local media insider

Don't get squeezed, get ripped

Alisa Cromer
Posted
Whose squeezing whose margins now?

Welcome to 2014.  While everyone is back at the gym, I thought this might be a time to set the stage for managing your media business this year with a fitness metaphor. 

This is the year that media will get strong or get squeezed out by competitors on all sides. Our job is to show you how to "get ripped" - strong teams, great products, remarkable results for readers and merchants. 

If you followed this site last last year, you've seen the updates on merchant planning for 2014:  Less legacy advertising, more digital marketing. Cutting channels that don't show measurable results in favor of those that do. 

If you have been following this site from its inception, you already know we advocate - along with Borrell Associates and many other experts - for media to be aggressive in transforming product suites and organizations to adapt new digital business models. 

(For new visitors, or a refresher on how we all got here, review the Three keys to confronting dispruption here and how to Leverage and separate a media company here.)

Most large media companies  have already started down that road - pursuing a larger share of customer or chasing the vast and surging market of non-advertisers who buy low priced visibility services. 

But these changes also have new challenges. Not all digital agency service start-ups are seeing the same results.  Many have been frustrated by low margins, slow fulfilment, failure to achieve results for merchants, unacceptable churn and competition on all sides.

Two slides from a year's worth of conferences in 2013 stuck in my mind and sum up the core issues. Both were  part of a presentation made by Chris Lee, president of Deseret Digital, arguably the boldest innovator among media companies in the digital space, at the 2013 Digital Agency Summit.  Here's the first: 

When Lee popped up this slide, he noted that inspite of his company's commitment to selling digital services such as Google AdWords management, the truth is that margins are low. Too low.

Instead of an incrememtal 80% margin on the next print or broadcast ad, average margins of 30% for digital services only kick in after start-up costs have been absorbed and require a different sales plan.

Why you say, can't media live with 30%? Well, the pesky little problem of maintaining a sales force wtihin that range.

Lee's theory is that careful attention to the problem has allowed KSL to solve the puzzle, by combining a true needs analysis with higher margin upsells to legacy display ads, or - in the case of telemarketing - higher volume sales, and close attention to costs. His next slide is worthy of cutting out and posting above your desk: 

Typically, disruption has been effective precisely because new models are difficult and low margin.  The mainstream industry initially refuses to chase - and therefore cedes -  this business to disruptors, who gain ground and crucial expertise, then move up-market. in this case, disruptors include not just Google and Facebook, but also ReachLocal and thousands of digital agencies who are willing to work the lower margins.  Some of them used to work for you. 

However, as Lee's second slide shows, legacy media with its core products and vast pool of proprietary digital inventory has huge advantages over agency start-ups - almost no overhead, experienced managers on the team, and a plethora of excess direct inventory that agencies have to purchase. And that's just for starters.

Our job in 2014 is to help provide clarity on directions and tactics that make the difference between your digital teams getting  squeezed or getting ripped, starting with this week's reports, Recruiting the Dream Team of Digital Hunters, Ten Best Reources for Advertising to find  Hunters and a Recruitment Ad that Works. 

The author, Alisa Cromer is publisher of a variety of online media, including LocalMediaInsider and  MediaExecsTech,  developed while on a fellowship with the Reynolds Journalism Institute and which has evolved into a leading marketing company for media technology start-ups. In 2017 she founded Worldstir.com, an online magazine,  to showcases perspectives from around the  world on new topic each month, translated from and to the top five languages in the world.

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