What we can learn from the transformation of The Washington Post A case study
The digitalization of contemporary life has caused disruption in various sectors of the economy, creating opportunities for companies that have developed the discipline to think strategically and innovate, but at the same time vital threats for those that have failed to evolve and anticipate the spirit of the times. Newspapers are one of the segments that have been hit hardest around the world. Those that still survive, with profits tending towards zero or dodging a negative cash flow, are struggling to find a way out of a business model that has lost sustainability in the principles that brought them to this point.
There are countless causes that together constitute the hypocenter of an earthquake that has destroyed the pillars of the traditional newspaper. Among them, it is worth bringing together some that are fundamental to understanding the transformation in demand behavior...
Daily immersion in the Internet universe, through smart phones and tablets, has completely changed reading habits. Multitudes have lost confidence in traditional press outlets, which have become supporting players on the stage of social networks and digital media - where each of us has the power to be the editor of our own publications and an influencer of collective thoughts. The black swan of fake news (an icon of the post-truth era) has revealed the dangerous side of the Internet, which has become the best place to lie and disguise the veracity of facts. The emergence of the number of likes as the main indicator of personal success has left people obsessed with creating posts that go viral, regardless of the integrity and quality of the message. Increasingly pressured by a lack of time, a heavy workload and an overdose of information, people are forced to make non-choices of reading in their daily routine - the physical newspaper, although much easier to navigate due to its variety of texts than the digital version, is a symbol of this excess that causes cognitive overload - and fatigue - which makes readers prefer the short messages of the feeds that frequent their cell phones.
The damage of this context can be illustrated by the violent fall in subscriptions and the pulverization of the advertising market. According to the Newspaper Association of America, US newspapers reported a 55% drop in revenue between 2007 and 2013. In August 2013, the New York Times couldn't hold on and sold the Boston Globe for $70 million, having paid $1 billion for it in 1993.
Newspapers' efforts to adapt to this new world have generally focused on three main fronts: creating a digital version of their content and making use of social networks and digital applications as distribution channels; reducing costs in order to remain viable in the face of a sharp drop in subscription and advertising revenue; and improving their macroeconomic and sectoral databases in order to sell information to companies. Unfortunately, when cutting costs, many newspapers end up losing key journalists, undermining the soul of the newspaper, which is the quality of the content. This strategy has not been enough to keep many of these organizations afloat, because it is based on adapting to the world as it is, rather than reinventing itself to regain relevance (and economic value) in the current context of extremism and uncertainty.
In these situations, the best thing to do is to convert the effects of disruption into epicenters of positive transformations in the business model. In other words, choose pillars of the business that need to be transformed and adapt the rest to reflect these changes in a consistent manner. A notable example of this logic of strategic innovation is what The Washington Post has managed to do since Jeff Bezos used his personal fortune to buy the newspaper in 2013 and reverse the spiral of crisis in which the paper found itself. A year before it was sold, the Post had lost almost 300,000 subscribers in 10 years - from 769,000 and a profit of $109 million in 2002, to 472,000 subscribers and a loss of $54 million in 2012.
Founder of the e-commerce and logistics empire, Amazon, Bezos has not taken on any executive position nor is he involved in the day-to-day running of the newspaper, but he has lent his strategic vision, based on boldness and courage, to mobilize a turnaround that has saved the Post and reinvented the newspaper. Everything Bezos and the Post's management team have done since then offers countless valuable lessons for any company, which I have tried to summarize in this article. The strategy includes 3 epicenters of transformation at the center of gravity of the business model: a new set of Value Propositions, supported by the development of new Strategic Resources and a focus on the pursuit of excellence in a few Key Activities to achieve the turnaround (Figure 1).
