Paul Rossi, President of The Economist Group, firmly believes that only media organisations that provide value and uniqueness will survive in the future. When Rossi visited India last week, we caught up with him to discuss the future of media in a digital world, creating content that people are ready to pay for and whether nationalistic politics threatens the freedom of media as we know it. Excerpts:
How do you create a balance between advertising revenue and subscription revenue? Is there a golden formula?
There is no formula for this. I think where you have to start is deciding what audience is your primary audience and what is your primary value creation. For us, our primary value creation is with readers. We want to create value in your head. So, for us, it starts with the reader first, this is our primary mission and this is what drives our content and how we think about our audience. We do have a very successful advertising business (Zirca Digital is the digital advertising partner for The Economist in India) but it is not the primary driver. I think the successful media companies of the future will have two value channels. In the old days people used to talk about media companies as aggregating audiences and then selling access to this audience. We aggregate audience by making them pay us money, this is our primary value channel. We then sell access to that audience through advertising and sponsorship.
I think, as you look forward, the media companies that survive will have both of these value channels. If your primary value driver is digital advertising then it is a very rocky road and it is not getting any less rocky or dangerous. If you are 100 per cent into digital advertising then you have to deal with ad blockers, ad fraud, viewability, the shift to mobile; and none of this is positive. What we are seeing is that a lot of these companies are not growing their advertising revenues anymore. They have flattened off at a time when they were not profitable, which means they are not going to last very long.
You are already seeing a lot of the digital news start-ups like Quartz and Buzzfeed introduce subscription models. It is not because they love the idea but they have realised that the digital advertising model is not sustainable and the ones who can build that (subscription model) are the ones who will be around in 2020-2025.
Digital advertising is tough unless you are Facebook or Google and have huge audience and impressions. If you look at the numbers, 84 cents of every dollar spent online incrementally is spent on these two. The remaining 16 cents is being scrapped over by not only The Economist and The New York Times but also the likes of Microsoft and the numerous others in this space. It is not a good place to be.
So, is this is a problem? The fact that media companies are too dependent on the likes of Facebook and Google?
Simplistically, media companies and the likes of Facebook and Google are not aligned to the same business values. They have very different business models. The reason why media companies use them a lot is because they are driving traffic to them.
Speaking of subscription, the conventional mindset, and something that it seems businesses are finding very hard to change, is that anything available online should be free. How does a subscription model survive in this case?
It is very difficult to create a valuable subscription or payment-based product if you are not clear about the two things you need, which are utility and distinction (uniqueness). A lot of people say that young people are not paying money for content but they are doing it for gaming. We believe that apps are quite a good model to do digital content. You can get people to pay money on it and the freemium model is quite a viable one; it is the idea behind every paywall in the media industry.
The idea that people are not going to pay for content is not true. Look at Netflix and Spotify. What you are seeing is that if you are a general news organisation and your content is exactly the same as everyone else’s and comes out at exactly the same time then you cannot charge for it. You cannot charge for vanilla content. As a media company you have to be very clear about what you are and what value you are giving to the consumer and then you can charge them. And if you do a very good job of it then they will be ready to give you even more.
But that is the challenge; media companies are putting out the same stuff in just a slightly different shade of vanilla. Look at The New York Times, their crossword probably makes them the most amount of money and it is not even news. This is because it is unique and distinct and it provides value.
Do you think another reason why this is happening is that the audience no longer trusts the media as much as it used to? We seem to be seeing something like that in India.
India has a big problem with it (erosion of trust). Any newspaper that allows you to buy content in it and doesn’t make it clear that the content is paid for by a marketer creates a problem. This is native advertising in its worst form. I think native advertising in its simplest form is fine but when you erode the rules around native advertising to a point that it does not look like an ad then it is a problem. If I am reading something and it dawns on me halfway through that this is actually something from a media brand then you have wasted my time and time is the most valuable currency. The biggest simple competitor for every single media company is the reader’s time. Media consumption is going up and up but they are multi-screening. If you waste my time then I am not coming back.
I wanted to get your thoughts on what is happening in the US right now. Just last week, the White House banned publications like the Politico, The New York Times and The Los Angeles Times from a press conference. The US President seems to view the media as an enemy. Do you see this kind of attitude also rising in other democracies and is it something to be worried about?
Well, I think there is an issue around the world, when you see these “nationalistic” politicians coming in, the relationship with media is going to change. We have to be conscious of that. Specifically in the US, I don’t know how much of this is a deliberate ploy to distract everyone from other issues. In talking about fake media, what we have done is actually stopped talking about Russia or the people who need to be elected into the roles in the government. It is a very interesting tactic that you say, “I don’t want people to talk about this issue so I am going to create a ruckus around media.”
So, I think it is important to understand how serious it is, whether it is a policy to distract people. But what we are seeing is that it could potentially lock out the audience of these magazines from democracy and that is what we should worry about. It is not blocking The New York Times, it is blocking their readers and I think that it is this new way of working that is challenging.