Challenges to Sustainability in the Digital, Networked Environment

Kevin GuthrieJISC/CNI

July 10, 2008

Q: Generally speaking, if you’re a pilot fish, how fast do you have to swim to survive?

Q: Generally speaking, if you’re a pilot fish, how fast do you have to swim to survive?

A: As fast as the shark.

Q: How fast do you have to swim to get your next meal?

Q: How fast do you have to swim to get your next meal?

A: Faster than the other pilot fish.

There’s something different in the water

• The digitization of knowledge is stressing the symbiotic relationship between our shark and its pilot fish now that networked commerce is in the sea

• Other sharks and fish are evolving faster than ever before

• It is viral in nature and ubiquitous

Scholarship Now Shares the Ocean With…

• Entirely new organizations, growing and innovating at an unprecedented pace. Hotmail had 12 million subscribers in 18 months. MySpace grew from 2 million users to 100 million users in 2 years.

• Launched in Dec. 2005, YouTube was sold to Google for $1.65 Billion one year later.

• 11/06: 25 million monthly unique visitors; 9/07: 48 million• 11/06: 1 billion monthly page views, 9/07: 3 billion

• Entirely new industries are created in a span of just a few years. Online auctions. Online retailing. Social networking sites.

• The fall can be as rapid as the rise. Think Netscape.

Today’s Value-Added is Tomorrow’s Commodity

It is not just that the life cycle has shortened;

Innovation keeps adding layers of value and organizations must relentlessly move up the stack.

The case of JSTOR and digitization vendors

Newspaper Publishing

How’s another shark and its pilots doing?

Similarities?

A publishing industry with a long and stable history

Enterprises compete to build brands based on strong editorial values and high quality authorship

Enterprises compete(d) in relatively small niches (in newspapers, based on geography; in scholarly journals, based on academic discipline)

Newspapers were “protected” from external competition…

For Readers• Journalists and editors created content for their local market

(supplemented by stories from the wire services)

• Physical format of papers kept distribution limited to a fairly close range.

• Readers had a fairly limited choice of which paper(s) they could read, depending on where they lived.

For Advertisers• And for advertisers wanting to reach those readers, the newspaper

was deemed the most reliable method in most markets.• Newspapers did not really compete with other broadcast media –

different audience

Most Newspapers Pursued a Blended Economic Model

• Relied on revenue from both subscription and advertising

• In newspapers, an important component of revenue was classified advertising, for which there were relatively few truly competitive options in local markets.

Initial Benefits of Digital Technologies in the Midst of Some Troubling Developments

• Circulation starts to decline in real numbers for the first time in decades.

• Ad revenue, though, keeps growing.

• Profits nearly double from 14 to 27% in the 1990s, due to higher ad revenue and savings due to new production technologies.

• Macro-economic growth supports scholarly publishing as well – cost efficiencies and emergence of consortia and the big deal hide developing underlying crisis associated with increasing supply of content exceeding available resources.

Newspapers at the Precipice?

• Average profit margin in decline since 2002, now at 16%, down from highs of 20-40%. (As recently as 2003, the average was still 20%. State of the News Media Annual Report, 2004)

• Stock prices for newspaper companies fell 42% in 2007, after drops of 11% and 20% the two previous years.

• Print ad revenue continues to fall: 2007 marked the worst decline in 50 years, a decline of 9.4% over prior year.

• Even online advertising is showing signs of a slowdown: The 30+% growth rates of past few years were only 19% last year (and on a relatively small base).

(more)

• Number of newspapers is shrinking: Down to 1437 in 2006 (State of the News Media Report 2008, chapter on audience)

• Some papers cutting back on print edition on lighter advertising days.

• “A shrinking of news staffs and space committed to news continued though 2007 and spread from the big metros to many mid-sized papers. Some of the lost “feet on the street” end up as jobs added to online and niche, but the ambition of newspapers to cover their regions or even basic government functions in nearby exurban towns is on a sharp decline.” (State of the News Media Report 2008, chapter on newspapers, intro)

Staff cuts over the past few months have included

Los Angeles Times: eliminates 100-150 positions

New York Times: cuts 100 newsroom jobs (Feb 2008)

Newsweek: 111 staff accept buyout (March 08)

San Jose Mercury News: cuts staff by 10% (total staff at 175, down from 400 in 2000)

Le Monde: proposes cutting 130 staff, including ¼ of its journalists (April 2008)

**The Guardian: Offers media training to all journalists, saying they will

NOT cut those willing to “make the transition to online.” (Editors Weblog, interview with Chris Elliot, Managing Editor of the Guardian)

And the alarm has been sounded..

• Newspapers are “a business in permanent decline.” – Warren Buffett

• “The business is broken, and no one knows how to fix it… and if any other papers say they do, they’re lying.” – Phil Bronstein, editor-in-chief, San Francisco Chronicle, as reported in

O’Reilly Radar (2007)

• “Newspapers are f’ed.” – Jeff Jarvis, Buzzmachine (2008)

What happened? – Competition for Audience

Online, newspapers now compete for readership with other newspapers from all over the world.

