The phrase “sustainable local news model” is one of the most talked-about topics these days. It’s top-of-mind for everyone in the industry and the lead topic in many funding conversations.
To understand sustainability, let’s explore the basic concepts of a local news publishing model. In a simple formula, content plus distribution expenses must be less than or equal to net revenue plus “other stuff,” which is the bucket of non-publishing-related activity.
Content + Distribution <= Revenue + Other Stuff
The “other stuff” category was always there. In local media’s peak revenue period it was how you grew your revenue base, initially using your core assets. Commercial printing, custom publishing, and alternate delivery leveraged printing infrastructure and subsidized some existing operations for print publishers. Commercial video production used excess capacity, adding incremental benefit to broadcasters’ revenue.
As the local news revenue models deteriorated from loss of print advertising and circulation revenue, the list of “other stuff” grew. The most widely adopted new revenue sources were digital marketing agency, events management and branded content. Software companies, real estate agencies, national media, data management and cable companies also landed in that “other” category. Media companies now look to use the cash flow from those other businesses to subsidize the news publishing side.
“Other stuff” (Non-publishing-related activity)
- Commercial printing
- Custom publishing
- National media
- Branded content
- Software company
- Digital agency
- Data publishing
- Events management
- Real estate agency
- Cable company
I was always a purist who thought the media operations should be a profitable entity. At a former employer, while sitting in a quarterly board meeting, one of the board members said there would be a time when our “other stuff” would have to subsidize our news operations, and the core business would be breakeven at best. That was prophetic, and it was 10 years ago.
The diversity of revenue sources within the core publishing activities category has grown significantly. It’s a gift and a curse. The focus today is in the areas of reader revenue, including subscriptions and donations, as well as philanthropic funding. The local ad space has taken the biggest hit as local advertisers have moved toward the lower out-of-pocket costs of digital advertising.
Core publishing revenue
- Branded content
- Print circulation (Single copy/Subscribers)
- Digital subscriptions
- Ecommerce/Transactional revenue
- Lead generation/Affiliate
- Donations (individual or corporate)
- Philanthropic funding
This new revenue diversity has moved local publishers away from local business relationships. I was going to call it local business dependency but the symbiotic relationship is what made communities thrive for the past century. If the industry stays on this trajectory there will be very little connection between the local media and local businesses.
Looking the other direction
While local media companies have created digital marketing agencies and adopted public media funding models, a growing number of digital marketing agencies and public media companies are transforming into local news organizations.
When visiting your local public media web site you may see promotions for PBS and NPR shows and upcoming membership drives, but Connecticut Public and Oregon Public Broadcast, for example, more closely resemble local news sites. Both companies have focused on creating more original state and local news content as other news organizations scale back on their local coverage. Public media as a whole are looking to become more relevant to younger audiences as their core audience ages.
In Texas, Jason Holmes of ThriveFuel has created a successful digital marketing agency that has built a video competency to serve advertisers in the Victoria and Corpus Christi region. ThriveFuel is working on creating a local media company as an extension of its agency. It has staffed up with local broadcast talent and will soon launch a Connected TV presence.
Should digital marketing agencies be local news organizations?
As the chief digital officer of a local media company in 2014, when the movement toward building digital marketing agencies started to gain momentum, I was vocally opposed to it. We as local news organizations were not staffed appropriately nor did we have the right relationships in the market. Media companies focused on big contracts with big local advertisers and not the long tail of local businesses. I was also opposed to what I anticipated would be a low margin, high churn business.
Local media companies have had mixed success based on which part of the market they focused on. Those who have the most success aim at the middle of the market rather than smaller businesses.
Fast forwarding to 2022 and beyond, I believe the path to a sustainable and, dare I say, thriving local news model includes strong local digital marketing agencies starting, buying or merging with independent news companies. The two businesses are complementary in many ways.
The model would be an independent local newsroom with omnichannel publishing capability. A single newsroom publishes to web, TV/CTV, radio/audio, mobile, social, newsletter, etc. The newsroom would create TV newscasts, news magazine shows which would be syndicated to non-news over-the-air stations, and similarly for radio. In addition, the newsroom could own branded CTV and streaming audio channels.
The digital marketing agency would have all the media companies’ inventory across all media platforms as exclusive supply for advertising clients as a differentiator. In addition, the digital marketing agency would have design, technology and user acquisition competencies that most local media companies don’t have and probably never will.
In 2018, I asked Gordon Borrell, CEO of Borrell Associates, “What’s the sustainable business model?” He outlined much of what I just described. And it all crystallized when I met with Holmes to start building his CTV channel.
Have thoughts on media sustainability, or want to learn more about the services of the LMA Technology Resource Center? Email Guy Tasaka at email@example.com.