Fall 2012

Breaking News

Mastering the art of disruptive innovation in journalism

By Clayton M. Christensen, David Skok, and James Allworth
Harvard Business School professor Clayton M. Christensen’s theory of disruptive innovation provides a framework to understand how businesses grow, become successful, and falter as nimble start-ups muscle in on their customers. It’s a familiar story, one that has played out in the steel and auto industries, among others. Now Christensen, in collaboration with 2012 Martin Wise Goodman Canadian Nieman Fellow David Skok, has applied his analysis to the news industry. Their goal in “Breaking News” is to encourage news executives to apply the lessons of disruption to the media industry as a means of charting new paths to survival and success.
Download this article as an e-book or PDF.

Listen to an interview with the co-authors.

In February 2013, Clay Christensen and David Skok spoke at the Nieman Foundation about disruption in journalism. Video of their discussion is available.

Clayton M. Christensen of Harvard Business School developed the theory of disruptive innovation. Photo by John Soares.

Four years after the 2008 financial crisis, traditional news organizations continue to see their newsrooms shrink or close. Those that survive remain mired in the innovator's dilemma: A false choice between today's revenues and tomorrow's digital promise. The problem is a profound one: A study in March by the Pew Research Center's Project for Excellence in Journalism showed that newspapers have been, on average, losing print advertising dollars at seven times the rate they have been growing digital ad revenue.

Journalism institutions play a vital role in the democratic process and we are rooting for their survival. But only the organizations themselves can make the changes required to adapt to these new realities. This search for new business models remains elusive for most. Executives interviewed in that Pew report confirmed that closing the revenue gap remains a struggle. "There might be a 90 percent chance you'll accelerate the decline if you gamble and a 10 percent chance you might find the new model," one executive explained in the report. "No one is willing to take that chance."

But pursue it they must, or their organizations will be deemed irrelevant by Successful companies understand the jobs that arise in people’s lives and develop products that do the jobs perfectly. And if a company does this, customers will instinctively ‘pull’ the product into their lives.news consumers. New entrants are already leaving their mark on journalism—stealing audiences and revenues away from legacy organizations.

This has happened before. Eighty-nine years ago, Henry Luce started Time as a weekly magazine summarizing the news. All 28 pages of the black-and-white weekly were filled with advertisements and aggregation. This wasn't just rewrites of the week's news; it was rip-and-read copy from the day's major publications—The Atlantic Monthly, The Christian Science Monitor, and the New York World, to name a few.

Today Time, with its print and online properties, confronts the challenges  posed by the digital age, but reaches a global audience of 25 million.

With history as our guide, it shouldn't be a surprise when new entrants like The Huffington Post and BuzzFeed, which began life as news aggregators, begin their march up the value network. They may have started by collecting cute pictures of cats but they are now expanding into politics, transforming from aggregators into generators of original content, and even, in the case of The Huffington Post, winning a Pulitzer Prize for its reporting.

They are classic disruptors.

Disruption theory argues that a consistent pattern repeats itself from industry to industry. New entrants to a field establish a foothold at the low end and move up the value network—eating away at the customer base of incumbents—by using a scalable advantage and typically entering the market with a lower-margin profit formula.

It happened with Japanese automakers: They started with cheap subcompacts that were widely considered a joke. Now they make Lexuses that challenge the best of what Europe can offer.

It happened in the steel industry, where minimills began as a cheap, lower-quality alternative to established integrated mills, then moved their way up, pushing aside the industry's giants.

In the news business, newcomers are doing the same thing: delivering a product that is faster and more personalized than that provided by the bigger, more established news organizations. The newcomers aren't burdened by the expensive overheads of legacy organizations that are a function of life in the old world. Instead, they've invested in only those resources critical to survival in the new world. All the while, they have created new market demand by engaging new audiences.

Because new-market disruptors like The Huffington Post and BuzzFeed initially attract those who aren't traditional consumers of a daily newspaper or evening newscast, incumbent organizations feel little pain or threat. The incumbents stay the course on content, competing along the traditional definition of "quality." Once established at the market's low end, the disruptors—by producing low-cost, personalized and, increasingly, original content—move into the space previously held by the incumbents.

It is not until the disruption is in its final stages that it truly erodes the position of the incumbents.

Another classic case of the innovator's dilemma

So how can traditional news organizations sustain themselves financially while remaining relevant to their audiences in this rapidly changing landscape? Waiting for online advertising to materialize or hoping for a return to the old way of working is futile. The time for delay has passed: Newsrooms should embrace this disruption head-on and look for other avenues within the value network that are ripe for growth and innovation.

Drawing on previous research, this article highlights three key areas for those in the news business to consider:

  • First, we'll provide a framework to understand what it is that audiences value and where opportunities exist for newsrooms to take advantage of this.

  • Second, we'll explain the impact of disruption on traditional newsroom business models and suggest ways to exploit other aspects of the value network to increase revenues and drive innovation.

  • Finally, we'll examine the role of culture and capabilities in an organization and how best to manage them. As the landscape changes, capabilities and culture may need to change too—or they can become a liability in the new world.

A cautionary note: Due to the rapidly changing media landscape, some of the examples provided in presenting these frameworks may no longer be relevant. These case studies are intended to bring theory to life and convey timeless principles. The underlying ideas don't change, even if the facts in the case do.

This article is targeted toward traditional news organizations that are being disrupted, but the issues we'll tackle are relevant for all media companies (start-up and legacy newsrooms as well as print, broadcast and digital operations) working to sustain journalism in the digital era.

In 1925, two of the nation’s leading orators, William Jennings Bryan, above, and Clarence Darrow, faced off at the landmark Scopes trial about the teaching of evolution. Hundreds of newspaper reporters converged on Dayton, Tennessee but no account could rival a Chicago-based radio station’s real-time broadcast of the drama. It was the first trial in the U.S. to be carried live. Chicago Tribune publisher Robert R. McCormick had bought the station at a time when other publishers fought to squash the new medium. McCormick, mindful of the potential synergies between radio and newspapers, had changed the call letters to WGN for “World’s Greatest Newspaper.” Photo by Hulton Archive/Getty Images.

Part One:
Always Consider The Audience First

Despite what some marketers would have you believe, we don't go through life conforming to particular demographic segments. While audiences are almost always broken down in such a way, nobody goes out and buys a newspaper because he is an 18- to 25-year-old white male with a college degree. Those attributes of a consumer may be correlated with a decision to purchase and read one particular newspaper over another, but they don't actually cause one to read or buy anything.

The problem is that too many newsrooms' strategies are based around exactly this assumption—that their businesses can best be explained in terms of key demographics, price points, or distribution platforms.

Instead, a better way of thinking about the business you're in is through the lens of a theory that we call jobs-to-be-done. The basic idea is that people don't go around looking for products to buy. Instead, they take life as it comes and when they encounter a problem, they look for a solution—and at that point, they'll hire a product or service.

The key insight from thinking about your business this way is that it is the job, and not the customer or the product, that should be the fundamental unit of analysis. This applies to news as much as it does to any other service.

To illustrate the importance of focusing on jobs-to-be-done, let us give you an example in a totally different industry: the furniture store IKEA. It's been incredibly successful: The Swedish company has been rolling out stores all over the world for the last 50 years and has global revenues in excess of $32.6 billion. So why, when there are so many furniture store chains out there, has IKEA been so successful?

A big part of it is that rather than being organized around particular products or demographic profiles, IKEA is structured around a job that many consumers confront quite often as they establish themselves and their families in new surroundings: "I've got to get this place furnished tomorrow, because I have to show up at work the next day."

IKEA has made a number of strategic decisions in order to best fulfill this job. For example, IKEA stores are often built in quite distant locations. This might seem counterintuitive, but it enables IKEA to set up huge warehouses so that everything a customer needs can be purchased in one trip. IKEA offers same-day delivery; customers might not be able to fit everything they need in their cars, but they don't want to have to make multiple trips and can't afford to wait until tomorrow for everything to arrive. Similarly, because having children running around the store might distract them fromremembering everything they need to buy, IKEA introduced day care facilities. And in case you get hungry during your shopping trip, you don't even need to leave the premises—every IKEA store has a restaurant.

