The newspaper industry is collapsing, after decades of gradual decline. Unfortunately at this point, incumbents have few good options. No one knows the future, but my hunch is most traditional newspapers and weekly magazines in the US and UK will disappear, while others will hang on eking out minimal profits. A handful of survivors will continue to create economic value, probably limited to publications with outstanding quality, a clear point of view, and a distinctive voice (think the Economist, New Yorker, Financial Times, Wall Street Journal).
The decline and fall of the newspaper industry holds important insights for executives in other industries–including pharmaceuticals, law firms, and fast-moving consumer goods–that may be suffering from the early stages of dry rot. In particular, managers in these industries can avoid five mistakes that newspaper executives made as digital media began to erode customers’ willingness to pay for traditional print products. The five mistakes are:
1) Ignore early warning signals. By the early 1980s, consumers could access real time news through proprietary networks including CompuServe and The Source in the US, and Minitel in France. Remember this was more than a decade before the Internet took off. Most newspaper executives ignored these early warning signals, but not all. In the early 1980s, executives in the Thomson Corporation, which then owned over 100 newspapers in the North America and the UK, conducted a systematic study of opportunities to provide information to professionals, and made small acquisitions to explore alternative business models. Starting early does not guarentee success but it does buy time to explore alternatives, and dramatically improves the odds.
2) Dismiss unconventional competitors. By 1991, the New York Times was running stories with the Bloomberg News byline. Despite the value of its reporting, established journalists initially denied Bloomberg official accreditation because the start-up distributed information electronically. By dismissing Bloomberg, incumbent newspapers ignored a steady stream of innovations that they might have imitated to enhance their own business model-e.g., distributing news through multiple media (terminals, televsion, Internet, and periodicals); providing analytical tools to help readers make the best use of data; and sending reporters on sales calls to understand the type, depth, and timeliness of stories that users value most. Thomson executives were quick to pick up on some of Bloomberg’s innovations and incorporate them into their own business providing information to professionals.
3) Experiment too narrowly. Some newspapers did spot the rise of digital technology early and experiment with alternatives. In 1978, Knight Ridder launched a digital news service over phone lines. Unfortunately, most of these companies limited the scope of their experimentation to replicating their paper offering on-line. Professor Clark Gilbert conducted an outstanding study of the newspaper industry’s reaction to the Internet and found that most senior executives constrained their subordinates’ autonomy in the on-line business, limited experimentation with third-party content such as chat or blogs, and offered their traditional fare on the new medium. Thomson, in contrast, experimented with different customers–such as finance professionals and lawyers; different business models including pure subscription without advertising; and digital technology.
4) Give up on promising experiments too quickly. Identifying, validating, modifying and ramping up a promising business model takes time–up to a decade in many cases–and the process entails many setbacks. Over that time priorities shift, top executives change, and problems with the core business often demand increasing attention. As a result, it is easy for executives to starve experimental ventures of cash and talented employees (recall how GM never fully committed to making Saturn work), or kill them outright. Thomson executives avoided this temptation. After making exploratory acquisitions in the early 1980s, the company acquired a mid-sized legal information provider in 1989, learned about the business, and then bought a major provider of on-line legal information in 1996, and acquired Reuters in 2007. Thomson divested newspapers along the way to fund the new businesses. They stayed the course, learning along the way.
5) Embark on a crash course. Fixing or replacing a broken business model is difficut work. Many managers try to take a short cut and implement a crash course solution, such as a “transformational merger.” As CEO of Time Warner, Jerry Levin worried that the company’s core media businesses were not embracing digital technology quickly enough, and he pushed the merger with AOL to accelerate the transformation. That particularly deal, which was spectacularly unsuccessful, illustrates the broader point that crash-course solutions rarely succeed. They deprive executives and employees of the time and freedom to experiment to work out the kinks in a new business. New initiatives often produce small profits quickly, and sometimes generate substantial value over time. But quick big wins are few and far between.
Unfortunately, when executives wait too long, a crash course may be the only option open to them. Consider Newsweek. The publication is in tough financial straits, and needs a strategic initiative that can succeed big and immediately. Their new strategy, moving from the mass-market to the high-ground occupied by the Economist, is the strategic equivalent of a super lotto ticket. It might pay off big and quickly, but at long odds.
Executives in the early stages of dry rot can spare their successors the uncertainty of resorting to a lottery ticket by avoiding the mistakes made by the newspaper industry.