As Rupert Murdoch leads the crusade to charge for news online, most newspapers may take little or no action to make this move, predict researchers at Deloitte Touche Tohmatsu (DTT) in their special report – Media Predictions 2010.
While print media, led by newspapers and magazines may feel the pinch of declining ad revenue and readership, they will maintain their strength using innovative technology and providing a complete solution, predicts the research that is in its ninth year and is assembled by resources from more than 7,000 business partners in 45 countries all over the world.
In a very precise report documenting the development of media in the near future, the commentary on the subject reveals that in 2010 the newspaper and magazine industry will continue to make noises about charging readers for the online portion of their business. "But that talk is unlikely to be matched by actions of results."
Publishing fights back
The report highlights that "only a small percentage of titles worldwide are likely to even to attempt to implement pay models, and even fewer are likely to do so profitably. Further, the practice of making the entire publication available for free online seems to accelerating the decline of high-value print subscribers.
Some analysts believe it is impossible to go back to an online paid model, suggesting that "you can't put the genie back in the bottle". Others argue that every title should move to a pay model, and that the free model is "flawed".
To the surprise of many, there is no evidence pointing to the decline of the industry – despite the new breakthroughs in technology such as the Kindle or the iPad. Even the hardcore techno geeks believe it is still a far reality to replace paper by digital screens.
However, 2010 will surely see some march in that direction, including introduction of new revenue models for this fast- emerging platform.
To enhance their revenue streams, newspapers and magazines will likely at least consider new modes and options of revenue generation. But the most important strategy will probably be to continue to retain as many print subscribers as possible and hope for a recovery in print advertising image. Getting that right may have 10 times the immediate economics impact of any pay wall.
Emerging out of the testing times during the past 12 months of global recession, contractual publications have seen a sharp increase – in subscription, reach and ad revenue. "Focused audience attention and guaranteed eyeballs is the mantra that's been realised by the market that was looking for returns to its investments," says Bejoy Thomas Pulickel, Marketing and New Initiatives Manager of Abu Dhabi Co-operative Society.
"Our publications Capital Talk and Hadeeth Al Asima are in the sixth year in the running, but for the right reasons, they got the attention of potential advertisers, especially the FNCG products," says Pulickel.
"When marketeers are seeking the best returns on their ad-spend, they focus on publications that have guaranteed distribution and focused reach. This was realised more so in the aftermath of the crisis, and I am certain that advertisers, after realising the returns on their investment will continue their support to such publications," adds Pulickel.
Back on the issue of paying for content, the DTT special report conveys that the biggest challenge of pay walls is to ensure (before the walls are put in place) that the number of subscribers gained and print customers retained is of greater economic value than the drop in traffic that will almost certainly accompany the move to a paid model.
The report also emphasises that those publishers who use pay walls will need to maintain and publicise the premium nature of their content. Excessive cost-cutting will likely devalue the brand and cause online subscribers to shop and read elsewhere.
Content creators should try and make transactions as large as possible to reduce transaction costs. Commission models for micropayments are likely to incorporate a minimum cost – reflecting the cost structure of the payment provider. Content aggregators should avoid losing their entire margin or transaction payments.
e-books on the shelf
Moving on to the subject of digital books, DTT media predictions report says that in 2010 stand alone 2Reader devises will likely sell five million units globally.
Meanwhile, electronic versions of books (e-books) would sell as many as 100 million copies.
"While the makers of e-reader devices might be initially pleased to hear this, the downside for them is that more e-books may be read on PCs, netbooks, smartphones and netTabs than on single-purpose e-readers.
"With the likely sales of $1.5 billion (Dh5.50bn), e-readers are far from failing, but competition from other devices is likely to slow their growth rate into 2011, even as ebook growth remains close to 200 per cent," says the report.
Although e-readers are likely to experience very strong growth in 2010, the claim of a "breakout success" may be harder to live up to," states the report. Consumers have voiced numerous objections to the e-readers currently on the market.
The devices are seen as too expensive, well above the optimal $199 price point. There are also concerns about the ruggedness and the display is still a major issue.
Ownership rights also seems to be an issue with the industry. Digital books have no right of resale, eliminating the electronic equivalent of the $2.5bn used-book market (with text books representing $2bn).
The success of e-books poses a potential challenge for authors and publishers as well. Although e-books are easy to purchase, the low price for the average title suggests the economic model is changing. The amount left for content creators and publishers on a $9.99 sales price is likely to be much lower than in the past.
Highlighting the drawback in the innovative platform, the report draws a comparison between the music industry and publishing industry.
"The recorded music industry has been badly damaged by the emergence of digitised music, music players and the piracy that has followed. Yet the CD remains attractive, in part, because purchasers buy the right to make a copy for personal use for their own MP3 player. If those who bought print books or magazines were given a similar right to download content to an e-reader. Or other devices, it would likely help maintain sales of the physical copy.
Online advertising on the increase
"If online advertising continues to gain share in 2010 and beyond, then the bottom line for the media and the advertising industry will be straightforward: Do what has worked over the last five years," says the DTT report on the subject of online advertising that seems to be creeping in steadily and growing its share at an unprecedented pace.
Online represented roughly 10 per cent of the $600bn global advertising market in 2009. In a disruption scenario could see its share climbing more than 50 per cent, while also causing ad rates to fall and the market to contract.
In that case, the entire advertising and ad-supported ecosystem would need to consolidate, control costs more aggressively, and seek new business models.
"Traditional media companies may need to explore tactics that will allow them to bridge a period of continuing losses in advertising market share ," says the DTT report.
Absolute revenues may increase, depending on the strength of the global recovery but business decisions predicted on a return to the "old normal" might not be optimal.
The report clearly defines that those who create advertising are also likely to be affected. Generally speaking, ad agencies get paid on the size of the media buy. Developing a $40m ad campaign is usually about four times as $10m ad campaign.
But, in this new world, if a $10m ad campaign can be measured as producing equivalent results to a much larger spend, then the ad agency should be paid as much money as before.
"More in fact – since they just saved the ad buyer $30m. In a world where advertising budgets could undergo innovative disruption, agencies need to charge on the basis of results, not budgets," concludes the report.
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