Everything IKEA does revolves around doing the job of "I need this apartment or home furnished, and I need it done quickly and efficiently."

Let's look at another example of a job—but this time, we will use one that the media industry is more frequently called upon to fulfill.

David is in line for his morning coffee. He's probably got 10 minutes while he waits to order and be served. It's going to be wasted time so David pulls out his smartphone. He opens up Twitter and scans through his feed for an interesting article. A New Yorker article catches his eye, he clicks on it, and starts reading. Just as he finishes it, the barista calls his name; his coffee is ready.

What we've described here is actually a huge job in the media market—"I have 10 minutes of downtime. Help me fill it with something interesting or entertaining." David chose to hire Twitter, but he could have hired a newspaper that was lying around the coffee shop. Or he could have hired a game off the App Store. Or perhaps he could have started replying to his e-mail.

Understanding the world through the lens of jobs-to-be-done gives us an incredible insight into people's behavior.

Next time you're sitting in a doctor's office, watch all the people with exactly this job: "I've got 10 minutes to kill; help me fill it." Traditionally, the office would help patients fulfill this job by leaving magazines in the waiting room. Nowadays, many patients find this job is better fulfilled by their smartphones or iPads—allowing them to curate and read the articles and websites that are of interest to them, rather than relying on the office manager's taste in magazines. Before the smartphone, magazines were popular because they were competing almost entirely with non-consumption: if patients didn't pick up the magazines, they were left sitting there with nothing to do. But compared to a random magazine, getting to read what they're interested in on their portable device is a vastly superior choice.

Similarly, the job of "I have 10 minutes to spare. Help me fill it with something interesting or entertaining" arises on David's commute home when he's on the subway. He finished his New Yorker article from this morning, but unfortunately, Twitter isn't an option now because his cell phone doesn't work underground. At this point, for millions of commuters all around the world, one name pops into their heads: Metro.

When Metro was first introduced, it didn't try to compete head on with the incumbent papers. In fact, for most high-end consumers of newspapers, it is vastly inferior. Yet despite this, and while virtually every newspaper has had its readership decline as a result of the explosion of information available on the Internet, Metro now has over 67 daily editions in 22 countries.

How has it done it? Well, it has targeted the job that has arisen in David's life. And it just so happens that every day, millions of people around the world also have this exact job.

It's much easier to understand the success of Metro when you view it through the lens of job-to-be-done. The job of "help me fill the time" is a widespread one, but folks who are on their way home from a day at work are focused on one thing: getting home from work as quickly as they can. Until they get on that train, their willingness to stop for anything—including to pay for a paper—is probably pretty low. However, hand them a paper without asking them to pay for it, and chances are, they'll take it from you. With that in mind, the Metro was made a "freesheet"—the cost of producing it is subsidized entirely by advertising from businesses hoping to target commuters. The stories are intentionally made short, punchy and easy to read. The aim? Allow readers to complete the paper (and expose them to all the ads) within 20 minutes—which Metro worked out was the average time spent on a train commute home. With a traditional newspaper, a copy left behind on a seat means the next reader gets it for free, depriving the paper of revenue. In contrast, a Metro reader who picks up a copy left behind has just saved the newspaper the cost of distributing one more paper. By targeting the job-to-be-done, Metro has dramatically bucked the trend of declining circulation.

This is just one very simple example of a job that arises multiple times in pretty much everyone's life every day.

So how can you find these jobs?

Asking the right questions

As managers think about what their news organization can do to thrive in a changing world, they must ask:

  • What is the job audiences want done?

  • What kinds of employees and structure does the company need so it can fulfill that job-to-be-done?

  • What is the best way to deliver that information to audiences?

One way to figure out what jobs the audience wants to be done is to look at what successful competitors have accomplished and then ask what people were trying to do when they hired the competitor. Craigslist, for example, is a network of websites that feature generally free online classified advertisements with sections devoted to jobs, housing, personals, items for sale, and so on. The site, founded in 1995, currently covers 70 countries. Craig Newmark created Craigslist because he intuitively understood audiences' frustration with classifieds in newspapers. If a consumer wanted to post a classified ad in a newspaper, he had to pay (usually by the line) for a listing that might be buried between dozens of similar entries. It was frustrating for buyers and sellers to find a match. It wasn't easy to search. You'd have to put your phone number in the listing, and you'd often get calls even after the sale had taken place. And, in a digital world, it was slow—ads would take a day or more to post. Craigslist has been hugely successful because it does a better job than traditional news organizations of providing classifieds by making listings easily discoverable, by making it easy to hide your e-mail address, and by allowing consumers to post for free in real time.

Another way is to simply watch people and get a deep understanding of how they live their lives. Both Apple co-founder Steve Jobs and Akio Morita, co-founder of Sony Corp., were famous for disparaging market research. Part of the reason is that too often, consumers are unable to articulate exactly what it is they are looking for, their thinking constrained by the solutions that already exist in the market. The approach Morita took at Sony? "Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do." This idea might seem contrary to how many large media businesses are run—but it can be hugely valuable in generating insight for new business opportunities.

Successful companies understand the jobs that arise in people's lives and develop products that do the jobs perfectly. And if a company does this, customers will instinctively "pull" the product into their lives whenever that job arises.

The jobs are consistent—it's the products that change

What's very interesting about the jobs that consumers want done is that they are consistent over time. As industries are disrupted, different products emerge that are better able to complete the job—but the job stays the same.

The camera market is a great example. The success of digital point-and-shoot cameras was driven by them addressing a job that frequently occurred in consumer's lives: "I want to capture this moment, and share it." Given most peoples' budgets, digital point-and-shoot cameras fulfilled the job quite well, particularly in comparison to their film-based forebears.

However, competitors who are better focused on the job that people hire cameras for are now killing the digital point-and-shoot camera.

Five years ago, cameras on smartphones, music players, and other small multipurpose devices were vastly inferior to most digital point-and-shoot cameras. However, the cameras on these devices had one big advantage: You would almost always have one of them with you. While digital point-and-shoot cameras were quite small, they were still bulky enough that you would think twice about carrying one in your pocket. If you knew a moment for a photo was going to arise, then you'd probably be willing to put up with it. But if an unexpected opportunity for a photo arose, then chances are you probably didn't have your camera with you.

Given the fact that the job of capturing a moment would arise in consumers' lives whether they had their camera with them or not, many people found themselves increasingly hiring the cameras on their phones. Manufacturers realized this, and sales of phones and other devices that had a camera in them exploded. This, in turn, enabled manufacturers to significantly narrow the photo quality gap between their products and point-and-shoot cameras.

But what has really turned the screws on the point-and-shoot camera is the other part of the job that consumers hire the devices for—sharing. Photos taken on smartphones and other media devices can now be instantly uploaded to online services such as Facebook, Instagram and Twitter. You don't have to go home, plug the camera in, and download the photos so you can then upload them to share on the Internet or over e-mail. You can do it instantly, right from the device.

Now, there are still going to be those times when we know the job will arise, and we're not satisfied with the quality that a phone camera will take. These are the times when we would have hired a digital point-and-shoot for the job. But in this instance, the point-and-shoot camera has been squeezed from the other direction—by a drop in the price of digital SLR cameras and the emergence of mirrorless interchangeable lens cameras. Today, for three figures, you can purchase a camera that is more sophisticated than cameras that used to cost five figures. These new cameras take photos that are vastly superior to a point-and-shoot, and they continue to get cheaper, smaller and easier to carry.

Usage statistics released by the photo-sharing website Flickr demonstrate the appeal of cameras at the low and high ends of the market, with the point-and-shoot losing ground. The most popular cameras for posting photos on Flickr are smartphone cameras. And the most popular non-smartphone camera on Flickr isn't a point-and-shoot, but rather the Canon EOS 5D Mark II—a high-end digital SLR.

