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 And they allowed themselves to remain fixated on old processes and outdated business models long after the market shifted.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 The latter is obsolete.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.
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.
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.
U.S. News is smart to drop its print edition and go all digital
Print newspapers and magazines are obsolete
Old brands have no value
Businesses have to develop and fulfull future scenarios, and forget about what made them successful in the past. Value comes from delivering in the future, not the past
Do you know any antique collectors? They scour for old things, considered rare because they are the remaining few out of a bygone era. For some people, these old things represent something treasured about the past – perhaps a turn in technology or some aspect of society. But there is no useful purpose to an antique. You can’t use the chair as a chair, for fear you’ll break it. Mostly, old things are just that – old things. Once useful, but no longer. They are remembrances. For most of us, seeing them in a museum once in a while is plenty often enough. We don’t need a houseful of them – and would happily trade the old Schwynn bicycle from high-school days for an iPad.
So what’s the value of the Chicago Tribune, or the Los Angeles Times? With the internet, tablets and other ereaders, mobile smartphones and laptops – why would anyone expect these newspapers to ever grow in value? Yes, they were once valuable – when readers could be “current” with daily news, largely from a single source. But now these newsapapers are practically obsolete. Expensive to create, expensive to print, expensive to distribute. And largely outdated by faster news outlets providing real time updates via the web, or television for those still not on-line. They are as valuable as a stack of 45 or 33 RPM records, or 8-track tapes (and if you don’t know what those are, ask your parents.)
As much as some of us, especially over 40, like the idea of newspapers and magazines – they really are obsolete. When automobiles were first created many people who grew up riding horses said the auto would never be able to displace the horse. Autos required petrol, where horses could feed anywhere. Autos required roads, where horses could walk (or tow a cart) practically anywhere. Mechanical autos broke down, where horses were reliable day after day. And autos were expensive to purchase and use. To those raised with horses, the auto seemed interesting but unnecessary – and with drawbacks. Yet, auto technology was clearly superior – offering better speed and longer distances, and the infrastructure was rapidly coming into place. The horse was obsolete. And this change made livery stables, saddle makers and blacksmiths obsolete as well. It took only a few years.
Today, printed documents like newspapers and magazines are obsolete. They have a purpose for travelers and commuters – but not for long. Tablets are making even the travelers use of paper unnecessary. With each of the 12million iPads sold (and who knows how many Kindles and other readers) another newspaper was unnecessary on the hotel room door. So I was extremely heartened to read that “U.S. News [and World Report] is ending its print edition” on MediaLifeMagazine.com.
Some might nostalgically say this decision is the end of something grand. Contrarily, this is the smart move by leadership to help the employees, customers and suppliers all continue pushing forward. As a print product U.S. News reached its end of life. As a digital product, U.S. News has a chance of becoming an important part of future journalism. While some are concerned the future digital product is not about the same old news it used to report, the facts are that we don’t need another magazine just for news. But the rankings and industry reports U.S. News has long created have the most value to readers (and therefore advertisers) and so the editors will be focusing on those areas. Smart move. Instead of doing what they always did, the editors are going to produce what the market wants. U.S. News has a fighting chance of survival, and thriving, if it focuses on the marketplace and meeting needs. It can expand with new products as it continues to learn what digital readers want, and advertisers will support. As an obsolete weekly magazine it didn’t have any value, but as a digital product it has a chance of being worth something.
I was shocked to read in Advertising Age “Meister Brau, Braniff and 148 other Trademarks to be Sold at Auction.” Who would want to buy a trademark of an old brand? It no longer has any value. Brands and trademarks have value when they help you aspire toward something in the future. A dead brand would have the cost not only of developing value — like Google in search or Android in phones has done; or the entire “i” line from Apple, or even Whole Foods or Prada. But to resurrect Meister Brau, Lucky Whip or Handi-Wrap would mean first overcoming the old (worn out and failed) position, and then trying to put something new on top. It’s even more expensive than starting from scratch with a brand that has no meaning – because you have to overcome the old meaning that clearly did not succeed.
