Healthy snacks, ‘digital first’ and the speed of the news industry’s transformation

Reading stories about the travails of non-media companies, I find myself drawn to analogies to the plight of the newspaper industry.

Thus I was stopped short a few weeks back by a New York Times report on a strategy shift at PepsiCo. Once upon a time, Pepsi was just a soda company, but through the years it has added many lines of business, seeking diversification and faster-growing revenue streams.

Long story short, after PepsiCo CEO Indra Nooyi led a five-year push into the hip, healthy/organic food and beverage category, Pepsi directors and management have pulled back.

The company announced several executive changes March 12. A month earlier, it had promised to reinvest hundreds of millions of dollars marketing what the company euphemistically calls “fun for you” foods — old-style, sugar-laden Pepsi, along with Doritos and its other Frito-Lay brand salty snacks.

Pepsi is not going to abandon the likes of Stacy’s Simply Naked pita chips or IZZE Sparkling Clementine water. However, the growth of the health food segment slowed during the recession, with consumers resisting the higher prices of organic products. Core brands seemed to suffer from neglect.

I’m not equating print editions with junk food, or digital with trendy eating. Sooner or later (maybe much sooner), people will consume most of their news digitally. The ranks of healthy eaters are growing, but holdouts still outnumber the converts.

In most news organizations, print still drives 85 to 90 percent of revenues, and that imbalance has been slow to shift. Print is every bit the core product that the old Pepsi brands are at Nooyi’s company.

I see parallels between what happened with Pepsi and a strategic rift building in the news industry.

  • The digital-first contingent advocates a full commitment to digital-native content, digital ad sales and new products.
  • Another faction (without a similarly catchy descriptor) wants to develop digital and other non-advertising lines of business, but they insist there is a payoff to reinvesting in strong print news reports and business operations as well.

Nooyi has been an aggressive and eloquent promoter of her company’s pursuit of healthier mix of products. A 2008 Fortune cover story cemented her image as an industry visionary.

Similarly, John Paton popularized the “digital first” slogan, then went and made Digital First Media an actual company, through which he manages both Journal Register Co. and MediaNews Group (all owned by private equity investors). In speeches and on his blog, Paton preaches the digital-first gospel. It is promoted by lieutenants like editor-in-chief Jim Brady, director of engagement and super-tweeter Steve Buttry, and an advisory board that includes Jeff Jarvis.

I have talked with a half-dozen dissenters who object that Paton’s claims of business success amount to big percentage gains on a small base of digital business. As one online leader put it, the danger is that companies whose print franchises have many years of useful life left will move away from that side of the business too fast.

Skeptics are disinclined to speak on the record about their doubts. Trashing another company’s business strategy is considered unseemly. Plus, Paton has been running up the score in the arena of public opinion. Wall Street and private investment companies want nothing less than a full-throated embrace of the digital present and future. They want to see growing revenues, not modest profits, and figure a bigger share of the digital pie is key.

I’ll wait to see further results and more complete information before judging the success or failure of digital first. I see three ways this could turn out:

  • Digital first is a good fit for Journal Register and, to a degree, MediaNews — but not necessarily for most newspaper companies.
  • Paton is right, and those holding back will regret not moving more quickly.
  • Digital first has been oversold.

Stephanie Strom’s Times story, “Pepsi Chief Shuffles Management to Soothe Investors,” found opinions on both sides about Nooyi’s executive performance and the recent changes.

Longtime PepsiCo investor Donald Yacktman said of the company’s emphasis on nutritional snacks, “I’ve always seen that more as P.R. than reality … To focus on that would be sort of like the tail wagging the dog. The most important piece of the company is Frito-Lay, then Pepsi.”

Harvard business professor Rajiv Lal had a more sympathetic view:

“A C.E.O. in this position has to be a remarkable person with great vision and the foresight to proactively change the company, yet in the short term take some hits because the path getting from here to there is not straightforward.”

