Older media companies should and do use many of the
cost-saving tools and techniques developed by new media companies. But this is
not a two-way street. New media companies cannot afford to begin producing
original news, advertising and other information.
All companies use the same business model: Revenue – Cost
= Profit. Another version of the model is
useful for understanding the differences between older and new media companies:
Average Revenue – Average Cost =
Average Profit
Google and Facebook are new media companies, and A.H. Belo
is an older media company. All three
companies are in the advertising and information business, but in very
different ways.
Google primarily produces free search results for internet
users around the globe. Google generates most of its revenue selling
advertising. Facebook offers free membership in a social media website for
internet users around the globe. Facebook generates revenue selling advertising
and virtual and digital products. Belo’s primary business publishes 4 daily newspapers
in U.S. metropolitan markets. Belo generates most of its revenue selling
subscriptions and advertising.
Each company illustrates the business model for the industry
where it operates.
|
|
Google
|
Facebook
|
A.H. Belo
|
Total
production
|
|
1,722,071,000,000
|
845,000,000
|
686,468
|
Unit
|
|
(searches)
|
(members)
|
(circulation)*
|
|
|
|
|
|
Total
revenue
|
|
$36,531,000,000
|
$3,711,000,000
|
$422,513,000
|
|
|
|
|
|
Revenue/unit
|
|
$0.02
|
$4.39
|
$615.49
|
Based on company financial reports for 2011-12. Google searches from statisticsbrain.com.
Total revenue and production at the new media companies
overshadow the newspaper company. But the
averages show the new media companies need very large production to generate their
billions in revenue.
If the new media companies were the same size as Belo, Google would have just $14,562 in annual revenue. Facebook’s annual revenue would be about $3 million.
So the much higher average revenue at the newspaper company appears to be an advantage. But this is misleading.
Low average revenue at the new media companies means they
must also keep production costs low. New media companies solve this problem with
automation. They are experts at using computers and high speed internet
connections to produce and deliver search results and social media pages. Employees
create or maintain the automatic processes (computer programs and hardware)
that do most of the work.
The production and delivery of original news and information
is much less amenable to automation. Each news story must be created by
employees who gather and format original information. Employees must work
continuously to create a steady stream of news. Production and delivery of printed
copies of a newspaper is also labor intensive.
|
|
Google
|
Facebook
|
A.H. Belo
|
Employees
|
|
32,467
|
3,539
|
2,100
|
|
|
|
|
|
Total
revenue
|
|
$36,531,000,000
|
$3,711,000,000
|
$422,513,000
|
|
|
|
|
|
Revenue/employee
|
|
$1,125,173
|
$1,048,601
|
$201,196
|
The second table shows the advantages of automation. Revenue
per employee at the new media companies is more than four times larger than the
newspaper company.
Doesn’t higher productivity mean new media companies can hire employees to produce original news and information if the companies that produce information go out of business?
No.
First, these figures don’t account for the costs of
automation. New media companies have enormous
banks of computers scattered around the globe so they can deliver search
results and web pages in the blink of an eye.
Second, companies only hire workers who can help increase profits. So new media companies would only produce original information if those employees matched the productivity of computer programmers and technicians.
But employees who produce original news and information have
much lower productivity than employees who create or maintain automated
production processes. The last table shows what would happen if productivity at
the new media companies was as low as productivity at the newspaper company.
|
|
Google
|
Facebook
|
A.H. Belo
|
Production
per employee
|
|
53,040,657
|
238,768
|
327
|
unit
|
|
(searches)
|
(members)
|
(circulation)
|
|
|
|
|
|
Employees
needed if each produces 327 units
|
|
5,266,272,171
|
2,584,098
|
2,100
|
If new media companies had the same productivity as the newspaper,
the search engine would need more than 5 billion employees and the social media
site would need more than 2.5 million employees. Obviously, the new media
companies cannot afford to produce all of the news and information that they
need to be successful.
New media companies are well aware of their dependence on free
access to an enormous variety of information. That is why they support free
expression and work to maintain free access to information created or
posted on the web sites that they own or index.
But even if the new media companies wanted to produce the information they require, they could not afford it. They could not even come close.
It would be helpful if more participants in the older vs.
new media debate understood the actual business models. Perhaps they could move
beyond the current unproductive discussion.
Perhaps they could focus on the best ways to ensure consumers have
continued access to the useful products that all of these firms provide.
(Employee totals at Google and
Belo include some who work in secondary businesses at these firms.)