Author Archive

Twitter’s Business Model

April 27, 2010

Twitter has been one of the Internet’s great success stories. It is very popular, the brand has international recognition and three years after its launching it has an incredible traffic: in the first quarter of 2010, 4 billion tweets per quarter were posted. So far, this microblogging service has shared the culture of freedom, participation and lack of profit orientation that characterizes the Internet.

But on April 13, 2010, Twitter announced a plan for including advertising on the site. Some users fear that this decission will “polute” the conversations with “promotional tweets”. On the other hand, the venture capitalists that have backed the company are looking for some returns on their investments. Therefore, the key issue is how to make money without disturbing Twitter’s subscribers to much.

The business model based on advertising could work if Twitter’s managers introduce commercial information gradually. They need to listen to the users: their complaints should be a reason for a quick change about how advertising is delivered. Other media outlets teaches us people’s opinion about advertising: they love it if it is not “excesive”, or “intrusive” and if it is focused to their special interests and consumer behaviours.

The End of Big Media Conglomerates

March 23, 2010

A few years ago, it seemed that -in the future- most part of relevant media outlets would be in the hands of big media conglomerates. In 2000, when Time-Warner merged with AOL, CEO´s of media companies all over the world identified two main competitive advantages: big size and a diversified portfolio of media assets. Ten years later Time-Warner has split in two units: content (magazines, TV networks and film production) and distribution (AOL and cable systems). Viacom followed a similar strategy some years before.

What happened with the economies of scale, the synergies and the diversification of risks that those companies where looking for? In fact, most part of operations of concentration in media industries in the last two decades destroyed value for shareholders. Economies of scale have a rationale: costs per unit decrease when production increases; but the disadvantages have more wheight: in such cases, firms have lack of focus, problems of coordination among business units, more burocracy, less innovative spirit… and synergies do not appear. In some ways, companies are like human beings: they should be strong enough but without exceeding a given size.

If a company has a clear “market fontier” its risks are highly concentrated. But the solution is obvious: the shareholders can select different bets. In this way, they diversify their risks while invest in focused media companies.

Indebted Media Companies

March 2, 2010

Every 10 years media companies realize that their debt is a extremely heavy burden. At the beggining of the 90’s, News Corporation was close to collapse, and the empire of Robert Maxwell (at that time owner of the Mirror Group) was destroyed. In 2002 AOL Time Warner fired its CEO, Bob Pittman, and Vivendi Universal its CEO, Jean Marie Messier; Bertelsmann did the same with Thomas Middelhoff: those (and other) big media coroporations have increased their debt in order to follow strategies of fast growth.

Companies should choose between the aim of been the faster and bigger player of the market or, by the contrary, the aim of preserving the organization’s future. They can not do both things at the same time: one of the two options is always the priority.

The crisis is a good oportunity to learn. Sooner or later the “perfect storm” arrives: advertising decreases, consumtion goes down, the banks are not so willing to lend…. Well managed media companies are prepared to face such unavoidable disasters: innovation is part of the game, but prudence is the neccesary complement.

Profits vs Quality

February 23, 2010

Media companies always look for the right balance between quality and short-term profits. Quality requires big investment in several areas: production, good supplies, research and innovation, distribution, customer service and on top of everything… people.

When recession arrives, managers tend to cut expenses. Some of the “cutting” is healthy: in fact, the crisis are excellent excuses to get rid of inefficient people and innecesary burdens. But the danger is to cut to much, to destroy the organization’s muscle.

When the crisis arrives, the goals should be i) short-term survival, and ii) to arrive at the end of the crisis helthier and stronger than rivals. Companies that “at the end of the tunnel” have not not big debts, preserve the prestige of their brands and keep their teams happy and motivated have good option to capture a big part of market´s growth. In times of crisis, managers should have drive and inspiration to keep the balance: they should reach the financial targets while protecting quality.

Media Companies and Advertising Income

February 16, 2010

The 2009 figures about advertising income in Spain have just been published. Total advertising expenditure decrased 14,8 percent. The crisis have been stronger in consumer magazines (-34,9 percent), sundays (-33 percent) and film exhibition (-26,5 percent). But other traditional media also felt the pinch: tv decreased 23,2 percent, daily newspapers 22,1 percent and radio stations 16,3 percent.

However, the most negative fact for media companies was that advertising in media decreased 20,8 percent while below the line advertising only decreased 9,4 percent. This difference could mean that advertisers are paying more attention to the effectiveness of their ad investments.

