Dr Christian Graggaber — Chief Digital Officer, Hubert Burda Media Russia, Russia.
The past years have seen a global shift in the media landscape which can be broken down into three major changes. Consumers are moving from print to digital, they are switching from fixed to mobile driven consumption and the growth in the East is exceeding the growth in the West. In addition consumers are empowered through internet, advertisers have more innovative ways for promoting their products and business in general is transforming to digital.
The article desribes the current market situation by comparing Germany and other developed countries with the development in Russia, outlines the challenges that media houses are facing and gives examples of success stories. Main conclusion is that media houses are competing today with a new generation of content providers. To attract lasting attention they have to reinvent the way they do business.
Few industries have been changed more by the arrival of broadband Internet and widespread ownership of mobile phones than the content creating industry. The media world or rather the consumption of content is undergoing rapid change; the most fundamental change in its history. The new market environment requires traditional content creators and publishers to diverge from their habitual way of doing business, to take risks and to innovate in order to define a sustainably successful path for the future. In fact it is more than innovation, which is required. It is a transformation.
Print publishers now need to adapt to an environment where their customers have started to consume content on other devices, such as on their PCs and mobile phones and in other environments, for example while on the go. Publishers of today need to be able to provide multiple consumer touch points for their content on all available devices and allow for their content to not only be passively consumed but to be actively interacted with. Customers do not even stay only customers but they have become suppliers of content and the Internet has turned the girl or boy next door with a blog into an online sensation with literally thousands, sometimes even millions of avid followers. This drastic change of consumer preferences and habits is forcing well established publishers to completely reinvent themselves.
In most developed countries, the Internet already represents the main motor of economic growth. The online world accounts for up to thirteen per cent of economic output and is driving the creation of new companies, new jobs and new opportunities.[1] It allows, with a few clicks of a mouse, for a Russian citizen to read a German newspaper or for a Polish fashion designer to reach a global marketplace. The Internet is breaking down language barriers and geographic barriers, changing global society forever. The Internet now accounts for 25 per cent of the increase in German exports in the last decade. For example between 2007 and 2011 nearly 30.000 small companies were founded in Germany using Google products. These companies now represent EUR 8+ billion in annual revenues and have created 100.000+ new jobs[2]. This development is visible in Russia as well, where the Internet turned into a profitable business worth up to 8.5% of GDP according to estimations of the Russian Government.
No wonder that media companies in general are taking on the challenge and seizing the opportunity to adapt their organisations. Well established players like global media group Hubert Burda Media (www.burda.com) already generate more than 50% of its revenues from digital ventures. Other media houses have chosen an even more radical and thus risky path to pursue a digital-only strategy. But we do not only see the well-established media houses changing. We also see new players coming into the market. In fact players that did not even exist ten or fifteen years ago are now dominating the market. One of the biggest such players is Google. In just a few years, starting in 1998, Google has grown to employ almost 50.000 people worldwide and it generated USD sixty Billion in revenues last year. A similar success story are Yandex in all Russian speaking territories and other emerging market heroes.
As consumers are inundated with daily offers of media, the greatest challenge is relevancy.
In today’s world it is no longer enough to create content and deliver it to an audience. The challenge is to create relevant content and deliver it to the relevant audience on the right device and at the right time. Moreover, consumers expect more than a one-way information flow. They expect engagement and interaction. To attract lasting attention publishers must understand their customers much more intimately than before and inspire them to engage and interact with their content. Only if a media publication succeeds in doing so, it will find a permanent place in people’s lives, now and in the future – no matter via which mode of delivery, online, mobile or classic print.
Media companies need to be at the forefront of this transformation in order to not be overrun by it. They need to not only follow the changes but drive the changes. Consumers have become emancipated and loyalty to old established print brands, as evidenced by the decline in national print newspaper circulation, has evaporated. Digital only publishers, such as Mashable and The Huffington Post on the contrary have rapidly built multi-million readerships.
Also Burda successfully started to prepare itself for these challenges more than a decade ago and identified three ingredients to ensure a successful future.
- Understand the complexity and importance of further technological development and shape the technologies that will be preeminent to successfully run the businesses of tomorrow;
- Have clear knowledge about the world today’s consumers live in; and
- Anticipate future market trends.