While the middle-of-the-road point-and-shoot was once the best solution for the job given most peoples' budgets, that is no longer true. As the technology has evolved, alternatives have come to market that are better able to fulfill the job of consumers. As long as the point-and-shoot manufacturers continue to compete against each other rather than refocus on the job that their product gets hired to do, we predict their market share will continue to erode.

The eroding 'middle ground' for news

As with cameras, journalism's "middle ground" has eroded as new products have appeared at either end of the market for news and information. At the low end, products and services like Metro and Twitter are serving consumers whose need is simply "Help me fill this 10 minutes right now." If you were to look at the market only by industry segment, you'd think that Twitter's key competitor is Facebook. However, we would argue that far from just competing with Facebook, Twitter is also competing with news and media organizations in fulfilling jobs that millions of people around the world have every day.

At the other end of the spectrum, for the job of "I will be in an airplane or on a train for four hours, and I want to be intellectually stimulated," sites like Longreads and tools like Instapaper and Pocket (formerly Read It Later)—the latter of which now boasts more than 5 million users—are enabling users to find and save longer-form storytelling for offline viewing. These tools strip out ads, creating a visually appealing, consistent and customized equivalent of a weekend newspaper or a periodical. And they aren't just competing against other apps and websites, but against an airline's in-flight entertainment system, The New Yorker, or a book.

Ultimately, when a company gets it right, audiences will reward them for satisfying a job they have in their life.

As managers at media organizations consider instituting changes to their business model—perhaps by charging for content that they previously freely provided online—they should ask whether their organization is doing such an outstanding job of satisfying consumers' needs that consumers will pay for their content. This is particularly the case if you're in a commoditized space where other organizations are providing very similar content for free. In addition, it's critical to avoid falling into the trap of believing that you can charge for content just because it costs money to produce.

Instead, the content must be so compelling that users will pay for it. This requires targeting the right jobs.

Once managers establish what jobs consumers want done, a series of new questions arises for managers: How can they improve their existing products so they perform the job better than any other competitor? What existing products are no longer competitively viable in serving customers' jobs-to-be-done and should be cut? And finally: What new products could be introduced that address a different job-to-be-done for their audience—or perhaps a new audience altogether?

In 1980, when the three major TV networks devoted only 30 minutes to the evening news, Ted Turner bet on a much bigger appetite for current events. He launched Cable News Network (CNN), the nation’s first 24-hour-a-day, seven-day-a-week, all-news network. Its watershed moment arrived in 1991 when it provided the only live TV coverage of the start of the first Persian Gulf War. The live footage of the bombings, picked up by stations and networks around the world, was seen by one billion viewers. Today, CNN International is available in more than 200 countries. Photo by T. Michael Keza for The New York Times.

Part Two:
When Times Change, Change Your Business

The disruption of the news ecosystem has exploded what was once an integrated, closed workflow. News organizations used to control the gathering, packaging, distribution and sale of the news product. Today, journalism is a disintegrated and open process.

While these disruptions can collectively seem like a terrifying transition for incumbents, they have also created a wealth of opportunities that are waiting to be exploited by these very same organizations. News organizations should challenge their own assumptions by looking beyond their existing business models for new ways of finding value.

To give an analogy from a totally different industry: IBM started out as a hardware and software company, but facing a continuing decline in revenue from its products as new competitors entered, the company shifted its focus to professional services. Today, IBM is primarily a solutions-based consulting company. Faced with disruption, IBM completely redefined itself, moving away from its fading traditional businesses and leveraging the expertise of its people to capitalize on a different opportunity in the market.

Like IBM, news organizations should look to shift their focus away from business models oriented around integrated, closed ecosystems and embrace new opportunities that the disintegrated, open system has made available. News organizations should look for new business lines that leverage existing newsroom assets to satisfy jobs-to-be-done. These assets can be found by looking closely at all of their operations.

Again, to take an example from another field: When the music industry's traditional business model of making money from record sales collapsed with the advent of Napster and later iTunes and Spotify, it was an unexpected source—concert tours—that resulted in revenue growth. Live The question of how best to survive in the new world will not be answered by hoping for a return to the past. … And to those worried about cannibalization, we would say: If a company is going to cannibalize your business, you’ll almost always be better off if that company is your own, instead of a competitor. performance ticket sales and merchandise were once viewed more as a marketing exercise to increase sales of albums; they are now considered a key source of revenue. The Internet-led disruption meant that value accrued in a different part of the value network; as album revenues declined, "360 deals," which enable record labels to make revenue not just on albums but also on tours and merchandise, have become more common.

Most traditional news organizations operate a value chain that is made up of three distinct parts. First, there is the newsgathering; this comprises all the resources and processes required to collect, write, shoot, edit, produce and package news and information. Second, there is the distribution of the product; this encompasses all the ways that news organizations get their content into the hands of the audience. Third, there is the selling of the news; this part includes not only sales and subscriptions but also advertising and marketing.

Gathering the news

Before taking a closer look at where to find opportunities in newsgathering, the overall state of newsgathering and consumption needs to be assessed. Today, more news is created and consumed than ever before. Search engines, aggregators, blogs and social media are just some of the avenues for audiences to consume and create information. Add in satellite radio, over-the-top digital boxes, smartphones and tablets, and it's apparent that news and information are everywhere in abundance and, increasingly, free.

This information is also available across borders. No longer does an American news organization hold a monopoly over international news coverage entering the U.S. market. Author and X Prize Foundation CEO Peter Diamandis put it succinctly when he observed that a Kenyan on a smartphone has access to more information than Bill Clinton had as president. In the past, people who wanted intensive news coverage of Egypt had to subscribe to an Egyptian newspaper or buy an expensive satellite dish. Today, Egyptian news is available at our fingertips. When the Arab Spring uprisings took place in 2011, the Qatar-based news network Al Jazeera reported that traffic to its English-language website, where a live stream of its broadcast was available, increased by 2,500 percent—with up to 60 percent of the traffic coming from the United States.

The wealth of information available almost instantaneously has lowered the value of the general interest news story such that it's often less than the cost of production. General interest and breaking news reporting comprised of answering the "who, what, when and where" has become commoditized. It cannot create enough value to sustain a news organization in the long term.

The value for news organizations now increasingly lies in providing context and verification—reporting the "how, why and what it means"—and facilitating communities around that news and information.

Consider a 2011 survey by video solutions company Magnify.net that asked a group of individuals to describe how they felt about their incoming information stream when they were connected to the Internet. Over two-thirds of respondents (72.7 percent) described their data stream as "a roaring river, a flood, or a massive tidal wave." Most respondents said the information coming at them had grown by at least 50 percent from the previous year.

Clearly, there is a need for what Jim Moroney, publisher and CEO of The Dallas Morning News, calls PICA: Perspective, Interpretation, Context and Analysis. This type of newsgathering requires identifying the organization's main areas of focus in particular beats or verticals and then aligning more reporters, columnists and editors to these subject areas.

Bill Simmons, sports columnist for ESPN, became a household name for sports fans across North America interested in his musings on Boston sports teams, basketball and pop culture. It wasn't the sports scores that drove audiences to ESPN.com (you could get those anywhere); it was Simmons's perspective, interpretation, context and analysis that made him arguably one of the most popular sports bloggers in the world.

Focusing on particular specialties also frees up the editorial team to identify and organize relevant content from around the news ecosystem. Curation lowers production costs by having newsrooms concentrate more on discovering, fact checking, and aggregating information. Aggregation or "linking to your competitors" may be viewed as antithetical to the values of traditional news organizations, but it doesn't have to be.

Some traditional news organizations have achieved great success by curating content from around the news ecosystem and presenting it in a meaningful storyline. The Week, founded in the United Kingdom in 1995, draws from over 1,000 media sources from around the world to offer a balanced perspective on the issues of the week—all in a concise, readable package. According to figures compiled by the Audit Bureau of Circulation, The Week has seen steady growth. At a time of tremendous upheaval in the magazine industry, the weekly has expanded, printing local editions in North America and Australia. Between 2003 and 2011, the U.S. edition of The Week enjoyed a circulation gain of 197 percent. That percentage increase was bigger than what other news-oriented weekly magazines, including The Economist (+93%), The New Yorker (+10%), Time (-19%), and Newsweek (-52%), experienced in the U.S. during the same period.

