The Myth of Integration: Merging Digital and Legacy Media Organizations Does Not Work

For years, consultants and business advisors have convinced corporations to integrate their legacy and digital businesses and reorganize to embrace emerging digital platforms. The recent firing of Jack Griffin at Time Inc. offers evidence integration is an idea whose time has not yet come.

The media industry's transformation to digital is literally tearing some companies apart. Time Warner fired Griffin, the president of its magazine group, after just five months. One reason given: he pushed for digital integration too aggressively and imposed changes in ways that conflicted with an embedded culture and an established executive team. In the past several months, senior management has left or been pushed out at Hearst, Conde Nast, Tribune, Gannett, News Corp, NBC Universal, Disney, Clear Channel, and others. The challenge for new management is to protect their legacy revenues while adapting to a digital future.

In 2010 digital advertising represented only $47.6 billion – 8.0% of marketers' $600 billion in advertising and promotional investments. But by 2020 marketers' digital media investments will grow to $300 billion, more than 40% of the total $760 billion in projected advertising, marketing and promotional spending. Every media company is confronted with the need to embrace digital in their organizations and business models; but their traditional revenues remain the engine that pulls the train. They can't just stop shoveling coal. The engineers and conductors cannot change their fundamental day-to-day responsibilities without jeopardizing their core relationships and revenue streams. And with Wall Street demanding quarterly results, it could be considered corporate malfeasance to radically uproot traditional business models in order to replace them with yet-unproven digital businesses.

For magazine publishers, digital today represents only six percent of their ad revenues, but by 2020 it will increase to 30 percent. For ABC, NBC, CBS and Fox, online, mobile and interactive total only four percent of ad revenues, but by 2020 it will grow to 25 percent. Almost forty percent of newspaper advertising will come from digital assets in 2020, up from ten percent last year. (Source: Jack Myers Media, Advertising and Marketing Economic Health Report 2010-2020.) Digital offers significantly different growth opportunities depending both on the company and the business category. The digital opportunities for terrestrial radio and local TV are dramatically smaller than the digital growth potential for yellow pages, newspaper and magazine publishers. (See charts below.) Media with powerful brand equity such as ESPN, CNN, Weather Channel, Wall St. Journal, Wired, Nickelodeon, sports leagues & teams, and selected entertainment content are well-positioned to market across platforms to advertisers and consumers, but even they struggle with organizational integration.

It's an age-old conundrum; for many years I've avoided being called a "change agent," even as I've been an outspoken advocate for investing in the future. The single most important objective for management as they seek to develop new revenues is to assure stability and continuity of legacy organizations and infrastructure. The only way to accomplish this is to minimize integration and build separate but equal digital operations teams.

Corporations are realizing that the management skills and organizational resources required by their legacy businesses are very different from those necessary to grow digital revenues. For years, consultants have been urging companies to integrate their organizations across traditional and digital platforms. There is a time and place for integration, but typically it's required to deliver custom solutions for clients. Team leaders must take responsibility for bringing specific role-players together when required for the common good of the company. But for the next five to ten years, companies need to separate out their legacy organizations from their growth operations.

As the marketplace for social media, mobile, online video and interactive TV expands, dedicated executives with relevant skills will be vital to a corporation's successful implementation of business models, and they will need to operate unencumbered by the anchors of legacy operations and threatened executives. Companies need to provide the resources and hire the managers who are comfortable in the digital world and can lead their companies into the future. Their role within the organization and the investments made to support them should reflect their importance to the future growth and success of the company. Executive compensation should assure the company is competitive in the digital marketplace.

Established corporations cannot afford to anchor their digital executives to legacy business models and traditional organization structures. The solution is to separate declining from growth businesses – slowly evolve the tried and true models of the past, while aggressively expanding revenues with dedicated digital managers and teams. In the next decade, organizational barriers will be removed between declining and growth businesses, but very few traditional media companies are prepared to embrace within their established organizations the counter-cultural revolution that is coming.

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