While it’s difficult nowadays to write about telecoms or the mobile sector without drifting off into other areas of the TMT industry, Zeitgeist spent an evening last month as a guest of Accenture in Cambridge, discussing the successes and failures of the recent Mobile World Congress in Barcelona. It came in the middle of a year so far that has already some significant shifts from mobile companies, in terms of branding, operations and revenue streams.
2013 has seen some interesting news in mobile. The week before last marked, incredibly, the 40th anniversary of the first phone call made from a mobile phone. This year also saw Research in Motion renaming itself to BlackBerry, with shares sliding 8% by the end of the product launch announcement for its eponymous 10 device. It saw Sky acquire Telefonica’s broadband operations, while responding to major complaints about the speed of its own broadband service. It has seen Huawei, which in Q4 of 2012 sold more smartphones than either Nokia, HTC or BlackBerry, come under scrutiny particularly in the US for its lack of transparency. Moreover, after much editorial ink spilled on Facebook’s lack of initiative and innovation in mobile, the release of the ‘super-app’ Chat Heads has piqued interest as it looks to compete with Whatsapp, Viber, iMessage et al., which Ovum reckons cost MNOs $23bn in lost revenue every year. This news mostly pertained to developed markets; JWT Intelligence’s interview with Jana CEO Nathan Eagle features some interesting insights on mobile trends in emerging markets.
Interestingly, 2013 thus far has also been witness to the beginning of more flexible contracts and payments. At the end of March, T-Mobile USA announced it would offer the iPhone to customers for cheaper than its rivals, and customers would not have to sign a contract. It effectively ends handset subsidies – something which Vodafone pledged to do last year and was punished by the stock market when it failed to do so – spreading the full cost of the phone over two years “as a separate line item on the monthly bill”, which may strike many as still quite a commitment. Customers must pay the bill for the phone in full in order to be able to end their tenure with the network. The New York Times elaborates, “Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.” In the UK, O2 is going a similar route. At the end of last week the company announced similar plans to T-Mobile. While still keeping contracts as an option, the FT explained the company was looking to a plan, dubbed O2 Refresh, “that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.” Although O2 said in the article that they expected customers to pay the same as they would on a standard contract, the new plans by both network providers will surely add to customer churn. Brands will have to work harder to develop true loyalty rather than relying on the lock-in feeling that adds to switching costs for many customers. Conversely, this added flexibility may make the providers feel less like utilities, creating more choice and differentiation.
At the aforementioned conference Zeitgeist attended last month, Accenture hosted an evening they dubbed “MWC: Fiesta or Siesta?”. It soon became apparent that many of the speakers invited were less than enthused with the conference this year. This was partly because there were no extraordinary leaps in technology or hardware on offer. It was also because of, as one speaker lamented, “the proliferation of suits”. Another speaker complained it was like listening to The Archers: long storylines “that ended up having no conclusion”. The very essence of the conference though is not about trendsetting, or cool new consumer devices. Mobile operators are utilities, the excitement around such an event is not going to be as visceral as that of SXSW or Embedded World. It led some to wonder whether the “real innovation was being developed in such ‘niche’ events, away from the “glitz”. Moreover, perhaps Samsung’s decision not to launch their new S4 handset at the Congress alluded to this lack of excitement, or at least a wish not to be drowned out by other announcements.
Among exciting trends on display at MWC, M2M – something Zeitgeist has written about before – was front and centre at the conference, particularly with regard to cars. Phablets continued to make their foray into the consumer’s view, with bigger screens meaning more data transfer. Zeitgeist wondered whether such a transition would put even more pressure on networks already struggling with large data handling. And although Firefox’s new OS gave some – including those at GigaOm – hope that it could provide more innovation through diversified competition in the marketplace, others, including Tony Milbourn, Executive Chairman of Intelligent Wireless, speaking at the event, thought it “underwhelming” after “lots of hype”. Bendable screens were also to be found at MWC, but those speaking at the Accenture conference like Richard Windsor of Radio Free Mobile said it was early days and much was still to be seen from this new type of phone. Its potential though, he readily conceded, was formidable. Wearable technology was a huge issue at the conference and one that Zeitgeist is particularly interested to see develop, especially as companies like Apple, Sony and Google enter the fray.
It seemed then that the Mobile World Congress failed to reflect what is turning out to be a tumultuous year in telecoms. Not only is there an increasing desire to address consumer needs – in the case of more flexible contracts and more consumer-facing company names – but as economies sputter their way toward ostensible recovery we are also starting to see M&A activity return to the sector. Time will tell whether new technologies, such as M2M or bendable screens can breathe new life into the sector.
“Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by.”
- Clayton Christensen
What do Dell, The New Yorker and the music industry have in common? All three are currently grappling fundamentally with their business models in the face of creative destruction at the hands of digital disruption. The CEO of Dell is struggling to take it private at the moment – in a proposed $24.4bn buyout – in an effort to ensure its strategy looks away from the short-term needs of investors while it restructures with a new, long-term strategy that will shift focus away from its core PC business. An issue of The New Yorker hardly makes for a quick read, but has been one of the more innovative companies among its peers to embrace and experiment with digital. We wrote about their initiatives last summer. Recently, for their anniversary issue, the publisher offered digital issues for 99c, an offer that Zeitgeist took them up on, and it was pleasing to see how well the digital edition mirrored with print one, while at the same time adding some features that took advantage of being on a digital product. Last week, The Economist published an article on the music industry, which is beginning to see glimmers of hope in its revenues from digital sales. “Sales of recorded music grew in 2012 for the first time since 1999“, although only by an anemic 0.3%. This is still better than Hollywood, which had to settle for celebrating a flattening of home entertainment revenues, after years of decline. After almost being destroyed by it, a third of the music industry’s revenues now come from digital, but they are barely keeping up with the decline in physical sales, which makes up the bulk of other revenues. Lucian Grainge, chairman and chief executive of Universal Music Group, spoke to the Financial Times at the weekend,
“The industry needs transforming. It’s for others to decide whether they want to get stuck in the past or whether they want to come on the journey… We’ve learnt an awful lot, but it’s like being in a commercial earthquake and the reality is it takes time to get out from beneath the desk where you’re protecting yourself and move forward.”
Indeed, one of the biggest issues industries must address is when is the right moment to risk their current business model in order to address change and adapt. Grainge talks about the industry need for a “constructive collision” between musicians, content owners, distributors, entrepreneurs and investors. To what extent this is happening is unclear, but it is certainly thinking outside the box, and could well be applied to other areas similarly suffering at the hands of such change. As goes the music and film industries, so goes the print industry too? How do print titles develop profitable models for generating profits in the face of such volatility in changing consumption habits and digital disruption?
In December 2012, consultancy Boston Consulting Group (BCG) published a report entitled ‘Transforming Print Media’. The report begins on a sour note, admitting that the conventional wisdom is that newspaper and magazine publishing is “a dying business”. This is a hard assertion to counter though, and the consultancy’s own graphics show a rather alarming lack of growth in developed countries. Emerging markets, conversely, are seeing growth in both print advertising and circulation, for both newspapers and magazines. For instance, while between 2006 and 2011, the US has seen a compound annual growth rate (CAGR) decline of 12% in print advertising, China has seen an 8.5% uptick, and India a 13.9% growth. One of the immediate problems the report addresses, and one which Michael Dell is looking to neutralise is that of concentrating on short-term gain at the expense of long-term restructuring with a rigorous focus on which adjacencies work well and which do not. This can be immensely hard to justify in an environment of quarterly earnings reports and instant CNBC updates. BCG suggests implementing a strategy that will instill long-term change while also providing medium-term gains to keep investors happy. The report proposes a 3-5 year plan, and, interestingly, notes that success will rely “more on execution than insight”. Zeitgeist would counter that without both being optimal, the strategy is bound to fail. Moreover, knowing exactly who you want to target and how their methods of media consumption and interaction have altered / are altering is a critical tool for success. It also points out that new business models should not be about “trading print dollars for digital pennies”, something that the music and to some extent the film industry are both grappling with currently.
David Carey, head of Hearst Magazines, commented last year that, in publishing, “you need five or six revenue streams to make the business really successful”. One of the key points that recurs throughout the BCG report, which Zeitgeist, while working on developing strategic recommendations for the Financial Times last year, was also in favour of, was in extending the reach of the business in new directions. These directions leverage the brand equity of the company and extend into areas adjacent to the company’s expertise. For the FT, opportunities exist to extend the brand name into complementary areas of luxury with which the paper is already associated. Monocle has made in-roads into diversification by starting a radio station, which it says is very attractive to advertisers because they have a clear idea of their audience; the type of high-earning consumers who never normally listen to radio. As well as new revenue streams, Zeitgeist also focused on customer retention. One important consideration was that of both vertical and horizontal cohesion. The business as a brand must speak in a relevant, cohesive way across channels, and, in the case of the FT, speak in the appropriate way to its many different readers around the world. BCG advocates “reassessing vendor relationships; stream- lining editorial, content sharing, ad pricing, and production processes; and pooling advertising sales across titles or clusters… the right changes to financial policies— particularly to debt levels and ratios, dividends, and buybacks —can create a clear and compelling case for long-term health, can lift stock prices, and can attract more patient investors.”
