Some Leaders Never Learn – Tribune’s Big, Dumb Bet

Tribune Corporation finally emerged from a 4 year bankruptcy on the last day of 2012.  Before the ink hardly dried on the documents, leadership has decided to triple company debt to double up the number of TV stations.  Oh my, some people just never learn.

The media industry is now over a decade into a significant shift.  Since the 1990s internet access has changed expectations for how fast, easily and flexibly we acquire entertainment and news.  The result has been a dramatic decline in printed magazine and newspaper reading, while on-line reading has skyrocketed.  Simultaneously, we're now seeing that on-line streaming is making a change in how people acquire what they listen to (formerly radio based) and watch (formerly television-based.)

Unfortunately, Tribune – like most media industry companies – consistently missed these shifts and underestimated both the speed of the shift and its impact.  And leadership still seems unable to understand future scenarios that will be far different from today.

In 2000 newspaper people thought they had "moats" around their markets. The big newspaper in most towns controlled the market for classified ads for things like job postings and used car sales.  Classified ads represented about a third of newspaper revenues, and 40% of profits.  Simultaneously display advertising for newspapers was considered a cash cow.  Every theatre would advertise their movies, every car dealer their cars and every realtor their home listings.  Tribune leadership felt like this was "untouchable" profitability for the LA Times and Chicago Tribune that had no competition and unending revenue growth.

So in 2000 Tribune spent $8B to buy Times-Mirror, owner of the Los
Angeles Times.  Unfortunately, this huge investment (75% over market
price at the time, by the way) was made just as people were preparing to
shift away from newspapers.  Craigslist, eBay and other user sites killed the market for classified ads.  Simultaneously movie companies, auto companies and realtors all realized they could reach more people, with more information, cheaper on-line than by paying for newspaper ads. 

These web sites all existed before the acquisition, but Tribune leadership ignored the trend.  As one company executive said to me "CraigsList!! You think that's competition for a newspaper?  Craigslist is for hookers!  Nobody would ever put a job listing on Craigslist."  Like his compadres running newspapers nationwide, the new competitors and trends toward on-line were dismissed with simplistic statements and broad generalizations that things would never change.

The floor fell out from under advertising revenues in newspapers in the 2000s. There was no way Times-Mirror would ever be worth a fraction of what Tribune paid.  Debt used to help pay for the acquisition limited the options for Tribune as cost cutting gutted the organization.

Then, in 2007 Sam Zell bailed out management by putting together a leveraged buyout to acquire Tribune company.  Saying that he read 3 newspapers every day, he believed people would never stop reading newspapers.  Like a lot of leaders, Mr. Zell had more money than understanding of trends and shifting markets.  He added a few billion dollars more debt to Tribune.  By the end of 2008 Tribune was unable to meet its debt obligations, and filed for bankruptcy.

Now, new leadership has control of Tribune.  They are splitting the company in two, seperating the print and broadcast businesses.  The hope is to sell the newspapers, for which they believe there are 40 potential buyers.  Even though profits continued falling, from $156M to $89M, in just the last year. Why anyone would buy newspaper companies, which are clearly buggy whip manufacturers, is wholly unclear.  But hope springs eternal!

The new stand-alone Tribune Broadcasting company has decided to go all-in on a deal to borrow $2.7B and buy 19 additional local television stations raising total under their control to 42.

Let's see, what's the market trend in entertainment and news?  Where once we were limited to local radio and television stations for most content, now we can acquire almost anything we want – from music to TV, movies, documentaries or news – via the internet.  Rather than being subjected to what some programming executive decides to give us, we can select what we want, when we want it, and simply stream it to our laptop, tablet, smartphone, or even our large-screen TV.

A long time ago content was controlled by distribution.  There was no reason to create news stories or radio programs or video unless you had access to distribution.  Obviously, that made distribution – owning newspapers, radio and TV stations – valuable.

But today distribution is free, and everywhere.  Almost every American has access to all the news and entertainment they want from the internet. Either free, or for bite-size prices that aren't too high.  Today the value is in the content, not distribution.

