John Paton’s June 21, 2013 presentation at the Global Editors Network News Summit in Paris:
I’m very pleased to have the opportunity to speak to you today because as journalists you hold the keys to our future.
But I would argue too many of your colleagues instead of unlocking the door to a successful future are locking us in the past.
A past that puts the future of our industry in peril.
I understand many editors – particularly those who are here at a conference like this – will reject this statement.
But the truth is for most news organizations digital is still something they bolt on to what they still believe is the core business – newspapers, broadcast and magazines.
And that’s just plain dumb.
Because of the core of our business is journalism.
Those editors resisting change are aided and abetted by lousy CEOs and news executives who refuse to take the necessary risks to build this industry’s future.
Because the past is safe.
The past is known.
And while holding onto the past will surely kill our future, for many executives it is still a great way to earn a living – just as long as it lasts.
We take risks pursuing stories – some take the ultimate risk – but nobody was ever fired in this business for not taking risks on business strategy.
The trouble is that our past won’t buy much of a future for much longer if real risks are not taken.
All businesses spend some time looking at the past to try to determine the future.
But in our industry it is a fatal attraction.
Our future isn’t going to look anything like our past.
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.
This is mine. You can do your own but it will look pretty similar.
This is a calculation based on the 2012 performance of three US newspaper companies – the one I run – Digital First Media, plus McClatchy and Lee – about $3B in revenue and including the No. 2 and 3 newspaper companies in the US. A pretty good substitute for the US 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 ad and digital advertising from 2006 (the peak year for US newspaper advertising) to 2012.
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 our companies of the future.
But it doesn’t have to happen.
And indeed I am betting it won’t.
Each of these companies does certain things well but clearly you get my point – doing well in digital and following a digital first strategy means you will do better.
And let me use this moment to put one idiotic assumption I always get from the non-risk takers when our Digital First strategy is discussed.
And that’s the assumption that by focusing on digital we are accelerating the death of print advertising.
More than half of all newspaper print advertising has disappeared since 2006 in the US. Print is declining just fine without my help.
At the companies you see on this page there is not a lot of difference in their print declines over the last three years – all of them have experienced print declines in the low to mid 20 percent range.
Let me tell you, lack of knowledge is a comfort to those in our industry who don’t want to change.
And even in my own company there are too many satisfied with what we have done. Let me show you why that success is only a fraction of what we need to do.
While it is 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.
And here’s what happens if we continue this “success” we have been experiencing.
Over the next three years if our digital revenue goes up again around 87% and digital costs go up again about 73% – mobile, video, digital sales and content don’t come free – then profit will be down 37%. Not up but down.
We can no longer treat digital as a bolt-on to our strategy and protect the legacy business.
The past doesn’t buy our future.
You can change that future if you recognize that holding onto the past doesn’t work and that you must continue to cut those legacy costs.
But only if you continue to invest in digital products, digital content, digital sales and digital infrastructure.
There are also some opportunities to drive subscription revenue – not pay walls only, they remain a stack of digital pennies – but there is some short-term gain in the so-called All Access strategy of bundling print subscriptions with digital subscriptions.
All Access is nothing like a solution for our industry but it could buy some gas in the tank to get down the road.
It is currently the rage in our industry because it doesn’t require you to think too much about the digital future you have to build – just what you might be able to charge your print customers today for it.
But that said, if all of those levers are pulled at our company – instead of profit down about 40% in three years.
It would be up another 40% – the same percentage of improvement 2012 vs. 2009.
But to get to that further 40% increase of profit by 2015 our company will have to be very different from where it is today.
We finished 2012 with about $164M in digital ad revenue – about 17% of that revenue was from mobile, video, SEO and programmatic.
Our plans call for us to more than double that $164M in the next three years. 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 do not buy that future.
We will have to build it.
And that means building the digital products in content and sales to get there.
At our company that means spending up to a further additional $100M annually in products like Ad Taxi – our audience extension and programmatic network play.
Or on the new data team and editorial team at our Project Thunderdome which is closing in on 50 new positions – all digital – which barely existed 12 months ago.
Or 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 for where video meets social and mobile. And the more than 1,250 iPhones we are issuing by the end of this month to front-line journalists to be able to use Tout.
Or, as was just announced this morning, in our new partnership with Newscred which lets us get around cranky, old legacy content management systems to use best-of-breed non-local content. And build products customers want.
This all costs money
And that 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.
Editors and news executives have to choose.
Are you preserving the past or are you building the future?
The same must be asked of your CEOs.
The road to the future can be built.
We have shown that.
But it cannot be built on models from the past.
You have to hold your editors, news executives, sales leaders and most of all your CEOs to account.
You have to demand their efforts are focused on building the future.
Think of it as your own personal Occupy moment.
Demand change of your bosses. If you don’t see the kinds of investments I am talking about in your company.
And if you don’t see the kinds of tough decisions to cut expenses in what is not growing –print – and increased spending in what is growing – digital – then get out because your company is surely dying.
Let me also say, as an industry we have to stop the navel gazing that allows for endless screeds of reporting on another round of buyouts and very little reporting on the intelligent investment that is going on.
This cycle of self pity serves no one. It mourns for a past that is gone and it stifles creativity and innovation.
And finally there can be no risk without reward.
Smart, risk-taking legacy news organizations will successfully transform.
Wealth will be created.
And that wealth has to be shared for the employees who are taking those risks with the Company.
To that end, Digital First Media will roll out in the coming weeks the details of a profit sharing plan for all employees.
It will include non-union and union employees’ alike but not senior executives. They’re well paid and it’s enough already.
Let me end by saying, I have no doubt about a bright future for journalism. And I have few doubts that smart, risk-taking legacy news organizations will be successful in the future.
But only if the tough decisions on current costs and the necessary investment risks are taken now.