Price is a fundamental consideration too. For the FT, Zeitgeist extemporised on the importance of price. Referencing behavioural economics, price for the FT acted as an anchor. It framed the paper more by juxtaposing it with its cheaper peers than by giving it any inherent value. In reports from the last few years taken both in Europe and the US, several major broadsheet newspapers were studied. They had all raised their prices. Some of them had seen their circulation decrease. But all of them had seen increases in revenue, even the ones that had lost circulation. Zeitgeist presented the FT with an analogy; the champagne label Krug, some years ago, hiked up its price, with little notice and for no perceived reason. Production, pricing and taste had not changed. The company lost some suppliers because of this change. But overall, their revenues increased. Krug was now in the upper echelons of the luxurious world of champagne, done to coincide with a global rebrand that appeared in all the right places. BCG alludes to the price increases in its report, saying consumers will “perceive greater value in the product than the amount it is costing them… there is the ability to increase these prices by as much as 70 to 100 percent…”. The report addresses paywalls, which Zeitgeist have written about several times in the past. The key it seems is in making these paywalls permeable, not inflexible. This is one issue the FT will need to address, one its peers, like the Wall Street Journal (WSJ), The New York Times and The New Yorker, have taken steps in the direction of already. The WSJ has frequently taken down its paywall during times of emergency (such as Hurricane Sandy), or for sponsored promotions. Advertisers still play a significant role in US print advertising – a $34bn role – but it is diminishing. The New York Times reported last year that advertising revenue had dropped below subscription revenue. As worrying as this is, it should provide an opportunity for companies to focus more on producing content that the actual readers want, rather than what the advertisers want to see. Broadly, the difficulty lies in getting consumers to see the worth of a digital product versus a hard copy. Obviously this issue is not restricted to the publishing industry.
The importance of the transition to digital is hard to overstate. As well as issues of pricing and paywall strategy, there is also social media to consider. Here, the FT is a good example of a brand that is playing it safe, operating for the most part with a very top-down messaging strategy that leaves little room for collaborative communication. But digital production and the expectation of instant news also means that companies are having to change the way they produce content. Speaking at the Future of Media summit at the Broadcast and Video Expo recently, Editor in Chief of Time Out London Tim Arthur said their changes were “led partly by necessity and partly by desire”. BCG outlines three models that are emerging: “dedicated print and digital editorial teams, integrated teams that operate throughout the print and digital platforms, and full editorial integration”. There are several advantages to be leveraged through digital as well. Research is a big one. Time Out’s Tim Arthur admitted they never used to carry out research until their recent transformation, which included an overhaul of their digital strategy, as well as making their hard copy paper free. It was great then to hear how the company was now using multiple channels to collate data and engage audiences at the same time. Unlike the FT, Time Out was no longer engaging in a one-way conversation, and they were operating with “less arrogance”. The company changed from a content-stacked, “trickle down” approach to one that recognised different audience needs over different platforms, which is a key insight. Furthermore, the opportunities to make advertising more engaging are also quite evident. iAds for example, allow more interaction. A recent ad in The New Yorker promoted a new book with a ‘tap to read a chapter’ function.
“These considerations inevitably lead to a series of hard choices about the degree of diversification that publishers can realistically undertake”, so summarises the BCG report, which suggests controlled experimentation to work out the best model. On an internal level, the company must convince employees that this change will be for the better and for the long-term. It must also convince shareholders of the benefits, while showing real value as early as possible. Such a transformation provides opportunities for streamlining technologies and future-proofing ways of working. It should make the brand think about what its equity is, and where else it can push out to in order to drive new revenue streams. Digital is not something to be feared, it should be embraced. The opportunities for more targeted, engaging advertising, not least through the use of consumer data, which also can help provide more tailored and attractive content – content that is “useful to others” as Arthur says – will be fundamental steps to take. The music industry, which was ravaged by Napster and its myrmidons at the end of the 20th century, took an age to wake up to realisation that money could be made from the millions of people who were already downloading songs online. The film and television industries have reacted slightly faster, and initiatives like Hulu, Ultraviolet and Tesco’s Clubcard TV will help stem the tide. Print on the whole is more on top of the game. Companies like the Financial Times and Time Out are driving innovation in the sector, but must still more readily embrace change if they are to really connect with future readers. Time will tell.
