Publishing’s Change Agenda

Driving Process Innovation

Digital Innovation Series

SEEING WHAT'S POSSIBLE

digital in-novationseries dig-ital inno-vationdigital inno-

The Digital Innovation Series traces the trends that are driving the digital-innovation imperative that has led publishers to scrutinize and update their capabilities.

Theorem

Digital Innovation Series

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It may be an understatement to say thepublishing world has changed completelyand permanently. The days when the primary objective was simply to delivercontent are over, and today the mission isto meet digital demand by applying contentand scaling it across devices and platformsto meet consumers where and by what-ever means they choose to engage.

Even though digital publishing has become a mature and thriving industry, to fully realize its revenue potential, publishers are challenged to create structural models that allow them to scale and align technologies, expertise, and creative with growth strategies. Business processes – and the technologies that underscore them – mustbe agile and flexible to take advantage of new opportunities. And the ability to testand refine through an experimentation mindset is key to adopting best practices. It’s adramatic shift for the industry, requiring companies to tackle complex issues such asdeclining print subscriptions, changes in the ways people consume information, theneed to deliver content and brand messages to different kinds of devices, and theways all of that affects relationships with agencies and brands.

To keep up with demand and delivery methods, publishers are challenged to leveragetheir content in new and engaging ways, and find approaches to evolve their businessmodels so they are more flexible and adaptable to changing market forces. Progressiveorganizations are assessing their strengths and weaknesses, evaluating talent (opera-tional, technical, creative), and leveraging external partners to strengthen their corecompetencies, while transitioning those areas of the business that don’t make strategicsense to keep in-house. Industry leaders are developing best-in-class capabilities thatgive them the flexibility to expand and differentiate their businesses—through reach,audience, strategy, creative, work flow, and speed—so they can stand out in an otherwise competitive and complex marketplace.

This Digital Innovation Series traces the trends that are driving the digital-innovationimperative that has led publishers to scrutinize and update their capabilities. It exploresthe disruptive break-throughs that are forcing companies to make sure they continueto grow and add value for their customers—in the forms of advertisers and readersand listeners—and it discusses ways companies are reinventing their models by applyingbest practices, by developing and expanding new talent, and by working more closelywith consultants and partners. The Series uncovers various ways both traditional publishers and the new wave of digital-only content publishers are tackling andovercoming challenges so that they position themselves for success now and intothe future by creating cultures of continuous improvement.

In order to lead the digital transformation charge, executives should

consider adapting to today’s trends by creating a structural model that

allows them to scale and align technologies, expertise, and creative

with growth strategies – all in response to a fundamental shift in the

way advertisers are engaging with

consumers and consumers are

accessing and consuming content.

Title of Case Study

Always On Consumer

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94%Of the US population aremobile device users.2

Trends Reshaping the Landscape

In the past decade, digital publishing has become ubiquitous. The digital-publishingtrend is forcing traditional print publications to reassess how they deliver content toconsumers and how they use technology to improve advertising revenue. The trend isalso requiring digital-only platforms to continually innovate in order to build capacityand stay ahead of the competition. In fact, the rise of digital media has been de-scribed as “probably the most evolutionary change in the industry since the inventionof the printing press in the 1400s.” i continued on page 4

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1. comScore, March 2013; 2. Nielsen Mobile Consumer, February 2013; 3. Google: The New Multi-Screen World, August 2012; 4. Ericsson Mobility Report, June 2013

4.4 hours

How much time USconsumers spend in front of screens, smartphones, laptops,tablets or TV 3

7.125 + billion

The total number ofmobile subscriptionsis expected to exceedthe world population

in 2014 4

48 millionTablets are being used byowners in the US.1

T W O • T H R E E

Theorem www.theoreminc.net

Digital Innovation Series

1Digital Media Hits the Tipping Point

The publishing industry has undergone a rapid move away from print and toward digitalin the past decade. As a result, print publications have suffered a decline in circulationand advertising revenue. For example, in 2012, total newspaper print advertising rev-enue declined 8.5% to $18.9 billion, according to the Newspaper Association ofAmerica. Magazines fared poorly too, with advertising pages plunging 38% from 2005to 2012.iii

The rise of Web sites that let advertisers quickly and cheaply reach their audiences, alongwith providing current content, has had a hugely negative impact on publications—in particular, on city newspapers.iv

