1/27/16

Lessons from the blood-letting at The Guardian and the failure of Al Jazeera America


The cutbacks at The Guardian and the demise Al Jazeera America announced this month provide painful lessons that the news business is not just about providing news, but creating workable business models and gaining audiences who think their content is valuable.

The Guardian announced 20% budget  cuts (£50 million; $72 million) and stretched the credibility of corporate public relations by presenting them growth strategy. The news organization has been losing money for years in a digital strategy that can only be described as hoping to buy market share through aggressive international expansion, free content provision, and the belief that digital advertising would replace declining print advertising. The Guardian’s strategy was closely aligned to the discredited digital startup approach of considering the “burn rate” of its capital as a surrogate for prudent investment.

In announcing the changes, David Pemsel, The Guardian’s new chief executive, used trite popular business  language: “We need to be an agile, lean and responsive organisation that can respond at pace”. While reducing its losses and having a flexible organization are necessary, the firm will not be able slash its way to growth and will need to be more realistic about its future prospects.

Admitted, reducing costs is critical because The Guardian's activities have been supported by commercially viable non-news properties. Unfortunately, it has seen income from those properties dwindle and has been selling assets in a way that it can no longer expect to be bailed out for large losses in the future. However, projecting the cuts as a path to growth is fanciful.

Al Jazeera America was the best-funded startup cable and satellite television news channel in the US recent years after beginning operations in 2013. It announced its April 2016 shutdown, admitting its business model was not sustainable—a model that relied on subsidies from the Qatar government, whose wealth has been falling along with oil and natural gas prices.

The channel presented news in a sober manner that reflected non-US perspectives and won both acclaim and ridicule for its content.  Despite its $500 million initial investment, a staff of 700, and spending about $1.4 billion on operations, it reached only about 30,000 viewers and managed to attract less than $25 million in advertising during its operations.

The media business is alluring, but it is a crowded environment in which fickle audiences, befuddled advertisers, and rapacious service providers abound. Media must be able to critically analyze the environment, develop effective strategy and feasible business models, and provide content that differs from and is better than that of competitors. The Guardian and Al Jazeera America may have succeeded at the latter, but both let unrestrained optimism in the goodness of what they were doing keep them from accomplishing the other central business tasks.

9/9/15

Meredith-Media General merger shows pressures on the local television business


The $2.4 billion merger of Media General and Meredith Corp. local television stations is being lauded by the companies as delivering shareholder value and by media critics as a sign of dangerous media concentration.
 

What the merger really reveals is the weakening of local television market profits and increasing efforts by station owners to seek cost efficiencies and scale advantages in operations and local advertising sales--a common strategy in mature and declining businesses.

The merger will put the new firm, Meredith Media General, into third place in local television station ownership. It will have 88 stations in 54 markets, including 40 of the big network affiliates in the top 25 markets.

The firms are expecting the merger to produce $80 billion in savings in the first two years.

Because of the financial pressures on local stations, large media owners such as Tribune, Sinclair, and now Media General and Meredith are trying to buy market share through mergers and acquisitions and multi-channel video operations. These increase revenue and profits that they find difficult to obtain through growth of current local television operations.

Local television revenues are being hit by shifts of audience consumption to programming offered by cable and satellite operators and downloadable video from NetFlix, Hulu, and other connected TV operators.

The new firm will need to divest some stations in 6 mid-sized markets to meet FCC ownership limitations and receive regulatory approval.

8/22/15

Twitter’s value problem is destroying its performance





Twitter is one of the best known social media services, but it is suffering from its inability to provide sufficient value to consumers, advertisers, and investors.


The firm has 316 million users, a respectable figure—but 80% smaller than Facebook. Its share price has dropped below the level set when it became a publicly traded company in 2013. The company has lost about $30 billion in market value in the past two years and is now valued at $15 billion. It continues to experience negative operating and profit margins and negative return on assets, despite about $2 billion in revenue.


Twitter is suffering from two fundamental business problems. First, the lack of an effective value proposition that makes it attractive to larger numbers of users. Second, lack of vision and direction. The latter led to the departure of its CEO in June 2015 and he has still not been replaced.


A significant value problem for Twitter has been that it is primarily configured for short, one-way communication. It is a great way for the Kardashians to share their latest selfies with fans and media and for journalists and media outlets to promote their latest material. Unfortunately, that configuration it is not as well suited for conversation as the configurations of other social media services.  The 140 character limitation also reduces its value to many potential users.


Twitter also lacks distinction for doing something superlative and creating a niche for itself.  It does not lead a clear niche such as that of LinkedIn, which is the primary networking social media among professionals, or the photo and video sharing niche orientations of Pinterest and Instagram—whose growth rates have trounced Twitter’s growth in recent years.


The company has been working to improve the effectiveness of advertising placement and it is changing it advertising platform so it can reach apps other than Twitter on mobile platforms and is hoping that will improve its attractiveness to advertisers.


The challenges facing Twitter reveal the fundamental needs of all companies to get their business models right. They have to have a value proposition and value configuration that works for customers. They have to be able identify the customer wants and needs they are fulfilling, find ways to surpass the value customers expect, and make the company’s products and services unique in providing that value. Only when Twitter effectively addresses those issues can it hope to improve on its poor performance.