Value retention by newsprint publishers in the MENA region

Middle East newsprint publishers need to position themselves to grow in adjacent businesses if they are to overcome the digital disruption that has affected media and advertising markets elsewhere. They should stress on their strengths in local news and advertising.

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Value retention by newsprint publishers in the MENA region
A three-pronged strategy: Optimized performance, digital transformation, revenue diversification

Strategy& is part of the PwC network

Contacts

Beirut Gabriel Chahine Partner +961-1-985-655 gabriel.chahine @strategyand.pwc.com Bahjat El-Darwiche Partner +961-1-985-655 bahjat.eldarwiche @strategyand.pwc.com

Dubai David Tusa Partner +971-4-390-0260 david.tusa @strategyand.pwc.com Jayant Bhargava Partner +971-4-390-0260 jayant.bhargava @strategyand.pwc.com

New York Christopher A.H. Vollmer Partner +1-212-697-1900 christopher.vollmer @strategyand.pwc.com Riyadh Hilal Halaoui Partner +966-1-249-7781 hilal.halaoui @strategyand.pwc.com

This report was originally published by Booz & Company in 2013.

About the authors

Bahjat El-Darwiche is a partner with Strategy& in Beirut. He specializes in communications, media, and technology and has led engagements in the areas of telecom-sector liberalization and growth strategy development, policymaking and regulatory management, privatization, business development and strategic investments, digitization, corporate and business planning, competitive readiness, and governance, as well as operating models and restructuring. Jayant Bhargava is a partner with Strategy& in Dubai. He leads the firm’s digital media and entertainment work in the Middle East, focusing on the convergence between
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media, telecoms, and technology. He serves both traditional media and digital media players on strategy, M&A, and operating model topics. He also actively supports sector-development institutions in carving out media-sector strategies, policies, institutional frameworks, and private-sector participation models. Sami Abou Jamous was a senior associate with Booz & Company.

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Executive summary

Newsprint publishers in the Middle East and North Africa (MENA) are facing disruptions of the kind already occurring in media and advertising markets elsewhere. New digital platforms, devices, and applications have transformed media consumption, and rapidly changing user behavior has prompted advertisers to rethink their spending. These developments are challenging MENA newsprint publishers’ business models, causing a structural depletion of economic value. Although their core business of news creation remains strongly in demand, it is increasingly difficult to attract audiences and monetize on digital platforms. Many newsprint players responded to digital disruption with digital initiatives that floundered because the commercial model is not as strong on these new platforms. Although digital transformation is an imperative, by itself it is not sufficient to retain the value traditional operations are losing. Digital markets are highly fragmented and competitive — achieving a readership share similar to newsprint is practically impossible. Digital advertising allows newsprint publishers to recoup less than 10 percent of print equivalents. Also, the way-to-play in the digital space is significantly different and requires more than just an evolution of internal capabilities. Newsprint players should instead take three major steps. First, optimize operations by choosing where they want to be on the media value chain, and then consider where to make structured cost cuts. Second, launch a digital transformation. Third, further strengthen the core capabilities that position them for the growth in adjacencies and build new revenue streams. Strategic approaches to diversification include becoming a leading content producer, a leading publishing curator, or a dominant advertising sales provider. Organizations should determine the core capabilities to drive their future direction based on that part of the business that they do best compared to their competitors. This new direction should be anchored by the capabilities that have provided a source of competitive advantage. The choice of capability set informs all three major steps.
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The digital depletion of value

