Lesson 2


Developing a Vision and Strategy

Key Objective:

Lesson 2 is to encourage publishers, editors and advertising directors to step back and honestly assess their position in the market and community, and identify how their organization needs to change in order to survive and thrive in the digital era.

With tremendous change sweeping the media landscape, it’s no wonder that owners, publishers and editors of local newspapers are confused about what to do and when to do it.  Should you funnel resources into the print edition, which still provides the profits that keep the lights on and the doors open? Or, is print dying? Should you, instead, invest in the paper’s digital editions?  How do you get a return on those digital investments, which, to date, provide only a fraction of total revenues?  How do you calculate the risk of going slow versus plunging ahead?  How do you judge progress?

To survive and thrive in the digital age, local news organizations need a sound strategy for transitioning from print to digital.   Yet in large corporations, as well as small “mom-and-pop” operations, managers often misuse the word “strategy” to refer to specific tactics, or even the overarching mission of an organization.  For example, how many vendors come to your doorstep pushing a “strategy” for increasing online revenue?  What these vendors are really selling is a specific tactic.  Unless you have established a goal (or a vision) for what you hope to accomplish, and you have formulated a strategy for achieving that goal – the tactics that vendors are selling may increase revenue in the short-term, but be counterproductive over time.

So, let’s start by defining exactly what we are referring to when we use the word “strategy.” A strategy is a roadmap that outlines in broad terms how you will travel from Point A to Point B, from where your newspaper is today – mostly reliant on the print edition for revenue – to a new destination – in which your newspaper becomes a vibrant multi-platform medium that attracts both readers and advertisers.  A good strategy will address weaknesses in your current business model, but also helps you realize how you can build on your considerable strengths.

Traditionally, reporters were taught to write the lead paragraph on a news story by focusing on answering “the Five W’s” – who, what, when, where and how or why?  This lesson helps you begin to craft a strategy by asking five questions related to the economics of your business. The process laid out here – and the questions it prompts you to answer – can be used by anyone responsible for leading a news organization of any type, either traditional newspaper or start-up digital enterprise.

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This simple five-step economic analysis helps you develop a strategic plan to capitalize on your news organization’s strengths, which for most local news organizations are still considerable. Using the “Five W’s of News Economics,” you can complete this exercise in a couple of hours or over a couple of weeks.  Once you have worked through the analysis to your own satisfaction, you should involve everyone in your news organization in seeking more information and data, and on proposing counter-intuitive solutions that can be tested, assessed and modified.   As Harvard professor Robert Simons points out in his book Seven Strategy Questions, “There is only one path to success; you must engage in ongoing, face-to-face debate with the people around you about emerging data, unspoken assumptions, difficult choices and, ultimately, action plans.”

 Who Are We? An Internal Review

This first question looks inward and helps you identify how the Internet destroyed your old business model. Before the digital era, newspapers “acquired” readers by charging them less than it cost to produce the paper and then selling this audience to advertisers, who provided the majority of revenue.  This first broad question – Who Are We? – asks you to focus on the strengths and weaknesses of your current business model.

The act of publishing the news consists of three separate processes. First, you create content – news and information.  This content is then bundled together and placed onto a package (the printed newspaper).  Then this aggregated package of content is distributed on a routine basis – daily, weekly or on some other schedule – to homes and businesses.

Seeing the production of a printed newspaper as a series of processes – some of which are more threatened by the digital age than others – helps you begin to prioritize the changes you need to make to survive creative destruction. The Internet has assaulted the value proposition you offer your readers and advertisers in two ways.  It has disrupted both the aggregation of your content and the distribution of the print edition.

On the revenue side, large “aggregators,” such as search engines, unbundle – or disaggregate – the general news content you have packaged in the print edition for your readers and then bundle it with digital content from other sources on a similar topic, such as sports or entertainment.  This re-aggregation provides certain categories of advertisers with a more efficient way to target their customers and your readers. On the cost side, digital distribution is much less expensive than the high fixed costs you carry on your printing and distribution operations.  Therefore, you need to develop a strategy that addresses head-on the dual threats to your revenue and your cost structure.

Identifying the Revenue Issues: 

From 75 to 90 percent of the revenues that support the production of a newspaper have traditionally come from advertisers, who buy space in the paper in the hope of attracting the attention of readers, who purchase it for a fraction of what it costs to produce.  Therefore, you first need to focus on understanding how advertising, which pays the bills, decreased in recent years.