Value is in the future. Yes, rare artifacts are sometimes cherished, and their tangible ownership (think of historical pottery, or rare furniture) can cannote something of a bygone era that provides an emotional trigger. These occasionally (like real items from the Titanic) can be collected and valuable. But a brand? Do you want a plastic Lucky Whip tub to help you recall bad 1960s deserts? Or a cardboard Handi-Wrap box to remind you of grandma’s leftovers? In business value is not about the past, it’s entirely about the future.
For businesses to create value they have to generate and fulfull scenarios about the future. Nobody cares if you were good last year (and certainly not if you were good last decade – anybody want an Oldsmobile?) They care about what you’re going to give them in the future. And all business planning needs to be looking forward, not backward. And that’s why it’s a good thing that U.S. News is going all digital. Maybe if the turnaround pros at Tribune Corporation understood this they could figure out how to grow revenues at Tribune or the Times again, and maybe get the company out of bankruptcy. Because trying to save any business by looking at what it used to do is never going to work.
Do you lament "the way things used to be?" I remember my parents using that phrase. Now I often hear my peers. And it really worries me. Success requires constant growth, and when I hear business leaders talking about "the way things used to be" I fear they are unwilling to advance with market shifts.
For 5 years newspaper publishers have been lamenting the good old days, when advertisers had little choice but to pay high rates for display or classified ads. Newspaper publishers complain that on-line ads are too inexpensive, and thus unable to cover the costs of "legitimate" journalism. While they've watched revenues decline, almost none have done anything to effectively develop robust on-line businesses that can offer quality journalism for the future. Instead, most are cutting costs, reducing output and using bankruptcy protection to stay alive (such as Tribune Corporation.) Even as more and more readers shift toward the digital environment.
While most of the "major" newspapers (including Tribune owned LA Times) have been trying to preserve their print business (Defend & Extend it) HuffingtonPost.com has gone out and built a following. There's little doubt that with the last 3 years trajectory,HuffingtonPost will soon be the largest site. And reports are that HuffingtonPost.com is profitable.
In 2006 the CFO at LATimes told me he couldn't divert more resources to his web department. He felt it would be jeopardize to the print business. "After all," he said "you don't think that the future of news will be bloggers do you?" Clearly, he was unprepared for the kind of model Arianna Huffington was building – and the kind of readership HuffingtonPost.com could create.
On Tuesday I presented the keynote address at the Innovation and Energy Summit in Grand Rapids, MI – and as reported in West Michigan Business "Energy & Innovation Summit Speakers Urge Business Leaders to Seek New Businesses, Not Protect Old Ones." Defend & Extend management always "feels" right. It seems like the smart thing to try and preserve the old Success Formula, usually by cutting costs and increasing focus on primary revenue sources. But in reality, this further blinds the organization to market shifts and makes it more vulnerable to disaster. While NewsCorp and others are busy trying to think like newspapers, emerging news market competitors are developing entirely different models that attract customers – and make a profit.
That's why it is so important to use future scenarios to drive planning (not old products and customers) while passionately studying competitors. Talking to advertisers gave these publishers no insight as to how to compete, however had they spent more time watching HuffingtonPost.com, and other on-line sites, they might well have used Disruptions to change their investment models – pushing more resources to the web business. And had they set up dedicated White Space teams not constrained by old Lock-ins to traditional revenue models and goals of "avoiding advertiser cannibalization" they might very well have evolved to a more effective Success Formula necessary for competing on the internet into 2020.
"CraigsList is for hookers." That's what the General Manager at the Los Angeles Times told me in 2005. In a meeting to discuss the newspaper's future profitability I pointed out that 1/3 of his newspaper's revenues came from Classified ads, and I had asked him if he was concerned about CraigsList.com. As you can tell, he was not.
At the same time, I asked him if he was concerned about on-line ads and the Google placement engine undermining his display ad business. He assured me that the internet was all for bloggers and no reputable news reader would pay much attention to on-line news. So no, he wasn't worried about internet competition to the newspaper sucking away this advertiser base. He just needed to keep old customers focused on the value of newspaper ads. In less than 6 months GM removed 70% of its newspaper ads – shifting all the money to on-line advertising – leading the auto pack on-line. And movie companies moved nearly 75% of their newspaper ad budget to on-line, while more than half of real-estate ads went on-line. Those happen to be the top 3 sources of display ad revenue for newspapers.