While Britain recovers from the expected nadir of Murray’s loss and the majestic Federer’s subsequent victory at Wimbledon, and the tennis world celebrates a champion of the sport, the next Slam – the US Open, in New York – looms close by on the horizon. Zeitgeist will be going, but, like many others, had a terrible time purchasing tickets online.
“Give me your tired, your poor, your huddled masses, yearning to breathe free”. So says the moniker on the Statue of Liberty in New York, welcoming immigrants to the United States. The US Open grand slam tennis tournament released its tickets to the public several weeks ago, and for the first time offered fans on Facebook the opportunity to purchase tickets a day before anyone else. Unfortunately, not only did they neglect to stipulate that this offer was only available to American buyers, they also had more broader problems with their system that day, creating an enormous backlash of ill will seen on Facebook. On Twitter, the US Open official account kept having to explain itself.
Providing fans with the tickets they want is a hard business. Someone will always be disappointed. And credit should be given to the organisers for trying to do something innovative and rewarding. However, thinking that the reach of the US Open does not extend beyond the nation’s boundaries was a massive, massive mistake in today’s world. They really lost a lot of their brand equity and trust that day.
Part of Zeitgeist is currently working on the strategy for an acquisition and retention scheme for a major international newspaper. Monetising the digital side of the paper’s efforts is a source of great intrigue and interest. Earlier this week, Enders Analysis published findings showing The New York Times “generated $243 million from its digital services in the four quarters since the launch of its new subscription strategy, representing about 15%” of the Group’s total revenues, an impressive stat. We’ve talked previously about how newspapers are dealing with the Internet, from the introduction of paywalls in the UK, to sponsored takedowns at the Wall Street Journal. Magazines are having a slightly easier time of it, reported The Economist last week. The New Yorker, one of the most stimulating publications out there, itself featured a long essay on the future of the news, back in 2010.
WSJ’s example represents a real opportunity for publishers, and it is surprising this tactic has not been employed since (that we know of). And while some might deem it opportunisitic, we love the thinking The New Yorker had recently, when science-fiction author Ray Bradbury passed away. Rather than simply chiming in on Facebook with a paltry “RIP”, they made the most of their association with the man, and offered a token bit of generosity at the same time (see above image). A nice way to satisfy your fans, boost the brand, and pay respect to an influential writer. This is no standalone piece of activity either, but seemingly part of a broader digital strategy. The New Yorker has been investing heavily in its website of late, reports Mashable, with traffic up around 50% YOY. But, says newyorker.com editor Nicholas Thompson, more than traffic,
“Success is when someone says, ‘I just feel great about coming to the website, I’m going to find things I love,’ or, ‘I haven’t read the magazine before, that’s interesting, let me subscribe.’”
A couple of superb examples of retail activation at the premium and luxury end of the spectrum. Interestingly, both are examples of companies relying heavily on associations with the past, in particular nostalgia. It’s no surprise that people want to forget their current predicaments, and presumably the upcoming Future Laboratory trends briefing – Not/stalgia – will touch on this.
Louis Vuitton is cementing its cultural ties with bygone eras and modern masterpieces. It is lending “support” – presumably financial – to the new fourth plinth installation at London’s Trafalgar Square. Variety magazine reported last week that the brand has also signed a “three year partnership with Rome’s venerable Centro Sperimentale di Cinematografia, comprised of sponsoring scholarships… tutoring and… workshops”. Zeitgeist has been to the Louis Vuitton store in Rome a couple of times over the years, and always thought it a bit small. The addition of a bookshop, let alone a cinema, to the list of requirements, was far from expected. The brand, whose heritage stretches back to 1854, has recently unveiled a new flagship store in the eternal city. According to PSFK, “The Louis Vuitton Maison Etoile Rome includes a book room dedicated to Italian cinema… It also features a 19-seat cinema, which will screen short films, documentaries and original creations.” It is a beautiful-looking store that leverages its own history by using complementary environmental, geographic and artistic devices. Zeitgeist looks forward to visiting soon.
Those readers in New York might recently have found themselves briefly feeling like they had stepped back in time 90 years or so. Boardwalk Empire is a critically acclaimed and popular television series produced by the pay-cable channel HBO, of whose merits The Economist elucidated in detail recently. The programme’s Facebook page recently reached 1 million fans. It is a story set in the era of Prohibition, a time of sharp suits, Trilby hats, suspect crates and conversely a large amount of liquor. Faced with a stagnant market for DVDs, HBO conjured a bespoke shop, exclusively to celebrate the launch of the boxed set. But just as the bootleggers of the day had to be nifty and mobile, so did the brand, setting up streetside vendors. Simple but imaginative, effective and inspired.