Monday, December 5, 2011

The old media conundrum: profits v. demand

Over the past few weeks I have engaged with a series of interesting conversations with managers at several large media firms that have left me, well, a bit confused, and more than a bit depressed. Sure, we all know that many old media managers "don't get it" when it comes to digital, but it took me completely by surprised how some companies that appear from the outside to have made the digital transition successfully, are, in fact, still lost when it comes to what their customers want.

Take, for instance, that case of the media company that has over the past couple years introduced a digital version of its old media product – let's call this company Stickboard.

Stickboard (remember this isn't their real name) was selling one of those very traditional forms of advertising, and while they faced considerable competition within their form of media, their real competition was, they were sure, new digital products. So this old line company introduced a new digital version of its product and buyers flocked to it.

This sounds great, right? But, it turns out, the digital product is not as profitable as the old traditional one. While Stickboard (not their real name remember) can sell out its digital inventory it struggles to sell its older products.

The new digital product gives the customer total control of their advertising message, which can be changed during the day; the old product was static. The new product costs a bit more, but requires investment on the part of the company and hence is less profitable than the old one – but over time the new digital product will be cheaper, just not now.

In any other business other than media, the common response to this problem would be to phase out their old product and produce more of the new one.

But this is old media remember, so their response has been to push hard on the old products. Not surprisingly the company blames its sales staff for selling what their customers really want, and not selling what their customers are rejecting. Sales people and sales managers are getting fired until the company can find the right managers and staff that are capable of shoving the old products down the throats of their customers.

A talk to the management team in charge of production finds that there is a real distain for anyone that comes into the company from the outside and has experience with digital. Those from outside the industry don't understand the business, these people told me, we need managers that understand the business the way its been for the past decades. The executives who, in fact, understand the new digital business, listen to these managers and agree that unless customers start to go back to the old media products, profits will be hurt (this despite the fact that the sales from digital have led the company to reporting good quarterly results).
It was a sad picture I saw, and it certainly convinced me that long term this company was in trouble, despite the fact that many currently see this company as a success story. What this company wanted would have been the equivalent of a typewriter company that got into the PC business, but felt that they needed to push typewriters in order to be profitable.

This company really needs to address the digital profitability problem by looking at its digital pricing and production costs, not by trying to convince its customers to buy something they don't want.

But many of the company's managers did not really care much for the sales staff, and didn't want to hear what their customers were saying. This conflict within the company will no doubt come to a head unless the head of the division takes the bull by the horns and forces the backers of the old media products to talk to the customers.

Part of the problem with digital media has been that it has been either given away – magazines and newspapers are the worst culprits – or under priced. This is understandable in many cases because the media firms were often out in front of the advertisers.

In the late nineties, when most publishers began selling digital, many customers didn't have their own websites. Ad agencies made things worse by demanding that digital ads be thrown in for free into annual proposals – 12 full page print ads and a slew of freebies thrown in such as free banner ads, e-newsletters, email promotions, etc. Some tried to put a stop to this but found that agencies would simply pull their print and move the schedules to magazines willing to drop their digital draws.

But for this particular company, which had just created these new digital products, this legacy problem does not apply – they created their new troubles. Put shoving old media products down the throats of their customers, which they are now working hard to do, is hardly the answer to their digital profitability problems.