In the last 2 years the number of homes without a classical TV connection (the cable) has doubled.  Sure, it's only 5% of homes now.  But the trend is pretty clear.  Even homes that have cable are increasingly not watching it as they turn to more and more streaming video.  Instead of watching a 30 minute program once per week, people are starting to watch 8 or 10 half hour episodes back to back. And when they want to watch those episodes, where they want to watch them.

While it might be easy for Tribune to ignore Hulu, Netflix and Amazon, the trend is very clear.  The need for broadcast stations like NBC or WGN or Food Network to create content is declining as we access content more directly, from more sources.  And the need to have content delivered to our home by a local affiliate station is becoming, well, an anachronism. 

Yet, Tribune's new TV-oriented leadership is doubling down on its bet for local TV's future.  Ignoring all the trends, they are borrowing more money to buy more assets that show all signs of becoming about as valuable whaling ships.  It's a big, dumb bet.  Similar to overpaying for Times-Mirror.  Some leaders just seem destined to never learn.

Lost in the Swamp – Publishing – Random House, Tribune Corporation, News Corp.

Do you read more today, or less than you did 10 years ago?  For most of us, the answer is more.  Our ever present access to email and texting means we watch less TV, and pick up more from reading.  Of course, we read a lot less paper than we used to – books are falling more out of favor every year – and the plight of newspapers and magazines is rocky.  For traditional book publishers like Random House, Pearson, et.al. as well as periodical publishers like Tribune Corporation or News Corp. there is a lot of concern about survivability.  But it's not because we're reading less.  It's because the market has shifted, and people are reading differently.

What should a publisher focus upon?  Words.  Content.  A recent Harvard Business School web discussion "HBS Cases: iPads, Kindles, and the Close of a chapter in Book Publishing" highlights that the role of a publisher is to find really good stuff that people want to read.  The author, former CEO of Random House, points out that a publisher's job is to edit content into the format which makes it easiest to understand and digest.  A good publisher aids us in our seeking knowledge, or enjoyment.  But most publishers have completely lost sight of that goal, instead focusing on printing.  Books, magazines and newspapers.  Keep the presses busy, and the old supply chain filled.

In the business lifecycle we start with the Wellspring of ideas.  When something catches hold, we enter the Rapids of growth.  That's great, because growth is a fun place to be.  But when markets start shifting then things go flat.  We think slowness is our fault, so we work harder at what we've always done – but the cause is a market shift so the hard work makes little difference.  We drift into the Swamp, where we are so overwhelmed with all the problems from no to negative growth that we forget what our original purpose was (we get so busy fighting alligators and killing mosquitoes that we forget the mission was to drain the swamp!)  Eventually resources are depleted and we slide into the Whirlpool of failure.

Publishers are now in the Swamp.  Cutting costs, focusing on "big deals" (like bidding wars to publish a book by a celebrity like Sarah Palin), and spending all kinds of time dealing with the supply chain.  As the HBS article explains, while iPad and Kindle represent an opportunity for incremental growth – and new revenue – by feeding people content when they want it where they want it and how they want it – the publishers are in a pitched battle to slow electronic publishing.  The publishers are trying to Defend & Extend their old process of printing, and distributing, paper.  They want to defend their old Success Formula.  And in doing so, they've completely lost sight of the opportunity digital publishing offers!

A paper published on the University of Missouri web site "What Happens When Newspapers Cut Back on Marketing Investments? An Empirical Analysis" is extremely enlightening.  With ad spending down, in an effort to "save" the business, they are cutting editorial. Yet, this is creating a vicious cycle of decline (a Whirlpool is emerging.)

  1. Newsroom cuts are the most costly on revenue.  More than cutting sales or distribution, cutting content led to the greatest loss.  Duh!  Of course.  Readers are there for content – not for ads or distribution!  Talk about forgetting your purpose.
  2. The bigger the cuts, the impact on revenues gets progressively worse!  Remember what I said about creating a whirlpool?  When you cut what people want, you hasten demise.
  3. Newsroom cuts are most costly on profit.  Not only does revenue decline, but of all cost cuts the content cutting not only takes away readers – but quickly advertisers as well.  Advertisers depend on content to draw people to their ads.  Otherwise all you have is an ad tabloid – remember? 

