Message From Michael -- August 20, 2007

CREATIVE DESTRUCTION VS. DISRUPTIVE TECHNOLOGY

SHOW ME THE MONEY

COCKTAIL CHATTER – A MUSICAL



CREATIVE DESTRUCTION: That’s the title of a report from Harvard University looking at news on the Internet. The short-hand summary is that “the Internet is redistributing the news audience in ways that is threatening some traditional news organizations” – most particularly, local newspapers. But the traditional news organizations have “brand names” that they need to capitalize on, if they’re going to compete with the non-traditional news operations. The long-hand version of the report by the Joan Shorenstein Center on the Press, Politics and Public Policy is considerably more complicated. While “brand name” national newspaper websites (New York Times, Washington Post, USA Today) are growing, the websites of the dailies in large, medium and small cities are not. (In fact, local newspapers are probably losing audience to the national ‘brand name’ newspapers.) And while “brand name” networks (Fox, CBS, NBC) and local broadcast operations ARE growing, they have a long way to catch up to the “first mover” advantage that newspapers have. And none of the traditional news organizations are growing as fast as the nontraditional news operations such as news aggregators, bloggers and search engines and search providers – growth that study author Thomas E. Patterson calls “stunning.”

Let me throw out some figures: Brand name national newspaper sites average 8.8 Million visitors compared to brand name networks’ 3.2 Million, but the network sites are growing at 35% while the national newspaper sites are growing at 10%. Large city dailies average 1.2 Million visitors compared to large city television’s 250 Thousand, but large city TV is growing at 40% while large city dailies’ growth is flat. In medium sized cities, it’s a similar pattern but in small cities it’s a tighter race with small city newspapers averaging 94 Thousand visitors to their sites compared to 60 Thousand for small city TV; but small city TV is growing (modestly at 6%) while small city newspapers are flat. But here are the figures Patterson calls “stunning” – News aggregator Digg went from 2 Million visitors to 15 Million visitors in the last year, while Topix.net went from 50 Thousand to 750 Thousand. And that’s not even counting the “general aggregators” (Google, Yahoo, AOL, MSN) which are hitting the 100 Million mark in terms of visitors.

The Players: By my count, there are a dozen key categories in the Internet News war: National Newspapers and National Television (which can attract local audiences); Local Newspapers and Local Television (and this is further divided into large, medium and small cities); Magazines; Commercial Radio (whose audience is very small but growing); Public Broadcasting/ Television and Public Broadcasting/ Radio (national and local); Bloggers – national and local (community sites and citizen media); Aggregators – the general ones which do have news as an important element, specific news aggregators and what Patterson calls “aggregators with attitude” – like the Drudge Report and Huffington Post; AND non-traditional actors. This one blew me away. Never thought of it. Lobbying Groups such as the Recording Industry of America, the US Chamber of Commerce, National Committee to Preserve Social Security and Medicare, American Petroleum Institute. Patterson makes the point that many of these are growing by using news as a way to attract visitors to their websites. That is why Patterson says the “largest threat” posed by the Internet to traditional news organizations is “the ease with which imaginative or well positioned players from outside the news system can use news to attract an audience.”

Considerations: Newspapers originally had the advantage because the Internet was originally more ‘print’ focused. Video and graphics are now a bigger part of the equation. On the Internet, geography is less of a factor in deciding on a news source. That is why ‘brand name’ development is so important. The report emphasizes the importance of local news operations taking advantage of their local brand identity and their offline power to promote their online product. Patterson offers an object lesson from public television and radio which surprisingly was declining. His “hunch” is the public broadcasting websites promote featured programs instead of providing the day’s news. He basically argues that you have to have a balance in your local website of local, national and international news. Local news may be obvious, but if you don’t have national news as well, you’re conceding that area of interest to the national brand names. Patterson makes the point that while it is true that the Internet is contributing to an increasingly fragmented news audience, the fact is the Internet itself has a less disbursed audience than newspapers because while there are thousands of providers on the Internet, a small number of them dominate it – something that is not true in the newspaper system, or for that matter, in television.

Disclaimer or Consideration: The most important one is the point that you need two to three dozen online users, or readers in the case of newspapers, to make up for ONE offline user, in terms of advertising revenue. Secondly, while one sector of the Internet News category can increase in absolute terms (in actual numbers), it could shrink in relative size because, as Patterson puts it, “like the Cosmos, the Internet is expanding.”

