Is There An Online Future For Old Media?
The two big Finnish “old media” companies, Sanoma and Alma Media, published their 2009 results yesterday and today, respectively. However, as seems to be the common policy, neither of them was too open about the state of their online business. But luckily Alma still offered some nuggets of information for constructing a picture of what’s going on.
The two online legs of an old media company are typically classifieds and editorially driven news sites. Alma’s classifieds segment, which includes such assets as the housing site Etuovi.com and jobs site Monster.fi, posted a loss of €0.7m with an €27m revenue. Sanoma doesn’t give out any information on its online classifieds.
On the online news side, Alma publishes Iltalehti.fi, the biggest website in Finland by unique visitors. Although the full year figures for the asset were not disclosed today, the Q1/09 report from April states a revenue of €1.2m, so the annual income is likely to be around the €5m mark. Given that Iltalehti.fi relies mainly on journalistic content, the site is – after full allocation of editorial costs – most likely loss-making or, if they’re lucky, posting a very small profit.
Neither report offers any further insight into the revenues or profitability of other editorial sites, such as Kauppalehti.fi or HS.fi. But the situation is unlikely to be strikingly different from the market leader.
So online clearly has not been a smashing success thus far for the Finnish media giants. And given that all the non-online businesses are already, or will be soon be, in structural decline, it doesn’t take a genius to guess that both firms are frantically looking for ways to turn the tide.
Learn from the Vikings
What about old media in the other Nordic countries? Fortunately Schibsted, the Norwegian publisher, has a more open communications policy on its online activities. VG Multimedia, the publisher of VG Nett, Norway’s largest website and the local equivalent of Iltalehti.fi, posted a Q3/09 revenue of €8,2m with an 18% operating margin. So the annual revenues are likely to be at least €30m with €5m in profits. Not bad at all when compared to the Finns, especially considering the slightly smaller market size (Norway has 4,8m inhabitants and Finland 5,3m).
But it’s the classified advertising that really shines across the Scandic Mountains. Finn.no, the marketplace for everything from used goods to boats and travel tickets, posted a Q3 revenue of €25m with a whopping €11m profit. So at an annual level, the asset is raking in €100m in revenues with a more-than-healthy 45% profit margin.
In Sweden, Schibsted runs the news site Aftonbladet.se with a 12% margin and the classified site Blocket/Bytbil with a staggering 62% margin.
Although Schibsted is clearly on the right track, this all begs the question: What does the online future look like for the Scandinavian old media companies?
Finger-pointing never helps
We all know how the story has developed in the US. The consumers are migrating online at an ever-increasing pace and the media companies are – to put it politely – struggling to follow. Nowhere is this as evident as in the news industry. The beacon of US quality newspapers, the New York Times, almost went bankrupt last year, only to be rescued by a Mexican businessman. Other papers have not been as fortunate, and many have gone under.
Finally realising that the old tricks – selling advertising space as a scarcity and making readers pay for bulk content – don’t work in the new environment, these firms are all but panicking. The most comical example of this has been Rupert Murdoch trying to argue that Google, which generates traffic for news sites by making their content easily discoverable, should pay the news companies for the privilege of providing this free marketing service.
Google has been unfairly blamed for the news industry’s misfortunes also in Europe. The Germans have argued that news companies deserve a share of Google’s revenue and called for legislation to condemn the company as a monopoly. News firms from other European countries have since joined this bandwagon of nonsense by signing the so-called Hamburg Declaration.
Rather than pointing the finger at innovators such as Google and crying after their profits, media companies should themselves put all focus on innovation and renewal. The internet has broken most old media business models, and no amount of protectionism will bring them back.
It ain’t gonna be easy
Given that Scandinavian media companies are still in a much better shape than their US counterparts, there is still time to act. Schibsted – which, by the way, didn’t sign the Hamburg Declaration – has shown that it is not impossible succeed online.
Bonnier, the Swedish media behemoth, has taken a small step in the right direction by establishing an R&D lab. Only time will tell whether they can produce anything beyond snazzy concept videos.
Succeeding in the new world will not be easy, not least because newcomers are rapidly populating what is now a fully open playing field. Google has already taken a big chunk of the small business advertising. In paid digital content, the device and platform providers such as Apple and Amazon are likely to reap the biggest benefits. Thematic content verticals, traditionally the domain of magazine publishers, are steadily slipping into the hands of non-established players. In Finland, the most popular standalone cooking site (Kotikokki.net), health site (Tohtori.fi) and fashion site (Indiedays.com) are all run by innovative and fast-moving companies eager to capitalise on the new opportunities.
And while the old media companies might be many things, fast is not one of them.
Very good & interesting post. Thank you, Otto! I've been working for Iltalehti since September, so I can't comment a lot (as I'm working in a business unit of a listed company) but one small correction though: the service you mentioned at the end of the article, Kotikokki.net, is nowadays actually partly owned by Alma Media / Iltalehti.
Thanks, Asmo. Yes, your 40% stake in the asset didn't go unnoticed whilst shifting through your annual report ;) But I think the point remains: the service itself has been developed outside the realm of established media companies.
Thanks again for an informative post. This "how will old media houses survive?" is indeed one of the largest tangible questions that has followed during the social media explosion.
I also agree that no use of blaming Google, the company happened to come from a blind spot, inventing their own business model. How can you even be mad of something like this! Shouldn't making business supposed to be about development and… stuff. It's like, sue Apple for shaking Nokia's markets or why didn't they sue Henry Ford for making horses obsolete in work usage?
