Next steps for the LA Times

The Los Angeles Times officially traded hands yesterday from Tronc to biotech billionaire Patrick Soon-Shiong, who named Norman Pearlstine as the new Executive Editor. Pearlstine had retired as Vice Chairman of Time Inc as it closed its sale to Meredith Corp, following 50 years in roles across Time, Bloomberg, the WSJ, and Forbes. In the announcement, the LA Times refers to him as a “fixture of the New York media circles.” (link)

The hire doesn’t suggest a bold modernization is in the works nor that a truly distinct California brand will soon differentiate the publication. But, I think it’s fair to say that Soon-Shiong is approaching this with a long time horizon and as a cause to subsidize more than a market opportunity to seize.

The first move seems to be stabilizing a ship that’s undergone constant shifts and executive turnover in the name of modernization (by Tronc), plus building the LA Times’ prestige in journalism circles and in the Acela-riding politics & finance sphere.

As it vies for comparison next to the NYT and WaPo as a national force, it will look to evolve in a similar vein to those organizations. Expect a determined shift to digital subscriptions, experimentation with video, podcasts, news chatbots, etc. Expect more interviews and op-eds with national VIPs too. I wouldn’t expect the LA Times to pioneer new concepts in the media industry during this first phase though; it’s securing its foundations.

My question/concern is whether a publication that cares so much about becoming a favorite child of the “New York media circles” can craft a sufficiently unique brand to gain a national following on equal footing to the NYT and WaPo. Consumers don’t need a third-place also-ran, especially if it’s asking for a subscription. The LA Times needs to own a perspective and style that stands apart from the East Coast establishment papers…what would a uniquely California view of the world be?

This is a post for another time, but I think there’s actually a major market opportunity presented by the fact that political coverage (and business coverage to a lesser extent) is locked within a fixed framework in this country…the language we use around Right and Left, the norms we pretend exist…there’s an opportunity for a politcal news organization to swoop in and engage based on an entirely different framework.

The other risk is rushing too fast to offer a little bit of everything to everyone (as a national publication) before it has gained a dominant position anywhere. The NYT is becoming a diversified bundle and it is a smart strategy, but that’s because it has long owned the turf of the most prestigious publication of national scope. I know lots of Los Angelenos who pay for the NYT; I couldn’t name anyone (at least under 35) who has an LA Times subscription. You need to win somewhere before you can win everywhere.

I’m also intrigued to see how Pearlstine attacks business coverage, which is functionally non-existent at the LA Times. You would think the LA Times would try to own coverage of industries anchored in California like entertainment, tech, aerospace, and agriculture but it doesn’t even compete. Businesspeople pay for subscriptions, pay to attent conferences, etc. though…it’s an important audience for the LA Times to start engaging. And its not going to beat the NYT, WSJ, or FT at insider coverage of finance.

Congrats to Pearlstine on the new gig. As a proud Los Angeleno, I look forward to seeing what he has in store.

Business Models for Media Companies

How do media companies make money? There are 5 overarching business models to generate revenue from content your company creates: 1) transactions, 2) subscriptions, 3) licensing, 4) content marketing, and 5) advertising. Let’s review.

1. Transactions

Transactional business models are the simplest way to make money off content: slap a price tag on whatever you create and charge for it…just like you would when selling a pair of shoes. This works best when you have larger, clearly defined pieces of content that people are likely to want as one-time purchases separate from other content you’ve created. We’re talking about books, films, albums, games, online courses, research reports, etc.

Transactions can be for content to own or for content to get temporary access to. In the former, the customer buys a copy of the content that they can download or walk away with (i.e. they own a copy forever); in the latter, the customer buys access to content that remains hosted on the distributor’s platform.

Buy to Own/Download to Own

Historically (pre-Internet), people have bought physical copies of content: a book from Barnes & Noble, a record album from Virgin Megastore, a DVD from Best Buy, a video game from GameStop, etc. As content consumption moved online, this type of transaction went with it: in iTunes, you buy content, download it, and can send the file around to other devices. In a business context, you might buy a report from a market research firm and receive it as a PDF to download. Buying to own is still widespread online.

Pay-to-Unlock

The alternative – and the increasingly common model – is to buy temporary access to content that remains hosted elsewhere so you can’t take a copy to do whatever you want with. For example, a pay-per-view boxing match that costs $100 to see on TV or a movie available for 48-hour rental on Youtube at a price of $2.99. Renting individual movies or TV shows to watch online is referred to as TVOD (Transactional Video-On-Demand). The period of time you get access to content for could be indefinite, but without having a copy of the file itself, you don’t own the content.

From a media company perspective, the pay-to-unlock approach reduces the threat of piracy, which is common with download-to-own content since consumers can send the file to friends or upload it for free on another site. Moreover, a media company collects tons of data about how people are interacting with content they’re hosting; they don’t get data from people interacting with downloaded files.

A newer innovation is pay-as-you-go content consumption through micro-transactions. The Dutch startup Blendle, for example, created a platform for reading articles from a wide range of publishers that charges you a few cents per article you read. Each piece of content is a new transaction, but because you have pre-loaded your Blendle account, you don’t have to go through a new payment process every time. There has been talk of using blockchain technology to do micro-transactions on an even smaller scale (i.e. less than $0.01 per article) as well. This micro-transactions model hasn’t taken off in a big way though.

