Media companies have three ways to innovate, each with its own barriers

Deteriorating advertising revenues in 2011 have brought skeptics in news organizations around to what their critics have been saying for years: Innovation is an imperative.

But how, exactly? And what is particular to news organizations that seems to make getting on with innovation so hard?

CNN's acquisition last week of Zite, the personalized news aggregation app for the iPad, started me thinking of the three broad types of innovation plays available to media companies, each with their own opportunities and challenges.

Buying the upstart

The Zite deal is illustrative of innovation by buying a new, promising company. CNN executives commented, as I think is standard in these combinations, that Zite is a good business in itself and can teach CNN skills it needs to develop other digital extensions.

A fairly exact parallel was The New York Times Co.'s purchase of in 2005. The topical, ad-friendly site was on its way to becoming very profitable (though the numbers remain small enough not to have a huge impact on Times earnings). Times executives said at the time that they were on a steep learning curve with digital ad sales and technical specifications, and that could help.

One obvious peril is that these sorts of acquisitions are much trickier for media companies to evaluate and price than just buying more newspapers or local television stations, as was the pattern for most acquisitions in the 1980s and 1990s.

On unfamiliar ground, news organizations can easily end up with high-profile debacles like News Corp.'s acquisition of Myspace or Time Warner's merger with AOL. Myspace and AOL looked from the outside like robust growth engines, but seller-insiders could see that the wave was cresting and knew they were getting out at the top.

Innovation by acquisition also bumps into the hard reality that money is scarce for a great many media companies. Their stock has been marked way down, and they are unlikely to get a red-carpet reception at the bank.

Inside track

A second option is to innovate from within. That eliminates the risk of overpaying for a property or the difficulty of integrating an unfamiliar corporate culture. In theory, the innovation can be designed as an exact fit to the existing company and what is needed next.

But a variety of things can go wrong.

It may make sense for The New York Times to home-build every aspect of its metered digital pay system. Unfortunately many companies lack the scale even to try that sort of R&D.

Or the product itself may fall short. I understand that Apple drives a hard deal on news apps, but I have doubts about the varied schemes in the works at Tribune, Hearst and Philadelphia Media to build their own tablets or customize one with a partner.

The current mantra is to avoid overplanning, experiment fast and pull the plug quickly on ventures that fail to take off. But I'm not so sure that companies can avoid putting serious money at risk and incurring start-up costs that run for years.

If the new venture is big enough to amount to something, it probably is also big enough to make a large, embarrassing thud if it crashes. Remember Belo's ill-starred CueCat startup in the late 1990s, a bar-code shopping system that was either before its time or just a bad idea?

For a more recent case, take TBD, Allbritton Communications' Washington, D.C.-area news site. Here the trouble was corporate culture. With top talent and the strong support of CEO Robert  Allbritton, the venture nonetheless quickly ran aground when WJLA-TV executives all but sabotaged ad sales.

Finally, there is the well-worn but probably accurate observation that outside-the-box ideas do not often come from inside the box. So the long success of media companies and their one-function internal organizations work against innovative breakthroughs.

There is a roster of self-generated successes in the business and editorial operations over the last few years — moms sites, bonus distribution of Sunday inserts, The New York Times' DealBook, the Twitter curation of NPR's Andy Carvin and PolitiFact (from Poynter's St. Petersburg Times).

These hits seem to capitalize on traditional strengths. And compared to the debacles, they have more modest aims, a burst of creativity, a good feel for what the market is looking for and quality execution.

Cozy up to someone with a good idea

News organizations, particularly newspapers, have a third innovation option: joint ventures. Such arrangements spread the risk and give the new venture scale it would not have in one company alone.

CareerBuilder, launched by Tribune, Gannett and Knight Ridder as an answer to Monster, has passed its competitor in U.S. revenues. Profitability is off and on, but participating companies have a position in digital employment classifieds that they would have otherwise lost entirely.

In a similar vein, earlier this year The New York Times Co., The Washington Post and Gannett launched Ongo, a digital aggregation service like Zite that showcases their own journalism and other quality sources. In this case collaboration was at the core of the product -- the ability to read all those papers at once in an attractive, ad-free environment (at $7 per month).

More may well be on the way. The Associated Press plans soon to launch iCircular, a mobile coupon business. And the AP has spun off a News Licensing Group later this year to try to collect syndication fees from aggregators and track the traffic as stories are picked up from the original, content-generating sites.

Separately, the Newspaper Association of America is trying to put together a one-buy site for smartphone and tablet display advertising. You could see this as an effort to get around the notorious problem with print placements; now, an advertiser that wants to buy in a number of markets at once must deal with conflicting specifications and separate billing.

The main drawback with partnerships is that it is challenging to get a majority of 1,400 daily newspapers and at least 25 good-sized chains together for an initiative, however logical such cooperation may be. An ambitious New Century Ad Network faltered in the late 1990s, despite millions in startup funding, when the cooperating parties started feuding among themselves.

What drives innovation

My hunch is that industry leaders recognized these various barriers, and they're ready to find a way in spite of them. I found some unexpected reinforcement of this belief while checking on the recent work of Harvard business school professor Clayton Christensen ("The Innovator's Dilemma")  and his collaborators.

Just last week, Scott Anthony, who worked with Christensen on the "Newspaper Next" project, titled a Harvard Business School blog entry, "A Call to Arms for Corporate Innovators."

Writing about corporations in general, rather than just media companies, he suggested they not be paralyzed by the glamor of independent entrepreneurs. Corporate innovators have resources, he wrote, among them distribution and brand awareness, "that an entrepreneur has to fight years to secure."

Christensen's most recent book, "The Innovator's DNA," published in July, attempts to get systematic about how companies can develop their innovation chops. Corporate innovation begins with senior executives who are themselves innovative rather than just cheerleaders for the change that originates with others in the company.

Authors say there is a set of skills that would-be innovators should set out to master:

(1) Associating: drawing connections between questions, problems, or ideas from unrelated fields,

(2) Questioning: posing queries that challenge common wisdom,

(3) Observing: scrutinizing the behavior of customers, suppliers, and competitors to identify new ways of doing things,

(4) Experimenting: constructing interactive experiences and provoking unorthodox responses to see what insights emerge, and

(5) Networking: meeting people with different ideas and perspectives.

I have been among those proclaiming 2011 a terribly discouraging business year for newspapers and a mixed success at best for other legacy media like broadcast and magazines. That's the financial story for now, and even a wave of aggressive innovating is unlikely to pay off quickly in 2012.

However, late 2011 could prove a turning point in busting through the barriers to corporate innovation. That would be good news indeed for an industry desperate to establish some forward momentum.


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