News

Extra, Extra

There’s never any good news – at least for the news industry. There was a time when you had to turn into the nightly network news, right after the local news, to get the latest on what was happening. There was a time before that when the newspaper industry actually printed evening editions of their newspapers. There was a time when such a thing as broadsheet newspapers existed, whereas today the size of an everyday newspaper has shrunk to near tabloid size.

Why has the news industry changed so dramatically? The answer isn’t any one particular medium, but it is inherent in the idea of substitute goods. Often industry leaders, regardless of industry, are described as entrenched. That means that the scope of their understanding of competition is myopic. Newspapers don’t just compete against each other, just as cable news don’t compete strictly against each other.

The problem is in defining the industry. How we define the industry is imperative in the overall discussion of strategy, a word that is often misused. Strategy essentially comes in two forms and a third variant. You can have a differentiation strategy, a low cost strategy, or a combination of the two, sometimes referred to as a local strategy. If we mistakenly described the industry as ‘newspaper industry’ and based our tactics on positioning and targeting our customers against solely other newspapers, we disregard the notion of substitutes, and we’re largely missing the point. Given this definition, there are far fewer companies following an actual strategy than there actually are.

Thus, the strategy for all media is to get an audience, and with the proliferation of available channels, finding an audience has been increasingly difficult. While the industry constructs from before the advent of cable news channels and the internet are vastly different, the relics from legacy media persist, albeit in a reduced form. What changes precipitated the shift from old media to new media, and how can we learn from them?

The Media Monopoly

In his treatise, The Media Monopoly by Ben Bagdikian explains how the power of just a few people leaves the definition of what constitutes ‘news’ lies in relatively few (somewhere between 6 and 8) powerful corporate entities with a vested interest in filtering the news toward their own interests. Since the internet’s astounding growth, this power has been decentralized somewhat to the blogosphere. And while the consumers of news benefit somewhat from the growth of new media, the erosion of old media outlets has essentially led these few large corporations to scoop up or offer similar knock-off weblogs to the effect of created integrated news offerings. Now, each cable news show has its own web presence, not just each cable news channel.

24-Hour News Cycle

With knowledge always at our fingertips with our gadgets and online mobile devices, the notion of sitting down to watch pre-planned news broadcasts has largely thinned out news programs to a cream-rises-to-the-top situation. If we’re able to access breaking news at any given time, just as we’re able to DVR our favorite television shows, there’s very little reason other than habit to tune in at the ‘same time, same channel’. Instead, the power lies with the consumer to choose when and where they tune in.

Advertising

The fact that so many different channels, print mediums, and interactive options exist means that the advertising revenue that had driven the news industry’s cost structure was turned upside down. Because, really... How can you compete with free news? The answer lies in our original definition of strategy. The only other way is through differentiation. Thus, we can describe the changes in the news industry as the commoditization of news, making the few remaining major players in the cable news and integrated print and internet media to fight for smaller shares of a similarly-sized pie.

The classified section of the newspaper has mostly disappeared, leaving a few work-at-home scams and fringe sex industry relics to hold it together. But again, with things like Craigs List, it’s very difficult to compete with free. The commoditization of any particular service or product, by definition, means that differentiation is difficult. Thus, a largely fragmented classified and hugely dissipated retail advertising industry are struggling to find audiences that can cover the cost of printing. What we’re essentially witnessing is the evolution to a paperless society.

Online

The Huffington Post is an interesting example of a potentially disruptive business model that is causing headaches for many established news outlets. Because most news outlets are posting their news online, the Huffington Post simply posts links to outside news contributors, essentially acting as an aggregator of news from other sources. Again, by focusing on a low cost strategy, the HuffPo bypasses the large cost overhead from actual news reporting and is able to instead free ride from the efforts of the major news players.

While there may be tens of thousands of independent blogs online, no single weblog has emerged as a revenue-generating giant. The reason is that their limited resources are unable to compete with the established and entrenched players in the industry. The result for the consumer is better off, and a positive externality exists in this sense, but only insomuch as the consumer is able to connect with quality news sources without offsetting the benefit with the increased search costs that go along with finding reliable news.

AE - 9.29.2012

The Ambidextrous Economist stopped the presses. He can be reached at AmbidextrousEconomist@gmail.com.