Photo: Photomorphic
Photo: Photomorphic

Of Charles Darwin and media businesses

Darwinism is the fact that most of the capabilities in the media business are being digitized, whether it's distribution or the product itself

Jacques Bughin, the chatty Frenchman and senior partner at the strategic management consulting firm McKinsey & Co., wears two hats. He is a director at the McKinsey Global Institute as well as leader in McKinsey’s media and entertainment, corporate finance and strategy practices. For the last 20 years, he has been serving sundry companies in media—be they in print, television or digital.

Bughin, who was in India recently to celebrate the 25th anniversary of McKinsey & Co. and McKinsey Global Institute in the country, has an absorbing theory which he calls Digital Darwinism. Craftily, he has applied English naturalist Charles Darwin’s theory of evolution to the media space.

Darwin’s theory of evolution by natural selection offers an explanation for adaptation and speciation. Darwin defined natural selection as the “principle by which each slight variation (of a trait), if useful, is preserved". The concept is that individuals best adapted to their environments are more likely to survive and reproduce. The theory postulates that natural selection eliminates inferior species over time.

In a conversation, Bughin explains Digital Darwinism as a set of technologies and practices which redefine business models and enable new capabilities. What he says is that media will not die but will transform. “And that’s Darwin’s perspective. Darwin says that species will die but species will stay and they will be different and stronger survivors based on the skills they acquire," says Bughin.

Darwinism is the fact that most of the capabilities in the media business are being digitized, whether it’s distribution or the product itself. “Hence, the core functions of the way you do media have changed. Darwinism really is how you are going to adapt yourself to these to make sure that you are still in the business of media," he says, adding that part of Darwinism is the analogy of agility. The species that survive are also the most agile and not just the strongest.

Bughin admits that digital transformation is top of mind among newspaper companies that he meets. “The fact is that most of them are at the middle of the gate and they hadn’t anticipated that very well," he says.

Bughin joined McKinsey in 1992 and has co-authored several articles on digitization of firms as well as reports on globalization, the Internet of Things, Big Data and social technologies. He says that earlier, news was defined only by a newspaper. That has totally changed. Today people want to read but they also want video. A newspaper is not enough. They want rich media.

Yet, some newspapers are still profitable. But it’s not that they are profitable because they are healthy. For good organizational health, you need to have the cultural flexibility to adjust to Darwinism. Bughin believes that a newspaper may be profitable because it is still able to extract ridiculous prices from its advertisers. But if the newspaper is not doing Internet and advertisers suddenly stop paying, it will lose everything as it is neither ready for this change nor healthy.

But is there money in digital? There is, if you believe Bughin, and he elaborates on it with the example of the Norwegian newspaper publisher Schibsted. But before that, he explains the law of media, according to which if a consumer spends 30 minutes on some content, he will pay a lot of money for it, whether the product is online or in print. “The question is how many subscribers will do that and, what is it that they want to spend 30 minutes on. So the content has to be very relevant," he says.

Elucidating the example of Schibsted Media Group, he says that “it is a digital Darwinism winner". Schibsted currently has assets in marketplace, classifieds, in media (newspapers and online news) and in advertising platforms. The media group understood the consequences of change and wanted to migrate to digital very quickly, eager to be free of the restrictions of legacy print media.

So what Schibsted did was to build from scratch a new information technology architecture that could scale to deliver personal advertising, classifieds and all else online. When it put its classifieds online at one-third the price, it began cannibalizing its own print product. “But it created scale in digital," says Bughin.

The model was replicated for the publisher’s dailies in Sweden and Scandinavia. “Today the group is extremely successful with 70% of its Ebitda (earnings before interest, taxes, depreciation and amortization) profit pool coming from digital," he adds.

In fact, the company shut down most of its newspapers except a couple, including one business newspaper. Everything else moved online. It’s a very different way of doing business, Bughin says. The profitable media group makes money from advertising plus online and offline subscriptions.

Success in online classifieds (housing, cars, jobs etc), which it runs in more than 20 countries, whetted the company’s appetite. So in France it bought a classifieds site called Leboncoin which had a 10% share in the market. Today, it is the market leader.

To further build its edge in the digital space, Schibsted sold its number one television channel TV2 Norway. The channel carried immense value and the company wanted to use the money from the sale to build a digital studio and streaming network as it foresaw the merit in going digital very early on.

And it did exactly that. It redefined its portfolio and went completely digital. “That’s what I call digital Darwinism," says Bughin.

Now the company has substantial data on its customers as it knows what they do in news, entertainment and e-commerce.

Schibsted started its digital journey several years ago, earlier than most, and has indeed come a long way. It takes courage and vision to do what it has done. “But it’s shown that it is possible," says Bughin.

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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