Advertising is next

Condé Nast is a house built on smoke and mirrors — that is, to say, on brand advertising. So it is astonishing to hear its CEO, Chuck Townsend, essentially toss the company’s business model out the window of the Death Star in what The Times frames as “a fundamental overhaul of the advertising-based business model.” This, folks, is surely the real product of the McKinsey studies undertaken at Condé, not a few magazines folded but a new strategy. In a phrase:

Advertising is fucked.

I’ve said that Rupert Murdoch’s paywall is also essentially his surrender of any hope that advertising can be grown or even maintained. He gave up and shrank like George Costanza’s privates. It’s one thing for the dirty digger to give up on car ads. It is quite another for Condé to go off its diet of Madison Avenue and Seventh Avenue in favor of a parking meter.

Photo: Flickr - wallyg

“We have been so overtly dependent on advertising as the turbine that runs this place, and that is a very, very risky model as we emerge from the recession,” Condé CEO Chuck Townsend told The Times. “In a company like ours where 70 percent of our margins are generated on the advertising side, we must develop a much, much more effective financial relationship with the consumer.” That is, get money from the consumer instead of the advertiser.

Good luck.

The company plans — like Murdoch — to try to suddenly get new money from consumers who for years — long, long before the internet — have been accustomed to almost-free content: $1-per-issue luxe magazines that cost probably four times that to produce and distribute (not to mention the tens of dollars it takes in marketing to acquire that subscription with advertising and schwag — a purse for Glamour readers or the fabled sneakerphone up the street at Sports Illustrated).

Condé promoted Bob Sauerberg, former head of consumer marketing (read: circulation) to its presidency. Bob is one of the good guys of Condé Nast (I don’t mean to damn him with faint praise there … sorry, couldn’t resist); he’s smart, mature, experienced. (I worked with him a good deal when I was at Advance’s parent company and he was at Fairchild; I should add that none of what I’m saying here comes from the slightest contemporary knowledge of the company; haven’t been in the cafeteria for many months.) Bob knows management and consumer marketing. The age of the ad sales guy is over because the age of the ad is over.

The problem is going to be that there is only more competition in content and so trying to suddenly charge more flies in the face of basic economics. The absurdity of the strategy struck me yesterday as Amazon tried to sell me a subscription to Time for 28.8 cents an issue while Time is trying to sell its iPad issues for $4.99 and I see no reason to buy either. In what world do these economics make sense? In their dreams.

“I want to collect income from the consumer,” Townsend told The Times earlier. “An annual magazine subscription may be something like anywhere bet[ween] $12 and $24. So I’m currently locked into a model that says I get a buck or two a month. How about I get a buck for a click?”

Dream on.

They’re not wrong that they need to get money from consumers but they’re not going to get it for content. Sorry guys. But as Google schooled the newspaper industry (I’ll substitute appropriate words):

The large profit margins [magazines] enjoyed in the past were built on an artificial scarcity: Limited choice for advertisers as well as readers. With the Internet, that scarcity has been taken away and replaced by abundance. No [dreaming] will be able to restore [magazine] revenues to what they were before the emergence of online [content]. It is not a question of analog dollars versus digital dimes, but rather a realistic assessment of how to make money in a world of abundant competitors and consumer choice.

Instead, I suggest they have to get new revenue through commerce — through selling the things they once advertised now that advertisers are deserting them to sell direct. Problem is, that’s hard, as Condé knows best from its experience with Style.com, which started as an attempt to create a high-end store (I worked there then). They created it in partnership with a retailer and the retailer bagged the effort when times got tough in the first bubble; it then became another ad-supported site. But the strategy wasn’t wrong. Problem is, there is no retail expertise in the company.

More recently, Condé should have bought Net-a-Porter but instead luxury conglomerate Richemont snarfed it up. (Disclosure: I spoke at Richemont’s corporate retreat recently.) Condé should buy Gilt to establish new skills, a new relationship with customers, and new revenue. Its content then becomes just added value: the Cinnabon’s in the mall.

A media company going into retail and selling in areas held by former advertisers has precedent: Media News’ Salt Lake City paper became a real estate broker and undersold the entire business in town. The Telegraph, as I like to point out, sells everything from hangers to wine to betting to its readers.

But if Condé and other media companies are going into retail, they need entirely new skills of merchandising and sales, an entirely new financial structure to cope with inventory costs and tight margins, the ability to cope with entirely new competitors and suppliers (that is, former advertisers — but, worse, Amazon), and an entirely new efficiency (forget the cafeteria; they’d be lucky to have a Wal-Mart lunch room with vending machines as a profit center).

