The next dinosaurs: The media and publishing industries?

Legacy Media Businesses Get Trapped in a “Millennial Dilemma”

In our whitepaper, “Making the Shift to a New Millennial Enterprise”, we highlight how companies can avoid becoming extinct by embracing the changes and market disruptions brought on by the advent of two major forces; digitally-savvy consumers and key technology enablers such as the “SMAC stack” (i.e. the application of Social, Mobile, Analytics and Cloud technologies).  Adopting a proper “millennial enablement” strategy is key to survival in the modern age. Failure to execute on millennial enablement has resulted in many of these long-term, established companies going out of business or being sold for a fraction of their peak value.

Never has this been more prevalent than in the Media industry. For starters, does anyone want to buy a newspaper company? I hear they are going cheap!

The recent announcement of Jeff Bezos’ $250-million purchase of the 136 year old Washington Post, once again reminded us of what happens in the Millennial Age to companies or industries that are slow to transform. It is mind boggling that a 136 year old institution like The Post, which was once heralded for its cutting edge journalism and the uncovering of the Watergate scandal that ultimately led to President Nixon’s resignation, is being sold to a dot-com, e-tailing whiz kid (note, it was actually Bezos’ personal purchase outside the corporate Amazon structure).

In a less publicized sale announced in the wee hours of a recent Saturday morning, The Boston Globe was snapped up by billionaire Red Sox owner John Henry for $70 million, a bargain compared to the Post deal and a massive drop from its record $1.1 billion purchase by the New York Times in 1993. While Henry will probably re-focus the paper on the local Boston region thereby freeing it form the shackles of the larger Times organization, it will most likely largely remain in-tact and continue its print and online editions.

Bezos will be an entirely different story. It’s Bezos’ success as an e-commerce marketer and experimenter that will draw a close watch. As the entrepreneurial founder of Amazon.com, he upended decades-old business models in retailing, books and streaming media by focusing on the end consumer experience and customer satisfaction. Bezos’ mantra has always been that customer service is the whole ballgame. It’s about time someone saves the newspaper and possibly publishing industries. One couldn’t help but be inspired by Bezos’ confidence and proclamation: “I’m excited and optimistic about the opportunity for invention.”

The Post lost a total of $75 million in 2011 and 2012. The Post (and the entire newspaper business) needs an infusion of innovative ideas. The industry is struggling to manage the transition from paper to digital. There is yet a model to emerge that can keep newspapers from being valued at bargain-bin prices. Newspaper print ads fell 55% between 2007 and 2012, according to the Newspaper Association of America, as advertisers flocked to the web.

While creating e-commerce arms for newspapers and periodicals is not new, most publishers have concentrated on cost reductions and price increases for print editions while restricting online access to featured articles.

The question is really why does it take an ecommerce czar like Bezos to step in and transform the Newspaper business? Why couldn’t the business leaders at these Newspapers figure this out? This is exactly the problem many business face. Their inability to react and change is what I call the “Millennial Dilemma”. Companies become so entrenched in their current business models it is hard for them to step back and re-evaluate. For others it’s not being agile or able to execute on change. Unfortunately for many, it’s becoming the kiss of death.

But not Bezos. He has always been interested in anything that can be revolutionized by computers. He was intrigued early on by the amazing growth and use of the Internet. In 1994, well before the Internet revolution, he founded Amazon. Jeff created a business model that leveraged the Internet’s unique ability to deliver huge amounts of information rapidly and efficiently.

Most likely Bezos will leverage his skills in data gathering, personalized marketing and e-commerce to re-invent the age old newspaper model. Bottom line is Bezos knows how to market and sell things online. No one knows more about Internet media distribution and affiliate marketing than Bezos. He is likely to be very creative in the bundling and shipping of subscriptions, such as optimized delivery routes (papers and packages) or bundling subscriptions to Kindle or Amazon Prime members.  Bezos has a much broader canvas and reach to operate on than any single news or media outlet. The Post may become his latest laboratory experiment to create the next generation of integrated content and commerce where commerce replaces traditional advertising for monetizing content.

All of this means that Bezos might just be able to fuse the best of enduring journalistic values with all the potential of the digital era to reinvent the newspaper industry. In other words, Bezos knows how to transform a business and potentially an entire industry into the millennial era.

In fact, Jeff Bezos could silently be taking over from the late Steve Jobs as our Millennial Innovator and Market Disrupter. Who else has the courage to go after long established businesses and business models and turn them on their side and transform them into completely new businesses? Jobs did it to the record industry and now Bezos seems focused on doing it to the newspaper and publishing industry.

