The newsonomics of Why Paywalls Now?

Though it’s spring training season, forget Moneyball — think Paywall. The money now flowing into newspaper companies due to paywalls is getting to be seriously countable.

hg-wells-the-time-machineFor the New York Times Company, the circulation revenue increase amounted to $63 million in 2012. For Gannett, which installed its metered systems throughout the year, overall circulation revenue was up almost $40 million in the fourth quarter. That should lead to more than $100 million in added revenue in 2013. Add in the multiple millions pulled in by paywall leaders like the Star Tribune, the Columbus Dispatch and the Charleston Post and Courier, and you’ve got serious money. Figure that U.S. paywall programs will generate more than $300 million this year. When the 2012 final numbers come in, the industry’s circulation revenue should punch back through the $10 billion level — on their way to beating the $11.2 billion zenith, set in 2003, by 2016.

It’s money that’s stabilizing the business, really for the first time since 2006. Newspaper revenue trends among those top performers are getting back to that under-appreciated “zero” number (“The newsonomics of zero, and the New York Times”), making up for continuing losses in ad revenue. It also means we’ll see more top-line growth this year — and that’s milestone territory. That’s the reason why the U.S. system of metered paywalls is now being applied around the world.

As I’ve covered this phenomenon, a couple of questions has been bedeviling me: Why paywalls now? Why weren’t paywalls put into place in 2007, or 2002, or 1997?

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Might such paywalls have prevented the massive loss of reporting that local papers — and local readers — have suffered? Would they have saved a good number of the more than 15,000 newsroom jobs (a 28 percent decline since 2001) that have evaporated? Might the global bureaus of the big metros been spared? Would regional business news coverage be as robust as it was in the 1990s? Would investigative units be off the endangered species list?

Why, oh, why, after the newsroom carnage of the last decade, are we only now seeing paywalls being erected and reader revenues being harvested? We can sum it up in two words: thinking and technology. It’s the intertwining of the two, in a hard-to-distinguish chicken-and-egg digital dance that appears to have led us to today.

Let’s start with early thinking, or some would like to say, “What were they thinking?”

Ask veterans of the trade, and they’ll remember the history this way: Reuters, in an earlier foray to establish a greatest U.S. presence, began licensing its national and global coverage to the portals — Yahoo, AOL, Excite, MSN, Lycos — of the day. The Associated Press followed suit. National and global coverage — a key ingredient of the daily newspaper mix — had gone free overnight. Digital evangelists seemed born anew on every street corner of the web; “free” became the new article of faith. The “death of distance” realization confirmed that local news consumers could no longer be held “captive.” There were paid forays by individual companies, and the outline of a bigger “national press pass” idea considered by then-industry chieftains through the New Century Network.

The tests and ideas fizzled. “Circulation” was a term only associated with Big Iron. Further, circulation was viewed only a means to advertising profits. The basic, unquestioned model of the U.S. industry: Keep reader prices really low, maximizing your “rate base” for mass advertising, and charge top dollar for those huge audiences. Reader revenue had never been thought of as a profit center in and of itself — the readers were only a means to an advertising end.

All of that led newspaper publishers to embrace digital advertising as the only way forward. They decried the poor man’s alchemy of turning shiny dollars into tinny dimes, and privately said they couldn’t quite see how the arithmetic was going to work. Again, though, as an article of faith, they told investors and analysts that advertising sales were the key to the digital transition. They believed that advertising, which had got them to where they were, was the key to the future.

A newly laid brick wall

That mistake is the vital one in the chain of events for FT.com managing director Rob Grimshaw:

I think the key factor is a growing realisation that online ads are not going to pay the bills. Online ad revenue growth at most publishers has slowed to a trickle. What many interpreted as a blip is now an established pattern over several years. As a result, many publishers are revisiting strategic plans and concluding that they have no hope of building exclusively ad-funded online businesses. Paywalls and content revenues are the obvious alternative.

The fact that major general news players like NYT have jumped into the water also encourages others to take the plunge. The industry could have got to this place a lot earlier because the warning signs around online ads have been evident for a while to anyone that was looking. Unfortunately publishers were watching each other when they should have been paying attention to developments with ad networks, search and social media.

Watching each other. Or, as Orwell called it: groupthink. Publishers early on rejected reader payment in the digital age. The Wall Street Journal and Financial Times paywalls? Well, that’s not the news, it’s business news, publishers told each other, and besides the FT’s both British and, for God’s sake, printed in on salmon-pink paper. What stands out most is how little testing of a general news pay model we saw.

Only a handful, most prominently Arkansas Democrat-Gazette publisher Walter Hussman (just lauded by Warren Buffett) offered this heresy: Why would I give away a product on the web that I am asking people in the community to pay a couple of hundred dollars a year for? In retrospect, Hussman only had part of the answer. His contrariness did stem his papers’ circulation losses, because the paper only put a part of its daily print report online. His papers may not have been able to greatly grow circulation revenues, and they experienced a tougher time getting the digital ad business going — but that simple-minded thought for which he was ridiculed is now the root of the reader-revenue revolution.

