Posted by Doug Lacombe

In my presentation at the May 2008 Social Media Speed Dating event held by CPRS Vancouver I posited what is a fairly non-controversial position, that traditional media is under intense pressure by macro-environmental forces including social media. My twist is that most people are distracted by the red herring of audience loss when in fact it is the implosion of the business model that is the greater threat to mainstream media.

At that time I found this excellent graphic that I thought encapsulated the audience-migration part of the idea nicely:

Credit J.D. Lasica via http://hinchcliffe.org/

It illustrates how the old broadcast model, by which I mean the one-to-many or unidirectional model, which includes print, is breaking down in the face of the shift to consumer control aka the many-to-many model.

As the barriers to entry have been removed (we now have cheap access to a printing press, broadcast studio and radio station in our home computers and the Internet) more people are participating in the generation of content. Let’s set aside the quality of that content for a second and explore the implications.

I’ll stick mostly to newspapers, since that’s what I know best, especially in the context of web publishing.

There are really only two things that matter to newspapers at the 50,000 foot level – readers and advertisers. Here’s a hint – even with the above noted pressures, readers are generally NOT the problem.

Want proof? Let’s look at audience shift and media consumption to see how traditional media fares. Here’s a peek at one small piece of the Canadian Media Research Consortium (CMRC) report “Online Canadians and News“. CMRC is a joint project of York University, Ryerson, UBC, and Université Laval; their other reports can be found here.

credit: Canadian Media Research Consortium

One might, quite rightly, draw the conclusion that audience is seeping away from newspapers and other mainstream media (MSM) and migrating to the Internet. Of course there are nuances around demographics (oldsters stick with papers more than youngsters, etc.) The question is, to what are people migrating on the Internet?

Besides porn, it turns out, mostly to the only stuff that is believable on the Internet; content produced by, you guessed it, MSM. Turns out, journalism matters, and unsubstantiated crap from basement una-bloggers, not so much (says the guy from his basement – more on blogger credibility in a future post).

While the situation for MSM is somewhat more dire in the US, here in Canada there are indicators that MSM is hanging onto its audience in the new media. For example, the venerable NADbank study (Newspaper Audience Databank) reports what appears to be a flatline in audience, although as Vancouver Sun editor Kirk Lapointe points out in his excellent blog TheMediaManager.com, year-over-year comparisons are absent so it is hard to be precise.

Or consider the recent (December 2008) Ipsos-Reid poll “Relying on Newspapers” where the results indicate:

Two-in-five (40%) Canadians turn to newspapers (both print and online) more often to find reliable and trustworthy information about the political crisis in Ottawa, while a third (32%) turn to newspapers more often to find information about the recent Canadian election. Only about 15% of Canadians indicate they do not read newspapers at all. The findings are based on over 1,000 online interviews conducted in early December, 2008 by Ipsos Reid.

And another Ipsos-Reid poll from May 2008 entitled “Traditional Media Sparks Online Information Gathering and Word of Mouth by Digital Influencers” found just that; stuff that’s shared online by the “digerati” tends to originate from MSM.

It’s not my intent to offer an exhaustive proof that MSM has content that people want, online or off, but if you can accept that premise, even for a moment, we can turn to the real problem; the business model.

Leonard Asper, President & CEO, Canwest; photo credit Peter Redman/FP

Just ask Leonard Asper, CEO of Canwest, who opined last November there are “structural challenges” in the business model for conventional television. Canwest’s mystifying stock performance tells part of the story – the market is betting against Canwest converting to a profitable digital media enterprise, even though it has mainly been profitable all along (with recent exception) and represents a stable of excellent titles and properties.

Canwest stock chart credit: GlobeInvestor.com

So we know what the market thinks, but what do advertisers think? Well, in the US they think they are going to spend their ad dollars online (see Ad Age chart below). One can surmise that isn’t too different in Canada. Indeed in their First Quarter 2009 results release, Mr. Asper noted:

Even in these challenging times, Canwest’s transformation continues with double-digit growth in our specialty channels and our online properties. With every quarter, these businesses continue to demonstrate their growth potential and illustrate the progress that is being made to increase Canwest’s share of the fastest growing segments of the advertising market

US ad spending by Ad Age as reported in TechCrunch

Not a big deal if television and print ads are down; online is trending up, right? (Canwest in particular reports online advertising is up.) Wrong. Online buys typically represent a fraction, some estimate 10%, of a traditional ad buy. That’s just a function of market pricing, a pure supply and demand issue. So if Canwest used to sell a print ad for $1,000, today the customer is opting for a $100 online buy instead. No business thrives on a 90% revenue reduction.

In summary, readership, not a big problem, MSM can lure readers online and get them to share and “promote” that content. Ad spending is generally down and ad buys are shifting to online at a fraction of previous revenue streams. Which leaves MSM with the same costs (reporters, photographers, sales people, admin, buildings, heat, etc.) and a shrinking revenue base.

MSM needs to replace ad revenue with alternate and complementary revenue streams.

For 300 years we have had a social contract with MSM – we the readers, listeners, and viewers enjoy free, or at least heavily subsidized, content in exchange for tolerating ads. We still want the free content, but the ad-supported model is insufficient now. In other words, the social contract is broken.