Borrell Report Details Legacy Media’s Struggles in the Digital World

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borrell logoIn a new report “The Future of Legacy Media” (free executive summary here), research and consulting firm Borrell Associates has both good and bad news for old media (newspapers, TV, radio, magazines) in the local space where the competition is increasingly against new media (commercial sites and news pure plays).

The good news is that “three-fourths of all advertising dollars this year will go to analog media – despite a decade of maligning by digiterati.” The bad news is that by 2018, pure plays “will sap all their growth.” In this Q & A, CEO Gordon Borrell explains the upside-down numbers of the report, which will be featured at the company’s upcoming Local Online Advertising Conference in New York.

You have a lot of projections in this report that reach out to 2018. How sound are they?
We have created a method that’s disruptive of the old methods of tracking and forecasting ad dollars. We start with what businesses spend rather than what media companies receive. The old way works fine in the old-media world when there was a finite number of TV or radio stations, newspapers and yellow pages books in a market.

But it doesn’t work very well in the digital-media space, where it’s impossible to estimate revenue because there may literally be thousands of companies or individuals selling advertising in one market. In forecasting, our trending starts with basic research. But the added twist is that Borrell’s researchers have a deep understanding of media history (things do indeed tend to repeat themselves) and of disruptive technology (things have indeed changed). Our forecasts tend to come out of left field and have everyone scratching their heads, but every single one has come true since we started in 2001.

Legacy media's share of online spending, Borrell 2014

What would it take for legacy media to maintain their current dominance in local ad revenue?
First, legacy media companies could somehow become great innovators, creating digital products that attract the type of wallet-ready consumers that advertisers want to reach. That’s probably not going to happen on a sizable scale.

Second, legacy media companies could become wildly aggressive, not only protecting their current customer base from being lured away by exciting new digital products, but also expanding that base by reaching out to customers they’ve never had before. That’s really not going to happen, either.

Okay: if it’s unrealistic for legacy media to play King Canute, what are their choices to stay alive and relevant?
They should view their digital initiatives as new ventures instead of product extensions. If you view something as a product extension – like a special section or a new TV program – you use existing resources to produce, sell and distribute it.

That won’t work in the digital space because it still adheres to the old mass-media business model that works very well (still) in the analog world, but not in the digital world. The winners will be legacy  media companies that view digital as a new venture, requiring new people and resources that should be managed separate from the core product managers.

Could the newspaper industry ever, ever, ever have conceived of Craigslist?  Free classifieds?  It would have eroded the very profitable pay-for-listing model, and it would have had no revenue whatsoever. Crazy! Yet Craig Newmark’s operation this year will make about $200 million on what we suspect might be an 80% profit margin. Those types of crazy ideas can’t be stopped, and they will never flow from the brain of a manager who’s paid to keep that sort of disruption at bay. So, the “surprise winners” will be legacy media companies whose owners are brave enough to incubate their own disrupters outside of the existing management circle.

Social media giants Facebook and Twitter are positioning themselves to capture local ad dollars. How seriously will they disrupt ad spending shares in the local space?
They’ll disrupt it, but they’re more like a few pebbles on the massive scales of local marketing than big bricks. My concern about both media entities is that they haven’t aggregated a particularly valuable audience – those who intend to buy something. You see that more with true disruptors like Angie’s List, or Yelp.  Everybody coming to those sites intends to purchase something, so they hold far more advertising value.

People go to Facebook to see how many people liked their posting about their dog eating a whole box of Fruit Loops. If you asked me to predict how much of a dent Facebook and Twitter made in the $130 billion or so being spent on local advertising five years from now, I’d say it’ll be another small ding in the fender.  I’d also predict that quite a bit of that advertising was actually sold by entities that used to call themselves yellow pages companies.

Winners and losers in 'time spent,' Borrell, 2014

You have, in the past, minimized the impact of news in the local digital space. Do you see any publishers – in old or new media – figuring out how to make news more compelling and thus more competitive with other local products, like those offered by Groupon, Yelp and Angie’s List?
As a former newspaper reporter and editor, journalism holds a special place in my heart. It brings about a sense of community, routs the bad guys, educates the public and gives us direction. I am worried about its future because a print reader is worth 10x (literally) what an online reader is worth to a newspaper company.  And we all know the troublesome economics of companies that need to produce and deliver a half-pound of paper to people’s doorsteps every single morning.

I love the type of storytelling that Scripps is doing with WCPO-TV, going well beyond repurposed content and utilizing the new medium for what it can do. But when I recently read a heart-tugging story about the unsolved murder of a young policeman on Exit 34, I didn’t notice a single advertisement. That story took a lot to produce. Who paid for it?

So here’s what I’m thinking: It’s incumbent on publishers and general managers to create revenue streams that support journalism. I don’t think journalism will support itself as it did back in the day when it was all about selling newspapers on the streets. As revenue from print advertising stays flat, where will we find money to support great investigative efforts? The new revenue has to come from the media company’s success in what it does best (and I really hate that this is true): Helping local businesses sell things.

Tom GrubisichTom Grubisich (@TomGrubisich) writes “The New News” column for Street Fight. He is editorial director of the in-development hyperlocal news network Local America that will rate communities on their performance across a broad spectrum of livability. He will present the site’s new demo on Charleston, S.C., at the DIG SOUTH 2014 interactive festival in Charleston on April 9-13, 2014.