Faith. Religion. Heresy. They seem like appropriate words. It’s only natural for the inhabitants of any industry to think inside their boxes. And those newspaper boxes were wonders, producing 20 percent-plus annual profits; contrary thinkers weren’t really welcome. It’s the structure of the U.S. newspaper industry that reinforced the problem. Daily newspaper publishers, by and large, don’t compete with each other. In our spread-out geographies, the age of competitive dailies largely disappeared 60 years ago.

Though mindset was clearly an issue, it wasn’t just that mindset that delayed reaping of new reader money. Enter the metered model, and the evolving technology that is still being built out to support it.

It’s at the nexus of mindset and technology that we find our answer. Now, “content wants to be free” seems silly to an increasing number of us. Yes, some content — lots of content! — is free and will always be. What the metered idea — allowing some number of free articles to each unique visitor — dispels is the either/or thinking of the early Internet news age. News doesn’t have to be either free or paid. It can a combination of the two.

The Wall Street Journal pioneered its “freemium” approach, offering a myriad of free gateways into paid subscription content. And then the meter came along. Built on the simple proposition of sampling, the Financial Times ‘ 2007 innovation blew open the either/or door. Now the meter — further innovated by the FT itself, The New York Times, Press+, and others — has reversed the industry’s groupthink. We’ve gone from “it’ll never work” to “Why were we free so long?” almost overnight.

Providing choices beyond either/or, in the form of a metered ecology, takes a lot of work. The New York Times famously spent a year, and about $25 million, getting its system built before it a launched its paywall in January 2011. Press+ has been building its system for more than four years.

What’s needed under the hood? Press+ cofounder (and former WSJ publisher) Gordon Crovitz ticks off the parts: “geotargeting, trial offers, coupons, enterprise licenses, multivariate testing” — in addition, of course, to the basic authentication and e-commerce functions. Add in skilled staff: developers and engineers with e-commerce backgrounds, data scientists, data analysts. Of the 30 staffers at Press+, 20 are on the technology side, both making the system flexible enough to match up with print audiences (enabling those high-priced all-access subscriptions) and building a strong base of best practice data. Press+ makes possible the kind of flexibility that we only dreamed about as New Century Network concluded its last supper in noisy disarray in Denver in March 1998. The technology, developed by Press+ and now separately by a number of chains and individual papers, is a gating factor in the beginning success of flexible, metered, connected-to-print-databases subscription paywalls.

Add in another technology to our that-was-then, this-is-now thinking: easy and secure digital payment, says Maribel Perez-Wadsworth, VP for audience development & engagement for Gannett. “Consumers are much more used to and comfortable with paying for things digitally. (Thank you, Amazon.) Buying content, games, and services online is now easy and safe. And of course, the iTunes experience has helped to further cement the no-brainer aspect of such purchase decisions.”

Another set of technologies, brought to market by Apple, clearly have played a huge part in the all-access revolution. Newspapers could have offered combined print/web subscriptions at any point in the last 15 years. Yet it’s been the growth of mobile that has spurred both publisher confidence in selling bundled subscriptions and consumer willingness to accept the deal. It’s basic psychology: As consumers, we have the sense we’re getting more when our favorite newspaper or magazine promises (and delivers!) to get us its product via web, smartphone, tablet, or print. For publishers, it’s easier to offer that full package — at a higher price — even if most who take the deal only use a couple of the products.

Further, our on-the-go reading lifestyle is bolstered by broadband speeds: Selling digital subs in the dialup era made less intuitive sense. Of course, as Perez-Wadsworth points out, tablet and smartphone value is only enhanced as publishers have gone digital-first with their news reports and added rich(er) media. John Murray, the Newspaper Association of America’s VP for audience development, agrees: “Newspapers are fortunate that they did move slowly and deliberately because they now have better product(s) to offer.”

New York Times CIO Marc Frons adds in another factor worth considering: scale. “I don’t think paywalls would have ‘worked’ in 1998 or 2003. And they didn’t work in 2007 either, with the Times trying and failing with Times Select. I don’t think a meter would have worked back then either, because the Times and other publishers lacked sufficient scale to reach and then convert the plurality of the audience who would pay. But by 2011, when The Times launched its metered paywall, our traffic was close to an all-time high, so we had the scale.”

The new metered tech capability also allowed publishers to do what they had rarely done before, but which had become standard in so many businesses: segment their audiences. It allowed new testing of pricing.

Matt Lindsay’s Mather Economics is now the go-to circulation advisory firm for more than 300 U.S. dailies. He explains how that segmentation developed: “I think it was the innovation of the metering model for customer price discrimination, much as other industries have found other pricing models that worked well for them. The cell phone industry stopped charging by the minutes of use in favor of fixed prices for numbers of minutes. Airlines used the “Saturday night stay” to separate business from leisure travelers. Prior to the metered model, there was an open or closed choice for newspapers. The meter is successful in segmenting the customers based on engagement and likelihood of subscribing.”

