in Previous issueWe discussed how AI-driven media companies can foster collaboration. However, the issue is far from resolved. As media companies move from “houses of brands” to integrated algorithmic platforms, many business units and divisions will inevitably disintegrate. For those that remain, a central question emerges: How can they effectively collaborate in a way that maximizes overall value?
At the heart of collaboration are financial models and incentive structures that align goals across the organization. Integrating these into algorithms eliminates inefficiencies, resolves conflicting incentives, and prevents missed opportunities. By doing so, media companies can not only achieve operational harmony but also maximize profits.
why is it important
The media industry remains a highly complex business despite its low profit margins. The company relies on experts with a variety of expertise, including sales, advertising operations, editorial, distribution, engineering, and regulatory compliance, to manage its end-to-end operations. The financial and operational systems that guide this collaboration must be robust and aligned to prevent inefficiencies.
Revenue diversification: in Media flywheel #21examined how media companies often prematurely diversify revenue sources within their core business, creating unnecessary complexity. A more effective approach is to spin off new businesses so you can focus on your core business while developing new growth opportunities. Consider Amazon’s success with AWS and fulfillment, which grew independently of its core business. These ventures are supported by clear financial models and incentives that reward success without depleting the core business.
Efficient collaboration: To achieve optimal collaboration, media companies must align resources and incentives across business units toward common goals. This reduces the risk of inefficiency and internal competition, while ensuring efforts are made to maximize collective value.
Become a supplier on your own platform
Platform owners often develop private labels to sell directly on their platforms. For example, Amazon sells private label products such as Solimo and AmazonBasics for everyday items such as batteries and USB sockets. These products are successful because consumers value affordability and reliability.
Private labels can compete fairly by offering better prices and quality, but there is a risk that platforms will favor their products. To prevent this conflict of interest, Private labels operate as separate business units and must purchase advertising inventory like any other seller..
Additionally, the platform often uses trust biasDrive users to private label products, such as highlighting benefits like “Prime Same Day” delivery. This brings short-term revenue, but risks undermining user trust in the long-term. A balanced approach is essential. Profitability must justify these practices, taking into account the potential costs of reputational damage and disengagement..
Similarities between Spotify and recommender models: Spotify provides a compelling example of balancing financial incentives with user trust. Its recommender system may replace popular songs from top labels (like Taylor Swift) with similar songs from independent artists to save on revenue sharing. By doing this cleverly, Spotify maximizes profits while minimizing engagement losses.
Complementary services: Good examples of this strategy include products and services that add value when combined with a core service, such as NYT Cooking or The New York Times’ Wirecutter. Based on the above idea, complementary products should be distributed on top of the core platform.
additional services
Services like Amazon Prime and AppleCare enhance core services for an additional fee. Additional services should not require new business units However, it can be seamlessly integrated into your existing operations.
Turn a cost center into a venture
Identify the major cost centers of your business and convert your largest cost centers into new business. “Selling services” to core businessguarantees that its products are more cost-effective or better than those available on the open market.
Needless to say, these ventures must operate separate income statements. Implementing this strategy requires an entrepreneurial spirit in the leadership of new ventures.
This approach contrasts with traditional models in which each department acts as a cost center and the core business absorbs expenses without direct responsibility for profitability.
When will the funds be invested? It is important to note that in-house start-up of a new supply-side venture is only viable if the core business’ expenditure on its moving parts is large enough to justify the investment in the spin-off. .
What will you invest your money in? Invest money where you have the technical ability to perform supply-side activities objectively better, cheaper, and faster than what is available on the open market. Here are some good examples:
At its simplest, if you build a team that’s great at renegotiating contracts with suppliers, you save money by offering that service at a percentage.
The Financial Times runs a consultancy called FT Strategies, which takes best practice from the FT Digital extension and sells it to a range of companies.
But has this endeavor ever failed in the media industry? Yes, many media companies, such as The New York Times, Vox Media, The Washington Post, Quint, and Axios, have invested millions of dollars in building custom content management systems (CMS). Often, companies’ instinct is not to be objective, but to want something unique and creatively superior.
Why it’s important:
profitability: In low-margin businesses such as retail and media, cutting costs is just as important as making money.
avoid white elephants: If the engagement is professional and non-commercial, the core business may rely on in-house services, even if better and cheaper options are available on the public market.
price stability: For sufficiently large operations, some of these costs can be very high. For example, McDonald’s budget for purchasing raw materials such as potatoes, oil, chicken, and wheat may be larger than the GDP of many small countries. They just can’t do it, otherwise price fluctuations will make the burger business unviable.
conclusion
For media companies, the transition to a unified algorithmic platform requires more than just operational adjustments. Financial models and incentive structures need to be built into the algorithm itself. This approach makes collaboration not only a strategic imperative, but an operational reality, driving both profitability and long-term success.
The views expressed above are the author’s own.
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