Digitization is reshaping the media, with a dramatic impact on newsprint publishing. The media industry’s business models are particularly vulnerable to digitization — the mass usage of connected, powerful devices by governments, companies, organizations, and individuals. Media outlets such as newsprint publishers rely heavily on the consumption of content that is now widely available for little or nothing elsewhere. The effect is notable in countries where digitization levels are high, and where most of the population can easily and cheaply access high-speed broadband using computers, tablets, and smartphones. News consumers have embraced digitization because it provides timely, and often live, news updates and two-way interaction with their publishers and columnists. Although the challenges for dailies, weeklies, and monthlies differ, all such players in developed markets are moving rapidly to respond to the impact of digitization. Daily newsprint players have endured most of the changes, with declining readership leading to a significant loss of value through lower advertising sales and subscriptions. Newsprint publishers have invested in different transformational ventures to sustain and grow their businesses. Some have diversified their revenue streams, some have stopped printing daily editions, and some have closed. Nevertheless, news as a product is in high demand in most markets. It is the most widely consumed media content on tablets and smartphones. Moreover, there is an increasing propensity for news consumption owing to political instability and social unrest. The problem arises as consumers have a very low propensity to pay, as demonstrated by a Reuters Institute survey.1 Other studies indicate a marked unwillingness to pay for news at all. Furthermore, the advertising dollars for news publishers on print are being replaced by cents on the digital platform. First, digital advertising is dominated by a few global Internet giants. Second, news audiences on digital platforms are highly fragmented, and acquiring an equal share of readership as on print is practically impossible. In the MENA region, despite healthy population growth, readership levels of newsprint have started declining. Even though there are new readers entering the readership age profile, approximately 70 percent
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of them are skipping the print versions and becoming digital-only consumers. Moreover, close to 76 percent of current newsprint readers, who have excellent digital connectivity, are expected to either decrease or stop their newsprint readership within a couple of years. This is causing a rapid and sustained decline in readership (see Exhibits 1 to 3).

Exhibit 1 Most MENA newspaper readers plan to abandon print
Newspaper Readership Pattern Reader Responses

22% 2% 18%

58%

Other I have never read print newspapers I plan to reduce or stop reading print newspapers over the next 2 years My readership of print newspapers has decreased or stopped over the last 2 years

Source: Strategy& News Readership survey, February 2011

Exhibit 2 Print readership in Saudi Arabia
Compound Annual Growth Rate
-1.5% 71% 10.4 2010 69% 10.4 2011 66% 10.3 2012 64% 10.2 2013 61% 10.0 2014 58% 9.8 2015 55% 9.5 2016 Source: Association of Newspapers; Broadband Information Service; Arab Media Outlook 2009–2013; IPSOS; Global Insights; UAE National Bureau of Statistics; Strategy& forecasts

Newprint penetration rate Newsprint readers (in millions)

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Exhibit 3 UAE print readership will drop rapidly, especially for English content
Compound Annual Growth Rate
-3.8% 2.2 1.1 1.1 2010 2.2 1.1 1.1 2011 2.1 1.1 1.1 2012 2.1 1.0 1.1 2013 2.0 1.0 1.0 2014 1.9 0.9 1.0 2015 1.7 0.8 0.9 2016

English newsprint readers (in millions) -4.8% Arabic newsprint readers (in millions) -2.8%

Source: Association of Newspapers; Broadband Information Service; Arab Media Outlook 2009–2013; IPSOS; Global Insights; UAE National Bureau of Statistics; Strategy& forecasts

From an immediate eco­ nomic standpoint, the situation in the MENA region appears to be less bleak for newsprint publishers than in such highly disrupted markets as the U.S. The unique structure of the media and advertising industry has made newsprint historically highly profitable. MENA region advertisers targeting local audiences have historically favored print as an alternative to local TV, which was a less attractive venue because of its limited quality and the competition from freely available pan-Arab satellite broadcasters. These advertisers spent disproportionally on newsprint players as an effective way to reach a mass audience aside from the costly airtime, with high spillover, available on pan-Arab satellite TV. As a result, advertising spend will decline at a much slower rate than that of newsprint readers. Globally, an analysis conducted in 15 developed markets reveals that advertising spend declines at a proportionally slower rate than that of newsprint readers, around 0.4 to 0.6 times slower. In the MENA region, however, the decline in advertising revenue will proceed at an even gentler pace than in developed markets because of the resilience and dominance of local newsprint advertising spend. Indeed, the value of the newsprint advertising market in Saudi Arabia may actually grow a little in the coming two to three years in nominal terms. The market will, however, start to drop in value in 2016 with steeper declines in 2017 and future years because of digital disruption (see Exhibit 4, page 7). Nonetheless, MENA newsprint players are feeling the winds of digital change. Digitization is calling into question the operating models of
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The unique structure of the media and advertising industry has made newsprint historically highly profitable.

