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Strategic analysis
Biggest Problem for Big Media is Size

Written by on October 5, 2010

The challenges faced by newspapers and magazines, seems to many as if it is simply a question of moving things online and setting up a paywall (often in the shape of an iPad app). But, they are in for a very nasty surprise.

Just compare the sales of Techcrunch with Newsweek. Techcrunch, a blog staffed with only 40 employees and a sizable revenue stream, was sold for a rumored $40 million. While, Newsweek, an established magazine with about 400 employees, huge amount of expenses, and no revenue, was sold for $1.

See the trend?

The old established media companies are generally facing three huge changes in the market.

Product

In a world with infinite amount of content, directly from the source, focusing on being the deliverer of news is simply not a useful business model. Why pay reporters to report the news, when news aggregators can simply do the same by providing a link?

There is money in aggregating the best links, just look at SmartBrief or Silicon Alley Insider's excellent "10 Things You Need To Know This Morning." And there is money in providing perspective, insight, the big picture, and analysis.

But, there is very little money in simply reporting what other people did. We already know, we have the link for that. And most of all, you can't get people to pay for it.

Format

The other big change is the format. It used to packaged in sizable chunks, mostly because of constraints in how it was distributed. It was simply too expensive to ship a physical magazine every time you had a new article. So to cut down the cost of distribution, content was put into daily, weekly, or monthly packages.

We don't have that constraint anymore. We have even moved beyond it.

Today it is no longer about the format; It is not even about making articles. It's about creating content. These days news is atomized and presented as it appears. For the successful digital news companies, it often starts with a tweet, followed by a couple of links, followed by a short article, more tweets, and later, a more in depth analysis of the topic.

That's the news stream, and it is a far cry from the old model of packaging content in a monthly magazine.

Cost

The biggest disruption of all, however, is the cost of operation. The digital media world is playing a completely different game. One that isn't tied down by traditional expenses.

Traditional media companies are simply unable to compete because their expenses are too high. How high you ask? Well, in October 2009, The New York Times slashed 100 jobs in their newsroom, cutting down their staff by 8% - but if they want to compete with Mashable, they actually need to cut their staff by 96%.

That's how big the difference is between digital media companies and the traditional world.

Take a look at the graph below. It shows the amount of readers per employee.

Mashable has 32 employees, and reach about 14 million readers per month. The New York Times have 1,150 employees (in their newsroom), and reach 18 million readers per month. That means that each employee at Mashable is responsible for roughly 435,000 readers, while a New York Times reporter is only responsible for about 16,000 readers.

We see the same pattern with all digital and traditional news sites. The cost vs. result, in traditional media companies, is not even close to being competitive.

Same thing on this site. I have about 300-350,000 readers, but I am also just one person. While I am only 2% the size of the New York Times, I am beating them hands down when it comes to cost vs. result.

This is the reason Techcrunch is profitable and Newsweek is not. It is not because Techcrunch writes better articles. It is because they can operate and reach a bigger audience at only a fraction of the cost and with only 1/10 the number of employees.

We see exactly the same pattern when looking at other forms of metrics. Compare the number of articles to number of readers. Mashable produces about 25 articles per day, and reach about 430,000 readers/day. The New York Times write hundreds of articles per day, but only reach 590,000 readers/day. Mashable is beating them without even breaking a sweat.

The question traditional news companies need to ask themselves is: How can we create compelling content, deliver it on whatever device, wherever and whenever, all while cutting cost by 90%?

In my opinion, they will not be able to. I simply cannot imagine any company being able to cut their cost by 90% and still survive. The transition will destroy the company.

Instead, start over. Keep the brand, but build a new company - one that is digital native to begin with.

If I where a traditional news company, I would divide the company in two. One is the old print business, that I would keep running until it is no longer able to support itself (e.g 75% of the New York Times is still print).

But create a new company focused on your digital future (using the same brand). One that is built with people who understand what it means to work digital and virtually. One that isn't bogged down with enterprise IT, but uses Google Apps and Wordpress for the site. One that uses cloud enabled analytics systems etc.

A company that aggregates instead of reports. One that only use company employees to create news, and not copy (or rewrite) it from press releases or other news sources.

For big media companies think AOL, they are not creating one big newspaper for everyone (a really bad business model), but are instead offering valuable niche content via many blogs.

Excessive expenses are what is really destroying the old media, It's time to reboot!

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Thomas Baekdal

Thomas Baekdal

Founder of Baekdal, author, writer, strategic consultant, and new media advocate.

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