Unlike Pepsi, news organizations are having trouble finding cash and credit to invest in new digital products or the old business. How they should split those resources is far from obvious; cutting back the content and ad appeal of print already looks to be a vicious circle.

Time will tell the merits of Paton’s high-profile, evolving digital initiatives, and whether other major companies will be persuaded to follow. I’ll be watching the drama unfold in coming months, and so will many others. (Meanwhile, please pass the Doritos.)

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  • http://www.luatami.com/ luatami.com

    yes that true: Digital first

  • Anonymous

    I’ll admit that I personally am a strong advocate of digital solutions for newspapers (as I discuss in http://BloggingWrites.com). But it’s worth mentioning that my clients are always concerned about not taking their eye off the ball when it comes to print–which is upwards of 90% of their revenue on a good digital day. In fact, at least two client newspapers insist on selling digital advertising only as a part of a print package. We’ve even had to add a number of print production solutions to our cloud-based newsroom software (just imagine how that wrecks my head), and we’ve partnered with a UK company that focuses on software for print production. The point is, even companies that serve the newspaper industry’s digital needs–and we’re of course advocating for digital–are very much aware that quality print journalism is still the core business. 

    But that isn’t to say that you should give up Stacy’s Pita Chips (especially the cinnamon-sugar ones!). The problem is, you can’t wait; every year more startups are eating the newspaper’s lunch. Classifieds and coupons have been taken by the likes of eBay, Craig’s List, and Groupon, but an endless host of startups are finding new ways to take ever more of the local business advertising budgets. Businesses are spending money on digital advertising solutions. There are opportunities out there for the newspaper to leverage its trusted brand in the local community with digital solutions, but only if they work fast. Otherwise the local advertisers will find someone else to provide them with these solutions. Let’s not have newspapers lose more revenue opportunities. Instead, while never taking your eye off the print ball, try to leverage digital opportunities (which whould more than pay for themselves) and become the “advertising centers of excellence” that you can be, for your local communities.

  • Roger Plothow

    Rick: This is the most thoughtful, balanced (sorry, Fox has despoiled that word for the rest of us) and, in my view, accurate depiction of the “digital divide” that exists among newspapers today. Put us in the second faction you listed — the lifespan of print is far longer than even some of its most public defenders would have it, and the business model for digital remains, at best, elusive. At the same time, we all need to be looking for new solutions and models.

    I’m pleased that there are the Patons and Clark Gilberts of our business, as we do need to break out of our long-held reluctance to experiment and diversify. However, the mistake we are making is turning these bright men into gurus that all of us should blindly follow. Let them go their way and learn what the will, while others take different paths. Then, let’s compare notes and go out and try again.

    Most concerning about what you wrote is that those of us who do see value in continuing to not just play out the string in print but to invest in it while pursuing promising digital strategies have become silent, both, as you say, because we find it unseemly to criticize our fellow newspaper operators, but also because it’s become extremely uncool to advocate for print. Paton is particularly skilled at portraying such people (count me as on) as heads-in-the-sand practitioners of denial. In truth, this is a terribly unfair and and one-dimensional caricature of people in our business who are attempting to meld new models with old, practice meaningful journalism and admit that they don’t have all the answers.

    There is nothing to be gained by Paton’s open disdain for anyone who doesn’t follow his lead, nor by not engaging the open debate out of fear that we’ll be considered a troglodyte.
     

  • http://www.facebook.com/people/Jim-McClure/1701181242 Jim McClure

     

    Rick,

     

    I always enjoy reading your insightful pieces and appreciate
    your points here.

     

    As a MediaNews Group newsroom, we rewrote our workflows to
    digital first many months ago. Part of the modeling in those days came from the
    blog content put out by Digital First Media.

     

    It was a major change, a process that is ongoing – but
    deploying such strategies did not mean that we diminished our newspaper.
    Digital first does not mean print last, or that print is unimportant. It means
    print has its place in a continuous newsgathering cycle.

