by Adam Hartung | Jul 7, 2009 | Current Affairs, Defend & Extend, General, In the Whirlpool, Leadership, Lock-in
"Tribune Company Profitability Continues to Deteriorate" is the Crain's headline. Even though Tribune filed for bankruptcy several months ago, its sales, profits and cash flow have continued deteriorating. The company is selling assets, like the Chicago Cubs, in order to raise cash. But its media businesses, anchored by The Chicago Tribune, are a sinking ship which management has no idea how to plug. While the judge can wipe out debt, he cannot get rid of the internet and competitors that are reshaping the business in which Tribune participates. Bankruptcy doesn't "protect" the business, it merely delays what increasingly appears to be inevitable failure.
"GM Clears Key Hurdles to Bankruptcy Exit" is the BusinessWeek headline. In record time a judge has decided to let GM shift all its assets and employees into a "new" GM, leaving all the bondholders, employee contracts and lawsuits in the "old" GM. This will wipe out all the debt, obligations and lawsuits GM has complained about so vociferously. But it won't wipe out lower cost competitors like Kia, Hyuandai or Tata Motors. And it won't wipe out competitors with newer technology and faster product development cycles like Toyota or Honda. GM will still have to compete – but it has no real plan for overcoming competitive weaknesses in almost all aspects of the business.
It was 30 years ago when I first head the term "strategic bankruptcy." The idea was that a business could hide behind bankruptcy protection to fix some minor problem, and a clever management could thereby "save" a distressed business. But this is a wholly misapplied way to think about bankruptcy. In reality, bankruptcy is just another financial machination intended to allow Locked-in existing management to Defend & Extend a poorly performing Success Formula. Bankruptcy addresses a symptom of the weak business – debts and obligations – but does not address what's really wrong - a business model out of step with a shifted marketplace.
The people running GM are the same people that got it into so much trouble. The decision-making processes, product development processes, marketing approaches are all still Locked-in and the same. GM hasn't been Disrupted any more than Tribune company has. Quite to the contrary, instead of being Disrupted bankruptcy preserves most of the Locked-in status quo and breathes new life into it by eliminating the symptoms of a very diseased Success Formula. Meanwhile, White Space is obliterated as the reorganized company kills everything that smacks of doing anything new in a cost-cutting mania intended to further preserve the old Success Formula.
Everyone in the bankruptcy process talks about "lowering cost" as the way to save the business. When in fact the bankrupt business is so out of step with the market that lowering costs has only a minor impact on competititveness. Just look at the perennial bankruptcy filers – United Airlines, American Airlines and their brethren. Bankruptcy has never allowed them to be more competitive with much more profitable competitors like Southwest. Even after 2 or 3 trips through the overhaul process.
Bankruptcy does not bode well for any organization. It's a step on the road to either having your assets acquired by someone who's better market aligned, or failure. Those who think Tribune will emerge a strong media competitor are ignoring the lack of investment in internet development now happening – while Huffington Post et.al. are growing every week. Those who think the "new" GM will be a strong auto company are ignoring the market shifts that threw GM to the brink of failure over the last year. Both companies are still Defending & Extending the past in a greatly shifted world – and nobody can succeed following that formula.
Don't forget to download the ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes" for a primer on how to keep your business out of bankruptcy court during these market shifts.
by Adam Hartung | May 6, 2009 | Uncategorized
"In the land of the blind the one-eyed man is king." I've heard this phrase many times, and never has it been truer than today. With so many companies fairing so poorly – revenues down, profits down, layoffs – doing better than most doesn't mean you have to do all that well.
An example is News Corp. The Tribune Company is bankrupt, casting doubts on the future of The Chicago Tribune, Los Angeles Times and its other newspapers. The New York Times company threatened to close The Boston Globe unless it received major employee concessions. But even these won't save either the Globe or the Times as the headline "Boston Globe's obituary already written" comes from commentator Chuck Jaffe. Newspapers are discontinuing daily circulation, slimming down, and closing.