They also have to defeat a calcified, entitled culture. For that, I’d suggest they buy Gawker Media to get the incredibly popular competitor Jezebel and to infuse the company with a new culture. Make Nick Denton editorial director and COO and then watch the fun.

I doubt they heard any of this from KcKinsey because in the few encounters I’ve had with them they remix known models rather than invent new ones, which is what is called for here. I’ll bet they proposed cutting some costs (done) and remixing revenue (started) when what’s really needed is a complete restrategizing.

Or maybe I”m wrong. Maybe 4 Times Square will become the world’s lushest mall, with one helluva food court.

Nevermind my advice. The moral of this story remains that advertising is next to fall into the black hole (as a Time Inc. president once dubbed this damned internet thing). Welcome to Bob Garfield’s Chaos Scenario.

  • http://www.rosenblumtv.com Michael Rosenblum

    Well, I could not agree with this more.
    if ONLY someone would come up with a way of tying both advertising and revenue to the kind of UGC model that is so successful for providing so much of the content on the web. Hmmm…Can we go see Mr. Townsend perhaps?

    • Amy Berryhill

      You guys *should* go talk to them. Instead of spinning their wheels trying to figure out what to put in the September issues, they ought to be getting paid to teach other people to create the content for them.

    • http://www.adshouts.com AdShouts

      AdShouts are a new form of advertising that target and reward consumers with micropayments for participating in social media ad campaigns. If web users can earn money for their participation in social media the cost of paying for content and web services may be justified.

      • http://hmmm.stevencaddy.com/ Steve Caddy

        A system that pays people to spam their friends? More nuanced spamming sure, but spamming still. That just increases the attention cost of social networking.

        Next gen commerce functions by creating value (or decreasing cost) for all parties rather trying to ‘buy’ attention. If advertising is going to survive, it needs to start adding value to people’s lives, at which point it’s really not advertising at all.

    • http://digitalproductions.co.uk Crosbie Fitch

      Advertising is the result of a communications imbalance between customer and (mass producing) vendor, which is now being rectified by the Internet. The Internet also rectifies the anachronism of the 18th century reproduction monopoly that is copyright.

      What we’re left with is a far more egalitarian marketplace between vendors and customers (but with a notable lack of facilities for the latter – see ProjectVRM).

      In terms of intellectual work (the poorly paid raw material that used to be processed into ‘content’), the market is changing from the sale of mass produced copies to the disintermediated exchange of intellectual work for money, i.e. the copies are free, but the people who want the work done subscribe to its production. This can be seen evolving in the market for copyleft software (the copies are given away, but those who want things fixed/improved pay the developers for their work directly).

      The same thing will happen in news. Each of the journalist’s readers interested to see more of their writing will directly commission that journalist, disintermediated and collectively. The copies are free (no monopoly), though paper ones will be available at cost if people still find them useful. I’m working on such a system at 1p2U.com (a penny to you, your word to the world). This is just one of many such disintermediated exchange facilities that are enabled by the http://ContingencyMarket.com web service.

      In the future both customers and vendors communicate with each on an equal footing, and they exchange their work and money with each other directly. This isn’t good news for the publishing corporations that have got fat on 18th century monopolies, but it means that the intellectual worker and their customers are not looking at market failure. The failure is that of imagination – to envisage a market without the need for monopoly or unilaterally polarised advertising.

  • http://www.gemister.com/ videotigar

    I’m interested in how to create new revenue streams when there is no employment

  • http://rexblog.com Rex Hammock

    @videotigar – Have you ever heard the expression, “Necessity is the mother of invention”? Creating new types of revenue streams is what creative people do when they don’t have employment.

    @Jeff:

    As I’ve long said, it’s not the magazine format that’s dead, it’s the magazine business model. Madison Avenue (as a metaphor that includes advertising and the media it has supported) dreams of those good ol’ days when “Mad Men” were men and commissions were 15% of gross — and all the margins were slightly above average. Those days are long gone (they exited with the three-martin breakfast).

    My career has been spent developing media (the majority of it used to be magazines, but now the majority is online) that has never been “a business model” — but it has been media that *supports* a business model. It has been called custom publishing or custom media (I don’t care what people call it, as long as they call me.)

    Over the past 15 years, as “the companies formerly know as advertisers” have become better and better at creating print and online media that connects directly with their customers (I’d argue that companies like mine have helped them do so), magazine companies and other traditional media companies have pretended that their clients (advertisers) were not capable of becoming their competitors.

