How Traditional Media Can Make Digital Profitable

Traditional media has a big problem.

They know they need to make the transition to digital, but still have to pay the bills and maintain margins.  Unlike digital upstarts, incumbents don’t have investors willing to wait years for results, but have to earn money every day.

To make the transition to, new skills need to be learned.  Yet, even more importantly, they need to unlearn some things that they thought they knew about how to make money in media.

Print Companies Make Money by Selling Space

A while back I was in a meeting with a senior executive for one of Europe’s most successful magazine publishers.  At one point he blurted out “You have to be first or second in your category if you’re going to make money.”

He didn’t explain why, nor did he have to.  In print, advertisers want top titles.  High demand translates into more space sold at higher rates.  A good print salesperson is one who sells a lot of pages.  A great print salesperson creates pages by working closely with advertisers on non-standard advertising that targets niche consumers.

Unfortunately, the meeting was not about magazines, but digital.  What he considered to be a first principle was actually a major misunderstanding of how the digital business works.  It’s no wonder that his company, after years of trying, is a digital disaster.

Manage Inventory is the Core Competency of Broadcasters

While print businesses can increase page counts to suit demand, broadcast companies have fixed inventory.  There are so many hours in the day, so many ad spots in an hour and average ratings don’t change very much in a year (for the most part).

A good broadcast salesperson sells a very high percentage of inventory at good rates.  To do that, they protect their limited prime time and package in as much fringe time as they can.  It is by selling the weakest time slots that they can win big profit margins (unless they buy a new show that unexpectedly becomes a big hit).

In a very real sense, selling broadcast is like selling a mortgage bond.  What’s important is packaging a portfolio that gives the advertiser maximum coverage at minimum cost.  Not surprisingly, there is very little migration between print and broadcast sales.  The two activities demand very different skill sets.

Successful Digital Media Businesses Create and Manage Inventory

It’s not hard to see why traditional media companies have trouble making money in digital.  Neither situation above is really analogous.  Digital media has limited premium inventory but unlimited fringe inventory.  Moreover, it’s more fragmented than print but packages even better than broadcast.

To make things a bit more difficult, there is no tried and true business model in digital.  Nobody’s been doing it that long so no one is really that good at it.  As I’ve written before, digital strategy is, to a large extent, a trial and error process. You have to fail often and fail cheaply

Nevertheless, here are three strategies that can help increase margins:

Integrate Social Functionality: Much like broadcast, it’s very difficult to make money in digital on premium space alone.  Adding social components to branded content is a great way not only to increase loyalty and engagement, but also to create lots of new, albeit cheaper, inventory.

Satellite and Aggregated Sites: Online media isn’t just about content, but relationships and linkages between content.  Users want to find relevant information in as few clicks as possible.  In order to do that, they will choose a portfolio of sites, some broad and some niche, that suit their interests.

A great way to take advantage of that is by creating new sites with existing content.  This can be done by either creating satellite sites for a general product (under a new brand – not a sub brand) or by aggregating related niche sites together into a more general portal.

There are several benefits to doing this.  It dovetails very well with integration of social functionality as different content brands initiate different discussions.  Also, by linking to the source of the original article, you enjoy SEO benefits on the original site.  Finally, you create more inventory to sell.

Unlike in print or broadcast, this is fairly cheap and easy to do as long as you have your CMS and related templates set up.  The key is to build fast and simple, the users will show you where to develop further.

Package Aggressively: Much like broadcast, packaging effectively is crucial for making money online.  You need to protect your prime and sell as much fringe as possible.  There’s no point in selling out your home page while everything else is filled with self promotion.

Moreover, packaging opportunities are more extensive online.  You can create run-on-site and run-on-network packages, thematic channels, performance and CPA pricing, e-commerce partnerships, etc.  With virtually unlimited inventory, your options are nearly unlimited as well.

Many companies might want to farm out their fringe inventory to a banner network and keep higher margin space and sponsorships in house.

Build an i-Pad App: It’s tough to see exactly what the impact of the i-Pad will actually be, but it’s safe to say that it will be substantial.

Because the i-Pad lends itself to offering whole products on the web rather than just page views, consumers probably will be more willing to pay a token amount for access.  The revenues won’t be huge, but considering that distribution is generally a big money loser, the economics will be a big improvement.

What’s even more promising is the creative possibilities for i-pad versions of media products, which advertisers will likely pay a premium for.  As this article shows, early indications are very positive.

Towards Integrative  Solutions

While many old media skills are relevant in the digital world, many old media business concepts are not.  In fact, many best practices offline will lead to failure online.  The trick is to know the difference.

The problem with most traditional media companies isn’t that they’re old, but that they’re too balkanized. Print people know print, Radio people know Radio, TV people know TV.  Business and creative sides have been historically adversarial which makes it hard to build the collaboration needed for digital media.

If all you have is a hammer, every problem looks like a nail. The problem is that very few media people are generalists, which is why they immediately try to solve new media problems using the few tools they know.  Unfortunately, digital media knows no bounds and therefore requires greater integration.

To be successful, traditional media needs to not only learn about new media, but about old media as well.  Print needs to learn broadcast, creative people need to understand more about business, etc.  This approach needs to be absorbed into every facet of the business: strategy, hiring, training, organizational structure, etc.

If media incumbents are to be successful in the digital realm, they will need to integrate skills and develop new principles, instead of relying on old ones. New Media requires new thinking.

– Greg