Talent follows where business models lead: The Media Business Disruptions

Michael DeGusta created beautiful and informative charts on how The Newspaper Business Implodes.

With charts, he also told the story of how the recorded music industry followed a similar path:

He writes:

As in the music business, digital revenue is failing to make up for the loss of traditional revenue. Ominously, online revenue is largely flat, basically unchanged from 5 years ago and still below its 2007 peak.

What I find fascinating is how both industries reacted to the crisis of old media. They embraced the new “digital” distribution model, earnestly tried to transplant their business models and found no succor.

Many observers may say that both print and music businesses were “foolish” and that they ignored the new medium of web. That somehow management dithered and missed the new wave blaming failure on incompetence. Putting aside the fact that all industry participants seem to have conspired to be foolish at the same time, this is not supported by the data. As the charts show, both industries built digital businesses. Newspapers have some of the most desirable web properties and digital music is a growing business with clever new distribution deals. They became quite smart in their respective adaptations of web distribution.

They may have started slowly but there are many cases where incumbents reacted slowly to technological change, and won.

But it’s not working.

The reason is that what we have here is a disruption. Unlike a sustaining technological shift, the new medium of the web did not permit the same business models to continue. Money was being made, just not in the same way and thus could not support the cost structures of the incumbents. Consumption of news and music is increasing but the way that it is valued is changing.

Furthermore, it’s become modularized. All the objects contained in a newspaper could, with the web, be offered independently of one-another (opinion, news, classifieds, lifestyle can each be built by specialists.)

This is because the technology of the printing press benefits the integration of content while the technology of the web benefits the disintegration of content (similar phenomenon to the music industry’s bundling into albums, vs. unbundling of digital downloads.)

Now I’m going to take a leap and suggest that a re-birth of the container of the newspaper in the tablet medium will require a re-integration once again. As I’ve pointed out before in The integrated iPad news daily: Read all about it! the answer is not in integration or disintegration per se. It’s in approaching the question of value chain evolution with an eye toward what is good enough and what isn’t. Integrate when the product is emerging and unsatisfying, modularize when the product is mature and over-serving.

We’re observing the same phenomenon with television. Netflix, a distributor, is vertically integrating by entering production with an exclusive top talent series.

Developers are not the only innovators that see disruption happening. Just like in “The Daily”, in music and television, talent follows where business models lead.

  • In many ways, Twitter has reintegrated news. I can pick and close which writers I want to follow, whose opinions I trust. Flipboard has a similar philosophy. With lower overhead costs and writers that specialize in a certain subject, they may be able to become profitable through targeted advertising.

    • On a side note, the pictures show up perfectly on my iPad but are shifted into the "recent comments" column on FireFox.

      • eyez00

        As they do on my IE 8

      • RickV

        As they do on Safari 5.0.x on Mac

      • Ottawaman

        As they do on Chrome 10.0.648 for Windows.

      • Hamranhansenhansen

        On my iPad they are overlapping the text column also.

    • Ottawaman

      Flipboard is a great app, but it doesn't generate any original news stories. It re-packages items written by others, like all the other news aggregating sites and apps. Twitter is a great tool for quickly spreading interesting links and it's-happening-right-now news fragments to a large group of people, but I fear for the future of investigative reporting and foreign correspondents.

      Citizen journalists with a cell phone camera and 140 characters are great for some things, but we need strong independent news organizations to monitor governments and corporations around the world — regardless of delivery mechanisms. So far it seems clear that online advertising is not going to be enough to pay the bill and the expensive reporting is the first to go.

      • I hear on that one. But the problem is that consumers usually want to hear what they want. I could see the possibility news organization that had a bunch of vetted journalists where you could pick and choose which journalist you wanted to follow more closely. You would have to cater to a smaller market, but that market would be more likely to pay a subscription.

    • iBob

      On my iPad the graphs are perfectly displayed.

      • jecrawford

        The graphs are perfectly displayed on my 11" MBAir.

  • I think that human populations also reject old models simply because they're old. Put more delicately, some brands are so associated with a particular era that they're ongoing existence becomes a reference to that era, a joke about times gone by. The phrase "That's SO 80s" comes to mind. This affects technology companies (AOL, Xerox, Atari) media companies (Blockbuster, Tower, Real) and other companies as well. When brands become emblematic of the past customers reject them in favor of the new, modern modes.