Whereas print is declining, digital consumption has been increasing exponentially. Thetotal number of digital magazines downloaded weekly rose from 300,000 per week in2011 to 2 million per week by the end of 2013, according to figures from Adobe.v

Indeed, digital-only publications are continuously growing in number, with 18 launching in the first half of 2014 compared with 14 in the same period in 2013.vi

Furthermore, digital gains are starting to outweigh declines in print revenue. According toPwC research, digital consumer magazine revenue is expected to rise at a 31.2% CAGRto reach $5.7 billion by 2018, whereas digital-consumer-magazine advertising revenue isexpected to reach $12.4 billion in 2018.vii The trends for newspapers are less clear, withgrowth in digital advertising revenue slowing. “Publishers must work harder to realise newdigital revenue returns, embracing new advertising technologies, promoting better usagemeasurement, and exploring controversial content marketing and payment schemes,” viii

PwC analysts note.

Mobile advertising revenue has also been increasing, and in the first half of 2013, itgrew 145% to more than $3 billion compared with the same period in 2012. That figureaccounted for 15% of online advertising revenue.ix

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Digital M

edia H

its the Tipping PointIn the past decade, digital publishing has become ubiquitous. In fact, the rise of digital media

has been described as the "most revolutionary change in the industry since the invention of theprinting press.i For traditional print publishers, the challenge is that the processes required for innovating in the digital era are vastly different from those needed in, for example, a traditionalnewsroom. The reason that innovation often seems to be so difficult for traditional print publishersis that, though they employ highly capable people, they are working within organizationalstructures whose processes and priorities weren’t designed to support digital processes.Creating an innovative environment means looking within the existing value network and beyond traditional business models to discover new experiences for audiences, and then realigning your resources, processes and priorities to embrace these disruptions.ii

The move to digital and the way consumers are accessing content—in particular, with theexplosive growth of mobile—and the rise of progressive and efficient advertising-purchasingtrends are forcing companies to reassess their strategies and build their capabilities.

Here are five trends that are reshaping the publishing executives’ change agenda

5Trends Reshaping the Landscape continued

F O U R • F I V E

2Keeping in Step with the Always-On Consumer

Today’s consumers are continually on the lookout for new ways to access content acrossdigital, social, and mobile platforms; and the onus is on publishers to become adept atanticipating and adapting to trends and then innovating to meet consumers where theywant to be.

According to the 2013 Forrester Search Marketing Playbook, 32% of consumers findWeb pages through social media, which points out the importance of such sites as Facebook, Twitter, and Google+ for driving brand traffic.x

To access information, today’s consumers use multiple platforms such as mobile and desk-top devices; and they’re spending more and more time online. In 2013, eMarketer reported that the average adult spends more than 5 hours per day online, with an averageof 2 hours 21 minutes per day on nonvoice mobile activities, including mobile Internetusage on phones and tablets.xi

Continuous access to media serves to change the consumer-brand dynamic, with today’sconsumer having wider control and a stronger voice than ever. Emily Collins, analyst atForrester Research, says that empowered customers want control over how they interactwith brands, and they have high expectations regarding the ways companies interact withthem—including demand for instant feedback. How brands inspire that loyalty is the keyto their success.xii And understanding and responding to the things audiences expect anddemand can help publishers improve their reach. This requires a combination of technol-ogy leadership, fresh thinking, and deep insight on consumer behaviors and patterns.

2 3 4 5Kee

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Step w

ith the Alw

ays-On Consu

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Harn

essing Targ

eted

, Automated Buying

Adapting to the Complex W

eb of New

Tec

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Making Sen

se of Analytics

Harnessing Targeted, Automated Buying

Just as the digital era has transformed how consumers access content, it has also revo-lutionized advertising-purchasing trends—so much so that spending on digital adver-tising is expected to grow from $87.4 billion in 2011 to $144.8 billion by 2016.xiii Itis especially notable with the rise of programmatic trading, which not only improvesefficiencies but also enables companies to broaden their reach. Programmatic buyinginvolves the use of automated tools to buy, place, and optimize advertising.

Today the vast majority of publishers use programmatic trading, a report from theWinterberry Group says,xiv yet at the same time, many publishers have experienceddifficulty in adapting to and maximizing the value of programmatic. In fact, a majorityof publishers are not monitoring the kinds of data third parties are collecting (84%),and 42% don’t have a formal quality assurance process in place, which limits theircontrol over the ads that appear on their sites.xv That’s despite publishers’ saying theylook for available third-party audience data, as well as appropriate technology, before deciding on programmatic strategy, the Winterberry report says.

