Transformations are ultimately about establishing new sources of growth and profit, so print companies need to demonstrate new digitally aligned business models that rack up gains in the medium term (one to three years). Publishers have tried various moves in the past few years. In our assessment, entering adjacent areas that build on existing capabilities is still the best route to growth. Axel Springer is a prime example of this kind of success. The company has expanded into digital businesses such as content sites and online communities. Buoyed by its digital division, which accounted for 67% of revenue and 72% of earnings in the first quarter of 2016, Axel Springer reported sixfold year-over-year growth in net profit in that period.
That said, buying rather than building new businesses has been the more successful path for this kind of expansion. Legacy media companies often lack the technology and the marketing capabilities, and in some cases the digital audiences, to develop new businesses themselves. And they can struggle to create effective new digital channels that will attract new customers. Growth through acquisition, joint venture, or partnership is better suited to many companies’ current circumstances and has allowed them to capture revenue more quickly. Hearst Magazines acquired digital agency iCrossing in 2010. News Corp bought social news agency Storyful in 2013 and digital real-estate-listings company Move, Inc. in 2014. Condé Nast’s parent company, Advance Publications, acquired the data analytics firm 1010data in 2015.
Whether digital operations are acquired or built, they do best when they are grown and managed outside the core business. Emerging businesses need dedicated resources and, more often than not, new kinds of talent. The organizations, processes, and cultures of traditional publishing can stifle them.
A few growth areas in particular have been successful for print publishers.
Branded content has emerged as an important growth engine not only for the near term but for the longer term as well. Publishers such as The New York Times and Condé Nast have aggressively entered the branded-content business. And companies such as Unilever, GE, and Red Bull are actively building in-house media capabilities, pulling editors and journalists from publishing companies and working with agencies and publishers to develop content.
In our view, playing a role in the future of branded content is a big and multifaceted business opportunity for media companies. At the very least, they need to meet the growing demand of consumers and advertisers by developing a core offering that marries two capabilities: integrating native ads seamlessly into consumers’ interactions with media and working with brands to develop creative content for distribution through media platforms.
To develop those capabilities, publishers are complementing their editorial expertise with people hired from advertising and other marketing companies, and editors are learning a new juggling act of managing editorial content and business considerations. Publishers considering this route should ensure that their branded-content ventures are transparent to advertisers and audiences alike and that the editorial brand and voice are closely aligned. We see attractive opportunities to build adjacent businesses in three areas related to branded content: full-service branded-content offerings, native-ad sales on media companies’ private exchanges, and content management services for marketers. (See Branded Content: Growth for Marketers and Media Companies, BCG Focus, July 2015.)
Events have become a big hit for advertisers, too. In addition to profitable events for consumers, many publishers organize events for advertisers (business conferences and networking events, for example) that make money and contribute to brand building. Some are completely supported by sponsors; others have high ticket prices. For example, The Atlantic Ideas Festival includes events in New York City and Aspen at which thought leaders discuss a variety of topics.
Traditional print is far from dead—profitable business opportunities can still be found. For example, T: The New York Times Style Magazine celebrated its tenth birthday in 2015. Although print-advertising revenues slid overall in 2015, T Design, part of the T family of publications, increased ad pages by 57 pages, or 75%, year over year.
Publishers are offering new print products to drive incremental revenue, especially in the premium segment. Time Inc. launched a bespoke US edition of Wallpaper, a magazine that focuses on design, architecture, and culture, but has announced that initially it will be distributed only to a select group of affluent readers and targeted commercial venues. Another global newspaper player, recognizing that the majority of its print demand now occurs on the weekend, has bundled weekly special sections (such as City and Arts) into the weekend edition and has raised the subscription and newsstand price and advertiser demand for its transformed premium edition.
Some new business lines are not working as well. The notion of using media properties as the basis for building commerce businesses (in the oft-discussed three-pronged digital business model of “content, commerce, and community”) has not paid dividends for companies that have pursued it. Differentiation is difficult, and persuading consumers to move beyond visiting a site to actually making a purchase is harder still. Even for successful e-commerce businesses, margins are typically razor thin.
Plenty of media companies have tried to build over-the-top and subscription video models, but it is early days yet, and few companies have found that linking print brands to television and film businesses leads to financial success or increases their audience. About 20 traditional print brands currently have streaming Roku channels, but most are ad supported rather than subscription based and so require large audiences to operate profitably. While many of these companies have hired talented video executives to lead their efforts, high-caliber video requires capabilities that newspapers and magazines generally lack.