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The newspaper industry is suffering these days. Besides the economic crisis that leads to

less advertising spending the traditional business model is under attack by the Internet.

The large papers have reacted with large Internet activities that attract a lot of traffic. But

the revenues of the online ventures are not sufficient to compensate for the decline in

print. So what shall they do?

I had the pleasure recently to be invited back to my university, the University of St. Gallen, to give a

speech on business model innovation in the media industry.Prof. Martin Epplerwas so kind to sponsor

the discussion. I used 8 theses to present my thoughts. Below you find the slides of my presentation.

TRADITION IS NOT A BUSINESS MODEL

The media industry is an interesting case since their traditional business model is under attack by new

technologies. I use the music and the newspaper industry as cases to make my points. Although both

are affected by the Internet, they face very different challenges.

For the music industry the digitalization of the music led to disembodiment of the piece of

music from the carrier medium like the CD or the LP.Unfortunately, the business model of the

music industry is based on the sale of physical carriers of media. And with the disembodiment

the emotional impact of the carrier medium like the LPs cover vanished. And due to the easiness of

digital distribution the value of owning a piece of music diminishes for the customer. Today, we have

more music around then we can ever consume, we have thousands of songs on the hard drive, on the

iPod. There are thousands of radio stations on the web. So music is around but not as a physical piece

anymore.

The music industry reacted with the traditional way all endangered species do. They do not

adapt, they just do more of what they did in the past. They publish even more CDs than ever

before. And of course, they started to sue their best customers. But it did not work. The sales of music

is still decreasing and the most interesting new business models like iTunes, LastFM,Spotifyor
http://www.mcm.unisg.ch/content/view/340/166/lang,de/http://www.mcm.unisg.ch/content/view/340/166/lang,de/http://en.wikipedia.org/wiki/LP%20albumhttp://www.musikindustrie.de/uploads/media/ms_branchendaten_jahreswirtschaftsbericht_2008.pdfhttp://en.wikipedia.org/wiki/iTuneshttp://en.wikipedia.org/wiki/Last.fmhttp://en.wikipedia.org/wiki/Spotifyhttp://en.wikipedia.org/wiki/Spotifyhttp://en.wikipedia.org/wiki/LP%20albumhttp://www.musikindustrie.de/uploads/media/ms_branchendaten_jahreswirtschaftsbericht_2008.pdfhttp://en.wikipedia.org/wiki/iTuneshttp://en.wikipedia.org/wiki/Last.fmhttp://en.wikipedia.org/wiki/Spotifyhttp://www.mcm.unisg.ch/content/view/340/166/lang,de/


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Nokias It comes with music come from outsiders. At the same time people listen all the time to

music and they spent fortunes to go to live concerts but they do not spend money for physical pieces

of music anymore.

The newspaper industry faces a different set of challenges. Newspapers were in the last five years

very active in the digital space and launched large digital sites that attracted users in great numbers.

According to a PwC studythe newspapers could double their online revenue share to 3-20% of total

revenue.

Source: PwC newspaper publisher survey

The NY Times Corporation with all its newspaper sites (NYTimes.com, Boston.com, etc.) and also sites

like About.com claims to be No. 13th in America regarding traffic on the Web. The belief was that the

digital business will compensate the loss in their traditional business, so they invested heavily.

But, it did not.

The revenue model on the Internet for traditional newspapers like the NY Timesor Neue ZrcherZeitungdoes not work. The digital space does not allow sufficient revenues to pay for the content. The

newspapers reached millions of users but they could not monetize the users. Online might offer a

contribution margin to the content production but print still pays the majority. The NZZ is loosing CHF

3 millionon sales of 7 million.

Particularly in Germany, the publishers reactedby attacking the one firmthat makes a fortune from

the Internet, Google. The publishers claim that they provide the valuable content Google lives from.

Again, a typical behavior of an industry under attack. Instead of changing their business model

they attack somebody else. It is much easier to blame somebody else and play the victim

instead of blaming oneself for not being innovative and for holding too long to a dated

business model.

