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media economy photography

The new media landscape (3): community, transactions and value

 

The disruptive power of the internet has produced a new ecology of information. As outlined in the first post of this series, this is the inescapable big picture for anyone engaged in creative practice.

This new ecology of information incorporates some hard realities for those of us seeking to support creative practice. In the second post of this series, I argued that community is now an essential concept in the new media landscape.

Throughout I have drawn inferences from what is happening to large media organisations in this revolutionary environment so that independent photographers and visual journalists can understand the challenges they face.

In this third and last post of the series, I want to discuss how some media companies are pursuing different sources of revenue. While their strategies are not easily replicable, they show how the dynamics of the new media landscape are playing out when it comes to the nitty-gritty of business models.

The end of distribution supporting scarcity

The past profitability of many media companies was based on controlling the mode of distribution so that scarcity prices could be charged. What the disintermediation, disruption and disaggregation of the media economy exposes is that this control was unique to a particular historical moment, resulting in prices that were artificially high.

As Google argued in a submission to the US Federal Trade Commission, this certainly applied to newspapers:

The large profit margins newspapers enjoyed in the past were built on an artificial scarcity: Limited choice for advertisers as well as readers. With the Internet, that scarcity has been taken away and replaced by abundance. No policy proposal will be able to restore newspaper revenues to what they were before the emergence of online news. It is not a question of analog dollars versus digital dimes, but rather a realistic assessment of how to make money in a world of abundant competitors and consumer choice.

It also applies to television, movies and music, because “the very model of the traditional entertainment industry is predicated on the inefficiency of distribution” – that is, control over broadcast networks, cinema chains and record companies. Once that content has been digitised and streamed, centralised control and high prices is much harder to maintain.

The hard reality, then, is that business models have to be decoupled from modes of distribution. In a context where publication and broadcasting have become easier and cheaper, running printing presses and managing TV networks are no longer licenses to print money. No business model predicated solely on control over a mode of distribution can succeed in the long-term.

Of course, existing media corporations can go on for some time. Legacy industries don’t grind to an instantaneous halt just because the central principles of their operating environment unravel. But if they fail to innovate, they tend to decline slowly before becoming unsustainable.

Diverse and indirect approaches

If a business model predicated solely on control over a mode of distribution cannot succeed in the long-term, another casualty will be the idea of the single business model behind visual journalism. The new approach will be a series of diverse models producing revenue indirectly.

As John Temple, the last editor of the Rocky Mountain News declared, news organisations do not make money from news; news is the ‘brand’ for the organisation and the money comes from relationships and services only indirectly related to journalism.

There is nothing new in this. Advertising has been the main source of revenue for mainstream media, with a contingent and indirect relationship to the journalism we (mistakenly) assume is the raison d’etre of media companies.

While it seems shocking to say news is a ‘brand’, that is how it has functioned. Oliviero Toscani, who was behind the controversial Benetton campaigns of the 1990s once remarked that we should understand that in a capitalist media economy “editorial was always the advertising of advertising.”

Although advertising will remain important for media companies, and new ways of garnering subscriptions might offer small revenue streams, what are these indirect approaches going to comprise?

The community that pays

That is where the idea of community comes in. Those engaged and loyal people – readers, viewers, listeners, fans – who identify with and congregate around their chosen content streams are where revenue comes from.

It’s fashionable to say nobody wants to pay for anything anymore, and there a plenty of online comment threads that can be mined for anecdotal evidence to support this rather glib generalisation. But if we think about the hundreds of millions of TV episodes, 10 billion songs and 10 billion apps sold via iTunes, or the 23 million Netflix subscribers in North America, or Spotify’s 1 million subscribers in Europe, plenty of people reach into their pocket for quality content. If providers offer availability and ease of use, direct payment for something that is not fungible is forthcoming.

If we look at indirect revenue from communities, then transactions are key. Fairfax (publishers of the Melbourne Age and the Sydney Morning Herald, and the largest media company in Australasia) has seen digital grow into its second largest revenue stream. 60% of their digital revenue comes from transactions, with readers using companies that Fairfax purchased, including a dating service called RSVP and a holiday home rental service, Stayz.com.

