9.

Transformation and Innovation of Media

Business Models
Mikko Villi and Robert G. Picard

Transformations in the media environment and media consumption have created

the need for new business models and the reconceptualization of media business-
es. This chapter discusses the problem with the traditional business models and
how the digital transition has made it necessary to embrace and explore audience-
first business models.

Introduction

In the past two decades, the foundations of doing business in the media industry
have been changing rapidly. Many of the media industry’s most long-standing
practices and business models have been losing ground, and media companies
have needed to develop new organizational practices and procedures, new business
concepts, and new strategies (Malmelin & Villi, 2017a). Business models explain the
business logic of specific enterprises and the products, services, and relationships
upon which the business and activities are based. They identify the consumer
needs to be met, provide insight into where and how value is created, reveal how
its value constellations will operate, identify dependencies and interdependences,
and explain how the company and its offerings differ from competitors. In doing
so, business models show how enterprises will overcome the most common reasons
for failure: lack of market need, poor products and services, lack of attention to
customers, inability to organize business relationships effectively, and losing out
to more effective competitors.
The contemporary business model perspective for all media enterprises involves
creating new processes, products, and ways of presenting content, and changing
the relationships between consumers and the enterprise. Thus, the focus is not only
on the revenue streams. It is crucial to embrace this larger perspective. However,
for many legacy media organizations such transformation is not always easy, as
most legacy media have grown up in a ‘steady state’ environment, where change
has been rather gradual and well signposted (Küng, 2017). Now, their business
models need to be adapted to the digital media environment that is influenced
by rapid advances in media technology and the emergence of new platforms and
new media consumption habits.

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 This chapter focuses on how transformations in the media environment and
among media consumers have created the need for new business models and the
reconceptualization of media businesses. The goal of the chapter is to provide an
understanding of media business models and especially the challenges in innovating
and creating new business models that can ‘make it work’.

Outdated media business models

Media companies following a traditional business model are no longer as profitable

as they used to be. For instance, the decline of advertising in printed magazines
and newspapers and the growth of online advertising (that is skewed to a few
platforms), the distribution of free online content, and changes in consumers’
media behaviour have combined to undermine the print industry’s traditional
business model. The basic print business model was based on creating mass audi-
ences by keeping content prices low and then selling the audiences to advertisers
who wish to reach them. That model was facilitated by publishers enjoying near
monopolies on production and distribution in specific geographic areas, which
limited competition for both audiences and advertising. In the digital age, such
monopolies are extremely difficult to uphold.
Although it is important to maintain advertising as a source of revenue, its
significance is declining – in many print operations, subscriptions already provide
most of the revenue. Because only a few leading digital operations generate suf-
ficiently large audiences to rely on digital advertising, most news providers need to
pursue revenue growth through subscriptions and other forms of consumer income.
Media executives in print publishing stress the need to make a swift transition
towards a business based on the digital subscriptions of paying customers and
predict that publishers with models relying solely or even mainly on advertising will
either have to find other sources of revenue, eke out a marginal economic future
with very low levels of content investment, or go bust (Thompson, 2016). This is
not a universal trend, however, as in Asia, Latin America, and Southern Europe the
focus on advertising income continues, while the willingness or ability of readers
to pay for content is more limited (Newman, 2017).
Because of the general shift to subscription revenue, news providers are relating
to consumers differently than in the past and employing pricing models that differ
from those of the original print and broadcast products. Many offer varying prices
for access from different bundles of devices and platforms, and for different levels of
access to premium and specialized news content. No longer is all content provided
to all consumers at the same price. News organizations are refocusing on quality
and unique journalism that people hopefully are prepared to pay for – they aim for

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‘quality reach’, rather than just big numbers (Newman, 2017). New media business
models do not diminish content quality, but they rather demand it – this is actually
a positive development when considering the future of journalism.
What is also clear is that content providers are becoming less dependent on
any one form of funding than they have been for about 150 years. As the dual
model in print media of combining earnings from both readers and advertisers
is outdated in many respects, media businesses depend increasingly on pulling
in money from more diverse revenue sources. Multiple revenue streams from
readers and advertisers, from events and e-commerce, from foundations and
sponsors, and from related commercial services such as Web hosting and advertis-
ing services are all contributing income (Picard, 2014). Pursuing such revenue
requires organizational changes and incurs costs not previously common in
media. However, although e-commerce and events can be helpful, the bottom
line for content publishers is whether the content they produce is worth paying
for (Thompson, 2016).
Print publishers must engage in broader thinking about business models that
demonstrates a focus on value, services, and relationships. Traditional print busi-
nesses are evolving into diversified media corporations with extensive product,
service, and brand portfolios (Malmelin & Villi, 2017b). Business model innovation
is focused on building and nurturing value-creating relationships with readers,
advertisers, partners, and intermediaries (Picard, 2011). When those relationships
are effective, they become the bases for revenue-producing activities.
The focus on consumer income is not common only to print media. As television
is evolving from linear broadcasting towards on-demand models, the ad-supported
television business is also partly transforming into a subscription business. This is
evident in how an increasing number of television viewers subscribe to such online
providers as Netflix. The on-demand television business is built around satisfying
consumers, and, consequently, advertisers have far less influence than before.
Although all segments of the media industry are being affected by contemporary
changes in technology, competition, and consumer choice, the extent and rate of
change vary significantly. Media companies rethinking their business models and
adapting them for the digital world must evaluate their current models honestly,
identify what must change, and alter their business models, products, and processes
to accomplish those changes. Importantly, it is essential for them to adjust their
business models in ways that are appropriate for their individual markets and
customers, not merely to copy what others are doing. Because multiple revenue
streams are being pursued, organizations need multiple business models for different
aspects of their operations. The need for multiple business models for different
media products and other revenue producing activities has, thus, done away with
the idea of a single business model for media firms.

