The ASCAP example: How news organizations could liberate content, skip negotiations, and still get paid

Jason Fry suggested in a post here last week that current paywall thinking might be just a temporary stop along the way to adoption of “paytags — bits of code that accompany individual articles or features, and that allow them to be paid for.” But how? As Fry recognizes, “between wallet friction and the penny gap, the mechanics of paytags make paywalls and single-site meters look like comparatively simple problems to solve.”
I suggested a possible framework for a solution during a couple of sessions at the conference “From Blueprint to Building: Making the Market for Digital Information,” which took place at the University of Missouri’s Reynolds Journalism Institute June 23-25. Basically, my “what-if” consisted of two questions:

1. What if news content owners and creators adopted a variation on the long-established ASCAP-BMI performance rights organization system as a model by which they could collect payment for some of their content when it is distributed outside the boundaries of their own publications and websites?
2. And, taking it a step further, what if they used a variant of Google’s simple, clever, and incredibly successful text advertising auction system to establish sales-optimizing pricing for such content?

Read the rest at NiemanLab.

Ruminating with Rick: the second annual "Future of Newspapers" interview

My friend Rick Floyd has posted his second annual interview with me about the state of newspaperdom, at his blog Retired Pastor Ruminates. Here's a link to the first one, done in June 2009.

Moderating declines: Parsing the NAA's spin on newspaper circ data

Newspapers could borrow a line from a recent Dilbert comic strip: “We’ve been doing great since we redefined success as a slowing of failure.” Or perhaps it was the other way around, and Dilbert creator Scott Adams was inspired to write that line in a recent strip by the inventive terminology of newspaper executives describing “sequential improvement” and “moderating declines” in their revenue trends despite continuing losses in the double digit range.

Currently, the industry is reporting first-quarter earnings, and last week the Audit Bureau of Circulations released unaudited “publisher’s statements” reporting paid circulation for the six months ending March 31. The numbers are down, but the spin is up.

On the circulation front, the Audit Bureau of Circulations reported that circulation fell 8.7 percent on weekdays and 6.5 percent on Sundays, among newspapers filing publisher’s statements. This compares with drops of 10.6 percent weekdays and 7.6 percent Sundays for the prior six-month period, enough of an improvement for Newspaper Association of America CEO John Sturm to declare that “the data indicates the declines are moderating.”

Actually, it’s hard to discern real moderation in the rate of decline. The losses in the most recent period are indeed a bit less severe than those in the prior (Sept. 30) period, but they are worse than the drop in the period before that, or in any previous period. If we ignore the Sept. 30 data as an outlier, we actually have a trend that’s been worsening steadily for the last six years:

Nothing about that final uptick indicates that it’s a reversal of the trend — it would take two or three periods of “improvement” in the form of “moderating declines” to make that a valid conclusion.

Continue reading this post at Nieman Journalism Lab.

Groupon's 2010 revenue pace

One of the hottest companies around is Groupon, the social buying site that's offering daily deals in dozens of cities, and has dozens of clones trying to capitalize on the business model. It is, or should be, of interest to newspaper publishers because (as Michael Skoler has written about at NiemanLab) (a) it is probably eating their lunch, and (b) offers a model that they can adapt to facilitate, and profit from, direct connections between their readers and local retailers of goods and services.

Just how big is this opportunity? Pascal-Emmanuel Gobry was wondering at Business Insider which of the Groupon revenue and profitability guestimates are correct.  He wrote:

We're still very bullish on Groupon and think its valuation was justified at whatever end of the spectrum its financials are, given the market and the brand. But its financial picture is still very hazy. Who has the details? Let us know!

So I responded with a calculation based on Groupon's own data:

Why is the picture hazy? Groupon all but publishes its revenue in real time. Groupon's revenue is easy to estimate from the real-time stats they have on their site, plus estimates from sampling the deals to see what the average discount is. Here's my calculation based on the deal clock from Feb. 16 to April 4. Based on that period, revenue annualized to $150 million. However, it's growing rapidly, so $350 million is certainly possible.

3,001,657 "Total Groupons bought" as of 4/4
1,905,218 "Total Groupons bought" as of 2/16
1,096,439 Groupons bought in 47 days
23,328 Average number of Groupons sold per day, national total
543 Average number of sales per Groupon (per day total divided by 43 cities)
$141,593,040 "Total dollars saved" 4/4 (how much they saved customers)
$87,996,041 "Total dollars saved" 2/16
$53,596,999 Savings in 47 days
$92,408,619 Gross value (58% avg discount - based on a sampling of Groupons)
$38,811,620 Net revenue (42% actually paid by buyers)
$825,779 avg sales/day
$35.40 average individual sale/deal
$19,204 average total revenue per deal

$301,409,389 Current annualized sales pace (actual cash, not undiscounted value of deals)
$150,704,695 Groupon share of revenue at 50%

