February 11, 2013

Newspapers Turning Ideas into Dollars

Deseret News – Changing Two Media Cultures

The innovations at the Deseret media properties are perhaps the most comprehensive of those studied here. The changes, begun with the arrival of CEO Clark Gilbert in 2009, included the birth of a new digital entity, re-branding the editorial product to broaden the company’s audience base and the development of a platform to bring citizens into the content creation process. The changes, taken together, were designed to holistically restructure the economic base of the company amidst large declines in print revenues.

The Deseret Management Corporation operates the 162-year-old Deseret News, Utah’s oldest continually published newspaper and local radio and television station KSL. The company itself is owned by The Church of Jesus Christ of Latter-day Saints and states as a part of its mission to “align our actions to honor the principles espoused by our owner,” already suggesting an atypical news brand.

The unique brand however, did not insulate the company from the economic downturn experienced by other media companies around the country. In only two years, from 2008 to 2010, the Deseret News saw a 30% decline in display advertising and a 70% plunge in classified revenues, pressures on the bottom line brought about by what is known in Salt Lake City as the “disruption.”

When Gilbert arrived at Deseret, his original mandate was to create a digital business plan. He ended up   redeveloping the entire company, including the newspaper, for a new kind of existence in the digital era.

In January 2010, the company formed Deseret Digital Media, the business unit that includes the web sites for the legacy media operations-the Deseret News and TV and radio station KSL.  Months later, it launched Deseret Connect, a content management system that became a vehicle for generating community-based content for both print and digital platforms and has thus far enlisted about 3,000 contributors.

Before the year was out, The Deseret News underwent a fundamental transformation. Painful layoffs slashed the staff by nearly half. The paper relocated to the same building as its corporate siblings. It rebranded itself with a focus on six key editorial areas connected to values and family-reinforcing the influence of its ownership and using it to build a stronger targeted product. In 2012, the company extended that brand, launching a weekly national print edition on Sunday. Now it is embarking on an effort to syndicate its content.

“We want to own faith and the family the way the Washington Post owns politics,” says Gilbert. A former Harvard Business School professor and colleague of innovative disruption guru Clay Christensen, Gilbert has become a leading digital transformation theorist. His fundamental task in Salt Lake City was to remake the corporate culture.  “Sixty to seventy percent of my job is culture,” says Gilbert. “[But] I’m doing two different culture changes, I am not doing one.”

In Gilbert’s theory of media evolution, the Deseret News print product is the crocodile, a prehistoric creature that survives today, albeit as a smaller animal. He believes the News, which has already shrunk significantly, is not doomed to extinction if properly managed. Deseret Digital Media is the mammal, the new life form designed to dominate the future. Armed with graphics, charts and a whiteboard that looks like it belongs in an advanced physics class, Gilbert speaks with the zeal of the cultural transition evangelist he has become. He argues that the path ahead does not involve merging the crocodile and mammal cultures, but maintaining them separately.

“I need to build a culture that’s going to work when [large sums of money have] been pulled out of the [legacy] business. And I need to build a different culture that only sees the digital space,” he asserts. “I need to have someone who believes in traditional journalism and newspapers in their gut. And I need someone that thinks that’s the stupidest business you ever heard of.”

Thus far, the results seem encouraging. Gilbert estimates that Deseret Digital Media revenue has grown by an average of 44% each year and now accounts for 25% of company-wide revenue. On the Deseret News side there have been significant circulation increases in the daily paper (about 33%) and on Sunday (about 90%), the latter bolstered by the new Sunday national edition.

The Paper and the Market

The revenues that come from the Deseret media properties are divided into three large piles. The biggest chunk, roughly 40% according to Gilbert, comes from the broadcasting operations at KSL. The fastest growing part of the company is Deseret Digital Media, which now accounts for about one-quarter of company revenues. The third leg of the tripod is the Deseret News print product, which produces about 35% of the overall revenue.