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 The effect of digital transition on media business models

A major factor affecting the transformation of media business models is digital

transition. Digital transition refers to the shift to distributing media content on
online platforms, where the content is consumed by using digital devices such as
laptops, mobile phones, and tablet computers (Villi & Hayashi, 2017). This gradual
transition can be compared to a journey (Schlesinger & Doyle, 2015). The endpoint
of digital transition is a digital-only media outlet, the content of which is no longer
available on the traditional platforms (print, broadcast television channels). Digital
transition affects the whole chain of industry operations from content production
to content distribution and consumption.
In the digital media space, legacy media compete for both the time and money
of media consumers with an array of new digital-only players. Many net native
companies (e.g. HuffPost, Vox, and Buzzfeed) tend to evidence higher entrepreneurial
attitudes and more flexibility in their business models (Ruotsalainen & Villi). They
often work in the craft mode, focusing on special topics, employing specialized
techniques such as investigative or data journalism, or serving smaller localities
as news providers (Picard, 2014). They also tend to have a wider range of revenue
sources than larger firms – perhaps out of necessity.
The small journalistic enterprises are more likely to seek supporting member-
ships and offer member events that produce higher engagement with audiences.
In contrast, many established media organizations evidence an unwillingness or
inability to consider value creation and business relationships in the broader way
that digital competitors and emerging content providers are embracing (Lehtisaari
et al.).
As for television companies, they must figure out how to confront such new
content producers and intermediaries as Netflix, Hulu, Amazon, and YouTube.
However, these new digital players cannot be called ‘small’ in any sense, as they often
have resources that are vastly larger than those of the legacy television companies.
Digital products are not merely extending the distribution of content, but require
companies to understand that their nature and consumption patterns differ signifi-
cantly. This means that digital products face entirely different issues that require
different strategies, content, presentation, business models, and operating structures.
Operating in the digital environment is forcing companies to make significant invest-
ments in technology, software, and systems, as well as in the personnel to manage and
operate them. Newspaper organizations such as the New York Times, The Washington
Post, The Wall Street Journal, and The Guardian, which have led these developments,
perceive those investments as central to their strategies and future growth.
Many smaller media organizations seem to think that they must follow the bigger
players without developing their own business models and strategy or without

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regard to whether they will be equally useful. The use of technology is then the goal
rather than the means to a goal. In many enterprises, digital operations and new
revenue initiatives are being pursued without creating comprehensive strategies,
without fully considering their requirements, and without establishing new business
models or providing adequate and appropriate resources.

Platformization

In the midst of the digital transition, the main challenge for media companies
is not always the production of media content, but rather the distribution and
monetization of that content (Picard, 2011). Particularly critical is gaining awareness
and obtaining audiences for media products among the younger generations (Chyi
& Lee, 2013). In this, the social media platforms, such as Instagram, Facebook and
Twitter, are a focal bridge to audiences, as they play an important role in extending
the reach and acquiring potential new customers for media companies. The online
platforms are in a key position in a situation where the dual business model of
media companies – combining earnings from both consumers and advertisers – is
challenged by changes in advertising and media consumption habits. The platform
companies become (often unwelcome) partners in some business models of media
firms and the relationship with these online platforms must be managed for optimal
value contribution and to reduce value diversion and capture on their part.
The term ‘platformization’ refers to the extension of social media platforms, the
drive to make online content ‘platform ready’, and the rise of the platform as the
dominant infrastructural and economic model of the social web (Gillespie, 2010;
Helmond, 2015). Platformization is not an uncomplicated development trend for
media companies. When they build new relations with social media companies, the
latter can control the arrangement and reap most of the financial benefit (Mitchell,
2015). Media companies lose control over distribution and thereby also control
over the connection with their audience and the access to the data the audience
provides. When content is accessed through third parties such as Facebook, getting
useful data is difficult because it is in the interest of Facebook to keep much of that
data in-house for their own use. In addition, most media firms – if not all – are
disadvantaged in comparison to the platform companies when it comes to size
and resources.
The social media platforms represent the biggest shift in the strategic environ-
ment for many media companies: while they bring access to potentially huge
audiences, they also compromise revenues, control over the context in which
content is consumed, contact with audiences, and quality of data (Küng, 2017).
Platformization is also a problem for media brands since much of the recognition