As to growth to a $350 million 2010 pace: the deals clock at this moment is at 4,007,360, the "dollars saved" clock is at $154,567,861. That's just 12 days after my prior benchmark on 4/4. So the deals pace is accelerating (83,808 daily deals sold per day in the past 12 days vs 23,328 in the prior 47 days). However, the value of the average deal is dropping, probably as Groupon moves into smaller markets. Based on the increase in dollars saved over the past 12 days, revenue has actually DROPPED to $782,963 per day, or a $142 million pace. Twelve days is not a good sample period, but this does suggest that the pace is leveling off. So I would say: they are heading for $150 to $200 million this year (assuming some additional growth and of course holiday spending uptick). I think expansion beyond this pace gets difficult, unless they find ways to (a) move into smaller markets, and (b) expand their demographic appeal beyond the young urban professional women who predominate right now.

I leave it to others to figure out what Groupon's costs are against this, but I suggest that a 50% operating margin is not out of the question - so, something in the $75-100 million range (EBITDA).

Clarification: my estimate of $150-200 million is after paying the merchant's 50 percent. So Groupon would actually report $300-$400 million in revenue on this basis.

Update: based on another comment at Business Insider (questioning whether Groupon is a great idea from a merchant's perspective), I added this comment:

There's an interesting discussion of Groupon from the merchant's perspective in this thread at Groupon's own forums (goes on for 8 pages, well worth perusing).

Merchants need to see Groupon as a marketing channel, not a sales channel. Yes, when they are the featured deal of the day, they'll sell hundreds of items or services at or below cost. But they don't do this every day, or even every month, because Groupon wants a lot of diversity in what it's offering. Again the math is worth considering:

Say you have a nail salon in Denver (nail jobs seem to be particularly popular on Groupon). You offer on Groupon a $75 service for $32 - close to the average discount. You sell 1000 of them, and Groupon pays you half the proceeds or $16,000. (You get that over 3 months, while the redemptions will probably spread over the next year, so you have a bit of cash flow advantage there.) Let's say your out-of-pocket cost for providing those services are $40 apiece or $40,000, so you're out $24,000. That's your marketing expense to get 1000 ladies (mostly) into your store, or $24 each. Do a good job and they come back. You have the opportunity to upsell each of them - do a $24 upsell and you've recouped your entire out-of-pocket expense. Plus you've had the marketing exposure of being on the Groupon site, being featured in Groupon's emails to thousands of members, etc. At the end of the day, you're certainly better off, if you do it right. And it's doubtful whether $24,000 in advertising on Denver radio, TV and print would bring 1000 people into your store.

Update 2, April 17: Paul Butler did a bit more sophisticated data scraping and came up with some pretty similar numbers.

Is print still king? Has online made a move? Updating a controversial post

A year ago, in a Nieman Journalism Lab post that garnered 88 comments and still has viral life out there, I maintained that just three percent of newspaper content consumption happens online; the rest of it happens the old fashioned way, by people reading ink on dead trees. Given the continuing attention being paid to that conclusion (it was cited just last month by Hal Varian, Google’s chief economist, in testimony to the Federal Trade Commission), let’s revisit the numbers and see whether anything has changed.

With updates or improved data on at least some of the numbers, the general conclusions still hold: U.S. newspapers have not pushed much of their audience to their websites, nor have they followed the migration of their readership to the web. Their combined print and online readership metrics, whether measured in pageviews or in time spent, show that there’s been significant attrition since last year in the total audience for newspaper content, and that the fraction of that audience consuming newspaper content online remains in the low-to-mid single digits.

Continue reading at Nieman Journalism Lab.

AP’s ethnographic studies look for solutions to news and ad “fatigue”

A new study by the Associated Press has come to the conclusion that consumers are “tired, even annoyed, by the current experience of advertising,” and that, as a result, they don’t trust very much of it. But at the same time, AP found, consumers do want information relevant to their needs, as well as ways to socialize that information.

Although it tends to move cautiously and deliberately, AP has been subtly and quietly introducing tools aimed at improving relevance and socialization, and may have plans for an ad-supported aggregation business that applies what it has been learning.

I spoke about the study with Jim Kennedy, AP’s vice-president for strategic planning, about how the study’s findings will impact AP’s strategic thinking. “The future of information delivery needs to be quite different from current practices and quite different from the old packaged practices that we’ve had offline and online so far,” Kennedy said. “That’s the big deal for us now. You can’t figure all that out in a minute or even a year.”

Continue reading this post at Nieman Journalism Lab.

"Velocity of ad decline is moderating," NAA chief says of Q4 losses

The Newspaper Association of America has quietly updated the "trends and numbers" section of its site with 4th quarter 2009 revenue, showing a 14th consecutive quarter of overall revenue loss and only a few indications of slowdown or reversal in the downtrend.