Start by focusing on the top-level trends over the last five years – not only in overall dollars you receive, but also in volume. Significant volume decreases in certain categories suggest that you need to focus your efforts on improving your digital and print offerings to better compete.  Significant decreases in average rate suggest that you need to rethink and retool how you are selling the value that your newspaper offers in both its print and online editions

Finally, to understand what is at risk, calculate realistic projections for revenue growth over the next three to five years, assuming there are no significant changes in your business model.  At what point will total revenues dip below the costs required to produce and distribute your newspaper?

Click here for an example of how one newspapers examined advertising revenue.

Identifying the Cost Issues: 

You need to attach costs to each of the three processes required to produce a newspaper – those of creating, aggregating and distributing content.  The news in your paper is created by reporters, so tally the salary, benefits and expenses of your reporting staff and attribute that expense to the process of creating content.  Next, in similar fashion, break out the total cost of aggregating the content – isolating the salaries, benefits and expenses of editors and others who package the information in both your print and digital editions. Finally, tally the cost of printing and distributing – including not only the personnel costs, but also any other operating expenses – such as rent and maintenance of equipment, as well as fees to independent contractors – that you incur from supporting this pre-digital legacy system.

If your cost structure is similar to most community newspapers, more than half of your costs are going to support printing and distribution of the print edition – a legacy of the pre-Internet era.  This is why coming up with a game plan for significantly decreasing outdated legacy costs should be your first priority.  With such a plan you can then focus your efforts and your financial resources on supporting the processes that are still offering unique value to both your readers and your advertisers in the digital age – creating and aggregating content.

Click here for an exercise that will help you understand your current business model.

Who Are Our Customers and Competitors? An External Review

This next question looks outward.  During this time of disruption, it is crucial that you retain the loyalty of your current readers and advertisers, even as you seek to attract new customers.  This question prompts you to consider how your customers’ media habits are changing and to identify competitors that might lure them away.

How much do you actually know about your readers and advertisers? Why are they loyal to you?  How are their media preferences and habits changing? Where are you vulnerable to competitors? In the digital age, it is relatively inexpensive to obtain reliable reader and advertiser feedback and trending – through simple online surveys supplemented with periodic one-on-one interviews of readers and your advertisers.  Since this is a very critical step in the strategic process, we’ll show you how to do it in Lesson Three (How to Measure Success).

The loyalty of your current customers – built over the years – is your single biggest advantage against your competitors.  We tend to focus our attention primarily on our traditional rivals and fail to notice threats on the periphery.  Therefore, you will find it helpful to place your current and potential competitors into three categories.

Book -- excerpt from advance reviews

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As you identify current and potential competitors, specify the threat they pose to your current business model.  Is the current threat imminent?  If so, what actions can you take in the next six months to deflect the attack?  Longer-term, what strategies do you need to pursue with your loyal readers and advertisers to shore up any weaknesses?

Click here for an exercise on analyzing your competition. 

 How Will We Grow?

All businesses need to grow to survive.  Historically, newspapers, like most media companies, have been considered cyclical businesses, because our financial fortunes and profit tended to track the economy.  Research in the latter part of the 20th century suggested that companies who used recessionary periods (or temporary downturns in the economy) to invest wisely in their core business were often able to out-maneuver their competitors who engaged in cost-cutting. Using this logic, during downturns, you should invest in your print edition, since it remains the cash cow, producing most of the revenue and all the profit.

However, this is not a typical 18- to 24-month economic downturn.  You are also coping with a disruption of your business model, and should, therefore look to follow your customers and follow the advertising money online. Recent research indicates there has a significant shift in both reader and advertiser media usage – away from print media to digital ones.

There are basically three ways to grow revenue and profits:

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Several recent studies across various industries have concluded that organic growth yields the best long-term, sustainable returns. To pursue organic growth, you will need to reduce costs by shedding legacy processes and content, so you can redirect those funds to your new online initiatives.  With budgets tight, you might consider dividing your annual expenses into two buckets: 1) Operational expenses, such as those needed to keep the print edition viable, and 2) Investment expenses, related to building readership and advertising across multiple mediums and editions (including your web site, social networks, and mobile)

By separating the expenses, you are better able to calculate what you can afford to invest in any given year.  Also, you are better able to track the return on investment (ROI) of your digital initiatives.  Any strategy, such as the one you are developing, involves “losses,” as well as “successes.”  In Lesson Three (How to Measure Success, we’ll discuss simple analytical tools that will help you determine whether to invest more, or pull the plug.  The clearer you can be, from the beginning – about the amount of funds you’re willing to allocate to a venture and the return you expect – the more flexible you can be in shifting funds away from a failed initiative to a more promising one.  In the digital era, there is a premium on processing information and data quickly and responding accordingly.

Click here for an exercise on growth. 

What Are Our Strengths, Weaknesses, Opportunities, and Threats?