Internet start-ups have curated content successfully for years. The most well-known example is The Huffington Post. Launched in 2005, the site began as an aggregator of content from around the Web, including article summaries from traditional news organizations. Acquired last year by AOL for $315 million, it is now one of the most popular news sites in the United States, attracting 38 million unique visitors in September.

Along with curation, newsrooms can create value by bringing into their fold contributors who complement their own editorial strengths in particular subjects. This isn't just about publishing stories by subject experts, but about building networked communities around those ideas.

Take the example of Forbes magazine. Executives at Forbes understand that you cannot run a news business and produce quality content in the digital era with a cost structure built for analog times. The biweekly publication's website has changed the traditional role of the editor. Editors still manage staff reporters but their working relationship with freelancers has changed. Instead of giving them assignments and editing their stories, editors now manage a network of roughly 1,000 contributors—authors, academics, freelance journalists, topic experts, and business leaders, all focused around particular subjects of interest—who post their own stories and are accountable for their own individual metrics. According to Lewis DVorkin, chief product officer at Forbes, 25 percent of the content budget is now dedicated to contributors, who wrote a total of nearly 100,000 posts last year.

With a focus on niche subjects and a network of bloggers who write posts and curate work on these subjects from other publications, Forbes attracts new contributors and facilitates conversation across the network, driving more traffic to the company's sites. As DVorkin describes it, "Talented people want to belong to a respected network, and that's what we've built and continue to build." This new system has resulted in a network effect whereby contributors generate their own loyal followings under the Forbes umbrella. In one year, Forbes doubled the number of unique visitors to its website. Referrals from social networks rose from 2 percent to 15 percent of the traffic to Forbes's digital properties, and search engine traffic increased from 18 percent to 32 percent of the total traffic.

Every newsroom's reporting strengths will be unique, and the challenge is for the news manager to assess a newsroom's unique strengths. If the strength is local reporting, how can the newsroom derive more value from its content? How can it expand local reporting capabilities? How can the newsroom develop innovative products and applications—and how can it do this while reducing the cost?

Distributing the news

In stepping back to see where new value can be created, the next area that news organizations can address is the mechanisms used to deliver their products. Managers may look to exploit the scale of distribution and the equipment used to distribute the content.

Scale. News organizations retain a unique value proposition because they can still achieve an enviable scale of distribution. Even in today's fragmented media world, a weekly magazine, evening newscast, or a daily newspaper can still touch the lives of hundreds of thousands of people both within their communities and, thanks to the Internet, around the world. It is important for news organizations to leverage this scale before they lose their competitive advantage.

While news consumption is on the rise, consumption patterns are changing: instead of reading entire magazines and newspapers or watching nightly news broadcasts straight through to the end, technology is now enabling audiences to consume individual articles and news segments à la carte.

Capitalizing on these shifting consumption habits requires thinking creatively about new distribution models.

One way to attract a fragmenting audience is by experimenting with innovative customer value propositions. A consumer may find it difficult to justify the purchase price for each of a number of publications, but a subscription package that gives a consumer access to magazines from multiple outlets is a compelling and unique proposition. The recently launched Next Issue tablet app, a collaboration between Time Inc., Condé Nast, and three other major magazine publishers, is an interesting example. For a flat fee, a subscriber gets all-you-can-read access to more than 40 magazines, including People, Fortune, Sports Illustrated, Time, Vanity Fair, and Condé Nast Traveler.

This may be the right approach for these companies and their audiences. Or it may not be. However, the question of how best to survive in the new world will not be answered by hoping for a return to the past. Instead, now is the time for news managers to aggressively experiment with new distribution efforts. Syndication and partnership initiatives can be pursued with only a minimal increase in the costs of distribution because the cost of producing the content is already absorbed by the core business. And to those worried about cannibalization, we would say: If a company is going to cannibalize your business, you'll almost always be better off if that company is your own, instead of a competitor.

Equipment. Equipment that isn't being used to full capacity is a missed opportunity for revenue. News organizations typically have excellent large-scale production capabilities, such as high-quality color printing presses and multi-camera, professionally lit studios. Yet as circulation and ratings have fallen, many of these facilities are sitting dormant or, in some cases, being sold or decommissioned. It makes sense for news organizations to look outside the company for ways to generate revenue from unused or underutilized equipment. Potential customers for services include marketing and client-service firms that want to produce high-quality brochures, commercials, branded entertainment, and other materials.

The Dallas Morning News invested in new technology and expanded its commercial printing business, which now makes up 5 to 10 percent of its parent company's total revenue. As more companies outsource printing jobs, that figure is expected to rise. According to news industry analyst Ken Doctor, commercial printing is a good business to be in because it usually has a fairly high profit margin.

Another way to increase revenue is to make full use of distribution channels. The Dallas Morning News doesn't deliver only the Morning News to the doorsteps of Dallas residents. As Doctor wrote in a column for the Nieman Journalism Lab, "You won't find a Morning News thrower with a single paper; they toss USA Today, The Wall Street Journal, The New York Times, and a couple other titles."

If a television station or a newspaper is already paying to get their content over the airwaves or to a doorstep, managers should think about how they can leverage distribution infrastructure such as delivery trucks and fiber optic lines to generate value beyond their existing chain.

Selling the 'news'

We put quotation marks around the word "news" here because managers need to think differently about what "news" is if they are to find ways to generate new revenue. New opportunities can become apparent when managers change their perspective about a news organization's role and its standing in the community. What can sales and marketing teams do to create additional value? Consulting services, event marketing, and long-tail repurposing are three possibilities.

Consulting Services. There is now a market in the private sector for skilled journalists and sales representatives who can provide consulting services for retail, social networking, and entertainment companies, among others. The Society of Digital Agencies noted this shift in its most recent annual state of the industry report. The survey of marketers and digital agencies showed that 66 percent plan increases in spending on earned and owned media, such as blogs, corporate websites, and social media. When asked what would get increased priority in 2012, for instance, 61 percent said content creation like blogs, and 57 percent said mobile Web development.

According to Jay Rosen, a professor of journalism at New York University, "Every company is a media company now." But, while technology has enabled everyone to become a journalist or brand marketer online, not everyone has the skills or tools to satisfy an audience. News organizations can capitalize on this need. They might consider leveraging their employees to experiment with the "digital agency" concept, in which news organizations act as online marketers and provide training and consulting services for local businesses. These services can include copyediting and showing a business how to set up a website, use social media, and produce professional advertisements.

This would bring news organizations closer to their communities, foster more relationships, and boost the potential for additional revenues in traditional advertising. It will, however, need to be done in a way that doesn't erode the news organization's editorial integrity. The agency's operation must be kept separate from newsgathering.

Events. News organizations are frequently well positioned to host events that bring diverse communities together around shared interests and ideas. Revenue can come from admission fees as well as corporate sponsorships.

The nonprofit Texas Tribune, a news website that focuses on statewide issues, has made events a cornerstone of its revenue plan—and the early reports look good. As Andrew Phelps reported for the Nieman Journalism Lab, the Tribune began by hosting more than 60 free public events attracting leading politicians, large audiences, and hundreds of thousands of dollars in corporate sponsorships. Last fall, the Tribune hosted its first paid event; The Texas Tribune Festival was a weekend of talks and discussions aimed at activists, policy makers, and others invested enough in politics and current affairs to pay $125 for a ticket. Texas Tribune CEO Evan Smith told the Lab that he expects $900,000 in revenue from event sponsorships this year, plus attendee income.

Long-Tail Repurposing. When news organizations think about selling their content, they traditionally focus on short-term prospects. But digital content never disappears. It can be repurposed, repackaged and re-sold in different formats. Whether in video and story archives, e-books or research packets for academic case studies, news organizations should think about how to create value from their content beyond the daily or weekly news cycle.