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MENA newsprint publishers and eroding shareholder value. Moreover, digitization has made significant inroads in the region, with over threequarters of respondents in a recent pan-MENA survey indicating that they have adopted social networking.2 Digitization levels are particularly elevated in the affluent Gulf Cooperation Council (GCC)3 markets where the overwhelming majority of newsprint customers have access to broadband. The response of many newsprint players has been to meet the challenge of digital disruption with investment in digital initiatives. Although digital transformation is essential, it is not sufficient to recover the value lost within traditional operations. The commercial model on these new platforms is weaker than in print. In contrast to the limited and valuable advertising real estate previously enjoyed by print, digital is far more competitive and fragmented. In addition, the way-to-play in the digital space demands more than simply evolving internal capabilities and is significantly different to what newsprint players are used to.

Exhibit 4 In Saudi Arabia, net advertising spend in newsprint could grow a little
Value of Newsprint Advertising Market, in Saudi Riyal Millions
Notes: Gross to net discount rate assumed at around 36% according to market interviews and data on newspapers’ advertising sales performance. The steep increase in 2011 advertising spend was driven by a large number of social events within Saudi Arabia related to the royal family, the economic recovery, and the Arab Spring. After the extraordinary performance in 2011, the advertising market for newsprint in 2012 and 2013 went back to its previous level. Source: IPSOS Stat; market interviews; Strategy& analysis

0.7% Compound annual growth rate 2,159 1,934 1,987 2,052 2,083 2,093 2,072 2,035

2010 Year on year change

2011

2012 3.3%

2013 1.5%

2014 0.5%

2015

2016

2017

11.7%

-8.0%

-1.0%

-1.8%

Millions Saudi riyals

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Build from the back

Newsprint players should respond to the digital challenge in a manner that provides them with opportunities for growth. In our view, this requires a three-pronged strategy: the optimization of core operations, digital transformation, and diversification into adjacent businesses by focusing on core capabilities. Optimize core operations The first agenda that regional newsprint players should adopt is to optimize their operations by making them more efficient and effective. This helps newsprint publishers to safeguard, and get the most out of, their traditional business. These existing lines of business matter because they are likely to account for the majority of revenues in the short to medium term. The optimization agenda needs to be integrally linked to the future strategy. Newsprint publishers need to choose where they want to be on the media value chain. This allows them to respond to cost pressures stemming from declining circulation and advertising revenues by showing where they can cut costs in a structured manner and where they should focus resources for new opportunities and expansion. For example, newsprint publishers that see their future focus as advertising players can outsource, spin off, or even dispose of, their newspaper printing operations. The cost agenda will span the full business construct (see Exhibit 5, page 9). This involves creating lean and resilient processes, systems, operations, and organization structures. It institutionalizes the capabilities that allocate resources to costs that build core capabilities and open opportunities for growth in new areas, and not to costs that act as a drag on growth. A robust cost agenda also allows top management to focus on growth and new strategic directions in light of market disruptions, and gives them the resources to invest.