You are facing a very competitive market and need to know how to prioritize the options you have. This question will help you understand your most promising options.  A SWOT analysis (a listing of your strengths, weaknesses, opportunities and threats) is your chance to unemotionally acknowledge the threats against your newspaper, but also identify opportunities that may not be immediately obvious.

Using a SWOT matrix allows you to place the insights you gained from answering the previous three questions (Who Are We? Who Are Our Customers? How Will We Grow?) into a strategic framework and then prioritize those weaknesses or threats that need immediate action.

 Publishers should review their strengths and weaknesses from five angles, instead of just one:

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Click here for a link to a SWOT analysis done by the Whiteville News Reporter in 2009.

By doing a SWOT analysis in this way, you can tease out nuances.  You can also understand why a weakness does not automatically equate to a threat, and a strength is not necessarily an opportunity.  For example, if the community that your newspaper serves is economically depressed – with low growth and high unemployment – it may take you longer to experience a turn-around in your business model.  However, this can also be an advantage since you most likely will not have to deal with the volume of “new” competitors that a high growth market might have.  This weakness (low economic growth in your community) turns out to be an opportunity – if you take it.  It gives you – the publisher and editor – the opportunity to focus on staying ahead of a smaller number of competitors, allowing you to prioritize your investments by the specific threat posed.  Similarly, it gives you more time to solidify your support among loyal readers, while also ensuring the loyalty of new customers you may bring to your website.

Click here for an exercise that will help you do a SWOT analysis. 

Where Will We Be in Five Years?

Having identified the strengths you can build on and the weaknesses that you need to address, you are now ready to articulate a vision for change and lay out the broad outlines of a strategy to achieve that vision. A vision lays out the destination (or ultimate goal) while the strategy is the roadmap for getting there.  The business plan, with its finite goals and checklists, functions as a measuring tool.

If you are leading a news organization, you need to develop a strategy that allows you to attract both readers who are interested in and engaged with the content, as well as advertisers or sponsors who provide the revenue to pay the bills.  Here are the questions you’ll be asking:

  • Who will be our customers? What will drive their loyalty to this news organization?
  • Who will be our competitors?  How will we serve our customers better than our competitors?
  • How will we grow revenues across multiple platforms (print, web, mobile) while substantially decreasing costs associated with the print edition?

By answering these three questions, you should be able to articulate a vision or strategy for your newspaper that motivates employees and customers to sign up for the journey ahead.  Also, the answers should confirm that, if you are to transform your newspaper for the digital age, you must pursue a three-pronged strategy that addresses current and potential attacks on your costs, customer base and revenues.

The legacy costs of producing and distribution a paper are the single biggest disadvantage you carry into the digital era.   However, the loyalty of your current customers is your single biggest advantage versus traditional rivals, or new competitors that are vying to supplant you.  To put it another way, while the deck is stacked against you on the cost side, you are still in the game on the revenue side – provided you understand where the opportunities with readers and advertisers are and move pre-emptively and aggressively to retain and grow their loyalty.

Click here for an exercise that will help you draft five year goals. 

Key Insights

The Internet has attacked two of the three processes necessary to produce a newspaper – creating content, aggregating it into a package and then distributing it. It has disaggregated the content, siphoning off readers who can now find the content “re-aggregated” online around special topics, such as sports or business or politics.   It packages and distributes information much more efficiently, making the cost structure for printing and distributing the print edition a financial albatross for many traditional newspapers.

During this time of creative destruction, newspapers need to be following their customers (both readers and advertisers) and following the money online.  If they don’t someone else will, and supplant them. Publishers and editors need to take a very expansive view of their competitors. During periods of creative destruction, major competitors often come from the periphery and fly under the radar of the dominant company.

Newspapers need to react to this major disruption of their business model by re-imagining and re-creating a vision and strategy for the digital age.  Cost-cutting alone (shedding legacy expenses associated with the print era) does not get you to the next frontier.

Follow a systematic approach in creating a strategy. You need to mesh creative brainstorming with an analytical approach. We’ve laid out a five-step process that should provide you with both a  baseline of how your paper stacks up and an honest overview of its strengths and vulnerabilities. Here are the five simple questions every publisher should ask:

  1. Who Are We? (How specifically has the Internet affected our revenue and cost structure?
  2. Who Are Our Customers and Competitors? (How fast are our customers’ media habits changing? Who Might Supplant Us?)
  3. How Will We Grow? (Organically, or through partnerships and acquisitions?)
  4. What Are Our Strengths, Weaknesses, Opportunities and Threats?
  5. Where Will We Be in Five Years? (How will we make money and how will that be different from today?  Who will be our competitors? How will we have grown and recreated ourselves?)