Following the arrest of Boston gangster James "Whitey" Bulger after 16 years on the run, The Boston Globe released three of its investigative reports about the accused murderer as e-books. The stories were pulled from its archives. Jeff Moriarty, the Globe's vice president of digital products told the Poynter Institute's Jeff Sonderman that the only expense was hiring a vendor to format and submit the books to Amazon and other digital bookstores. He said the production costs were recouped within a few days through e-book sales.

We have described some of the places that news organizations can look to see where new value can be extracted. There is no one-size-fits-all model, and we do not expect that every example will work for all organizations. However, managers should think about how they can capitalize independently on their assets. Having an entrepreneurial mindset is critical to finding success in this new world.

Once managers generate ideas about how the company can outperform competitors in creating experiences that fulfill consumers' jobs-to-be-done and find new revenue within the value network, they must face the final and most difficult step in embracing disruption: implementing changes inside their organization. Pogo, the star of the Walt Kelly comic strip, sized up this challenge when he said, "We have met the enemy and it is us." It is no small task to get employees to change how they think and work.

In January 2009 when a US Airways plane landed in New York’s Hudson River, Twitter users beat the mainstream media on reporting the news. Janis Krums was a passenger on one of the commuter ferries dispatched to pick up the stranded airline passengers. He took a photo of the dramatic scene and uploaded it to Twitpic. It was one of the first images of the accident broadcast to the world. It also was something of a revelation to the news industry because it demonstrated how easy technology made it for anyone to be a news provider. Photo by Janis Krums.

Part Three:
Build Capabilities For a New World

For many years, the systems and processes used to gather, distribute and sell the news worked well. And in most respects they still do. It is a marvelous sight to witness a newspaper brought to life or a newscast on air, 24 hours a day, seven days a week. Those systems were designed precisely for that Managers need to think differently about what ‘news’ is if they are to find ways to generate new revenue. New opportunities can become apparent when managers change their perspective about a news organization’s role and its standing in the community. process. But what was once an advantage has become an albatross. The disruption taking place in newsrooms requires a new approach built on experimentation.

How does a newsroom's culture need to change on an organizational level? And how can those newsroom capabilities be used to embrace and even initiate disruptive change?

Understanding Capabilities

There are three factors that affect what an organization can and cannot do: its resources, its processes, and its priorities. Each factor is clearly defined below. When thinking about innovation and how a newsroom might be able to embrace it, managers need to assess how each of these factors might affect their organization's capacity to change.

Resources. When asking the question "What can this news organization do?" the place most managers look for the answer is in its resources—both the tangible ones, like people, equipment, technologies and budgets, and the less tangible ones, like relationships with third-party vendors and advertising agencies. Without a doubt, access to abundant, high-quality resources increases an organization's chances of coping with change. But the resource analysis doesn't come close to telling the whole story.

Processes. The second factor that affects what a company can and cannot do is its processes. By processes, we mean the patterns of interaction, coordination, communication and decision-making employees use to transform resources into products and services of greater value.

One of the management dilemmas is that processes, by their very nature, are set up so that employees perform tasks in a consistent way, time after time. Processes are meant not to change or, if they must change, they do so through tightly controlled procedures. When people use a process to perform the task it was designed for, it is likely to be efficient. But when the same process is used to tackle a very different task, it is likely to perform sub-optimally. Newsrooms focusing on producing a television newscast, for example, often prove inept at developing a digital strategy because the second task entails a very different way of working, relying heavily on the written word and immediate deadlines—instead of verbal scripts and fixed broadcast times. In fact, a process that makes it easy to execute a particular task often is a hindrance to executing other tasks.

Priorities. The third factor that affects what an organization can and cannot do is its priorities. We define an organization's priorities as the standards by which employees decide whether an activity is attractive or unattractive—whether the activity is a story, an audience demographic, or an idea for a new product. Prioritization decisions are made by employees at every level, whether consciously or not. Among salespeople, they consist of on-the-spot, day-to-day decisions about which products to push with advertisers and which to de-emphasize. In the editorial realm, they can include story selection and the assigning of newsgathering resources. At the executive tiers, they often take the form of decisions to invest or not in new products, services and processes.

Different companies, of course, embody different priorities. As companies add features and functions to their products and services to capture more attractive customers in premium tiers of their markets, they often add cost. As a result, what once were attractive margins for the company become unattractive. If, for example, a company's cost structure requires it to achieve margins of 40 percent, then a priority or decision rule will have evolved that encourages middle managers to kill ideas that promise gross margins below 40 percent. Such an organization would be incapable of commercializing projects targeting low-margin markets—such as those we've listed in this article—even though another organization's priorities, driven by a very different cost structure, might facilitate the success of the same project.

For example, sales teams whose bonuses are based on achieving specific goals are often more motivated to sell a traditional broadcast or print advertisement, where the margins are higher, than a digital advertisement. Given the priorities outlined by management, it is unrealistic to expect these sales teams to pursue digital pennies when approaching agencies and advertisers. Yet the long-term value of digital revenue is critical to the sustainability of the organization, and failing to develop sales team capabilities in this area will weaken the organization's competitiveness over time.

As successful companies mature, employees gradually begin to assume that the processes and priorities that have worked in the past are the right ones for the future. Once employees operate under these assumptions rather than making conscious choices, those processes and priorities come to constitute the organization's culture.

One of the most common complaints made by newsroom executives today is the difficulty in changing the newsroom culture to adapt to a digital world. When attempting to change an organization's culture, the starting point is the task that you're trying to do, not the process or culture. This is because processes and priorities are a response to recurring tasks.

Changing the processes and priorities, one task at a time

Processes are not nearly as flexible or adaptable as resources are, and priorities are even less so. In order to instill the processes and priorities required to address disruptive innovation, managers must create a new organizational space where these tasks can be developed. There are several possible ways to do this, including:

  • Creating new capabilities internally in which new processes can be developed;

  • Spinning out an independent organization from the existing organization and developing within it the new processes and priorities required to satisfy new tasks; or

  • Acquiring a different organization with processes and priorities that closely match the requirements of the new task.

Creating new capabilities internally. Old organizational boundaries, established to facilitate traditional ways of working, often impede the creation of new processes. A print newsroom, where people have habitually filed stories for one medium, will have a hard time changing the workflow to accommodate new tasks. Managers need to pull the relevant people out of the existing organization and draw a boundary around a new group. New team boundaries can facilitate new patterns of working together that can ultimately coalesce as new processes.

Teams should be entirely dedicated to the new tasks assigned to them. The members—whether physically located together or not—should have a separate structure, and each member should be charged with assuming personal responsibility for the success of his part of the project. For every key element of the strategy, there should be one person's name beside it. At The New York Times, for example, the boundaries around the groups within its newsroom's digital development team were historically defined as serving the needs of reporters and editors. When the Times decided it needed to focus on experimental online journalism, it created a new cross-discipline team to do so.

This team inside the Times was designed to incorporate the skills of software developers directly into the processes of producing stories. As digital editor Aron Pilhofer described it in New York magazine, "The proposal was to create a newsroom: a group of developers-slash-journalists, or journalists-slash-developers, who would work on long-term, medium-term, short-term journalism [projects]." This team would "cut across all the desks," overriding old processes as the newsroom evolved. Developers were made full members of the news team and given responsibility as such; they were encouraged to collaborate with reporters and editors, not merely wait for assignments.

This new team is now known as the Interactive Newsroom Technologies group, and it continues to create new processes so the Times can more quickly develop better products around data journalism and innovative visual storytelling, rather than simply posting old-world newspaper articles online.

Creating capabilities through a spin-out organization. Economic pressures make it difficult for large organizations to allocate the critical financial and human resources needed to build a strong position in small, emerging markets. And it is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well. When a company's priorities render it incapable of allocating resources to an innovation project because of unattractive margins, the company should spin the project out as a new organization.