In some ways, Salt Lake City is a classic city for a major metropolitan newspaper. (Two dailies, the Deseret News and Salt Lake Tribune, publish there under a joint operating agreement.) With a population of about 186,000, it is the largest city in Utah, the state capital and part of a metropolitan area with more 1 million residents. It is also the headquarters of the LDS, or Mormon Church.

In the most recent publisher’s statement submitted to the Alliance for Audited Media, the News had a daily circulation of about 92,000. But in reorienting the paper’s editorial mission, Deseret has its eye on a readership that supersedes geographical boundaries. It is an audience, Gilbert believes, that is receptive to journalism that addresses values and family life. “This is over half the country and no one is there,” he says. “We are going to fill a gap that is just empty.”  While the rollout of the weekly national edition is the clearest evidence of the desire to fill that gap, the effort to syndicate more Deseret content is another significant step in that direction.

“We are now expanding the reach of Deseret News through syndication partners throughout the country…including Gatehouse newspapers, Worldnow TV sites and many others,” he says. “The gap on family and faith is resonating with other publication partners. This will perhaps be our most compelling form of long-term reach.”

The Mammal, the Crocodile and the “Exchange Team”

The Mammal

At Deseret, the first major step in reconfiguring the company was the creation of Deseret Digital Media.  Although websites for both the print paper and the radio and television stations existed before Deseret Digital Media was started, they operated as separate businesses, often competitively, within the Deseret News and KSL brands. The creation of one digital business meant combining employees who had worked at the company’s different digital properties, an initial group of about 30 that has since swelled to over 100. In addition, Gilbert hired about half of the DDM leadership team from outside the company, from   companies like overstock.com, Yahoo and Ancestry.com.

The initial “fixed costs” involved in creating Deseret Digital Media were largely focused on those executive hires and getting additional office space. And the creation of the team-through the merging of staffs and the hiring of outsiders-required a great deal of care and feeding. In the first year of DDM, Gilbert says the new Deseret Digital staff met every week for 90 minutes “focused entirely on culture building.  We read articles together, we talked about the research together…I think it took a full year before I felt like the graft was taking.”

Since Deseret Digital was established, Gilbert says, the web sites have undergone continual upgrades and both have had major redesigns. He estimates that unique visitors to the Deseret News site have grown by about 25% each year while page views have been increasing by about 20%.

On the revenue side at Deseret Digital Media, several key factors are driving the levels of annual growth. One was the development of new online products for “long tail” customers-smaller and medium-sized business that do not advertise in Deseret’s legacy media-that include online deals, travel and reservations products and the creation of a digital agency that provides merchants with search engine optimization and search engine marketing. Some of these digital agency services originate in house, but others are done in conjunction with outside partners-which is one significant way in which it differs from the Santa Rosa Press Democrat’s Media Lab venture.

The other crucial element was a decision to launch what Gilbert calls “digital only sales channels” using digital only sellers for clients who had been advertising in legacy products, but were too often overlooking the online platform.

“This is in great contrast to many newspaper organizations who believe their primary mechanism for selling digital revenue is to leverage existing print channels to sell digital revenue,” says Gilbert, who acknowledges the path toward figuring out how to build up digital ad revenue was littered with some unsuccessful experiments.

The Crocodile

As the company was reinventing its digital media business, it turned to the embattled legacy product and the question of “how do we save our newspaper?”

Gilbert is blunt about the economic damage done to the legacy newspaper business. In two years, the Deseret News lost almost one-third of its display advertising revenue and almost three-quarters of its classified business. He cites research showing that in terms of real dollars, the overall print newspaper industry in the U.S. has been knocked back to revenue levels of the 1950s, losing 60 years of growth.

In the “transformation age, you have to get a steep reduction in content cost,” says Gilbert, who worked on calculating the cost of a newspaper story as part of this process. To reduce that cost, in August 2010, the Deseret News announced a massive 43% cut in the workforce-57 full-time and 28 part-time employees. (Deseret officials do not release current editorial staffing numbers.)

