Today’s title pays homage to The Innovator’s Dilemma, Clayton Christensen’s seminal 1997 book. In it, the Harvard Professor describes the effect of what he calls “Disruptive Technologies” on pre-existing markets or businesses. Fifteen years after the concept’s emergence, the impact of digital media on the news industry could be added to the list of most quoted examples of disrupted (devastated?) sectors.

Before we go further, let’s pause a moment and reflect on the Washington Post Company’s latest financial statements: the Q4 2010 earnings released last week. The “WaPo” is the only major US newspaper to provide helpful P&L data (multi-publications media houses usually don’t go into the same level of detail).

Here are the key figures for the full year 2010:
– Revenue for all activities: $4.7bn  (+8% vs 2009)
– Operating income: $546m vs. $259m in 2009
– The Kaplan Education division accounts for 62% of the revenue and 61% of the operating income.
– The Cable television business accounts for 16% of the revenue and 30% of the operating income.
– Broadcasting television revenue increased by 25% to $342m (7% of the total) and its operating income rose by 72% to $121m and accounts for 22% of the total operating income (most of the Y/Y growth is due to an improving advertising market, especially in the automotive sector).

For the newspaper division (mostly the eponymous daily): 2010 revenue was stable at $680m (14% of the total) and the operating loss was reduced to $9.8m — against the 2009 hemorrhage of $163m.
In passing, the Washington Post’s situation shows the importance of a diversified structure; without its education unit, the company might not have survived the last few years. The acquisition of Kaplan Inc. was suggested by Warren Buffett in 1984 and it was the best advice the Post’s owners ever got. (The great billionaire sage is due to step down from WaPo’s board later this year).

Let’s now look at the underlying trends: a persistent erosion in circulation (-7.5% in 2010) and the growth in the Post’s online activities.

The good news: on the fourth quarter of 2010, online accounted for 43% of the newspaper’s revenue, the result of seven years of steady improvements:

Now the bad news: this trend is more a reflection of the print’s business continued erosion than of a sufficient growth on the online side. The next chart shows the parallel evolution of print advertising and online revenues (the latter is totally ad-based). These are quarterly figures are from Q4 2004 to Q4 2010.

Over the last seven years, for each dollar added to online revenue, the WaPo lost five dollars on print. During that time, the Post has lost $88m of print ad revenue and it improved its online business by only $18m. This leads us to a key realization, a sobering one: there is no hope current online revenue stream will someday offset the past decade’s tremendous losses.

Let’s face it: the online advertising business model, when applied to the transformation of the newspaper industry, is largely failure. The reasons are well known:
– The profusion of free, news-related contents diluted the perceived value of editorial-rich “trusted brands”.
– More agile competitors, quite adept at using sophisticated audience-catching techniques (that are implemented at a fraction of the cost of a modern printing plant).
– The endless stream of pages with hundreds of URLs added each day ended up destroying any balance in the supply vs. demand mechanism.
– The resulting pressure on prices, as “premium” ad formats slowly yielded to bulk fire sales.
– An unreliable audience measurement system that rewards cheating instead of editorial quality or relevance.
– The advertising community’s inability to base their purchases on solid market analyses.

Still, publishers had the means to attenuate the effects of this unfortunate conjunction.

For instance:
– Cutting down at their inventory by at least 50% in order to revive a sense of market scarcity.
– Investing much more in technology in order to match the sophistication of clever pure players.
– Refusing to sell the lower end of their inventories to bottom-feeding “ad networks” that act as powerful deflationary engines.
– Getting out of the audience-measurement systems that are ridiculously inaccurate and setting up their own system of traffic analysis.

That’s the theory. In reality, all of the above implies a kind of collective action that is beyond the intellectual and emotional reach of the newspaper industry (although it is not a given that such set of measures could have reversed today’s trend).

Which brings us back to the title of this column. Mere adaptive tactics won’t save the traditional news industry in their multi-front war against “disruptive technologies”.

Some radical re-engineering is needed.

For instance, very few publishers of money-losing dailies can elude the following question:  Wouldn’t it be smarter to accelerate the downward spiral of their print activity in order to feed more oxygen and nutrients to the emerging online business? Each time I’m testing the idea with my fellow European publishers, I’m getting a straight answer: “No f**** way, pal. Print is still where the revenue is!”  I politely refrain from saying “so are your losses, pal “. Beyond this thin-skinned reaction lies a more rational fear: brand dissolution into the digital maelstrom. And there is no successful example of the kind of bold move I recommend.


I don’t see any newspaper surviving without a major structural change in its business. An example: Being published every day will make less and less sense as most of the developing and breaking news is read (and heard or viewed) on a smartphone. On the contrary, long form reporting, or visually rich storytelling could still thrive on paper, a format in which glossy ads will stay in high demand and command correspondingly high prices. Such publications — one or two days a week — have the ability to remain powerful brands vectors.

Don’t dream on it, it’s over

In parallel, newsrooms will have to adapt.
Gone are the football-size open spaces with hundreds of staffers, a small fraction of which work extremely hard and burn themselves out while legions of others parsimoniously manage their output. The next breed of newsrooms will be smaller, more agile and decentralized; it will be built around an inner core of seasoned editors managing in-house or external — and decently paid — reporters and writers (I’m not referring to today’s low cost digital serfs toiling in writing pens, endlessly recycling second-hand material).

Change is also needed on the business side. As the failure of advertising-based  models sinks in, the paid-for model is gaining traction. It is not likely to work on the web but it is finding its way on mobile devices where payment is (slightly) more natural and easier to implement. But prices will have to adjust (downward). Today, the vast majority of publishers are tempted by a mirage: they think they can “protect” their eroding print business by setting high prices for their digital products; others invoke the need to support the industrial costs of print as a reason to oppose low prices on digital.
As long as this mentality prevails, the transition from print to digital will keep stalling — and low-market pure players will thrive. Dinosaurs: It’s time to edit your DNA, or face a world with more HuffPos and no WashPo.