Online, newspapers now compete with producers of all traditional news media, not just newspapers, from around the world (BBC, CNN, NPR, etc.)

Readers have gone online in droves, but find they can get news from many other sources aside from newspapers’ websites, or even other traditional media (blogs, newsletters, hosted sites for fast moving news like wikipedia)

What happened? – Competition for Ad Revenue

Newspapers now compete with all other online news sites for ad dollars.

Classified ads face tough competition from disruptive new entrants (eBay, craigslist.org, etc.)

Online advertising, though growing, only accounts for a small part of a newspaper’s revenues, under 10% on average, partly because of the way online ads are valued.

Some papers, in an effort to attract more visitors (and more ad dollars), chose to become free, dropping subscription revenues.

A Cautionary Tale

• There are aspects of what is happening with newspapers that should make any publisher nervous:• The rush to the web and the promise of free content has disruptive

unintended consequences. One possibility is the development of mega-newspapers with huge audiences. They may be the only ones to do professionalized investigative journalism on national and global issues

• Advertising revenue is not projected to meet the mix of subscription and advertising revenue that existed in the print environment

A Cautionary Tale (cont.)

• There are aspects of what is happening with newspapers that should make any publisher nervous:• Can the regional and other newspapers in the middle compete? How

many newspapers will go out of business? What will become of their content?

• There will likely be more super-local newspapers focused on local issues

• Without subscription revenue, newspapers will be increasingly pressured to shape their editorial content to their advertisers

Why libraries are worried, too

Peter Brantley of the DLF showed the parallel for the academic library world in a much-shared presentation this past January:

Plummeting numbers of: • Reading room visits• Reference queries• Total circulation

See: http://www.slideshare.net/naypinya/what-rupert-would-tell-the-dlf/ (Jan 2008)

Pursuing Sustainability of Academic Resources in this Environment

Grants are for Start-Up, Not Sustainability

• In the not-for-profit sector, there is a tendency to take grants for granted.

• If we build a valuable resource, the money will come.

• Projects need to regard the grant as a capital investment.

• Receiving a grant is the beginning, not the end.

Cost Recovery is Insufficient, Growth is Necessary

• There is a tendency, particularly today in the electronic realm, to think that all that is needed is to get the resource up, maintenance costs will be close to zero.

• This is a myth. It is true that delivering one document on the web is nearly cost free, but publishing a collection of documents is another matter.

• Maintaining that collection as technologies will be costly; our experience is that the recurring costs tend to match initial costs for resources in high demand.

Value is Determined by Impact

• Projects must assess demand. Who will use the resource and how? Why will that matter and in what ways is that worthy of support? Marketing is important.

• This is important for any type of project, open access or otherwise. The process of determining demand, user value and impact is largely ignored in the not-for-profit environment, especially in open access.

• The most valuable online resources are demand driven and strive for high impact, visibility and impact.

Scale Matters; Consider Partnerships, Mergers & Acquisitions

• There are substantial fixed costs associated with maintaining a robust digital publishing platform. As a resource becomes successful, consider multiple forms of sustainability, not just independent operation.

• Merging into or with other existing organizations with a larger revenue base to spread costs is a form of success.

• Consider the direction of outsourcing and computing “in the cloud”.

It’s a Competitive World; Develop a Strategic Plan

• Many not-for-profit projects resist assessing what are regarded as commercial processes, such as developing a strategic plan or assessing competition. The discipline of that process is essential.

• Imagine and trace out the future for your project.

• Establish goals and objectives to measure progress.

Flexibility, Nimbleness and Responsiveness are Key

• Part of the value of a strategic plan is to help know when to deviate from it. The world is changing quickly, projects must adapt.

• Funders need to be more aware of this need as well, and communicate clearly to grantees that changing the nature of the spending on a grant is not only acceptable, but necessary when circumstances change.

• This evolves naturally in an environment focused on outputs instead of inputs, demand instead of supply.

Leadership Must Be Fully Dedicated and Accountable

• Leaders must have a large stake in the outcome. The academic model of part-time leadership mitigates against immersion.

• New initiatives aiming for sustainability require intensely focused leadership.

http://www.ithaka.org/strategic-services/sca_ithaka_sustainability_report-final.pdf

Challenges to Sustainability in the Digital, Networked Environment

Kevin GuthrieJISC/CNI

July 10, 2008

What is needed so that new technologies can help to strengthen the core, not weaken it?

• Deep and unprecedented industry-wide collaboration. That is going to have to go beyond talk and meetings, but instead involve investment in shared resources.

• Willingness to experiment and invest, not retrench and protect. There will have to be substantial reallocation of resources among local and systemwide activity

• Letting go of long-held beliefs and practices that pretend things are the way they were rather than the way they are going to be

• Mindset shift to an ongoing focus on users, their needs and their preferences.