Those cuts coincided with a major rethinking of the mission of a paper that had been functioning as a traditional general interest daily. That new mission was based on a core principle. At a time of shrinking resources and “in a world of the web when you are a click away from something better, you have to be differentiated…You can’t do everything,” Gilbert says. “So I am getting out of anything I’m not the best at.”

The result was the decision to focus Deseret News coverage around six key subject areas: the family, faith in the community, excellence in education, values in the media, financial responsibility and care for the poor. The target audience-identified in a consumer segmentation survey commissioned by the company-consists of the 56% of Americans characterized as “like-minded believers,” who express “high interest in consuming rigorous, relevant news and commentary from ‘trusted’ organizations that share their values.”

The new brand of the Deseret News is summarized by the slogan: “When your family needs to know more.” The company believes that message can reach a national audience and that theme was an integral part of the new Sunday national edition, which was launched on Jan. 1 2012.

In that first edition, Deseret News editor Paul Edwards penned a page-one note to readers talking about “an unmet gap in the national marketplace of ideas. Speaking personally as a parent, striving with my wife to share a legacy of faith with our four children, I have been disappointed by the indifference of national media to some or our families’ most cherished values,” he wrote.

Operating a news organization owned by a religious organization means Gilbert hears concerns that the paper has an underlying agenda. He says the mission is to produce quality enterprise journalism on a range of topics that he believes much of the media does not understand. The journalism has “to be rigorous,” he says. “It can’t be denominational. But it’s asking questions that people of faith and people who are family oriented would ask.”

The paper is particularly proud of its “War on Boys” series that ran in February 2012. It examined how young males are losing ground in the public education system, are suffering from a lack of male role models and are more susceptible to a range of pathologies from substance abuse to suicide. (“I would hold that up against the New York Times or the Washington Post on anything they have done on those kinds of topics,” says Gilbert.)

The Deseret Daily News editorial philosophy is evident from its front page. The day that Pew Research visited, that page included extensive coverage of the vice presidential debate, a story about a recent outbreak of pertussis in Utah that can be attributed to too many children not being vaccinated and a story about a local family who recently adopted five siblings from a foster home.

The Exchange Team

In Gilbert’s theory of media evolution, there is another entity positioned somewhere between the legacy and digital businesses. It is what he calls an “exchange team.” In 2010, the company created Deseret Connect, a web-based content management system (CMS) that curates stories written by citizen-writers and serves several significant functions. It helps fill the print reporting gaps left by the layoffs at the Deseret News, particularly in sports and lifestyle; it connects the newsroom to the community by becoming the vehicle for generating content from roughly 3,000 community-based contributors; and it also became a source of content not only for the print paper, but for the online news product. According to Deseret Connect editing manager Jacob Hancock, since its inception, Deseret Connect has generated more than 14,000 stories.

The costs involved are modest. The outside content is processed through about a dozen editors, most of whom had been at major newspaper outlets in the past, work remotely and are paid by the word.  Only a handful of the community-based writers are paid, and Hancock estimates the company spends no more than a few thousand a month in writers’ fees. While it costs little to sustain Deseret Connect, the platform does not produce a revenue stream, and Gilbert describes its function strictly as “a service organization to print and digital.”

In recent months, the role of Deseret Connect has been expanded as the entire newsroom, not just   outside contributors, has begun to funnel content through the Connect CMS. In some cases, the staffers are edited by the remote team, but usually their stories are handled by the News staff editors. And although it’s not an independent revenue stream, the platform may play an increasing role in the development of one.

One of the advantages of Deseret Connect, says Edwards, is that “it is well designed [to facilitate] syndication,” the sharing of Deseret content with other partners and media organizations. The company identifies that syndication effort as the most important innovation going on right now.

Signs of Success in Salt Lake City

When looking at the family of Deseret properties, the biggest piece of the revenue pie currently comes from the local broadcast holdings, followed by the Deseret News and then DDM. But the latter is the fastest growing component

“We are becoming a mature company at Deseret Digital Media,” says Gilbert. He estimates digital revenue has grown by an average of 44% in each of the last three years, and anticipates that it will account for 50% of company revenues by 2016. In 2013, he continues, DDM will add as much in new revenue as it earned in its first year of existence.

