by Adam Hartung | Aug 6, 2013 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership
Jeff Bezos, founder of Amazon worth $25.2B just paid $250 million to become sole owner of The Washington Post.
Some think the recent rash of of billionaires buying newspapers is simply rich folks buying themselves trophies. Probably true in some instances – and that benefits no one. Just look at how Sam Zell ruined The Chicago Tribune and Los Angeles Times. Or Rupert Murdoch's less than stellar performance owning The Wall Street Journal. It's hard to be excited about a financially astute commodities manager, like John Henry, buying The Boston Globe – as it has all the earmarks of someone simply jumping in where angels fear to tread.
These companies lost their way long ago. For decades they defined themselves as newspaper companies. They linked everything about what they did to printing a daily paper. The service they provided, which was a mix of hard news and entertainment reporting, was lost in the productization of that service into a print deliverable.
So when people started to look for news and entertainment on-line, these companies chose to ignore the trend. They continued to believe that readers would always want the product – the paper – rather than the service. And they allowed themselves to remain fixated on old processes and outdated business models long after the market shifted.
The leaders ignored the fact that advertisers could obtain much more directed placement at targets, at far lower cost, on-line than through the broad-based, general ads placed in newspapers. And that consumers could get a much faster, and cheaper, sale via eBay, CraigsList or Vehix.com than via overpriced classified ads.
Newspaper leadership kept trying to defend their "core" business of collecting news for daily publication in a paper format. They kept trying to defend their local advertising base. Even though every month more people abandoned them for an on-line format. Not one major newspaper headmast made a strong commitment to go on-line. None tried to be #1 in news dissemination via the web, or take a leadership role in associating ad placement with news and entertainment.
They could have addressed the market shift, and changed their approach and delivery. But they did not.
Money manager Mr. Henry has done a good job of turning the Boston Red Sox into a profitable institution. But there is nothing in common between the Red Sox, for which you can grow the fan base, bring people to the ballpark and sell viewing rights, and The Boston Globe. The former is unique. The latter is obsolete. Yes, the New York Times company paid $1.1B for the Globe in 1993, but that doesn't mean it's worth $70M today. Given its revenue and cost structure, as a newspaper it is probably worth nothing.
But, we all still want news. Nobody wants the information infrastructure collecting what we need to know to crumble. Nobody wants journalism to die. But it is unreasonable to expect business people to keep investing in newspapers just to fulfill a public good. Even Mr. Zell abandoned that idea.
Thus, we need the news, as a service, to be transformed into a new, profitable enterprise. Somehow these organizations have to abandon the old ways of doing things, including print and paper distribution, and transform to meet modern needs. The 6 year revenue slide at Washington Post has to stop, and instead of thinking about survival company leadership needs to focus on how to thrive with a new, profitable business model.
And that's why we all should be glad Jeff Bezos bought The Washington Post. As head of Amazon.com The Harvard Business Review ranked him the second best performing CEO of the last decade. CNNMoney.com named him Business Person of the Year 2012, and called him "the ultimate disruptor."
By not doing what everyone else did, breaking all the rules of traditional retail, Mr. Bezos built Amazon.com into a $61B general merchandise retailer in 20 years. When publishers refused to create electronic books he led Amazon into competing with its suppliers by becoming a publisher. When Microsoft wouldn't produce an e-reader, retailer and publisher Amazon.com jumped into the intensely competitive world of personal electroncs creating and launching Kindle. And then upped the stakes against competitors by enhancing that into Kindle Fire. And when traditional IT suppliers like HP and Dell were slow to help small (or any) business move toward cloud computing Amazon launched its own network services to help the market shift.
Mr. Bezos' language regarding his intentions post acquisition are quite telling, "change… is essential… with or without new ownership….need to invent…need to experiment."
And that is exactly what the news industry needs today. Today's leaders are HuffingtonPost.com, Marketwatch.com and other web sites with wildly different business models than traditional paper media. WaPo success will require transforming a dying company, tied to an old success formula, into a trend-aligned organization that give people what they want, when they want it, at a profit.
And it's hard to think of someone better experienced, or skilled, than Jeff Bezos to provide that kind of leadership. With just a little imagination we can imagine some rapid moves:
- distribution of all content via Kindle style eReaders, rather than print. Along with dramatically increasing the cost of paper subscriptions and daily paper delivery
- Instead of a "one size fits all" general purpose daily paper, packaging news into more fitting targeted products. Sports stories on sports sites. Business stories on business sites. Deeper, longer stories into ebooks available for $.99 purchase. And repackaging of stories that cover longer time spans into electronic short-books for purchase.
- Packaging content into Facebook locations for targeted readers. Tying ads into these social media sites, and promoting ad sales for small, local businesses to the Facebook sites.
