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Summary:

Although the writing has been on the wall for traditional print-based media for some time, few companies have made any dramatic steps to try and adapt because they are too busy running their existing businesses. That’s why digital-native entities will almost always win.

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Much of the traditional media business has been in the doldrums for some time now, a victim of declining circulation and the free-fall of print advertising that has sucked the oxygen out of many traditional business models. And yet, many of these companies still have only taken small steps (if any) towards trying to carve out a future for themselves by adapting to the digital world. Why is that? As Paul Smalera of Reuters argued in a recent post, the biggest issue is not that they can’t see the need to change, it’s that they are caught between trying to manage their existing businesses — which in most cases still produce the bulk of their revenue — and trying to create new ones. In media as in every other field, the fastest and most successful innovators will almost always be the ones that have no legacy business to worry about.

The impetus for Smalera’s post was a table produced by LinkedIn as part of a report that looked at which industries and sectors prospered (or failed to) during and after the recession. At the very bottom of the list of industries that have shrunk was the newspaper business — which won’t come as any surprise to those who have followed the industry’s twists and turns over the past decade, or anyone who has noticed events like the recent sale of the Philadelphia Inquirer and the Philadelphia Daily News for about 10 percent of what they fetched in a sale just six years ago. At the same time, however, Smalera notes that the “online publishing” sector was one of the fastest-growing industries:

In other words, traditional media outlets like newspapers may not be succeeding, but online publishing has never been better. It’s not clear exactly what kinds of companies or businesses were included in LinkedIn’s definition of online publishers for the purposes of the report — presumably it would cover digital-only entities like The Huffington Post and the rest of the AOL empire, as well as Yahoo’s publishing units (both of whom have been hiring writers away from traditional print outlets) and a number of other online-only publishers such as Politico. And obviously some traditional companies like the New York Times and the Wall Street Journal have significant online operations, although whether they were included isn’t clear either.

It’s also worth noting that Bloomberg and Thomson Reuters have been hiring journalists at a fairly rapid pace over the past year or so, and while they fall into a different category in LinkedIn’s ranking, that’s definitely a sign that digital media is in pretty good shape (Bloomberg has also been able to absorb Businessweek magazine’s estimated annual losses of $20 million or so). For both companies, of course, the consumer-facing parts of their media businesses are funded by proprietary information services that are designed for financial and other specialty markets — so their digital businesses subsidize their “traditional” media assets, instead of the other way around.

Many print-first outlets are trapped in the valley of death

Smalera suggests that newspapers in particular have been trapped in a classic “innovator’s dilemma” as described by Clay Christensen in his book of the same name, in which they have failed to adapt to the web as quickly as they should have because they have been busy running their existing businesses:

They have been trapped in a terrible mindset that they are in the business of selling newspapers. The leap from paper to digital may be vast, but to newspaper publishers, it seemed like vaulting to a different business entirely, one they were loathe to get into [and so]…

they get caught in the Valley of Death – the one Harvard business professor and Silicon Valley guru Clayton Christensen has written about in countless books and articles. Instead of innovating for the next business cycle, these companies die crossing the Valley, wringing every last drop of cash out of the last cycle.

I think Intel chairman Andy Grove actually popularized the term “valley of death” in that kind of context, but Smalera is still on target with his main point, which is that it is almost impossible for companies who have a dominant business of one kind — in one particular market, serving one particular kind of customer — to successfully cannibalize their own business by investing heavily in a new one. Even if they agree that change is necessary, the impetus will always be to continue spending most of the company’s time on managing the existing business, especially if it continues to produce a majority of a firm’s revenues (as print still does for most newspapers).

I had lunch recently with a senior executive at a media property that is part of a much larger media and entertainment conglomerate, and he talked about how difficult it was to get resources for the things that he and others knew they needed to do or experiment with, because the bulk of the company’s interest lay in maximizing the revenue and profitability of its existing businesses — not experimenting with new and untested ones. That’s why the creators of Huffington Post were able to build a massive new media entity worth $315 million in a little over five years, while the giants of the traditional media industry more or less stood still. Inertia is a powerful force.

Post and thumbnail images courtesy of Flickr users Zarko Drincic and Yan Arief Purwanto

  1. This makes total sense. In some ways it might be better to split these companies. Legacy media can be “spun down” profitably and assets eventually sold off. New media properties can be nurtured and gown faster using the brands, content and expertise of the best talent in the organization.

