The horse has bolted

This week  Zuckerberg testifies before a joint session of the Senate Judiciary and Commerce Committees then appears before the House Energy and Commerce Committee, answering growing questions about Facebook’s so-called “invasion” of user privacy. Politicians will grandstand, journalists will pile on, Zuck himself will spend a couple of unpleasant days in the pillory. But the politicians questioning him each have  staff who eagerly apply Facebook user data and analytics to social and traditional media campaigns designed to ensure they all remain comfortably in DC. And if the journalists covering the affair applied such capabilities to guide the development and delivery of their digital news products, then maybe the newspaper companies they work for would not be folding so fast. Like it or not, consumers are willing to trade their digital footprint to get a good deal, often merely for free use of a platform – there’s nothing new in their readiness to do that, trading access for convenience began with the catalog direct mail business in the 70s. So, let me ask you this: When was the last time you read a privacy statement right through before checking the little box at the end?

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Last month Cox Enterprises sold the Austin American-Statesman – and a package of associated papers and websites – for $47.5 million, and then dispensed with the Palm Beach Post / Palm Beach Daily News  for $49.25 million. The buyer? Gatehouse Media.

With 140 newspapers, more than 1 in 10 in the country, Gatehouse has suddenly become the largest owner of U.S. daily newspapers but – and this may come as a surprise to you – the company is not actually in the media business at all. It’s in the healthcare business. It has found a great new niche: Corporate hospice.

Gatehouse is owned by New Media Investment Group, which last year had the distinction of reporting revenues of $1.34 billion – and a net loss of $915,000. I wonder how you do that? I looked and looked, and I can tell you for sure that the money isn’t going into investing in the digital future of their papers. Despite the nauseating platitudes from Gatehouse executives about how much they believe in the value of local journalism, this is nothing but dressed-up private equity – New Media has a close working relationship with Fortress Investment in New York City. The only strategy here is cash extraction through cost cutting. And because they’re unencumbered by institutional history, the cost-cutting will get more and more extreme as time goes by. Let me tell you, that’s hard work, very hard work. It must be, the chief executive of Gatehouse took home more than a million last year.

As I thought about the ongoing ugly unwinding of newspapers like the Statesman and the Palm Beach Post an old axiom about newspapers came to mind, the one that says newspaper newsrooms know their markets better than anybody else. “You know the market. You are the experts.” That’s what the Gatehouse president of western operations said as he promised there would be no interference in the Statesman newsroom from his corporate office. Maybe he meant it, maybe even he has drunk the company-supplied Kool-Aid. It really doesn’t matter – at this point it’s clear even to the apocryphal Tea Party member of the flat-earth society that betting on newsroom insight is not exactly sound business practice. Turns out newspapers never did know their markets very well at all.

Now depending on your background you may be irritated by that last statement. Sorry, the snark comes easily I’m afraid – when Ivan Pavlov was establishing the link between his dog’s saliva and the appearance of a slab of red meat he must have foreseen me years later violently banging away about newspapers with my “missed opportunities” sledgehammer. If indeed you are irritated, then let me ask you something. Ready?

• If newspaper newsrooms knew their markets so well, why were daily newspapers unable to arrest the tortuous decline in audience that began back in the 1970s, when circulation peaked at around 62 million before bouncing around for a decade or so and going into freefall? 1970, that’s 15 years or so before the advent of the consumer Internet. It would appear that contrary to popular belief, the Net did not cause the collapse of  the newspaper business. Rather, it precipitated a decline already well underway.

Here’s a couple more questions for you:

• Why were newspapers never able to replenish their aging print audience with young digital subscribers?
• Why does their audience, in print or in digital, continue to decline, at an ever-increasing rate?

What are we to conclude from this? Maybe newspaper newsrooms don’t know their markets quite as well as you assumed they did? Is that fair?

