Facebook last week announced its intention to introduce metered pay walls to its “Instant Articles” offering, appeasing disgruntled news publishers in the process. The real test lies with consumers and if they embrace this new option or vote with their wallets and shy away from it all together? This post discusses the challenges the magazine and the news industries faced and still face with digital disruption.

Most industry incumbents, who predate the digital era, make the common error of trying to dictate how digital disruption is managed before they truly understand all the threats and opportunities. This typically occurs when leading with an “inside out” strategy. Put simply, leading with an internally focussed strategy as opposed to starting with the customer. This seems to be the case with magazines and news publishers.

The customer is now in total control of the way organisations do business and ‘digital’ has been thrust into the heart of a customer-first strategy. Businesses of all shapes and sizes are focused on ‘being digital’. As a result, regardless of an organisation’s size, every business is undergoing some form of disruption and thus digital transformation.

Magazines and News disrupted

The rapid decline of magazines is an example of an industry that struggles with digital disruption. Before the Internet, magazines were very profitable with revenue-per-page yields extremely high. From a consumer perspective magazines were aspirational, authoritative and a trusted source, regardless of your interests. Overall, good value for money.

However, in the space of a decade, the internet began to disrupt these lucrative models, which for years seemed impenetrable. This timing coincides with the launch of the iPhone and the proliferation of mobile devices. Consumers habits quickly changed coupled with the advent of social media where the rise of free timely news (snackable content) became the format-of-choice for consumers, despite some questionable editorial practices.

Distribution Challenges – Handing over control

The rise of the online aggregator – Facebook & Google – profoundly changed the online user experience, especially relating to how content surfaced online. For example, aggregators deep link users to specific articles and bypass the publisher’s homepage. In some instances, home pages are lucky to receive 5-10 per cent of all visitations where 10 years ago they were the front door to everyone’s online experiences. Moreover, users typically “bounce” or leave a publisher’s web site after spending 30 – 50 seconds on a page and typically tap or click on the back button (back to Facebook, Google etc…). The chart below shows the dominance and power of Facebook and Google when controlling distribution to magazines and news publishers.

The step change in consumer behaviour forced magazine brands to relinquish distribution control and this caused anxiety and began to foster mistrust between publishers and the online aggregators, despite publishers carrying advertising from these platforms and earning revenues from ad programs like Adsense. They became “frenemies”.

Free content, the new normal.

To make matters worse the new online content experiences were free to consumers with pure play online publishers opting to operate native advertising and sponsorship-led models. The rise of the likes of Buzzfeed, The Huffington Post and other disruptive publishers achieved a loyal following and global scale within 5 years of launch. At this point, the magazine value proposition had continued to diminish and all of sudden the world was moving way too fast for the industry.

The confluence of all these factors resulted in steep circulation dives along with the flow on effects to advertising and subscription revenues. Traditional magazine publishers like Conde Nast & Hearst pivoted and invested in digital however the broader landscape had already become littered with new competitive innovative players and inevitably shrinking the overall addressable market. Resulting in revenue pressures, increased competition and less market share to aim for.

Channel & Content Challenges – Mobile Devices

Mobile phones, now the dominant screen, limit the number of ads on a screen. For example, desktop screens would carry 10 ad placements on a page as opposed to 1-3 ads on mobiles. This limitation has significantly reduced banner monetisation along with consumers not taking well to interruptive banner ad formats. Advertising blockers have reached 660+ million globally and will only continue to increase. Thus placing further pressure on a crowded and commoditised banner-advertising model.

Re-engineering traditional business models onto digital platforms

To make up lost ground and to win the hearts and minds of digital consumers magazine publishers invested millions in digital magazines – sold via the Apple App Store and Google Play. This is a prime example of a disrupted incumbent re-engineering an old business model onto a digital platform. The lack of consumer take up along with the underwhelming sales figures clearly demonstrated that this was never going to be the silver bullet the magazine industry was hoping for.

At the core of the problem, the value proposition was missing the mark with consumers – preferring the free experience provided by the online aggregators. Of note, the overall online aggregator’s experience is well curated providing convenience and consolidation. A one-stop-shop if you like underpinned by a very sophisticated data strategy.

In an attempt to maintain strong relationships with magazine and news publishers Apple launched the Apple News App in 2015. Apple News was originally positioned as a hybrid version of the digital magazines (long form immersive experiences) & offering new snackable content formats, clearly working on social and online platforms.

The publishers were sold the lure of being able to use the offering as a subscription sales funnel for their print and online versions. The New York Times recently announced they were leaving Apple News and Facebook Instant Articles (similar to Apple News). The Guardian also stating their intent to abandon some of the hybrid publishing services. Publishers claiming that the extra resource required publishing on the platforms were not sustainable given the advertising or subscriptions revenues generated.

Leadership is key

Executives that can successfully manage the transition from traditional (under pressure/ tired) business models to new ones are worth their weight in gold! The reinvention of business models is a complex process fraught with danger and culturally can run up against resistance from risk adverse boards and company executives. For example, Foxtel’s bundle pricing services are constantly causing consumer friction, who would prefer an a la carte’ option. This is one of the main reasons why many millennials turn to piracy as they don’t see the value in paying for a bundled offering.

Digital Transformation now on the senior executive agenda

DTS research shows that over 50% of Digital Transformation projects are driven by the CEO’s or MD’s. So the spotlight is on senior leaders to come up with solutions to ensure the longevity of the businesses especially those organisations struggling with low margin advertising and subscription models.

So the challenge continues. It will be intersting to see the results of the Facebook experiment. It is a fair bet that Google won’t be too far behind with a solution.

The key learnings are:

  1. Don’t force old business models onto consumers via digital platforms. Use customer insights and apply an outside in or customer first strategy.
  2. Become comfortable with the new paradigm where consumers and intermediaries now are in control.
  3. Ensure your distribution strategy is a blend of on and off network elements. This notion is extremely difficult to embrace for organisations that pre date the technology boom because they have traditionally dictated or owned the entire distribution chain.
  4. Focus on the “why” element of your business and not the “how”. Is it still relevant in the digital age?
  5. Explore reinventing business models because if you don’t someone else will.
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