    • As expensive (Blockbuster) DVD rentals began to be supplanted by (inexpensive) Netflix and red box, the former became so 80's. If Blockbuster had changed its business model to cheap rentals, instead of "No late Fees", it would have become "The next big thing" instead of a dinosaur.

      • Perhaps… but many companies adapt to the new business models (some more quickly than others) and still lose ground to the newer brand. Once a new brand emerges with a new mode, the older brand looks like it's copycatting. Age of a brand can be a drag on the public perception of the brand.

      • Joe_Winfield_IL

        Good insight! This underscores the importance of brand management, of communicating what your company stands for. It has to go beyond marketing your portfolio of products, or perception of your company will fade into history when your products are disrupted. Apple has famously marketed the benefits of its products, rather than features. This simple difference is not only more effective in the present, but it allows for a continuous message to be applied to constantly changing products.

        The marketing of the Xoom here in the US is a classic example of bad advertising. The commercials are bizarre sci-fi themed nonsense that barely show the product, let alone how it benefits users. The spot is 30 seconds of eye candy that leaves no impression whatsoever on the viewer. On three different occasions, I have asked friends and family to describe the product after watching the commercial, and on each occasion they have been unable to tell me what was being advertised. Contrast with the iPad, which shows how Facetime can connecting people, and how several apps can be used throughout a typical day. They show typical users sitting on the couch or in bed, enjoying the tablet where a PC would be awkward. The Motorola commercial shows some type of metal pod forming around the user, transporting him somehow.

        The beauty of the iPad ad campaign though, is that it builds on everything Apple has been saying for four years about the iOS family of devices. The viewer is already familiar with what Apple is trying to accomplish, so the company needs only to explain how their new product helps achieve the well stated objectives. Apple won't likely be caught flat footed by a new technology; they can jump on someone else's bandwagon without appearing to be copycats. Their brand management is strong and broad enough that they can assimilate new CE tech into their marketing message of:
        – easy to use
        – solidly and beautifully built
        – works with a family of products
        – receives continued support through warranties, retail locations, and software updates

      • davel

        Nice pitch.

        Thanks for the summary.

      • Murphy

        Perhaps true, but this is really only visible in hindsight.

        How were businesses operating under the old model to know that the consumer shift towards a different model would be so complete and so fast? Obviously the risk is betting the farm on an unproven "trend."

        With regard to The CW's statement above: "When brands become emblematic of the past customers reject them in favor of the new, modern modes." I find that there are also plenty of technology and media companies which stand in defiance of this (Nintendo, Apple Inc, IBM, and Google come to mind). I think that what customers reject is lack of innovation rather than the company or brand itself. If a company/brand continues to innovate customers will continue to invest their time and money with them.

      • Tatil

        In Blockbuster's case, only a manager who never uses its own product would fail to see the attraction of Netflix. That or an idiot… I saw a friend using Netflix, checked out their website and bought my first DVD player, just so that I could use Netflix. The first response I could think of at the time was "Blockbuster could let you return DVDs to the store, that would make it even better." It took Blockbuster management years to finally start doing that after many half hearted attempts, but even then its website was so lousy, it negated any advantage it had over Netflix. It took them probably another year before the website became "acceptable", still nowhere near as good.

        No hindsight involved, it was bad management all around…

      • davel

        I agree.

        Apple was a leader in personal computers for business and then personal computers for the consumer.

        Now it has reinvented itself as the mobile personal electronics gadget maker for the consumer and they are still leading the pack.

  • Eric Trepanier

    A very smart and interesting piece as always. There has been a story in one of our local newspaper (Le Devoir:… essentially leaking info about a plan from a major French Canadian media/publishing conglomerate to move towards a mostly (if not entirely) tablet-based distribution model. The iPad-plan, as it is being called internally, would offer a free iPad and associated app in exchange for a 3 year subscription to the digital edition of the company's newspaper. Apparently, they are also in talk with a major Canadian phone/mobile carrier, although it's not clear what exactly for. It seems like some sort of plan that would see an iPad with bundled 3G connection and a digital subscription might be in the works. If so, and if the price is right, this might be an interesting proposition…

    BTW, the graphics that you included in the story are bleeding on top of the comment section on the right…

    • vinner57

      That, to me, sounds like a great plan. The devil is in the details of course but if they can get the right deals in place that would be a hell of proposition. Apple is not known for it's flexibility on hardware pricing; hopefully they will be understanding and tread lightly when this kind of proposal comes along. It's possible of course that they have thinking about it for years already.