And to compound that problem, maybe they don’t understand the tricky business of new product development, either? Maybe, here in the digital age, their products are still driven by nothing more than editorial gut instinct rather than the kind of systematic, ongoing, deep, data-driven, user consumption analysis that underpins most 21st century consumer products companies?

That might explain why newspapers have never been able to build great new products for new digital markets. I mean, simply replicating online the bundle of news, sports, business, entertainment and advertising that worked so well for so long in the print monopoly marketplace was not exactly stepping up to the digital product challenge, was it? To the contrary, it was willful blindness. When any belief system is threatened, be it a personal one or a corporate one, denial is the classic first response, following by retrenchment, anger and all manner of self-sabotaging behaviors.

After all, we discovered a long time ago what the market thought about replicating the newspaper online. Given all the other alternatives just one click away, the market evidently thought very little of it. Here’s a Media Metrix market analysis from the last quarter of 1999, examining the national and local ranking of chicagotribune.com:

Chicago is no aberration. The latimes.com was ranked even worse, coming in at #27 in the L.A. market. The nytimes.com came in at #30 in the Tri-State area. If you’d like to see consumption metrics from the time, go here: start small, fail often

This was 1999. Twenty years ago. So how come there was no adjustment, no attempt to try something fundamentally new, no effort to study why the competition was thriving – and pivot to that? Since ranking and consumption metrics have since gotten worse for newspaper digital products, not better, this surely is the denial response at its most extreme.

I guess you might now be asking well, why is the competition thriving?

One word:

Data.

Which brings me to this week’s Congressional hearings and a recent report in the New York Times about the Trump campaign’s use of Facebook data: The Trump campaign and Cambridge Analytica

[Cambridge Analytica] harvested private information from the Facebook profiles of more than 50 million users without their permission, according to former Cambridge employees, associates and documents, making it one of the largest data leaks in the social network’s history. The breach allowed the company to exploit the private social media activity of a huge swath of the American electorate, developing techniques that underpinned its work on President Trump’s campaign in 2016.

Now, there’s some trigger language here that is misleading – further evidence I suppose that the Times is not always the informed and objective organ some people like to think it is. The phrase “without their permission” for example. The word “breach.” And the phrase “data leaks.”

I mean, have you ever looked at the Facebook privacy statement? It provides pretty much carte blanche leeway for the company to acquire and apply the entire data record of your Facebook usage: FB privacy statement

More importantly, the guidelines for use of that data by third-party developers are similarly expansive. Here, thanks to Ben Thompson over at Stratechery is how Zuckerberg explained it at a Facebook F8 developer conference back in 2010:

At our first F8, I introduced the concept of the Social Graph. The idea that if you mapped out all of the connections between people and things in the world it would form this massive interconnected graph that just shows how everyone is connected together. Now Facebook is actually only mapping out a part of this graph, mostly the part around people and the relationships that they have. You guys [developers] are mapping out other really important of the graph. For example, I know Yelp is here today. Yelp is mapping out the part of the graph that relates to small businesses. Pandora is mapping out the part of the graph that relates to music. And a lot of news sites are mapping out the part of the graph that relates to current events and news content. If we can take these separate maps of the graph and pull them all together, then we can create a web that is more social, personalized, smarter, and semantically aware. That’s what we’re going to focus on today.

Now then, here’s the practical outcome of that philosophy – this is the user data that developers working on the Facebook platform can access, under a system of permissions:  FB developer permissions page In return Facebook gets a better product but also gains access to data generated by the other apps on the platform, in a kind of privacy exchange.

Nobody needs permission to access your public profile, by the way.

Finally, here’s something you might like to try for yourself.:

Click on: https://www.facebook.com/ads/preferences

Go to “Your Information” then “Your Categories” – the right-hand tab.

Now click on “US Politics.” See that, right there? That’s your political affiliation, at least according to the Facebook algorithm. Did they get yours correct?