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 credit may be inherited by the platform – some users do not even notice where
the content originally came from when they read a news story on social media
(Newman, 2016).

Audience-first business models and consumer engagement

As noted, many media business models relate to generating income and data from
the consumers. The changing media consumption patterns, shifting revenue streams
and platformization require media companies to think more strategically and
flexibly about their relationships with multiple consumer groups and to implement
changes to better link with consumers. Many new ideas around media innovation
focus on gaining and retaining loyal paying consumers, in a sense applying an
audience-first strategy (Lehtisaari et al.).
Consumers can be extremely valuable to media companies in at least three ad-
ditional areas: in content production and the provision of networks, in development
and innovation, and as a source of information and data (Bechmann & Lomborg,
2013; Malmelin & Villi, 2017a). Traditionally, media consumers have been regarded
as relatively passive objects of business marketing and sales efforts. In so doing, the
companies have failed to take advantage of the opportunity to involve consumers
in the processes of designing, marketing, and developing products and services
(Malmelin & Villi, 2017b).
Media companies are increasingly using the data obtained from digital and mobile
interactions to understand media consumers and their consumption patterns. The
data provides evidence about consumer relationships and how they can be nurtured
more suitably. As data can help media companies serve consumers better, great
thought must be put into how to use the data strategically. It is important, however,
to remember that improving relationships and the value delivered to consumers is
the goal of the activity, not merely the gathering and analysis of data.
Hand in hand with collecting media consumer data goes the understanding that
media companies need to develop new models for consumer engagement (Lehtisaari
et al.). Of essence is the creation of a personal relationship between consumers and
the media brand. Engagement is based on feelings of affinity and attachment, not
merely on exchange and consumption. Relationships based on transactions and
functional usefulness produce relatively low-level connections and do not create
much value for the consumer or the company. Building higher-level relationships
requires mutual respect and the pursuit of joint benefit. Higher-level relationships
evoke emotions, senses of belonging, involvement, and perhaps also a sense of
‘ownership’ of the media brand.

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 There are many ways to measure the strength of relationships with media con-
sumers. At the low level, they tend to be assessed through engagement measures
such as clicks, time spent reading, and commenting. Higher-level relationships
tend to be indicated by factors such as membership, participation in events, pro-
viding suggestions and advice, and co-creating content. Establishing productive
relationships is easier said than done. It is not enough for the company to want a
relationship; they must persuade consumers and others that there is benefit for
them in the relationship. Relationships cannot just be a way for the company to
market to targeted consumers; they must deliver value for consumers as well.
At the centre of many media business models concentrated on developing
consumer relationships is the service-dominant media logic. This service logic
builds on the service-dominant logic of marketing (Vargo & Lusch, 2004). Ac-
cording to the service-dominant logic, value is increasingly co-created with
the consumer rather than embedded in an output. At the core of the service-
dominant media logic is, thus, an interactive consumption process between
the media company and the media consumer. From the point of view of the
service-dominant logic the audience can be an operant resource and co-actor,
rather than an operand resource, a ‘target’ of content production (Vargo & Lusch,
2004). The value is created not by the producer alone in the production process,
but in the interactive consumption process between the producer and consumer
(Prahalad & Ramaswamy, 2004). The value is then not in the media product but
in the process, the service.
The service logic differs from the goods-dominant logic, which is the production-
oriented and company-centric logic that has been the driving logic of the media
business for more than two centuries. The traditional goods-dominant logic consid-
ers the value to be created when a product is made – the product has a value in
itself – and the consumers are outside of this process.
In the traditional model of mass communication, a newspaper or a television
company created the value of the media product without consumer involvement.
Following the service-dominant logic, the value is now increasingly created as a
consequence of nurturing the activities of media consumers. Service logic is based
on establishing and maintaining individual relationships, anticipating and solving
consumers’ needs, creating simplicity and ease of use, and focusing on interactions
with consumers. Consumer satisfaction is central in the service logic. As in many
other industries, media industry business models that do not start with effective
value propositions on how they will serve consumers’ needs will not succeed over
time. Pursuing audience-first business models requires changes in organizational
culture and structure in order to provide the required interactions necessary to
make it successful.

