Tag Archives: Business Model

Contemporary Art: Clash of the Business Models

One is a music celebration that is staged by a for-profit event management firm. The other is a sculpture festival that is organized by a group of non-profit artists. Both were launched in the late 1980s, and have become fixtures of the contemporary art scene.

The music celebration is South by Southwest, managed by SXSW Inc. in downtown Austin, Texas. And the sculpture festival is Burning Man, initially founded on California’s Baker Beach and now held in Nevada’s Black Rock Desert. SXSW brings tens of thousands of registrants to Austin each year, while Burning Man has experienced attendance as high as 56,000 participants.

Both events have thrived while adopting very different business models. SXSW, for instance, presented a Lady Gaga concert this year under the sponsorship of Doritos tortilla chips. Burning Man, on the other hand, creates “social environments that are unmediated by commercial sponsorships, transactions, or advertising.”

Rarely do we enjoy an opportunity to observe how such different business models succeed or fail to meet similar goals. It does appear, though, that both business models are currently experiencing the strains of success.

This year, for instance, SXSW was heavily criticized for Lady Gaga’s appearance, drawing charges of a “tasteless” performance for a “capitalist trade show.” And the founders of Burning Man have been locked in a lawsuit over the management rights to the event.

These challenges appear to be exacerbated by the very business models that have been chosen by each event organization. For profit organizations, by their very nature, may expect to draw charges of commercialism. And non profit organizations, when founded by artists with no business expertise, may struggle to manage large and complex events.

If you were the mayor of a city that is planning a community arts festival, would you select a for-profit or a non-profit organizational entity to manage the event?

Paying for Access: Why Now, New York Times?

It might go down in history as America’s worst timed product launch ever. Worse, perhaps, than the introduction of Ford’s bloated Edsel at the very moment when consumers began tiring of costly and oversized automobiles. And worse than Apple’s tiny Newton, a progenitor to the iPad that was launched in 1993, a year before Netscape began to introduce the world to the internet with its Navigator web browser.

What was this announcement?  Last Wednesday, the New York Times publicly declared that the days of free online access to its web site will soon be over. Beginning on March 28th, the news organization promised that its free site will be retired, with all of its content pulled behind a “pay wall” that will require subscription fees for access.

Why was the timing of this announcement so unfortunate? Because, just a few days earlier, the Pew Research Center’s Project for Excellence in Journalism released its annual report on the State of the News Media. One message in particular was quite disheartening for traditional outlets: that last year, every news platform continued to decline except for the internet.

That’s right; even 24 hour cable news channels, the media outlets that once posed the greatest competitive threats to traditional newspapers, are now themselves falling victim to news based web sites! And yet the Times chose this very moment to restrict access to, and raise prices for, its own web site.

A Contrarian Strategy

“Well … why not?,” you may ask. “Why not start charging for access to a news service through the one media distribution channel that is actually growing in popularity? And why not decide to stop giving away access to the same service for free?”

Those are certainly compelling questions; in fact, the New York Times may yet prove that its instincts are correct. Nevertheless, its new strategy runs contrary to the one that successful web based service organizations that cater to general audiences have employed throughout the history of the internet.

Consider Google, for instance, and Amazon as well. Although they have each grown profitable by charging fees to business organizations for advertising postings, sales support services, and other administrative functions, they have generally declined to charge access fees to the general public.

Facebook has recently become the darling of the technology industry by doing so as well. And even though Apple has achieved immense success with its compellingly simple and elegant hardware and software systems, its Mobile Me paid access service is considered an also-ran; the service is now strongly rumored to be gravitating to a free access business model soon.

A Few Niche Audience Successes

Are there any successful firms that are charging for access on the internet? Yes, there are a few such organizations, including a number of services that provide news and thus compete directly with the Times. For instance, the Wall Street Journal has maintained a pay wall around its web site for some time. And the Financial Times has done so as well, successfully accumulating over 200,000 online paying customers.

But those organizations are targeting consumers of global business news, a niche market of affluent customers who can easily afford to pay subscription fees and then write them off as business expenses. Other niche internet services, such as Disney’s Club Penguin service for parents who desire educational and social online games for their children, have survived for years on a paid subscription model as well.

A few general audience news sites have likewise attempted to establish subscription based revenue models, albeit with limited success. Salon, the first online-only news service that launched in 1995, continues to struggle with its mix of free and fee-based articles. And the New York Times itself launched a paid service called Select in 2005, only to close it down and revert to a free access model in 2007.

Holes in the Wall

Are you looking for opportunities to continue reading the New York Times online without paying subscription fees? Fear not; the Times itself has knocked a few strategically placed holes into its own pay wall. Readers clicking through to their site from Facebook, Twitter, or most search engines will continue to enjoy free access. And virtually every one else will be allotted a quota of twenty articles per month.

