Now What?

Presentation to the Online Publishers Association

Miami, January, 23, 2014

NEW_Paton_OPA_2014-1Good morning.

It’s a very strange thing for me to be preaching to the converted as I am doing here today.

I am used to rooms full of print journalists and newspaper executives searching for any flaw in my pro-Digital speech.

Many of them usually hoping that the Internet isn’t going to get to their town and they won’t have to change what they do.

But perhaps – as the digital leaders of your own companies – you will recognize some of the same issues we face.

You will certainly recognize them if you are from an old line legacy business – newspapers, radio or television – and your corporate leadership believes they have a digital strategy because they stuck the suffix – dotcom behind the brand name.

Or created a digital division, put you in charge and then gave you the equivalent of peanuts to run it.

And you will more than recognize the phenomenon of sitting in meetings with the same corporate leaders who starve you for resources and then ask: “Why aren’t we more like Buzzfeed?”

Unfortunately, in the newspaper industry – or any other legacy news media business for that matter – digital, for the most part, still only represents the thin edge of the wedge.

Thin on talent, thin on resources and thin on leadership.

And while much of the corporate brass is too afraid to take the risks you need, it can be even tougher convincing line managers to change.

Once, during a presentation to senior managers a few years ago, I was asked to go back a slide so that a manager could make this point:

“Aha! Right there! I see we don’t have much revenue in social media.” And then a big pause so the room could hear his big finish: “So why do you make us do it?”

I have witnessed several similar “Aha!” moments around video and mobile initiatives as well. I am sure you have too.

How do you deal with that level of stupidity?

In my industry, we have been stupid about this for a very long time.

Have a look at this. It’s a report from a San Francisco TV station in 1981:

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“We’re not in it to make money,” says the editor.

Well, we got that part right. Nailed it perfectly.

We didn’t expect to make any money and we have lived down to that expectation pretty much ever since.

And despite every part of the business model outlined in that 1981 report – from advertising, to customers, to print sales – is now on fire and burning to the ground, I still get this:

“Print. There’s still a lot of life there.”

Really? Look at this.

NEW_Paton_OPA_2014-3All businesses spend some time looking at the past to try to determine the future.

For newspapers this is a fatal attraction.

Our future isn’t going to look anything like our past.

In the newspaper game, or broadcast television for that matter, if you rely upon the past for your future projections the only thing you are truly determining is the date and time of your demise.

Have a look at this calculation.

There all kinds of apocalyptic calculations out there for the newspaper industry. This is mine. You can all do your own for your own legacy news media industry.

Mine is based on the 2012 performance of three US newspaper companies – the one I run – Digital First Media and two others – about $3B in revenue. A pretty good substitute for the US newspaper industry.

It solves for the percent of dollars in print advertising, digital advertising, subscription revenue and all other revenue plus expenses and, of course, profit.

It then applies the industry average as calculated by the Newspaper Association of America for what happened to print and digital advertising from 2006 (the peak year for US newspaper advertising) to 2012.

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And this is what it says:

For every $1 of operating profit today:

– If what happened in the past

– Happens in the future

– And we don’t do anything to change that future

It says that $1 of operating profit will turn into $0.56 of loss in 5 years.

That’s what no risk taking will get us.

That’s what relying upon what we knew – our past – will get us when applied to building companies of the future.

Our past won’t buy our future.

But this just doesn’t have to happen.

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The numbers for 2013 are not in yet so these comps will have to do.

And let me just say, while each of these companies does certain things well, all I am trying to point out here is that doing well in digital and following a digital first strategy means you will do better overall.

My industry doesn’t like this.

Critics, both internal and external, voice concerns that by focusing on digital we are accelerating the death of print advertising.

Look, more than half of all newspaper print advertising has disappeared since 2006 in the US. Print doesn’t need any help from me to continue its relentless decline.

And here’s why our success to date is only a fraction of what we need to do.

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While it’s great to have profit up 40%-plus over the last three years.

What that actually means is 2012 profit is down almost 60% since 2006 – the peak year for newspaper advertising in America.

That’s how ugly transition looks even when it’s working.

And here’s what happens if we continue this “success” we have been experiencing.

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Over the next three years if we repeat the successes of the last three years:

-       Our digital revenue goes up again around 87%

-       And digital costs go up again about 73% because mobile, video, digital sales and content don’t come free

-       Then profit will be down 37%.

-       Not up but down.

Why?

Because print is dying much faster than anyone anticipated.

And because the profound changes in digital revenue streams will require huge investments in digital products and people.

We can no longer treat digital as a bolt-on to our strategy and protect the legacy business.

Whatever life there is in print – and, of course, there is some and it must be preserved just as it must also be used to fuel our investments in our digital future.