Publishers largely associate programmatic with work flow automation and auction-based media buying. However, given that the use of programmatic is expected tobroaden in the next two years, it could have wider strategic uses such as audiencesegmentation and actionable insight development.

Effective use of programmatic buying requires a tailored approach in order to improvethe audience experience, expand reach, and extend partnerships with brands. Toachieve those important goals, companies should (1) take a data-driven approachto audience engagement, including the use of third-party data; (2) understand thebusiness environment driving programmatic as well as the specific purchasing methods(open-market real-time bidding, private marketplace) and the broader tools andprocesses involved, such as custom analytics and marketing attribution; (3) have theplatforms, tools, and applications to enable audience reach; and (4) commit to stan-dards in measurement and accountability.xvi

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tS I X • S E V E N

4Adapting to the Complex Web of New Technologies

Today publishers have to deal with a lot more than simply layout-and-design software,and technology has become a vital component for both using content and buildingadvertising revenue. But technologies are changing so quickly that it’s hard for pub-lishers to keep up on their own.

Mobile has become the largest growth area in terms of how consumers are accessingcontent. With the dramatic rise in mobile demand and capabilities, the vast majorityof publishers are producing mobile content. For instance, 90% of Alliance for AuditedMedia (AAM) publications have a mobile presence.xvii But publishers are also assess-ing how to optimize and monetize mobile and how to best invest revenue to make useof mobile capabilities for circulation and advertising revenue. Current research suggeststhat mobile media consumption in the United States sits at around 4.5%, whereasmedia ad spend is only around 1.7 percent.xviii However, mobile ad revenue is grow-ing rapidly: an Interactive Advertising Bureau (IAB) report showed mobile advertisingrevenue worldwide grew a massive 92% in 2013 to $19.3 billion from $10.1 billionin 2012. Publishers need to be in a position to leverage that growth.xix

A complex technology environment presents challenges for publishers, which mustcompete with such technology giants as Google in offering quality content to large audiences. Fragmentation with app technology and operating systems adds to pub-lishers’ difficulties in adjusting to the digital era. In addition, finding ways to accessand apply metrics with regard to audience trends and the continually expanding andevolving landscape for media buying makes it difficult for publishing companies togrow their digital capabilities and monetize effectively. Plus, companies must keepabreast of constantly new advertising platforms so they can acquire the most-advancedcapabilities to be able to continue meeting brand and advertisers’ expectations forquality and audience reach.

Investment in technology requires that publishers (1) give staff members relevant ad operations training in the platforms in use, (2) develop workarounds to manage com-plex and disparate technologies, and (3) deal with the inefficiencies caused by theneeded workarounds. For smaller publishers, budget constraints create additionalproblems because small publishers simply cannot afford to continually invest in newtechnologies. Adding to the complexities publishers face is the push to expand intoglobal markets to counter declining revenue in more-traditional markets.

Integral to the cyclical technology innovation trend is ensuring those new technologiesare scaled up and associated processes become automated and integrated into thebusiness. This can be challenging for businesses to manage and so publishers oftenturn to a trusted partner to help them manage the technology adoption until it hasbeen fully integrated into the business.

Keeping up with consumers to deliver an integrated experience requires a combina-tion of inventiveness and enablers. Whether a company builds its own technology oruses an external source, the goal is to remain relevant to consumers. A company’s lev-els of investment in cutting-edge technology must be supported by organizational matu-rity. This necessitates transforming from a traditional and transactional, bow-tie-shaped,team structure—with functional silos and one point of contact between the companyand its customers and partners—and into a diamond-shaped model, which is net-worked and cross-functional and has a number of points of contact.

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Publishing’s Change AgendaDigital Innovation Series

5Making Sense of Analytics

The digital era means more information (also called big data) is being created, which canbe exploited to gather insights on both (1) audience expectations and behavior and (2)how well ads are performing.

PwC notes that to gather more data, companies are investing in such technologies as sensors, biometrics, Bluetooth, analytics, and social media. According to PwC, 44% ofrespondents to PwC’s annual Digital IQ survey are investing in analytics in 2014, and62% of US CEOs are making significant changes to the ways their organizations use andmanage data and data analytics to engage consumers.

