Print media is not navigating a turmoil any more. It is undergoing an outright armageddon that even Warren Buffett, owner of dozens of newspapers, has admitted he doesn’t know how to avoid.
It shouldn’t have been like that, should it? Since the publishing of “The innovator’s dilemma”, a whole generation of managers has learned by heart the mantra of “disrupt yourself or be disrupted”. In principle, that’s exactly what the print media did. Most newspapers launched their online ventures already in the second half of the 90’s, when the internet was still in its infancy. The Wall Street Journal did it in 1996, exactly the same year as Spanish El Pais. Norwegian Aftenposten did it already in 1995.
Why then has an entire industry, that bravely accepted the challenge of the internet almost from the very beginning, ended up in misery anyway? Five factors made it possible.
- First of all, self-disruption is no guarantee for success. No matter how heroic and seductive, the “disrupt or be disrupted” mantra is a risky advice for an established firm. The whole “innovator’s dilemma” is based on this premise. Any management should think twice before embarking in a self-disrupting strategy. IBM disrupted itself with the PC, even before Apple had made any serious dent in the business segment. The PC was a success, but it decimated the lifeblood of IBM, the mainframe business, and the company ended up almost bankrupt a decade later. In the 90’s Microsoft abandoned its idea of a proprietary Microsoft Network and decided to disrupt itself by launching the Explorer browser for the open web. The company succeeded and rapidly became the market leader. The reward was an aggressive anti-trust probe from authorities both in USA and Europe that exhausted the company and prompted the resignation of Bill Gates as CEO. On the Unicorn side, Twitter has tried to disrupt itself many times. The company is still slipping into financial oblivion after wasting hundreds of millions in failed acquisitions like Vine or Pericope.
- Disruption brings market share, but not necessarily revenues nor margins. This is a fact that innovation professionals conveniently tend to ignore. The disruption theory explains that disrupting players compete with established firms by applying technology that is simple and commonly available. This lowers entry barriers and makes it possible to easily grab market share. On the other hand, differentiation between players becomes difficult. As a result, price wars promptly erupt in a desperate search for market share and economies of scale in order to achieve some profitability. This is specially true in the internet realm, where consumers easily can compare prices and qualities. For print media, the combination of these factors forced the price for content down to zero almost instantaneously. It became impossible for online newspapers to charge for their content on the web. Those who tried saw “their” readers leaving in droves to competitors that still offered their content for free. Print media thought they had a highly differentiated quality product. In reality, that differentiation was very small, and loyalty form customers fragile.
- The fall happened gradually. As the graph shows, the decline of the printed media has been very slow. It occurred in parallel with the penetration of the PC/ smartphone and a gradual generation shift. The data are from the US.
This made it possible for the managers in the industry to execute a “controlled demolition” of the business, protecting dividends for the shareholders for as long as possible and simultaneously keeping their jobs and their compensation packages. Such a slow evolution shielded management from taking more radical and accurate strategic decision, but has prolonged the agony throughout two decades and counting.
- The industry started creating its own delusional mantras. As the business environment became really challenging, the industry leaders started developing their own delusional mantras like “people will always pay for quality content”. A few years ago, during a conversation I asked point blank the CEO of a paper publication what he meant with that. At that time the decline in the industry was impossible to hide. He smiled nervously and disappeared in the crowd. It was just smoke and mirrors.
- The regulatory framework made things worse. Newspapers are subsidized in many parts of the world and certainly in Europe. In many cases, these subsidies are linked to fairly subjective and market-disconnected factors like language and geography. This gave newspapers, specially regional ones, an additional income source that was largely disconnected from their success as a business. It extended their illusion of being irreplaceable and further prolonging their agony.
Disruption is extremely difficult to handle. Organizational issues, timing, technology matureness, even regulatory frameworks makes it almost a deadly random game. What to do?
Fortunately, top managers are not helpless. In my view, the classical Porter analysis is still an excellent tool to start with. According to Porter’s theory, a company has to deliver either differentiated products or become a cost leader to stay relevant. Top managers should therefore constantly prepare for disruption based on a conscious prioritization given to differentiation or cost leadership, stripped for delusional mantras. Differentiation may protect companies from disruptive moves in the industry. Cost leadership can secure a victory as “last man standing” in the disruptive race. However, those who remain “stuck in the middle” are almost condemned to share the same fate as print media when disruption strikes, as it eventually always does. A cautionary tale or the TV industry.
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