News Corp.'s entry into the tablet space is an example of this spin-out approach. Despite having many well-known brands—including Fox News, The Wall Street Journal, Dow Jones, and the New York Post—News Corp.'s management identified the consumption of news on tablets as a disruptive innovation for their traditional news properties. As a result, News Corp. decided to create a separate unit for an iPad-only newspaper, The Daily. To thrive in the tablet market, News Corp. needed to be comfortable with lower gross margins and a smaller market than its traditional newspapers commanded. The company needed to be patient for growth, but impatient for profits.

As of October 2011, the Daily had 80,000 paying subscribers and an average of 120,000 readers weekly; these numbers stack up well against the digital editions of some established print brands. The New Yorker, for example, had 26,880 iPad-only subscribers as of that month, according to Ad Age. If the Daily had the same cost structure as its traditional print counterparts, its prospects of getting to profitability would be remote indeed. But with a totally different approach, the likelihood of it reaching profitability is far greater, and it continues to experiment with its business model to reach this goal.

Given that a young upstart may cannibalize the company's traditional business, it is critical that such a project have high-level support and be independent from normal decision-making processes. Projects that are inconsistent with a company's existing profit model will naturally be accorded the lowest priority or, worse yet, face hostility from the legacy business. Having a separate workspace for the spinout organization can be helpful, but what's most important is that a disruptive start-up not be placed at the mercy of the old organization—which might see the upstart as a competitive threat and attempt to have it shut down or cause it to fail.

Yet this does not mean that the old operation should be entirely abandoned in favor of the new. In the example of News Corp., its revenues from print and broadcast advertising are still strong. But when disruptive change appears on the horizon, managers need to assemble the resources, processes and priorities to confront that change before it affects the mainstream business. They need to run two businesses in tandem, with one set of processes geared toward the present and another geared toward the future.

This needs to be guided by top management. In previous studies of disruption, very few companies succeeded without the personal, attentive oversight of the CEO. More than anyone else, the CEO can ensure that the new organization gets the required resources and is free to create processes and priorities appropriate to the new challenge without interference. CEOs who view spin-outs as a tool to get disruptive threats off their personal agendas, rather than organizations to be nurtured and developed, are almost certain to fail.

Creating capabilities through acquisitions. After assessing its resources, processes and priorities, the organization may determine that an innovative venture cannot be initiated in-house or by creating a spin-out organization. In these instances, companies should look to acquisitions. Questions about for-profit versus nonprofit education aside, when The Washington Post Company determined that it needed to diversify its revenue stream and it could not create those capabilities in-house, it purchased Kaplan Inc. in 1984.

Companies that successfully gain new capabilities through acquisitions are those that know where those capabilities reside in the acquisition and assimilate them—or not—accordingly.

If the capabilities being purchased are embedded in an acquired company's processes and priorities, and not in the acquired company's resources, then the worst thing the acquiring manager could do is to integrate the acquisition into the parent organization. Integration will vaporize the processes and priorities of the acquired firm. Once the manager of the acquired company is forced to adopt the buyer's way of doing business, everything unique about the acquisition's capabilities will disappear. A better strategy is to let the business stand alone and to infuse the parent company's resources into the acquisition's processes and priorities. This approach truly constitutes the acquisition of new capabilities.

If, however, the acquired company's resources were the reason for its success and the primary rationale for the acquisition, then integrating the acquisition into the parent company can make a lot of sense. Essentially, that means plugging the acquired people, products, technology and customers into the parent company's processes as a way of leveraging the parent's existing capabilities.

Forbes magazine's purchase of True/Slant, a digital news blogging network, worked well because it understood what capabilities it was acquiring. Beginning in 2008, Forbes invested in the digital news start-up whose market value was built primarily upon its expertise in blogging platforms and its more efficient digital, print and video content creation models. By doing so, Forbes effectively incubated a new disruptive start-up as a separate entity. CORRECTION
An earlier version of this article contained incorrect information about how Forbes pays its contributors. It makes payments based, not on pageviews, but on the number of unique visitors.
When Forbes completed the purchase of True/Slant in 2010, it appointed True/Slant's CEO, Lewis DVorkin, as Forbes's chief product officer, and adopted a range of elements from True/Slant's business model—including providing small payments to contributors based on unique visitors. This careful acquisition process was a major contributor to the success that Forbes achieved in building its community network.

Managers whose organizations are confronting change must first determine whether they have the resources required to succeed. They then need to ask a separate question: Does the organization have the processes and priorities it needs to succeed in this new situation? Asking this second question is not as instinctive for most managers because the processes by which work is done and the priorities by which employees make their decisions have served them well in the past. The very capabilities and culture that have made news organizations effective also define their disabilities. In that regard, time spent soul-searching for honest answers to the following questions will pay off handsomely: Are the processes by which work habitually gets done in the organization appropriate for this new challenge? And will the priorities of the organization cause this new initiative to get high priority or to languish?

The reason that innovation often seems to be so difficult for established newsrooms is that, though they employ highly capable people, they are working within organizational structures whose processes and priorities weren't designed for the task at hand.

Creating an innovative newsroom environment means looking within the existing value network and beyond traditional business models to discover new experiences for audiences, then realigning your resources, processes and priorities to embrace these disruptions.

While there is no one panacea to replace the traditional business models that news organizations relied upon for half a century, these recommendations taken in aggregate provide a framework for an emergent strategy to take hold. Innovation requires courageous leadership, a clearly articulated vision, and the strength to stay the course.

Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at Harvard Business School and co-founder of Innosight Institute.

David Skok, the 2012 Martin Wise Goodman Canadian Nieman Fellow, is the managing editor of Globalnews.ca.

James Allworth
, a graduate of Harvard Business School, is a regular contributor to Harvard Business Review. He worked as a Fellow at the school's Forum for Growth and Innovation, at Apple, and at Booz & Company.

18 Comments on Breaking News
Rob Lewis says:
August 31, 2013 at 1:20pm
Everything I might say has been said better in Craig Mod's landmark monograph "Subcompact Publishing" http://craigmod.com/journal/subcompact_publishing/

And for an example of "new journalism" that works, see Glenn Fleishman's "The Magazine"
Claire says:
February 25, 2013 at 2:29am
Thank you, terrific solution-focused read.

Re the paradigm shift that recording artists and their record companies are beginning to peer through again, I’d disagree the emerging resurgence was simply a result of touring/ ‘concerts’ and merchandise. Caveats here: entourages touring collaboratively are certainly more cost effective nowadays (transport especially having impacted the cost pie chart, and any profit margin derived); and while all touring artists have traditionally carried merchandise, online sales of it are definitely highly efficient.

Paring down the sales model from whole albums to self-selected tracks (via ‘iTunes and Spotify’), plus improved lossy technology (MP3s and MP4s), and file transfer speeds, and industry-based initiatives and support, are all helping to heal the business of selling digital music. Awareness by governments of the need for effective copyright protection/enforcement, is ongoing work in progress, Underpinning it all is a strong royalty payment-distribution system for a business model better resembling a constellation of mostly small (and a very few larger) businesses, as compared to a corporate HQ/central governance, or a community service model. Of course, online marketing and promotion is endless, just as senior writers or teams thereof have and are exploiting that same business potential.

So, what business model best depicts the journalists’ perspective from inside the Fourth Estate? Whatever it takes to identify the job and, get the job done?! Regards, Claire
Alberto Manuel says:
November 3, 2012 at 11:29am
I liked the article because in the past decade I'm constantly disconnecting from newspapers for the reasons you present. Nevertheless I think that is missing a link: content quality.

