laid the ground for arguing the sector would withstand further regulation. The fact that newspapers submitted to Finkelstein they didn’t want gov’t handouts doesn’t contradict this – in an Inquiry where they’re arguing against gov’t regulation, they’re hardly going to then ask for a gov’t subsidy!

    “Maybe I am the only person (at least in my Twitter stream) who thinks that amongst all the commentary about the ‘desperation’ of Fairfax that they actually did something right in holding off from undergoing this transition?”

    Um, not sure what to say about this! In the past 5 years the company’s share price has fallen 90% (NINETY PERCENT!). That’s a standard of performance matched by the Athens stock exchange and not much else. Waiting until now to implement changes has caused the company to be valued at one-tenth of what it used to be, so by that measure alone the management has failed utterly.

    You’re correct that a lot has happened in the past decade, but there is no credible vision for a sustainable news company that is not (a) lean and (b) digitally integrated. And yet FXJ waited 5-10 YEARS to implement these changes, losing profits, losing revenues, losing readers, and spending $4bn on acquisitions that have not contributed anything. It’s bizarre to claim that sitting for 5 years while you bleed (almost) to death while you plan your next move is good strategy. If you erect a paywall and it doesn’t work – take it down. If you lose staff and find you shouldn’t have – re-hire them. But where is the benefit in sitting and doing nothing? I’m sorry, but that just makes no sense!

    As for FXJ’s ‘desperation’ – they are openly talking about going online-only. No major newspaper has taken this step, the reason being that no-one is (rightly) willing to sacrifice 90% of their existing revenues. If ad revenues continue to fall and FXJ go online-only, the strategy could very easily fail, and then the Co. goes into administration. This could easily happen in 5 years. The share price already suggests more than a few people see no future in the company. That is the point

  2. Johnathon,

    Thanks for your comment. I actually agree with most of it.

    Although smaller than Fairfax operations, the PI is an example of a shift from broadsheet to digital only: http://en.wikipedia.org/wiki/Seattle_Post-Intelligencer

    Recently is the shift at Birmingham News and the Times-Picayune to digital first, three-days a week print: http://blogs.hbr.org/fox/2012/06/why-newspapers-were-doomed.html

    I think we’re coming at this from different POVs. There are three main concerns/critiques in this quagmire:

    1. Those concerned about journalism. ‘Journalism’ here is defined in terms of its ‘fourth estate’ role. Yesterday’s announcement is seen from this view as being too little too late, not because it isn’t needed, but because it comes at the end of a long series of attempts by Fairfax management to try new products over the last 10 years that have failed in specific ways. Here I am thinking of the development of Seek, car sales and real estate platforms. These are perceived as limited successes. ‘Limited’ because although they apparently generate some traffic/revenue, none of this revenue flows into the journalistic part of the business.

    The problem here is not so much that Fairfax failed to develop profitable online products, because they actually did, but they failed to properly integrate these products with their institutional function to produce journalism. Mr Denmore powerfully argues this case here: http://thefailedestate.blogspot.com.au/2012/06/death-notices.html

    Also see SMH editor-in-shief Peter Fray’s presentation based on the research carried out while a fellow at the University of Sydney last year (I used this as a reading in my first semester Online News class this year): http://sydney.edu.au/sydney_ideas/documents/Peter_Fray_Decade_Fellow_lecture_16Nov_2011.pdf Fray is genuinely attempting to grapple with what back then would have been seen as the inevitable transition announced yesterday from a journalistic/editorial POV. This is one of the reasons why I think ‘desperate’ is too hasty a term to describe yesterday’s announcement as the transtion had been a long time coming.

    2. Those concerned about the operations of the newspaper/media business. This is to treat Fairfax like any other business. They announced two things, the integration of their print and digital newsrooms and rationalisation of printing.

    The integration of the newsrooms is a good thing. The stupidity of not having already integrated the newsrooms is one of the great blunders here. There is no real excuse for not having integrated the newsrooms already. Maybe it is because of some prejudice against online platforms? Something weird is going on here considering the investment in Seek and other products (and hence the evidence that they did realise the value of online). This is an inability to introduce new production and editorial processes. There is a book in just this topic!

    I didn’t discuss the issue of printing presses above. When I worked at the magazines it took me a while to realise that the publisher and owner sometimes viewed the business from the POV of maximising return on the tonnage of paper bought. Basically each ton of paper could be used to make a certain number of pages of magazines (out of 70+ magazines), and revenue per page per ton (in part) determined the profitability of the business. I never got a clear message about what sort of revenue per page would enable different titles to increase page numbers for the print magazine version of specific titles (and therefore access greater resources within the company for things like money for websites and so on). The costs of printing in themselves are huge and I would like to see a media economics specialist calculate the costs of printing operations and the wasted capacity of the underutilised legacy operation. I can see Fairfax rationalising this aspect of the business and attempting to increase the revenue per page of its broadsheets by turning them into ‘compact’ size.

    3. Those concerned with the market strength of Fairfax. This is your focus above and as I say I largely agree with you. You may not agree with the way I have pulled apart three different concerns (journalistic, operations, market), but it is important to locate our different concerns.

    The market is a confidence game. There is little confidence in Fairfax management or in the operations of the company. The bullheaded approach by Fairfax management should be celebrated from the POV that they did not bend over for the purposes of boosting market confidence. Having said that the reality is that they should be more effective at representing operations and management for the purposes of boosting market confidence. For example, Fairfax’s non-journalistic online products are relatively successful. As a sidenote, I wonder if investors actually want Fairfax to be a) a media company and b) a media company that does journalism? There are a few good examples (from a business POV) of the former but not too many of the latter.

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