My book publisher is Pearson.  Eighteen months ago I proposed that we take Create Marketplace Disruption and turn it into 16 short stand-alone mini-books.  People could then buy just part of the book, as it suits their needs.  Sell these for $1 or $2 each strictly as electronic downloads.  That idea flew about as far as the famed dodo.  Financial Times Press sells books I was reminded.  No interest in this other wacky idea I proposed. 

But I'm confident that for most of you, the idea of nice short readings – like say a blog – is a lot more appealing than digesting a 225 page bookPeople don't want less words, they just want things differently.  That's why I do public speaking and workshops – because many of us don't want all the detail of the book and appreciate receiving the content in another format.

So, do you know what direction your market is headed?  Are you moving forward to meet emerging needs and preferences?  Or are you trying to defend & extend the way you've historically done business?  For most publishers, the current direction spells disaster – failure.  Learn from their mistakes, Disrupt your approach and find some White Space to learn how you can make money and grow!

New Solutions Emerge – Apple, Amazon, Netflix, YouTube, Hulu

Most people misunderstand evolution.  They think that changes happen slowly.  Imagine an animal with a 12 inch tail.  Every generation or so it's imagined that the tail gets a little shorter, then a little shorter, then a little shorter until after some very long time it simply disappears.  But that's not at all how evolution works.

Instead, most of the animals have a long tail.  Some small number of animals are born each year with very short or no tails.  For the most part, this matters little.  If the tail is valuable – say for warding off parasites – those without tails may suffer and die off quickly.  And that's the way things are, largely unchanged, for decades.  But then, something happens in the environment.  Perhaps the emergence of a predator able to catch these animals by the tail and hold them in place to let the pack kill it.  Within one generation almost all of the tailed animals are killed by the predator, and only the no-tail animals survive.  Some of these have developed an immunity to the parasite.  So then this "evolved" animal becomes dominant.  No-tail animals replace the tailed animals.  That's how evolution really works.  It happens fast, with drastic change (and this time of change is referred to as a punctuated equilibrium.)

Once we know how evolution really works, we can start to better understand business competition.  A Success Formula works for a really long time, until something changes in the marketplace.  Suddenly, the old Success Formula has far poorer results.  And a replacement takes over.

Consider newspapers.  They played a very important role in society for at least 100 years (maybe 200 or 300 hundred years.)  But with the advent of the internet, their role is no longer viable.  Printing and delivering a daily paper is too expensive for the value it can provide.  So think of newspapers as the long-tail animal.  And digital news delivery is a short-tail animal.  The internet is the attack pack that kills the newspapers.  And within short order, the world is a different place – in a new equilibrium.  And everything about the surrounding environment is shifted.  Regardless of how much you enjoyed newspapers, they simply cannot compete and new competitors are a better fit in the new marketplace.

Now consider Netflix.  Netflix played a major influence in obsoleting traditional movie rental shops – like Blockbuster.  Netflix was a winner.  But markets – new attack packs – keep emerging.  And the latest shift are products like the Kindle and Apple Tablet (as well as other tablet PCs.)  These products make Hulu and YouTube a lot more viableSuddenly, Netflix is the long-tail animal, and the short-tail animals are doing relatively better. 

According to The Wall Street Journal, in "Apple Sees New Money in Old Media" Apple is close to a deal with several newspapers to deliver their content to readers via their internet device.  They also are negotiating rights to deliver movies and television (small format) entertainment.  Simultaneously, Amazon keeps marching forward as MediaPost.com reports in "Take That Apple: Kindle Introduces Apps."  We see that there are a LOT of potential different versions of the short-tail animal.  Tablets, phones, netbooks, etc.  Which will be the biggest winners?  Not clear.  But what is clear is that the old long-tail competitors (newspapers, print magazines, network television, traditional PCs) are not going to flourish as they once did.  The market has permanently shifted.  Those competitors are in the back end of their lifecycle.