We have been watching not only on newspapers, but also on television an over simplification about what is being told. About the script. Journalist don't go deeper on the investigation, don't go deeper on the information assessment, on the numbers (many times we realize that the figures that are presented by the journalist have flaws because it did not made it's home work), how to tell a story. We are watching journalists acting like recording machines. There is no reasoning about the facts. Without quality content there will be no engagement. Readers will not learn anything new.
Maggie Georgieva says:
October 27, 2012 at 7:34pm
Thanks for the thought-provoking piece! I enjoyed this read, especially as it presented some of the themes I discussed in my research "Reshaping the Media Landscape: From the Birth of Journalism to Social Media." (http://www.slideshare.net/mgieva/reshaping-the-media-landscape)

I loved your curiosity for new business models to sustain journalism. There are some really interesting case studies out there (from The Texas Tribune to The Voice of San Diego), but no one-size-fits-all model. That is what makes this space truly exciting: the job-to-be-done mentality and the identity of the news outlet can help surface new avenues for revenue.
geir stene says:
October 25, 2012 at 6:43am
Great artickle. Many of the arguments in this article corralates to what I've been stating on my blog. There are a couple of points however that needs to be investigated further. The business models in news seems to be "stuck" in advertizing and/or subscription models. The reasons for this is in the "old idea" that the value is in the news itself. What if the real value rather is in the knowledge about your customers? With increased knowledge about your customers you have new opertunities to meet their desires and help solve their problems.

I believe that the internet disruptions have proven that the most efficiant business models on the net are multituded. Partnerships, sharing of revenue- streams and (for the news business) toally new business models and services / products, including e commerce, onøline- and offline offers in combinations.
ralph braseth says:
October 23, 2012 at 4:51am
Agree, disagree I honestly don't think it matters right now and this article may well provide the spark needed for a national conversation among news outlets. I spent five days at MIT's media lab in 2004. The scientists and engineers provided a heads up to businesses across the United States that major disruptions were heading their way and the time to prepare was then. This change, the world wide web, provided information pipes the likes of which no one could wrap their head around. What would flow through the pipes was information. Content neutral lightning fast communication.

More than any other business I know of, journalism, especially large dailies and national newspapers suffered from extreme arrogance. For 100 years a group of white guys sat around a table and decided what was news for the day. Pretty heady stuff. The days of ignoring the reader were over. Done.

The last innovation prior to the web was USA Today and most journalists despised it as light weight window candy and perhaps it was. However, hundreds of thousands of readers flocked to the Gannett flagship. I contend Gannett did what no other news organization thought to do. They realized news readers were customers and they served up what the masses wanted and eventually built a circulation that topped a million customers and in doing so joined the ranks of the New York Times and Wall Street Journal. What took the New York Times decades took USA Today about five years.

In 2006 and the business managers began to see patterns of advertising changes and raised the warning flag, but were largely ignored. And then all hell broke loose. Car advertisements, the bread and butter of the newspaper business stopped buying double truck ads. Business owners began to ask tough questions. How many potential customers does my $10,000 ad put in my sales yard? Of those, how many actually buy cars?

That's trouble, especially given the fact these advertisers found a pennies on the dollar better product that provided metrics. Can you imagine the difference for a business person?

Journalism couldn't.

Instead it provided a lousy online edition and gave it away for free in an attempt to keep business by throwing the online version in the pot as "value added" for big customers. It didn't work.

Rank and file journalists scorned online journalism as much as the organizational leadership. They bashed it. They condemned it in the pages of their own newspapers in the opinion pages telling readers the sky would fall without traditional media.

The desire to chase and research major stories lured very few journalists to find out what exactly was happening.

It was a tidal wave of innovation and a circle the wagon mentality of journalism organizations that sealed the fate of news as we knew it.

In 12 short years, Google snagged the cash and at the same time, sent traditional readers to other destinations.

I ask my students every semester to define Google. All but a few say Google is a search engine. Gannett with a proud 100 year history remains the largest news company in the United States with USA Today, some 80 dailies and growing numbers of specialized publications. The market cap for Gannett? Between $4-5 billion with a billion worth of debt to service. Google's market cap? More than $200 billion with another $50 or so billion sitting in Ireland or Switzerland and Google is debt free. Google is the single largest and most powerful advertising business ever invented.

To make things even worse, Craig's List came along and picked over crums snatching classified ads.

The collateral damage ripped media apart. Too often, the newsroom's very best reporters were let go for money reasons or left out of discouragement. If newsrooms did fill the sometimes Pulitzer Prize winning journeyman/woman journalists, it was often with a young person, with little journalism experience, but who possessed a tool belt of digital storytelling gadgets. Important yes, but not even close to the importance of the heart of the editorial staff. Hindsight is easy. Throwing fruit from the cheap seats is painless. Lacking an easily learned skill or two, the newspapers jettisoned the most valuable asset in journalism. Gone are the experts. Politics. Crime, Graft. Business. Sports and the list goes on.

Ironically, what those reporters have to offer is precisely what customers/readers are willing to pay for.

Disruptive innovation came to newsrooms like a German Blitzkrieg. Journalism and journalists share the blame for not identifying and researching the change and the newsroom leadership arrogantly refused to admit they were losing the stature they once owned. The power used to belong to those few who owned a press. Now each of us has our own press. Most of what is created is a din. The Huff Post deserves credit for roping in the intellectual property of others, did a decent job of ranking the importance of stories utilizing audience participation. It's easy to hate Huff. They're thieves to those whose work appears there without payment and too often proper credit.

At the same time, how could anyone really understand the million pound monster at the front door.

Journalism got ambushed online and suffered a beating as never before. Targeted online advertising grabbed the money. However, it is my strong belief much of the blame rests at the feet of publishers and other leaders who refused to recognize and respect the disruptive innovation.

Journalism needs a Manhattan Project.

ralph braseth

Loyola University Chicago
Aaron Robertson says:
October 22, 2012 at 3:55pm
Thanks for your reply David!

Sorry if I gave the impression of being in the client side of the advertising industry. My point of view is actually firmly in the camp of the traditional news organization. Its just on the other side of the Chinese wall that separates the editorial department from the rest of the company!

I will try to state my point more clearly. I don't think that the Huffington Post and Buzzfeed disrupted the news business. I think that Google disrupted the news business by changing the way advertisers bought audience thus undermining the mass media news business model that has funded journalism, selling mass audience to advertisers.

Isn't declining revenue the heart of the problem not the fact that new business models can win Pullitzers?

To me, saying that HuffPo and Buzzfeed disrupted the news business is like saying that transport trucks disrupted horse and buggy carts. They are competitors for audience and advertisers , not disruptors of the news business model.

Understanding how audience is sold and how journalism is able to deliver audience seems to me to be a more promising, media independent, strategy than having a commercial printing operation subsidize an editorial department.

Best Regards!

David Skok says:
October 22, 2012 at 10:59am
Aaron, thank you for taking the time to write.

There is no disagreement on any of these points with regards to the advertisers, however we chose to focus on applying Clay's theories from the perspective of the news organization.

The beauty of Clay's work is that it allows you to view things through the lens of where you are standing. In our case, from the perspective of a traditional/incumbent news organization. In Aaron and Joshua's case, from the perspective of the advertiser.

For example, the vantage point from Buzzfeed's perspective is very different to that of the New York Times or that of a large advertising firm. Each perspective allows for competing and differing points of view.

If one were to apply Clay's theories to the advertising industry, I'm sure it would make for a terrific paper!

Thanks again for your feedback.
Victor says:
October 20, 2012 at 12:55am
Hi David,

Great article! Looking into the industry trough Clay's theories was enlightening.

I would like to add my view on some comments about audience and advertising. I believe there are different jobs out there that people want to get done, one of them, like argued in the article is "i've got 10 minutes to kill; help me fill it". But another completely different job is "lead potential costumers to my business" and i would not estabilish causality between them because satisfying one of them doesn't means that you can satisfy the other.

We know that one product can address more than one job and that was the case of most media companies but the choice of making revenues on advertising was a business model option among a lot of possibilities and in this particular case losing audience realy means death.

Said all that i would argue that both the article and Joshua's arguments are correct. The incumbents are being disrupted in both sides of their value proposition. They are losing audience to good enough journalism like Huffington Post while simoutaneously losing advertising revenues to disruptors like google, facebook and zocdoc which achieve much better results on the job "lead potential costumers to my business"
Aaron Robertson says:
October 19, 2012 at 4:52pm
Hi guys, great article, here are my thoughts.

