Wednesday, June 23, 2010

Turning obstacles into opportunities

Jun 23, 2010

Patrick Daniel, Editor-in-Chief of Singapore Press Holdings' English and Malay Newspapers, opened the 19th AMIC Annual Conference on Monday. We carry an excerpt of his speech.

By Patrick Daniel

IN MY 25 years in the newspaper business, this is without doubt the most challenging period. The days of easy growth are gone. We are now confronting an almost existential threat. Will newspapers as we know them be around 10 years from now? All I can say is: I hope so. But my honest answer is: I do not know.

Two things are happening that are shaking the media business to its core. The first is technological changes. These have been rapid and unpredictable.

The second is the changes in people's habits, in particular their media consumption habits. We now have a multi-tasking younger generation, with short attention spans. Most are digital natives and consumers of social media. They are also more networked than any previous generation.

In fact, a recent article in the McKinsey Quarterly, entitled A Glimmer Of Hope For Newspapers, found that news consumption in Britain - as measured by time spent - rose by 20 per cent between 2006 and 2009, and the increase was driven almost entirely by people under the age of 35. For me, this is more than a glimmer of hope.

Some years back, I discussed these trends with an MIT media professor. He was a social scientist and his view was that there's not much point tracking technology changes because you can never tell which will endure. It was far more useful, he felt, to track people's changing habits - how they spend their time and how they live their daily lives.

In reality, the two are intertwined of course. It's the powerful combination of technology changes and people's changing habits that makes this such a fraught period for the media business.

For publishers, the bottom line of all this is the impact on revenues and on our business models. I get depressed reading about the state of American newspapers. Classified advertising has all but disappeared, while display ads have declined at double-digit rates. At the same time, circulation sales have plummeted as more and more readers get their news online or on mobile devices. The changes have been too swift, and newspaper managements have been too slow on the draw. This is not a criticism of managements, just a description. Part of the problem with incumbents is that they have too much at stake and often their preferred mode is to wait and see.

The financials are actually quite straight-forward. If you're in a business that's operating on a 15 per cent margin, and if revenues suddenly shrink by 35 per cent and there's nothing you can do to boost it, you have to cut costs by 20 per cent to stay above water. Many media companies have done this, but many have not been able to and have gone under.

Fortunately, papers in Asia have not suffered the same fate - yet. But the same trends will inevitably hit us too. The challenge for us is: how to be among the survivors.

We in Singapore Press Holdings are determined not just to be among the survivors, but to continue to thrive. SPH has been fortunate to be able to maintain operating margins in excess of 30 per cent for our newspaper operations. When I last checked, we had the highest operating margin among newspaper companies in the world. Part of the reason, of course, is that we're dominant in Singapore. But an equally important reason is that we're among the most efficient at newspaper production and distribution. Our overall daily returns of unsold newspapers, for example, are at the 5 per cent level when the international industry norm until recently was some 20 per cent. We also run our presses intensively but keep tight rein on newsprint wastage on the production floor.

Our challenge is how to stay in this position. When you've scaled the heights, it's so easy to slide down a steep slope. Doing nothing doesn't guarantee that you can keep your perch.

I tell my colleagues this is not a time for faint hearts. For while the threats loom large, there are also opportunities for the stout-hearted. In the inevitable shake-out that's coming, you can leapfrog from No. 30 into the Top 10. Or even from No. 10 into the Top 3. In the past, this was not imaginable. But now, it's an exciting prospect.

Another upside is that the recent changes have opened up all manner of entrepreneurial opportunities. These have been seized by the large technology giants like Google and Apple, on the one hand, and the small start-ups, on the other. Regrettably, most mainstream media companies have sat on their hands. At SPH, we've been fortunate in that our board agreed to commit $150 million to invest in the online and mobile space with the aim of being a leading new-media player. We've made progress but the results will show only in the medium term.

From what I've said thus far, the issues confronting the mainstream media might seem simple. In truth, they are complex - at least far more complex than what we're used to. But this calls for managements to make the right decisions on the challenges we have to confront.

# The first challenge is how to engage the young. This is, of course, a sub-set of the broader challenge of maintaining our readership. But the young - those below 30 - are a special challenge.