You can see easily from the two cases that there is not such a thing as ONE media industry and

therefore not ONE solution.Music industry and newspapers have very little in common,

except the traditional business model is challenged by the Internet. But the challenges are

very different and just enforcing the copyright does not give the media companies their

revenue sources back.

The problem does not lie in the copying of valuable content but in the weak value proposition. Times

have changed but the business models have not. So, dear politicians, please think first before you act.
http://www.comeswithmusic.com/http://www.comeswithmusic.com/http://www.musikindustrie.de/uploads/media/ms_branchendaten_jahreswirtschaftsbericht_2008.pdfhttp://en.wikipedia.org/wiki/The%20New%20York%20Timeshttp://en.wikipedia.org/wiki/The%20New%20York%20Timeshttp://en.wikipedia.org/wiki/Neue%20Z%C3%BCrcher%20Zeitunghttp://en.wikipedia.org/wiki/Neue%20Z%C3%BCrcher%20Zeitunghttp://www.handelszeitung.ch/artikel/Unternehmen-_Die-_Neue-Zuercher-Zeitung_-leidet_558108.htmlhttp://www.handelszeitung.ch/artikel/Unternehmen-_Die-_Neue-Zuercher-Zeitung_-leidet_558108.htmlhttp://netzwertig.com/2009/07/25/hamburger-erklaerung-berichten-deutsche-medien-ueber-googles-antwort-nicht-wirklich/http://netzwertig.com/2009/07/25/hamburger-erklaerung-berichten-deutsche-medien-ueber-googles-antwort-nicht-wirklich/http://blog.business-model-innovation.com/wp-content/uploads/2009/09/Revenue-Model-of-Newspapers.JPGhttp://www.comeswithmusic.com/http://www.musikindustrie.de/uploads/media/ms_branchendaten_jahreswirtschaftsbericht_2008.pdfhttp://en.wikipedia.org/wiki/The%20New%20York%20Timeshttp://en.wikipedia.org/wiki/Neue%20Z%C3%BCrcher%20Zeitunghttp://en.wikipedia.org/wiki/Neue%20Z%C3%BCrcher%20Zeitunghttp://www.handelszeitung.ch/artikel/Unternehmen-_Die-_Neue-Zuercher-Zeitung_-leidet_558108.htmlhttp://www.handelszeitung.ch/artikel/Unternehmen-_Die-_Neue-Zuercher-Zeitung_-leidet_558108.htmlhttp://netzwertig.com/2009/07/25/hamburger-erklaerung-berichten-deutsche-medien-ueber-googles-antwort-nicht-wirklich/


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PRINT IS THREE COMPLETELY DIFFERENT BUSINESS MODELS HOLDTOGETHER BY PAPER

I will elaborate in more detail about the newspaper industry and how they can change their business

model. To start with it helps to understand the business model of todays business and how they have

reacted to the Internet. Lets start with the former.

Lets talk first about the value proposition of a traditional newspaper. To identify the value proposition

we have to identify the customers. Newspapers have three very distinct groups of customers

they serve. The first is the reader, the second the marketeer and the third is a

person/company that places a classified. So what is the value proposition for them? And very

closely related what is the revenue model associated with the value proposition?

The reader is interested in the content in form of news, comments, insights and

background stories that help him to stay informed about the world. At the same time

the newspaper can be a past time and enjoyment to the reader. The classical newspaper

serves also as a guide to local entertainment offerings like theater, museums, galleries orparties. The important function of the newspaper is to filter and classify which news and

information are relevant for the reader. The reader trusts the paper that it makes the right

choice for him. For the content and the classification the reader is willing to pay in the

traditional world a price either in form of a subscription (great since you get the money for one

year in advance) or just for a single copy at a newsstand. The subscriber gets the extra benefit

of house delivery. Brand is in this context extremely important since you cannot test how

much the information is worth to you beforehand since as soon as you have read the

information the seller cannot charge you anymore since you have obtained the information

without having to pay for the physical medium newspaper.

