Traditional media news franchises were hugely profitable. But their profits were not built on product excellence or sublime marketing skill or even great journalism. They were built on monopoly control of the supply of news. With one newspaper in town and only four or five television stations, there was no incentive to invest in the art and science of creating demand. So, that loud sucking sound you hear? That’s the sound of user attention going elsewhere.

It’s the fall. The frivolity of summer is over. It’s time to get serious. We’re back at work, some writing here, some consulting there. Last week I had a couple of long calls with a new digital news outfit, helping with product definition. The days have long gone in media when you could just throw mud against the wall and hope that some of it sticks. Now it’s a systematic, data-driven process.

For me, summer ends with the World Series. Somehow last night I found myself on YouTube looking at three L.A. Times journalists talking about their team. It reminded me of a story I heard from an old hand down at Cox Television in Atlanta. Cox’s first television station, WSB-TV, began life inside the corporation’s Atlanta Constitution newspaper. But before long it became apparent that nobody was ever going to figure out what exactly the new medium was all about unless it was separated from the newspaper and left alone to find its own way. Long ago they figured there must be more to producing a successful television show than pointing a camera at a beardy print journalist in a faded blue button-down.

What’s next? A link to Instagram to see what his bloody dog is up to?

As I pick up the slack again I can see that there’s still plenty of opportunity in the consumer news business. It’s a business in transition, not in decline. Smart new products continue to take hold, like Axios and The Athletic. Vox’s SB Nation has just launched a local podcast network in each NFL market. And Apple, facing declining hardware revenues, is moving aggressively into media programming.  The consumption numbers for traditional media platforms are at historic lows but there are many more outlets for news now, so naturally each participant is getting a smaller piece of the pie.

The slice gets even smaller if you fail to understand that these days most users follow links and recommendations and invitations to a news site rather than going directly to a home page. Users now “edit” their own version of the news rather than relying on an anonymous editor perched on a distant throne to bundle it all up for them. And since every single person uses their own personal filter to do that editing, a filter built on the subjective sum of their life experiences, their upbringing, education, influences, beliefs, personal perspectives and the opinions of their friends, and enemies, the tricky process of product and market definition has become critically important.

  • It determines your content strategy, which in turns governs story selection, editorial voice, political position and tone
  • It governs your distribution strategy, which in turn determines the precise location and context of your social media promotion, your search engine buys and your email campaigns

You can’t please everybody all of the time. Mass media is dead. Now you have to pick your shots, you have to decide who your audience and who it is not, and you have to decide how best to intercept and satisfy the market you have selected. Identifying product-market fit is the key. We figured that out at Cox, 20 years ago. Not that it did us much good.

It took us a long time to fully understand how exposed we were. Thanks to the extreme marginal costs of the daily newspaper business, our newspapers had not faced direct newspaper competition for 30 years. Thanks to the FCC, our television stations each had only four of five competitors. So, we had a veritable license to steal. Gross margins often exceeded 35% and predictable revenues made media holding companies the core value position of every stock portfolio. Those revenues were built on advertising from local merchants who had nowhere else to go. Because they had nowhere else to go you could charge them pretty much whatever you wanted.

Then we heard a loud sucking sound…

It was the sound of audience attention going elsewhere, sucked off to a new media world where news was accessible to anyone from anywhere at any time.

So we went on a quest. Our annual revenue back in 1995 was close to $3 billion. (Now it’s more than $20 billion). How could we preserve and grow that revenue when an army of new digital insurgents had come to every town in which we operated to fight us for audience share and the advertising revenues that flowed from it?

At first it didn’t look hard. It didn’t look hard because we were 1) stupid and 2) full of ourselves. Years of monopoly returns will do that to you. All we need to do, we thought, is take what we already offer and make it available on the Internet. It’ll be a simple matter of transferring online our existing audience of readers, viewers and listeners…and then life will go on pretty much as it always has. No problem.

So we set up a business unit called Cox Interactive Media. The objective of CIM was to build profitable “city sites” in markets important to the company around the country. For example, down in Austin, we owned the American-Statesman daily newspaper. So in that market we created Austin 360, using news content from the paper and deploying a sales team to go out and sell advertising on it.

In market after market we built city sites. All of them focused on delivering the news of the companion Cox traditional media property. Not just local news either, but national and international news too. We hadn’t yet quite grasped the significance of the fact that everything, everything was now just one click away. We hadn’t realized that news could no longer be bottled up in one place. To demonstrate just how naïve we were, let me see if I can remember what the budget and plan in Austin looked like back then. I think it  went something like this:

  • Page views would climb from 58,000 a day in 1997 to 310,000 a day in 2001
  • Revenue would climb from $560,000 to $4.2 million
  • Expenses would climb from $2.2 million to 3.5 million
  • And Income before D&A would move easily  from ($1.7 million) to $725,000

We projected a 17% IBD margin in 2001. We really did. As I’m sure you know by now, you can create any picture of the future you want if you know how to work the numbers. That 17% margin was built on $30 CPMs, godhelpme. We would continue to “own the market,” as we used to say and, as always, we would continue to charge advertisers whatever we wanted – and what we wanted was to get to breakeven in five years. That’s how we backed our way to a $30 CPM. QED.