It's clear from our data that the young have migrated away from print products and are true digital natives. But at SPH we are not giving up on Gen Y or even Gen Z. We have a good schools programme and we connect well with students in primary and secondary schools. Keeping this up is already a big task, but an even bigger one is keeping them after they leave school and go on to institutions of higher learning. By then, they rely almost exclusively on online and social media for their news. What we need is a good strategy to engage them on the platforms of their choice. I'm sure that if we put our minds to it, we will find a way.

I should add that fortunately for us, at the other end of the spectrum, older readers - those above 45 - have been loyal subscribers. Thankfully, they're living longer. So, thanks to this group alone, newspapers may be around for longer than many of us think.

# The second challenge is: How do you maintain quality journalism when budgets and resources are being cut? For instance, aside from the wire agencies, very few newspapers now have overseas bureaus manned by their own staff. Even the leading global names have long cut back on their overseas staff. SPH is one of the few media groups that still maintain a network of overseas bureaus which we consider our crown jewels.

I'm not saying there should not be budget cuts. If or when revenues fall, it's inevitable that costs must come down. But the challenge is how to maintain quality notwithstanding budget cuts. Editors and managements must think of new ways of doing things that bring costs down without too much loss of quality. Going forward, quality is what will endure and distinguish us amid the cacophony out there.

# Next is the advertising challenge: Will the overall advertising pie grow? Where will ad dollars go? Can we stem the flow of ad dollars from print and TV to online? The list of questions is long. But the answers will determine whether mainstream media survive, thrive or die.

What we do know now is that the higher the Internet penetration in a country, the higher the share of online advertising. But even in the US, the online share is under 15 per cent. The highest are the Scandinavian countries where it's about 20-25 per cent. In Singapore, total online advertising is paltry - less than 5 per cent - while print products take the lion's share - 50+ per cent. How these shares change over time will determine which products thrive and whether online will make a significant dent on print revenues.

# The fourth challenge is how to find the right business models for new platforms. After almost two decades, there's still no business model for our online news offerings. I belong to the camp that believes that newspapers made a fatal mistake giving away their content for free.

SPH went online in 1995. In 2003, we put The Straits Times and Business Times behind paywalls. We took a lot of flak. Most newspapers yielded to the free culture on the Net. But we took the view that it didn't make sense to charge for the print edition, which pays the wages of our journalists, but give away the online version free. Only now is there a growing consensus on putting content behind paywalls. How newspapers design their paywalls, and the response of users, will be key issues that we all need to track.

A related issue is the iPad challenge. Apple's iPad will be a game changer.

The 70-30 revenue split with Apple (with Apple taking 30 per cent) is an equitable formula. For Apple, it's a fair reward for the tremendous eco-system it has built. I remember in the early days, our telephone companies wanted 70 per cent for being just passive carriers. We said, thanks but no thanks. I hope newspapers groups won't become greedy and want all 100 per cent.

But there are issues that need to be addressed - like ownership of subscriber data. There is also a danger of Apple becoming a predatory giant and skewing the rules in its favour. This is why I believe technology companies need to be regulated. It doesn't make sense that media and telecoms companies are regulated, while the technology giants aren't.

# The final challenge is building brands and creating brand value. Media companies need to build trust, credibility and a reputation for professionalism.

The McKinsey study I cited earlier found that consumers trust newspapers more than any other medium. And surprisingly too, 66 per cent described newspaper advertising as 'informative and confidence inspiring' compared to 44 per cent for TV and 12 per cent for the Web.

As the author of the study, Mr Philip Nattermann, a McKinsey principal in London, put it: 'This suggests that newspapers have further scope to go beyond news, to drive reader interest and advertising revenues at the same time.' So don't write us off just yet.

As an aside, I would say that trust will be important for another reason. So many societies are becoming increasingly partisan and polarised. Never have I seen the United States so partisan as it is today. Whether it's health care or defence policy, it's as if the twain can never meet. The same is true nearer home - red shirts versus yellow shirts; even pro-PAP and anti-PAP. World views have grown so partisan, so far apart.

I believe newspapers need not themselves become partisan. This does not mean we sit on the fence. We must have the courage to support whichever position deserves supporting and argue against wrong-headed positions. But we have to do so objectively and maintain the trust that most readers have in our professionalism.

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