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Exhibit 5 Newsprint publishers need a clear cost agenda to become more efficient and effective
Components of the Cost Agenda

Business strategy Strategies
Target segments

Corporate strategy Product portfolio

- Capabilities-driven strategy - Optimal way-to-play - Contained circulation levels - Optimal portfolio of print products - Optimal pricing model Efficient editorial structure Controlled printing costs Best leveraging of technology to control cost Effective ad sales strategy and operations Efficient distribution and route-to-market - Agile, growth-oriented organization structure - Optimal manpower plan - Tailored processes; systems and ways of working that drive “good” costs - Culture of continuous improvement institutionalizing the cost capability

Market-facing strategy

Structural enablers

Technology

Content & editorial

Ad sales

Printing

Business model

Sales & distribution

Governance

Operating foundations

Organization structure

Business processes

Culture

Source: Strategy&

Most cost transformation exercises of newsprint publishers have focused on four key areas: editorial, circulation and distribution, printing, and advertising sales (see Exhibit 6, page 10). Launch a digital transformation The second agenda for newsprint publishers is to design a digital transformation that addresses the changing dynamics across two fronts: readers and advertisers. On the readers’ front, digital transformation is vital because user behavior toward media and news consumption is changing rapidly thanks to new platforms, devices, and applications. The digital transformation is different from the reflexive digital initiatives taken by many newsprint players. Newspaper companies have poured money into websites, apps, live blogs, video, and the like without any clear strategy or value proposition. MENA newsprint players can learn
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Exhibit 6 There are four focus areas for cost transformation
Areas of focus Editorial Typical drivers for optimizing the core operations
- Content sourcing model balancing in-house versus wires, keeping in mind key areas of competitive differentiation - Rationalization of content coverage in printed versions on topics that have minimal impact on readership or loyalty - Mix of full-time staff versus freelancers - Optimization of returned copies - “Route to Market” model taking into account optimized geographic footprint, channel strategy, and point of sale penetration and strike rate - Outsourcing versus insourcing levels - Capacity adjustments for reduced printing levels, with due consideration to outsourced model or spin-offs - Diversification or third-party business agenda - Category and account planning - Institutionalization of cross-platform campaigns - Strengthening direct relationships with advertisers leveraging the domain of marketing services

Circulation and distribution

Printing

Ad sales

Source: Strategy&

from these errors. They can instead use digital transformation as a means of retaining the most lucrative segment of their readership migrating to the digital platform as well as attracting a new segment of readers. On the advertiser front, user dynamics are prompting disruptive responses in light of steadily declining readership. Moreover, digital platforms are enabling advanced value propositions and return on investments for the advertising spend. In response, newsprint players need to offer a compelling set of digital advertising solutions to remain in the game. Executing such a digital transformation requires a deep understanding of the segmentation pertinent to digital audiences. Understanding the digital audience segments Newsprint players have three main audience segments whose digital behavior is largely determined by their age. Each has different patterns of news consumption: digital natives, digital immigrants, and digital outsiders (see Exhibit 7, page 11). The most lucrative segment is the digital immigrants, who consume content in print and digital forms. The digital natives, the growing youth
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Exhibit 7 The three main audience segments consume news in radically different ways
Characteristics
- 15–35 years old - “Arab Digital Generation”: 8%–10% of population driving 25% of total spending by 2012

News consumption preferences
- Primary: referrals of articles/videos from social media, etc. - Secondary: Applications and online destinations - Minimal print