EPICENTER 1 - More value for the reader and a reframing of who your customers are
The central element of any company's strategy is everything you commit to delivering to the consumer you choose to serve and prioritize, which provides benefits far greater than the price they pay for the service and a perception of uniqueness in relation to competing offerings - we call these Value Propositions. It's worth highlighting 3 main changes at the Washington Post:
They revitalized their larger purpose, expanding the scope of their journalism beyond the day-to-day politics of Washington DC to cover the main events taking place around the world, with greater speed and intensity. Founded in 1877, the Post was once one of the benchmarks of journalism, most notably the Watergate case, which led to the resignation of President Richard Nixon in 1974. Bezos has retained Martin Baron as Executive Editor, an extremely competent and internationally respected journalist who became known for his work at The Boston Globe in the past, revealing the crisis of pedophile priests in the Catholic Archdiocese of Boston, documented in the film Spotlight - winner of two Oscars for Best Picture and Best Original Screenplay in 2016. In 2019, the Washington Post aired an ad during the halftime show of the American Super Bowl, narrated by actor Tom Hanks, which translated the newspaper's main purpose very well:
“Knowing empowers us.
Knowing helps us decide.
Knowing keeps us free.
Democracy dies in darkness”
They determined that the reading experience in the digital Washington Post should be much more enjoyable and thought-provoking than in the physical newspaper. This value proposition meant reworking the platform to provide more than just an online version of the newspaper. Thus, a significant part of the investment in technology, hiring systems engineers and designers was aimed at providing a unique browsing experience that would allow readers to quickly get to the stories that most interest them, with a diversity of multimedia content and strong user-friendliness centered on experience, with a “beautiful and relaxing” design, in Bezos' words.
They are committed to offering what readers need most today: content curation. Bezos has extensive experience selling books and other forms of knowledge through Amazon, which has resulted in the most advanced system for tracking reading habits and offering cross-references on a digital platform. In the age of abundant information proliferation, selecting what people really need and want to know has become a critical success factor for retention. This same strategy would be key to optimizing the return on investment in the distribution of free content on various open platforms (news apps such as Apple News, for example) and social networks, which allow articles to be sampled for free and, after a few readings, require the purchase of a digital subscription to the Washington Post in order to continue enjoying the content. Converting occasional visitors, channeled to the Post's website or app, into paid subscribers is the most challenging strategic objective for any newspaper (or magazine) today.
The new Value Propositions made it possible to diversify the client segments in three dimensions, creating new sources of revenue. The expansion of the Post's capacity to produce quality journalism, supported by technological tools capable of speeding up the creation and publication of content to keep up with the speed of the interconnected world, would allow the Post to pursue both large-scale (digital audience) and more sophisticated readers (elite audience). The focus would no longer only be on the Washington DC audience, but also on other US states and countries, mobilizing the internationalization of the newspaper. And to complete the strategy, the new Content Management System - called Arc Publishing –, developed to speed up the editing of multimedia content and the management of the news publishing process, could be licensed to other newspapers, anywhere in the world - a new source of revenue capable of generating more than $100 million a year. EPICENTER 2 - Investing in the really essential Resources
Every company is a finite pool of resources. One of the biggest challenges in executing the Strategy is to make the most appropriate choices (and non-choices) to allocate money to the human and material resources that will actually make a difference. Key People
Since Bezos arrived on the scene, the newspaper has reinforced its team of journalists in order to provide agile coverage and reflection on the most relevant facts in the United States and the world - over the last 6 years, they have hired 200 new professionals to replace the team that was left redundant by the crisis. In order to stem the bleeding of cash flow, the newspapers have been unable to make up for it by cutting journalists from the team in order to reduce operating costs. However, the measure is even more damaging to the heart of the company, because the reduction in journalistic capacity means that they are unable to offer quality content at the right time to compete with the creative intensity demanded by the digital arena.
To develop the new sophisticated content curation mechanism for readers and a faster and more accurate navigation system, they invested in hiring data scientists and systems engineers. In partnership with Google, they changed the engineering of the website and app to greatly increase the loading speed of content to milliseconds. Bezos made it possible to hire 35 new engineers to support the Post's newsroom.