I believe that Joshua is correct in pointing out that disruption of the newspaper advertising model should be represented more strongly in any prescription given to Newspaper Executives. The focus on journalism by most commentators on the subject focuses almost entirely on the editorial side rather than the advertising side. Everyone always wants to talk about the elephant in the room, but nobody wants to talk about the zebra sitting on the couch. I strongly suspect that the reason that there is more writing about the journalism side is that writing about this sort of thing is kind of their job.

In defense of the authors, however, they do use Craigslist and Metro as two examples of how newspapers were disrupted. Granted they come at it from the consumer's point of view, but it is easy to apply this type of logic to the advertiser side.

What is the job-to be-done for advertisers? It isn't to buy newspapers ads. It certainly isn't to support journalism, or democracy or any of the other losses that have been ascribed to the decline of print journalism.

I would suggest that a strawman job-to-be-done for advertisers is that "they want to convince a bunch of people, who are able and may be inclined to buy their stuff, to buy their stuff" (apologies for the clumsy phrasing, I am an adman, not a journalist after all).

The innovation of Craigslist or Metro is pretty straightforward. and could hardly even be described as innovation on the advertising side. They deliver advertisers the audience they want at a cheaper cost. In the case of Craigslist, the price for advertisers is usually "free". That revenue did evaporate, but there are companies that are carving out revenue by disrupting Craigslist, or at least doing the jobs-to-be-done better than Craigslist.

It is a trope that people consume more content than ever before, so why aren't advertisers buying newspaper advertising? The answer, I believe, lies in the explosion of audience. Audience innovators (okay, it was google) were able to dramatically, logarithmically, expand the audience that was available to advertisers by redefining, on a mass scale, what content advertising could be sold against. They also figured out a way to better more accurately and more efficiently deliver an audience that was "able and inclined to buy the advertisers stuff".

The initial problem for newspapers then is one of simple dilution. With so many more ways to buy audience the advertiser diverts funds or abandons mass media to take advantage of these new ways to reach their audience. The limiting factors being their own capability to take advantage of audience delivered through other mediums and their own aversion to risk.

The second problem has been the ability of the newspapers to deliver the audience that advertisers want to buy. It is now a different game owned by different players, and newspapers, beyond the heroic efforts of a few have struggled to develop the capabilities required to compete in this space.

Take those two together, add in the journalism stuff and you have what disrupted the newspaper business: Audience Innovation.

Its been a while since I read Clay Shirky and I haven't kept up on the current themes around this, so apologies if this has been covered elsewhere.
David Skok says:
October 19, 2012 at 3:52pm
Barbara writes, “Where are the case studies of rural news outlets to balance the examples cited in this article?”

I wanted to reply to this because I think it’s a critical and valid question that touches on a key paradigm shift.

Clay’s “Jobs-to-be-done” theory would argue that thinking of your publication as local or national is misguided: It is the job that you fulfill and not the demographic that you are trying to reach that is the most vital metric. We never argue that these papers may retain traditional advertising, in fact, we suggest that relying solely on traditional advertising is one of the main challenges news organizations face today.

In the second section of the essay using Clay’s theory of Integration vs. Modularity, we suggest that news organizations should re-think how they define what ‘news’ is? That is, your local paper’s role in the community may extend far beyond printing a daily or weekly publication. A great local example of a potential approach is The Register Citizen Open Newsroom Project in Torrington, CT.

I'd also like to reiterate that the examples we provided were designed to illustrate Clay’s brilliant theories. Whether national or local examples, we do not suggest or encourage newsrooms to follow each individual example, but rather that by understanding the theories through these examples, we hope to provide a set of questions that you can ask within your own organization. Seeking the answers to those questions is up to each individual manager.

Barbara, Thank you for taking the time to read the piece and for posing such an important question.
David Justus says:
October 19, 2012 at 12:28pm
This excellent article cites PICA and Bill Simmons to illustrate the importance of news outlets providing perspective. However, it would be good to hear more about a massively disruptive force in the news business - the politicization of the news. E.g. the success of Fox News and MSNBC and the challenges of CNN.
Barbara Phillips Long says:
October 19, 2012 at 2:29am
David Skok cites Buzzfeed as an example of the way advertising dollars follow readership despite disruption of both the advertising and journalism businesses.

Buzzfeed is an interesting example in the context of a discussion that cites the Washington Post, the New York Times and other nationally relevant and influential media.

The biggest weakness I see in this article is that it doesn't have any case studies from rural media with modest audiences. Rural counties in Kentucky, New York, Pennsylvania and other states may have lost locals to outmigration, but those diasporas aren't large enough to generate the readership the Salt Lake City media operation benefits from.

It's easy to say that rural papers may retain traditional advertising and continue to be strong following the pre-disruptive business model. National changes, however, such as the U.S. Postal Service decision regarding preprints will affect rural papers in addition to metropolitan papers.

Where are the case studies of rural news outlets to balance the examples cited in this article?
gerry says:
October 17, 2012 at 11:28pm
I've read a lot of these reports into our industry and I have not read anything nearly as substantial or insightful as this. To all the authors: thank you very much!
Joshua Gans says:
October 17, 2012 at 5:29pm
Thanks for responding David. It is good to continue discussions and engagement.

I have been studying the media for many years and, of course, it is true that you need readers in order to earn advertising dollars. But the issue has not been that news outlets, even traditional news outlets, have been losing readers. Some estimates I have seen (and one has to take these with a grain of salt) suggest that news readership has been growing 8 percent per year for the last decade. That is a sign of health not distress. To be sure, it may be spread out over more outlets but that doesn’t make it an industry problem.

The issue is that the advertising dollars have not followed the readers. If you look at NPAA statistics, since 2000, there has been massive declines in advertising revenue going to newspapers (both print plus online). The reason is that the online ad rates are a fraction of those in prints. There is no use grabbing readers when they don’t bring in ad dollars because it is really difficult to find other sources of revenue for them.

As an aggregate these ad numbers have not shown signs of slowing in terms of their drop. But I agree that they ought to be higher. If BW can find a way that is great but from industry people I have spoken to there has been no similar stories of hope. In any case, I am sure you agree that it is part of the equation that really needs to be part of a full analysis of the industry.

But my point is that I agree that improving the advertising sales room capabilities is critical here.
David Skok says:
October 17, 2012 at 4:52pm

Thank you for taking the time to thoughtfully lay out your arguments. I can speak for all the authors, when I say that we're grateful for the feedback.

The advertising disruption is a profound one, but Clay's theories would argue that from the perspective of the newspapers, causality is the other way around. That is, advertising follows readers, not the other way around.

To attract new advertising (whether that be traditional display ads, sponsorships, or branded content), the Jobs-to-be-done theory would argue that you need an audience first. Then the advertisers will flock to your platform.

Buzzfeed is a terrific example of this. As company’s president, Jon Steinberg, told Bloomberg Business Week last March, the company's custom ad solution grossed $50,000 to $100,000. According to Business Week: "It ran upwards of 100 ad campaigns last year. Those can gross, on average, $50,000 to $100,000 a pop. A conservative estimate—100 campaigns grossing $75,000—puts revenues in the $7.5 million range, or around $150,000 per employee in 2011."

The point of this example is to illustrate that if a company can provide innovative ad/sponsor solutions and already attracts a large audience, then revenues will follow. To do this requires satisfying the right jobs-to-be-done and tackling the cultural change that we addressed in the third section of the paper.

Display ads may indeed be a commodity, which makes an innovative sales culture even more imperative for news organizations.

Thanks again, we're honored in your interest.
Charlotte says:
October 17, 2012 at 11:59am
Excellent must-read. Very useful! Should NY Times be charging more for Digital?
Joshua Gans says:
October 17, 2012 at 10:10am
I think this report misses a big disruption: advertising. http://www.digitopoly.org/2012/10/17/media-disruption-it-is-not-journalism-it-is-advertising/
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