Further, it allows newspaper companies to remain, in a phrase we haven’t heard as much since the beginning of the paywall debate, “creatures of the open web.” Stories, themselves, can be part of the public debate, findable by search and sharable through social.

Could our scenario — and the life and near-death of the U.S. metro daily — have played out differently? Sure, it could have, even with the technological limitations.

“I don’t see why paywalls wouldn’t have worked even better in 2003 or 1998 before people had gotten as accustomed to the prevalence of “free” news online,” says Star Tribune publisher Mike Klingensmith, whose company now takes in 44 percent of its revenue from readers. “In addition, there was less digital ad revenue in those days; a minimal loss of ad revenue seems like it would have been even more minimal.”

So, maybe, newspaper companies would be in better shape today, with a lot less bleeding along the way. Maybe, sort of, in part, some way.

Clearly, though, we’ve seen a harmonic convergence in 2013. The coming ubiquity of mobile news reading. Sophisticated metered systems. The stunning death spiral of the ad subsidy. Audience scale. Pricing segmentation. The reassertion of community news value by publishers. Consequently, pay models are becoming a part of the new business model — but clearly only a part. So what other conventional wisdoms, business and editorial, need to be challenged in the remaking of the news business?

Data science, commoditized backends, and the need to know code: A roundup of NICAR 2013

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The annual Computer Assisted Reporting conference, known colloquially as NICAR, wrapped Sunday. Of all the journalism conferences held throughout the year, this is the only one to specifically focuses on the needs and interests of reporters and editors who work in investigative news and data journalism. It’s a tremendous three and a half days of classes, panels and camaraderie. Attendees come to learn, share, and solve some of the most pressing issues currently facing the industry.

For the last three years, I’ve been collecting NICAR presentations, tutorials, tools, and work samples, because learning and looking through everything presented takes time. This year’s sessions were wide-ranging (including a brand new session on how to host high-traffic news apps), but there were still a few notable themes running through it all.

DIY

Many attendees are in the “people should learn to code” camp, and for good reason: With budgets gettings squeezed (at the start of one hands-on tutorial, an urgent question launched from the back: “Is it free?”), fee structures changing, and the growing desire to customize the look and interaction of published work, journalists’ need to literally and figuratively own what they make is more important than ever.

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This year, there was much heavier emphasis on learning JavaScript, Python, R, and Ruby. Jeremy Bowers (NPR) and Serdar Tumgoren (Washington Post) posted their Fundamentals of Programming in Python materials to GitHub and created a Google Group for class members. Ron Campbell (The Orange County Register) and Christopher Schnaars (USA Today) offered Programming for the Rest of Us to those who wanted to code but were worried about the learning curve. (Though not specifically taught this year, there are also a number of excellent d3.js tutorials, which I’ve collected in the references section of my list.)

That said, lots of data still comes in Excel spreadsheets, and Krista Kjellman Schmidt (ProPublica), Linda Johnson (Lexington Herald-Leader), Denise Malan (Corpus Christi Caller-Times) and MaryJo Webster (St. Paul Pioneer Press) all gave terrific presentations on how to do it.

We’re sharing best practices

Sometimes it’s hard to tell when “best practices” are coming from experts or pretenders. In the case of NICAR, it’s a pretty safe bet that you’re getting advice from people who’ve tried, tested, and refined their methods.

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Dave Cole (Mapbox), John Keefe (WNYC), and Matt Stiles (NPR) shared what what works well for mapping. Tasneem Raja (Mother Jones) and Sisi Wei (ProPublica) showed how to make interactives fun. Steve Myers (The Lens) explained workflows for social media discovery, verification, and publication, particularly during breaking news.

Learning from data science

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The oft-cited Venn diagram from data scientist Drew Conway describes data science as the melding of hacking skills, math and statistics knowledge, and substantive expertise. It’s the hot term for the combination of skills that more and more industries need.

With that in mind, IRE and the Center for Investigative Reporting data journalism team created a Kaggle competition that asked data scientists to look at campaign finance records. More than a dozen new ways of looking at the data came back, and with it, some insights into how journalists could learn from the various approaches. Chase Davis, who led the CIR team, talked about the results and provided his own code, slides and tipsheets from his four talks on GitHub.

One of the key tools for statistical analysis is R, and two of its most popular ambassadors gave hands-on demonstrations of how to use it. New York Times graphics editor Amanda Cox’s session showed attendees R’s power to generate maps from data that she had painstakingly (and considerately) cleaned beforehand. A sample of her more recent work can be found at NYTimes.com.

Hadley Wickham, statistician and author of several popular R libraries including ggplot2 and plyr, held a daylong workshop that delved into ways to visualize, clean, transform, and model data with R. For many in the course, it was an eye-opening introduction into how to use the tool, but more importantly, how to understand, doubt, and test datasets. Hadley has shared his detailed slides and code and Sisi Wei shared her class notes.

Making data journalism easier for everyone

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There was much discussion of tweaking workflows to make the reporting process more data-journalism friendly. Last year, Balance Media and WNYC introduced Tabletop.js, which allows Google Spreadsheet data to power web interactives. This year, the Chicago Tribune news apps team introduced Tarbell, a Google Docs-driven CMS. Journalists Heather Billings (Chicago Tribune), Jacob Harris (The New York Times), and Al Shaw (ProPublica) spoke about this and other ways of getting news apps and the CMS to live together in their talk Infect the CMS.