- Or creating an ala carte approach to buying various news and entertainment in an iTunes or Netflix style environment (or on those sites)
- Robustly attracting readers via connecting content with social media, including Twitter, to meet modern needs for immediacy, headline knowledge and links to deeper stories — with sales of ads onto social media
- Tying electronic coupons, and buy-it-now capabilities to ads linked to appropriate content
- Retargeting advertising sales from general purpose to targeted delivery at specific readers, with robust packages of on-line coupons, links to specials and fast, impulse purchase capability
- Increased use of bloggers and ad hoc writers to supplement staff in order to offer opinions and insights quickly, but at lower cost.
- Changes in compensation linked to page views and readership, just as revenue is linked to same.
We've watched a raft of newspapers and magazines disappear. This has not been a failure of journalism, but rather a failure of business leaders to address shifting markets and transform old organizations to meet modern needs. It's not a quality problem, but rather a failure of strategy to adapt to shifting markets. And that's a lesson every business leaders needs to note, because today, as I wrote in April, 2012, every company has to behave like a tech company!
Doing more of the same, cutting costs and rich egos won't fix a newspaper. Only the willingness to experiment and find new solutions which transform these organizations into something very different, well beyond print, will work. Let's hope Mr. Bezos brings the same zest for addressing these challenges and aligning with market needs he brought to Amazon. To a large extent, the future of news and "freedom of the press" may well depend upon it.
by Adam Hartung | Jul 10, 2013 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Television
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.
by Adam Hartung | Jun 13, 2010 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in
If your boss told you that he enjoyed your hard work, but he wanted to cut your pay 50% I bet you would feel – well – violated. Your hard work is just that; hard work. If you received $100,000 (or $50,000 or $250,000) for that work last year it would be hard to accept receiving some fractionally lower amount for that same work next year. Especially given that every year you are able to work smarter, better and faster at what you do. Because your execution constantly improves you'd expect to receive more every year.
But in reality, it doesn't matter how hard we work. What matters is the value of that work. It's why nearly incoherent ball players and actors make millions while skillful engineers barely make 6 figures. In other words, pay inevitably ends up being the result of not only the output – it's volume and quality – but what it is worth. And that the compensation is a marketplace result – and not something we actually control – is hard for us to understand.
Every years many pundits decry "excessive" executive pay. There is ample discussion about how an executive received a boat load of money, meanwhile the company sales or profits or customer performance was less than average, or possibly even declined. Of course the executives don't think they are overpaid. They say "I worked hard, did my job, did what I thought was best and was agreed to by my Board of Directors. I did what most investors and my peers would have expected me to do. Therefore, I deserve this money – regardless of the results. I can't control markets or their many variables (like industry prices, costs of feedstock, international currency values, or the loss of a patent or other lawsuit, an industrial accident, or the development of a competitive breakthrough technology) so I can't control the results (like total revenues, or total profits or the stock prices). Therefore I deserve to be compensated for my hard work, even if things didn't work out quite like investors, customers, employees or suppliers might have liked."
This answer is hard for the detractors to accept. To them, if top management isn't responsible for results, who is? Yet, shockingly, each time this happens investment fund managers that own large stock positions will be interviewed, and they will agree the executives are doing their jobs so they should get paid based up on their title and industry – regardless the results.
An example of this behavior was reported by Crain's Chicago Business in "Tribune's $43M Bonus Plan Lambasted by Trustee." Even though Tribune Corporation's leadership, under Sam Zell, took the company from profitable to bankruptcy, and even though they've been unable to "fix" Tribune sufficiently to appease bondholders and develop a plan to remain a going concern thus exiting bankruptcy, the management team thinks it should be paid a bonus. Why? Because they are working diligently, and hard. So, even though there really are no acceptable results, they want to get paid a bonus.
We all have to realize that our company sales and profits are a result of the marketplace in which we compete, and the Success Formula we apply. The combination can produce very good results sometimes; even for a prolonged period. Newspapers had a good, long profitable run. But markets shift. When markets shift, we see that the old Success Formula must change because RESULTS deteriorate. Slow (or no, or negative) growth in revenues and/or profits and/or cash flow is a clear sign of a market shift creating a problem with the Success Formula. When this happens, rewarding EXECUTION (or hard work) is EXACTLY the WRONG thing to do! Doing more of the same will only exacerbate bad results – not fix them
What's bad for the business, in revenues/profits/cash flow, must (of necessity) be bad for the employees. Not because they are bad people. Or lazy, or incompetent, or arrogant, or any of many other bad connotations. But because the results are clearly saying that the value has eroded from the Success Formula . Usually because of a market shift (like readers and advertisers going from newspapers/print to the internet). What we MUST reward are the efforts to change the Success Formula, to get back to growing. Not hard work. As much as we'd like to say that hard work deserves money – we all know that money flows to the things we value regardless of how hard we work.
I've long been a detractor of many executives – Brenda Barnes at Sara Lee has been a frequent victim of this blog. Whitacre of GM another. Steve Ballmer at Microsoft. That the Boards of these companies compensate these leaders, and the teams they lead, is horrific. It reinforces the notion that what matters is hard work, willingness to toe the line of the old Success Formula, willingness to remain Locked-in to industry or company traditions – rather than results. Results which give independent feedback from the marketplace of the true value of the Success Formula.