Okay, you can stop laughing now. It’s embarrassing. There is little consolation in knowing we were not the only ones who went off the deep end like this.

After a couple of years we realized we were in trouble. Surprise, surprise, those magical $30 CPMs were just not materializing. We needed to get expenses down. So instead of a set of separate city sites, we decided we needed a network so we would produce a lot of content centrally and then distribute it through the sites, thus cutting back on the need to have as many local journalists. (That idea will sound very familiar to BoW readers from the current newspaper business) Thus, the CIMCities Network was born.

In quick succession, Knight-Ridder Newspapers (remember them?) formed RealCities in its operating markets. AOL, with Tribune Company, launched Digital Cities. A company called CitySearch began to get some traction. Yes, “Cities” was a hot buzzword circa 1997-1999. The Wall Street herd decided that the first company to figure out how to unlock local advertising revenues was bound to be an IPO hit. Bankers appeared out of nowhere, knocking on our door, begging us to let them “take the company out.” “All you need is $10 million in revenue,” they assured us. I was incredulous. “We have that,” I said, “but so far it’s cost us $25 million to make it.” Unfazed, they kept right on knocking on the door.

Around 1998 the first audience measurement companies appeared. Outfits like NetRatings and MediaMetrix began to analyze Internet consumption for the first time. That’s when we realized we weren’t just in trouble. We were in big trouble. Like, life-threatening trouble.

We had always assumed that those city sites fed and supported by our broadcast properties would probably not perform as well as those operating in our newspaper markets. After all, our newspapers had tons of high-value, well-edited, original content and promotional pulling power, right? That’s what our print powerhouses were built on, after all. So when we got back the results from our first Media Metrix local market panel we figured there must be some kind of mistake. None of the websites in any of our newspaper markets cracked the top 10 in those markets. Those in our television markets fared even worse. But what the hell was going on in our newspaper markets?

We jumped up and down and made such a fuss that the poor people at Media Metrix gave us a look at every local market study they had analyzed. Not one newspaper website made the top 10 in its own market, anywhere. Here’s a slide from that very Media Metrix presentation:

MediaMetrix study

Reach was not the only problem. Newspaper sites were also having problems with frequency and churn. It occurred to me that it was time to dispense with stupidity and hubris. We had to smarten up and we had to get humble, quick, if we were to figure this out.

We saw that we needed to do three things. We had to solve the scale problem, we had to build distribution, and fast. And secondly, we had to solve the revenue problem. But above all else, more important even than the challenges of scale and advertising revenue, we had to solve the product problem. We needed to forget the legacy content and programming ethos we had inherited and instead act like a start-up, creating a product for a defined audience, a product in demand that people needed, that could not be possible without the Internet, and that would create a sustainable advantage.

The media world, you see, had moved from a world where a select few monopolies like us dominated SUPPLY, to a world where a select few monopolies dominated DEMAND.

This was a fundamental marketplace structural shift with profound economic consequences. For us it meant that we no longer enjoyed absolute control over the supply of news and information in our markets. Geography, that is, the dimension of a local market, no longer afforded competitive protection. Like cable companies and utilities, previously we had no incentive to treat our customers well. Where else were they going to go? But now the prize, even down in local markets, would go to the digital product that stimulated the most demand. To stimulate demand would take superb marketing expertise. But we had never needed that before.

We were entering a precarious media world, with no moat around the market, no impediment to leaving, no possibility of holding customers captive – beyond those who were consistently satisfied and delighted with what we had to offer.

We would have to get very good very quickly at the art and science of building successful digital media products.

So we set to work on the product problem.

One thing we decided quickly was that digital media was different from traditional media in a number of ways and one way it differed was that it seemed to be more functional somehow, more purposeful. It was quick, it was brief, it was customizable. After all, the most successful application was search and what was search but a vehicle to save consumers time and money? Search was about finding out things important to you right now. Out of that thinking came and our investments in companies such as and

Another thing we realized was that to compete successfully in a demand marketplace we had to carve out a place that was special and unique. If we couldn’t do that, our audience would take its attention elsewhere. But we’re so lucky we thought, we have a built-in differentiated edge. Our news makes us special and unique, especially our local news. Wrong. All those great news assets everyone talked about – hundreds of journalists, tons of original content, authoritative brand position – were nowhere near as powerful as outsiders assumed. Monopoly position had blinded us to their real leverage value, which turned out to be not that much.

