Title says it all. From BusinessWeek.
http://www.businessweek.com/bwdaily/dnflash/content/dec2009/db20091215_621992.htm?link_position=link1
December 22, 2009
December 9, 2009
On The Vegetative State of the News Conglomerate
One thing we know for certain about the web is that it has made people LESS likely to to pay for That Which Can Be Had For Free (see music, movies, tv shows, and of course news). So why why does Rupert Murdoch of News Corp seem to to believe that the pay model is the journalistic business model for the future?
Murdoch is right on one count. The current journalistic business model is not sustainable. Paper subscriptions are down, classifieds and ads are down, and people get more and more of their news from the Web. For free.
So what's an ailing news empire to do? Recent revelations that News Corp was in talks with Microsoft to delist its content from Google, in exchange for Bing's exclusive rights to all News Corp material, have fallen through. This proves that not only do subscribers and advertisers fail to see value in a traditional newspaper, a major tech player fails to see value in a newspapers' online counterpart.
Murdoch is not the only one. Billionaire Sam Zell recently had his acquisition of the Tribune Co (LA Times, Chicago Tribune, etc) go bad, and ever the sagely Warren Buffett has stated flatly that he would not buy a newspaper company "at any price," citing "unending losses."
The upshot is that News Corp and other old media companies seem to value their product more highly than many of their customers value it. And just like so many other things on the national consciousness, this is a highly unsustainable position to hold.
A major factor in play is the commoditization of news. There is no way to charge for what your customer can go next door and the door after that to get for free. From an average person's perspective, there is little difference whether they get their news from broadcast TV, the New York Times Home Edition, or the Wall Street Journal Online. Same goes for NYTimes Online vs WSJ Online vs AP Online, etc.
Lowering differentiation is death for subscription numbers, and therefore profits. With the exception of the Wall Street Journal, all the major dailies have taken a dive over the last several years (WSJ counts its paying online subscribers, and likely double counts a few). This forces major cuts in hard news, as it is more profitable (sadly) to cover a Gaggle of Gosselins than events that have actual import.
It is these declining revenues that are the primary impetus behind Murdoch and Co's recent petulant comments blaming Google for their loss in revenue. Murdoch and old media should be running scared, but it is not Google or ungrateful consumers that are killing them. As the record industry is proving, there is no long term survival for companies that treat their customers like dirt (hear that Comcast, Verizon?). Eventually someone comes along and eats your lunch, and in the case of old media, that someone is shaping up to be - well - new media.
During the Iranian presidential elections of 2009, the government succeeded in almost completely blocking traditional media from covering the horrendous violence perpetrated by the government and "militias" against peaceful demonstrators. Most of what made it outside the country came from Iranians in the streets, providing data points that were picked up and combined into narratives by bloggers in near real time. Only then were the stories picked up by traditional news.
The recent US presidential elections were also covered by all kinds of new media journalists using blogs, cell phones, twitter, and even facebook. They succeeded in capturing in rich detail all the various facets of political campaigns that were invisible even four years ago.
These outlets vastly increase the number of inputs into the national consciousness, capturing in higher resolution every aspect our lives. Traditional media is a bottleneck that is beholden to ratings, advertisers, and the political/economic agendas of their owners. Minor stories that may appeal to segments of the population smaller than an advertiser's target audience are often eliminated from coverage.
These stories still resonate with large numbers of people however. Independent news outlets can afford to pick up these stories and even thrive on them, as the numbers necessary to drive blog traffic is generally much smaller than that necessary for traditional coverage.
The aforementioned record industry implosion over the last ten years provides a parallel example that should serve as a cautionary tale to Murdoch. In face of slipping sales and declining profits the more the record industry tried to pursue absurd lawsuits against its customers and force consumer compliance, the more users drifted toward alternate methods of distribution. The same thing is happening in the news world.
Murdoch is absolutely right, the journalistic model needs to change. It already is. He should pay attention.
Murdoch is right on one count. The current journalistic business model is not sustainable. Paper subscriptions are down, classifieds and ads are down, and people get more and more of their news from the Web. For free.
So what's an ailing news empire to do? Recent revelations that News Corp was in talks with Microsoft to delist its content from Google, in exchange for Bing's exclusive rights to all News Corp material, have fallen through. This proves that not only do subscribers and advertisers fail to see value in a traditional newspaper, a major tech player fails to see value in a newspapers' online counterpart.
Murdoch is not the only one. Billionaire Sam Zell recently had his acquisition of the Tribune Co (LA Times, Chicago Tribune, etc) go bad, and ever the sagely Warren Buffett has stated flatly that he would not buy a newspaper company "at any price," citing "unending losses."
The upshot is that News Corp and other old media companies seem to value their product more highly than many of their customers value it. And just like so many other things on the national consciousness, this is a highly unsustainable position to hold.