Let's congratulate the Tribune Trustee. For once, more attention is being paid to results than to "hard work" or "execution." Tribune – like General Motors – needs a wholesale makeover. An entirely new team of leaders willing to Disrupt old Lock-ins and use White Space to define a new Success Formula. Willing to move the resources in these companies, including the employees, back into growth markets. If more Boards acted like the Tribune Trustee we'd be a lot better off because more companies would grow and maybe we'd move forward out of this recession.
by Adam Hartung | Apr 5, 2009 | Uncategorized
Michael Porter wrote a famous book in 1980 on strategy called, befittingly, Competitive Strategy. His doctoral work at Harvard had shown him that in an industrial market, you could map out the power a company has – and from that imply its future profitability. Famous from this book was his "5 Forces" model in which companies could compare the relative strength of customers, suppliers, substitutes and potential entrants with traditional competitor rivalry to ascertain attractiveness. An outcome of his late 1970s analysis was that if you are really strong, you can control the behavior of the other forces to dictate your profitability. This was all pre-internet, pre-information economy.
Today (Sunday) my wife was fit to be tied (an old midwestern phrase) when she opened the Chicago Tribune and couldn't find a television schedule. She's not much of a newspaper reader, primarily just the Sunday ads and the TV schedule. When she couldn't find the TV schedule, she called the newspaper to ask for another copy. But the automated response at the Trib said not to leave a message if you're calling about the TV schedule, because it was now being printed in the Saturday edition. As you might guess, we don't take Saturday because we don't have time to read newspapers any more. Her reaction was simple "I get most of these ads delivered in the mailbox now during the week. If we don't get the TV schedule, we might as well cancel the paper altogether."
This, of course, is not the reaction Sam Zell and his management team at Tribune Corporation are expecting. They think their last remaining competitor, Sun Times Corp., is most likely going to fold now that it's filed bankruptcy and seems drowned in red ink. Following Porter's nearly 30 year old approach, they think they have little competition and no threat of new newspaper entrant – so they'll simply "force" readers to buy Saturday if they want the TV schedule.
But they are wrong, of course. Just like every other action they've taken since Zell overleveraged the corporation in his buy-out, they continue to ignore that the internet exists. As I pointed out to my wife, we can easily bookmark several locations to identify our local programming – including a nice layout at USAToday.com.
In an industrial economy, many leaders came to believe that they could erect entry barriers which allowed them great power to run their business for high profits. At newspapers, many felt that by being the only (or largest) local paper they had a "moat" around their business guaranteeing profits. They felt comfortable they could raise rates on advertising, and classified ads for those looking to find new hires or sell a used car. But of course they missed the fact that advertisers could go to the web to find customers. And that it was a lot cheaper to use Monster.com, Vehix.com or Craig's List than a local classified ad. So now Zell's team is trying to use his "relative strength" to push his subscribers into behavior they have avoided – buying a Saturday paper. And, again, the team has forgotten that in an internet-connected world customers have lots of options, and given a push they'll go look for other solutions.
The folks at Tribune Corporation made a big mistake by over-leveraging their acquisition. And they worsened that mistake by trying to use 1980s strategy post-2000. I recently emailed books editor Julia Keller with a recommendation for promoting book reading more strongly in her Sunday "Lit Life" column. She responded by upbraiding me for having the temerity to offer an idea to her – and concluded by challenging not only my intelligence but my own reading ability – then telling me to subscribe to the Saturday edition so I'd stop being such a luddite. My son wrote to the Trib's Sunday auto reviewer Jim Mateja with some insights he had about hybrids as a 21 year old, and Mr. Mateja responded that since he was only 21 he wasn't old enough to have common sense, and certainly no insights a serious auto reviewer or auto executive should consider. Bullying customers seems to have become commonplace around The Chicago Tribune.
When business conditions turn poorly it's very easy to focus on Defending & Extending what worked in the past. It's natural to turn against those who complain, and seek out your most loyal customers for reinforcement that you're Success Formula need not change. It's not uncommon to "write off" customers that walk away from you, saying they are no longer in your market target or niche. It's likely you'll turn to management practices that might have worked 3 decades ago (think about GM as well as newspapers). It's comfortable to turn to your "hedgehog concept" and try to do more of what you know how to do, primarily because you know how to do it and are good at it.
But you can't bully customers. Today, more than ever, substitutes and new entrants are no further than a Google search. Markets aren't as neatly and tightly defined as they were in 1980. When you see results slip, you can't try to force them back up by bullying vendors either. You have to align with market needs – with the direction markets are headed. You have to look into the future to see what customers will value, and do the Google search yourself to identify alternative competitors you need to beat. The Chicago Tribune could do a lot more to make its business valuable to people in Chicago and beyond. A little White Space could go a long way. Unfortunately, management appears intent on being the first major market newspaper to really fail – and folks in Chicago as well as L.A. (Tribune Corp. also owns The Los Angeles Times) may find themselves first on the curve to using web media exclusively.
