March 13, 2009

Local news media needs dual business models, not dueling business models

By Dave Chase
3 comments | Archive Link

I own and run a hyperlocal site www.sunvalleyonline.com. While we've managed to be one of the few pure-play local Internet media ventures to eke out a profit, the financial returns aren't anything to write home about. This resulted in a minor epiphany when it comes to thinking about the viability of local media.

If you think about what made newspapers viable for so long it was the fact that they had two products/businesses that were largely unrelated but delivered by the same organization. Newspapers have had a news-and-information business monetized by display ads and a classifieds business monetized by classified ads. The classified business was enabled by the distribution and audience of the news franchise. However, it's been clear that that second revenue stream doesn't translate on a sustainable basis online.

To date, most local Internet plays have struggled to make it work relying solely on display ad revenue. I've come to the belief that it's going to take a similar dual business model to support local media (we're working on doing that ourselves). Unfortunately for many local news organizations, it has been more about dueling business models (i.e., worries of cannibalization) than recognizing that what they need is a dual business model to make their online business much more successful.

So the question is what will be the accompaniment to the display ad business? We're seeing a few different approaches explored. For example, micropayments and non-profit/foundation support are oft-discussed. I don't believe those have much opportunity to scale beyond some exceptional situations which are terrific but hold little promise for most media organizations.

Then there’s the problem of transitioning from a for-profit to not-for-profit model which typically begins by laying off the entire staff and getting the investors to agree to donate all of the assets of the enterprise into the new nonprofit entity. My friend Jonathan Weber expanded on this in his Endowed and Out piece. There are a number of other potential second business models but I think the Search-related model is a viable "other" business model.

The interesting and loose parallel with the classifieds being enabled by the news distribution historically is with those sites selling online directory solutions bolted on to a news site. Since most local news sites have the highest PageRank in their area, the PageRank is a form of "distribution" advantage that the news sites have and usually don't recognize. One could argue when we see the demise of newspapers like the Rocky Mountain News that one of their most valuable assets in a liquidation is their high PageRank. When you have a high PageRank site with a leading directory solution, the businesses in that directory should show up very high in SEO and thus the news site has some unique value they are adding to those local businesses competing to be found.

The challenge remains setting up a winning sales model to capitalize on this. I wrote a couple of pieces for David Cohn's and Jeff Jarvis' NewsInnovation.com site expanding on this.

• Five Fatal Flaws that are killing local Internet plays
• Ten Point Plan to (Re)Building a Successful Local Media Salesforce | Networked Journalism Summit

The approach I'd espouse is much closer to Dell than it is a traditional local media sales force, which is generally ill-equipped to sell these new products. When I was at Microsoft and focused on the local space (I was part of the founding team at Sidewalk), we often thought that the biggest asset that the incumbent newspaper and yellow page companies had was their local sales force and relationships. Having gotten closer to "the last mile" of the Internet, I've come to observe that in most situations the local sales organizations of the incumbent media is more encumbrance than asset.

Consequently, the smart incumbent media should setup a parallel tele-sales based model that are filled with "hunters" and leave the existing "farmer" sales force to harvest the longtime advertisers as long as they can. It is important to note that this outbound tele-sales organization is dramatically different than the typical "call center" that newspapers have for classifieds. Thus, thinking that that group will have success is a long shot. The sort of tel-esales organization that exists at a place like Dell is able to prospect and close business into the low six figures. In other words, it's not taking a $150 classified order over the phone.

The sooner local media businesses recognize it's critical to have dual business models rather than dueling business models, the sooner we'll see hiring rather than firing being the storyline of local media.

More about: ad sales, business models, entrepreneurial journalism
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