Today Tribune Corporation is in bankruptcy, and classified ads have dropped to a trickle for all major newspapers. Meanwhile, things are going pretty well at CraigsList and Google:
As can be seen, revenues per employee are phenomenal at CraigsList, and extremely good at Google. Much better than at the Tribune Company newspapers such as the Los Angeles Times and Chicago Tribune – despite them shedding a high percentage of employees over the last 7 years!
According to Gavin O'Malley, at OnlineMediaDaily of MediaPost.com in "CraigsList Revenues Soar: But Problems Loom" revenues at CraigsList may exceed $4M/employee/year! Margins he asserts are in the range of 75-80%! And revenues, while still small at about $125M, are growing at 25%/year (for what everyone thinks of as "free.") Albeit, this is a small business. But what if Tribune Company had paid attention back 5 years ago and invested hard in creating the world's best CraigsList – rather than ignoring it? What would the possible revenues be today? And margins? And impact on Tribune Company growth in revenues and profits?
Most companies do only a surface analysis of competition. They are so busy listening to, and reacting to, big customers it's all they can do to keep operations going and make the marginal changes to keep big customers happy. As a result, maybe they look at 2 or 3 of their most similar competitors (like other newspapers in the local market for our example.) And that will be cursory, examining total revenues, perhaps margins (if public and data is available) and a quick glimpse at impact on existing customers and any new products recently launched. But overall, very little attention is paid to competition.
And practically none is paid to "fringe" competitors. Those with different business models. Polaroid ignored digital camera manufacturers (despite licensing them technology) until Polaroid went bankrupt. Digital Equipment(DEC) ignored AutoCad – calling their CAD/CAM products "toys." Wang and Lanier said no big company would use a PC, rather than an integrated centralized system, for corporate word processing so they discounted Apple and Microsoft. Motorola largely ignored Apple in mobile phones, even after doing a joint venture with them to create and launch the RoKR. Failure lists are strewn with companies that simply ignored "fringe" competitors – saying they didn't understand the industry, the customers and how "the business works."
Large or small size is not important when studying competition, it's the ability to change how customers buy that is important. As we've seen in the case of companies like Google, Apple, eBay and Amazon we can see that fringe competitors can grow extremely fast. They can alter the competitive landscape quicker than almost any traditional corporate planning group will give them credit. Just ask the folks at Sears or Home Depot about he impact of Amazon and other on-line retailers (do you think either of those traditional retailers have anywhere near $1M revenue/employee like Amazon?) Or ask Merrill Lynch about the impact of Schwab, eTrade and ScotTrade.
The second step in The Phoenix Principle is to obsess about competition. When you're "the big gun" in the industry it can be incredibly easy to ignore fringe competitors. But do so at your risk. When profits are something like $2M to $3M per employee (as in the case of CraigsList) there is a lot of resource to invest in growth. And strong indications that the business is able to very profitably grow! Ignoring "fringe" competition – especially because you are focused on existing large customers who are Locked-In to your Success Formula – leaves you remarkably vulnerable to rapid market shifts and a really fast demise.
Is news dying, or are newspapers dying? That's a critical question. Most of us know the demand for news is not dying – and if you needed reinforcement a recent McKinsey & Company study verified that the demand for news has increased (McKinsey Quarterly "A Glimmer of Hope for Newspapers"). And a lot of the increase comes from people under 35 who are escalating their news demands. Of course, most of this increase is coming from the web and mobile media.
Too often, however, we don't see our business growing. Instead, Lock-in to old definitions make us think our business is shrinking when it is actually doing the opposite! And that's the Re-invention Gap. Manufacturers of small printing presses said demand was declining in the 1970s, when in fact demand for copies was exploding. Only the explosion was from xerography instead of presses. So A.B. Dick and Multigraphics, small offset press manufacturers, went out of business when demand for the output of their product was exploding! The market shifted, but it kept growing, and they missed the shift.