Counting online revenue, the industry's total revenue came in 23.73 percent below Q4 of 2008. In the first 3 quarters of 2009, the losses were 28.28 percent, 29.00 percent and 27.94 percent. While the lower loss rate in the Q4 results could be considered an improvement, the only category with a significant improvement was online advertising, which lost just 1.00 percent in Q4, compared to drops of 13.40 percent, 15.90 percent and 16.92 percent in the first three quarters. (For the full year, total revenue came in at $27.564 billion, which is a mere $64 million over my prediction made back on September 22.)

Putting the best possible spin on the situation, NAA President and CEO John F. Sturm said in a statement: "The velocity of the advertising decline for print classifieds continued to moderate, and adverse trends for national advertising and newspaper Web sites lessened considerably as last year came to a close." He added that he had been hearing "buzz" that this "ad trend improvement" was continuing in the first quarter of 2010.

Indications from a few of the firms for the first quarter of 2010 do point to a smaller loss, perhaps in the low teens. Since the downtrend began in 2006, the industry has lost more than 44 percent percent of its revenue, including nearly 48 percent of print revenue.

In most categories, Q4 provided no particular relief from the downtrend. Details:

Online revenue, as noted, was down just 1.00 percent, perhaps an indication of better days ahead. Part of the problem for online has been that for many, if not most publishers, a good fraction of online revenue is directly tied to printed advertising, with the online component sold as an "upsell" or added value proposition. This means online volume drops right along with print, even if there's growth in ads sold on an online-only basis. As I mentioned a few weeks ago, at E.W. Scripps, this linkage of online and print covers about half of all online advertising, and I'm finding similar levels at other firms.

Retail revenue (the largest category) was down 24.33 percent, continuing precisely the track it was on for the first three quarters (which were off 23.68 percent, 24.92 percent and 23.98 percent, consecutively). And keep in mind that while retail sales have not rebounded much, we've had GDP growth since mid-2009. Every retail category measured by NAA showed a decline, which has been the case all year. Not surprisingly, the worst drop was in the building materials category, which fell 36.58 percent, a tad better than losses in the 50 percent ballpark for the first three quarters.

Classifed revenue was down 31.72%, falling less than the first three quarters (42.34 percent, 40.42 percent and 37.90 percent), but that may be because there's just not much left to lose. In Q4, total classified revenue was $1.757 billion, compared with $5.243 billion in Q4 of 2005, the best quarter ever in classified volume. In other words, in four years, more than 66 percent of classified revenue has evaporated.

As in retail, every classified category (automotive, real estate, recruitment and other) was down in every quarter of 2009. The slight reduction in the rate of decline can be attributed to slowdowns in the loss rates in automotive (down just 37.0 percent in Q4 versus losses in the low 40s during the first three quarters), and "other," which was off just 8.0 percent (versus 16.1 percent, 11.7 percent and 8.8 percent earlier in the year), but that "improvement" is probably due to the growth in foreclosure notices, which are generally counted in this category.

National revenue fell 19.80 percent, compared with losses of 25.87 percent, 29.61 percent and 29.84 percent in the first three quarters. National saw small upticks in automotive (based on spending by manufacturers to support the cash for clunkers incentives), food, household furniture and furnishings (which almost doubled), and medical and toiletries. While most categories were down, at least there is evidence of a few actual trend reversals in spending by national brands.

Google’s Hal Varian to newspapers at FTC confab: “Experiment, experiment, experiment!"

Google’s economist-in-chief, Hal Varian, was the keynote speaker this morning at the Federal Trade Commission’s second round of hearings on the future of journalism. (The study is entitled “How will journalism survive the internet age?” Round 1 was held in December; transcripts and other material are linked here — scroll down. Not to be outdone, the Federal Communications Commission also has a project studying pretty much the same thing.

Here’s the slide deck from Varian’s presentation, entitled “Newspaper Economics, Online and Offline”:

Click through to slide deck and full post at Harvard's Nieman Journalism Lab.

iPad strategies for publishers

This is a white paper based on and expanded from my earlier post on the same topic, prepared for the Digital Publishing Alliance meeting at the Reynolds Journalism Institute at the University of Missouri, Columbia, Missouri on March 7-9, 2010

iPad is not a linear, incremental development. It’s not a simple next step after everything that has preceded it (even iPhone); it’s a new direction that will have unpredictable impacts on digital behavior. One potential impact:

iPad will bring a huge increase in mobile shopping (assuming we consider iPad to be a “mobile” device). There was only $396 million in U.S. mobile shopping in 2008; only $1.2 billion in 2009. Before Apple’s introduction of iPad, predictions for mobile shopping were for growth to $119 billion by 2015.

