The Biggest Mistake Media Companies Make Online

Yesterday, Media Industry News asked me three questions, one of which I shared with my Tweeps: What is the biggest mistake media companies make online? Nearly two dozen people weighed in with their own answers--and almost all of those responses are very good. Yet, I have my own take on this question that differs from most of the answers I received.

For all the talk about the importance of digital media, most traditional brands boast cultures, people, and processes that protect their dying assets (ie. print) at the expense of what is growing (ie. digital). There are a lot of reasons for this, and some of them are good ones. Print still brings in the vast majority of revenue. It somehow feeds in a more satisfying way the ego of editors and writers. And because the most resources are always devoted to the print product, the digital side remains a stepchild to the so-called main act--even when that act is unprofitable and dying.

As John Gardner once observed, most of the things that prevent the renewal of an organization can be found in the mind. It's not a matter of new ideas. "There is usually no shortage of new ideas," wrote Gardner in Self-Renewal. "The problem is to get a hearing for them. And that means breaking through the crusty rigidity and stubborn complacency of the status quo." Yet the rules, customs, and procedures in organizations always favor the past. That's why culture trumps strategy all the time. The cultural cues are that print (the past) is more important than digital (the future).

The Three Absolutes of the Media Biz

There are three fundamental beliefs today that have also been used as "white lies" by many media executives who have failed to reckon with the vast changes that have roiled our business in recent years. These absolutes will free you into thinking very differently about the business.

1) Print advertising will never come back. There are just too many options for advertisers today and too much pressure on advertising rates. In the so-called good old days, BusinessWeek, for example, lived in a cozy competitive world with The Wall Street Journal, Forbes, and Fortune. Now it must more actively compete with Yahoo Finance, MSN Money, AOL Money, CNBC, Reuters, Huffington Post, Slate, and thousands of other business sites. Never mind Google, behavioral targeting, everywhere and anywhere. Just as significant, most advertisers are lessening their dependencies on the intermediary--the media--to reach their target audience by going directly to them. One of the best places for entrepreneurs to get advice and help is American Express' OPEN site. It's as good if not better than anything published by traditional media in this space. Bottom line: Advertisers have learned to live with no print or far less print and they are not coming back.

2) Online advertising will never offset those declines nor save print. There’s far too much competition online and far too much available inventory. In the past year, the competition and the excess inventory have put tremendous pressure on advertising rates. CPMs (the cost to reach 1,000 people) have plummeted just about everywhere. And the costs of an online ad are just a mere fraction of what they continue to be in print. We use to say we've traded analog dollars for digital dimes. Now it's more like digital nickels and it may soon be digital pennies. It takes a lot of them to make up a single dollar. And there's a hitch to scale online: Scale brings down CPMs. The larger you get, the lower your CPM is going to be. It's no wonder why there are no incumbent brands who have been able to solve this puzzle.

3) Users will not pay for content, unless they’re convinced it has immediate and tangible value. Very little journalism meets that standard today. News journalism, unfortunately, has largely become a commodity. Do we really need 57 versions of a story on Bernie Madoff pleading guilty? Of course not. It's why much of the conversation about pay walls is moot. It may be true that media brands have no choice but to get more money from their subscribers, but it's going to be extremely tough to get people to pay for what they now get free. The genie is so far out of that bottle it will be impossible for her to get back in. I like what LinkedIn's Reid Hoffman said recently about Rupert Murdoch's plans to put up a paywall: "I am sure that during the transition from horses to automobiles there were some people bemoaning the loss of horse transport."

Why are these absolutes important? Because if you believe in these three absolutes and you're in the media business, they can be used to liberate you. If not, each of them become little white lies that allow you to lead by incremental change. People convince themselves that print advertising will come back once the recession ends; that scale online will help them make up their lost revenue on the print side of the house; and that so many of their competitors will die that someday they'll get a fair price for their content. Forget it. These fundamental truths of our business tell us that nothing less than radical transformation will make the difference.

Agree? Disagree? Let me know.