A major factor in play is the commoditization of news. There is no way to charge for what your customer can go next door and the door after that to get for free. From an average person's perspective, there is little difference whether they get their news from broadcast TV, the New York Times Home Edition, or the Wall Street Journal Online. Same goes for NYTimes Online vs WSJ Online vs AP Online, etc.
Lowering differentiation is death for subscription numbers, and therefore profits. With the exception of the Wall Street Journal, all the major dailies have taken a dive over the last several years (WSJ counts its paying online subscribers, and likely double counts a few). This forces major cuts in hard news, as it is more profitable (sadly) to cover a Gaggle of Gosselins than events that have actual import.
It is these declining revenues that are the primary impetus behind Murdoch and Co's recent petulant comments blaming Google for their loss in revenue. Murdoch and old media should be running scared, but it is not Google or ungrateful consumers that are killing them. As the record industry is proving, there is no long term survival for companies that treat their customers like dirt (hear that Comcast, Verizon?). Eventually someone comes along and eats your lunch, and in the case of old media, that someone is shaping up to be - well - new media.
During the Iranian presidential elections of 2009, the government succeeded in almost completely blocking traditional media from covering the horrendous violence perpetrated by the government and "militias" against peaceful demonstrators. Most of what made it outside the country came from Iranians in the streets, providing data points that were picked up and combined into narratives by bloggers in near real time. Only then were the stories picked up by traditional news.
The recent US presidential elections were also covered by all kinds of new media journalists using blogs, cell phones, twitter, and even facebook. They succeeded in capturing in rich detail all the various facets of political campaigns that were invisible even four years ago.
These outlets vastly increase the number of inputs into the national consciousness, capturing in higher resolution every aspect our lives. Traditional media is a bottleneck that is beholden to ratings, advertisers, and the political/economic agendas of their owners. Minor stories that may appeal to segments of the population smaller than an advertiser's target audience are often eliminated from coverage.
These stories still resonate with large numbers of people however. Independent news outlets can afford to pick up these stories and even thrive on them, as the numbers necessary to drive blog traffic is generally much smaller than that necessary for traditional coverage.
The aforementioned record industry implosion over the last ten years provides a parallel example that should serve as a cautionary tale to Murdoch. In face of slipping sales and declining profits the more the record industry tried to pursue absurd lawsuits against its customers and force consumer compliance, the more users drifted toward alternate methods of distribution. The same thing is happening in the news world.
Murdoch is absolutely right, the journalistic model needs to change. It already is. He should pay attention.
December 2, 2009
Wednesday Wit and Wisdom
"In all affairs it is a healthy thing to now and then hang a question mark on the things you have long taken for granted."
-Bertram Russell
-Bertram Russell
November 29, 2009
Models of Entrepreneurship and the Entrepreneur
I've been meaning to write this post for a while. Part of this blog is going to be space for me to put down ideas that get kicked around in my head, hopefully a bit more coherently than I find them there.
This post has been simmering for a while and has to do with entrepreneurship, and more generally the concept of being self-employed.
The entrepreneur is a distinctly American archetype. It traces its roots back to the pioneers moving westward, pushing through hardships unimaginable to most of us today. It is the idea that by hard work and determination, an individual can carve out an existence on his own terms, rather than having his livelihood subject to existing structures out of his control. It is possible to argue to what extent these ideals exist and are achievable in the real world, but we will take them for granted in this discussion.
It is useful to think of three different paths of entrepreneurship, each with its own advantages and disadvantages. While these categories are generally more distinct in theory than in practice, they provide a useful way of understanding the concepts. Here are the three approaches:
* Franchise method. Simplest approach. Takes an existing business model and copies. May add some unique elements but in general can be described as "cookie-cutter." E.g. McDonalds.
* Bootstrap method (BM). Organic approach. Builds a business model from the ground up based on constantly changing environment. Relies primarily on growth to finance expansion. Describes the majority of small and medium sized businesses.
* VC method (VC). VC is most common in hi-tech arenas that require large amounts of startup capital (e.g. biotech). Can be used at various stages of a business as well. Primary focus is the exit strategy.
I want to concentrate more on the BM and VC methods, as I see the Franchise method as pretty much self-explanatory.
BM ventures are grown from the ground up. While there usually is (and should be) a business plan, a bootstrapped venture tries to respond to changes in the business environment in real time.
The VC venture is similar in this respect has a small but critical constraint that a BS venture does not: Time. Rather a lack thereof.
Most firms that get VC funding started out as BM venture, and grew to the point where VC was a viable option. When firms reach this level, there are some crucial decisions to be made about the future of the business. These decisions are about more than just the direction of the business, they are also of existential import to the entrepreneur himself.
Here’s why: At the point in time where venture capital enters the picture the game changes drastically.