So you see, Facebook has historically been willing to aggregate and analyze all the usage data you and I make available to it through our use of the platform, and apply it to the continuous refinement of their offering and the benefit of advertisers. They’ve also always been willing to give that usage data away to developers devising applications for the platform. And of course users can themselves give away everything about their friends as well.

All this is exactly how the researcher implicated in the Cambridge Analytica story leveraged 270,000 survey respondents to gain access to the data of 50 million Facebook users. 

But wait. Before you get all hot and bothered about Facebook’s abrogation of privacy, ask yourself; When was the last time you read and considered a privacy statement online? When was the last time you scrolled through a privacy policy pdf and clicked the box, but only after full consideration? Never, right? You click and swipe and check and you go, just like everybody else. The resulting “invasion of privacy” is Facebook’s fault all of a sudden? Really? If you were sitting across a table from somebody you barely knew  at Starbucks I doubt you would divulge what you seem to be perfectly happy divulging – explicitly or implicitly – on your Facebook page for Zuckerberg and the entire world to see.

If you ask me – even if you don’t ask me – we’re all woefully ignorant about the terms of service or end user license agreements that we “agree” to, and we’re willingly giving up our rights in exchange for the free use of a platform. When it comes to claiming ownership of the data we have generated by our own private digital usage, we are remarkably cavalier.

It’s not just Facebook of course. It’s Amazon, too. And Netflix. From its inception, Netflix has used data as an asset to personalize its content and service to customers. Data feeds its recommendation engine and helps the company predict successful new original content – more than 80% of the Netflix shows people watch are discovered through the rec engine. And don’t get me started on Google and its use of data. My point is that any company that is serious, genuinely serious, about competing in the business of digital media must be driven by, based on, a database that tracks all the data that is a by-product of digital usage. Without that, they cannot sell advertising effectively in the digital media age, and nor can they refine their product to satisfy the relentless demands and expectations of their users. Without that data, they die. Just as the digital products of newspapers are dying.

And here’s the thing. Each one of us, you, me, everybody, we have all been happy little colluders in the resulting abnegation of our privacy.

It’s a quid pro quo. In exchange for the faustian bargain we each make, we get free access to the digital stuff we like and more and more of it, too.

But once again I find myself whispering in the back of a crowded room. The ball is rolling and the public clamor will ensure that heads will roll. It’s nuts. Smart use of personal data is an essential condition of business success today. Whether or not you use social media is irrelevant, because at this point retailers, banks, car companies, credit monitoring companies, every company also has its hooks into you. Facebook is in the news because Facebook looked the other way when Cambridge took more than they should. That’s all.

You and me, we’re the ones who should be losing our heads. Maybe at this point the covenants that govern our relationships with digital media companies need to be re-structured, that’s fine by me, but it would be nice to see a little less hysteria in the meantime. We’re all willing co-conspirators here. Have been for ages. The rest is hype.

It’s true, we surrendered our privacy a long time ago. This will sound ridiculous, but I can tell you exactly when the barn door flew open. It was the morning of December 13, 1988. In the unlikely location of Miami. Florida.

That’s when the very First Annual Conference on Database Marketing took place. I know, I was there.

A guy called Skip Andrew delivered the keynote. It was titled “Database Marketing: The New Profit Edge.” All of us in the room got very excited as he explained that because of ongoing developments in mainframe computing, the cost of accessing a customer name, address and purchase history on a computer cost a mere $7.14. (Remember, this was 1988)

He then laid out a model for an imaginary direct mail catalog business that demonstrated how knowledge of an individual’s purchase history might lead to offer refinement which might lead to increased purchase frequency which might lead to more refinement and on and on in a continuous and virtuous cycle towards profit nirvana.