    Of course this is much easier to shoot off as a comment than written up as a business plan. And even if this were a actionable plan there would be serious obstacles getting everyone in the media ecosystem to buy-in. For example, “Good work on those layouts, you’re the best. Hey, it has been determined that this division of the company will be ‘spun down’ sometime in the next 5 years, cool?” And also this potential gem, “You’ve been such a loyal advertiser. I’m glad you accepted the 2.3% increase in our prices over the last couple of years as we wring the last drops of profitability out of this inefficient monopoly that we have here. Before we shut our doors next month, could you spare one last big ad buy with us?”

    Just not that easy.

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    1. That’s a great point, Ben — I have some experience in that area, and I can attest that it is far from easy :-) but that doesn’t change the fact that it is necessary. Thanks for the comment.

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  2. Mathew, it sounds like you’re saying that many print media businesses are bound to die, and that (in effect) they have no other choice. Correct?

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    1. I don’t think they are necessarily bound to die — I just think they are less likely to succeed in the digital arena because they are handicapped by their attachment to a legacy business. They have a choice, but it’s not an easy one by any means. Thanks for the comment.

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    2. I read it as more of a warning siren to old media and a call to action for disruptive new media. “These new guys will destroy you if you don’t start moving.”

      Old media brought soapbox racers to Nascar.

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  3. Paul Wiggins Tuesday, April 3, 2012

    if huff post is so clever how come it’s only worth $315 mil?

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  4. kodak is a prime example. hard to do digital and film simultaneously.

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  5. Thanks a lot, this is gonna be really helpfull !

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  6. Matthew,

    I think it’s more complicated than you’re making it out to be. Newspaper revenues have fallen drastically, but magazine revenues have held up and so have (as you mentioned) Bloomberg and Reuters. That point gets missed when you lump together “Print” which encompasses very different businesses under one umbrella.

    In a similar vein, TV broadcasters have had problems, but TV production companies have not.

    It’s not a media issue as much as it’s a distribution issue. Content creators, as a whole, remain profitable.

    Greg

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    1. I agree, Greg — it is primarily a distribution or platform-related problem, but that makes it especially difficult for companies that own the content-creation side and the distribution side, such as newspapers. Thanks for the comment.

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      1. In other words, the companies that used to own the distribution side and haven’t come to terms with the fact that they don’t anymore:-)

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    2. You’re totally wrong Greg. Magazine revenues have not held up well at all. Most have been in free-fall and many have gone under. Whereas, only a handful of newspapers have truly gone out of business. Bloomberg and Reuters lose lots of money on whatever print products they produce. They make money off of subscriptions to Wall Street people via terminals for financial data. Period, end of story. They didn’t see the future any more clearly than newspapers. They just happened to be lucky to have a nice niche of gun-to-the-head Wall Street subscriber business.

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  7. Interesting and insightful, as always, Mathew. From an end-reader perspective, I believe that the demographic factor will continue to support a small print media remnant however, for geriatrics like me that prefer to peruse the physical product (even though content may be dated). Probably, the material/topics will be pared down to that which can appeal to that select market (e.g. travel, investment, retirement, health). Companies relying upon creating product based on print distribution will have to reduce their scope and size, I suppose, and perhaps there are efficiencies to be gained by further consolidation in the back-end printing process (the print houses, themselves).

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  8. You guys have been wrong about newspapers for 10 years now. They’re still here, long after you said they’d be dead, and they’ll be here a long time from now. GigaOM is the kind of business that should be worried – because it has no real brand name and only has anything remotely resembling a business because of his collating abilities, to gather the work of real journalists and riff on it. But it’s a passing fad. You are the New Kids of the media world, sure to be replaced by the next boy band.

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    1. Geoff Samek Friday, April 6, 2012

      Have they been wrong? In my town The Sacramento Bee is really a shell of its former self. It’s over 150 years old and has amazing brand recognition, but it produces far less original content than it uses from the wire services.

      Let me put it this way, they *still* make manual typewriters, but just because they are produced does that mean you think typewriters are a relevant means producing written content? The same is quickly becoming true of newspapers who don’t innovate and adapt to the digital age. They may be there but they are quickly becoming as irrelevant as the typewriter.

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  9. What’s that age-old adage? “History repeats itself?” Yeah, I’m gonna stick with that…I’m already so tired of “online” EVERYTHING, that I’ve resorted back to good ole’ fashioned print magazines and books (amongst a slew of other things, like shopping at stores in person)…I’m sure it’ll only be a matter of time before others like myself do the same thing.

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  10. [...] Some solid thoughts here about the advantages of digital-native media versus “old” media. Conclusion: It’s hard to adapt to the changing media landscape when you’re busy running your existing business…you know, the one that pays the bills. Because even significant gains in magazines’ digital circ means they’re up to a whopping 1 percent of total circ. Yes, 1 percent. Rather unbelievable, given how often the media talks about what’s next and the untold opportunities for tablet reading and product/brand integration. [...]

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