Simultaneously, this market shift causes ripple effects through the environment.  The market shift affects ALL players – not just the one most visibly being attacked.  So, as SiliconBeat.com reports in "Looks Like Netflix is Dead, Again" this change suddenly imperils Netflix which has mostly counted on postal delivery rather than digital.  And it provides a boost to short-tail players like Hulu and YouTube which could see much larger revenue given their digital-based delivery models.

And this affects you.  What do you print, or say, that could be better handled on a mobile device?  Could you deliver user instructions via an iPhone or Kindle app?  If so, why aren't you doing it?  Are you still working on traditional web pages, with embedded text in graphics that can't be seen by a mobile phone, when most people are likely to find you first on their mobile device?  Are you busy working on your web site, while ignoring having a Linked-in or Facebook account?  Are you advertising on television, or in newspapers, and ignoring Facebook ads – or YouTube links?  Do you have a YouTube channel with short clips to instruct users on your product, or how to install an upgrade, or even why to buy?  Are you still competing with a long tail, while the pack is rapidly killing off the long-tail species?

Market shifts are happening fast today.  If you don't react, you just may find yourself deep into the pack with declining results.  Or you can shift with the market to keep your business competitive.

Skating to where the puck will be – Apple and advertising

I was intrigued to read about Apple proposing to rebuild a mass transit stop in Chicago in exchange for naming rights to the stop, as well as permission to advertise in the stop (Crain's Chicago Business – "Doors will open on the right at Apple stop.")  Most people would ask "why?"  And it's because Apple is moving toward a very different advertising future.

Most people think of advertising as the ads in newspapers and magazines, as well as on the radio, or television, or possibly billboards.  Only we know that newspapers and magazines are failing because fewer people read them every month.  Advertising in print media has limited value if there aren't any readers.

Likewise, people under 30 are watching a LOT less TV than the older generation.  Whereas I grew up with my eyes on the "boob tube," increasingly I watch a lot less TV as I spend more time on the web.  But my web use is nothing compared to people 17 to 34, who have almost abandoned television. They go to the web for entertainment.  And they increasingly only watch TV shows and movies when they can download them – or possibly watch via DVD.

And Apple is at the forefront of killing the radio businessWith iPods and digital music now cheap and plentiful, why listen to somebody else's programming?  When you can program your own music, radio becomes less interesting.  And if you want news there's the iPhone, Blackberry or similar mobile device to access the web – so why listen to talk radio? 

Advertising as it was is gone.  Coke, Pepsi, Procter & Gamble, Kraft, etc. built huge companies via media advertising.  But media usage is declining sharply.  So how do you get the message out to people who increasingly get their entertainment without using most of the traditional media?

And that's where Apple's move makes sense.  By rebuilding a train station, they help promote their brand.  It reminds me of when Hooters offered to fill the potholes in Chicago (a big problem) if they could put their company logo over them.  This week I noticed that in the Newark, NJ airport the jetways had big billboards on the outside.  And the TSA bins (for shoes, coats, laptops, etc.) had ads printed on the bottom.  It's getting harder and harder to reach customers when they don't need traditional media.  

So if you have historically been a big user of traditional media advertising, you'd better be rethinking that strategy.  What worked in the past isn't going to work in 2015. Staying Locked-in to old ad budgets, and approaches, is going to keep producing declining returns.  Traditional advertising won't even maintain current positions – much less work for new product launches.  As ad costs go up, they are less effective.  To reach customers requires shifting with the market.

If your new business plas is to use advertising as a way to grow your business, think again.  While advertising isn't gone – it is a lot less effective than it was when traditional media was widely the source of information and entertainment.  If you want to get people to recognize your brand, you have to start being a lot more clever.  You have to find new ways to get in front of customers.  You have to use your scenarios of the future to help you find the best way to promote your product.  Because the old channels, and the ad firms that used to supply them, increasingly are an ineffective answer.