In the most developed online markets the media landscape is a mix of print and online. Contrary to what some Naysayers have said, print has not died… nor will it die. Both forms of media consumption will survive in the long term and complement one another. The same customer who might read his daily news during the week on his mobile phone, might buy a weekly summary print publication or a Sunday newspaper. He might choose to get the headlines digitally but then delve into the details in print or vice versa.
Reproducing print content online without any changes does not work. Simple PDF versions of magazines are not enough any longer. Since content is consumed in a different way today it also needs to be produced in a different way: bundled in different ways for different channels, more interactive including visual elements like video or photo. Particularly in online there is no one-size-fits-all strategy. Online content needs to draw customers in and engage them much more holistically.
In consumer-oriented Internet one has to create different types of digital products tailor-made for the consumer’s needs. The media’s core mission is to relate to people and their lifestyles and take on a positive and supportive role. The media’s job is to deliver products that are informative, entertaining and helpful. This has also been the case in the past, but the online and mobile channels can facilitate this much more effectively than print was ever able to.
Most importantly, online there is no place for mediocrity. Distribution is ubiquitous and instantaneous. Anyone can create content and the public will be the judge of that content. The measure of quality is now the number of likes and shares it receives and how quickly it does so. More so than ever before every single piece of content needs to be memorable and differentiated. Average content can no longer be hidden in between columns over columns of newspaper roll. Every article, every video needs to stand on its own. Consumers expect targeted, rich, platform-optimised user experiences. If they don’t get it, they won’t come back to the content provider no matter who it is
Consumers are looking for content providers where they can interact with the content, the content provider as well as with each other. Examples like Wikipedia or The Huffington Post that Burda has recently successfully launched in Germany are even built on the back of user-generated content.
One main trend is multi device use – the future looks “mobile”
It’s been about four years since the launch of the iPad and about seven years since the first iPhone came out – few will doubt that we are in the age of mobile. Globally, the smartphone market passed a major milestone in 2013 with 1billion devices sold during the year. Global tablet sales surged 50% in 2013 and mobile sales surpassed PC sales for the first time, at the end of 2013[3]. By 2017, it is projected that smartphone sales will hit 1.8 billion representing 82% of total mobiles phone sold[4]. So what does this mean for Russia? Already mobile phone ownership in Russia is commonplace. In fact mobiles are so popular that more than 50% of owners own more than 1[5]. This leads many to believe that content consumption might skip the PC and laptops and go straight to mobile and tablet devices.
The increasing penetration of smartphones and tablets is already having an impact on magazines, with some publishers seeing huge jumps in mobile traffic. In the US, some magazines are getting up to 50 per cent of its traffic from mobile. Not so long ago, only in 2011, 86 per cent of Conde’ Nast UK’s traffic came from PCs. With less than 1 per cent via tablet and 14 per cent from mobile. Just two years later, desktop traffic had fallen to 58 per cent, while mobile had more than doubled to 30 per cent and tablets rose from 1 per cent to 12 per cent. Similar tendencies can be seen in German-speaking countries as well.
This required another wave of innovation whereby content owners and publishers needed to adapt their content again to another device with new dimensions and characteristics. In Germany we see for example that tablet users like the combination between mobile and print. They like to read magazines on their tablets – magazines that are originally published as print version but also made available via mobile devices. This explains that being online or being a digital native does not mean that society will become digital-only. Still consumers expect and also like to get the most out of the vast possibilities online media offers. And this is a major challenge for most media houses.
Chetan Charma, a mobile technology consultant, predicts that “we are entering the Connected Intelligence era”. These two operative words will change the industry vertical from scratch and make especially media houses look into defining new strategies on how to create and distribute content.
They are forced to change the way content sites are built and how they are monetised. Mobile is becoming the dominant platform in developed countries, still, many media houses face difficulties in finding the right way towards mobile applications. Germany is here not much ahead of Russia or other emerging countries.
Figures show for example that tablet magazine subscriptions still accounted for no more than 3 per cent of total magazine circulation in the first half of 2013, despite the growth of tablet ownership[6]. But it is expected that over the next 7 years magazines will undergo a huge change, with digital editions edging print by 2020 in major European countries like Germany and the US[7]. This development will bring one additional hurdle as there are many players in the market fighting for mobile user’s attention and time: Apps, social networks, games, etc. Content Publishers are therefore in a new way of competition with companies that have not been direct competitors previously.
In additional to a new way of competition, mobile also makes people use different applications at the same time. Thus the traditional silos of media types are disappearing.