So when Marketwatch.com reports "News Corp. posts flat third-quarter profit" it sounds like a monumental success compared to its competitors. But it does beg the question, why is News Corp. doing so much better than its brethren? The answer lies in the multi-faceted approach News Corp. took to connecting with those who want information – and then connecting to their advertisers. While the web sites for most newspaper companies are weak products that attract few readers (or advertisers), and the writers feed only one outlet (papers) rather than multiple outlets, News Corp. stands in stark contrast with major outlets across all media internationally.
In addition to multiple newpapers News Corp. owns multiple television stations and entire networks. It is a major player in cable programming – including the #1 ranked cable news channel in the U.S. as well as networks across the globe. It is a leader in direct broadcast satellite with SKY, owns multiple weekly magazines (that all have web sites), is a major player in billboards, and owns several internet properties including MySpace.com
Across News Corp. the leadership is able to share acquisition costs for programming – including news – and the distribution – including all forms of programming outlets. News Corp.'s leadership did an excellent job of paying attention to market shifts. After starting as an Australian newspaper company it moved into all these different businesses in order to be part of the evolving market landscape. It obsessed about competitors, never fearing to enter markets others avoided – such as launching a national broadcast network in the 1980s, and taking on CNN when nobody agreed there was need for more than one 24 hour news channel. And early in the internet era it paid up to acquire MySpace in order to be a participant in the internet's growth, not just a spectator.
The leadership at News Corp. has never been shy about Disruptions – often making itself the target of many groups. But these Disruptions allowed News Corp. to open many White Space projects, teaching the company how to compete in rapidly changing markets.
And now, as several competitors are disappearing, News Corp. is doing the best in its class. While competitors are hopelessly mired in Whirlpools from which escape is likely impossible, News Corp. is merely "flat". And there's a lot to be said for "flat" results when competitors from GE (owner of NBC and several other channels) to New York Times Company are seeing their poorest results in decades – or even filing bankruptcy (like Tribune).
by Adam Hartung | May 4, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Openness
Today Yahoo.com picked up on Mr. Buffett's recent comments, with the home page lead saying "Buffett's Gloomy Advice." The article quotes Buffett as saying newspapers are one business he wouldn't buy at any price. Even though he's a reader, and he owns a big chunk of the Washington Post Company (in addition to the Buffalo, NY daily), he now agrees there are plenty of other places to acquire news – and for advertisers to promote.
I guess the topic is very timely given the Marketwatch.com headline "N.Y. Times hold off on threat to close Boston Globe". Once again, in what might remind us of an airline negotiation, the owner felt it was up to concessions by the workers, via their union, if the newspaper was to remain in business. After squeezing $20million out of the workers, the owners agreed not to proceed with a shutdown – today. But they still have not addressed how a newspaper that is losing $85million/year intends to survive. With ad revenue plunging over 30% in the first quarter, and readership down another 7% in newspapers nationally, union concessions won't save The Boston Globe. It takes something that will generate growth.
And perhaps that innovation was also prominent in today's news. "Amazon expected to lift wraps on large-screen Kindle" was another Marketwatch headline. Figuring some people will only read a magazine or newspaper in a large format, the new Kindle will allow for easier full page browsing. According to the article, the New York Times company has said it will be a partner in providing content for the new Kindle.
Let's hope the New York Times does become a full partner in this project. People want news. And the only way The Boston Globe and New York Times will survive is if they find an alternative go-to-market approach. Printing newspapers, with its obvious costs in paper and distribution, is simply no longer viable. Trying to defend & extend an old business model dedicated to that approach will only bankrupt the company, as it already has bankrupted Tribune Company and several other "media companies." The market has shifted, and D&E practices like cost cutting will not make the organizations viable.
It's pretty obvious that the future is about on-line media distribution. We've already crossed the threshold, and competitors (like Marketwatch.com and HuffingtonPost.com) that live in the on-line world are growing fast plus making profits. What NYT now needs to do is Disrupt its Lock-ins to that old model, and plunge itself into White Space. I'm not sure that an oversized Kindle is the answer; there are a lot of other products that can deliver news digitally. But if that's what it takes to get a major journalistic organization to consider switching from analog, physical product to digital on-line distribution as its primary business I'm all for the advancement. Those who compete in White Space are the ones who learn, adapt, and grow. Being late can be a major disadvantage, because the laggard doesn't have the market knowledge about what works, and why.