To understand how campaigns or brands are performing, publishing companies shouldconsult first- and third-party data, and increasingly also second-party data (essentially another source’s first-party data generally accessed via deals with strategic partnersxvi), and apply analytics tools and capabilities to determine trends and opportunities.

Publishing companies can use big data to assess the success of their revenue models bytracking audience composition and behaviour, such as click-throughs to ads click-through-rates (CTRs) that measure the success of an online campaign for a website or an email campaign as well as data on audience experience and opinion. And having that data onhand enables companies to better target their marketing approaches and improve their audiences’ experience. Data and analytics also help publishers assess their pricing andstrategies against trends and expectations to determine what works best in any given market.

Acquiring knowledge of audience preferences and trends enables companies to makesure both their print content and their digital content create value for consumers.

Conclusion

Pioneering new strategies in the midst of fundamental change is never easy. Today’s publishing executive must adapt to the role of change agent, which requires looking acrossthe existing value network and beyond traditional business models to deliver new experi-ences for audiences, and strategically realigning resources, processes and priorities toembrace these disruptions. The ability to cut across functional boundaries and collabo-rate with external partners to boost internal expertise and improve processes will enableexecutives to become more active change agents for digital transformation efforts.

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Referencesi Publishing Outsourcing—A White Paper on Current Challenges and Issues with Publishers and Offshore Providers, February 2013, ValueNotes and Firstsource.ii Mastering the Art of Disruptive Innovation in Journalism, Clayton M. Christensen, David Skok, and James Allworth, Nieman Reports, February 2013, http://www.nieman.harvard.edu/reports/article/102798/Breaking-News.aspx.iii Newspaper, Magazine Ad Fortunes Continue to Decline, MediaDailyNews, May 22, 2013, http://www.mediapost.com/publications/article/200960/newspaper-magazine-ad-fortunes-continue-to-declin.html.iv Publishing Outsourcing, op. cit.v Media Metrics: Industry Trends and Forecasts for Magazines, Digital Circulation, Social Media, Tablets, Print, Books, Internet Use, andMore, Technology for Publishing, http://www.tech4pub.com/2014/01/09/media-metrics-industry-trends-and-forecasts-for-magazines-and-books/.vi Through June, 27 magazines ceased operations, Crain’s New York Business, June 30, 2014, http://www.crainsnewyork.com/arti-cle/20140630/MEDIA_ENTERTAINMENT/140639984/through-june-27-magazines-ceased-operations#.vii Magazine publishing, op. cit.viii Newspaper publishing, op. cit.ix Mobile Ads Jump 145%, Driving 18% Rise in Internet Advertising, Robert Hof, Forbes, October 9, 2013, http://www.forbes.com/sites/roberthof/2013/10/09/mobile-ads-jump-145-driving-18-rise-in-internet-advertising/.x How Consumers Found Websites in 2012, Elizabeth Komar, Shar VanBoskirk, and Collin Colburn, Forrester, July 19, 2013.xi US Time Spent With Media: The Complete eMarketer Forecast for 2013, eMarketer.xii Loyalty as we know it is dead: Forrester analyst, Michelle Saettler, Mobile Marketer, June 25, 2014.xiii Navigating the Digital Media Market, Accenture Interactive, http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Interactive-PoV-Navigating-Digital-Media-Market.pdf.xiv A July 2014 survey from the Winterberry Group of US and US-based global publishers found 96.3% are pursuing programmatic in their own markets.xv AdMonsters Publisher Maturity Index: The Initial Findings, Rob Beeler, AdMonsters, December 6, 2013.xvi A July 2014 survey from the Winterberry Group, op. cit.xvii How Media Companies Are Innovating and Investing in Cross-Platform Opportunities, Results from AAM’s 2012 Digital Publishing Survey, http://www.auditedmedia.com/media/182933/aam2012survey.pdf. xviii 3 challenges in mobile ad monetization—and 3 ways to solve them, Adam Landis, VentureBeat News, June 14, 2013.xix IAB 2013 Global Mobile Advertising Revenue Report, IAB, http://www.iab.net/globalmobilerevenue. xx Embracing the “always on” customer, PwC, May 2014.xxi Second-Party Data Can Help Brands Get Unique Information at Scale, Omar Tawakol, March 23, 2014, Adweek,http://www.adweek.com/news/advertising-branding/second-party-data-can-help-brands-get-unique-information-scale-156429”

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