Mass Communications Class, Spring 2016, Sophomore Year
Technology is a relevant disruption in a person’s daily life; Uber has disrupted taxi companies, while Expedia has disrupted travel agencies. Technology is changing the way traditional media operates in terms of industry specific business models. For this paper, I will look at how the changes of business models in the television broadcasting and newspaper industries show how traditional media needs to evolve as technological advancements are discovered. This resulting in the decision for traditional media outputs to either evolve with technology or expire and die off through bankruptcy. Both the newspaper and television broadcasting industries have chosen to embrace technology in order to evolve and adapt. This can be illustrated through the changes in their business models, television broadcasters must value time sensitive content because of disruptions like Netflix and newspapers are changing their traditional sources of revenue.
Foremost, television-broadcasting networks have needed to adapt their revenue and income strategies immensely due to the advancements of technology. According to Converging Media, by John V. Pavlik, “traditionally, terrestrial broadcasting networks relied primarily on selling advertising, one-minute or thirty second ads, taking up between sixteen to twenty-two minutes of an hour long program” (pg. 152). These commercials use to generate the majority of advertising revenue profit for the individual network. Networks base their ratings off show’s popularity and from there decide how much they can charge for advertising. As claimed by Amanda Lotz, author of The Television Will Be Revolutionized, the traditional television-industry business model uses Nielsen rating to evaluate the popularity or value of a show by tracking the size of the audience, rating points and demographics. A specific example of Nielsen rating method is “measuring how many people in various markets were watching a particular show” (pg. 27). Thus, a small drop in viewership could have extreme consequences because the shows popularity would decrease, resulting in less revenue from advertisers. The traditional television network business model worked as a long chain reaction; the quality of the show who dictate the number of viewers, the number of viewers would determine the ratings, the ratings would result in how much the network could charge for advertising.
In contrast to this traditional business model of advertising revenue, technology has made content like, Netflix, Hulu, Apple TV, and Video on Demand possible, which lowers the profit of advertisers. Today, in the 21st century, it can be noted that the majority of people are obsessed with instant gratification. Site that provide that instant experience, are able to fulfill people’s desires to watch shows at the moment they want to. In other words, these sites all supply their customers with the desire to “watch what you want, when you want to,” and have affected advertising revenue significantly. As learned in a recent academic journal entry titled, Neflix: Will Its Operations Model Be a Short Subject of a Long-Run Feature?, written by Rosenthal in 2012, a lot of the best (highest ranking/most popular) television content is or has moved onto Netflix or another instant gratification site, this is taking away views on the networks which is lowering the value. This resulting in charging a lower amount of money for advertising, thus results in making less money through advertising revenue. In this sense, technology has disrupted the traditional model through creating websites specifically fitting the demand of “watch what you want when you want to,” which is making the television industry reconstruct their business model and revenue.
Due to this, television broadcasters have had to find other ways to get viewers in order to keep their ratings up by using technology to their advantage. Networks have recently realized how significant “time sensitive” content is (Pavlik, 31). Time sensitive content refers to shows that are usual watched during the moment their happening, like sports, reality shows, news, and politics. This content has become increasingly important to traditional broadcasting, as it is something unique to networks, that on demand sites cannot reproduce. In the United States, there are “three traditional commercial networks (ABC, CBS, NBC) that still have a cumulative weekly audience reach of more than 70 percent” (Pavlik, 31). Considering there are only three main broadcasting networks, there is always an immense battle for which network gets to broadcast the world-related events like the olympics or academy awards. For example, “the super bowl draws one of the U.S. television’s largest audiences” (Pavlik, 33) causing NBC and CBS to fight over the rights of the official broadcaster every year. Networks want to be the official host of worldly events because that is how they get more viewers, a higher rating and therefore a bigger profit from advertisers.
To analyze this theory on a microlevel, “the subscription to Hulu Plus is yet one more example of how media companies are realizing that old business models are untenable and that if they do not do something, they will go bankrupt” (Lotz, 86). This meaning that just as television networks are adjusting to the disruption of technology, advertisers must evolve as well. Many advertisers are moving their money away from traditional tv comcast to reach a larger audience since broadcasting networks have lost many viewers. Advertisers are not spending as much money producing commercials for television, instead advertisers have been using innovative methods like product placement, online advertising like banner ads and more interactive forms of advertising (Shi, Yang; Two Essays on Television Advertising). Overall, the traditional television broadcasting business model has been disrupted by the advancements of technology because newer companies can produce instant gratification, whereas broadcasting networks must value timely events in order to achieve advertising revenue. These new sites are stealing viewers away from traditional television broadcasting, making the television broadcasting industry reconstruct their business model in terms of finding new revenue.
Similarly to broadcasting television industry, newspapers are changing their traditional business model in order to achieve more sources of revenue, due to the fact that technology has disrupted this industry. Traditionally, newspapers used to sell advertising spaces and use that money to pay for journalism and distribution. It can be noted that, “advertising generates close to two-thirds of US newspaper revenue, with the rest from subscriptions,” (Pavlik, 79) meaning newspapers value advertising more than subscriptions in terms of revenue. In a recent study done by Cass Business School, we learn that in 2006, advertising revenue fell a drastic 48 percent, while in 2010 online ad revenue was significantly short of making up for the lost of print-ad revenue. Publishers believe that “although online advertisers could continue to grow, it likely will not be enough to support publications in the same way that print advertising did” (Lotz, 43). Technology has disrupted this newspaper business model because newspaper’s traditional source of revenue, including; print sales, subscription and advertising dollars, are decreasing since more readers want to consume content online.
