Digital disruption at Financial Times: who’s funding serious journalism?

The Financial Times said it would try to eliminate 35 editorial jobs through voluntary means and add 10 jobs as part of its focus on “digital” and a move away from news to “a networked business.”

Financial Times editor Lionel Barber announced the changes in an email to staff. He wrote that a trip to Silicon Valley in September had “confirmed the speed of change.”

The FT plans to shift resources from the production of the print editions to its online news and services. This will be done by eliminating late editions and greater standardization between newspaper editions for the UK, US, and world.

The job cuts appear to be focused on restructuring production desks but it will depend on who accepts the voluntary redundancies. The FT has about 600 editorial jobs.

…we must stick to the tested practices of good journalism: deep and original reporting based on multiple sources and a sharp eye for the scoop. But we must also recognise that the internet offers new avenues and platforms for the richer delivery and sharing of information.

We are moving from a news business to a networked business.

Barber did not explain what type of “networked business” the FT is planning to build. He stressed the importance of “serving a digital platform first” but also that print “is still a vital source of advertising revenues.”

Disruptive technologies disrupt and they will continue to disrupt companies in their path — even if they have seen the disruption coming there is often no escape.

This is the situation facing the Financial Times, and many other news businesses, as they adapt to an online business model that can’t generate the revenues needed to support serious journalism.

The FT is considered one of the leaders in the media industry for pioneering an inventive paywall, raising the price of subscriptions, and reducing expenses through job cuts. But such actions aren’t enough to ensure a sustainable business and more is needed.

If the FT, with its specialist focus, and audience of high income executives and investors is having trouble, the situation has been even more difficult for general newspapers. We’ll undoubtably see further job cuts and closures across many newspaper groups in 2013.

Silicon Valley competitors

The FT has a tough road ahead. The only competitors Barber names in his email are “new entrants” Google, LinkedIn, and Twitter.

LinkedIn might not seem like a competitor but it has been investing in producing original editorial content, and it has a very large network of professionals with many FT readers.

Yet those competitors are not in the same league as the FT, their costs of content production are minuscule, mostly relying on user-generated content and what they can scrape from elsewhere.

The FT cannot compete against these types of media companies because its editorial production costs are so much higher.

It operates a global network of news bureaus in major cities such as New York, San Francisco, Tokyo. And it sends out its own foreign correspondents, along with their families, to overseas assignments for years at a time, picking up housing, schooling, and repatriation expenses. Such costs used to be justified because of the large advertising revenues FT newspapers and magazines once generated.

But the editorial content its journalists produce now has far less value in online news markets.

Heinz 57 business model

Barber’s challenge is huge. He must build a sustainable media business that can survive mostly from what it can earn in the online world, which isn’t much if it’s relying mostly on advertising and paywalls.

Media companies have to adopt what I call a “Heinz 57” business model — they have to develop many varieties of revenues because advertising alone can’t carry the load or bring in a load. Subscriptions, events, special marketing programs, apps, paywalls, lead generation, staff recruitment, affiliate vendor relationships, and lots more are needed — and it’s a lot to manage.

Deflating advertising…

The value of online advertising has undergone tremendous deflation because of competitors such as Google.

Google’s content production costs are small and so are its distribution costs, which means it can sell advertising at very low rates and still make large profits.

The FT, or any type of traditional media organization, cannot compete against a Silicon Valley media company that can thrive on such low advertising rates.

Restructuring production desks

There’s no amount of technology that the FT could use, or any amount of restructuring of production desks, that will make much of a difference to its future if it can’t find significant revenues beyond advertising. And those additional sources of revenues have to be relatively stable and safe from other disruptive technologies.

I think that the FT will eventually get it right and develop new sources of revenues and start growing again. It will require an unpleasant overhaul of its news bureaus and a wrenching cultural shift in its editorial processes but it can be done.

This year marks the FT’s 125th anniversary and the brand has a lot of value primarily because of its outstanding editorial reputation. Will it be able to survive to celebrate 130 years and still produce the same high quality journalism?

The FT’s struggle to stay in business illustrates a serious fundamental issue with the digital economy: the lack of a sustainable business model that can fund serious journalism.

The rise of the Internet and media technologies such as the web, created this situation. It’s the biggest problem we face as a society, and there’s no good solution yet, despite many smart minds, Barber’s included.

The current business model for media success requires massive scale and low investment in editorial content.

The FT’s small scale combined with its high investment in editorial content are completely opposite to the economic realities of these times.

The FT won’t be able to scale fast enough through its own organic efforts to stay ahead of deteriorating revenues. It will require a partner to provide it with the scale it needs to justify its large editorial investments.

Pearson, which owns the FT, has repeatedly said that it won’t sell its newspaper group. But harsh business realities have a way of persuading even the most stubborn boardrooms to change their minds.

Disclosure: I used to work for the Financial Times in its San Francisco news bureau and left in 2004. I first started writing for the Financial Times in 1985.

This article by Tom Formeski originally appeared on Silicon Valley Watcher, a Burn Media publishing partner.