04 May The Future Belongs to Those Who Can Do Great Work in the Boundary Between Content Creativity and Tech Innovation
Former Chief Executive Officer,
The New York Times Company, USA
A society which loses its shared culture loses much of its sense of distinctive identity. A society in which different communities and groups can no longer listen to and come to understand each other’s pasts and presents shouldn’t be surprised if mutual incomprehension and division are the result. If you doubt that any of this connects to big politics and national well.being, you’re not paying attention.
Our culture comprises much more than media. Language, literature, education, theatre, music, dance, the visual arts, much else besides. But I doubt anyone would dispute the centrality of media – digital media, regular TV and radio, movies, newspapers and magazines, local and national – in British life.
But to state the obvious, many of these categories – and therefore much of our cultural sovereignty – are now under economic and audience threat from a process of digital disintegration and reinvention that is still accelerating, in many areas just getting going, and particularly from its globalising effects, which are driven not just by the borderless character of digital distribution, but by its intrinsic scale economics.
It’s hard for anyone other than the US or China to produce global digital platforms. The UK hasn’t produced one. Nor has any other European country, with the arguable exception of Sweden and Spotify. British creators make first-class programmes for Netflix, Amazon and the other American streamers, but there’s a crucial difference between producing great content to fit someone else’s creative agenda, and commissioning and controlling it yourself. It’s the commissioners who decide what gets made – and reap most of the economic upside. If real scale is what it takes in digital content distribution, we don’t have a horse in that race either.
The idea that Netflix and others are changing the game in broadcasting is hardly news of course. It was a big theme of last week’s Royal Television Society’s Cambridge convention. As for digital disruption of newspapers, that’s been with us for years.
This is an article that appeared in the 2020 edition of the Innovation in News Media World Report
What I hope to bring to the party is my experience of leading a large-scale and generally encouraging response to the digital tsunami. I hope that this experience – with real audiences, a real creative organisation, real technology and real dollars – will help convince you that successful transformation is possible, at least for legacy players who accept the daunting investment and drastic change required. It’s also, I believe, a useful perspective from which to view and propose changes to current policy.
I’m going to proceed as follows. First I’ll talk about the perilous and seemingly intractable set of threats that faced The New York Times when I walked into the lobby as chief executive in late 2012. I’ll tell you how we responded, draw some general lessons from that – lessons which in my view are just relevant for TV, movies, radio and music as they are for the news business – and apply them to today’s UK media landscape. Finally, I’ll turn to the question of public policy.
“The economic object of any legacy media digital strategy is to develop digital products and services which can grow revenue and profitability aggressively enough to offset the inevitable declines in print.”
So let’s start with The New York Times. In 2012, it was still a profitable, cash-generative company. Its journalism was as strong as ever. It had been an early investor in digital and its website was still recognised as a market leader.
But pretty much every economic indicator was trending down. Print advertising, which had collapsed during 2008/9 was still falling like a stone. The number of print subscribers was also falling, albeit more gradually. News.stand sales were plummeting. To everyone’s consternation, after years of growth, digital advertising was going into reverse. Even the digital subscription model – launched the previous year, and the company’s great hope – seemed to be running out of steam at around the 600,000 subscriber mark. Innovation had stalled. Strategy was at a stand. It remained a largely analogue company not just in revenue but in spirit and expertise.
Terrifyingly, it was nonetheless one of the highest performers in the entire US industry. Since 2004, more than one in five US newspapers have closed. Employment in the industry fell from over 400,000 in 2000 to 140,000 last year – a nearly two-thirds attrition. It’s not just the closures – even the survivors have been savaging headcount. More journalists have lost their jobs in recent years in America than coal miners.
The economic object of any legacy media digital strategy is to develop digital products and services which can grow revenue and profitability aggressively enough to offset the inevitable declines in print. Most American newspapers were finding it impossible to meet this brutally clear benchmark. They still are. The New York Times did have important advantages. Its brand heritage and the obstinate determination of the board and controlling Ochs-Sulzberger family interest not to savage the newsroom, no matter how bleak the forward economics looked. That digital head-start. Its untapped global potential.