The marketeer wants to reach its potential customers with his advertising

message. In times before the Internet newspapers were a great medium to reach a greatnumber of your potential clients. The biggest competitor in mass communication was TV that

reached even a larger audience than newspapers. Newspapers were an efficient medium

particularly, when the readers belonged to the groups of decision makers most marketeers

wanted to address. The marketeers were willing to pay for the reach the papers had. The

currency for the marketeers was how much they had to pay for thousand contacts

or CPMs(cost per thousands contacts). Actually, the newspapers were selling the attention of

the reader to the marketeers even when the readers did not buy the paper for being

bombarded by ads. Readers accepted advertising as long it was not too intrusive.

The third group of customers where people or corporation that wanted to close a

transaction like selling a used car, filling a job opening, renting out a flat or offering

sex services.These advertisers just want to find a counterparty for a transaction. The

classified market works well with just text ads in papers. The value proposition of the papers

was to bring buyers and sellers together. The reach of the newspapers was important since the

chance to find a counterparty is much bigger if you reach thousands of readers. The price for a

classified depended from the size and length of the text.

These three different value propositions of a newspaper were tied together by the physical

medium paper. The classical newspaper is a bundle of three different business models that

needed each other.No content without the income from classifieds and advertising and no

reach without the content.All three businesses needed the other. Very simple! The classical
http://en.wikipedia.org/wiki/CPMhttp://en.wikipedia.org/wiki/CPMhttp://en.wikipedia.org/wiki/CPM


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revenue mix for subscription based newspapers is 30% from subscription fees and single copy sales

and 70% from ads and classifieds.

NEWSPAPERS TRANSFERRED THEIR PRINT CONTENT MODEL TO THEINTERNET

So what happened with the advent of the Internet. Skeptical at the beginning the newspapers invested

heavily into the new medium and build up large digital domains on the Web. Besides their content

from the print edition they added video, blogs and comment functions to the Web. They connected to

social networks like facebook and used user generated content from youtube et al. From their point of

view the newspapers had transformed their content model to Web 2.0. Some newspapers like the NY

Times wanted to play at the forefront of the development and opened theirown R&D divisions to

shape the development.

The online content model of newspapers is very much an information portal with news,

information and background stories about everything and for everybody.The NY Times covers

international, national, state news, culture, business, investing, gardening, you name it. And the

newspapers are successful in their traditional metrics of success: reach. In America the NYTimes.com

is No. 1 for content according to a Nielson study mentioned in theannual reportof the NY Times

Corporation.

So, the world could be great for newspapers. But it isnt.

THE INTERNET IS NOT PAPER WITH MULTIMEDIA AND SOMEINTERACTIVE FEATURES

Newspapers managed to attract users (not just readers like with the print model) they lost

two of their revenue sources. First, the subscribers turned their back on them. The

willingness to pay for information is very low on the Web. The next free news site is just a click away.

So, the first revenue flow vanished.
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As did classifieds.What once needed the reach of the newspaper does not need editorial content

anymore. To close a transaction you do not need thousands of readers but the few that are really

interested in the transaction. And the Web is very good at matching even the most eccentric interests

together. The Web is just made for longtail marketsand most classifieds are longtail markets. To close

a deal you just need one interested party not millions. So new marketplaces like Craigslistevolved

and nuked the once very profitable business of the newspapers.

Ok, subscription fees and classified were lost on the Web but there is still the attention of your users

you can sell. Right?

The newspaper makers believed that they could sell again the attention of their users to

marketeers. But again, the Internet showed that having lots of readers does not

automatically translate into a high income stream from ads.

Why? The Internet showed that it might be very efficient to reach thousand of users with

banner ads but it also showed that this form of advertising is not very effective, meaningthat banner ads lead to very few leads or actual sales. That might have already been the case

in the print version but due to lack of more effective advertising marketeers had no other choice. But

now, they have.

Internet advertising can be measured with click-through-rates or CTRs. So you see how effective your

ad is and in the case of performance based advertising systems like Google Adwordsyou just have to

pay when people click on your ad (pay-per-click).

Unfortunately, the reader of a news site is not really interested in anything else when

reading an article on Obama than on Obama. He is not interested in health care insurance even

when Mr. President talks about his health care reforms. With Google search it is another case. If

you search for health care, you have a shown interest in the subject and therefore you might

be open for ads about health care plans.