The newspaper business model is always adapting and evolving, which can be proven through the penny press and USA today. The Sun, founded in New York, started selling newspapers for one penny, making them accessible to everyone. This happened in the year 1830 and disrupted the entire newspaper industry because all other newspapers needed to adapt to this new business model as well. Their new entra was that everyone deserves the right and access to news, not just the elite upper class (Pavlik, 77). This can be compared to how technology is disrupting the newspaper industry today since all newspapers need to adapt. Technology is forcing newspapers to reach an audience in a more cost effective manner, like online news content. A research analysis at Harvard University stated, “smaller but more numerous revenue streams need to be developed as alternatives to traditional advertising and subscription-based models.” This newspaper industry is stuck in between the desire to provide traditional media and the need to re-evaluate their business model to increase profits. Yet, the Penny Press proves that the newspaper industry is able to evolve and adapt easily.
Another further example of how adaptable the newspaper industry is, was in 1982 when Al Neuarth changed the newspaper industry forever. Neuarth started a new brand of newspapers, USA today. He was inspired by television news and mixed the two mediums together to create a general news, large graphics, and colourfully designed newspaper (Pavik, 73). This started a revolution and a new economic business model for all other newspapers to follow in order to succeed. It can be noted that this change in the newspaper industry was also caused by a disturbance from technology. In other words, Neuarth needed to evolve his newspaper to fit a more technological savvy format, due to the fact that technology disturbed this traditional industry.
Over the years, newspapers lost their revenue sources in two ways. According to a recent article in The Guardian, written by Roy Greenslade, it is evident that people are no longer buying subscriptions, because society today believes news should be free. With the American economy as faulty as it is, people feel they deserve the right of free news, thus making the revenue flow decrease. Why would people pay a subscription fee if they can just get the exact same content online? The second way newspapers lost their revenue to technology is through the decreasing number of readers. Advertisers are less likely to buy space for print or banner ads for online content because studies show that they do not receive a good enough return. All of this builds up to, advertisers playing less of a role than global newspaper circulation revenues. This has happened recently within the last year where audiences have become publisher’s biggest source of revenue. For the past 100 years, advertising have recorded for 80% of revenue, until recently (Patvik, 83).
So, what happens now? What is the next step to reconstructing the newspaper business model? Take note on the Economist newspaper or magazine business model. The Economist provides content online and as a print source; the difference between the Economist and other newspapers is they succeed with their paper version more than their online version in terms of revenue (The Economist on Digital Strategy and the Limits of a Model Based on Advertising; Nieman Lab). Perhaps it's their content, length and style that is better suited for print or is the audience that reads the Economist more likely to buy a subscription then read the content online? An example of a newspaper that tried to evolve with technology, like the Economist, is the Wall Street Journal. The Wall Street Journal (WSJ) online was free for the first couple of months, but then started charging money for online subscriptions and blocked all content. This meaning that if a person does not have a subscription, they cannot view any sort of content online. Subscription revenue is at the core of this business model and it is the main source of income for this newspaper in this industry. With that being said, does paying for content online make people more willing to buy print copies? If a person is paying money for the content, whether they read it online or on print, are they more likely to purchase the print copy? In 2011, The New York Times attempted to copy the business model of WSJ, by launching their own paywall. The New York Times set a paywall of reading ten free articles a month, but if a person reads more than ten they must buy a subscription. After launching this paywall and digital subscription, their sales rocketed and subscription revenue hit a high. This proves that more readers are exchanging their print subscriptions for digital ones, thus embracing technology. Although the New York Times micro Paywall and the Wall Street Journal full Paywall have been successful, one cannot predict if it will hold out in the long run.
In conclusion, it can be stated that technology is a disruption to traditional media, specifically the television and newspaper industry. Technology is deemed disruptive since it is forcing these traditional media outlets to reconstruct their business models. The television broadcasting industry has had to evolve based on advertiser’s revenue because of new instant gratification sites like Netflix. The newspaper industry has had to evolve and change their traditional sources by finding new methods of revenue through adding online content, paywall and selling online advertising spaces. The newspaper and television broadcasting industry are two specific examples of how technology has disrupted traditional sources of media, yet they both chose to evolve instead of expiring. Works Cited
Greenslade, Roy. "Global Newspaper Industry's Business Model Undergoes 'seismic Shift'" The Guardian. Guardian News and Media, 2015. Web. 03 May 2016.
Lotz, Amanda D. The Television Will Be Revolutionized. New York: New York UP, 2007. Print.
"The Economist’s Tom Standage on Digital Strategy and the Limits of a Model Based on Advertising." Nieman Lab. N.p., n.d. Web. 03 May 2016.
Pavlik, John V., and Shawn McIntosh. Converging Media: A New Introduction to Mass Communication. New York: Oxford UP, 2011. Print.
Rosenthal, Jean. "Netflix: Will Its Operations Model Be a Short Subject or a Long-Run Feature?" (2007): n. pag. Web.
Shi, Yang. "Two Essays on Television Advertising." (n.d.): n. pag. Web.