2. Subscriptions

In media, subscriptions are based on access to content for a period of time that’s recurring (typically monthly cycles). It locks in an ongoing relationship with the customer, who has to opt-out of the recurring payments if they want to stop being a customer. Usually, the subscriber gets access to a pool of content that they can consume at will, rather than only getting access to one piece of content.

Because subscribers continue to pay on an ongoing basis, they also expect new value to be provided on an ongoing basis. You typically don’t pay a subscription to consume the same unchanging piece(s) of content again and again; you pay a subscription for ongoing access to a flow of content that’s regularly refreshed with something new. That could be daily news articles, monthly refreshing of movies on Netflix, etc.

Newspapers and magazines tend to operate on subscriptions because they are comprised of many small articles people consume a high volume of. Similarly, SVOD (Subscription Video-On-Demand) platforms – like Netflix, Amazon Prime, Hulu, VRV, fuboTV, etc. – have gained traction because people watch enough content on them that they prefer an all-you-can-watch subscription rather than having to consider each film or TV episode as a new purchase.

Because the relationship with a subscription customer is not tied to one specific piece of content but rather the broader offering available to them, the value they measure is their overall experience…the quality of content they’ve consumed, the affinity they feel for the media company’s brand, the “fear of missing out” if they unsubscribed. In this dynamic, subscribers are like members of a club…winning and retaining their business is about a relationship rather than a one-time transaction. It also means that you’ve locked in recurring revenue just by gaining one new subscriber; in a transactional model, you have to fight for every purchase you want a potential customer to make, regardless of whether they’ve shopped with you before (i.e. you have a new “Customer Acquisition Cost” or CAC for every sale).

3. Licensing

Many creatives want to stay out of the direct-to-consumer business…they just want to create the content they want, then license the rights to another media company that handles marketing and distribution. This is the classic way Hollywood and other creative industries operated; pre-Internet, it was incredibly difficult for creative teams to also distribute their content. Much of that traditional infrastructure is still in place. There are lots of structures for licensing; sometimes it’s one upfront payment, sometimes there’s a revenue share on the sales (aka royalties).

Films follow this path: a production company sells the film to a studio that markets it and partners with exhibitors (i.e. cinemas) and online streaming platforms to distribute it. Television shows are created by production companies, bought by networks, and distributed through networks’ partnerships with cable companies. Music, books, and games are more direct-to-consumer nowadays than they once were, but the traditional distributors still remain important (i.e. record labels and streaming platforms; publishing houses and e-book platforms).

This route makes sense when you work on a small number of big productions, each of which might be unrelated to the others in terms of theme, target audience, etc. It would be inefficient to launch every new film as its own standalone media company that has to build an audience from scratch, for example.

The downside of licensing is that the fate of your content is dependent on middlemen, and you collect little-to-no data on who your audience is and how they’re consuming your content. Without that data and without direct interaction (getting their emails, etc.), it is tougher to build ongoing relationships with fans and engage them with new offerings.

4. Content Marketing

Content marketing is, simply put, using content as a tool to market some other product or service from which you make money. (Content marketing is also done by individuals to market their personal brand, with the ROI coming from the benefits the notability brings to their career.)

Content marketing has exploded in recent years within the marketing departments of companies across every industry. Companies that are bad at it plug their product offerings extensively so there’s no mistake you’re reading/watching promotional material; companies that excel at it focus on creating high-quality, engaging content that develops a relationship between their brand and the audience like a media brand would. GoPro and Red Bull are the iconic examples of content marketing pioneers, but it ranges everywhere from mattress companies and airlines to investment banks and venture capital firms.

The content marketing model can also start with media, then expand into relevant products/services to sell once you’ve crafted a brand and audience. In fact, many free-to-read news outlets in the business world are – when you look at their business model – live events companies with extensive content marketing. They cover industry news through articles and videos, and they do monetize that through advertising, but the largest revenue generator is the conferences they host, which are marketed to their business audience with ticket prices ranging anywhere from $500 to $5,000.

A common content marketing model for independent media properties is using IP from the content to do e-commerce…selling merchandise for passionate members of your audience to purchase, just like bands do with their fans. Sites ranging from WaitButWhy to BuzzFeed have done this. Publications like the Wall Street Journal have curated products from other companies to sell in an e-commerce section to their audience. There’s a grey area between being a media company and a consumer brand nowadays.

(Compared to advertising-based media companies, the incentives in content marketing are better aligned with creating high-quality content. It’s about quality over quantity. Companies here are trying to build genuine relationships and affinity for their brand so audience members ultimately buy products from them…that means trust is critical.)

5. Advertising

There are many ways to do it, but ultimately advertising is a simple concept that’s been around for a long time. You create content that draws people’s attention, then you do a bait-and-switch by also showing promotional content from brands around, above, below, in front of, in the middle of, and/or after your content so the audience sees it too. Sponsored content and product placement can be more complementary ways to integrate advertisers into content.

Advertising isn’t the focus of this blog, and I’m not a big fan of media companies centering their business model on advertising, so I’ll leave it at that. (Read my post The Problem with Advertising.)

Which is best?

Most successful media companies employ more than one of these in their arsenal. Which will be most effective for any given media company depends entirely on the content they want to create, the audience they’re targeting, and ambitions they have for how the company will evolve. I do believe subscriptions are the heart of a strong media business though. We’re going to explore this question a lot more over the months ahead in this blog, so stay tuned.