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Why Wont Traditional Media Outlets Innovate?

2009.06.01

By now, it's no longer news--in fact it's cliché to say it's cliché--that the old ways of doing business in traditional media no longer apply. It's accepted as fact that media companies that resist change are doomed to fail and that legacy models have been overturned by digital technology. Except here's the thing: Having realized the digital pennies they're pulling in won't replace the analog dollars they're losing, traditional media companies are clinging ever more desperately to what they know.

It's not something they are proud of or will easily admit, but old media execs in TV, print and at movie studios or music labels are responding to the economic downturn by quietly reversing course. Just when they should be taking advantage of a chaotic marketplace to justify aggressive restructuring aimed at opening ancillary revenue streams, many are going the other way. They are huddled in the corner, trying to preserve old business models and protect their paychecks.

On some back-to-basics level it makes sense. For most of these companies, revenue and profits can be more easily generated by driving incremental business from the core. Every additional page of newspaper advertising does far more to impact the bottom line at the New York Times Co. than the next digital deal, event and licensing program combined. Every broadcaster makes more on a 30-second spot than they do selling a banner on Hulu or a product integration. New sources of cash take more time and resources to tap while providing lesser returns. That explains why last year's multi-platform approach to the TV networks' upfronts was scrapped this spring. Instead, there were trumpeting pronouncements of network TV's unrivaled reach and continued vitality.

But this is short-term thinking, one that smacks of the "not-on-my-watch" mentality that plagued some mid-90s CEOs. They knew the Internet would change their business, but they just wanted to hang on until retirement and make change the next guy's problem. A network exec confided to me recently that he still spends much of his time assuring local station owners--as doomed a group as Pontiac dealers--of his commitment to the broadcast model.

What is different now from a decade ago is that the retreat to the familiar follows several years of noisy verbal (and tentative actual) steps towards change. Every media company exec worth his or her spot on a conference panel in recent years has talked of replacing their product-centric model with a brand-based one built around customer solutions, not content platforms. They said the right things: "I don't care if the audience reads it in the paper or on their mobile phone or watches it on video; I care that my brand is the one delivering it to them." A dollar was a dollar, regardless of its source, they said.

They meant it. They wanted to believe. Of course at the time, they also thought they were going to eventually replace every lost buck from their core with a digital dollar or three. Online ad sales, after all, was their fastest-growing revenue stream, and the margins were tantalizingly high. But it wasn't sustainable. As digital volume grew (in some cases to a double-digit contributor to top line), growth rates naturally slowed. At the same time, marketers began to realize the limits of online display. And as media companies applied actual costs to their digital arms or made investments in bulking them up, those sexy profit margins turned wafer-thin.

Everybody out of the water.

In a world in which companies measure their success in quarters and CEOs count tenure by the month, none of this is surprising. It may even be the right way to manage in a downturn. But let's not fool ourselves: It only delays the inevitable and, in the long-term, pretty much ensures failure.

If I had the answer, this column would be coming to you from the deck of a sailboat in the Caribbean, or at least a corner-office suite. But I know this much: Unless old media brass truly believe their business model has long-term viability (and for some, such as publishers of glossy, lean-back lifestyle monthlies, it may) they need to regain an appetite for risk.

If display ads and destination Web sites aren't the answer, they should experiment with content integration, iPhone apps, mobile video and touch-screen readers. If they don't have the capabilities in-house, they must forge strategic alliances with those that do. They should enhance the effectiveness of industry trade associations by working with rivals to figure out new models rather than undercutting them for a point of share. And, finally, they should weigh the value of the short-term win against its long-term cost to the business.
Preserving what one has is a defensive, fear-based strategy. Chasing what's possible takes the kind of courage the troubled media business needs.

Scott Donaton, the former editor of Advertising Age and publisher of Entertainment Weekly, is a strategic advisor to brands in marketing, entertainment and media.

See Also:

Newspapers Can Be Saved

Ad Trends: Spin Doctors On Steroids

Touting Good Works, Marketers Make Stars Of Those They Help

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