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Why the New York Times should be afraid of JC Penney

Posted in: Business Models, New Ideas, Newspapers, Revenue, Trends, by: John Duncan

Dec 19, 2008
09:25 AM

I was flicking through list of the top 100 websites the other day trying to confirm the ranking of one of my favorite sites that need a redesign - weather.com - and I was struck by the company that “media” businesses now keep.

Weather.com is ranked 42 on Quantcast’s measure of monthly uniques, one spot above the highest placed newspaper, the New York Times. That’s no big deal. There are plenty of web-only businesses that don’t pretend to be anything other than media companies doing what media companies do - acquiring audiences and selling their attention to advertisers. (Though it does speak volumes for the power of the vertical.) What intrigued me more was that jcpenney.com comes in at No 45. It’s not shocking that JC Penney has a high-volume website. What is shocking is that they don’t, according to Quantcast, accept advertising.

That is shocking because they are, whether they like it or not, a media company now. The consumer attention they own is saleable, fungible, ie it has the same value as the consumer attention that the New York Times is selling. They are just not choosing to sell it. Yet.

In fact JC Penney does accept advertising. There are two discreet 93px by 30px silent ads at the top of their pages that should worry the crap out of every major newspaper and media-only business. Why? Because JC Penney has not yet realized that the web has turned them into a media business, But when they do they have an audience in place that is already as large as the largest newspaper online. In fact if you add up the audience of the sites in the top 100 that don’t take advertising, or more accurately the sites that aren’t designed to sell advertising, you end up with a staggering 300 million unique monthly users. That’s more than double Google.

So what? Well, this is a big deal. Because the playing field has leveled. Actually it hasn’t leveled, it’s just that we’re all kicking a single ball around on the same playing field now. What were apples and oranges, and kiwi fruit and pineapples are now just plain fruit. In the olden days, say 1995, a newspaper sold print advertising to an audience that was reading stuff and was therefore predisposed to read advertising. A radio company sold audio advertising to an audience that were listening to stuff. And TV sold visual advertising in a visual medium to people who were consuming visual media. Department stores sold stuff in shops and tried, while you were in the shop, to get you to buy more stuff. But they relied on the newspapers, radio and TV to get you in the store.  You couldn’t buy anything before you got to the store and for that you had to be prompted by something outside the store. Oh how simple life was.

Non-media companies have always owned the attention of customers, it just wasn’t easy to sell or trade. Technically a bank, for example, could have sold advertising on its bank statements, but it would have been quite difficult and it would have been hard to compare the audience attention garnered by this to the attention you got from a newspaper ad. It really wasn’t worth the trouble. But now the newspaper and the department store (and the bank and the cellphone provider) are occupying the same medium. The reason this is a problem for traditional media owners is twofold.

First, because of what it will ultimately do to the price of online advertising if there are suddenly 30 competitors for ad dollars with existing mass audience.  Second, most of these 30 companies are major advertisers in many US newspapers. Very soon they will realize that the best advertising in the New York Times is context specific. It’s certainly the most expensive according to the Times. They may start to think that creating a perfect context for their advertising could easily be done in-house, that they could create vehicles for promoting themselves that mean they don’t need the New York Times. They could realize how much of a media company’s traffic is driven there by blogs and links and aggregators to which they too can have access if they develop content. All this leap requires is that they begin thinking like media owners and worry about how they can use content to increase and hold an audience, And when they do manage to do this they won’t need newspaper websites at all.

Will it happen? My guess is that the scale of potential profit will ultimately drive most of these companies (and especially the lifeblood of newspapers: department stores) this way.  It will ultimately be too tempting. Think about it. The New York Times believe that they will fund their entire media business from the revenue that they generate online. JC Penney has an equal audience but is hardly monetizing any of it. And JC Penney already has existing relationships with almost every one of their potential advertisers.

Is there enough money in it for JCP? JC Penney sold $1.5bn of merchandise online in 2007.  I can’t be sure how that is calculated and what it includes, but lets assume a 20% profit margin. That makes their profits from online around $300m. Very nice. That’s a lot of revenue to risk by rethinking your online retail operation. Is it worth it? Well, let’s see what the Times makes. Some guessing is required to work out the NYT’s online revenue because it isn’t specifically broken out. But online revenue as a whole is 12% of total revenue for the company. The 2007 annual report shows the New York Times Media Group earning $2 billion in total. If we assume that online revenue is 12% of that, we have online revenue from an NYT audience about the same size as JC Penney’s of about $240 million. You think that will get left on the table by the retailer for long?

Now they can’t just throw up a couple of banner ads and watch the cash roll in.  They will need to understand the way that consumers approach their site and how to keep them there. They will have to understand content and how to generate editorial that consumers respect. They will have to learn how to sell ads and generate response for their advertisers. They will have to learn the essential skills of online media companies.  But in return they get cash and equally exciting, a new way of bringing consumers into their stores.

The modern news environment isn’t driven by the choices and story selection of major news brands anything like as much as it used to be. Nor is it driven by the credibility that comes from generating large amounts of original content. Users don’t care. If JC Penney could incorporate quick changing news and entertainment geared to their target audience that gets picked up and linked to then they can generate their own audience and cut out traditional media. And because they already have a massive audience they have a potent promotional tool with which to give their new editorial sites a head start.

If I were JCP I would be creating a site or series of sites within their main site which are editorially driven and targeted to well defined segments which they want to talk to. They already believe they have satellite sites - look at jcpenneyoptical.com, but these are little more than inside pages of a main site. They are online advertising not online marketing.

When JCP realizes the difference and asks how media companies use editorial to entice users, we are all in big trouble.