  • Nice post. The old biz models were built on scarcity/control – of content and/or distribution. Neither is scarce or controlled anymore. I think application development disruption will be next:

  • Ottawaman

    Consumption of news might be increasing, but the production of quality investigative journalism isn't. While opinion, lifestyle and classifieds "modules" could be built by specialists — or, rather, are being built — one cannot help but wonder who's going to fund the expensive and time-consuming investigative reporting that's so crucial to our democracy. In the past, newspapers could allow a team of reporters to spend time on stories that might or might not result in an article. These reporters were essentially funded by the (cheap-to-produce but popular and brand-building) opinion, lifestyle and classifieds sections of the paper.

    The Daily on my iPad might be innovative and look slick, but let's just say the content isn't exactly Woodward and Bernstein material…

  • desreveR

    The problem with traditional newspapers is that they are based on the premise of browsing, on a one-size fits-none for a large and varied group of users.

    What if the electronic newspaper of tomorrow would allow the reader to opt which types of news she is interested in, to a relatively granular level of detail? (Don't want to read any NBA news except when it relates to the Celtics? Check. Not interested in local politics? No problem. Interested in theater, but not in other forms of art? Done.)

    This model serves not only the reader, but also provides editors valuable information on what content they are interested in (and what they are not interested in). Most editors have been forced to compete for readers with on sensationalist headlines in recent years. Let the readers tell the editors what they want, who will then mix and match the correct content to each reader.

    Imagine opening that newspaper app at any given point in time and seeing beautifully laid out headlines for news that are tailored exactly for you. Now there's a newspaper I would read.

    • vinner57

      That will undoubtedly happen at some point. Society will have to deal with deep polarisation of views that will tend to occur when you only receive the news you want to hear ~ something that's been happening for many years of course but likely to accelerate. I propose a new branch of government – The Dept. of Serendipity.

      • chano

        And Faux News (as well as most Murdoch news media) offer only only deeply polarised, politically manipulative reportage.
        Organised news should not survive unless a channel can demonstrate factual accuracy, professional objectivity and clearly walled-off opinion pieces.
        That won't happen because there is always a business franchise-building agenda in News empires.
        Good journalists should form into loose associations and publish that way.
        News empires are on the conveyor belt to oblivion. Unlike music and movies/TV, their offerings have the scantiest of shelf-lives.
        Time for a sea-change in news distribution.

      • asymco

        Published news has always been hired as a form of entertainment. Recently the pretense that it isn't has been peeled back a bit.

    • famousringo

      I agree completely.

      I tried out Murdoch's Daily, and I found some of the coverage to be a pleasant, if somewhat shallow, read. But what struck me was that fully half of the content held no interest for me at all. I immediately wondered why I should be paying for worthless Gossip and Sports sections and how I'd much rather trade them for local news and international politics sections.

      News in the future might be structured something like cable TV (hopefully without the forced bundling). You pick and choose the 'channels' you want, pay a subscription fee for each, and a customized newspaper is delivered to your device every day.

      Apps like Pulse and The Early Edition are on the right track, but the quality of news that you can get from an RSS feed isn't quite up to snuff yet, IMO. What they need is an easy and simple way to monetize feeds so that people can pay for high-quality content.

    • davel

      You make a good point. Newspapers in the digital realm have never embraced the personalization features that made companies like Yahoo.

      If they were to allow you to rank and sort the subjects, authors, etc that you like and present it to you even push it to you it would make the content more compelling. Because after all they are content creators and not just aggregators.

      Unfortunately as with all industries the leaders know their business model and know what works. Of course they know what their old business model was and how it worked with their consumers. They are left protecting their aging profit channels until the profit channels melt away.

      You read all the time how the old line New York Times people want to dictate pricing and distribution for the new medium presumably to prevent cannibalization of the status quo.

  • Childermass

    I think we are comparing apples and oranges here. Apart from an entirely co-incidental digital segment the two industries have not followed similar courses and, indeed, their curves are quite different.

    Music. I would like to see that graph go back to the 1930s or 1940s when sheet music and 78s were all we had. There then followed an explosion in new technology (33rpm instead of 78rpm, balanced tone arms, consistent electric motors), cheap production (vinyl), cheap record players we could all afford (Dansettes!), electric amplification for instruments, radio to advertise the songs, and the huge boom in music generation. We bought that music in unprecedented quantities in the 50s, 60s and 70s. And it was the new music we bought. We re-bought it in the 90s on CD. But we do not have to re-buy it now, in the so-called 'digital' era because CDs are already digitized. As it happens music production has also declined. The big names in the music industry have barely changed in 50 years. (Viz: iTunes getting the Beatles.)