Digital natives

Digital immigrants

- 36–50 years old

- Print and online - Increasingly adopting mobile platforms

Digital outsiders

- Over 51 years old

- Primarily print - Increasingly adopting e-readers such as tablets

Source: Strategy&

segment, are the largest demographic group but are the most challenging to attract given their willingness to experiment with platforms. The digital outsiders tend to be the previously loyal print subscriber base, but even they are starting to experiment with new platforms. Digital natives are the most challenging segment for newsprint publishers. They have very little affinity and appreciation for the traditional brands that established themselves in the pre-digitization era. They grew up with digital technology, do not value print formats, and their digital behavior changes rapidly and somewhat unpredictably. Thus far, they have consumed substantial amounts of news mostly through referrals from social media and electronic communications. Digital natives want online videos, social and interactive stories, and online destinations — in contrast to digital outsiders who expect their stories in columns on the page. Moreover, digital natives are effective media consumers because they are natural multitaskers who use laptops, tablets, mobile smart devices, sometimes simultaneously — and even while watching TV. Their consumption patterns make digital natives the target of location-based services, with advertisers plying them with more specific offerings. Attracting digital natives will require newsprint players to adopt a cross-platform strategy with strong social and interactive features.
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Digital immigrants consume content in print and online, although the trend is toward adopting mobile platforms. They possess a strong association with their traditional newsprint brands but also value the “anywhere, anytime” consumption enabled by the digital platforms. They value premium and local content, and exclusive stories. To retain digital immigrants, newsprint players have to build their online brands and extend them to new areas while offering a content ecosystem that combines print, online, interactivity, and mobility. Digital outsiders are primarily loyal to their newsprint brands and find themselves habituated to their preferred editorial styles. However, they are increasingly adopting e-reading platforms that mimic hard-copy reading (tablets, laptops, and smart devices). Digital outsiders value news brands, local stories, and attractive promotions. Newsprint players wishing to retain digital outsiders as customers have to remain focused on local news and offer value for money. As they fashion their digital transformation to target their chosen market segments, newsprint players will face a significant set of challenges stemming from digitization: •  There is a proliferation of free online content available without geographic constraint. This means that they face competition from other newspapers, along with TV channels, radio stations, and digital news portals, all of which are tailoring their news offerings to their respective target segments. •  Monetization of premium content online remains challenging because of the reluctance to pay for news and the proliferation of free offerings. •  Fragmentation of distribution channels requires significantly differentiated content, formats, and user experience by segment. •  Although much desired by users, the integration of participative and interactive journalism into platforms is an extremely difficult-to-build capability that few have achieved. Facing advertising disruption Newsprint players face an additional challenge stemming from the disruptive responses of advertisers to changes in reader behavior. Digital platforms allow advertisers to connect and engage directly with consumers, further drawing spend away from traditional below-the-line (BTL) marketing (which involves direct targeting and engagement of consumers with a view to a sale). Also, traditional above the line (ATL) advertising, specifically on newsprint, is becoming less effective due to declining readership and lower levels of engagement and measurement.
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As a consequence, the advertising landscape is going through a period of structural change. ATL advertising/mass campaigns and BTL value pools are converging. The result is through-the-line (TTL), a disruptive value pool created by social media, interactive, and contextual advertising. TTL blends features of BTL and ATL, using mass appeal to achieve sales, and is delivered through digital channels that take advantage of location services and data analytics (see Exhibit 8). Newsprint players are feeling the impact of advertising changes in three major areas. •  Advertisers are shifting their spending from traditional print platforms to digital. •  Internet players are taking the lion’s share of digital advertising spend, with little remaining for other media players including newsprint.

Exhibit 8 Digitization is drastically altering advertising spend
Consumer purchase funnel Awareness Above the line (ATL) Traditional marketing platforms Television Radio Print Out-of-home Digital PR & viral marketing Below the line (BTL) Occasional buyer Regular buyer Penetration/ loyalty Material Point of service and in-store One-shot Direct customer marketing ~55% ~53% ~12% ~45% ~35% Traditional marketing budget Marketing budget in 20181 Marketing platforms in 20181 Television Print Radio Out-of-home Display Search Rich media Social engagement/ targeted/contextual/ interactive PR & viral marketing Material Point of service and in-store One-shot Direct customer marketing BTL ATL

