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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