Source: Barclays (2014), Russian Internet and Media
Online media requires innovative ways for generating revenues
One challenge for media houses is that online media products – no matter if mobile or desktop – often require different ways of generating revenues than traditional media where the revenues come from ad sales and print copy sales. When turning print content into online content, dollars are often turned into pennies. Reason is that online content is expected to be offered for free and revenues from online ad sales are lower than from print ad sales. Despite this the share of adspend on Internet will significantly increase over time, mainly at the expense of Print.
Source: ZenithOptimedia
Three main revenue drivers are currently successfully used: First, transaction-generated revenues play an increasing role when defining successful business models. This means that online offers are free of charge and the business owner only gets a cut once a consumer has decided on purchasing something online. Second, CPM (or “cost per mille” which is the cost per thousand views) models are still popular. This is the marketing measurement index and it is used to monetize content in digital media via ad sales. The third source is revenues from direct sales. Either by selling content or by online retail businesses. One sub segment of this model is subscription based e-commerce. This model is very popular because people get the subscribed service on a regular basis no matter if it is online content, print content or products (food, toys, or clothes). We see growing demand for this model in Russia, although due to the lack of reliable infrastructure it is still at an early stage.
More and more media companies use all three ways of monetisation. As a consequence traditional media houses are also becoming retail companies because they enter direct sales. It is not for example only about showing people what they may like but also about telling them where to buy. Most successful business models follow the consumers to the point of transaction – the point of sales. And the point of sales is increasingly online.
Direct sales via internet is getting more and more important in Germany. The online retail market in Germany is up to almost 50 billion euros[8]. The market is expected to grow 12 per cent per annum through 2017, faster than in any other Western European country. E-commerce accounts for 83% of all revenues made online. The estimated share of online retail in Germany in total retail is 6.6% at the moment. Germany might be the fastest growing country in Western Europe, still, Russia is growing faster. No surprise, Russia’s e-commerce market is smaller than the German market. It was EUR 10,4bln in 2013, up 27% from 2012 and the growth rate is expected to be 35% annually reaching 4.5% of total retail by the end of 2015[9]. According to other statistics, the Russian e-commerce sector could grow to EUR 35-50bln by the end of this decade and exceed EUR 75bln in ten years[10]. Comparing Russia to Germany shows the massive growth potential that Russia has. The upcoming years will bring a lot of new online businesses, the vast majority of revenues will come from direct sales and media houses will have a good chance to get a big portion of the business – as they do in Germany.
Again, mobile devices start to play a leading role when it comes to generating revenues, as the devices can be used for more than just for consuming content. Managers are nowadays more and more talking about m-commerce instead of e-commerce. M-commerce is the delivery of electronic commerce capabilities directly into the consumer’s hand via wireless technology. Usually m-commerce is created via tablets or smartphones. Publishers associate it often with items featured in editorial copies that can be directly purchased. Mobile is now the key driver behind the growth of e-commerce. Whiles sales made on desktop or laptop computers are expected to grow by 9% in the UK in 2014, they are expected to increase by 62% on mobile devices. Another statistics show that 100 per cent of year-over-year online sales growth in the UK was entirely mobile in the second quarter of 2013[11]. Desktop revenue development was flat for the first quarter.
Until recently, integrating e-commerce and m-commerce into a publication or website was not in the focus of traditional editorial teams while also being labour- and cost intensive. Historically, the editor’s opinion was nearly sacrosanct. Editors had the power to make commercial initiatives fly or die. This is not any more the case at least in the US, UK or Germany. Times have changed and the media and media consumers don’t play the same rules any more. Editors recognised that they must change with the times in order to stay in business. One way as mentioned is to make content shoppable by integrating new technology.
If an editor recommends a certain handbag and the consumer likes it then the editor should not make it too hard for them to buy it. In Germany there is companies that handle the various technological demands of making a magazine’s site or tablet edition shoppable while producing easy-to-use elegant shopping tabs and checkout options. Shoppable content is editorial containing rich, participatory information that does not disrupt the context. These images more than complement the text. After having made written content shoppable one of the next big trends will be shoppable video content.