Familiarity Consideration Preference Purchase/ lead sales

TTL

1

Strategy& forecast

Source: Strategy&

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•  ATL budgets are gradually shifting to BTL marketing and TTL, which requires new marketing services and highly specific, localized advertising platforms to capture its economic value. Getting the digital story right The most convincing approach to getting the digital transformation right is to define and execute a value proposition that fits with the most common digital behavior of news consumers. Newsprint players therefore need to address how their two most important audience segments, digital immigrants and digital natives, consume media and news. In both cases, the answer is the emerging youth lifestyle phenomenon known as SocialLocalMobile (SoLoMo). What SoLoMo expresses is that digital users want more local information, want to share it and receive it through social networks, and access it through mobile devices. It is well recognized that news is the most widely consumed content on tablets and smartphones. The role of mobile is further emphasized in most emerging markets where mobile broadband users will soon exceed the number of fixed broadband users. Defining and executing the correct digital SoLoMo value proposition requires newsprint players first to better understand their target audiences; second to define the right business models; and third to build, or acquire, the necessary capabilities. All of these choices depend on where the newsprint player wants to be on the value chain, and they also depend on the successful implementation of the efficiency agenda. By embracing SoLoMo, news providers can attract and effectively monetize digital audiences by tapping into the TTL value pool. SoLoMo provides newsprint players with a compelling marketing platform that they can offer to advertisers. Thanks to their strong local presence and news creation capability, newsprint players can connect advertisers directly to users in a way that other platforms cannot. The local market, whether print or digital, is where newsprint players stand out as different in the MENA region. This is an important form of differentiation when compared with the saturated regional market, which is dominated by well-funded pan-Arab channels with which newsprint players cannot realistically compete. By contrast, SoLoMo captures the move of the highest value advertising toward the local level. Taking the SoLoMo route requires a new capability system enabling three new value propositions for users that were essentially missing in the traditional newsprint business: social, video, and two-way communications (see Exhibit 9, page 15).

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Exhibit 9 Digital transformation requires a shift in the capability system
Online News Capability System Primary Capabilities
1. Interactive desk: Web editors gather news, create and post editorial content on a real-time basis—very closely aligned with the editorial team of the print version through a common data repository 2. Audio-visual desk: Creation and sourcing of proprietary audio-visual content, such as by video journalists a. Real-time reporting 3. Social media desk: Professional editors and columnists interacting with registered users, writing blogs, etc.

1. Interactive desk

c. Consumer insights

Supporting Capabilities
2. Audio-visual desk a. Real-time reporting: Qualified Web journalists capable of posting articles with minimal lead time (supported by high-quality video) b. Content management: Tracking, cataloging, storage, and publication of content assets in a synchronized manner with the print version c. Consumer insights: An understanding of the drivers of community behavior and interest

3. Social media desk

b. Content management

Source: Strategy&

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Successful models for digital newspapers There are four successful models for a digital newspaper. These differ based on content offering and monetization models (see Exhibit 10, page 17). Editorial-led This model relies on proprietary content created by professional journalists, which is highly differentiated for its target audiences when compared to a large variety of free news content available on the Web. The target audience tends to be affluent and ardent consumers of news. Most of the content is developed in-house with lesser reliance on wires, including video content. The outlet possesses a strong editorial brand and boasts several high caliber and renowned columnists. Differentiation of content based on this premium quality forms an important operational capability. The business model relies on a combination of subscription, advertising, and content syndication. Mass portal This model relies on supplementing the print news content with highly diversified content covering several verticals (such as health, celebrities, weather, etc.). The source of content is a mixture of proprietary, wires, and syndicated material. The model calls for frequently refreshing this content. Classifieds and marketplaces are generally integrated into the offering to facilitate e-commerce. The model allows for user interactions with content through blogs and discussion fora. The business model relies on a combination of advertising, classifieds, and e-commerce revenues. Online news aggregator This model leverages the power of the user and thrives on user-generated content. Although the offering aggregates large volumes of news content from various sources, its differentiation relies on the engagement of and participation by the user community. It operates on a low-cost model, relying on advertising as the primary source of revenues. Local/Hyper local This model builds on the key differentiation that newsprint publishers have vis-à-vis other digital news providers such as TV stations or portals. It builds on its local presence and focus over decades. From a content perspective, it focuses on highly diversified proprietary content relevant to local communities. This focus allows the publisher to build strong relationships with the user community as well as small to medium-sized advertisers. The key success factors are personalization of experiences for users and the ability to provide valueadded services to marketers. The monetization model extends from advertising into marketing services. Marketing services include campaign development, local coupons and promotions, activations, and the like.

