It is a business school cliché (one I was taught at MIT) that American railroads died because they thought they were in the railroad business. Wrong. They were in the transportation business.
[Note: If you want the opinion of someone who knows what they are talking about, a former Knight-Ridder newspaper publisher and one-time chairman of KR’s Viewtron electronic news effort, check out Reid Ashe’s response]
Similarly, American newspapers thought they were in the business of applying ink to dead trees to deliver advertising to homes. In fact, they were in the advertising business. A less sclerotic newspaper business saw this truth and invested heavily in broadcast stations from 1920-1970. Then the Federal Communications Commission pulled in that lifeline, prohibiting cross-ownership and killing dozens of newspapers in the process. But as the Internet rose, newspapers lost the plot. They could have controlled the news side of the Internet by diverting some of their profitable cash flow to the new medium. They did not.
I agree with the late, great Texas journalist Molly Ivins: “I don't so much mind that newspapers are dying-it's watching them commit suicide that pisses me off.”
Passenger Railroads Didn’t Have To Die
Here is an excellent summary of what happened to the railroads:
Are airlines destined to go the way of the railroads?
The current airline struggle for survival is reminiscent of the death of the passenger railroads in post-WWII America. Once upon a time, hundreds of railroads crisscrossed the country and carried everyone wherever they needed to go. When air travel became safe, reliable and affordable, and the nation constructed a network of interstate super highways, the passenger railroad industry missed a vital and obvious business signal that major change had arrived.
What the railroads failed to recognize was that they were really in the transportation business, rather than the narrow niche of moving people from city to city in metal coaches riding along thousands of miles of tracks. In the short space of a few decades, every major U.S. passenger railroad disappeared as Americans opted for faster and more convenient air and automobile travel instead of the train. Had even one railroad CEO understood this simple concept and altered their business model to include air and road options, that railroad might still be in business today.
During the 1950s, when they were fat with cash and held most state legislatures in the palm of their hands, American railroads could easily have purchased and dominated the entire passenger airline business. But they weren’t interested.
Similarly, Newspapers Didn’t Have To Die
Of course, part of the problem in the name: newspaper. Paper seems to be right there at the base. If only they’d been known as Local News Organizations.
In any case, in the first decade of the Internet, American newspapers could easily have purchased and/or dominated the entire Internet news business. Some even tried; in pre-Internet modem days, Knight-Ridder was a leader in providing on-line news.
To this day, I don’t understand why newspapers let the classified advertising income stream slip away. With their cash, infrastructure and expertise, newspapers could have been the Craigslist in every U.S. city; they are not.
(I asked my friend Reid Ashe to respond to this essay. Generously, he did)
I guess my overall reaction is that nothing is as simple as it seems.
I don’t think it’s fair to say that newspapers ignored the opportunity of the internet. Even before there was an internet for public use, I ran a thing called Viewtron. Using TV screens and set-top decoders, we delivered news, advertising, banking, shopping, mail and chat without benefit of modern infrastructure. Along the way, Knight-Ridder dropped more than $50 million on the project. We learned a lot of valuable lessons, but it was far too expensive to operate for the adoption rate we achieved.
Once the internet came along, newspapers put all their news and ads online. Later, it became conventional wisdom that that had been a mistake, that we should have charged for access. That wasn’t clear at the time, and to their credit, newspapers – essentially all of them – took the aggressive path by making news free to all.
Late I my career, I came up with the idea that the only way to salvage classified advertising was to make it free. If we could keep the volume, I reasoned, we could charge for opportunities to make individual ads stand out, online, in print or both. Despite everyone nodding in agreement, the organization resisted at every turn. We couldn’t comply with Sarbanes Oxley. We can’t make the next quarter’s revenue unless we delayed. Perhaps I should have pushed harder, but in retrospect, I think that would just have delayed the inevitable.
The essential problem is that newspapers, as you say, are essentially an advertising business. And the advertising business has gone to hell, never to return.
In the glory days, newspapers had a monopoly on classified and could charge high rates in an inelastic market. Display advertising, while expensive compared with television, was unmatched in its ability to move merchandise in the short term.
Then along came internet, where the advertising inventory is unlimited and the rates are an order of magnitude or two cheaper. This has done two things. First, it’s sucked the bulk of revenue out of newspapers. And it’s made it impossible to make money on the internet unless you have the scale of Google or Facebook. A lot of newspaper companies cling to the idea that they can make money online. Maybe they can pay the electric bill, but they can’t support a newsroom that way.
So newspapers are back to where they were before the rise of the penny press. They’ll have to get by with sponsorship and reader support. The ones with national scale and ability to charge healthy prices for online access can survive. I’m thinking about The New York Times, The Wall Street Journal and the Washington Post. I’m not aware of a single local newspaper, anywhere, that appears healthy.
Could we have done better? Maybe. But nobody – no company, no newspaper – did. That tells you something.
Also, with regard to the railroads, that’s also a more complicated story. Think of the situation today. Railroads are a strong and profitable business. If you don’t believe it, ask Warren Buffett. They don’t haul people, but they haul a hell of a lot of freight, very efficiently. And airlines? It was recently documented, and may still be true, that they cumulatively haven’t made a profit since the Wright Brothers.