‘The Good, the Bad and the Ugly’ – The Necessity of Responding Enough to Digital Disruption

Interviewer: “What was your biggest mistake?”

Media industry CEO: “I always say that if I could go back ten years, … , I would not be saying, ‘The Internet’s going to be big’ … what I would really be saying is, ‘Your business is going to be more screwed than you can even conceive of now. Your worst case scenario is just a scratch’.”

This exchange comes from an interview with a CEO on leadership in disrupted industries. It highlights a significant strategic threat – the threat of responding, but not responding enough.

We are now 20 years into the internet. Disruption may be an overused term, but the phenomenon is real – real, messy and confusing. To quote Nate Silver, the challenge is distinguishing between the signal and the noise. Which changes will really matter? Should we respond? How? When?

More fundamentally, can disruption be turned into an opportunity?

This blog focuses on legacy media’s strategic environment. The core message is that while in the immediate term the sector is hanging on and there is a substantial element of ‘business as usual’, from a longer term perspective worrying structural shifts are underway. Even more worrying, these are part of a fundamental realignment that will require great strategic wisdom and organizational energy to master. So what is going on?

1.‘The Good’.

The good news is that although the switch to digital has happened, legacy media are not dead yet – indeed they are more than hanging on. Let’s take television. The global appetite for video content continues to grow, and television is still the dominant advertising medium.

The BBC’s weekly global news and entertainment audience is now over 308 million. We are in a golden era of TV series: Borgen, the Danish drama on coalition politics has been seen in over 70 countries. Mad Men has reputedly garnered over $100 million in video and iTunes sales, and a further $100 million from Netflix.

Turning to newspapers, the American Press Institute reported that 69% of millennials access the news at least once a day. Digital accounts for 70% of the Financial Times’ total paying audience, The New York Times is approaching a million paid digital subscribers and the Mail Online reached over 200 million global monthly uniques in January 2015.

2.‘The Bad’.

Legacy media may be holding on but they are also slipping down the food chain.

OTT, VoD and internet TV services are eroding broadcast networks’ monopoly of distributing video content to the home. VoD is now present in over 60% of U.S. households. Netflix, which has received almost obsessive industry attention in recent months, will, according to estimates, have 70 million subscribers worldwide by the end of 2015.

These changes in consumption habits will be mirrored in the advertising market. As Mary Meeker points out in her latest internet trends report, both TV and print receive a higher percentage of ad spend than time spent on those platforms merits, with a particularly sharp disconnect between time spent on print (4% in US) and the ad spend it receives (18%). For mobile media, the misalignment runs in the opposite direction – it receives 24% of attention and only 8% of ad spend.

Prime beneficiary from this correction will be Facebook, which according to the Pew Center already receives 24% of all display ad revenue and 37% of mobile ad revenue in the US.

3.‘The Ugly’.

The ugly news concerns the sheer size of legacy media’s new competitors. It is very, very hard to compete with the stranglehold ‘hyper-scale’ digital disrupters like Apple, Google and Amazon threaten to exert over content distribution. They dwarf even the largest and smartest of legacy conglomerates. Google’s 2015 share of global search advertising is estimated at 55%. Facebook is anticipated to have one quarter of total US of display ad revenues 2015.

And while younger demographic groups are consuming news, this is not via primetime newscasts and newspapers, but online. And how should news providers respond with Facebook’s growing role as a news distributor? They may get huge increases in traffic, but Facebook owns the audience and the data, and writes the algorithms that dictate where audience attention flows.

So the good news is that legacy media are hanging on, the bad is that they are slipping down the food chain and the ugly is that they are massively outgunned by the digital disrupters. Legacy media need to respond, and respond enough. How to do this is the subject of my next blog.

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