Since 2010, NICAR has hosted a lightning talks session. Attendees get to pitch a five-minute talk, and the 10 most popular are presented. After last year’s “Cats Cats Cats” stunt by Aron Pilhofer of The New York Times, it was no wonder this year’s session was packed. This year’s standout moment was Ben Welsh’s five-minute rant (and yes, there’s some cursing) about the five ways coding like a web developer can make you a better investigative developer. The best part? Ben tells coders the five things need to learn from reporters. Even as the methods and tools change, tried and true reporting skills still matter.

Be excited and keep learning. Visit the complete roundup of NICAR13 tools, slides, and links and dig in.

Cartoon via xkcd.

Meet the first class: Six media startups get accelerated into Silicon Valley by Matter

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Matter, the startup accelerator focused on media entrepreneurs, just launched its first class, which includes startups focused on interactive publishing, video analytics, and audio storytelling. The six companies selected for the accelerator are spending the next four months at Matter’s development space in San Francisco, honing their products and business plans. Drumroll, please:

The collection of early-to-mid-stage startups will embark on a bootcamp that mixes the atmosphere of Silicon Valley with the mindset and goals of the world of public media — the unusual mix of styles that makes the project so compelling. Each team will receive a $50,000 investment along with coaching from people in the worlds of media and tech, culminating in a final demo day for potential investors in June.

Matter CEO Corey Ford said the selected startups share a common mission based in informing society and engaging communities. “What we wanted to do was build a disruptive playground for media entrepreneurs to build a more connected and empowered society,” he said.

Matter is backed by funding from Knight Foundation and San Francisco’ KQED, both of whom get an equity stake in successful projects. More grounded in the world of venture capital than philanthropy, Matter occupies a different corner of the continuum of journalism funding techniques; the accelerator is focused on creating what Ford calls “feasible, viable, and desirable” products.

“If we want to drive innovation, I think having viability constraints is very important,” Ford told me. The startups at Matter, Ford said, have to push beyond good ideas that can support journalism and focus on creating plans that will make them work in the open market.

It’s like a Y Combinator for people with a public media mindset, in other words. Ford described the program as a series of four one-month sprints, where the teams will be in a constant state of refining and testing their products. The point of bringing together the six companies is to create a sense of community, where the teams can collaborate and learn from each other, Ford said.

Ford’s background is an appropriate mix of public media and Silicon Valley — he’s a former Frontline producer (an Emmy- and duPont -winning one at that) who has taught design thinking at Stanford’s Institute of Design, and he helped create Runway, an incubator program for Eric Schmidt’s Innovation Endeavors. Ford said the idea of design thinking — taking a human-centered approach to developing new products and ideas — is what can connect the worlds of Silicon Valley and media.

A lot has changed since the public media accelerator was first announced in December of 2011. Originally, it was going to be located in Cambridge and be operated as a project out of the Public Radio Exchange (PRX). Jake Shapiro, CEO of PRX and a partner in Matter, said the idea shifted from being a incubator for public media into a for-profit investment firm. Initially the public media accelerator was supposed to be a way to attract the kind of coders, developers, and entrepreneurial talent that was side-stepping the world of media for the tech sector. That’s still the goal, Shapiro said, but it works hand-in-hand with creating investment-ready businesses. “It’s a key part of this — the focus on changing media for good and innovating the industry,” Shapiro said.

Finding and maintaining a balance between the worlds of media and tech will be the key for Matter. Setting up shop on the West Coast means a lot of exposure to the world of Silicon Valley. That’ll be leavened by the resources of Knight and KQED, who can provide knowledge and access to the world of media, Shapiro said.

There is a lot riding on Matter’s first class, from the startups to funders like Knight and KQED. The accelerator represents a shift in media investment for both, with Knight continuing to experiment with tools beyond traditional grantmaking, and KQED looking for potential technology to put to use in its own network.

Ford said Matter represents a new model for investing in media innovation, which means they’ll be building a future not just for the startups, but also the program itself. But he emphasized that Matter is just one part of the ecosystem for developing and supporting new technology and business models in media. “I see everything as prototypes,” Ford said. “I see this as Prototype No. 1.”

Two of Australia’s most noted newspapers go tabloid: Will the content follow suit?

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Editor’s note: Today marked a turning point in Australian newspapers: The Sydney Morning Herald and The Age of Melbourne debuted in tabloid form after more than a century as broadsheets. The move of quality dailies to smaller formats is a decade old in Britain, but in its early days in the United States, where the Columbus Dispatch is an early mover. Here, in a piece from The Conversation, Australian journalism academic Andrea Carson looks at the research to see whether format changes portend content shifts.

After 159 and 172 years respectively, the broadsheet tradition has ended for the weekday editions of The Age and Sydney Morning Herald (SMH). Today, both these Fairfax Media mastheads became tabloid-sized newspapers for the first time. The question is: Does size matter in terms of editorial content? Will we, as readers, see a change in the content and selection of stories in these smaller Fairfax newspapers?