All strengths to build on, though quite how was as yet unclear. Wall Street, not known for its sentimentality, had reached its verdict – which was that The Times was the best of a bad lot. The stock price which had touched $50 a share at its peak was now stuck at around $8.
So what did we do? Over the next few years, we devised and executed a strategy which had the following elements:
First, we believe in journalism. It’s what we stand for. It’s the only thing we have to sell. So – unlike almost everyone else – we’ve invested in journalism.
We now have around 1,750 journalists working for The New York Times. That’s three hundred more than in 2012 and the greatest number in the company’s 170 year history.
Heavy investment in content is Netflix’s strategy. It’s Disney’s strategy. They know that distinctiveness – providing something clearly different, more valuable, more trustworthy than what’s available for nothing on the web – is essential. Distinctiveness is a no-brainer if you want to succeed as a provider of high quality digital content of any kind.
A good slice of our investment has gone into building classic journalistic breadth and strength. Take investigations. You’ll be familiar with some of Times’s work in investigative journalism – Harvey Weinstein and Bill O’Reilly, Trump’s taxes and so on – but what I want to stress is the sheer number of original stories The New York Times delivers every week, a drum-beat of high impact headlines previously unknown anywhere in digital, print or broadcasting.
We’ve also invested in new specialists in critical areas like tech and climate – on which we delivered more than 800 stories last year – as well as video, audio and other new forms of story-telling.
By contrast, instead of investing, most of the world’s news organisations have either chosen or been forced to try to cut themselves to a digital future.
That may drive higher short-term profitability, but it’s a strategy that leads off a cliff. You can’t degrade your journalism and keep your audience, let alone sell them subscriptions.
This is unavoidably a capital-intensive period in media. You have to invest not just in content, but data science, digital product, engineering. We now have around 900 specialists – in addition to that big newsroom – working on our digital machine. Most are new to the company.
There is a difference – one we had to learn – between “trying digital”, meaning letting a handful of people play around the edges of the business, and trying as if the company’s life depended on it. Which it does. You have to throw everything and almost everyone into the fight.
This level of commitment is hard for publicly-listed companies who find themselves competing for creative and engineering talent – and for the best intellectual property assets – with tech players who typically have vast cash reserves or access to seemingly unlimited venture capital.
But building an ark doesn’t come cheap. Not if you want it to float.
Next, we believe in developing close, long-term relationships with the most engaged consumers of our journalism with a current hypothesis that the single best way to turn these relationships into revenue is by convert.ing these loyal users into paying customers.
Until fairly recently, very few people in news publishing believed that either. People just wouldn’t pay for news on digital devices, we were told. Many were amazed when The New York Times reached even half a million subscribers. Now most print and many digital players are trying to follow us.
Meanwhile in ad-funded TV or radio almost no one on either side of the Atlantic is contemplating more than a marginal shift towards direct end-user subscriptions. Some have instead been licensing their libraries to Netflix and the other streamers – in other words, taking cash in return for helping to build the very platforms that wish to replace them. It’s only recently that legacy players have spotted the strategic danger of that tactic.
A relationship strategy depends less on raw page-views and click-rates than it does on engagement and frequency – in other words, how deeply and how often a given reader uses you. So we poured people and money into the task of improving the digital experience of The New York Times and optimising the pay model and our subscription tactics.
From 2014, we focused most of our efforts on the mobile phone experience, because that was where the users were. Peak time for news use on mobile phones is 7am, so the whole circadian rhythm of the newsroom had to change. We invented new regular experiences
– morning and evening briefings, a mini-crossword every morning, for instance – to encourage return visits. One way to think about our breakthrough podcast The Daily is as a habituation tool – it now reaches two million listeners on a typical day, ten a month, and it’s still growing.
“A relationship strategy depends less on raw page-views and click-rates than it does on engagement and frequency.”
We’ve experimented everywhere and with everything. At any given moment we now have multiple simultaneous separate experiments running in the field.
