The Wall Street Journal published an article (sub required) last Monday about how The Los Angeles Times was hoping to reverse a long time slide in circulation and advertising by tinkering with the editorial mix toward more shorter stories, “softer” news and more regional reporting. TheTimes was purchased five years ago by Tribune Co., generally one of the more savvy newspaper publishers. But I read the Journal’s article with my mouth figuratively hanging open. They still don’t get it. Management seems to talk the talk (digital, convergence, online, yada, yada) but they don’t seem to walk the walk.
I’ve been preparing a talk to a large group of international newspaper publishers here in two weeks. I’m supposed to be addressing what the Internet means for them. So I’ve been thinking about what I can discuss with them that they have not heard before. Meanwhile, I have been leading a group of MBA students in their capstone course, something called “Cases in Decision-Making.” That lead me to revisit former Intel CEO’s Andrew Grove's 1996 book, Only the Paranoid Survive. In the process I was reintroduced to one of the points Grove made that is oh so applicable to managers of the incumbent media industry. Grove says people succeed in a certain corporate environment precisely because their mind-set fits that environment. Those same people are therefore unlikely to be quick at adapting to a changed environment. Grove then observes:
"If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider's intellectual objectivity."
Grove recalled that when Intel found itself being threatened by Asian producers of memory chips – its bread and butter in the 1980s – its first response was to try to beat them at their own game: sell them for less, or make a better chip. Or they could try for niche markets. After a year of analysis, he eventually realized that there was no solution for Intel in the memory chip business. But that would mean abandoning the business which was the founding basis of Intel. “Intel equaled memories in all our minds.”
To face the real crisis, Grove and his top management had to take themselves and the baggage they carried out of the decision process. What he did was ask his colleague Gordon Moore (of Moore’s Law): "If we got kicked out and the board brought in a new CEO, what do you think he would do?" Moore’s response: "He would get us out of memories." To which Grove responded, "Why shouldn't you and I walk out the door, come back and do it ourselves?"
And they did. Intel refashioned itself as a microprocessor business and the rest is history.
There’s a very relevant lesson to be found here for newspaper publishers today—and perhaps soon for broadcasters and publishers of other formats as well. Enterprises in industries that are mature or declining or just being threatened by change tend to be defensive, even when they may look like they are building or acquiring. It’s the "covering your ass" mentally of responding to threats rather than genuinely seeking opportunity.
And you really can’t blame them as an initial response. They have everything to lose. Their challengers only need to pick up a little market share here or there to win. In the newspaper business there are high fixed costs. There are low marginal costs. Thus, the first copy of the daily paper bears almost the entire cost of the operation. Subsequent turns of the press cost relatively little. That means that a 10% circulation decline saves little in costs but weighs heavily in lost revenue, primarily in lower ad rates.
On the other hand, a new player in the information space, call it Challenger.com, has much lower fixed costs and even lower marginal costs. If they pick up only two or three percent of the newspaper’s advertising revenue, they might have a very profitable business.
One of the points I will tell the publishers is that they have to pull an Andrew Grove. Building on Bob Cauthorn’s piece in Rebuilding Media last month (“Newspapers, meet precipice: It's the product stupid"), publishers truly need to talk thinking like outsiders. And Dorian Benkoil added a post here just today as I was writing this ("Big media trying to get it" that asks the same questions.
Last April News Corporation’s Rupert Murdoch gave a speech to the American Society of Newspaper Editors that was right on the money—almost. And in News Corp's case, they are putting up their money. He warned:
The peculiar challenge then, is for us digital immigrants – many of whom are in positions to determine how news is assembled and disseminated -- to apply a digital mindset to a new set of challenges.In short, we have to answer this fundamental question: what do we – a bunch of digital immigrants -- need to do to be relevant to the digital natives?Probably, just watch our teenage kids.
What he should have said is “Just hire our teenage kids.”
The answers are not likely to come from the current generation of management unless they are following the insights from a generation that is not imbued with the culture of newspapers or other legacy systems. They must fire themsleves and come back as outsiders.
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