For those of us working in mass media, where we knew nothing, zero, zilch, about our audience, it was mesmerizing. I mean, if we knew where our readers and viewers lived and maybe some other things about them, maybe we could make assumptions about who they really were and what they might like from us…rather than force-feeding them the content our newsrooms imagined they might want. But like all who bear homewards with thoughts of revolution, instead of garnering rapturous applause when I took this notion back to my media clients at the time, Gannett and Tribune and Freedom Newspapers, I was instead met with the reaction a half-crazed heretic might have received. If you’re still with me, you’re probably not surprised to hear that…

For many newspapers, the act of publishing was completed when the piles of newspapers hit the loading dock early in the morning. They outsourced the dirty business of distribution to independent contractors, surrendering access to the most basic of strategic assets – a list of subscribers. One of the first things Charlie Brumback had to do when he took over as president of the Chicago Tribune in the early 90s was write a check for $45 million to buy back control over delivery routes he had assumed the paper owned. Until he agreed to pay off the 250 distributors who had muscled agreements to deliver the paper, he had no idea who his customers were, or even what they were paying.

Billing was also typically handled by independent contractors. And of the millions of calls that came into classifieds service departments in major metropolitan newspapers, no marketing information was ever collected and stored in a unified customer database. Newspapers flew blind right through the database analysis revolution.

Previously, in You Gotta Pick Your Shots, I wrote about the revolutionary effect this idea of database marketing had on the world of advertising. The history of advertising represents a long journey from broadcasting to narrowcasting, along a continuum from grossly inefficient to highly efficient. In other words, the marketing world has evolved from blasting out a message to a large, amorphous, unqualified mass market whose response can be measured only in vague, even hopeful terms to targeting a specific appeal to a pre-qualified, audience segment whose behavioral response is highly predictive.

In this context, the marriage of Internet distribution and database marketing proved to be a formidable advertising partnership. It took ten years from when hotwired.com ran the very first banner ad – in late 1994 – to bear fruit. At first techniques used by early Internet companies for understanding users were not much better than counting cars on a highway. But then a company called Overture Services pioneered an advertising application based on a simple proposition: When people are searching for something on the Internet, they welcome advertising related to that search. If they clicked on one of those ads, Overture got paid. Advertisers could now calculate their return on investment to the nearest penny.

The essence of Overture’s insight is as true today as it was then. Advertising is not despised if it’s relevant…to me, right now. In a long media career every piece of research that I’ve seen assessing consumer perception on advertising has invariably concluded that people hate it. But whether they profess to like it or not doesn’t seem to matter. They use it, they rely on it. It works for them. The trick is to make it contextually and temporally and personally relevant. In the case of Overture’s simple notion of associated search results, it worked very well indeed.

It also worked well for the Overture founders. The company was sold to Yahoo! for $1.6 billion in 2003.

Then of course came Google, which refined Overture’s innovation and applied it on a mammoth scale. Today, when users actively search for a particular product or service, and click through on a Google search result, they are pre-qualifying themselves as prospects and pre-selecting themselves for direct offers customized entirely for them.

This kind of thinking drove a dagger into the heart of traditional media, which had done nicely for decades by exploiting the inefficiencies in the advertising marketplace, using a fake audience methodology that only vaguely connected message and result. By 2003, even Mel Karmazin, then CEO of the CBS Corporation Television and Radio Station Group could feel the seismic shift. He flew out to Silicon Valley to meet with Google founders Brin and Page…and was appalled by what he discovered. Google had taken targeting and measurement to unprecedented levels. They could give advertisers analytical reports of the number of clicks from specific key words, when those clicks became sales, systematic data about who prospects were, where they lived, what they earned, matching database to database to build a complete report on the effectiveness of a campaign, which led ultimately to basing price on advertising performance. As Karmazin later put it:

“You buy a commercial in the Super Bowl…and you had no idea it worked! You had no idea if you sold product…if it did any good. I loved that model. But Google? Google is fucking with the magic.”

