Newspapers: with a clear an unobstructed view, you can see for miles.
Part II (read part I here if you haven't already).
In my last post, I lit the newspaper industry up because they continue to raise prices despite continuing declines in their coverage and readership. Actually, I said that their quality is suspect as well. While I had my flame thrower out, I said newspaper advertisers and ad agencies have some serious problems with a lack of imagination and often do the same old thing with their campaigns because they fear the less known (which takes the form of the Internet more often than not). I'm applying this broad brush because I believe these problems to be common and that their alternative - creative, ground-breaking management ideas, business practices and advertising campaigns to be the exception.
Do I have any solutions? Sure, they're full of hard choices, and it's about time to make them.
First: get a clue about your real profit margins.
The problem with all these rate hikes is that the papers are trying to maintain an artificial profit margin (around 20%) in a market OR a cost structure that won't support it. Are further cuts the answer? Only if you're willing to jettison whole products (a good idea in some areas) and not just the number of people that support them (bad idea in most cases). Most of the cuts that could be made while maintaining business as usual have all been made. I would argue that they've actually gone too far, just like leading editors and publishers who have some balls have said. When former San Jose Mercury News Publisher, Jay Harris flipped Knight Ridder the bird, he was making the kind of hard choice that I'm championing. Mr. Harris believed that you have to fight to maintain the quality of newspapers, but that when you do, you not only save your product, it serves the advertisers footing the bill just as well. Mr. Harris was right when he took his stand back in 2001. Just lobbing off heads to make an annual report look presentable to Wall Street, as Mr. Ridder and his Executive team did, only served to stall Knight Ridder's undoing. It DID NOTHING to stop it. Now Tribune is facing a similar fate due to the same kind of management thinking. Others like McClatchy are thinking that a good defense, where only investing in newspapers in growing markets, will save their hide. This tactic has some merit, but it's just another stall tactic. Unless you address the problems with your core product value head on, you end up in the same place. Congrats McClatchy - you'll survive doing the same old thing for a few more years than Knight Ridder did. Take a good look around you, someone will be eating your lunch soon.
Re-investing in your business
Investing in your business sounds like such a simple strategy that anyone would be doing it. Here's the problem. We have this thinking that if we're managing a cash cow that we should just strip out the costs and hold on tight for as long as the market will allow. After working for the print Yellow Pages for GTE, Pacific Bell, and SBC for over a decade and another five plus for a newspaper organization, I've become intimately familiar with these practices. Here's the disconnect. The newspapers don't truly invest or manage their Internet operations outside of this vacuum. When a budget cut arises because a major property just missed their Q4 revenue, their online operations are asked to go on a diet right along with their print brethren. Consider this also - you can't just throw up a virtual wall around online operations and say "grow this," while cutting print. Almost 100% of all the editorial and advertising content that power online news sites is from the newspaper. Online news sites do not have reporters and they don't have news organizations - they are online publishing and sales operations. If you're busy wringing costs out of the reason people come to the www version of your newspaper you're in for some trouble. Just as your typical MBA would suggest milking the cash cow, they'd also say invest in a growth business.
Change assumptions to change cost structure
Next up I'll discuss how newspapers can better change their cost structure by changing their core business. But, I've taken enough of your time for today so I'll check back in tomorrow with our next installment.
--Julian