With these exceptions, the Times is clearly attempting to hedge its bets by segmenting its readership base into a primary group of dedicated readers (who, presumably, are able and willing to pay for access) and a secondary group of casual readers (who, presumably, are not, but who might support an advertiser based ancillary service). It is indeed possible that the Times, with this strategy, will be able to differentiate between these two groups and earn revenues by catering to each of them.

On the other hand, it is just as possible that its new policies will only result in driving its most dedicated readers away to its online competitors, hence exacerbating the trend that has been clearly described by the Pew report.

Apple and Random House: New Partners

Show us a publisher that is clinging to a traditional business model, and we’ll show you one that is embracing the future.

Consider the newspaper industry, for instance. The Christian Science Monitor, a global paper that first emerged in 1908 (when the cursed Chicago Cubs last won baseball’s World Series), recently abandoned its daily subscription edition and adopted a continuous 24/7 cycle of free online postings. On the other hand, Rupert Murdoch‘s The Daily continues to cling to a daily delivery, subscription based business model, even though its deliveries are made electronically via Apple iPads.

Likewise, consider the magazine industry. The venerable Time continues to promote its glossy national news weekly as its flagship publication. But its traditional rival Newsweek is about to be relaunched as a companion product for the web-only The Daily Beast, and The Atlantic (which was created in Boston in 1857 as a literary journal) has been reborn as a Washington-based home of political bloggers.

And what of the book industry? Until this past week, five of the “big six” book publishers had embraced Apple’s new business model for e-book sales via its iPad tablet. But Random House, the largest book publisher of them all, valiantly refused to sign on to Apple’s new business model …

… until Steve Jobs prepared to take the stage to introduce the snazzy new iPad 2.

Wholesalers and Retailers

Traditional retailers such as Barnes & Noble and Borders usually purchase their merchandise from publishers at wholesale prices and then mark up (or discount) their customer retail prices to whatever the market will bear. This model tends to serves both entities well; after all, publishers can restart their printing presses whenever new orders arrive from retailers, and can generally rely on wholesale revenues to cover their operating costs. And retailers can respond to variations in market demand by modifying their retail prices, thus maintaining some control over their own revenue streams.

Apple, however, insisted on a new business model for e-books when it introduced its iPad last year. Instead of paying publishers for distribution rights up front and then managing the retail prices that are charged to retail customers, Apple negotiated retail prices with publishers up front and then agreed to share customer revenues on a 30 / 70 basis. In other words, Apple abandoned the retailer’s traditional right to discount book merchandise, while avoiding the concomitant cash flow burden of paying wholesale prices up front to acquire products for resale.

Most publishers, lusting after the promise of future profits from e-book sales on Apple iPads, simply fell into line and acquiesced to Steve Jobs’ demands. But Random House initially refused to do so; it insisted on withholding its e-books from the iPad retail platform. This past Thursday, though, Random House finally lost its nerve.

Agents and Partners

Steve Jobs made Random House’s commitment about the iPad a key part of his splashy introductory public demonstration of the iPad2. Many believe that Apple was feeling pressure to make the iPad 2 as attractive as possible, given the flood of competitor products that are now challenging the iPad for supremacy in the tablet market. Thus, Apple arguably needed Random House as much as the publisher needed the technology firm.

It wasn’t clear, however, who would blink first in the weeks leading up to the iPad 2 announcement: Random House, the only holdout publisher from the iPad platform because of its dissatisfaction with Apple’s 30 / 70 business model, or Apple, a vendor that was competing with the Amazon Kindle and other e-book readers. Apple was arguably in a difficult position, not being able to offer readers the written works of President Barack Obama, John Grisham, and other famous authors publishing under the Random House umbrella.

Ultimately, it was Random House who blinked first; it simply agreed to accept Apple’s standard contract terms. The industry is now referring to those terms as an “agent model” because Apple has become a sales agent of the publishing houses, compensated on a commission basis. In other words, Apple has forced its content producers to accept it as a junior partner on all book sales.

Back From The Dead?

Interestingly, as new book publishers and online retailers settle their differences and adapt to the emerging environment of e-books, some tiny independent booksellers – written off as relics of a bygone age just a few years ago – are learning to survive by trading used books, staging community events, and selling ancillary merchandise. Apparently, the challenges faced by traditional book stores like Borders and Barnes & Noble are creating market space for small and nimble competitors to establish their own strategic niches.

As long as reading remains a hobby, a pastime, and an avocation for millions of American bibliophiles, there will always be publishers and retailers to serve them. Nevertheless, with the rise of the agency model, the distinction between the producers and the purveyors of written material will likely continue to blur.