News Publishers’ Business Model for Digital Success

The addition of digital agency services is something that every local media company should consider in 2012.

Local Media Innovation Alliance – “The Local Digital Ad Agency: Emerging Opportunity for Innovative Media Companies,” the Local Media Innovation Alliance, December 2011

To better serve local advertisers and compete for online advertising dollars, adding digital agency services is a major opportunity for news publishers, but achieving profitability is the real challenge.

Some newspapers are trying to build the internal capability and capacity to provide a range of digital production services. Many are discovering this is quite expensive operating overhead to carry and it just doesn’t make economic sense. Publishers find it is extremely difficult to outlay new capital to fund the production resources needed, and to do it in such a way that yields positive operating margins.

Another important consideration is that SMB advertisers are highly price sensitive and the price points required to sell high volumes of online marketing services must be extremely competitive.

Despite these challenges, newspapers have had no choice but to plunge into digital services: display ads, iPad ads, websites, mobile, social and video services to balance declining revenues from print. They have to juggle two roles: that of news and content provider to their readers (whether via print or online media) and that of marketing agencies to their customers, providing both digital and print services and helping small-business owners find their way in online marketing.

Newspapers are unrivalled as providers of news and content, which puts them in a prime position to exploit digital revenue opportunities. But the model for digital revenue consists of drawing high volumes of relatively low-yield ads, very different from the high volume, relatively high-yield advertising of traditional newspapers.

WAN-IFRA – “Million Dollar Strategies for Newspaper Companies,” WAN-IFRA, June 2010

Production of digital services is more expensive than production of print ads. And newspapers traditionally do not have the expertise needed to provide all these digital services.

The high-volume, low-dollar, high-complexity nature of digital programs makes it the most labor-intensive medium in the advertising industry.

American Association of Advertising Agencies – “Understanding the Economics of Digital Compared to Traditional Advertising and Media Services,” American Association of Advertising Agencies, 2009

The importance of competing in the digital media agency space has become even more pronounced with the recent explosion in tablets and e-readers.

  • Tablet and ebook ownership has nearly doubled since the holidays.
  • B2B C-suite executives are using their tablets to research business purchases online.
  • Mobile browsers spend more per purchase—50% more than smartphone visitors and 20% more than desktop and laptop visitors.

Pew Research Center – Pew Research Center, January 2012 (via HubSpot)

Journal Register Company, and now Digital First Media, has been pushing their Digital First strategy for a while now, and other newspapers are following their lead.

As Mike Fogel of Hearst Newspapers had mentioned, the strength that traditional news publishers possess is their sales people: the friendly neighborhood newspaper rep who knows the customer’s business.

Traditionally, newspapers have sold advertisements based on the products they have to offer—in other words, an internally focused sales process. The consultative sales approach focuses on the client, the advertiser, and his or her business needs. If the client wants to introduce a new product, highlight a grand opening, improve brand recognition, or reach a certain demographic, then newspaper sales people can construct a campaign including a host of publishing elements to achieve success for the advertiser.

WAN-IFRA – “Million Dollar Strategies for Newspaper Companies,” WAN-IFRA, June 2010

For Digital First Media and Hearst Newspapers, focusing on strong core competencies of sales and local relationships and aligning with a proven interactive delivery partner is the business model that works.

Affinity Express provides digital services to publishers that benefit their customers, and that can be offered with quality as great and at prices as affordable as they would get anywhere else. Partnering with Affinity Express is the perfect answer, because we have trained and nurtured our employees to become subject matter experts in services newspapers provide and want to provide their customers. At the same time, we learn from each client and constantly work on improving our services, including the technology we use to deliver them.

The reason why newspapers are such a valued partner for us—and we for them—is that we complement each other so well. With their market insight and our product knowledge, we develop new revenue products together: services that their customers can take advantage of and that we can build more cost-efficiently, quickly and with better quality than anyone else.

Some newspapers will still try to build digital service offerings internally for a variety of reasons, but they will probably not make much money carrying high fixed costs and selling at the low prices needed to attract SMB advertisers. Fortunately, there are options to partner and establish an economic model that makes sense for both news publishers and their SMB clients.

About Ken Swanson
As CEO, Ken is focused on ensuring that Affinity Express balances outstanding delivery to clients with continued growth.

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