We’ve launched successful new products – our digital crossword and cooking products are in their own right two of the news industry’s largest subscription products – and unsuccessful ones.
We started taking international digital sub growth seriously – they’ve grown ten-fold since 2012. Audio arrived – The Daily is only one of our podcasts – as did VR, AR and, this year, TV with The Weekly.
We changed everything that needed to change. A generation of new leaders came in. We massively expanded training. As the business changed, so too did large parts of the employee base. In some departments, the need for different skills and expertise mean as much as an 85% change in the workforce.
Today growth in digital revenue comfortably outstrips print losses. Company revenue is now growing quarter after quarter. At the end of our most recently disclosed quarter, we had around 5 million total subscriptions, triple the highest number ever achieved in the print era. We plan to double that again to ten million by 2025. Far from plateauing as the model enters its ninth year, in recent quarters the rate at which we’re adding net new subs has accelerated again.
Our projections suggest the ultimate size of our global subscription base could be far larger even than that ten million. In 2015, we set ourselves the challenge of doubling digital revenue from $400 million a year – the figure then – to $800 million by 2020. We expect to hit that target well ahead of time. The stock price has more than tripled. We’re not there yet – no one in digital is there yet, perhaps never will be there, if there means a secure and stable end-state – but we’re on our way again.
But how applicable is this experience to the media more broadly? In my view and despite the unique features of The Times, very applicable. First, it helps us dispel some persistent myths.
Digital advertising can support quality journalism on its own. No it can’t. It was never going to. Most of the spoils of advertising go to those who control distribution. Once that was newspapers and magazines. Now it’s the major Silicon Valley platform. The distribution ad.vantage we once enjoyed with our presses and our trucks has already shrunk. In due course it will disappear entirely.
We’re building a different kind of distinctive digital advertising at The Times based around strategic partnerships with the world’s biggest brands. It’s showing real promise.
But that’s an option only available to a handful of publishers. Unless the others can pivot away from dependence on advertising, to subscription or other revenue streams, the future looks bleak. And that includes not just legacy firms, but former digital darlings like the HuffPost, Buzzfeed and the rest – players who today have begun to resemble legacy publishers but without the actual legacy.
The fact that TV advertising has not yet gone through the same scale of disruption is only a timing issue. It’s inevitable, as audiences switch from privileged tradition distribution channels to digital. The same economic logic applies. Linear broadcasters everywhere are also undergoing the same ominous early stage audience-loss that hit the west’s newspapers years ago – particularly the differential flight of the young.
Effective countermeasures are possible. The Daily is by many measures the most popular news podcast in the world, but it’s also reaching and deeply engaging a substantially new audience for The New York Times. Three-quarters of its audience is 40 or under. 45% are 30 or under.
I grew up in broadcasting being told that very few young people would ever listen to serious speech audio. It’s rubbish and probably always was.
Bucking the trend requires not only investment but creativity and lateral thinking. Yet the reality is that any media company which fails to crack this problem, and can no longer replenish its audience, doesn’t have a long-term future. The effects won’t be immediate – older audiences are typically very loyal – but it’s ultimately non-survivable. It’s as simple as that.
Myth number two: it’s all Google and Facebook’s fault. They stole our business and something must be done about it.
Now, it’s convenient to have someone to blame for your woes – and it’s true that policy.makers and regulators across the western world have any number of searching questions to put to these two giants about their business practices.
Google has taken some modest but promising steps, Facebook is talking seriously about doing the same. But let’s be realistic. The true source of legacy media’s tribulations is not these two companies – and wouldn’t be solved if they were regulated more tightly, or even replaced by other search and social providers. The true culprit is the internet itself.
It was the internet which allowed hundreds of millions of users to switch from old media distribution channels to digital. It was the internet which robbed newspapers – and is now robbing linear TV – of the advertising pricing-power that went with the old privileged distribution.
And the politician or regulator has yet been born who can uninvent that magnificent and scarifying Pandora’s box. We’re stuck with it and therefore might as well make the most of it.
So for those brave souls – whether in news or entertainment – who opt to truly take the plunge, what are the fundamental conditions for success?