Media companies need to be more attractive for advertisers: they should point out to the quality of their audience and the power of their brands and contents to reinforce the commercial messages’ credibility; they should also sell advertising packs through several media outlets (print, audiovisual and online); and they should use more innovative marketing strategies when they deal with possible customers.

Radio Networks and the Internet

February 9, 2010

Radio stations and networks have been a very succesful business for the last 80 years. In most developped countries, they got between 6 and 11 percent of total media ad sepending. They managed to keep low production, marketing and distribution costs and they were able to face the entrance of new strong competitors like TV.

In some way, the success of radio stations and networks has been based on their humility: on the one hand, they did not ask the listeners’ total attention; usually the audience is involved in other activities -eating, cooking, driving, walking…- while listening to the radio programms. On the other hand, managers of radio companies do not ask for high rates to the advertisers.

But the Internet has changed the rules of the game. Radio companies’ strenths have become weaknesses: Internet is not as portable as the radio; the users of Internet can not do other activities at the same time; radio is about sounds and Internet is mainly about texts and images… All those reasons are behind the lack of adaptation of radio companies to the Internat Age. The future of radio stations and networks depend on the ability of leaders in radio companies for sorting out such difficulties.

The Future of Consumer Magazines

February 2, 2010

Consumer magazines were the first and only mass media during the XVIIth century. But next century newspapers took over as the most influencial media both in Europe and America. Then, after the First World War, radio stations became more popular than magazines. The same happened with TV channels after the Second World War.

More recently, magazines have lost a new battle: now Internet has more niche products, gets more advertising income and attracts more users.

Magazines have low entry barriers and, because of that, there are more titles in the market than ever before -in spite of i) the advertising crisis and ii) the increasing number of subsitutes.

Editors of consumer magazines should be very innovative to sort out those problems. They have highly valuable assets: their brands. They should take advantage of them to create new products and services to attract new readers and advertisers.

Successful Mergers in the Media Industry

January 26, 2010

The crisis is fostering consolidations in the media industry. Operations of concentration help to reduce costs and allow to better face the increasing number of competitors. But, according to most analists, more than 70% of mergers do not add value for shareholders.

We provide some suggestions for developping successful mergers and acquisitions:

– Prepare a good analysis. Be a bit sceptical about the synergies that you will create.

– Forget the “big words” -credibility, diversification of risks, internationalization…- and look at the real data: income, costs, debt, profit margins.

– Write the plan for “the day after”: tasks, deadlines, people in charge of each goal…

– Look at the intangible benefits you will get: new knowledge and new competences, more talent and creativity, more valuable brands…

– Do not overestimate the benefits of size and economies of scale. Do not forget the risks of burocracy and lack of focus.

– Try to armonize the two organizations’ cultures fostering internal dialogue.

– Pay attention to the little details of implementation.

Media Concentration in the World

January 19, 2010

From 1960 to 2000 there were a controversy about concentration of media companies all over the world. Sometimes, media moguls were described as people who did not care about their media outlets’ impact on society because they were only focused on how to increase profits and shareholder value. During that period, big media companies became more international, more diversified, more horizontally and vertically integrated, and more powerful.

What is going on nowdays? Are media markets more concentrated? The answer depends on how we define markets. If we analize the newspaper market or the magazine market, we will identify a trend towards more concentration in most countries. But if we take the “information market” (including online services, radio news networks, 24 hours news TV channels, blogs and other user generated contents) it is obvious that there are less players whith dominant positions and less bottlenecks in the value chains. That applies both to news markets and entertainment markets.

If media markets are less concentrated, it is time to change some legal frameworks which made sense in the old times but which are inefficient and oldfashioned when choice for consumers is almost limitless. (That, of course, applies only to free market societies but not to state-controlled economies like China, Cuba or North Korea).

Internet as a Battlefield for Media Companies

January 12, 2010

Internet has changed the “rules of the game” for media companies: it has destoyed the big music companies’ distribution advantages; it has allowed the launching of online news services which means more competition for newspapers and magazines; it has increased the windows for audiovisual services; it has fostered the launching of new offers in the market like social networks, blogs and other user generated contents.

Managers of media companies should pay attention to this new battlefield: they should understand who are the winners and what are the reasons for their success.

Amazon, Google, Facebook, eBay, Yahoo, BBC News Online, YouTube… do they have any similar key success factors? We suggest here some “Internet winners’s” common values: they have highly motivated people; innovative culture; long-term focus; attitude of embracing uncertainty; lack of ties with past experences; openess to learn from experiments and from errors; strategic foresight which combines different methods and perspectives.