Now that we are several years into the digital transformation of big journalism, it is clear that revenues and profits are going to be harder to create and sustain, writes Matt Lindsay, president of Mather Economics

The reasons for this are changing consumer preferences, new competitive entrants and greater operational complexity enabled by the Internet and mobile computing platforms.

Managing this new newspaper operating model requires an understanding of where profit is being created in the organization, which is often not clear when products are bundled, costs are shared and customer segments are highly differentiated.

The airline industry is a good example of how data and analytics are required inputs for businesses to compete successfully. Airlines need to have data and understand available inventory, network effects on their costs, customer profiles and competitive behavior. Data supports analytics on all of these aspects of their business, and those analytics are implemented in the form of routing optimization, ticket pricing and customer loyalty programs, among others.

Publishers are in a similar position. They need to understand what content is driving audience engagement and subscriptions, how different customer segments consume the content and which customers are willing to pay and how much they will pay. Similarly, they need to understand what advertising inventory advertisers are demanding, the value of that inventory and what inventory remains available.

Several strategies are available to newspapers. They can remain free to digital audiences in order to create as much advertising inventory as possible. Conversely, they can limit free access to digital audiences and sell subscriptions. They can offer bundles of digital and print products that are defined by content category or platform (print, browser, mobile.) Data and analytics are needed to understand the strategy that will yield the greatest long-term profits.

When a newspaper decides to place a meter on its site, they need to understand the opportunity cost of limiting access to the content to the digital audience. That opportunity cost is the foregone digital advertising revenue from the inventory placed behind the meter. Similarly, when a newspaper elects to have a free site, the opportunity cost is the lost subscriber revenue that could have been received from subscriptions sold via the digital channel. For newspapers with different online audiences and competitors, these relative revenues and opportunity costs will depend on demand for their products and advertising inventory, the size of their audience and other quantifiable factors.

One approach newspapers can take to create a sustainable competitive advantage using data is in defining audience segments using data they have on their customers that is not available to competitors. It has been observed that newspapers cannot achieve a sustainable competitive advantage using data purchased from third-party providers since this data is available to everyone, it is expensive and it often is not of high quality. Marketers are targeting their advertisements to specific audience segments, and they will pay a premium for access to those individuals. If newspapers can deliver highly targeted and verifiable advertising inventory, they can charge a premium price to advertisers.

In conclusion, it is important to note that data by itself is not valuable. It is only when data can be operationalised through analysis and implementable recommendations that it generates revenue and profits for newspapers. Necessary inputs for that process are specialized hardware, software and analytical skills. Unfortunately, these inputs are often expensive and hard to manage effectively. For that reason, it often makes sense for newspapers to hire vendors that can work with data to create actionable insights. The data should remain the property of the newspaper regardless of whether the analysis and implementation are done internally or externally.

There is a future for newspapers in this new era of digital delivery platforms and products. Those publishers who can harness the power of data and analytics will be the ones to survive and succeed.

Matt Lindsay is president of Mather Economics. He can be contacted at matt@mathereconomics.com, +1 770-993-4111.