    I think the evidence shows that the music industry is returning to some poorly understood norm. The distribution process and the creative process have been disrupted by new technology, but to explain the decline in sales I believe we must look at the extraordinary and unsustainable sales of the mid-C20th.

    Newspapers have not followed that pattern. The graph shows their revenue peaking in the 80s and being flat or declining ever since. This looks like them losing a long-term arm wrestling match with TV. They tried everything – gossip, opinion, color, supplements on every topic under the sun, price, even good news reporting occasionally (very, very occasionally) – but nothing has worked. TV news is more compelling. The death agony has been long, and maybe the web will deliver the final blow.

    I suggest it is TV that is being dismembered by the web, not newspapers. I would like to see how TV ad revenues are declining in the face of the web. All your arguments apply there for sure.

    Will tablets save newspapers? Well, print will surely die, or at least become tiny, fragmented and niche. But there is a real opportunity for publishers to do something new, relevant and interesting. As you say it must be product based. Quality alone will get it rolling.

    • @Childermass.

      One of the best blog replies I've read for a long time. This post is worthy of a whole Asymco article.

      You're bang on. I would love to see data showing new music sales only, not incorporating back catalogue sales. I would be willing to bet that, 60' and 70's bubble notwithstanding, the music industry is bobbing along at a similar pace than it was for most of the last century. It just grew extremely fat in the 80's and 90's on the luck that was new technology formats. They've now eaten that giant pie but want to keep eating at the same rate.

      As for newspapers, the physical format isn't really that important. The newspaper will die in the same way that 33's or VHS tapes died. The format is inconvenient and expensive to produce and distribute. The content will live on in newer and smarter formats, ie, digital. It's how they choose to adapt to the change that counts. The change itself doesn't have to be bad for them, in fact it can be a good thing for their businesses if they do right.

      The music industry has survived. It looks much different to how it did in the 50's but it didn't go away as people want music. People will still want news and features so there will still be a demand you just won't get your hands dirty getting it.

    • ampressman

      The multiplication and segmentation of cable TV channels is a greatly overlooked factor in the demise of newspaper advertising revenue. Mark Potts had an excellent blog post looking at Macy's as an example. The bulk of dollars they moved out of newspaper ads went to TV over the last decade.

  • Joe_Winfield_IL

    Horace, many businesses are being or recently have been disrupted by new technology. This post is chock full of good observations and insight on the issue. It seems like you are basically saying that resistance is futile (I tend to agree). What advice do you have for businesses that feel the rug being pulled out from under their feet by a new disruptive competitor? How could the music and newspaper industries have preserved profits, even as traditional sales outlets lost value and subscriptions dwindled? Obviously, following the trend did not help the incumbents, and fighting the trend only accelerates the pain.

    As an example, it feels like Hollywood is in danger of following right behind music and print journalism, with DVD sales quickly disappearing and Blu-ray struggling as a revenue replacement. Streaming services seem analogous to the small victory of a la carte song sales. There is plenty of consumer demand, but the money isn't what it once was. I'd love to see your insight on a forward looking basis.

    • Childermass

      It seems to me that the industries you refer to have all had periods of bloat. A time when all they needed to do was show up and the money rolled in. Real industries survive in hard times. They do so through product innovation and customer satisfaction (not titillation). It is time all three industries you mention get down to the hard work of making good, desirable products. Hollywood: characters, dialogue, plot. CGI and 3-D are ersatz rubbish. Press: incisive revelatory journalism. Gossip and sensationalism are cheap and ephemeral. Music: original and evocative songs. Production and style are gossamer window dressing.

      • asymco

        How exactly is an industry to coordinate creating desirable products. Smart young things are pitching great ideas to executives and they unanimously turn them down. Execs know what works and what doesn't and have burn marks to show for it.

        Let me paraphrase: an industry is in terminal decline when it cannot find a way to benefit from greatness.

      • Childermass

        Yes. And 'the way' (dao) is varied. Good opportunity for a debate on Leadership (and what that might mean) in there.

        I confess it took me a while to hear the sarcasm in your first paragraph, but I got there in the end! Fides quaerens intellectum.

