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.“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.
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?”
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.