So the Internet proved to be very damaging for newspapers. They attracted millions of

users but found no way to monetize their reach. And at the same time, their traditional
http://en.wikipedia.org/wiki/The%20Long%20Tailhttp://en.wikipedia.org/wiki/The%20Long%20Tailhttp://www.crunchbase.com/company/craigslisthttp://www.crunchbase.com/company/craigslisthttp://mediamemo.allthingsd.com/20090610/another-way-to-describe-the-newspaper-crisis-the-craigslist-boom/http://en.wikipedia.org/wiki/Click-through%20ratehttp://en.wikipedia.org/wiki/AdWordshttp://blog.business-model-innovation.com/wp-content/uploads/2009/09/Subsribers-turn-back-on-newspapers.JPGhttp://en.wikipedia.org/wiki/The%20Long%20Tailhttp://www.crunchbase.com/company/craigslisthttp://mediamemo.allthingsd.com/20090610/another-way-to-describe-the-newspaper-crisis-the-craigslist-boom/http://en.wikipedia.org/wiki/Click-through%20ratehttp://en.wikipedia.org/wiki/AdWords


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print business model was under attack. In print they lose subscribers and readers. The classifieds

have migrated totally to the Web and marketeers look for more effective ways of advertising.

SOLUTION ANYBODY?

So what shall they do? I have no shrink-rapped solution or one solution fits all. This is exactly whatbusiness model innovation is not about. Business model innovation is all about understanding your

business and finding a solution that makes you distinct from your competitors. If everybody does the

same nobody will profit.

Still, it is interesting to look at examples that work. First, there is a paper that has doubled its

circulation in the last 10 years and that has increased its global impact. Well, it is not a daily

newspaper but a magazine that does exactly what the dailies (should) do: Filter information for

relevant news, provide insights, give background, analyse the global events, and give you

information on areas most newspapers think are irrelevant to their local readers.

Any idea which magazine I have in mind? Well, it is The Economist.The Economisthas a highly

successful magazine on paper and it advertising market works as well. The Economiststill calls itself a

newspaper, not a magazine. Interestingly, their Internet version ofThe Economistdoes not work that

well. Somehow it seems that the success ofThe Economistis bonded to paper. The content The

Economistprovides is very well suited and adopted to paper. The stories and analyzes just have the

right length and style for paper. Will it work forever? Who knows, but it still works today very well.

FREE COMMUTERS NEWSPAPERS AS A BUSINESS MODELINNOVATION: USING A CLEAR CUSTOMER INSIGHT

The second example is daily papers for commuters. The value proposition is very simple and is based

on the customer insight that commuters that use public transport have time to read in the

train or bus. But if they do not bring a paper from home or buy a paper at a newsstand, they have noeasy access to a paper. Why not change that and use the attention you get from the commuters and

sell it to marketeers? And since commuters are always in a rush the only revenue model that works is

to give it away for free. Well, from this insight the free commuters papers were developed.
http://en.wikipedia.org/wiki/The%20Economisthttp://en.wikipedia.org/wiki/The%20Economisthttp://en.wikipedia.org/wiki/The%20Economist


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2 commuters' free dailies: 20 Minutes and Metro

The typical reaction of traditional publishers was to blame the free for the success of the new dailies.

They argued that it is not difficult to launch a paper successfully if you do it for free. For them the free

dailies were the ugly duckling in their industry. But it was the customer insight that commuters

have time that made the commuters dailies successful. The brands of free dailies show exactly

this insight: You have 20 minutes to read the paper in the Metro.

SOLUTION: UNDERSTAND THE CHARACTERISTICS OF THE MEDIUMAND LOOK FOR FRESH CUSTOMER INSIGHTS

So how can the newspapers escape their dire situation in print AND online? Well, the first tip is to

understand what each medium can better than the other and than design your offering

around the characteristics. We will see that the news will move online but the analytical

background story and insights are well suited for paper. But the archive is again better hosted on the

Web.