The easy access to products combined with curated content done by publishers convinces consumers more and more to make a purchase There is also a solutions for readers who do not want to make an immediate purchase. As on Amazon some sites offer a sort of wish list, enriched with a technology that trigger email alerts when an item’s price drops or an out-of-stock article becomes available. The consumer can access his or her list via mobile device, enabling them to call it up when they are shopping in a store. Statistics show that more than ninety per cent of users respond to these post-discovery notifications, establishing significant ongoing engagement.[12] Today, consumers go on an online discovery journey when shopping. Twenty years ago, consumers had limited ways to discover good deals, the purchasing path was limited to offline print titles for information gathering and offline retail stores for the purchase. Today, as news, communication and entertainment shifted online, the purchasing path shifted online, as well. Auto dealer specials are checked on their websites instead of in newspapers, the yellow pages have been replaced by Google and asking friends for a recommendation before a purchase is done on Facebook. Consumers do not distinguish between editorial and advertising, both forms of content are equally valuable when looking for a product. Shoppable content is still in its early stage but it seems that when a publisher makes editorial and advertising shoppable, their readers are spending more time engaging with those ads. It reinforces the idea that a consumer is going on a discovery journey where the type of content, or medium for that matter, is irrelevant.
Data management will help to identify and understand trends
One of the big factors for being successful in internet and identifying future trends is the collection and management of consumer data. And this factor is equally important for any online business model.
The idea of big data is not new: George Orwell’s classic 1984 which was written in 1949 was based on a sort of big data usage. We are still far away from even theoretically being able to use data as it was used in 1984 but still data analyses is getting more and more important.
Social networks, online shops, video portals, search engines – we all leave behind a vast amount of information on the internet. While consumers sometimes feel threatened by this it’s a real boom for companies who can use this data to optimize and align their offerings to meet customer needs. But not all businesses utilize this advantage. While today collecting data is neither complicated nor expensive companies often collect too much data and then do not know how to use it in a meaningful way.
To utilize big data in a meaningful way, companies need to change their behaviour patterns. Instead of traditional databases with historical information that verifies what customers have already purchased, now they have a flood of unsorted data volumes that must be evaluated quickly and without rigid framework in order to detect trends and the resulting interests early on. This requires new IT solutions and business structures. Not only in Russia but also in Germany companies are still often at an early stage of changing their habits. In Germany they especially worry about data protection when using big data analysis. There is no faster way to lose a customer’s trust than to use data for a purpose other than the one previously announced .
However having big data results in a competitive advantage. The e-commerce retailer Amazon.com now gathers so much data that this is comparable to a major research institute. But, just having data does not make you a winner.
Companies need to learn to interpret and take the right actions after the analysis. Having big amount of data can change the way companies compete because they simply can test upfront their decisions by analysing big data. Big data might tell companies where the consumer is moving to. As mentioned above companies have to follow the consumer to the point of transaction – the point of sale. Big data will help companies move into this direction by better satisfying consumer’s needs. An extremely loyal customer base (as we could see it in print until some years ago) is a hard thing to find nowadays. Businesses that want to succeed must respond quickly to new needs. Online retailers are now able to track the behaviour of individual customers from Internet click streams. In the future they will also be able to update their preferences and model their likely behaviour in real time.
In 2012, US retail giant Target created an algorithm to identify pregnant customers in their second trimester using purchase data (such as the buying of prenatal vitamins) and other factors, some purchased, some collected by the company itself[13]. In Retail this is quite common now. Until not so long ago publishers had to do the analysis via simple circulation numbers: up here down there…but why? Big data collections helps to look into the future and analyse trends instead of looking at static circulation numbers.
Still today most great products are a result of visionary and strong teams and not simply a result from big data analysis. Having the ability to make data-driven decisions is getting more and more important, though. It is a helpful basis for any decision taking process. Sometimes big data shows how people use a product in ways the responsible managers did not expect. It provides a good insight into how a product can be used and improved and companies can further communicate with consumers and build loyalty.
Internationally, there are already successful examples of magazines publishers using cutting edge data algorithm. The Atlantic Group for example launched a magazine that provides intelligent content customised via a given consumer’s interaction with the site[14]. Advertising blocks showing up on a chosen website or within the email interface are also a result of big data analysis. Chances are likely that the advertising seen is for a product the user searched for but did not purchase, yet.
Because of big data, media content supply could be disrupted in the same way as the music industry was disrupted about a decade ago. In the 90s and earlier people consumed curated music sold via CDs. This was later replaced by MP3s. Today individualised playlists are compiled by companies like Pandora or Spotify. The same could happen to magazines and books. In Germany and the US there are companies experimenting with robot journalism. It screens available, fresh content and tailors it for consumers by supplying the consumer only with content that is most interesting for him or her. By this, consumers can for example read an article about the results of the latest football game of the preferred team focusing on the performance of the consumer’s favourite football player instead of giving an overall general review of a game. One of the first companies offering this service is Automated Insights for Yahoo.