    Those “advertising dollars” are not just going to Google and to “the web,” they are being invested in the creation of media those former advertisers *own* and control.

    “Ad-supported media” is becoming a less-and-less a viable business model (however, there will always be unique niche media that will prove to be an exception to this) — customer media that *supports* a company’s core business model will become, more and more, “where those advertising dollars went.”

  • PXLated

    Apple hired great retail/merchandising talent and look at their retail operation now – so, it can be done, online or off. But, like Dell, the culture probably inhibits.

    When our small consulting team (I was the design director) developed the original Best Buy site, the overall theme was to be “your smart friend”- The friend you turn to for manufacturer agnostic info and buying advice. Tons & tons of content from glossaries, buying guides to product comparisons to you name it. The largest group in publishing were the writers and we contracted content from other knowledge sources. It wasn’t a Consumer Reports but we had more top-notch content than anyone on the web. And, very little of the old “push products on ya” attitude of retailing. Landing page product promos never accounted for more than 15% of the space. “Smart Friend” was a minimum of 25% and as high as 50% depending on how you counted. So, the whole idea was based around content, content, and more content. Alas, they reverted back to their old retailing culture of product push, push, push mostly because of culture but also because of online profitability. All that content was expensive.

    When I first read your post, I thought maybe instead of media going into retailing, retailing could/would/should buy the media. But, after typing up the BBY paragraph, I’m not sure as basic cultures in either industry are hard to change and I’m not sure it could be profitable.If it would work now though, it’ll take a whole new breed in each industry to make it work.

    • PXLated

      You can see the original BBY site here – http://bit.ly/cETGcF

    • http://www.buzzmachine.com Jeff Jarvis

      I think it’s easier for retail to take on media roles — content, networks, aggregating customers — than it is for media to take on retail roles. Part of the reason is simply that there is less cultural baggage in retail, eh? You’re not protecting alleged temples of democracy but running businesses that have direct relationships — more than any publisher — with the public. You have a better idea of what they want and need. You hear their complaints. You know why they come to you. No, BBY isn’t going to cover Congress (or maybe with enough cameras, you should…). But when I’ve been at BBY, I’ve come away thinking that there are opportunities to gather and serve customers with media in new ways.

      • PXLated

        “there are opportunities to gather and serve customers with media in new ways”

        Agree 100%, that was the concept with the content in 1999/2000 – customer service – Yet they always seem to revert back to sell, sell, sell. We had to fight that day in day out and won for that version of the site because we had absolute support from the top. And yet, to this day they still say the same thing about needing better customer service yet the site becomes an online version of the Sunday supplement to a certain degree.

        So, while I agree – and tried that – it’s as hard for a major retailer to change their strips/culture as it is for media companies unfortunately.

  • Andy Freeman

    > I’m interested in how to create new revenue streams when there is no employment

    You find new revenue streams by finding folks willing to pay for what you produce. Once you do that, you figure out how you want to receive the money.

    You’re not entitled to revenue for what you want to produce, even if you got revenue in the past.

    We’re finding out what people were actually paying for.

    CraigsList demonstrated that folks valued ads a lot more than they valued what passed for local news. (The popularity of the sunday paper should have made that obvious.)

    Advertisers pay to get their message in front of receptive people. Premium magazine content is a fairly expensive way to attract such people. When less expensive forms appear, advertisers are going to switch.

    That’s why value to readers is important – if you’re not valuable, they won’t show up. Unique is how you get full value. Good, the thing that media types keep ranting about, is nice to have but not essential.

  • http://iduncan.tumblr.com Ian Duncan

    Monocle seem to be having some success with a version of this approach. But they mix ads, advertorial, collaborations with designers who they lend their brand to and their shops where they sell “own brand” stuff and the products of the collaborations. If I remember correctly, they plan to use shops as the way into a country/city and then use the profits to fund an editorial bureau down the line.

    Anyway, I guess it shows what’s possible but they’re not working on anything like the scale of Conde Nast.

  • http://blog.stealthmode.com francine hardaway

    I hate to admit I’m old, but didn’t the WHole Earth Catalogue do that in the 70’s. Write stories and sell stuff that was in the stories? That’s what I remember, and I thought it kicked butt then, and still think it does now. Why is that so difficult to understand? Also, I helped launch SkyMall. SkyMall was the same sort of model, only its niche is travelers. Jeff, I love this column. Even better than your Google discussions every week. Yes, I am a fanperson (politically correct).