According to Fairfax CEO Greg Hywood, the answer is no. He has emphatically argued when explaining the rationale for the size switch (to save costs through the closure of the Tullamarine and Chullora printing plants) that the “compact” versions will contain the same “quality journalism” as when they were broadsheets.

But media scholars are divided on the question of whether newspaper size influences content, and in turn, the role of the press in strengthening democratic accountability.

The Age’s video explaining the changes.

Some, such as British academic Bob Franklin, associate tabloid newspapers with downmarket stories — with an emphasis on crime, celebrity gossip, and sport reporting — to attract a wide audience and to sell more advertising. While this approach satisfies readers as consumers, it might fail to address the needs of readers as citizens.

Bad press

Hywood has not explicitly stated that the company would pursue a “downmarket” approach when The Age and SMH change size, and he was deliberate in using the term “compact” rather than tabloid. One can guess that this is because of the pejorative connotations with British “red top” tabloids, such as the now defunct News of the World, which was responsible for the phone hacking scandal that saw journalists tapping into the voicemail of a murdered child, celebrities, and others, in search of “news.”

Long before this scandal, tabloids were dogged with a reputation for prurience and sensationalism. A London pharmaceutical company coined the term tabloid in the 1880s to describe compressed tablets. Tabloid newspapers were disparagingly seen as easy-to-digest “compressed” news, the domicile of “yellow” journalism and the “penny” press in the nineteenth century.

Academic Brian McNair identified new lows of journalistic sleaze that emerged from British tabloids in the 1970s and 1980s threatened traditional press freedom in Britain and created a “widespread perception” about tabloids. He called this “bonk” journalism, and its cousin “yuck” journalism — graphic coverage of sex, the bizarre, the pathetic, and the tragic.

Size and prejudice

Globally, in 2013, the distinction between the editorial content of the broadsheets compared to tabloids cannot be simply determined by page size.

The Sydney Morning Herald’s video explaining the changes.

Previously, larger format papers were associated with a high income-earning readership and considered a mark of style and authority. This divide blurred when many large format papers converted to “compact” to make it easier for the commuting reader and to ultimately bolster sales. These papers were more accurately termed “elites” referring to their content, rather than their size, to distinguish them. Such mastheads include The Times, The Guardian, The Independent, and The New York Times. Their content shows a commitment to the coverage of politics, foreign news, and investigative reporting.

In Australia, the symbolic and physical difference between the two sized newspapers still largely existed up until today. The broadsheet papers of the SMH, The Age, and The Australian generally attracted readers from a higher socio-economic background, often termed A and B demographics.

A report on the change from ABC’s Lateline.

Of course, there is one notable exception to this finding in Australia and that is the Australian Financial Review. This tabloid-sized national business newspaper also has an AB demographic and an editorial focus on politics and, as my research has found, a strong record for investigative reporting.

Content is king

Looking at the compact newspaper versions published today, it is impossible to make any strong statements about whether size matters for Fairfax. That will only be known with time.

What is known is that globally, over the past five years, about 80 daily newspapers have converted from broadsheet to tabloid in a bid to boost circulation and revenues in response to the political economy of the mass media. But swapping to compact size for circulation gains has also proved not to be sustainable for most beyond a few years.

British and Swedish research has shown press content, including the elites, is moving slowly but inexorably toward “tabloidization.” This means mastheads’ style and content had changed with more emphasis on “soft news,” negative news, celebrity gossip, sex, and crime reporting.

My own research has found the same features in the news pages of Australian broadsheets over time. The premium news pages today have fewer stories, bigger pictures, and more advertising now compared to each decade before since the 1970s. Editors had also shifted their lead-story focus toward crime stories and away from international reporting.

Editor’s picks

Franklin argued that the move toward tabloidization of content has resulted in different editorial priorities, including less investigative reporting. My research has found that Australian broadsheets have produced a significant pool of investigative journalism in Australia, which was more than double the contribution of tabloids.

Significantly, the research showed that when Australian broadsheets became tabloids, their investigative reporting diminished. The three examples were Brisbane’s Courier Mail, the Adelaide Advertiser, and the Newcastle Herald.

In this finding is a cautionary tale for Fairfax: Size does not necessarily shape content (as the Financial Review has so far shown), but the political economy of newspapers demonstrates that it can. Whether it does or doesn’t largely depends on the power and editorial perspective of the editor — one free of the editorial compromises that corporate responsibilities of a masthead can bring.

the-conversationAndrea Carson was once a journalist at The Age, and has submitted a Ph.D. about the future of Australian broadsheets.The Conversation

This article was originally published at The Conversation. Read the original article.

Clay Christensen and David Skok: A not-quite-live blog of a conversation about disruption

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Editor’s note: Last night, the Nieman Foundation held an event with Harvard Business School professor Clay Christensen and former Nieman Fellow David Skok to talk about disruptive innovation in journalism. We’ve already posted audio of the event as part of the Press Publish podcast; below, we have video and — for those who’d rather read than watch or listen — a rough summary of the conversation.

