about the image above

April 20, 2014

The Avatar Advantage: Big Media…and Bigger Media

Important Details: This weekend, Avatar bust well through the $2 billion mark at the box office. With that unprecedented Hollywood success, great publishing fortunes may flow. What’s the connection?

Avatar was produced and directed by 20th Century Fox, owned by News Corp, which is also now the number one news company by revenue worldwide. News Corp holds only a small slice (5.5%) of worldwide news revenues (see 2009 Information Industry Market Size, Share  and Forecast Report, Dec. 15, 2009), but it’s the fattest slice. While its three-continent publishing and information division suffered like their brethren in 2009, the division did manage a profit of $259 million for its just reported quarter.

That relatively small profit is not the number to focus on. Avatar’s number — $2 billion in revenue and $1.5 billion in pre-tax profits — is. Call it the Avatar Advantage.

In my new book, Newsonomics, I suggest that a “Digital Dozen” is emerging, twelve-plus companies that have global ambition and great multi-continent opportunity given low-cost digital distribution. Among these Digital Dozen news companies – which include the BBC, US TV networks, NPR and national newspapers in both the US and UK – we’re beginning to see a pronounced divide. There are large news operations that are part of large news/entertainment conglomerates and then there are standalone news companies. Which brings us back to the Avatar Advantage.

While News Corp’s news operations face a challenging ad market longer-term, a point CEO Rupert Murdoch has repeatedly emphasized, it has the advantage of relying on non-news revenues for 80% or so of its income.  Avatar, and hit shows like American Idol, can make a huge difference in News Corp’s overall fortunes — and in what it can afford to do to invest, and even subsidize as necessary, its news operations.

Bloomberg‘s position is similar to News Corp’s. Its revenues are not dependent on advertising revenue related to news. The great majority of Bloomberg’s revenue comes from the licening of its 280,000 or so terminals in the enterprise. As Andy Lack, Bloomberg’s CEO of multimedia, put it last week at the Software Information Industry Association conference in New York City, “The reporters are a value-added service for the data. If you’re a journalist, being associated with an enterprise that has that structure is a beautiful thing.”

Likewise Thomson Reuters‘ news operation now operate within a much larger company, contributing less than 10% of the company’s revenues, or CNN, part of the giant Time Warner. Potentially, the BBC has great resources to fall back on.

Compare that to the situation of news standalones like National Public Radio, Telegraph Media Group or the New York Times.

The Times’ situation is particularly pertinent. Since News Corp acquired the Wall Street Journal, as part of its Dow Jones purchase in December 2007, the WSJ has been slowly transformed from a national business daily into a head-to-head national newspaper competitior to the Times. The changes are many: more general news production, presentation and design shifts and an aggressive cirulation push. The goal: advance the Journal and humble the Times, which struggled to bring in something less than $2.5 billion in revenues last year (it is reporting full-year on Feb. 10.), close to the line on profit of any kind.

While the Times struggles for a a sustainable future, News Corp could draw on those pre-tax profits, as needed, from Avatar alone, if its leadership wants to. That’s a David-and-Goliath battle.

Implications: With news company business models under scrutiny, another question arises: Is the age of the for-profit national/global standalone news company coming to an end?  If the ad business model for news doesn’t find substantial revival, will news operations have to fit into a bigger company, a company that may be able to justify their investment to feed related products and wider distribution?

That’s a big question, which, of course, raises others about who will control global/national news producers, and how closely their values will align with traditional journalistic ones of publishing with neither fear nor favor.

It’s a weighty question, and one faced by local/regional news companies as well.  On a national/global level, today, it’s easier to see how the Digital Dozen are diverging, though, than it is in the more unsettled, but fast-changing local news landscape.

One thing is certain though: The new realities of the news business are leading us to terra incognita.