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Exhibit 10 Successful digital newspapers have four distinct business models
D Hyper local & multimedia (Offer local coupons & multimedia) Depth of offering e-Marketplace & multimedia (Offer online shopping & multimedia) Multimedia only (Offer articles, videos, blogs, etc.) Text only (Offer articles, e-paper in text format only) Single C Mass portal offers popular news to large audience, primarily advertising focused

Local/hyper local offers local content & wrap around deals or coupons & targeted marketing for small and medium-sized firms

Marketing services And e-Commerce

B

Editorial-led offers world-class editorial to target affluent audience — able to charge subscription

Subscriptions And

Or

A

Online news aggregator offers an engaging online platform to read & contribute news/opinions — primarily advertising focused

Advertising

Monetization models Multiple

Source: Strategy&

It is noteworthy that Warren Buffett, the chairman and CEO of Berkshire Hathaway, is investing in U.S. newspaper assets precisely because of their ability to stand out in local markets, a perspective that also applies in the MENA region. According to Buffett:  Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town… there is no substitute for a local newspaper that is doing its job... Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.4

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Developing capabilities for growth
The third major step for newsprint players is to access new revenue streams by diversifying into adjacent value pools playing on extensions of core capabilities. Although the efficiency agenda and digital transformation are critical imperatives, they will not fully offset the depletion in economic value. Diversification and growth in adjacencies are vital to rebuild shareholder value and position the organization for growth. The development of core capabilities and diversification are therefore intimately linked. These core capabilities are likely to coalesce around the three major positions that leading newsprint players around the world have adopted in response to the disrupted media market: leading content producer, leading publishing curator, or dominant advertising sales provider. Each of these positions sets a new strategic direction geared to growth opportunities. It requires building, reinforcing, and in some cases acquiring, a set of core capabilities. Choosing the ideal position should be based on what you do better than your competitors and which capability set differentiates you in the local market. Once they have chosen what kind of publishers they want to become, newsprint players can put themselves back on the growth curve. Leading content producer Leading content producers supply the purest form of journalism. The newsprint players that have successfully become leading content producers started with differentiated content production capabilities that allowed them to capture both traditional and digital audiences. Such capabilities include the ability to offer premium and exclusive content to a well-defined consumer segment in a manner that leaves no doubt as to the value for money of such charges. For example, the Wall Street Journal has successfully repositioned itself in the print and online worlds as a leading content producer catering to an elite professional segment, and unabashedly asks users to pay premium charges for content. This has allowed the Wall Street Journal to become
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the leading business-to-consumer and business-to-business content provider in the general business and economy sectors in the U.S. The newspaper implemented a successful pay-wall proposition that allows subscribers to access a database of unique and premium content that is unavailable from other publishers. Similarly, the Financial Times, the WSJ’s main rival, has reinforced its financial news capability to become a leading content producer in its home and international markets. In the MENA region, by contrast, a local news niche may prove more attractive. The other potential diversification areas include setting up a news agency, a journalism school, or content syndication. Leading publishing curator A leading publishing curator offers a unique user experience. This can involve extending the user experience to other verticals such as audiovisual, gaming, tourism and hospitality, social networks, and e-commerce, while focusing on serving specific target segments consistent with the brand identity. For example, the New York Times and the Guardian are extending their publishing capabilities toward a wide range of online portals and experiences including crosswords and gaming, online stores, social media, and education. Another example is Axel Springer AG’s creation of new digital properties targeting women. To position themselves as leading publishing curators, newsprint players should possess the differentiated capabilities to create new experiences that capture consumers’ time spent on media and entertainment. These experiences include publishing only exciting material along with convenient, new ways to access content with limited boundaries and hurdles (such as pay walls). Moreover, leading publishing curators should possess sophisticated capabilities in yield management to maximize the advertising value return on their traditional and digital assets. Typically, these capabilities are reflected through unique marketing and promotional plans. This is in contrast to the current position in which many publishers either have an excess of print advertising space or underutilize their digital properties. Their content propositions in turn require them to “push” content on their customers to maximize the return on assets. The other potential diversification areas include “verticalized” content websites (which focus on particular content categories such as health and nutrition, sports, business news, food and cooking, etc.), a local news TV station, educational publishing, and e-learning.