Scale. You need scale of audience, scale of engagement, scale of subscriptions. The goal is to reach the point at which operating leverage begins to rise – in other words, that moment in a company’s arc of digital growth beyond which investment and other costs no longer need to rise at the same pace as revenue, and the fundamental profitability of the business starts to increase.
Say we spend x hundreds of millions of dollars on journalism at The New York Times to serve five million subscribers. We won’t have to spend 2x to serve ten million. Nor 2x on product and technology or many of the company’s other expenses.
Some costs will no doubt continue to rise but, going forward, margin – meaning the gap between total revenue and total cost – will grow wider and wider. We see not just a viable fully digital news business in prospect, but an increasingly profitable one. But it’s impossible without scale and without that high initial investment.
The next condition is a super-clear value proposition for your customers, one that meets real-world demand and reflects real-world media consumption.
At The New York Times, we know what our mission is: to seek the truth and help people to understand the world. Our research suggests enormous and growing global demand for serious news. I’ve already talked about how we hope to satisfy that demand and about the critical role of quality and originality in our offering.
We’re not alone. It’s no coincidence that all the really successfully digital subscription models come from titles at the very top of the market. The future looks much tougher in the middle and bottom of the market. If your journalism isn’t special enough to sell to consumers, and you’re losing out in the ad market to the major digital platforms, I don’t see how you keep your head above water.
Some of the same dynamics are playing out in the unfolding global battle for the future of TV.
The streamers may drive much of their cur.rent consumption with reruns from conventional broadcast, but they’re putting their commission.ing dollars into the kind of distinctive, ambitious programming which used to be reserved for premium cable and satellite – HBO or Showtime, say – or indeed the BBC and Channel Four. So it’s not reality shows and soaps, but Fleabag and The Crown. The best US linear players are fight.ing back with the same: The Terror, Chernobyl, even Game of Thrones.
For now it makes sense for the streamers to co-produce and share rights in the country of product. Don’t expect that to last. Soon they’ll want it all. Given the struggle that is now gain.ing momentum – they’ll probably need it all too.
Conventional broadcasters – and I include conventional cable and satellite players – who do not have a compelling pure-play digital strategy of their own risk being priced out of the best talent and best content. Even in their hey-day, they’d have struggled to compete with these giants. Now with ad revenue – and in the case of the BBC, licence fee – squeezed, their financial firepower is waning.
Note also the impact of all this on some of the traditional arguments for public service intervention. The great programmes I mentioned come out of a British creative culture and talent base which the UK Public Service Broadcasters have nurtured and sustained and conditioned audiences to expect. But will that role still be as criti.cal in the future as the global players ramp up their investment in exceptional, high-risk work?
One could ask a similar question about purely financial support for the UK production sector. Reed Hastings announced that Netflix is spending half a billion dollars this year on Brit.ish film and TV. Does that mean that the BBC’s and Channel Four’s investment is becoming less vital?
Finally, there’s trust. According to data Ed Williams of Edelman presented at the RTS last week, Netflix’s net trust score in the UK is now on a par with the BBC’s and a point ahead of Channel Four’s. If the PSBs ever enjoyed a special status with British audiences when it came to trust, that too seems to be in question.
Now, as you’ll hear, I believe the case for public intervention in media is stronger than ever – and indeed that, in many categories, aggregate market failure risk is actually growing. Nonetheless the case for it needs not just to be restated but refined and sharpened.
The third lesson and condition for success is the how of building an effective digital media operation. It requires what is in many regards a new organisation.
Much of your existing tech and data architecture should go in the skip. Everything needs to be rebuilt. So too those traditional functional departments with their hierarchies and territories.
“Most legacy media structures are still shaped around the old, rather than the new business. They still operate with traditional pyramidal command-and-control. This is one of the main reasons why many are seeing such desultory results from their digital businesses.”
At The New York Times, we organise now around specific digital missions – engagement, subscription growth, for instance – with multi.disciplinary teams drawn from many fields working under unified leadership to achieve specific strategic goals. They test, they learn, they make most of the decisions usually without needing sign-off either from department heads or senior leadership.