Gilbert describes the progress of the digital agency revenue stream as “hyper-growth,” projecting that it could eventually account for 20% of all Deseret Digital Media revenue. The company has not yet implemented a paid digital subscription plan, but it appears to be in the offing.

“We have been impressed by what different graduated paywalls look like,” says Edwards. “We see it as a new revenue stream that seems to be working for many organizations.”

At the Deseret News, Gilbert estimates that overall print revenues dropped about 5% in 2012, but he is encouraged by positive results in circulation.

In the six-month period ending September 30, 2012, daily News circulation rose to just under 92,000, up substantially from about 70,000 a year earlier, with the big gains coming from digital editions. The Sunday circulation, dramatically bolstered by the new national edition, jumped to 176,000, up from about 94,000 a year earlier. About 70,000 of that gain came from the national edition. While Gilbert expects “the local edition to continue to grow at a modest rate in Utah, [we] expect [national edition] circulation to grow in the double digit range over the next two to three years.” Currently subscription dollars account for about 30% of overall print revenue at the Deseret News.

Gilbert doesn’t offer up precise numbers when asked how the revenue pie at Deseret will ultimately be divided between print, broadcast and digital. But he reiterates his confidence that the digital business will soon account for half of those dollars.

In keeping with his view of an industry transformation in which the legacy product will continue to shrink, the CEO projects “modest declines” for print revenue in the next few years, with growth in circulation revenue offsetting, to some degree, diminishing advertising dollars. “While many national publishers are forecasting five percent [print] declines over the next few years, we believe we will beat that number,” he says.

The Challenges of Changing Two Deseret Cultures

Asked if he was worried about risking the venerable print franchise during this digital transformation of the company, Gilbert says, “I believed it was already at risk, whether we did anything or didn’t.”

Nevertheless, the huge 43% cut in newsroom staffing-along with the replacement of the editor and publisher-were traumatic events that raised eyebrows in the media industry, where they became the subject of much debate.

Media analyst Alan Mutter described it as a “draconian effort to save some semblance of the News.” A story in the Salt Lake Tribune reported that “some observers worry [the cutbacks] could diminish the standards of news coverage Utahns have relied on for more than a century.” In the blogosphere, the paper was criticized for not having the resources to send a photographer to a Brigham Young University football game. Today, the paper still has reporters who follow breaking news in traditional beats, but they cover those beats through their new editorial focus.

Edwards acknowledges that there are sacrifices that come with a reinvention of the editorial mission. “It’s fair to say that our coverage is not as wide [as before],” he says. “We know we can’t cover everything that happens in the state legislature and we disappoint a number of state legislators when we don’t show up for what they think is an important issue.”

But as difficult as the newsroom cuts were, the most challenging task for an ex-Harvard professor suddenly running a major media company was selling culture change, and in fact multiple culture changes, to the staff.

“I think there was some distress [about] ‘what’s this guy doing?  This is just an academic theory,'” Gilbert remembers. “But these people also understood that this industry is changing…they realized things were in trouble.”

Todd Handy, the vice president of Digital Business Development, recalls those uneasy meetings that first brought the television and print web teams together at the newly created DDM.

“We used to fight each other here because you have a newspaper website [and] KSL.com going head-to-head and all of a sudden you are putting them together,” he says. “There were a lot of cold stares at each other…It got resolved over spare ribs…Probably took almost the first year to really get people to adjust to that.”

“You have the culture change of bringing different businesses together that maybe would have been considered competitors in the past,” says Handy. “You have a culture change of breaking off into a new digital group.  And you…still have these legacy companies pulling at you at the same time on all sides.”

To illustrate what he characterizes as the continuing peril of falling “victim to the pull of the legacy organization,” Gilbert recalls his surprise last year when the company examined its 100 top advertising accounts and discovered that “nearly half of them had no digital revenue…That was startling and frankly embarrassing.”