  • http://www.tyndallreport.com Andrew Tyndall

    There is another major industry that has not yet been mentioned in this thread — public relations.

    Traditionally, PR has been a parasite on journalism, piggybacking on the credibility, trust and ubiquity that the legacy news media have established in order to add sheen to its message delivery.

    Journalism has less credibility than it used to have. PR firms must be looking over their shoulders at the likes of Rex Hammock, pitching a direct custom media solution, rather than their old-fashioned indirect route.

    If it turns out that the PR industry gets squeezed and no longer has the clout to distort journalists’ agendas, it may actually benefit journalism in the long run. Reporters can get back to the business of newsgathering without having to worry about rewriting press releases and wading through pitches for story ideas that turn out not to be news — but publicity and promotion.

    The collapse of the PR industry would transform sectors such as the magazine industry and morning television almost as thoroughly as a collapse in advertising. Can you imagine Good Morning America with no books to sell, no movies to promote, no fashions, no cosmetics, no gadgets? George Stephanopoulos could win back his self-respect!

    • http://www.buzzmachine.com Jeff Jarvis

      Andrew,
      There’s another theory that says more money flows to PR and away from ad agencies as this new world grapples with relationships, social, all that. I don’t have hard figures on the relative performances of companies in each sector.

    • http://rexblog.com Rex Hammock

      PR companies are desperately trying to become “content marketing” companies, but have you ever seen the “content” that most PR companies create? I mean, I love you PR guys and all, but one of the reasons my company exists is that 20 years ago, I ran a PR firm and realized that “controlling the message” and creating great content are nearly always mutually exclusive.

      I hope that my previous comment did not imply that I believe “PR” types house-organ stuff will ever replace great media.

      It all goes back to the Cluetrain Manifesto. Great “customer media” is about realizing that “markets are conversations.” If I’m a customer of a company, I want that company to provide me with the knowledge, training, information and community I need to get the most out of their product — I *want* to be a good customer. If, instead, I get promotional stuff from the PR department that keeps telling me how great the company is and talks “at me” rather than “with me,” I’ll ignore the media that company is wasting.

      As traditional media go away, the “media-relations” PR mindset has to “go away” also. A few extremely savvy PR companies are realizing that. Unfortunately, most are just adding titles like “social marketing” and “content marketers” but still viewing their jobs as developing and pumping out releases.

    • Andy Freeman

      > Reporters can get back to the business of newsgathering without having to worry about rewriting press releases and wading through pitches for story ideas that turn out not to be news — but publicity and promotion.

      What is it about money that blinds journalists?

      The commercial stuff is the small stuff. It’s the policy shilling that’s important. And that shows no signs of letting up.

      The only thing unique about Journolist is that got some disclosure.

      • http://www.tyndallreport.com Andrew Tyndall

        Freeman —

        That Journolist phenomenon was strictly inside-the-Beltway. The magazine sector, discussed here, is preoccupied by consumers and their products, not politicians and their policies.

      • Andy Freeman

        Do you really think that consumers care whether Maytag plantedd a story extoling their dishwashers?

  • http://onethingtosee.com Josh

    Completely agree with this. Not only do I think that advertising is dead, but I think the death of advertising is going to drag traditional media companies so far down that the current struggles of newspapers and magazines are going to look tame by comparison.

    There’s a lot of people (advertisers and the companies that take their money) that really don’t want to see this happen, but there’s nothing they can do to stop it at this point. The game’s changed.

  • http://Kempton.ideasRevolution.com Kempton

    Hi Jeff,

    Can you fix the link embedded in the word “hear” please? It looks a mis-formated link.

    “So it is astonishing to hear its CEO, Chuck Townsend, essentially …”

    Thanks.

  • Hans Suter

    it’s a good moment to reread Howard Luck Gossage’s “Can advertising still be saved ?”

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  • andrew

    this is a terrible article. truly awful. please stop writing, period. jesus goddamn. shut up.

  • http://www.twistimage.com/blog Mitch Joel – Twist Image

    A couple of additional thoughts:

    1. You’re using the old advertising/marketing models in new channels. If Publishers attempt to re-invent advertising (think Google AdWords), a new form of advertising may emerge that could prove to win over consumers and drive significant opportunity. You’re right, this won’t work if we’re thinking new publishing but old advertising.

    2. Advertising is not screwed. Advertising as we knew it to be is screwed. There are many more choices, options and opportunities. Publishers need to decide if they want to re-imagine publishing or if they’re comfortable with stagnant and potential drops in sales as consumers have more choice. Innovate or die (as the saying goes). On top of that, if advertising were dead, why do certain 30-second spots have millions of views on YouTube? Advertising isn’t dead. Bad advertising is dead.