When David Skok came to Harvard in fall of 2011 for his Nieman Fellowship, he sought out Clay Christensen. Christensen is known worldwide for his writing on disruptive innovation; Skok, head of digital for Canada’s Global News, wanted to apply those ideas to broadcast in specific and the news industry more broadly. Skok collaborated with Christensen and James Allworth on a research paper that eventually became “Breaking News,” which appeared in the Fall 2012 issue of Nieman Reports.

On Wednesday, Christensen and Skok were joined by Nieman Foundation curator Ann Marie Lipinski for a discussion on the causes of disruptive innovation and how the journalism business is being transformed today. Lipinski began by asking about the difference between sustaining and disruptive innovations. Christensen said the vast majority of innovations are sustaining — meaning they tend to make existing products better for existing customers, which is usually to the advantage of successful incumbent companies. Disruptive innovation is different. “I made a big mistake when I called it ‘disruptive,’ because it has so many different connotations,” Christensen said. “A lot of people think it’s just new and different, or radical.” Instead, disruptive innovation changes industries not because it is radical, but because it makes complicated and expensive processes simple and opens them up to a wider audience.

An example of a sustaining innovation would be the change in the telecommunications industry from analog to digital, which was controlled by leaders in the industry. That changed when cellphones became cheaper to make and spread around the world, Christensen said. That didn’t fit the business model of the larger telecommunication companies, Christensen said. Disruptive innovation takes place across industries, from telecommunications to automobiles — and even education.

“It’s happening to the Harvard Business School, and nobody at Harvard even thinks about it,” he said. To get a Harvard MBA, you’ve got to be the best of the best of the best just to get admitted, he said — and then you have to be able to afford the bill of Harvard Business School and forgo two years of salary. For graduates, their average starting salary is around $160,000. That sounds good, but as a result, business school graduates only get recruited by firms that can meet that salary — typically investment banks and consulting firms rather than General Motors, General Electric, or General Mills. Now those companies are disrupting business schools by creating their own corporate universities, which are cheaper to run, more accessible, and more closely attuned to the needs of the company.

In order for disruption to occur, there has to be a technology core — an approach that works in simple applications that can be improved to do more and more sophisticated things. He cited the example of Toyota’s growth being enabled by its use of unibody frames; at first they could only be used in subcompacts, but over time they (and Toyota) moved up to larger and more sophisticated automobiles. In the same way, the microprocessor enabled Dell to go from operating in PCs to more powerful servers. Christensen pointed to online education, where developments like massively open online courses can serve as a disruptor to established players in higher education.

Lipinski points out that industries sometimes have to learn these lessons repeatedly. Aggregation, for example, has been a key part of journalism for centuries; it was a key part of Time magazine’s model as early as 1923. But it still seemed to surprise incumbents in the Internet era.

Skok said news organizations often do study their history, but they don’t focus enough on what’s coming next. Looking at profit and loss statements every quarter emphasize a snapshot of the past; Clay’s work says no, don’t only trust that balance sheet — trust a theory to predict what will happen in the future. But the idea of running large companies based on theories over hard numbers is a tough sell, Skok said.

As disruption occurs, it commoditizes layers in the value stack — what used to be a high-value-added activity, one others couldn’t easily replicate, becomes cheap and easy. In journalism, the Internet, wireless technology, and other technologies have broadened the market for information. As a result, Christensen said, everyone has access to more information than they could possibly use. But that doesn’t mean that the whole indusry has become commoditzed and profitable: Commoditization opens up opportunities in adjacent layers in the value stack, he said. What you thought was a commodity becomes more profitable and proprietary — so even as one business dies, it opens up new opportunities. He cited the example of Forbes, whose previous core business — a print magazine — has been commoditized, but which has made interesting new moves online.

Lipinski asked about the concept of “jobs to be done,” the idea that asks companies to focus on their demographics and identify what they can provide to their customers. Christensen says companies should resist seeing their customers through the lens of demographics and instead think about the jobs they would hire their products to do. The customer is the wrong unit of analysis; it’s the job you need to understand if you want to survive disruption. An example: Think of the job of delivering messages across distances. Western Union did that well — but they framed their business through their technology, the telegraph. As technology advanced, Western Union was left behind — even though the job of delivering messages across distances remained.

Lipinski asked about the Newspaper Next project, which was designed to apply the theories of disruptive innovation to the newspaper world. But the project didn’t have much impact. Why not — did companies not see the cliff? Christensen said companies can be paralyzed by data, and that the lack of data can lead to inaction. For newspapers, even if you were warned a cliff was coming, you couldn’t see it until you were upon it, he said.

Lipinski asks Skok what it was like to take the theories and ideas of disruptive innovation and apply them in the real world. Skok said he is lucky to be working in a broadcast company, which hasn’t yet faced the sharp revenue declines that print has, leaving the luxury to experiment. But changing the culture of news organizations is difficult, he said; ultimately, none of this works in a newsroom without getting priorities, processes, and resources aligned around the goal of disruption.