Over the years the core function of news generation had been largely replaced by wire service copy editing – which was always much cheaper than developing your own stories. As a result, less than 25% of what was in the paper was original. (In some newspaper properties it was probably closer to 15%) We had neither the capacity not the capability to build a digital national news product that might compete with the Times or any new national news property that might come along. If we had anything at all it was local news. But local news is the weakest, least magnetic form of news content. It’s a weak differentiator

The masthead was well recognized around town, but it too was not the magnet we thought it was. Oh sure, its legacy power meant that people would drop by from time to time. But they would spend only a minute or so grazing, and then they’d be off. And in the case of the masthead’s potential transference value to the world of digital news, the negative associations surpassed the positive ones. After all, the masthead stood for the old world and an aging audience, which is precisely why newspapers had begun to lose young readers in the 15 years before the arrival of the Internet. That would prove to be another major vulnerability as the digital world unfolded

Yes, we did have lots of journalist on the payroll, some talented and some fiercely committed to their mission. But they were wedded to print, a marriage reinforced by the company’s incentive system. Actually, more than being wedded to print, they were wedded to the idea that they themselves, not monopoly position, were the reason why their newspaper was “so successful.” They were also wedded to the myth that they were the singular arbiters of truth, and that they alone could be trusted to convey that truth into the digital world.

So there we were, stuck between a rock and a hard place, between the requirements of the market outside and an internal belief system that exaggerated our competitive position and set us off down the wrong path. It was a dead end.

A lot of people, especially lefty academics, accuse today’s newspaper company executives of losing the digital battle by refusing to invest sufficiently in their properties. But listen, the record of egregious cash extraction was not invented by the ghouls who run newspaper companies today – there’s a straight line from them extending all the way back through Singleton and Madigan and Jelenic and Ridder and Decherd and Neuharth and the rest to Randolph Hearst, Colonel McCormick and the original bandit barons. What the accusers don’t understand is that the closeminded hubris inside the newsrooms of traditional media played an even bigger role in the collapse. It made it impossible to divine a news product that would create demand.

I’ve made the point before; Axios is not doing anything newspapers couldn’t have done.

I’m often asked what I learned from the early days of the digital media revolution. I think we learned five very important things, about ourselves as well as the challenges of transforming established companies:

  1. Unrealistic expectations: Many of us in those early days had an acute case of digital mania. We were dazzled by the technology but less equipped to adapt to it and put it to effective, cost-efficient use
  2. Intellectual dishonesty: Many of us were unable or unwilling to challenge the embedded belief system of our existing business even when confronted with undeniable market reality
  3. Underdeveloped talent: Many of us relied too heavily on judgment and competencies that were no longer relevant or useful, and resented recruitment of those more suited to the tasks at hand
  4. Outdated process: Many of us applied the labored product development processes of the past, with reliance on instinct over data and fear of investing in quick experimentation
  5. Management myopia: Many of us were neither hungry enough nor crazy enough to embed the kind of start-up culture that would welcome risk, move with agility and operate at suicidal speed

And finally, many of us, not just shareholders but executives too, became so wedded to the financial trappings and returns of our supply monopoly that when confronted with a world where we would actually have to earn our keep and get less for our effort, we chickened out. It’s a rare leader who will risk today’s earnings for vague promises of a future reward, especially when that reward looks less attractive than today’s and comes with the political  upheaval that change always brings. Can you blame them?

These are the reasons why so many established companies continue to struggle with digital transformation. Traditional media companies are no different. In the end it was never the Internet that took them down. They chose to lose. Google, Facebook, Twitter, and yes, Yahoo! ended up monopolizing demand. They sit at the top of the funnel, catching the majority of user time and attention. In a world where distribution is effectively free and alternatives are only a click away, these companies are extremely motivated to make sure that click doesn’t happen, which means giving users what they want, which means an intense focus on engagement. They are very, very good at maintaining and growing engagement. So, separating digital consumers from Facebook or Google is about as hard as separating Kanye West from his ego.

Beneath them, in particular sectors, second-tier companies are fighting to get a slice of what’s left on the plate. In the case of news, that includes new products like Vox, 538 and Axios as well as established national brands like the New York Times and the Washington Post, each of which should give daily thanks for the election of Donald Trump. And verticals like Quartz (business) and SB Nation (sports) are winning the battle for consumer demand in their categories.

As for the rest, including the old local papers, hell, they’re fighting over what’s left after all that, they’re battling for the crumbs, eking out the last vestiges of value from their exhausted franchises. They never did figure out the product problem, they never figured out how to create demand, they never figured out how to grab a meaningful and profitable share of attention.

There’s still time for innovation I think. But like I said, it would involve a whole lot more than pointing a camera at a beardy print journalist in a faded blue button-down.

Posted by Peter M. Winter

Peter is a traditional media veteran and a digital media pioneer. He is an active angel investor and occasional consultant. He advises established companies on cultural regeneration and also consults to digital start-ups, helping them incorporate management process without sacrificing speed. He holds five technology patents. Peter is an award-winning public speaker and writer. His new book, "The Cannibal in the Room," will be published soon — it is the ultimate insider account of the battle to find a digital future for newspapers when the Internet came to town. He blogs on media and leadership here at and publishes his unconventional ideas about management on his LinkedIn page: His collection of short stories can be found at

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