    • asymco

      Advice? Never take your foot off the innovation pedal. If you're not changing everything, everything will change you.

      Regarding Hollywood, a vision of the future is rolling around in my mind. Will write it up when it settles down.

  • iBob

    Since the graphs cover several decades, would it be possible to show inflation adjusted profits. This would give a clearer view of real profits.

    • iBob

      Revenue, not profits. Sorry.

    • Both graphs are in 2011 dollars. (See their respective titles.)

      Clicking through to Michael DeGusta's article he says the reason he chose 2011 dollars is:

      because I feel present day dollars provide a better visceral understanding of the sums involved than using some other arbitrary date.

  • Nalini Kumar Muppala

    Excellent post illustrating several aspects of disruption and business model evolution. Thanks.

  • Jonas Hermansson

    I believe a trusted brand for news is something that will live on. You will have to find your niche where you are the best, think the Economist for global economics and politics or the best local news for your village.

    If you want to be that brand you will have to deliver top quality content in the form the customers prefers to get it be that digital or paper. On digital you have the extra opportunity to deliver in text, picture and combining those to suit the ways customers want to receive them.

    Advertisers relevant to your niche will finance, hence all content needs to be open (and not behind a paywall) so people can link to it, which increase your traffic and gets you new readers.

  • moeskido

    Industry participants do indeed conspire to be foolish at the same time. They do so by forming protectionist trade associations and sharing strategies as they form cartels for the purpose of directing legislation in their favor.

    You say both industries built digital businesses, but the music industry first went through a group spasm of denial and rejection. It took Napster and Limewire to convince record labels — as a group — that they were overlooking something they had dismissed as irrelevant.

    Their first collective reaction was to sue individual consumers for taking advantage of new, convenient means of acquiring music that the labels themselves were unwilling and unable to provide.

    It took iTunes to demonstrate how electronic music could be sold in a scalable, convenient manner, but the culture of file-sharing remains, in part thanks to recording industry myopia.

    • asymco

      So let me ask this question: if the music and newspaper industries would have been collectively smart, what would they have done? Keep in mind that whatever they do has to pass the scrutiny of boards and stakeholders so ideas that begin with destruction of value are not viable.

      • moeskido

        Speaking purely as a consumer and as a creative who's interested in what you write about, I can't say I have much faith in large, entrenched businesses ever having possessed the capability to have done the smart thing, which would have been to see past their carefully-engineered formulas of high-markup chicanery (music) and long-maintained tradition of dependence upon high volumes of advertising (newspapers). They would have had to recognize opportunities to sell through a new medium, which their analysis only told them was a venue for theft.

        Music labels in particular have demonstrated a long history of protectionism whenever a new medium came along. Few newspapers could see past the need to protect their expensive production and distribution infrastructure — despite skyrocketing costs and declining revenues — in order to see how much of an anchor it would eventually prove to be.

        We see similar behavior in the energy industry. Despite very real threats of economic vulnerability and increasing environmental damage, oil companies would sooner sabotage any initiative to develop sustainable sources of energy rather than jeopardize the federally-provided meal ticket of price-fixing, subsidies, and tax abatements they've enjoyed for so long.

  • chandra2

    Horace, One thought. There is a possibility that efficiency of on line advertising has a role to play. Are there any metrics of advertising efficiency, something like, Ad $/Millions in revenue that an advertiser spends. This is because GDP has grown from the eighties till now when total advertising has gone down. Is it because advertising went somewhere else or the total advertising budget for the entire economy has come down because of an improvement in efficiency of advertising?

    EDIT: I just noticed another chart by Michael DeGusta. The total revenues dropped from $60B in 2000 to around $25 billion end of 2010. I looked at Google revenues for 2010. It is ~30B. Add in Yahoo and MSFT on line revenues, it all adds up.

  • jkim

    Interesting perspective.

    However, I don't think the tablet will "reintegrate" media, because of apps. Mentioned earlier is Twitter, and when you combine that with Flipboard, I don't need an editor/magazine to make it look nice for me. Furthermore, I still use the good old brower a lot with my iPad. A lot of content will remain in the "open web".. indeed most Twitter content is just links to this web.

    Also, given how easy it is to switch between apps on the tablet (and will become easier and easier as multitasking evolves and looking at the Honeycomb tabbed browser design), there's no need for someone to gather it in one place.

    The tablet may increase media consumption overall, but I don't see it reviving the old model.