Why you REALLY need to pay attention – Sony e-reader and Amazon Kindle

"Sony Unveils Pocket Size Electronic Book Reader" is the Los Angeles Times headline.  According to Silican Alley Insider the new Apple tablet is a GREAT book reader.  Although Steve Jobs thinks book publishers are incredibly screwed up and he's less optimistic about book sales than he was music sales when he launched iTunes.  And Amazon has sold out its Kindle e-readers since they started manufacturing them two years ago. 

With all these announcements, you'd think everyone knows about e-readers and the market shift happening in publishing – from books to magazines to newspapers.  Even I've blogged about this for months – and the positive impact this has had on book sales as well as Amazon's revenues and profits.  But:

E-reader share (Link to chart and Forrester Discussion here)

Half of all people surveyed in 2Q 2009 still haven't seen or heard about e-readers.

This is important.  Imagine it's 1983, and you weren't aware about personal computers and their benefits – even though the IBM PC was Time magazine's "Man of the Year" in 1982.  We now know that early adopters of PCs developed new solutions for many problems – from analysis to word processing to advertising development to commercial graphics to in-house publishing to communicating via email — on and on and on.  Those who understood this technology early, recognized the shift it demonstrated, had early advantages on competitors.  You didn't have to compete in technology, or be a technology officianado, to take advantage of this computing shift for your advantage.

Today, ereaders are another serious market shift that early adopters can leverage.  Soon newspapers and magazines will be hard to come by, or so thin (due to printing and distribution cost) that their content will be much less than desired.  But ereaders allow you to keep up with journals you've come to trust.  And advertisers need to be prepared to follow them onto this platform – to reach people they otherwise would miss.

If you've quit reading books because you don't have the money to spend (at $20+ apiece), desire to carry them, or the time to read them, ereaders allow you to buy and carry 350 or more books at a fraction of previous prices.  You even can buy pieces of books (chapters for example) that give you what you want.  Think of the shift from long-play albums/CDs to iTunes sales of single songs as an analogy.  You can get the benefits of books without many of the reasons you may have quit reading them.

Would you like a repository of information you can call upon for your daily work?  With e-readers you can carry an entire library, something you'll not do in paper.  Or on your laptop.

Speaking of laptops – this will all be on a laptop you say – so forget ereadersDo you really think we'll all be carrying these 7 pound monsters around in 5 years?  Look at college kids today.  How many do almost all their work on a phone?  They use the computer only when forced to – for typing papers or building spreadsheets.  Laptops are increasingly becoming much more than people want – too big, too heavy, too hot, too power hungry, too short battery life, too complicated, too much software, too many bugs, too many viruses, too expensive.  Laptops will soon be like mainframes.  Look at the trend.  Sales of big screen laptops have cratered as netbooks, with tiny screens, have taken off.  People are moving away from laptops to smaller and easier to use products – like ereaders. 

Why make your salesforce, or customers, or training techs carry a laptop when an ereader will give them everything they need?  They cost less, are easier to keep working, and don't get hindered with personal apps like MS Money that you didn't put on the laptop in the first place but couldn't stop.  Given ereader prices, you might be able to consider an ereader disposable in 5 years.  Literally, you could give a customer an ereader with all the training, specs, history, design elements, etc. of your product the way we now use a brochure.  It literally might be cheaper than a 10 page glossy brochure costs to print and distribute – but with everything they need to design in your product, or operate it, or service it.  Imagine an ereader in your car glove box rather than the owner's manual you never use – but the info will be catalogued, searchable, and linked to the internet so it's always current with service information.

Market shifts affect us all.  Too often we say "oh that shift is obvious, and I'm surprised the current competitors aren't jumping on that."  Then we ignore the shift ourselves.  Competitors that make higher rates of return, and prolong those rates of return, observe these market shifts and immediately build them into future scenarios.  They think about how to use these shifts to improve their competitive position, and create White Space to test the opportunities – even when they represent Disruptive change.  These are Phoenix Principle companies – and the kind you want to be – because they grow more, make more money and have longer lives.

Learn how to spot market shifts and leverge them for your advantage.  Don't end up like GM – out of touch and into bankruptcy.  Read the new, free ebook "The Fall of GM:  What Went Wrong and How To Avoid Its Mistakes."