Skok said his department is a standalone unit with its own budget that is trying to be revenue neutral or better within the company; it is “patient for growth but impatient for profit.” Every decision we make, Skok said, is based on whether a new initiative will allow us to scale in a way that lets us grow but also maintain profitability. Skok said you have to change the day-to-day tasks within an organization to make effective change.

A question from the audience: Given that newspapers’ disruption by Internet technologies has been happening for some time now, are there good examples of incumbent companies recovering from a disruption late in the process? Christensen cited Apple’s famed comeback under Steve Jobs as an example. A shift to jobs-to-be-done saved the company from being an “afterthought in the history of computing” to its leader, Christensen said. He also cited an Indian appliance company that, after being disrupted by the Korean corporation LG on the low end, went even lower, building a simpler cooling unit that cost only $39 and disrupted LG.

Skok spoke about Apple through the lens of Christensen’s theories about integrated vs. modular structures. Either approach could be strong under certain market and technological circumstances. Traditionally, journalism organizations have been deeply integrated and closed, from news gathering to distribution. That’s becoming more modular, Skok said. Now media companies are seeing more revenue from businesses other than the news gathering-to-distribution chain, such as events. The trick, he said, is to look at newsrooms not as a continuous line, but as a series of pockets that can be leveraged to create new lines of business.

Question from the audience: What are the jobs to be done in journalism? Christensen said one consideration is that large companies are often undercut by competition that focuses on specific jobs rather than one-size-fits-all solutions. He cited the example of Craigslist, which focused squarely on classified ads in a way that newspapers had a difficult time responding to. When you offer everything for everybody, you can’t focus on doing every job well, he said — you get picked off one job at a time. The challenge, he said, is finding jobs where a viable competitor has not yet emerged.

Skok suggested news companies examine how their own business can be disrupted — because if they can see it, their competitors probably can too. A problem for news organizations, like many companies, is that it’s difficult to get people to change their tasks or incubate when what they currently do is still effective, he said. Skok said his company’s primary output is broadcast news, something it does well, but that doesn’t leave many hours to disrupt their business.

In response to another question, Skok talked about the disruptive potential of news on mobile devices. Companies spend a lot of time developing mobile strategies, but then follow up with questions like “Where is the mobile advertising?” But advertising might not end up being the line of revenue to support mobile. Companies will need to adjust their thinking on why they invest in mobile and what kind of return they will see.

Skok also suggested keeping an eye on one current experiment, Andrew Sullivan’s newly launched paywall site. If Sullivan pulls it off, he said, it could be a good lesson for the industry, making the value proposition of news product more clear — for some, Sullivan’s take is essential daily reading. Journalists need to be more accountable for what we put on the page or what we put on the air, Skok said — it’s not longer good enough to be a mile wide and an inch deep.

Press Publish 8: Clay Christensen on the disruption of journalism

clay-christensen-ccIt’s Episode 8 of Press Publish, the Nieman Lab podcast! Our guests this week are Harvard Business School professor Clay Christensen and David Skok, the director of digital at Globalnews.ca in Canada.

Normally, episodes of Press Publish feature me having an extended conversation with someone doing interesting work in journalism innovation. This one’s different — it’s actually a recording of an event we held here at the Nieman Foundation last night.

nieman-reports-fall-2012-clay-skokDoes Clay Christensen really need an introduction at this point? Once you’ve been named the top management thinker in the world, I imagine not. Clay is the man behind disruptive innovation, the theory of how industries respond to technological changes that alter access to products or services. His book The Innovator’s Dilemma is one of the most influential business books of the past two decades, and his Newspaper Next project in 2006 provided an alternate vision of what a more agile U.S. newspaper business might have looked like.

press-publish-logoDavid was a Nieman Fellow last year, and during that year he studied with Clay on the application of his theories to news. The result was “Breaking News,” a piece for the fall issue of our sister publication Nieman Reports that outlines the hurdles and the possibilities. (You may remember an interview I did with the coauthors back in October.)

Last night, David came in from Toronto and Clay came in from across campus to talk to a crowd of about 70 about technological disruption in journalism. They were in conversation with Nieman Foundation curator Ann Marie Lipinski. It’s a great framing of disruption and definitely worth a listen.

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Show notes

Horace Dediu: “Re-framing the dichotomies: Open/Closed vs. Integrated/Fragmented”

Photo of Christensen by World Economic Forum used under a Creative Commons license.

Nikki Usher: The IHT wasn’t just a brand or a history — it was an alternate editorial lens

jean-seberg-breathless-new-york-herald-tribune-international-iht

The New York Times marked the end of an era Monday with its announcement that The International Herald Tribune would be losing its name. The newspaper will now be named The International New York Times. The masthead, seen on newsstands from Pakistan to Paris, will change too.

This has been a long time coming if you’ve watched at the words and actions of the Times Company. In 2007, Arthur Sulzberger, Jr. noted his flagship newspaper’s international presence:

It’s an international paper now. I mean, important. Important. Between The New York Times and The International Herald Tribune, which carries New York Times journalism — right? — in print and on the Web, we are an international paper.