Technological advances
To keep up with the speed of the interconnected world in the digital age, newspapers have transformed themselves into technology companies to better serve journalism. Making the new Value Propositions viable has required investments in new systems and equipment:
Arc Publishing – a package of content management systems developed (and licensed to other newspapers) by the Post that facilitates the publication of news, the administration of paywalls (software that defines what can and can't be seen for free on the site), the capture of readers' e-mails, and more;
Bandito – allows editors to structure articles with up to 5 different headlines, photos and story treatments, with an advanced algorithm that helps decide which of the options readers will find most attractive;
Loxodo – a set of tools to track strategic performance indicators for the Post: how readers perceive the quality of the Post's journalism; speed; and assertiveness of the mobile platform's alerts; among others;
New facilities for video production – short documentaries and live coverage of debates and other events;
Websked – a tool that provides centralized control in the newsroom, and allows editors to see what is being worked on in video, photos and blogs. The system sends deadline alerts for journalists to close and publish their stories. With the renewed team, oriented towards more intense content creation and with the right tool, it has allowed the Post to produce twice as many online articles with 700 people, than the New York Times with 1,300 in the same period;
Sophisticated algorithms to select reading recommendations tailored to the interests of each reader, based on data analytics, delivered in newsletters via email and app (smartphones and tablets).
Two years after the acquisition by Bezos, the Post surpassed the online traffic of the New York Times, with 67 million monthly visitors, an increase of 59% in just one year. At the end of the third year, they passed the 100 million unique visitors mark and in September 2017, four years later, they passed the 1 million digital subscribers mark. In February 2018, the Washington Post was voted the 8th most innovative company in the world in the traditional survey by US magazine Fast Company, in a ranking made up of new economy leaders such as Apple, Netflix and Amazon itself. EPICENTER 3 - Focus on Cultural Change for the new model to work
One of the main challenges of the revolution inside the Post was to help editors and reporters think digitally and change the way they work. In any business model, understanding the customer's profile, accepting that they think differently from you and adjusting the message to promote a connection and a lasting bond are permanent challenges. That's why today the practice of empathy, favored by Design Thinking, is here to stay in the strategic reflection processes for creating products, services and new business models.
This is perhaps one of Jeff Bezos' most important - and least talked about - contributions to the transformation of the Washington Post. Bezos succeeded in creating a culture centered on the digital consumer experience and in implementing fronts of innovation in technologies and processes at Amazon. Despite the remote day-to-day governance of the Post, Bezos was able to engage the C-Level in fostering a culture of encouraging experimentation, respecting the past and the accumulated knowledge at the Post that should stand the test of time, but at the same time stimulating innovation. Bezos has become the ambassador of the vision of the customer who is no longer the same as the one who has accompanied the Post's history - young readers are increasingly looking for alternative formats, such as podcasts, videos and social media channels. This awareness has become the newspaper's main vector for transformation.
Bezos suggested very significant changes to the reward model, which is a key element in cultural change programs. The number one indicator of impact on the bonuses of key people, until his arrival at the Post, was Operating Profit. When revenues were falling, they cut costs. When Jeff bought the Post, in 6 months he changed the criteria and now there are 3 strategic indicators:
The manager's speed in implementing strategic initiatives
Commitment constraints identified and transformed to push experimentation
Managers' level of engagement with the decisions made
Thus, Bezos encouraged debate, but with a difference: people can discuss as much as they like, but when they reach a consensus, no one else has the right to sabotage the decision and must remain committed to implementation.
LEARNINGS AND FINAL THOUGHTS
Jeff Bezos is one of the richest men in the world, with a fortune valued at more than US$130 billion, and he bought The Washington Post in 2013 for US$250 million, ending 80 years of leadership by the then Chairman and CEO Donald Graham, a member of the founding family. At the beginning of 2013, Graham hired the investment bank Allen & Co. to find a buyer for the Post, as the company and the directors no longer felt able to find a strategic exit for the business. At the time, the valuation of other similar businesses indicated that the Post was worth no more than US$ 60 million (3.5 to 4.5 times annual EBITDA), less than a quarter of the amount paid by Jeff Bezos (17 times 2012 EBITDA, estimated at US$ 15 million). Graham gave the price, and Jeff agreed.
I've heard some analysts make comments that, in my opinion, are wrong... First, claim that Bezos' fortune saved the Post. There is no doubt that Bezos' investment capacity made the transformation of the business model possible, because it enabled the technological advances needed to reinvent the company. However, business history is full of cases where abundant money, without a clear vision and strategy, didn't make the slightest difference.