"A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." -Gretzky
Google just happened to be in the right corner at the right time and that's that. Look what happened to Altavista or even Yahoo!. Their state could've been Google's if they hadn't been innovating and "to boldly go where no man has gone before".
In some cases I believe that some of the old media houses are playing martyr. In the end, what even justifies them to be the kings of the informational hill? Because it has always been like that? Well, when you look back in the human history, the history of behemoth media houses is actually a very tiny one.
News are based on human interests and curiosity, and people tend to get them the way they want – adults have just learned to order a magazine and read it for 30 minutes during breakfast or watch 9 o'clock news. People gone digital just happen to read RSS for 30 minutes and during that time they could read 20 or even 30+ different news sources.
No one really owns the news, it's just a misconception that media houses should be the gatekeepers and guardians of them – heck, there's even a magazine called 'Guardian'!
Otto, yep, that's true.
Extremely good analysis, Otto. Thank you. Schibsted example is worth some further analysis and it will be interesting to see how the expansion of Tori will take place here in finland.
The media industry in finland has - I think - recognized the fast/slow issue and I hope that the strategic research agendas like NEXT MEDIA (financed by Tekes) shall give future directions. For the short-term it is more difficult. Maybe it innovative alliances between competitors, maybe it is hybrid models, where small start-ups work with media brands - To me the journalism related brands are valuable therefore I hope some good signs further on.
Otto,
If there has been an industry which had long ignored change is mainstream print media.things will never be the same again come may what.I find it interesting that Scandinavian media has remained untouched.The most vibrant print media is no doubt British one.But even here things are tough for respected brands like Guardian.Google for me has made it even easier for them to be read globally.look,how many people knew about Jylland posten before cartoon controversy?Not Tv news or radio made it popular its google and other search engines.Otto has stressed the need for industry players to up their game.Am elated by the review.its brilliant.
Very good post, thanks! Media companies are - almost all and broadly from broadcasters and publishers to producers - still thinking strategies where each new channel should do extra returns compared to what they do with their current channels today, versus accepting that there will be an increasing number of channels one should use and these channels are not additive in revenua. In other words, monetizing across all opportunities to the total return they need for the business.
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A good post and the faith of both online and offline media is an interesting topic! I am quite sure that you in Arctic Startup - also a media business - have some thoughts on how to make a profitable online media business? :-) Could you share them?
Märt,
Here's a good example of a profitable online business http://www.arcticstartup.com/2010/02/04/schibsted-giving-finnish-media-companies-run-for-their-money/
Schibsted is killing it across the old continent taking one market after another with a small team that knows the local environment and can execute. They have a tried and tested formula (margins on both sides of the 50% mark!!) that they meticulously implement. Schibsted's Norwegian management team is largely ex-McKinsey (not J-School) and thus the emphasis is clearly on margins, not necessarily anything to do with journalism.
Another way would be to go half brand half affiliate in a lucrative vertical. This model would really pay off when the Nordic/Baltic market matures and brand advertisers shift to online en masse. Smaller margins but larger barrier to entry for anyone trying to take you out.
Third way is to do what Demand Media is doing. http://www.wired.com/magazine/2009/10/ff_demandmedia/
...They are printing money really.
Good to remember that these models have very little to do with journalism. Currently the money in online media is in transactions.
The answer is a great big YES. The big media houses have one big advantage that is rarely talked about. Content.
They have years and years of experience in producing content, that gets people exited and glued to their medium of choice for hours. No matter how hard start-ups work to perfect their technology, they still are not able to produce the kind of content that gets millions of viewers to tune in.
Yes, UGC is always an option, but it is a lot easier to go from great content to great content + UGC than the other way around.
Whilst I generally don't disagree with the good old "content is king" mantra, I think the assessment of whether it will keep the big media companies afloat needs a bit more nuanced elaboration.
Let's start with TV. In this medium, the type of media companies mentioned in the article obviously don't produce much of the content themselves, but rather act as aggregators and distribution channels. Yes, people will tune in to consume "TV content", but the channel for consuming such content is increasingly some other than the one provided by old media (e.g. streaming platforms such as Hulu, Voddler and Elisa; DVD box sets; iTunes; P2P networks).
It could obviously be that the big media companies will dominate also in these new content distribution channels, but the current evidence doesn't necessarily support this assumption.
In journalistic "newspaper-type" content, the media companies do produce the content themselves. But, as mentioned in the article, the internet has broken most of the revenue models of this type of content business. Consumers are unwilling to pay for general news content online. The supply of advertising space has exploded, meaning old media cannot dictate the ad unit prices and, to paraphrase Clay Shirky, get K-Kauppa (the retailer/advertiser) to subsidise the Baghdad correspondent of a Finnish news company.
Yes, there will always be demand for high-quality journalistic content, but the worrying trend from the old media perspective is that the most innovative attempts to produce such content under the new "online rules" come from outside the big established companies.
Perhaps most crucially, these two content types are not among the most popular ones for the younger generations. Facebook is content, Youtube (and within it, the non-IPR stuff) is content. And whilst some old media protagonists might sneer and argue that this is not "quality content," it's the type that increasingly dominates the old forms in consumer time spent. And where the consumer is, the money will follow.
So yes, content may still be be the king, but I don't think this assertion answers the question in the article headline.
I think the solution is surprisingly simple. The only honest model here is that we must start paying for the news and analytical stories.
The other - and a much worse - scenario is that all the private news and TV portals will become half journalism and half paid-journalism. Paid-journalism that is so clever that even the highly educated folks cannot say whether this certain story was paid by some rockbands agent, some company...or perhaps a political party. In this scenario the only reliable source of news will be the public media - YLE, BBC, ERR... etc.
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