A typical venture cap fund is financed by a group of large, institutional investors. The fund is run by a handful of partners, usually entrepreneurs previously successful in the field.
A typical VC fund has a 10-year lifespan. This means that a company getting venture cap funding has 3-7 years to generate the large returns necessary to generate a profit.
Put another way, a venture cap fund looks to profit off its investment at the end of a set time frame, not necessarily when the business itself is viable or has intrinsic value.
While the entrepreneur clearly cares about making money, by going the route of a VC he abdicates his position as the sole decider of the direction of the business. Part of the venture cap deal is that the funding does not come in a vacuum. Fund managers are former entrepreneurs and operational experts for a reason, and they exist to help manage the companies in their portfolio. They'd be crazy not to.
However, the recent phenomenon of tech companies that are essentially worthless by traditional valuation being sold for fortunes has changed the strategy of venture cap funds over the last 5-7 years (think Google's acquisition of Youtube). These massive paydays have encouraged VCs to position companies in their portfolio for one-time acquisitions rather than build a diversified portfolio of performing companies that develop truly breakthrough technologies. This phenomenon is well documented by Carl Schramm and Harold Bradley over at BusinessWeek (hat tip to Ade).
This critique isn’t meant to completely discount the VC approach, but I do think there is something personally fulfilling for the entrepreneur to be free to pursue the company as an end in itself, rather than as an entry in someone else’s ledger. I think there is also plenty to say on how to refocus venture cap, but I'll leave that for another day.
This post has been simmering for a while and has to do with entrepreneurship, and more generally the concept of being self-employed.
The entrepreneur is a distinctly American archetype. It traces its roots back to the pioneers moving westward, pushing through hardships unimaginable to most of us today. It is the idea that by hard work and determination, an individual can carve out an existence on his own terms, rather than having his livelihood subject to existing structures out of his control. It is possible to argue to what extent these ideals exist and are achievable in the real world, but we will take them for granted in this discussion.
It is useful to think of three different paths of entrepreneurship, each with its own advantages and disadvantages. While these categories are generally more distinct in theory than in practice, they provide a useful way of understanding the concepts. Here are the three approaches:
* Franchise method. Simplest approach. Takes an existing business model and copies. May add some unique elements but in general can be described as "cookie-cutter." E.g. McDonalds.
* Bootstrap method (BM). Organic approach. Builds a business model from the ground up based on constantly changing environment. Relies primarily on growth to finance expansion. Describes the majority of small and medium sized businesses.
* VC method (VC). VC is most common in hi-tech arenas that require large amounts of startup capital (e.g. biotech). Can be used at various stages of a business as well. Primary focus is the exit strategy.
I want to concentrate more on the BM and VC methods, as I see the Franchise method as pretty much self-explanatory.
BM ventures are grown from the ground up. While there usually is (and should be) a business plan, a bootstrapped venture tries to respond to changes in the business environment in real time.
The VC venture is similar in this respect has a small but critical constraint that a BS venture does not: Time. Rather a lack thereof.
Most firms that get VC funding started out as BM venture, and grew to the point where VC was a viable option. When firms reach this level, there are some crucial decisions to be made about the future of the business. These decisions are about more than just the direction of the business, they are also of existential import to the entrepreneur himself.
Here’s why: At the point in time where venture capital enters the picture the game changes drastically.
A typical venture cap fund is financed by a group of large, institutional investors. The fund is run by a handful of partners, usually entrepreneurs previously successful in the field.
A typical VC fund has a 10-year lifespan. This means that a company getting venture cap funding has 3-7 years to generate the large returns necessary to generate a profit.
Put another way, a venture cap fund looks to profit off its investment at the end of a set time frame, not necessarily when the business itself is viable or has intrinsic value.
While the entrepreneur clearly cares about making money, by going the route of a VC he abdicates his position as the sole decider of the direction of the business. Part of the venture cap deal is that the funding does not come in a vacuum. Fund managers are former entrepreneurs and operational experts for a reason, and they exist to help manage the companies in their portfolio. They'd be crazy not to.
However, the recent phenomenon of tech companies that are essentially worthless by traditional valuation being sold for fortunes has changed the strategy of venture cap funds over the last 5-7 years (think Google's acquisition of Youtube). These massive paydays have encouraged VCs to position companies in their portfolio for one-time acquisitions rather than build a diversified portfolio of performing companies that develop truly breakthrough technologies. This phenomenon is well documented by Carl Schramm and Harold Bradley over at BusinessWeek (hat tip to Ade).
This critique isn’t meant to completely discount the VC approach, but I do think there is something personally fulfilling for the entrepreneur to be free to pursue the company as an end in itself, rather than as an entry in someone else’s ledger. I think there is also plenty to say on how to refocus venture cap, but I'll leave that for another day.
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