Cited in “Googled, The End of the World as We Know It” by Ken Auletta, Penguin Press, New York, 2009

Karmazin understood the impact of database marketing on traditional advertising, but there was no way he could have foreseen the associated impact on programming development and viewing habit. A mass market is actually the agglutination of countless niche markets, a combination of segments that are always getting smaller and smaller but more and more accessible at the same time. So today’s key strategic and economic question for any consumer business is how much market fragmentation can be tolerated – how many niches can be cost-effectively served and what potential financial value might each segment generate? No broadcast network can respond effectively to this structural shift without upending the way it has historically gone to market. Fifty million Americans watched each episode of “I Love Lucy.” Now Karmazin’s former network is lucky to get four million viewers a night. A programming approach based on trying to please everyone ends up pleasing no-one.

But let’s rein ourselves in from the heady stories of Facebook privacy and the technical exploration of marketing theory. What about newspapers, especially those metro newspapers in the sweetspot of disruption, like the Statesman and the Palm Beach Post?  And what about the little local news start-ups that are springing up as we speak, like Spirited Media, and its news products in  Philadelphia, Pittsburgh and Denver? What does all this opinionation on the centrality of user data mean for them?

Well, it means accepting that doing the same newspaper thing day after day and expecting a different result is insanity – unless you’re Gatehouse, driven only by financial results and therefore uninterested in investing in anything new, let alone the process and technology of systematic user analysis

It means an end to the age of editorial instinct and a transformation to data-driven product development. if you’re in the business of offering a local digital news product, who’s your target market? How do you define it? By age? Income? Education? Interests? Digital preferences? Political affiliation? How does that definition in turn define story selection and treatment, voice, style, political position?

It means that developing a deep understanding of your market comes not from market  research, from reader surveys and from focus groups. It comes from processes of market segmentation based upon analysis of actual, demonstrable digital consumption

It means discarding the language and processes and mindtrap of mass media once and for all – and accepting that the economics of monopoly print are never coming back. To survive in the open and competitive local media environment that exists today requires that you follow a different set of rules.

It means understanding that distributing the same advertising to all the individuals in your market, flying right over the top of that market, is no longer economically viable. Show me one local business that wants to reach your entire market with the same advertising offer and I’ll show you a business bound to go broke

It therefore means having the gumption to put an end to the mindlessness of pumping out a daily product built on the traditional newspaper metaphor and starting again, rebuilding the franchise niche by data-driven niche. Why marketing is so important

And it means buying into the notion that the niche media business is a tough business, a business of building products for narrow audience slivers, segment by segment, day by day, with tiny margins, high risk and the occasional failure. The need to differentiate

But what else are you gonna do? Act like Gatehouse, and milk them ‘til they’re done?

And finally of course, it means that you have to get comfortable with the idea of mining user data you may otherwise have considered private in order to be successful. In that case, perhaps you should start thinking about the directness and clarity of your own privacy statement, and the market philosophy that lies behind it. In light of recent events, it might just need an update.

Today, database marketing is based on neuroscience and advanced customer segmentation techniques like predictive modeling – which is exactly what it sounds like. But a database marketing company is not merely a haven for quants. A common problem for any business operating in today’s marketing environment is to find itself data-rich, but insight-poor. So both the left-brained and the right-brained are needed, because the skill sets required include a passing knowledge of advanced physics and mathematical analysis, but also psychology, sociology and anthropology. Powerful imaginations are essential, too, so that patterns in seemingly random data can be spotted and interpreted.

Do you have anybody like that on your team?

Let me tell you why that’s important – and this is one of the things I worry about the most. Unless you rebuild your local media business from the ground up instead of trying to perpetuate it, unless you build a local news business based on data-driven insight and not just the intuitive “judgment” of your newsroom you will never be able to afford that $150,000 attorney who can file a “Freedom of Information” request down at City Hall – and then pound with his fist on the desk of the clerk down there and say “Damnit! You need to give me that, or I’ll see you in court.”

And without that my friend, I’m afraid we all might just be sunk.