Footnote: In case you’re wondering, the term “creative destruction” comes from the study of Economics and describes the transformation that comes about through radical innovation which, while destroying the value of established companies, introduces a new market dynamic that actually is good for long-term economic growth. I think it’s interesting that the authors used that term instead of the more commonly used “disruptive technology” which Wikipedia defines as “a technological innovation, product or service that eventually overturns the existing dominant technology or status quo product in the market.” Study author Patterson coins a phrase of his own when he talks about “product substitution” through the Internet.

Sidenote: A survey released by Frank N. Magid and Associates further validates the issue of brand importance. While noting that TV is still the most trusted source for breaking news, TV is vulnerable to loss of audience to the Web as a story plays out. Jack MacKenzie, who heads the group’s Millennial Strategy Program, warns that “to be a news brand today, you need to be a news brand of equal import on all platforms.”

SHOW ME THE MONEY: Despite all the gnashing of journalistic teeth about the “tarting up” of the news with infotainment, the Pew Research Center for the Press and the People says there is little real evidence that Americans taste for softer news has grown over the last two decades. The authors are quick to note that doesn’t mean news outlets have, as they put it, “erred financially” in running tabloid type news because even though interest is small, in the competitive news environment, small counts. The study looks at stories people say they followed “very closely.” The center has been doing this every year since 1986. The center says the level of interest in news has changed a little over the last two decades, but not much – with about a quarter (26%) saying they follow particular stories “very closely.” While the authors admit the term “very closely” may be a high standard, they say it still ‘suggests’ that the American news audience is only modestly interested in most day-to-day reporting.

What they are interested in, pretty consistently, is “disaster news,” says the report. It is the number one area of interest with four out of ten (39%) saying they follow such stories very closely. In second place was “money news” with 34% saying they follow such stories “very closely” but even more interesting, the authors say stories about people’s finances has grown steadily in interest over the last twenty years. When asked about specific stories that would fit into the tabloid category (such as the Anna Nicole Smith death), less than one in five (18%) said they were following such stories closely – only slightly more than those following foreign news (17%).

The report also does an interesting comparison of people’s news interest versus the media’s actual coverage. You might expect that the more coverage the more interest and vice versa. Not always. For example, the stories about Attorney General Alberto Gonzales, and the trial of former Vice Presidential aide Scooter Libby received more coverage than the research by Pew would indicate people want. The coverage of the War in Iraq received considerable coverage and rightfully so, based on the public interest. But then there is the story about inadequate conditions at the Walter Reed Medical Center veterans’ hospital. It received what the group called “mid-level news coverage” even though it was of high interest to the public which ranked it fourth on its list of stories they followed “very closely.” Even more surprising, stories about weather did not receive as much coverage as the public interest would have indicated. For example, the “cold winter weather” in February of this year had the third highest ranking in viewer interest among all stories, but it didn’t get nearly equivalent coverage. Global warming is another example, with audience interest ranking it in the top ten, but coverage (at least during the time of the study) ranked it in the lower third. (I say “surprising” because we consultants almost always emphasize the importance of weather coverage.)

Sidenote: To put some of this in perspective, the study by the Magid group said Word of Mouth was the #1 way people who weren’t at home found out about the Virginia Tech story. it. And that was across all demos. And that study validates an earlier study by the Word of Mouth Association that word of mouth is the primary way many people find out about breaking news.

COCKTAIL CHATTER: Only one today, but it’s an interesting one. Who would have thought in today’s day and age that a musical – a musical produced by the Disney Channel, no less – would be the hottest thing on television. Disney’s High School Musical 2 became the most watched basic cable television event of all time when it premiered Friday night. The sequel to the already highly successful High School Musical drew 17.2 Million viewers. Actually, it had much more than that in this correspondent’s humble opinion because I know many students – high school and even college – who arranged viewing parties for the event, which is a double phenomenon since the show is a Tween event. TV Week put it in perspective, noting that the viewership was comparable to CBS’s CSI or ABC’s Desperate Housewives. Critics are likening High School Musical to yesteryear’s Grease, or going further back, Westside Story.