Transactions are one way that social networks can be leveraged for revenue, with social recommendations leading to commissions. As one Deloitte analyst predicted,

the next phase of social commerce is about extracting commissions from products which are sold directly as a result of recommendations made…So rather than selling advertising, what you’re doing is taking a commission against a product sold.

A 2011 report by the Columbia University Graduate School of Journalism on the business of digital journalism pointed to a number of indirect transactions supporting editorial content, such as The Atlantic magazine’s events business with $6 million/year in revenue. In a similar vein the Washington Post is running online courses and The Guardian is organising weekend masterclasses.

None of these constitute the holy grail that will replace the unending decline in print advertising revenue. But they are good examples of creative approaches that don’t fight the disruption of the internet and work with the contours of the new media landscape.

Can an indirect approach work for photography? When I reviewed the New York Times paid content scheme at the end of March, I painted a different scenario using transactions rather than subscriptions:

The Lens blog is a high profile site with some 750,000 users visiting each month. Instead of raising money by hoping some of those subscribe on their 21st visit each month, consider the monthly visitors as a community of interest around photojournalism and offer goods and services to that community. There could be Lens-sponsored master classes, special events and workshops for both professionals and the general public; print sales; discounted equipment and photographic services via business affiliates; photo tours and themed travel; equipment, medical and travel insurance for practitioners; logistics and visa services for photographers having to travel at short notice…you name it, anything that interests a broad photographic community, amateur and professional, could be offered by negotiated deals where Lens’s earns a percentage on each transaction.

This strategy would leverage the Lens blog Twitter feeds and referrals providing unlimited free access. It would be based on growing the community that comes to the site, thereby underscoring the value of having quality photojournalism distributed globally and the benefit of having it accessible to as many as possible. It could raise more revenue than subscriptions could achieve, and the revenue could go directly to photojournalism.

This is the emerging logic for media companies. Might it work for independent documentary photographers and photojournalists? Even if the scale is different, why not? This logic comes from the dynamics in the new media landscape affecting everybody.

Paul Melcher claims “photographers, photo agencies and related have no experience in building value around their images.” That has to change. Value will be created indirectly more than directly. It begins with the six steps towards building your own community.

Photo credit: Enol/Flickr, used under a Creative Commons license

 

Categories
media economy

The ongoing revolution in the media economy

The revolutions transforming the media economy continue apace. In the year since I published my five part series on these changes (beginning here and ending here) we have seen more evidence of the overall direction of change. Reviewing my notes from 2010 here are some of the standout developments to date:

1. Things remain grim for traditional newspapers

Global newspaper circulation continued its downward trend, declining by 0.8% in 2009. A survey covering 223 countries by the World Association of Newspapers and Newspaper Publishers showed that newspaper circulation significantly declined in Europe and North America, although it increased marginally in Asia.

2. Advertising revenue continues to plummet

Advertising revenue is the core of the traditional newspapers business model, and it is falling globally too. Ad spend declined in most of the regions – North America (25 per cent), Western Europe (13.7 per cent), Central and East Europe (18.7 per cent), Asia (9.6 per cent) and South America (2.9 per cent), but remained fairly stable in the Middle East and Africa. In the United States, newspaper advertising revenues are likely to dive to a 25-year low of approximately $26.5 billion, or 47% of the record $49.4 billon in sales achieved by the industry as recently as 2005.

Online advertising is becoming much more important, with the web poised to overtake newspapers as the second largest US advertising medium by revenue behind television. While there is some absolute growth – and the Guardian has reportedly seen a 100% annual increase in digital revenue – this change in relative status is also a function of the collapse of print advertising.

3. Paid content strategies show few signs of success

At the beginning of this year a US survey showed that amongst the handful of domestic newspapers that had erected paywalls, only a tiny proportion (2.4%) of print subscribers were willing to hand over money for access. In the UK, the decision of The Times to go behind a paywall has led to the loss of 90% of the site’s users and scared off advertisers – meaning that any additional revenue from the small number who sign up will easily be offset by lost advertising. The experience of the Belfast-based Irish Times, which attracted only 1,215 paid subscriptions from its 45,000 circulation, suggests the limits of paywalls are apparent in a variety of markets.

