A key part of Media Futures – the annual benchmarking project among 83 companies across B2B, Consumer and News media – is to track these changes.
There are five key revenue variables which sit at the core of every media company, whatever its size or market.
- Ads versus audience revenues
- Print skew
- Digital skew
- Revenue diversification
- The Volatility Index
[The balance between revenues that come from advertisers (advertising, sponsorship, event exhibitors, etc) as opposed to end-users and readers.]
Across the 83 benchmarking companies, the average balance is currently 58:42 ads versus audience. The balance is shifting rapidly towards audience. The forecast is that this ratio will have moved to 53:47 in two years’ time: a 5% point shift towards audience. This is a significant, structural change, which is increasing in speed, but with three provisos. Firstly, it is very variable from sector to sector. The shift is fastest in B2B, but much slower in Consumer (2% points) and News (no change). Secondly, for many companies, the change is driven as much by weak ad revenues rather than by a sparkling performance in audience. Thirdly, for some companies, it is all happening far too slowly as they struggle to reduce their exposure to the vagaries of the advertiser stream.
[The proportion of total company revenues that come from print products.]
This currently stands at 48% with a 5% point shift predicted for two years’ time – a slight slowdown from previous surveys. The general strategy is to follow (and sometimes deliberately accelerate) the trend. Yet this is being moderated by print’s resilience and digital’s weak monetisation. There is a slight shift to refocusing back onto legacy activities, where the real money is still often being made.
[The proportion of total company revenues that come from digital products and services.]
This is 22% now, rising by 7% points in two years. A real and rapid digital shift is taking place, but for most respondents, digital is still not coming on-stream quickly enough to compensate for revenues lost elsewhere.
This is a key imperative for every media business. It has two dimensions:
Activity diversification. The typical number of core activities per company is five and rising. Yet it is clear that a number of operations are simply trying to do too many things at once with a resultant drop in product quality and company focus – what one participant describes as a slow “death by a thousand revenue streams”. B2B is the most diversified and News the least.
Geographical diversification. There are generally felt to be great cross-border opportunities. The percentage of turnover coming from outside the UK is currently running at an average 27% for B2B companies, 12% for Consumer and 1% for News, with all percentages predicted to rise significantly over the next two years. Yet “geo-cloning” activities is much more difficult to achieve than it looks and there are mounting frustrations with this whole area.
[Based on a combination of how quickly the revenue profiles are altering and the scale of organisational change.]
The overall sense is that revenues remain very volatile, while organisational change is less than last year. Yet massive change is anticipated just around the corner. The general strategy is to drive change. Yet the willingness and ability to change vary markedly from company to company. Also, overly rapid change can destabilise and stretch the organisation to breaking point.
Balancing the absolute need to diversify against the dangers of over-stretching is a big issue.
So, what are the conclusions of all this?
- Firstly, although no single media company is big enough to change the flow of what is happening around them, it is still possible to navigate within the current rather than simply being swept along helplessly or just drowning. Yet that takes a detailed understanding of the dynamics of each revenue stream and a really strategic, long-term view that few companies actually have.
- Secondly, not all change is good. Balancing the absolute need to diversify against the dangers of over-stretching is a big issue. Wobbling between creative disruption and mindless chaos is a fact of our current Donald Trump world.
- Thirdly, prioritise ruthlessly. No organisation is big enough or good enough to do everything they want to do at once. So, partnering is essential. And the old “one-in / one-out” discipline concentrates the mind wonderfully: to do something new means that I have to drop something else I am doing currently – and may have been doing very successfully for years. Yet sacred cows have a nasty tendency to die on you if you leave them alone for too long.
- Fourthly, there is no “right” business model, as the revenue variables flex and change from company to company.
How all this feeds through into turnover growth and profitability is what the next article will focus on.
Sacred cows have a nasty tendency to die on you if you leave them alone for too long.