Or, is it “shrink to survive” ? Last week in Beverly Hills, California, this was the speakers’ motto at the 78th Word Congress of the International Newspaper Marketing Association. This just in: the “N” of INMA is about to refer to “Newsmedia”. This is supposed to make it less of dinosaur. Well, let’s stop crying on our congenital reluctance to change, whether we are The New York Times or Le Monde (which, by the way, was again on strike last week).
Earl Wilkinson is the executive director of INMA. As such, he crisscrosses the world for about 6 months a year to look at new ideas, new successful ways of dealing with the current media shifts. Together with Alan Mutter, former editor turned entrepreneur and blogger, they converge on key facts:
Newspapers have been complacent when faced with changes in the media ecosystem. They are stuck with a major misallocation of resources. As circulation declined they kept adding journalists (Wilkinson displayed convincing charts for these trends). And, in the audience-brand-content triumvirate, 90% of resources have been allocated to content. Publishers allocated ridiculous small amounts of energy to the value of their audience or of their brand.
The corporate goals and structures are in question. The obsessive quest for fat profits (in the US at least), the pressure from Wall Street, are proven to be incompatible with the necessary “trial and error” approach required today. (For once, that statement doesn’t come from unionized, conservative personnel.) In some instances, the rational thing to do is taking major newspapers private — as long as the debt burden remains reasonable. (On the subject, read Alan Mutter analysis on the reasons to take the New York Times private).
On the shareholders issue, the case studies presented at the INMA congress expressed a unanimous principle: all successful strategies have been implemented in the context of patient, focused — often unique — shareholders. The more numerous they are, the least are the chances for a swift adaptation (examples from Europe or Latin America are meaningful).
Today, the choice is to accept to be smaller — much smaller — in order to restore nice margins, or, in order to preserve the size of newspapers institutions, to expect only slim profits. Well, that’s for American newspapers. In some European countries like France, the goal is more modestly a cure from the chronic red-ink syndrome.
The “shrink to grow” movement has found its evangelist. His name in Chris Zook. He is head of global practice for the consulting firm Bain & Co and the author of “Unstoppable”. This is an excellent book about redefining businesses, filled with case studies.
Here are some of his views:
- The newspapers industry is no different from a “turbulent company”, that is a type of corporations shaken at the very core of their business model. A fast growing type, actually. The number of so-called “turbulent” companies has quadrupled in the last 30 years. According to Bain & Co, two companies out of three will have to rethink their core activity at some point. If we look at the Fortune 500 companies over a 10 years period, 30% have gone through a redefinition of their core.
- For newspapers, redefinition of the core means: smaller companies, less frequent publication (the seven days-a-week paper is over, meet the few days-a-week publication). It also means a major shift on the revenue pool toward the online business. In countries where the sector has reached its maturity (US, Western Europe), 80% of newspapers will experience such a massive transformation.
- The magnitude of the downsizing will be severe. Christopher Zook cites industrial companies that reduced their size by a factor of ten over few years, to refocus on their main activity, take a dominant position in their core market and increase dramatically their intrinsic value. As a result, these companies regained strategic positions on their core business.
Well. Not so fast: Applied to the newspaper industry, the case for a “shrink to grow” approach is questionable:
a) The trouble in the newspaper industry doesn’t come from increased competition in its own field, say better newspapers. Rather, we have a complete collapse of the “core” business, a migration of readers from ink dots on paper to pixels on PC screens.
b) This migration will expand as the bandwidth penetration increases. Alan Mutter draws a perfect correlation
between the broadband development in countries and the fall in circulation and advertising that ensues.
c) The digital products that now represent the only growing segment of any news activity (look at what happen to mainstream TV) generate no more than a fifth or a tenth of the print revenue per reader. As we explain in Monday Note #32 the industry is trading dollar for pennies (or euros for cents).