This late in the market evolution, the major print media players are all at risk of survival. While no one expects The Chicago Tribune or Los Angeles Times to disappear, the odds are much higher than expected. These businesses are losing a tenuous hold on viability as debt costs eat up cash. Declining readership and ad dollars makes failure an equally plausible outcome for The Washington Post, New York Times and Boston Globe. Instead of Disrupting and using White Space, as News Corp started doing a decade ago (News Corp owns The Wall Street Journal and Marketwatch.com, as well as MySpace.com for example), they have remained stuck in the past. Now if they don't move rapidly to learn how to make digital, on-line profitable they will disappear to competitors already blazing the new market.
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.
by Adam Hartung | Mar 17, 2009 | Current Affairs, General, Leadership, Web/Tech, Weblogs
Today the Seattle Post Intelligencer printed its last newspaper. "Seattle Paper Shifts Entirely to the Web," reports The New York Times. There was no buyer for the paper, so Hearst Corp. shut down the print edition. In the process it laid off 145 of its 165 news staff. This leaves the Seattle Times alone printing in the market, but it is struggling financially. As people lament the closing, is this a good or a bad day?
The on-line paper already achieves about 4million hits/month, and it hasn't really started trying to be competitive on-line. The site (www.seattlepi.com) already has 150 bloggers – so you could make a case it has more reporters than were let go from the old newsroom. And it has made agreements to pick up content from Hearst Magazines, xconomy and TV Guide amongst other partners. In an article "Executive Producer Michelle Nicolosi talks about the new SeattlePI.com" at the site she says "We're going to focus on what readers are telling us they want and on what makes SeattlePI.com essential and unique….My staff and I are thrilled to have the chance to prove that an online-only news operation can make money and do a great job serving readers….Our strategy moving forward is to experiment a lot and fail fast…We have to reinvent how things are done on many fronts…We have a 'survival of the fittest' attitude about content that isn't working." Sounds a lot like White Space to me — White Space no longer encumbered by trying to keep open a printed edition that wasn't meeting customer needs at a profit.
You could make a case that this is a GREAT DAY for the organization, and its marketplace. Firstly, this organization is taking seriously the task of building a profitable on-line newspaper. Unlike most on-line news organizations that are backwater extensions of a print paper which doesn't care about the on-line market, this is an organization that must "sink or swim" – with leaders that are establishing new metrics and show every indication of using them to run a viable business. When you enter White Space, you prefer to be an early participant, so you gain understanding fast. Like the on-line www.HuffingtonPost.com which is blowing the doors off readership with its national coverage of news and politics (and mentioned frequently by the editor – another good sign, learning from the competition).
As an early participant, with a real commitment to succeed (no transfers back to the old organization here), it's not just about "the product" but the business model as well. Not discussed was how many ad salespeople were being kept on-board to push ad sales for the new organiztion. Hopefully as much energy will be placed on learning how to craft ad products that customers want and will pay for as is being placed in creating compelling content that attracts readers. We can't expect SeattlePI.com to rely on Google to sell all their ads – and I doubt the editors do either. Building a new Success Formula requires being open to revenue generation as well as production and delivery (don't forget that figuring out how to sell "clicks" was as successful to Xerox as inventing the copier.) My worry right now is that as good as the home page is – and it's good – I didn't see a button at the top, or bottom, or anywhere to "place an ad" – something I hope they address quickly. But for now I'll let it slide in the hopes that compulsive, obsessive competitiveness caused this slip (for if it did, that demonstrates the commitment to White Space that makes it work.)
What we all know is that the old days of newspapers is gone, and won't come back. (Hear that Sam Zell and folks at The Chicago Tribune and Los Angeles Times?) iPhones and Kindles are just the start of making newspapers completely obsolete – even for those who don't fancy news via computer. The faster organizations get out there to build a new Success Formula, the more likely they'll find a way to survive. And the faster they jettison old notions about what makes for "good news" and "good ad sales" the faster they'll get to that model. Those who are the first to get out there and learn have the greatest odds of becoming a winner, because they have the longest time to experiment, fail and succeed.
Here's wishing all the best to the re-energized www.SeattlePI.com. May the editors, reporters, bloggers and salespeople give us new insight to the future of news in the ubiquitously connected world.
