Lane: Sustainable Business Models — Where Are They?

By Nancy Lane
President, Local Media Association

This year we made personal visits to 12 media companies around the country and met with their senior management teams. We also talked to dozens of others. Our goal is always to understand where local media companies are making their bets. We’re looking for trends, success stories, scalable solutions, sustainable business models and more. It’s core to our mission but sometimes it’s like looking for a needle in a haystack.

We don’t believe that digital advertising will be enough to sustain a local media company for the future. We believe it is one leg of the transformation stool, and an important one for many reasons. Jim Moroney, CEO of the Dallas Morning News, took that a step further during the recent LEAP Media Roundtable event when he said that digital only represents half of one leg of the stool. In fact, they will be putting less resources into their digital agency efforts than they have in the past (it still remains a very important focus for them; they are certainly not getting out of that business.) Moroney now says that digital subscriptions are the most important strategy going forward.

Jim Brady, CEO of Spirited Media (Billy Penn, The Incline and Denverite), told our Innovation Mission participants that digital alone is not sustainable. He is aiming for digital to represent 30% of his total revenue. This online-only start up believes that events will be the driving force when it comes to creating a sustainable business model. Currently events account for 65% of his total revenue. The Incline, Spirited Media’s second startup, is now profitable (proving out the model). An ideal mix for Brady is 40% events, 30% digital, 25% membership and 5% merchandise.

That takes us to events. We believe that this is another leg of the transformation stool and we don’t understand why more local media companies aren’t putting significant resources to this area of their business. We like what GateHouse Media is doing. GateHouse Live, led by Jason Taylor, will bring in $15 million in revenue this year. They will produce 240 events across all of their markets. That’s an average of $62,500 per event! We like what radio companies such as Entercom and Emmis are doing.

When we met with both of these companies this year, they never once complained about the disruption going on in radio. They were too busy working on complimentary business models with events leading the way (along with email marketing, podcasting and digital marketing services). Moroney also focused heavily on events when we met with him earlier this year in Dallas.
Another top area of focus for many local media companies is digital subscriptions and/or membership models. We don’t believe that digital subscriptions represent a sustainable business model for the average local media company. We think larger brands such as the New York Times, The Boston Globe, Wall Street Journal, etc. can and should make this a major part of their media transformation strategy.

A recent article in the Columbia Journalism Review (https://www.cjr.org/business_of_news/newspaper-paywalls.php) looked at the digital subscription model being employed by the top 25 newspapers in the country. It is interesting to note that 10 of the top 25 did not have a paywall at all; and most of the others employed a “leaky paywall strategy” with The Boston Globe being the biggest exception.

“Even as they’ve added paying Web subscribers by the hundreds of thousands, daily newspapers have decisively rejected an all-in approach featuring “hard” website paywalls that mimic their print business models. Instead, most are employing either “leaky” paywalls with unlimited “side doors” for non-subscribers or no paywalls at all, according to a CJR analysis of the nation’s 25 most-visited daily newspaper sites.”

We met with executives from The Boston Globe in June, and they firmly believe that digital subscriptions are the answer. So much so, that they are not selling any digital marketing services. They are planning for a day when print represents $0 and digital advertising represents $0 (see last month’s blog post for more details).

Digital subscriptions will work in some markets and not in others. We believe that they can be part of the transformation strategy for some, but not all. The “leaky paywall strategy with unlimited side doors” is really not a good model going forward. We’ve had several senior-level executives confide in us that this isn’t a good long-term strategy. We think Boston is a special exception but we still believe that diversification of revenue is critical. Please don’t confuse our stance with the right to be paid for high quality journalism. We understand the costs involved with producing that kind of journalism. It’s just that our world has changed and free content is now the norm.

That brings us to membership models which really intrigue us. We love what Jim Brady is planning to do in Q4 to test out his theory. He believes that members will pay $100-$150 annually for a VIP package that includes admittance to several of their top events, plus access to Q&A’s with public officials such as the mayor of Philadelphia or a tour of the Philadelphia Eagles locker room. The Billy Penn audience is mainly millennials so this will be a very good case study to watch. It is also interesting that this model will actually bring in more revenue than digital subscriptions will for some of the top 25 newspapers according to the CJR article (The Chicago Tribune and Orlando Sentinel both charge $7.96/month; the Arizona Republic charges $4.99/month). Might this be a better and more sustainable business model? Broadcasters have a big opportunity here as well.

Many companies are doubling down on video and see that as a big part of their future. The McClatchy Video Lab in DC is leading the way. Even the broadcasters that were with us on our visit there in May, were blown away by the great work going on there. We think video is important to all local media companies but the business model is not there yet. For companies that have scale, it makes total sense. We met with executives at McClatchy, Tribune and Gannett this year. They were all doubling down on video – including everything from VR, AR, 360, using drones, OTT and more. We think the large media companies can win in this space. It’s going to be much harder for small-to-mid-size companies. We live in a video-first world so producing video is a necessity; that doesn’t make it a sustainable business model. Entercom Communications isn’t investing in video at all. “We think there is enough on the audio side to sustain us for a long time,” said Tim Murphy, VP Digital Strategy, during our recent visit with him.

As we all search for the right answers, it is clear that no silver bullet is out there. Media transformation is complicated. The companies that are doing well are committed to a diversified approach that includes events, promotions, digital marketing services and more.

At LMA, we are about to embark on a new and bold strategic plan. At the heart of our plan will be how to help local media companies discover new and sustainable business models. We’ll up our game in the coming years as there is simply nothing more important to the future of local media. Please weigh in with your thoughts on future business models that look promising or areas that you don’t think are worthy of investment. Let’s share and keep the conversation going.

Nancy Lane is the President of the Local Media Association. She can be reached at nancy.lane@localmedia.org.