Today we see this behavior in most news publishers. Those who print newspapers and magazines are talking about how horrible business is. Only the demand for news is growing more quickly than ever. It's just not demand for print, which arrives too late for many customers. And because print is too slow a distribution method for these customers, advertisers are abandoning print as well. But only if you're Locked-in to printing do you say the market is horrible. Because with demand for news growing, if you reposition yourself to serve the growing part of the market you should say business is great!
Tribune Corporation, owner of The Chicago Tribune newspaper is still in bankruptcy. And its future relies entirely on how well it will serve the needs of on-line news readers. According to Crain's Chicago Business, in "Former Sports Editor Bill Adee Steers Chicago Tribune's On-line Strategy" print advertising revenues fell by 9% versus last year in the most recent quarter. And according to a quoted investment banker, nobody would have much interest in the value of a print newspaper. That business is destined to keep declining.
But simultaneously the volume of on-line ads tripled! And that's what a business has to do to cross its Re-invention Gap. It has to move from the old business into the new business – from the declining elements of its business into the growth elements.
What most businesses do wrong is try to apply their old business model to the new business. The old Success Formula has Lock-ins to metrics, schedules, processes, frequent decisions, decision-makers, strategic plans, etc. which the leadership tries to apply to the new business. For example, most newspapers are used to selling ads for several thousand dollars, based upon the number of subscribers. These are pretty large price points. But on-line, ads are sold per page view or per click. Now we're talking pennies sometimes. And to make money, you have to get a lot of views. Likewise, newspapers work on a 24 hour cycle of news accumulation and publishing, whereas the internet is 24×7 with the opportunity to change headlines and what's reported continuously. If a newspaper tries to apply the old Success Formulas related to sales, pricing and editorial process they fail.
And that's why crossing the re-invention gap requires a big Disruption. You have to get the organization to understand that while you are managing the old business, it is destined to eventually go under. So you have to be prepared to Disrupt the Lock-ins, to discover a new way to do the business. And that can only happen if there is a White Space team dedicated to building a business the way the new marketplace will pay for it. Totally separated from the old business. And exactly the opposite of what Tribune is doing by placing the team in the middle of the old newsroom!
At Tribune, one of the big problems is not only the ad pricing model and news scheduling, but the fact that the leadership is still trying to drive content like they did at the newspaper. Over a decade ago Tribune took a direction of accumulating less news on its own, and as a result it republished lots of content. But now on the internet republishing (or content aggregation as it is called on-line) is far less valuable because readers can go to the source. There are thousands and thousands of aggregators – making competition intense and profits negligible. Why page view a Chicago Tribune web page that's feeding info from the New York Times or Marketwatch or MSNBC when you can go directly to the New York Times or Marketwatch or MSNBC and get it yourself – possibly with other interesting sidebars? Succeeding in the new market requires developing an entirely new Success Formula – which Tribune Company has not done. It's still trying to find that magical "leverage" which will allow it to preserve its "history" (its old Success Formula) while tiptoeing into the new marketplace.
I don't know any newspaper or magazine publisher that has really attacked its Lock-ins, really Disrupted, or set up a true White Space team to explore how to make money in the growing new news market. News Corp. had the chance when it bought MySpace.com, but failed as it destroyed the MySpace business by "helping" its leadership. This market requires understanding how to get the news and report it cheaply and very fast, to computer and mobile device users. That is necessary to obtain the traffic which would be valuable to advertisers. And simultaneously the new team must package ad sales so as to maximize revenues from page views. Most are far too reliant on single ad sales, and not effectively linking the right ads to the right pages to generate more click-throughs as well as views.
Re-invention Gaps emerge because we let Lock-in blind us to growth opportunities.We define the business around the Lock-ins (such as printing a newspaper) rather than defining it around what the market wants (news.) Then when revenues stumble, starting a growth stall, the energy goes into preserving the old Success Formula (and its Lock-ins) first with cost cuts, and later with efforts to "synergize" or "leverage" the old Success Formula into the new market. And this never works. The growing part of the market is entirely different, and requires developing an entirely new Success Formula. That's why even in growing markets businesses fail, unless they commit to Dis
rupting the Lock-in and using White Space to move back into the growth Rapids.