But iPad has the potential to greatly accelerate this trend, because iPad will showcase merchandise and services far better than smartphones, and iPad will claim more leisure time than deskbound computers or smartphones. Consumers with iPads will be connected to the Web in far more places, with far more engagement (relative to smartphones), presenting far more opportunities for direct marketing and sales than any previous interface.

Direct mailers are already nervous, asking “Will the iPad be the nemesis of direct mail?” “Robert Wong, chief executive of Catalogue Central [Australia], which digitises traditional print catalogues for some of the nation's biggest retailers, says the iPad, and an expected flood of copy-cat rivals, will find a place residing on the coffee tables of consumers in a way traditional laptops have failed to do. And he predicts that within five years iPad devices will have proliferated so much that many retailers will eschew letterbox delivery of catalogues for digital.”

Similarly, newspaper preprint revenue is in jeopardy. Preprinted inserts (which amount to half of all retail advertising) are the last newspaper ad category where publishers still have some semblance of monopolistic pricing power, because the supermarkets and big box stores have not found a more efficient way to push their weekly promotions. But the category, already vulnerable because of printing cost, distribution complexity, falling household reach, and even “green” issues, will now be further challenged by mobile digital alternatives.

In considering their strategies for iPad, publishers should assume:

1. Mobile will be everywhere. Upward of 70 percent of adults will be connected to the Web on mobile platforms virtually all of their waking hours.
2. All forms of media consumption will increasingly shift to mobile devices, especially to iPad and other tablets.
3. Marketing budgets will increasingly shift to mobile platforms and out of printed newspapers, magazines and direct mail. (It is hard to imagine many marketers looking for ways to increase their print spending these days, but clearly they're looking for ways to do more online and especially in mobile.)
4. Consumers will respond strongly to mobile pitches in the form of ads, video, social recommendations, online catalogues, deals-of-the-day and channels yet to be invented. Spurred also by new options for digital payments, both the ability and the inclination to make mobile purchases goods and services will explode.
5. The genie will not go back in the bottle. The Web has atomized content; consumers have learned to surf and explore; new tools will connect them with more content from more sources than ever before. Therefore, selling content in packaged, dated “issues” that emulate the old print product won’t work. Consumers want a hyperpersonalized stream assembled from atomized content.
6. We’re only at the beginning of understanding what’s possible on iPad et al. Early concepts like the Sports Illustrated demo are heavily rooted in print, lacking hyperlinks or social functionality. At some point, we should expect a new kind browser created especially for tablets, significantly different from standard browsers, that enables easy touch navigation to let people move around not only from page to page as they have been for 15 years, but more easily from topic to topic, person to person, place to place, idea to idea.

To succeed in this radically changing digital landscape, publishers must adopt a number of new strategies:

1. Embrace the mobile Web and the iPad. As Ken Doctor wrote about Next Issue Media, the tablet publishing consortium, publishers still have a chance to get this one right (“a digital do-over,” Doctor called it), after having misread signals and failed for the last two decades to catch the online waves consumers were riding. The opportunity for publishers here is to lead their audience, rather than belatedly to follow it.
2. Reinvent content for the mobile Web and iPad. As Doctor also notes, this is easier for magazines, with their stronger visual orientation and design resources, than it will be for newspapers, which will need to invest in new, innovative design capabilities.
3. Challenge journalists to develop new streams of content, in new formats and with new kinds of interactivity and connectivity that will attract new readers and built new relationships of trust with them.
4. Work with Apple and other mobile platform entities to enable content and advertising personalization. This means pushing Apple for a more open platform and for access to at least some of their customer data. If publishers are to be players in the mobile marketing game, they must be able to deliver individually targeted marketing messages, and that means having some ability to identify readers and to respond (with their permission) to their profiles and preferences.
5. Work with marketers to invent new ways to interact with customers: to facilitate conversations, to blend news, social media and brand messages, to actually sell stuff and facilitate transaction — in short, to leverage those new relationships of trust into brand new streams of revenue.
6. Be ready to shift gears often. The job is not just to create a presence on iPad, but to adapt to the new mobile landscape as it develops and changes. Like the saying about the weather in various localities, if you think you have your iPad strategy figured out, wait five minutes.

Earnings season, Part 2: Intel from the quarterly filings of Scripps, Belo, WaPo, and Journal Communications

As a followup to my report on fourth-quarter 2009 earnings reports from most of the major public newspaper firms, we now have earnings releases from E. W. Scripps, A. H. Belo, the Washington Post Co. and Journal Communications (leaving only Gatehouse Media without a report).

The releases from this group followed the script set by the earlier reports: Newspaper ad revenue and total revenue were down (as noted, for the 14th quarter in a row), online revenue was a mixed bag, and quarterly profits were up due to repeated rounds of aggressive cost-cutting during the year.

Here are the particulars by company:
CONTINUE READING THIS POST AT Nieman Journalism Lab.