4. The disruptive power of the Internet continues to grow

The decline of legacy media has been underway for a very long time and predates the Internet and the web. However, the expansion of a technology that collapses the cost of distribution means industries predicated on the control of distribution are losing their base.

In June this year Cisco forecast that global Internet traffic would increase more than fourfold by 2014. This amount is the equivalent of 10 times all the traffic traversing Internet Protocol networks in 2008. Driving the growth is the expansion of online video, which will make up 91 percent of global consumer IP traffic by 2014.

For an example of what this means in practice, consider the recent observations from the online video rental firm Netflix. Founder Reed Hastings revealed the economics of digital distribution: “It costs us about a dollar, round-trip, to send DVDs by mail. It costs us less than a nickel to deliver by streaming.” That means a switch to video streaming – which is coming – would reduce distribution costs by 95%. Given that Netflix spends $600 million a year on the postal service and pays for hourly labor checking DVD quality, that is a considerable saving (except for those working in the postal service or checking the DVDs). This means, as Ken Doctor explained, that “in the new world the costs evaporate — and quality and timeliness improve. For news publishers, the switch to digital media offers huge savings, at least 60% and probably more.”

However, it’s vital to remember that the Internet is not a universal facility. The number of global users has expanded dramatically in the last decade to 2 billion, but global penetration covers only 29% of the world’s population.

5. The end of print is now conceivable

Publishers and editors of major newspapers are now speaking about a time when their publications will no longer be printed. Last month Arthur Sulzberger told a seminar that “we will stop printing the New York Times sometime in the future, date TBD.” Both the Guardian and Times editors think their current printing facilities will be their last, and that the life-span of these is “telescoping quite dramatically,” while the Financial Times is already reducing some print output.

6. There are no game changers leading to a shiny new business model

Many responses to the revolutions in the media economy have been framed by the desire to find the ‘game changer’ that will ‘save journalism,’ with the iPad being the device that in 2010 has most often borne these hopes. As a proud new owner of said device, I can see the appeal of some the better apps. I think it opens up new possibilities for the creative presentation and distribution of information, and I’m looking forward to more and better efforts to produce compelling multimedia for this format. But a number of available studies suggest that even if the revenue from magazine apps on the iPad exceeds a billion dollars, that will not resuscitate an entire industry given that is what Time Inc. (of which Time magazine is just a small part) made in a little over one quarter.

More importantly, though, we have to see devices like the iPad as another mode of distribution among the many channels for information now available. And we need to understand how the ecology of the iPad is one of a closed economy, cut off from the open web where things are easily linked and always searchable. There is little doubt the app economy is significant, and Chris Anderson and Michael Wolff (not to mention Jeff Jarvis) are right to call attention to the way it differs from the browser-accessible web, though it is just a bit early to proclaim the death of the open web.

Those who want to place the future of their entire industry in the iPad’s basket are surely heading for a fall. To get a better return from publisher’s apps, a group of twenty US-based photo agencies recently formed an alliance to press for higher fees based on additional usage. That’s not an unreasonable notion in principle, but the logic behind their position was stunning for its ignorance of the dynamics of the contemporary media economy. One of the agency bosses behind this alliance told Press Gazette:

We all strongly believe that this platform as a walled garden could be the saviour of declining legacy print publications. A lot of the publishers think so too…we see this as a way to work with the publishers to work on a business model that works for both parties.

In a nutshell you have an example of the thinking that has perpetuated a large part of the contemporary crisis – defend declining outlets, have faith in a walled garden that limits accessibility, and think about business models is in terms of a single business model tied to an established mode of distribution. But – the disruptive power of the Internet continues to grow because of the way it has solved the problem of distribution, so no business model predicated on control over a mode of distribution can succeed.

7. The future is bright

Despite the downturn and the persistence of legacy thinking, the future for the production and distribution of compelling stories and important information is bright. The creative possibilities enabled by digital technologies, the open web and the app economy – in association with those legacy publications now looking to a future beyond print – are being continually enlarged. If we pursue multiple modes of distribution and make them serve the modes of information, then, in conjunction with new ways of thinking about business models, we are in for an exciting if bumpy ride.

Featured photo: Bsivad/Flickr, used under a Creative Commons license