     

    Your newsroom just gets better because you’ve introduced an
    element of immediacy that makes everyone sharper and operating on a fine edge.
    You simply publish first digitally and then take that good content and put it
    into print.

     

    Interesting, with this re-orientation, we won Newspaper of
    the Year in Pennsylvania in 2011, which includes mostly print and some digital
    categories.

     

    Six months ago, we came under Digital First Media’s
    umbrella. Working with the DFM folks, we’ve found that they’ve given us a
    vocabulary to more effectively converse and think in a digital first world.
    They’ve made us aware of wonderful digital tools and, most importantly, noticed
    our advancements and encouraged us onward.

     

    Thus, we’ve accelerated in putting new digital first
    workflows into place, especially on the social media and hyperlocal side. Check
    out some of these workflows here: http://bitly.com/vFvS0u.

     

    I’m addressing the newsroom here but thought this an
    important story to put up as part of the discussion.

     

  • robelroy

    Digital First is a private company, so we are not privvy to balance sheets, but surely the bankers are. Paywalls protecting print, velvet ropes of social media and digital dimes are nice catch-phrases of the sort only journalists could delude themselves with. The truth is in numbers and that truth will come out. Then the bankers will seperate the sheep from the goats and the wheat from the chaffe, and whoever was wrong will be cast out into darkness.
    A couple of things to watch-
    1. Whether Digital First takes down the paywalls at their legacy MediaNews properties, which have been up about 6 months now.
    2. The ABC comparison between the paywalled MediaNews papers and the non-paywalled MediaNews papers when that report comes out in late April.
    Here are the properties…
    http://www.newsandtech.com/stats/article_22ac1efa-2466-11e1-9c29-0019bb2963f4.html

  • http://twitter.com/mattderienzo Matt DeRienzo

    Thanks. JRC, of course, replaced print loss with digital at not quite 10 for 10, but close to it, in 2011, which is the best argument for digital first so far in an industry that was 1 for 10. And we did it without paywalls.

    Going forward, that “crossover” point where digital gains replace print losses is the focus of the whole organization. Where we’d be 10 for 10 or 11-plus for 10.

    Regarding Connecticut, it’s too early to tell the long-term impact our approach will have, but the early response has been good. I’m confident, in part, because we’re combining community engagement efforts like the newsroom cafe with a return to the kind of coverage that distinguished good newspapers in the first place, i.e., investigative and in-depth reporting.

  • http://twitter.com/mattderienzo Matt DeRienzo

    Thanks. JRC, of course, replaced print loss with digital at not quite 10 for 10, but close to it, in 2011, which is the best argument for digital first so far in an industry that was 1 for 10. And we did it without paywalls.

    Going forward, that “crossover” point where digital gains replace print losses is the focus of the whole organization. Where we’d be 10 for 10 or 11-plus for 10.

    Regarding Connecticut, it’s too early to tell the long-term impact our approach will have, but the early response has been good. I’m confident, in part, because we’re combining community engagement efforts like the newsroom cafe with a return to the kind of coverage that distinguished good newspapers in the first place, i.e., investigative and in-depth reporting.

  • Anonymous

    Matt:

    Thanks for commenting.

    I’m the guy who advanced the 10 to 1 ratio as an index of the industry’s lack of progress in 2011. But the industry could do better, going forward either by building digital revenues or stabilizing print. Both would be even better. And pay walls and bundled subscriptions may become a factor too.

    I’m admiring of all that you are trying editorially in Connecticut and curious whether the new types of content and engagement are valued above some of the traditional coverage that has taken hits at most papers.

  • http://twitter.com/mattderienzo Matt DeRienzo

    Rick, what do you make of the figures that came out recently showing loss of print vs. replacement by digital revenue at 10 to 1 last year for the newspaper industry? Do you really think that’s because companies have taken their eye off print? Or do you agree with the conventional wisdom that the steep print losses reflect a monumental change in advertising and reader habits? How could you not go all-in “digital first” when faced with those trends?