And newspapers aren’t the only segment in the media world that should be worried. The Time Warner decision to drop CBS in three major markets (New York, Los Angeles, and Dallas) seems eerily familiar to the record industry fighting Napster in the early 1990’s. The ensuing battle between the companies over fees is one that is becoming more common as the cable companies are disputing whether should have to pay at all for network content while the networks want to get “fair” compensation for their lineups. Aided largely by the 1992 Congressional Cable Act, a second revenue stream was provided to insure that local stations would be carried on cable systems and that the local stations would continue to produce the news and other programs that were in the public interest. Congress allowed the local stations to charge cable-system owners, like Time Warner Cable and Comcast, a fee called “retransmission consent” for displaying broadcast content. A fight over the size of that fee is largely the reason that more than three million Time Warner Cable subscribers in New York, Los Angeles, and Dallas haven’t been able to tune into CBS or Showtime.

At the core of the discussion is that these companies are arguing over their share of the TV revenue. CBS insists that the retransmission fee should be doubles while Time Warner claims that it would need to do that for all network contracts and pass the cost onto the end consumer. The irony is that this entire revenue stream could disappear faster than anyone expects. If the music or newspaper industry is any barometer, it’s probably sooner rather than later. They should be fighting for new distribution models not arguing over the share of a decreasing revenue stream. Let’s face it; the idea of pay for subscription cable models is coming to an end.  But the pay-for-TV industry seems to still be perilously out of touch.

The reality is that younger Millennials watch what they want, when they want online on the device of their choice. The idea of these Millennials taking the time to watch pre-programmed cable TV is much less appealing. The percentage of people age 13 to 33 subscribing to pay TV fell to 76% this June from 85% in June 2010, a new study by research firm GFK found. And there are also the DVR’s and Tivo’s, which allow viewers to record shows and then fast-forward through the ads.

In the future, broadcast networks like CBS will need to think more about online syndication and sell reruns of their programs not only to cable channels and local stations but also to digital platforms like Netflix, Amazon, Apple and Google. This will generate more competition as programming will no longer be exclusive and the cable companies paying hefty fees will begin to protest.

There is no doubt the balance of power is shifting more towards the digital platform providers. Let’s look a recent example of Netflix and the AMC hit series Breaking Bad. An unprecedented 5.9 million viewers tuned in for the premier of the 5th and final season of the series. AMC doubled its viewers from the previous season. How did they do this? AMC marketing muscle? Or was it something else? Enter the power of the next generation streaming influence. Let’s call it the “Netflix Factor” where the power of providing the back catalog of seasons helped promote, reach and engage millions of viewers that would have normally not lasted through the commitment of weekly viewing. It’s not only the fact that 6 million viewers tuned in, it’s the fact that this doubled since the last season and can’t be accounted for only in AMC marketing muscle. Enter the new world of streaming TV.

So all of this begs the question, should Netflix be paying studios for the content or is it the other way around? If creating demand is the ultimate goal, maybe more networks should be thinking about how to leverage streaming technology than fighting over fees with cable companies that soon may not exist.

So how can your company avoid the “Millennial Dilemma”?  Stay tuned for more details in my next post.

Frank Palermo

Executive Vice President - Global Digital Solutions, Virtusa. Frank Palermo brings more than 24 years of experience in technology leadership across a wide variety of technical products and platforms. Frank has a wealth of experience in leading global teams in large scale, transformational application and product development programs. In his current role at Virtusa, Frank heads the Global Technical Solutions Group which contains many of Virtusa’s specialized technical competency areas such as Business Process Management (BPM), Enterprise Content Management (ECM) and Data Warehousing and Business Intelligence (DWBI). The group is responsible for creating an overall go-to-market strategy, developing technical competencies and standards, and delivering IP based Solutions for each of these practice areas. Frank also leads an emerging technology group that is responsible for incubating new solutions in areas such as mobile computing, social solutions and cloud computing. Frank is also responsible for overseeing all of the Partner Channels as well as Analyst Relations for the firm. Prior to joining Virtusa, Frank was Chief Technology Officer (CTO) for Decorwalla, an emerging B2B marketplace in the interior design industry, where he was responsible for the overall technology strategy, creative direction, and site development and deployment. Prior to that, Frank was CTO and VP of Engineering for INSCI Corporation, a supplier of digital document repositories and integrated output management products and services. Prior to INSCI, Frank worked at IBM in the Advanced Workstations Division, and took part in the PowerPC consortium with IBM, Motorola and Apple. He was also involved in the design of the PowerPC family of microprocessors as well as architecting and developing a massive distributed client/server design automation and simulation system involving thousands of high-end clustered servers. Frank received several patents for his work in the area of microprocessor design and distributed client/server computing. Frank holds a BSEE degree from Northeastern University and completed advanced studies at the University of Texas.

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