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Dissecting AP’s Descent Into Madness

As more details and outrage seep out about the plans by the Associated Press into what looks like a slow descent into madness, I think there may just be some method to it. Since I am trying to wrap up thngs before I head for a much-needed vacation, I'll post my comments as points:

1. AP, probably, sees a very bleak future for itself in its current form. The old agency model is increasingly becoming non-sustainable as they don't generate enough unique content, thus, not justifying the costs incurred in having them in large news organizations that already employs a lot of reporters.

For the smaller organizations, even without the downturn in both the global economy and the media, AP is often not an affordable option. Seen from that perspective, future growth avenues for AP is near-zero and it may become a business that faces imminent terminal decline if media as a segment continues to hurtle downward, as it is doing now, in the years to come.

2. in its Annual Report, AP mentions that for 2008 actual revenue growth (at 3.2%) was lesser than the actual growth of expenses (at 4.7%) over 2007. Looking at the current ground reality, it is unlikely that this equation is going to change for foreseeable future. It is a bit of a nasty spiral of death for them. To find new avenues of growth, AP must spend a lot more while its revenues will only dwindle even more.

Even during the best year in recent times for the organization, in 2007, the top line for the company was $83.4 million EBITDA and operating profit stood at $45.8 million. It is a decently profitable business and the organization carries no debt on its books. But, most importantly, the business as it stands now has no potential for a larger scale even if the years to come are as good as 2007.

We may think of it as crazy, but in a declining traditional news publication environment, AP may not have much of a choice than to pre-empt a slow a terminal decline that is affecting the businesses that fund the organization itself in the first place.

3. More than anyone else, I think AP can themselves visualize a world without AP as an agency. The BBC has, for a while now, limited using footage from sporting events, replacing them with still photographs. This does not seem to have created a significant problem for the BBC. For news organizations trying to cut cost, this may start to become more of a favoured option with time, eating into AP's ability to sell multiple products to the same organization.

All over the world, the character of news, how it is procured, published and consumed, is undergoing a drastic change. If AP goes, it will be missed a bit, but the news won't come to a stop and my gut feeling is that the folks at AP realizes this and are trying to create some unique value for themselves, even if they are going about in the most boneheaded manner possible — by trying to transform itself into a destination site on the sly.

4. It is important here to make a passing mention of the http://hosted.ap.org product. With the hosted model, publications can outsource the entire business of running a news website to AP who will skin the site with the publication's design. This is probably the earliest implementation of a SAAS model in mainstream media. It would be interesting to see how the new changes will affect the direction of the hosted product in the long run.

5. In more efforts aimed at cutting cost, major publications may themselves be looking at various sharing and peering arrangement for non-unique events ranging from reportage to infrastructure. If done right, this can drive down costs to a level where AP cannot compete. Adding the affiliate model to the mix can only make this even worse for AP.

6. Apparently, one of the things being attempted by AP is to gain topical relevance in the online domain. In normal terms, this is quite a silly attempt at replicating a Wikipedia-like persona/reputation for AP's content. The irony in all of it is that Wikipedia's success has much to do with hassle-free linking its useful content, which is unlike some of the crazy guidelines and costs that AP has come out with for linking to their content.

Normally, subscribers linking to content like AP's is usually governed by syndication contracts. It will be very hard for publications to sustain a situation wherein they are paying for non-unique content (cost) and also drive traffic to unique content on AP (indirect cost). It is a nice way to describe a link farm, but calling a link farm by another name does not make it something else.


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