Too often the focus on print is used as an excuse to maximize profits by not investing in digital. And too often companies are doing just that with the excuse that there isn’t enough profit in digital right now to justify the expenditure.

Just like the last few seconds of that 1981 report.

Are we determined not learn?

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The past doesn’t buy the future.

The future has to be built.

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So, now what?

Many, as you know, have just quit.

Lots of newspapers have closed up shop.

That’s not acceptable. Journalism matters. Community journalism is a vital component of any community’s future.

I would much rather we pick ourselves up off the mat and start swinging again

Because the prize – journalism – is worth the fight.

And there is a lot we can do to win this thing if we are willing to take the necessary risks.

We have to at least put as much energy into that fight to change as we do emailing Romensko about every layoff, no matter how small, at every news outlet across the country.

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If legacy news media wants to win this fight and successfully transition to a more vital future then in my part of it –  newspapers – we need to start with this:

Acknowledge Print is dying.

Accept it and plan for it.

News isn’t dying. Newsrooms are not dying. Just Print.

And if we acknowledge that fact rather than putting an effort into ridiculous press releases about how there’s still life in the old girl yet we can start to plan and invest for our future.

A future for news coverage.

A future for newsrooms that are vital.

But also for newsrooms of the future not just our present newsrooms dragged kicking and screaming into the future.

Because there is a big difference between the two.

There is certainly a financial imperative to do so.

Most of our organizations are not equipped well enough or are planning nearly enough and few, if any, are investing enough to build what our customers want.

And that is not only bad business it is just plain dumb.

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My company is closing in on $200 million in digital ad revenues – less than 20% of that revenue is from mobile, video, SEO and programmatic.

Our plans call for us to double that by 2015.

But by 2015, those same categories will represent more than half of our digital ad revenue. Banner advertising will only be about 15%.

Our past experiences and our legacy cost structure just won’t buy that future.

We will have to build it.

And that means building the digital products in content and sales to get there.

And, yes, continuing to cut those costs we used to have because we can now only invest in what will get us to where we need to go.

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At our company that means spending up to a further additional $100M annually in digital within three years.

That’s a $100M more than the already $100M-plus we are already spending.

Transformation isn’t free.

It costs.

And if you want to survive you have to take the risk and invest.

For us, that means building products like Ad Taxi – our audience extension and programmatic network play.

Or investing in the new data team and editorial team at our Project Thunderdome – a multi-million dollar digital initiative which barely existed 18 months ago.

Or investing in our partnership with OwnLocal that allows our company to offer local advertisers digital solutions way beyond banner ads.

Or in our partnership with Tout – a fantastic tool where video meets social and mobile. And buying the more than 1,250 iPhones we issued to front-line journalists to allow them to use Tout.

It all costs money

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And you have to take action.

While we have created many projects at Digital First Media to help us change.

I most excited by the latest. Led by Jim Brady our Editor-in-Chief and Steve Buttry who has a title I can’t remember but is probably best thought of as our newsrooms’ Educator-in-Chief, we are going to start the process to unbolt our newsrooms from print.

Starting with some test sites we will work through every process, every workflow step of what makes a digital newsroom digital and make that the very core of what we do.

And I hope this process moves us away from our focus on multi-platform content and gets us focused on story telling.

I hate that word content. It’s like saying cargo. Well, there are all kinds of cargo all with different value.

We don’t do content we do journalism and our cargo is precious.

And yes we won’t forget print but when we are finished this process it will be the bolt on to digital and not the other way around.

The newsroom of the future is not the current one dragged into it. It is going to be re-built from the ground up.

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And like any other transformation initiative the money has to come from somewhere.

And the somewhere has to be from the legacy side of the business because our industry can no longer afford to do both.

News executives now have to choose.

They have to ask themselves if they are preserving the past or building the future?

And they must demand the same of their corporate leadership.

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The road to the future can be built.

We have shown that. So have others.

For all of you digital leaders in the audience today you now have to hold your corporate leadership to account just as they do you.

You must demand that their efforts are focused on building the future.

Demand change of your bosses.

Demand the resources you need to change.

And if you don’t see the commitment to change you need and the resources it takes to get there.

And if you don’t see the kinds of tough decisions to cut expenses in what is not growing – such as print – and increased spending in what is growing – digital – then quit.

Get out and find another job because your company is surely dying.

Let me just end by saying, despite our stumbles in our past, I have great faith in our ability to build our future.

I have faith that every year brings a new crop of journalists who bring fresh ideas and new determination to succeed.

And I rely upon the determination, dedication and skill of the older hands like Brady, Buttry and our new Chief Operating Officer Steve Rossi to bring their experience to bear on our challenges and to best them.

And I know I can rely upon them to hold me to account.

Because the only way we win this thing is to do it together.

Thank you.

I would be pleased to answer any questions you may have.

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