    3. Advertising is but a piece of the Marketing puzzle (think CRM, affiliate programs, etc…). If Publishers start thinking more about the Marketing vs. the Advertising, they will win a lot more mindshare. Think of the data and opportunity to connect the dots in a more effective manner.

    4. The publishing game to these people is simply “copy & paste”. I don’t understand why these “publishers” can’t create new “publishing” platforms online. Why couldn’t the New York Times come out with Craigslist, Blogger or Foursquare? To me, publishing online is not about copy & paste… it’s about publishing.

    5. The writers themselves have to up their games. People are willing to pay for great and unique content, but the truth is that most Bloggers are hustling harder than these journalists. Give e unique content and I’ll pay (like I did when I bought your book, What Would Google Do?). Great content always rises to the top, this is where they’re struggling too.

    • http://blog.famebook.com Jan Simmonds

      Great response Mitch!

  • http://www.comradity.com Katherine Warman Kern

    @jeffjarvis your statement “Advertising is F**ked” is not news. The news is that traditional media is looking for new business models. And this is good news. Time to stop putting lipstick on the pig and develop a “consumer” centric product.

    One way to do that is to start with the question – what would be worth paying for?

    Katherine Warman Kern
    @comradity

    • http://blog.famebook.com Jan Simmonds

      … all roads lead to Famebook ;-)

  • Tim White

    Tradtional media still hasn’t figured out how to monetize its exisiting network. Content is only a tactic to build audiences. Creating revenue streams via e-commerce solutions is their last chance for survival for many at this juncture–and it’s a good one. Witness in the past month or so, many tradtional publishers (McClatchy, Gazette, etc) have introduced white label “deal of the day” programs in order to create revenue streams. It is this kind of thinking, seeking out viable e-commerce soultions and introducing them to their subscriber-base, that offers these oublications their last best chance.

  • http://blog.famebook.com Jan Simmonds

    If Conde Nast is at a point where it is kidding itself that they can monetize where all else are failing then there is a lot more at stake than just advertising. This would signify the bell tolling on style and elegance and a grey new era of dumbed down mediocrity.

    There is a way through for Conde Nast and it doesn’t involve a paywall. Some of us aren’t satisfied having our online world dominated by user-generated graffiti walls and homogenized pseudo hyperlocal offerings, which are of equally limited long term value in my opinion. We as audiences will always veer towards ‘the best’ and that’s where the advertising dollars will follow. Noone has captured that elegantly online yet but we will. In the meantime, if Conde Nast do throw the baby out with the bath water, they will be replaced. (Happy to receive CV’s)

    Top notch content will prevail, but the channels which deliver it are yet to be defined I believe. I’m biased of course, but mark my words, all roads lead to famebook!

  • http://www.shanacarp.com/essays ShanaC

    Honestly, they could do advertising, they just have to clamp down control of the advertising. One of the reasons Gilt Groupe succeeds is that in a way, it’s an advertorial. Same with Vogue print edition. You can look at glossy ads in context to the articles. The web is making display ads very difficult to match- if the ads were well branded to the content and actually fit the same way the glossy ads do, while I am not sure it would equal clicking, it would equal noticing and brand awareness.

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  • http://blog.ericreasons.com Eric Reasons

    I really think we’re going to see a few sectors of traditional economy slide off into the sea, as it were; marketing and advertising not least among them. This economy is being bifurcated between that which is actually scarce, and that which used to be scarce:

    ” Journalists, auto workers, record industry players, retail sales clerks, and marketing staff are forced to go looking for work in shrinking markets. These businesses are either suffering from old business models based on increasingly artificial scarcity (newspapers, music, marketing, software development), or are able to do more work with the fewer resources due to the newly created efficiency (retailers). In short, businesses relying on artificial scarcity created by intellectual property law, are businesses most susceptible to deflation.”

    http://blog.ericreasons.com/2009/06/intellectual-property-and-deflation-of.html

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  • realguy

    “Advertising is fucked”

    ” …shrank like George Costanza’s privates”

    Please get some class and some decency

    Is this the state of world today – vulgarities, cursing… obscenties…

    You all are so desparate for attention…

    What an ugly world you are all creating for you children.

    You need to step back at take a look at yourself.

    regards

    • http://www.buzzmachine.com Jeff Jarvis

      I’m not in your kindergarten class.

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