What NY dotcom couple tells us about the future

These are get-real times for traditional newspaper and magazine publishers. The winners will be those who recognise 5 basic truths:

1. Paying content: The wake-up starts here. A new book by US journalism professor C.W.Anderson* gets to the heart of the “journalistic hubris” that prevents life-saving change across traditional media: an attitude that sees original reporting as the only true journalism, with no tolerance for curation, aggregation, or digital outlets like blogs and social media.  It is too ironic, therefore, that seemingly pampered readers have seldom paid “enough” for newspapers and magazines – and they’re not going to start now. Advertisers have been delivering the profit, and they remain much more willing to pay for consumers than are those same consumers willing to pay for content. But advertisers are also paying less for more. Just watch (or join in) the quickening growth of free (or micro-priced) magazines, newspapers, digital media – and content generated by (and with) readers and marketers. 
2. Moving pictures: The bursting growth of video-streaming is creating some TV-scale media channels and will help non-broadcast operators compete for what have been watertight (and huge) TV budgets.
3. Social networks: are the best (and lowest-cost) promotional channels for all media. And good content too.
4. Digital first: There’s still money in print but publishers with ambition must turn themselves inside out to become platform-agnostic, delivering appetising digital content and functionality. Stand by for the mobile tsunami in content, ecommerce and interactive services. That’s the next big break-out opportunity for, and threat to, traditional media – and even to existing online operators.
5. Audience insight: Newspaper and magazine brands must re-invent their traditional skills to captivate consumers and  compete in an ocean of digital media and retail channels. It’s so much more than knowing what the audience wants to read.

Behind those five simple statements is the need for completely new business models with the inevitability of: reduced revenues from ‘flat’ advertising; increased costs through video, technology, and new skills; and lots of new-style, punchy competitors. That’s the price of digital competition, worlds away from cosy, neatly-separated media sectors.

However, the good news for traditional publishers is that hard copy can still thrive. The bad news is that only the strongest brands will make it – and then only with lower content costs and some vital new skills.

That is one lesson from Europe’s increasingly successful free newspapers and magazines.  Many are highly profitable on revenue levels that are loss-making for their high-cost, paid-for rivals. That’s the legacy company problem.

Consider the magazine emperor Conde Nast (no slouch in the digital stakes), which finds itself squeezed in the weddings sector – by the XO Group, a $250m New York company launched in the dotcom 1990s. More than that, XO (formerly The Knot) is showing how printed magazines can be reinvented to drive the profitability of video-rich digital media.

TheKnot.com was launched in 1996, by four friends from New York University’s film school. Two of them, David Liu and Carley Roney claim the business sprang from their own wedding prep. Roney says: “When I got engaged in 1993, my now-husband (and business

partner) and I were excited like any other couple, but quickly realized the resources available at the time couldn’t help us. I was working 70 hours a week and no vendors were open when I finally could sit down and plan after 7 p.m. There were no etiquette tips for modern couples. I couldn’t find any ideas on how to plan a wedding for a little blonde girl marrying a 6 ft. tall Chinese guy – never mind finding a red wedding dress, since my future mother-in-law informed me that white was the Chinese colour of mourning! If that weren’t enough, we were also planning and paying for the wedding ourselves and couldn’t find any tips on how to even start.”

Liu and Roney somehow managed to get married (“a proper fun disaster”) and then set out to reinvent the way couples plan their weddings – and they took the market by storm.

TheKnot.com quickly became the country’s most popular (by far) online wedding site and is now flagship brand of a media business that profitably spans video streaming, ecommerce, national and regional magazines, custom publishing, books, broadcasting, events, and is all over social media. Today TheKnot.com and its ecommerce gift registry site WeddingChannel.com reach nearly 2m US brides annually. America’s leading wedding-planning resource has been joined by TheNest.com and TheBump.com for young couples and first-time parents, and now TheBlush.com on beauty, health and fashion. And Carley Roney is the company’s glamorous public face on chat shows all over the country.

Liu gushes enthusiasm for the life and times of his amazing company:  “Media is now a platform of services. Prior to The Knot, and specifically prior to the internet, there really was no single destination where you could plan your entire wedding, find your caterers, photographers, musicians, browse locations, find out what the marriage license requirements are in your local area, register for gifts, book a honeymoon, find the wedding gown. All of these things were multiple, individual tasks that had to be done in very separate places. Our mission with The Knot was to create a single destination for a bride and groom who are really pressed for time, thereby make the planning process that much easier.”

XO Group floated in 1999 and survived the dotcom bust. It now has annual turnover of $130m, operating profit margins of 15% and 700 employees.Liu as CEO and Roney as Chief Content Officer  have succeeded because they made their online service a fun, hip, user-generated, tech-strong resource in what had been a dusty, tired magazine sector. They describe XO as the country’s “leading media and technology company devoted to weddings, pregnancy and everything in between”.

Its annual Bridal Fashion Week is video-streamed across the US with huge audiences, advertising and sponsorship. In reality, the company envelopes its target audience in a way that is reminiscent of the very best B2B media groups which span information,

exhibitions, consultancy, and conferences. But XO is more significant than that. At a time when consumer publishers across the world are desperately trying to find ways of returning their magazine and newspaper franchises to long-term profit, here is an established digital-first business also making the most of hard copy. Liu says that, even when they launched TheKnot.com on the then so-powerful AOL, he and his film-mad colleagues were always planning to publish magazines as part of their wedding ‘network’.