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Dominant advertising sales provider Newsprint players that are dominant advertising sales providers are present across multiple media platforms, in digital and print. They exploit this capability to cross-sell advertising and gain further scale, meaning that growth is built into this position. Indeed, scale defines the success of this position, which demands unique capabilities in sales effectiveness including account planning, category penetration, and pricing strategy. Some newsprint players have developed extensive capabilities in advertising sales, choosing to maintain this strategic capability in-house. Other newsprint players have become dominant advertising sales providers by outsourcing their adverting sales capability to third parties, leading to the creation of a wide and multiplatform advertising sales network. Other potential diversification areas include third-party media representation or advertising network, outdoor advertising, or marketing services.

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Understanding core capabilities

As they seek to retain value and position themselves for growth, newsprint players need a keen understanding of how their choice of core capabilities influences their three-step strategy. The right capability system needs to be in place if newsprint players are to achieve operational efficiencies, undergo proper digital transformation, and reinvent themselves by reinforcing their core capabilities. The three objectives are intertwined and linked to the core capability on which the organization places its bet for the future. This determination needs to take into account which capability has provided a source of sustained competitive differentiation for the publisher in its traditional business. Each of the three main strategic directions is as good as the other if executed coherently and supported by the correct set of capabilities. For example, if a newsprint publisher is known for its quality of content, op-eds, and in-depth journalism then the core capability to focus on is content production. As such, the cost agenda should revolve around the printing and distribution part of the business. Its digital newspaper should be closer to the “Editorial-Led” model. Similarly, if the differentiating capability is the strength of the advertising sales team, the digital offering should evaluate the “Local/Hyper Local” or “Mass Portal” plays. This capabilities approach ensures a forward-looking strategy that leverages the strengths of the organization and builds businesses on these strengths that have a high level of coherence.

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Conclusion

Newsprint publishers have to make strategic decisions about their future. The status quo or tactical moves are no longer viable options. Digitization, rapidly changing consumer behavior, stiff competition from new entrants, and advertising disruption renders their current models unsustainable. Diversification into new opportunities along the media value chain is the only way to ensure a retention of value and future growth. To be able to access new opportunities, however, requires more than cutting costs, investment in digital technology, and evolving current capabilities. Newsprint publishers need to choose what kind of media players they want to be, based on which core capability they would like to place their bets on. This will not only drive value and growth opportunities, but will inform how they optimize their operations and transform digitally.

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Endnotes

In a Reuters Institute survey, 5 percent of respondents said they had paid for digital news in 2012, a low figure even when accounting for the fact that many newspapers do not ask for payment. Reuters Institute for the Study of Journalism, “DIGITAL NEWS REPORT 2013,” Oxford University, 2013 (http://tinyurl.com/ly577ey).
1

Richard Shediac, Ramez T. Shehadi, Jayant Bhargava, and Dr. Hatem Samman, “Generations A: Differences and similarities across the generations in the Arab region,” Strategy&, 2013.
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GCC countries include Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates.
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Berkshire Hathaway, Inc, “In the letter,” March 1, 2013 (http://www.berkshirehathaway.com/letters/2012ltr.pdf#page=16).
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Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities.

These are complex and high-stakes undertakings — often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Whether you’re

charting your corporate strategy, transforming a function or business unit, or building critical capabilities, we’ll help you create the value you’re looking for with speed, confidence, and impact.

We are a member of the PwC network of firms in 157 countries with more than 195,000 people committed to delivering quality in assurance, tax, and advisory services. Tell us what matters to you and find out more by visiting us at strategyand.pwc.com/me.

This report was originally published by Booz & Company in 2013.

www.strategyand.pwc.com
© 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.