In other words publishers just might deliver consumers with content and see what they like. Then they can watch and analyse their reading habits and finally fine-tune the delivered content according to the consumer’s preferences. In a nutshell, data driven content and the way it is consumed by consumers are important to creating work that is engaging and has a high return on investment.
Print is reinventing itself
I previously mentioned that the future is a hybrid model between print and digital. There is not only a clear tendency of integrating print into digital but also vice versa integrating the possibilities of digital into print. Since quite some time we see a growing creativity when it comes to print publishing and especially advertising agencies play a leading role in this. FIPP – the worldwide media association – collected best practice examples for its “Innovations in Magazine Media 2014 World Report”. Some of the examples prove that publishing houses find smart ways of bringing digital into print. And if it is done in a nice way then print will have a sustainable successful future, also in Russia.
In one of the print issues of Forbes magazine, Microsoft promoted its new Office 365 software by including a small wireless Wi-Fi router[15]. The router was placed in a four page insert that ran in a number of magazines sent to business and technology professionals targeted by Microsoft. The router could connect up to five devices to the internet and lasted for two to three hours before it had to be recharged. Another example of creative print was created by Billboard Brazil using NFC. Billboard Brazil has run a test in a special edition magazine with an NFC sticker on its front cover. The sticker encouraged consumers to hold their phone on the cover in order to instantly receive a playlist of some features artists without using QR codes and without downloading anything. The campaign had the goal to increase the knowledge about NFC and to explain people how to use it. NFC devices are also used in contactless payment systems, similar to those currently used in credit cards. Most people do not know they have NFC capability and even if they know they do not know how to use it. The ad in Billboard promoted NFC by sharing a positive experience with its users. Motorola was running a print ad campaign for its Moto X cell phone where consumers had the opportunity to try different colour combinations and see all of the options right before their eyes in a print ad. The advertising was made up of four batteries, three LEDs, some Plexiglas, and a series of buttons. The ad allowed readers to customise the Moto phone in 11 different colours, by tapping different keys to try out different looks.
Technology is a critical game changer that can create new business models and make old business models obsolete. New devices and communication channels continue to change the way media is consumed and media companies in the whole world are developing new approaches in order to sustainably and successfully reach consumers. The challenge is to on the one hand digitize and on the other hand maintain traditional operations during the transformation process. Publishing houses in Russia need to put in place a dual structure to maintain their traditional business model while implementing a second structure for digital. What we have seen in Germany is valid for all countries: The media industry is going through a major structural transformation brought about by a combination of factors, including the rise of digital media and as a consequence changes in the media-consuming habits of it consumers resulting in a deterioration of its traditional economic model. As a consequence media companies must reinvent themselves by seeking out new markets, new consumers and new business models to stay successful. The good thing for society is that the war for new successful business models will result in a high consumer focus of which everyone should benefit in the long run.
[1]OECD (2013), The Internet Economy on the Rise: Progress since the Seoul Declaration, OECD Publishing
[2]Institut der Deutschen Wirtschaft Koeln Consult GmbH (2012), generationgoogle** Innovative Geschaeftsmodelle mit dem Internet
[3]IDC Corporate USA (2014), Worldwide Quarterly Mobile Phone Tracker
[4]NPD Display Search (2013), Smartphone Industry Quarterly Report
[5]Nielsen (2013), The Mobile Consumer – A Global Snapshot
[6]Alliance for Audited Media (2013), Semiannual Snapshot Report
[7]mediaIDEAS (2012), E-Reading Devices and Paginated Media Forecasts. 2011-2021: The Impact of a New Digital Content Market
[8]Ecommercenews.eu (2014), Ecommerce in Germany
[9]MorganStanley Research (2013), E-Commerce Disruption: A Global Theme – Transforming Traditional Retail
[10]East-West Digital News (2014), E-Commerce in Russia
[11]Capgemini (2014) & IMRG (2014), IMRG Capgemini E-Retail Sales Index
[12]FIPP, “Innovations in Media 2014 World Report”
[13]FIPP, “Innovations in Media 2014 World Report”
[14]FIPP, “Innovations in Media 2014 World Report”
[15] Adweek.com (2013, David Kieferaber)