But The International Herald Tribune is not the International New York Times in culture, practice or personality, nor do its journalists particularly want it to be. I can tell you this based on my time spent in 2010 gathering data from both the IHT’s Paris and Hong Kong bureaus. Then, IHT executive editor Alison Smale explained to me what she saw as the identity of the IHT’s European edition:

James Gordon Bennet established the International Herald Tribune in 1887 for Americans coming over here to buy paintings and nice clothes and to enjoy the finer points of European life. Slowly Americans needed news from home…and about the whole world in language they could understand. That’s the founding principle.

We are never ashamed that we are are a newspaper for the elite. In putting together The International Herald Tribune, we like to think of it as a conversational menu for the global dinner party.

And then she laughed and noted that all New York thought Paris did was sit and have two-hour lunches over wine.

Philip McClellan, the IHT’s deputy managing editor for Asia, saw his paper as the “hometown newspaper” for expats, or for people like himself who happened to be from everywhere. It was distinctly global in nature and not American-focused.

In Paris, journalists would sit around a conference table trying to get a meager staff to cover stories that The New York Times foreign desk was likely to find insignificant: tales of movers and shakers in the British Parliament, protests in Italy, European privacy concerns on the web. As IHT journalist David Jolly put it: “We have a distinctly European point of view. We write things differently. We cater to a different audience.”

McClellan noted that the IHT practiced a de-Americanizing of Times-generated content:

We take out whole paragraphs and often go to a reporter and say, “We love your story, but we don’t want it to sound like it’s American.” We edit and report stories in global context…If it were an ideal world, we would add some sort of local interest to every story.

One wonders whether the end to the print branding of The International Herald Tribune will be a death knell to this distinct way of approaching news coverage. Already by 2009, The International Herald Tribune was being stripped of its identity, with its website IHT.com (once considered an innovator in news design online) redirected to global.nyt.com. The loss of this branding hit both Paris and Hong Kong in the gut. As one top editor noted:

I don’t think it serves our needs. The website is not the International Herald Tribune — it is the global website for New York Times foreign correspondents. It is the foreign page with an International Herald Tribune banner.

We used to do special things — slide shows, sometimes. Now it takes a long time to get anything special done. You have to go through layers of bureaucracy.

Watching the IHT in operation, particularly from Paris, made it abundantly clear how the newspaper had gradually lost its autonomy to New York. The IHT staff was small, and Times foreign correspondents got first dibs on the big story. Editor Lauren Cabell compared it to a “staff at a college newspaper.” New York wouldn’t cater to issues IHT journalists thought their readers might want to read about.

In fact, when I was there, the Paris operation had only recently been invited to Page One meetings (whose scheduled time had recently been changed, in part to accomodate the IHT) via teleconference. And all Smale could do to state her interest in a story she’d like to get finished in time for European IHT deadlines was simply pipe up over the teleconference that she was particularly interested in a story. Generally, there was little communication about whether this story would actually be ready on time, as it was often of secondary interest to The New York Times.

Deadlines in Paris had gotten shorter and shorter due to New York dictates — creeping backwards from midnight to 9 p.m. That meant that, given the time difference with New York and the lack of original IHT content, that Paris journalists simply had to hope that Times writers were done with their copy in time for the print edition.

IHT writers got extra kudos if their stories made the Times’ front page, with the working assumption that IHT stories were less significant (and less well written) than Times stories. Reporter Nicola Clark told me what a big deal it had been for her to be on the front page of The Times when the Iceland volcano Eyjafjallajokull interrupted European air traffic in 2010.

In New York, I would walk by or listen to editors who would snipe at the quality of IHT coverage; they might laugh at the layout of the newspaper, question the quality of quotes or the conception of a lede, or otherwise deride the produce as inferior material worthy of sticking into a slot on the web during the morning hours before better material came in — or on the inside of the print paper.

Managing editor Tom Redburn was viewed as legitimate because he had previously been at the Times, so the Times’ business desk had an amicable working relationship. Working at the mothership — even for just a little bit — was viewed by International Herald Tribune employees as a sign that they were valued and noticed by the Times Company. (Redburn returned to New York last year.)

The International Herald Tribune has been a brand for 40 years, but the idea of an expat paper written for the leisure/elite business class seems distinctly at odds with the hard-charging vision of The New York Times. Perhaps in a globalizing digital world, stopping to sip coffee and read an American newspaper in Paris is a luxury two centuries old. But the death of a brand is also a signal of a change in mission — with equally the potential for reinvention as well as the potential for loss. With the end of The International Herald Tribune, I can’t help but see the loss of a particular identity for journalists and readers abroad.

Nikki Usher is an assistant professor at George Washington University’s School of Media and Public Affairs. Her dissertation research, which she is currently turning into a book, included ethnographic research at The New York Times.

Still from Breathless (À bout de souffle) (1960), featuring New York Herald Tribune vendor Patricia (Jean Seberg) wandering the streets of Paris with Michel (Jean-Paul Belmondo).