Most legacy media structures are still shaped around the old, rather than the new business. They still operate with traditional pyramidal command-and-control. This is one of the main reasons why many are seeing such desultory results from their digital businesses.
You can’t invent the future if you’re spending 80% of your time on legacy operations. Hive them off even if they drive most current revenue and profitability. Everyone knows them backwards. Get a handful of trusted colleagues to look after them so that everyone else can concentrate on the harder task.
And, if you’re a leader, get retrained yourself. You can’t wing this stuff on instinct and vague memories of business school when the world was young. At The New York Times, we leaders are literally back in the classroom doing graduate-level classes in statistics and data science so that we can understand our own business better.
Of all the ills afflicting the world’s legacy media companies, ignorant, risk-averse, outwardly arrogant, inwardly defeatist leadership is probably the most lethal. No one can bluster or lobby their way out of this one. God knows, enough still to try.
So how does Britain’s media industry look when we consider it through this rather stark lens?
The good news is that the future of the UK’s pool of talent, its writers, actors, directors, producers, designers and crafts, even the very best of its journalistic talent, looks better than ever.
The independent production sector posted a record £3 billion in revenues last year. There’s no reason why, given the growing global appetite for it, this inward investment shouldn’t grow much further.
Unfortunately, that’s where the good news largely runs out.
The media world is divided into potential global winners, probable survivors, and the rest. The UK certainly has possible survivors – among national newspapers, the Daily Mail and Guardian for instance. But with due respect – and notwithstanding the sizable international audiences which several UK newspapers have built up – none looks like a potential global winner.
None has achieved the digital transformation of a Schibsted, or the digital diversification of a Naspers or Springer. Their heritage is domestic, and most have yet to change that or even their print-centric ways of working.
I don’t see how all the current national titles survive. At regional and local level, it looks like something close to a wipe-out without dramatic intervention.
The UK’s established broadcasters still have deep roots in the national consciousness. They still command big audiences. Their cur.rent schedules – and extensive libraries – still speak to many of those aspects of collective identity and national self-expression I mentioned at the start.
But none looks strong enough to be a true contender in the coming global contest. All are seeing adverse trends which are familiar from other digital disruptions – trends that can quickly turn from disquieting to terminal.
We’ve talked about the loss of the best talent and projects to the digital insurgents, and the inevitable loss of linear advertising revenue. Both are already realities in UK broadcasting, as is the arterial – and, as I said, ultimately insupportable – loss of young audiences.
BBC1’s average age is 61. It’s the youngest of the BBC’s television channels. The average of the audience for the main Channel Four – the youthful, edgy alternative to the BBC – is 55.
Effectively reaching younger audiences is creatively hard and culturally difficult even for relatively recent legacy arrivals. For the BBC, it’s also harder to justify to an Establishment which tends to assume that if it’s aimed at the young, it must be nakedly commercial.
The BBC as a whole should be a shoe-in as a probable global winner. It’s the only British media brand with truly global recognition and potential. Its international audience runs in the hundreds of millions. It’s indispensable presence in the lives of most British households is a testament, not just to its heritage, but to the talent it still attracts, and the creativity and excellence it still fosters.
But – at a moment when Britain contemplates setting out on a brave new voyage in search of new friends and new global markets – we can’t put Britain’s media flag-carrier on the list.
That’s because of an essentially hostile public policy stance on the BBC, which began to coalesce more than a decade ago but has hardened notably in recent years. One of its fruits was the 2015 settlement which included the disastrous withdrawal of Government fund.ing of free licence fees for the over-75s.
In 2007, just before we launched the BBC iPlayer, I had a conversation in Silicon Valley with Reed Hastings, who was then about to unveil Netflix’s own streaming service. An important moment for him, just as the iPlayer was for us.
“I don’t know why you’re bothering, Mark,” he said to me in a rather Reed-like way: “you’ll never beat my algorithm. Why not just give us all your content instead?”