The second tip is to look at the behavior of your potential readers and users.When do they

have time? When do your readers really read the paper? On the same day of the publication or when

they have time? When are they not distracted by other media? Look not just at your current readers

but at your non-readers. The commuters dailies attracted the young which were long lost to

subscription newspapers. A generation of non-readers became readers again.

We will see daily newspapers that will be published not daily anymore.Sales on Mondays and

Tuesdays are already low. Why not publish the dailies just on Tuesdays, Thursdays (with a big must-

have section of the upcoming weekend events), Saturday and Sunday? Besides the commuters

dailies the biggest winners in the German speaking press are the Sunday papers that focus on the

news of the week. And of course, change the content: away from the daily news to background

stories and analytics.
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Is the loss of the daily paper a cultural disaster? No, when newspapers started the started quite often

as weeklies and later with the advent of better dissemination of news via telegraph paper even had

several editions per day. So we just go back to former times.

THE INTERNET IS NOT JUST ANOTHER CHANNEL!

And what to do with the online version of the papers? The Internet is not just a new channel for

the print content. And not just the traditional content with some Web2.0 features.The

Internet has some characteristics that changes also the economics of the content business.

On the Internet you can reach users from little niches that were unserved in the past due to lack of

medium that made it possible to reach tiny, dispersed interests for an acceptable price. The Internet

is all about these longtail niches.You can serve the local community super local news and create

a online community for the local community. [Update: Jeff Jarvis and his team have developed some

interesting ideas and working business modelson these hyperlocal news.] Some other interesting

thoughtson how publishers should address the Internet provides Andreas Gldi, founder of namics, a

large Internet consultancy in Germany and Switzerland.Or you can create communities with a sharply cut interest. How about girls that are going to marry?

Weddings are highly emotional and excellent made for exchange of tips and gossip. Why not give girls

a platform for this important event? And important, weddings are expensive and therefore the

marketeers of weeding related goods like rings, jewelry, hotels, restaurants, wedding planers would

just love such a Website where they could address soon-to-become-brides without much loss.

And of course there is already such a site: Weddingbee.comwhere 20 real brides write in blog form

about their weeding, their planning, their emotions. And the site attracts around 1.33 Mio. Unique

visitors per month that is just 0.2 mio less than the Tagesanzeiger.ch, one of the biggest dailies in

Switzerland. And what about the cost? The 20 brides do it part-time vs. the 150 plus journalist at the

Tagesanzeiger. Do the economics!

Sure, it is unfair to compare a quality daily newspaper with a gossip page for brides. But it just shows

how the economics of the business have changed. And the advertisers do not think in categories

of unfair or fair, just what suits their needs the best.

CHANCE FOR NEWSPAPERS

Newspapers have a chance if they understand what paper can do better than the Internet

and if they start designing a paper that uses these characteristics of paper.

Newspapers have to understand better the changing customer behavior and find a customer insight on

which they can base their offering. Commuters dailies or Sunday papers are examples.

And the Internet is not another channel for content plus some Web 2.0 features. So transfering your

content online and adding some blogs and comments function will not work.Todays online

portals (online version of a newspaper) attract a high volume of users but cannot monetized on their

great reach. So design an offering that uses the special idiosyncrasies of the Web. It might be
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the best local super local offering, it might be another niche but it will not be a portal about everything

which you charge for.

Update: The presentation was summarized in French by Le Figaro. And Anders Sundelin from the

Business Model Database justposted a summaryof theNew Business Models For News Summit at the

University of New York. It is a great summary of all the fresh ideas for business model innovation in thefield of media. Still, nobody has found so far the solution for this fighting industry.
http://blog.lefigaro.fr/medias/2009/09/la-fin-du-papier-peut-etre-pas.htmlhttp://tbmdb.blogspot.com/2009/10/videos-from-new-business-models-for.htmlhttp://tbmdb.blogspot.com/2009/10/videos-from-new-business-models-for.htmlhttp://newsinnovation.com/schedule-of-the-day/http://blog.lefigaro.fr/medias/2009/09/la-fin-du-papier-peut-etre-pas.htmlhttp://tbmdb.blogspot.com/2009/10/videos-from-new-business-models-for.htmlhttp://newsinnovation.com/schedule-of-the-day/

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