He told Flashes & Flames: “I think there is something uniquely tactile and luxurious about looking through a magazine. It has the ability to please the consumer in ways that digital can’t. We realised very early on that magazines were an essential opportunity to extend the brands we were building. But we look at publishing through fresh eyes. Part of the problem of legacy publishers is that that they have bad practices that don’t make sense anymore. Like, here in the US, where they almost give the magazines away for very low subscription prices or with pricy gifts so they can guarantee a rate base and chase the advertising dollars. They have been making a terrible mistake in commoditising advertising and it has been bad for the published product. Instead, we are winning in the wedding market because the competition tries to sell them a ‘flat’ advertisement in a magazine and we are selling a wide range of services both to readers and marketers.”

Liu says his pioneering ecommerce operations, which contribute some 25% of total revenues, are highly profitable but also important to the company’s advertising sales story because “they show clients we are in the same boat and are results driven  – which is a whole different story from the traditional way that magazine publishers hype the circulation and then try and get as many dollars as possible for advertising without worrying what impact the ads will have and what sales they generate.”

The XO boss believes his company’s genesis in the wild west world of movie production helped ensure its entrepreneurial flair and can-do approach to media. And now, he’s full of advice for the traditional publishers he has spent the last decade attacking:

• “Hard copy, done well still works when it is executed in a way that is exciting and valuable to the consumer. look at The Economist.”
• “Digital technologies have made the consumer king. Publishers still haven’t really grasped that technology wrings out the inefficiencies in the system and exposes poor service.”
• “Traditional media always had room for a No.1 and a No.2 product. Technology has a tendency to create monopolies. It’s winner takes all with a big gap between No.1 and No.2. So things are going to get tougher for many companies.”
• “Video-streaming will be transformative for the whole media industry. Live programming is the way to retain value. If you look at TV, everything else has deteriorated but live sports has remained strong and profitable.”
• “Consumers will, if anything, need more help in finding their way round the internet as consumer choice explodes. So there will be a premium placed on strong, trusted media brands, whether Vogue, the BBC, Cosmopolitan, Harpers or The Economist.”

David Liu warms to his theme: “The whole debate about pay walls is misplaced. What was a consumer paying for in the first place when you think about traditional media? Was it really “the media” they were buying? Or were they paying for companies to put it in a newspaper, load it on a truck and deliver it? People were largely paying for the manufacturing and “productizing” of the content. That’s no longer there anymore with online. The consumer isn’t going to give you fat margins anymore just because they want the content.”

But Liu knows that there are systemic challenges ahead for his business too. He sees the coming explosion of mobile as a hugely disruptive ‘third wave’ that will “make existing media look quaint, whether in digital or hard copy. Mobile will be the chance also for the best traditional media companies to get back in charge because the sheer interactivity and levels of functionality available (much of which we have not yet seen) will disrupt a lot of digital natives as well as the immigrants.

He adds: “That is where the big brands can capitalise on their reputations – but they will have to change the way they do business. For publishers, that means an end to regarding digital operations as something on the side of a magazine or newspaper and run by the IT department.  You have to build a modern media business round the wants and needs of consumers, and use the technology and functionality to satisfy them creatively.”

Like the new-wave digital companies facing attack from yet-newer mobile operators, The Knot is busy swatting competitors from blogs, regional websites, and online scrapbook Pinterest. But Liu and Roney keep moving. Their newest whiz is the video-streamed “Dream Wedding” where viewers are voting Xfactor-like for a couple they want to see married, and then for all the details of the wedding. Last week, they announced that an LA couple had been selected to be married in New York on Valentine’s Day. Next week, voters will decide on the rings, bridal dresses, the cake and even the bride’s make-up and hairstyling. It’s gripping stuff for hundreds of thousands of people and is firing up The Knot’s ecommerce, advertising and sponsorship revenues.

It’s just the latest innovation from the company that is all over what is the world’s second biggest wedding market. But The Knot is also chasing the biggest with its fast-growing 2011 launch into China. And they have a newly licensed business in Australia. XO looks a bit like a 21st century version of the businesses in the US (American Baby) and UK and Australia (Bounty) which once developed imaginative, database ways to dominate the thinking, planning and buying by pregnant women as they moved through pregnancy and childbirth. And, whether or not XO manages to grow profits from childcare and first-homes as successfully as they have with weddings, this really does look like the way to develop platform-agnostic media in an era of channel convergence.

Why wouldn’t this ‘wrap-round media’ model work in fashion, health, food, sports, and almost everywhere else? And wouldn’t it work just as well within the vertical sections of mass market newspapers and magazines as in specialist, magazine-centric media?

Liu says: “We’re really building the blueprint for a media company of the 21st century.”

That ‘platform-agnostic’ blueprint means having strong teams continually developing research and insights into audience behaviour, and smart technologists to devise solutions. As Liu says, it’s the opposite of a magazine or newspaper editor coming up with an idea at the water cooler for a new web site or ipad edition, something ancillary. “It’s all about being absorbed and immersed in your readers lives, not hitting and running.”

David Liu and Carley Roney are not alone in demonstrating the power and profitability of “media neutrality” and deep-down specialisation. But XO Group is a fine demonstration of how new and old media can be fused to create  strong, modern multi-media brands. It also, though, underlines the scale of challenge for legacy publishers.

At the very least, traditional companies must fundamentally change their organisations, in much the way that Professor C.W.Anderson is suggesting for daily newspapers*. The business model must address seismic changes in reader values and advertiser appetites. But there’s more. The editor can no longer be the king or queen of an ambitious media brand. No more devils in Prada. The content team must share parity, power and funding with strong teams devoted to ‘audience insight’  and digital development. Liu says almost one-third of XO Group’s employees are “technical”. How’s that for a different kind of media company?

Flattening the publishing company hierarchy may, indeed, be the key to ensuring that a magazine or newspaper (whether digital or hard copy) can become a versatile media channel for the future. Otherwise, the traditional hard copy brand may not survive at all, let alone help to revive a threatened business. There’s a lot of kicking and screaming to come.