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 The need for organizational change

Innovation is key when facing the challenges of changing social, economic and
technological environments for media companies, and surviving in highly competi-
tive markets (see Küng, 2013). Although many media enterprises are attempting
to develop innovative business models, innovation is a problematic concept as it
involves products, technologies, and processes. Much of what is called innovation
is often not innovation, but rather adaptation. Changing to adopt new possibilities
and pursue new opportunities is important, but does not represent innovation.
Firms are not innovative because they decide, for example, to use social networks
to increase contact with readers and potential readers, or because they optimize
their content for mobile use.
The innovation of new media business models also requires organisational
transformation and a change of mindsets, often unlearning the trade and its
institutional truths (Lehtisaari et al.). The brakes on media innovation are mostly
cultural, in the news industry frequently residing within the newsroom where
systemic, well-rooted practices and preferred work patterns dominate (Ess, 2014) – a
result of the ideology of journalistic practice embedded in a particular form of
production (Deuze, 2005). Other legacy media industries – such as advertising and
television production – have similar cultural problems.
It can be argued that in addition to shifting the mindset, people working in
the media industry need a broader range of skills and knowledge. Contemporary
media business models and activities require knowledge and skills sets often
absent within the traditional staff. These include digital content production, web
design, digital marketing and sales, social media content coordination, digital
account management, and web analytics, as well as relationship management and
engagement facilitation for readers, advertisers, and other stakeholders. Expanding
a business model to include new activities and revenue through content syndication,
specialized newsletters, event production and management, branded content and
merchandise, and creative services also requires the business to acquire personnel
with skills and abilities not present in most legacy media businesses today. The skills
especially needed are an entrepreneurial attitude, a competitive drive, a service
mentality, and the ability to create individual business models and value-creating
strategies for each activity.

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Conclusion

A fundamental problem of many media organizations is that they are so busy

with the operational aspects of digital products that they devote little time to
deep strategic thinking, especially in organizations without personnel specifically
assigned to strategy and business development. Most media companies that ap-
proach digital products without more sophisticated perspectives in their business
models will be disappointed in the financial results, because their products will
not effectively serve audiences, advertisers or themselves.
Despite a great deal of organizational change since the millennium, the organi-
zational arrangements necessary to fully exploit digital operations and to succeed
in the digital space are not yet fully in place in most media companies. There is no
single correct organizational solution to deal with the increasing number of products
and varying business models in media organizations today. The organizations need
to be ambidextrous, exploiting existing products to enable incremental innovation
and, at the same time, are adaptive to changes in the environment and explore
new opportunities to foster more radical innovation (Andriopoulos & Lewis, 2009).
In newspaper organizations this means that, on the one hand, the print business
requires nurturing, and on the other, new digital offerings need to be developed.
The danger in this can be that a ‘playing it safe’ attitude might be brought in from
the print business to the digital publishing context (Lehtisaari et al.).
The key point about contemporary media business models is that they are not
just about revenue, but increasingly about relationships with consumers, value
creation, and continual product and service improvement. Establishing a new
business model or models is not as simple as deciding to change the model. It
requires a new strategy and resources that make the strategy feasible. New business
models, products, and services also require a change in organizational thinking to
become more entrepreneurial and willing to accept failure and outcomes different
from what has been anticipated. Media organizations might need to some degree
to adopt the ‘fail forward’ or ‘fail fast, fail often’ styles of thinking that are familiar
from Silicon Valley.
Accepting failure is a huge challenge for most media organizations because they
have not needed to take risks in their business models for generations. Today, as
legacy media products decline and change, not taking risks is dangerous in itself
because it leads to lost opportunities and inability to grow and develop in new ways,
forcing the firm to live on existing, weakening business models. They might seem
to be doing well enough for the time being, but are actually ‘failing slowly’, which
in the end leads to a final ‘death spiral’ from which there probably is no return.

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 Further reading
– Case: What the transformation of the media industry and its business models means
from the perspective of managing media firms – Faustino & Noam (p. 147)
– Context: How media consumer engagement has become the fundamental driver of
value creation in media companies’ business strategies – Chan-Olmsted & Wang (p. 133)
– Contrast: How the new platforms facilitate and profit from new forms of consumption
without creating or producing content – Bilton (p. 99)

Acknowledgements: A portion of this chapter appeared in Lehtisaari, K., Grönlund,

M., Lindén, C-G., Villi, M., Picard, R.G., Mierzejewska, B.I. & Ropnack, A. (2017).
Uutismedian uudet liiketoimintamallit Yhdysvalloissa [New Business Models of
News Media in the US]. Aleksanteri Papers 1/2017. Helsinki: University of Helsinki.
The report was funded by The Media Industry Research Foundation of Finland. It
is used with permission.

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