Now, one fact is inexorable: experimentation requires cash. Cash allows you to bet on technologies that may take a long time to take off, and testing new ideas can mean spending money with no short-term financial return. The mistake we should all avoid, therefore, is failing to invest in the prosperity phase because the company is intoxicated by the success of the business as it is, or short-sighted by the effect of active inertia. Many companies wake up to the need to be bold in reinventing the business when it is in crisis - and the fear of the death of the company catapults people out of the box. We can't wait for the business to go into crisis (because one day it will) to finance periodic strategic reflections, prototyping of new business models and experimentation that involves the allocation of resources. The Post ceased to be a publicly traded company when Bezos acquired it. This also favored experimentation. When newspapers went public in the 70s, 80s and 90s, cost-cutting to satisfy investors gradually reduced the journalistic capacity of these organizations, even before the devastating impact of the internet. Public and pulverized ownership also reduces management's appetite for investment in necessary innovations, which can take time to return dividends to shareholders - making cost-cutting the path prioritized by so many newspapers. The second current thought, in my view also mistaken about the fact, is that Bezos bought the Post in order to have heavy press artillery in his possession, to counter frequent attempts to form negative opinions about his person and his business decisions. I don't believe that. In fact, we've seen billionaires buying businesses in dire financial straits for the pleasure of fulfilling the last rung of Maslow's Pyramid: the sense of legacy, of contribution to the world. It's what drives wealthy men, in their maturity, to take on the leadership of failing Museums and Theatres, to buy classic Magazines that need help to transform, and even wineries - a business that everyone knows is very difficult to sustain. Bezos said in an interview that “my governance of The Washington Post and my support for its mission, which will remain unwavering, is something I will be most proud of when I'm 90 and reviewing my life, if I'm lucky enough to live that long”.
Taking over one of the best witnesses in the history of American democracy, seeing the company sustainably turn a profit for the last three years, is a full plate for Bezos' sense of legacy.
SOURCES FOR THOSE WHO WANT TO DIG DEEPER AND WHERE TO FIND RELEVANT DATA AND FACTS ABOUT THE WASHINGTON POST AND JEFF BEZOS BEZOS, Jeff. No thank you, Mr. Pecker. Medium. February 2019. HINDMAN, Matthew. Stickier News: What Newspapers Don’t Know about Web Traffic Has Hurt Them Badly—But There Is a Better Way. Shorenstein Center on Media, Politics and Public Policy, Harvard Kennedy School. Fall 2014. KENNEDY, Dan. 5 things publishers can learn from how Jeff Bezos is running The Washington Post. NiemanLab. Niewman Foundation at Harvard. June 8, 2016. KENNEDY, Dan. The Bezos Effect: How Amazon’s Founder Is Reinventing The Washington Post – and What Lessons It Might Hold for the Beleaguered Newspaper Business. Harvard Kennedy School Shorenstein Center on Media, Politics and Public Policy. June 8, 2016. KROLL, Luisa; e DOLAN, Kerry A. The Richest People in the World. Forbes. March 5, 2019. LAUNDER, William; STEWART, Christopher S.; e LUBLIN, Joann S. Bezos Buys Washington Post for $250 Million. The Wall Street Journal. 5 August 2013. POPE, Kyle. Revolution at The Washington Post. Columbia Journalism Review. Fall/Winter 2016. ROSA, João Luiz. Como Jeff Bezos mudou tudo no Washington Post. Valor. May 28, 2019. SABA, Jennifer. Amazon's Bezos pays hefty price for Washington Post. Reuters. 7 August 2013. SOMAIYA, Ravi. New York Times Plans to Eliminate 100 Jobs in the Newsroom. The New York Times. October 1, 2014. VALINSKY, Jordan. Washington Post tops New York Times online for first time ever. Digiday. November 13, 2015. MELE, Nicco. In Search of a Business Model: The Future of Journalism in an Age of Social Media and Dramatic Declines in Print Revenue. Discurso no Centro Shorenstein da Harvard Kennedy School. February 18, 2016.
Comments