Reed is one of the most impressive business leaders I’ve met. Particularly since I’ve been at The New York Times, he’s given me regular doses of candid and incredibly useful advice.
However, I came back to the UK from this and other meetings on the West Coast with the clear conviction that streaming would change consumption of TV out of all recognition; that we absolutely must double-down on the iPlayer; and that we should also urgently find a global streaming solution not just for the BBC but the whole of British television.
This idea – which we named Project Kangaroo – quickly gained the support of the other UK PSBs, but was blocked in early 2009 by the UK Competition Commission which cited domestic market competition concerns. In the breakneck rush of digital transformation, eight years is an eternity.
If we’re serious about opening up new international market opportunities, why wouldn’t we unleash our only truly global media brand and exploit it, not just to bring a British perspective to audiences everywhere, but to introduce and project the work of the rest of the British creative sector as well?
All these controls and obstacles have a similar effect: which is to discourage and punish innovation and, as far as possible, to keep the BBC locked up in its traditional broadcast.ing box. This despite, or perhaps because of the fact that everyone knows that linear broadcast.ing is time-limited and will one day come to a full stop.
Radio will probably fare better. It’s sticky and relatively cheap to make. It’s readily relocatable to digital devices and environments. In some countries, including this one, it may be the last life-line for those without the money to pay for high quality news, music, documentary, entertainment.
But even here talent may become a problem. In the US, we’re already seeing a brain-drain of some of the brightest creative talent into the flourishing, and increasingly lucrative world of podcasting.
And for ITV, Channel Four and other broadcasters who today depend disproportionately on advertising for their revenue, I don’t see much alternative to the kind of root-and branch transformation we’ve undertaken at The Times.
I don’t know what the new revenue mix should be, between subscription, free, sponsorship, e-commerce, retrans and other rights fees, and digital diversification. But they still have time to find the answer – although, as in the earlier cases of music and newspapers, it
may be less time than they think.
For all the reasons I’ve suggested this evening, the UK needs a liberated, properly-funded BBC. By no means in all but in many categories of media, market failure – the economic justification for public intervention – is already growing and will worsen in the years ahead. At present, public policy seems to hold that the correct response to a failure of private provision – say, of regional and local news – is to restrict public provision of it as well.
The BBC has proven itself more adept at digital innovation and broad transformation than most private media companies – the iPlayer is only one example. Give the Corporation greater freedom to accelerate its own pivot to digital, but look to it to build digital products and platforms which can be used by the rest of the industry too.
Rethink the BBC’s global role. At present government funding for the BBC’s international services is heavily concentrated on the world’s geopolitical hotspots. Our interests – both diplomatic and trade interests – are much wider than that. Leverage the BBC and use it as a calling card for the whole of the UK creative sector in the world’s markets, and indeed for the UK itself.
Channel Four remains an essential creative alternative to the BBC and an enduringly valuable creative catalyst of the entire industry. No brand is better placed to begin to turn the tide when it comes to younger audiences. But Channel Four needs a serious digital strategy and the wherewithal to deliver it.
In the media, the future belongs to those who can do great work in the boundary between content creativity and tech innovation. The UK’s great success in gaming and CGI suggests we have a competitive edge here that we should exploit.
The other broadcasters must find their own commercial path to the future, much as we’re having to do at The New York Times. But let’s learn the lesson of Project Kangaroo and let them collaborate more freely with each other – and with the BBC when it can help with innovation and scale.
Mixed private and public provision, scal.able tech solutions, community involvement, higher education, philanthropy, the support of the BBC – the solution will probably have many elements and certainly shouldn’t solely consist of a large public cheque. But without a policy impetus and careful coordination, the present downward spin will continue. Here more than anywhere time is running out.
Instead of the policy of no – no, you can’t – no, that’s too dangerous – no, one of our politi.cal backers wouldn’t like it – it needs to turn to a policy of yes. Yes to the power of British creativity. Yes to the future.
This is an abridged version of the 2019 Steve Hewlett Memorial Lecture, established by Britain’s Royal Television Society and the Media Society.