That revelation was among several recent “trigger points” that forced Deseret to rethink its advertising strategy and move more legacy clients into the digital side of the sales operation. Gordon Borrell, the CEO of Borrell Associates and a leading media analyst, is a fan of what Gilbert is doing in Salt Lake City. But he doesn’t minimize the difficulties in implementing that model.

“What [Gilbert is] doing I think is absolutely the optimal way to evolve the newspaper organization,” Borrell says. “However, it is extremely difficult to accomplish it.”  Gilbert “has a very deep knowledge of disruptive innovation and how organizations react to that…I am skeptical that a lot of papers will be able to navigate those waters and do what Deseret has done…Even really, really smart people running newspapers have difficulty wading through the politics and the change.”

The Lessons of Deseret

The operating environment for the Deseret News in Salt Lake City is not typical. The company is owned by the dominant religious institution in the region. And that institution decided to put an academic with expertise in economic disruption, rather than a news industry veteran, at the helm. (In December, Gilbert co-authored an article for the Harvard Business Review titled “Two Routes to Resilience: Rebuild Your Core While You Reinvent Your Business Model.”)

But Earl J. Wilkinson, executive director of the International News Media Association, believes there are important lessons that other news organizations can take from Deseret, including its decision to narrow its editorial mission.

“A lot of people say the Deseret News’ move to prioritize content development is easy for a Mormon newspaper to do. Fair enough,” says Wilkinson “But it at least provides the beginning point for a structure for general-interest newspapers where segmentation by big-umbrella topics like local, sports, business and entertainment is at least three decades behind how readers segment.”

“To my eye, the simple act of identifying the areas on which the Deseret News stand says something about the brand,” he adds. That editorial rebranding is one lesson, among others, that can be gleaned from the Salt Lake City experiment.

  • Rebuild your editorial philosophy around what you do best. Many newspapers, which do not have a core audience of like-minded believers, would be unable to rebuild around topic areas such as faith and family. But diminished newsroom resources can be focused around unique editorial strengths that offer value added. Gilbert says newspapers “have to be differentiated. Invest where you can be the best in the world…The failure to choose is a choice to be mediocre.”
  • Manage the digital and legacy businesses separately. This concept is by no means widely embraced in the industry and stands in contrast with the practices in Naples and Columbia. But it is central to Gilbert’s thinking. “Transformation A should reposition the core business, adapting its current business model to the altered market place,” he wrote in the Harvard Business Review. “Transformation B should create a separate, disruptive business to develop the innovations that will become the source of future growth.”
  • Reduced costs commensurate with significantly reduced legacy revenues. This may be a controversial concept in an industry where many argue that reduced resources translate into reduced quality. But Gilbert says newspaper revenues are back to 1950’s levels and “in the transformation age you have to get a steep reduction in content cost.” He believes this idea can work as long as you wisely allocate remaining newsgathering resources.
  • Passion and Vision Count. Gilbert combines the commitment of a true believer with an academic’s instinct for imparting ideas. It is something Borrell calls “clarity of vision.” Others might call it salesmanship, the gift of getting buy in on a big scale. The more Gilbert spoke about culture change, says Dale Darling, vice president of digital direct sales, “the more I started to realize I can hold on and resist the change or I can go with him and probably be a part of another business model.”
  • Bring in leadership from outside the media industry. In recent years, as the newspaper industry’s economic situation has grown grimmer, much discussion has focused on whether there needs to be an infusion of leadership from outside the business, people who can germinate fresh ideas and strategies. Gilbert’s ascension in Salt Lake City seems to support that point of view. (“I was never even a real newspaper guy. I just studied this industry,” he says.)

As passionate and confident as he is of what is happening in Salt Lake City, Gilbert knows the story there is far from written and that the theory of media evolution cannot succeed without the right execution. “If it’s done right it is a game changer,” he says. But “the risk of messing it up is very high. We believe we have a strong strategy for Deseret News and Deseret Digital.  But strategy is never more than forty-nine percent of the solution.  For us to get where we want to go will require execution at the highest levels.”