Shifting Newspaper Economics
March 2, 2007 | By Raymond T. Hightower
“If cable and satellite broadcasting, as well as the internet, had come along first, newspapers as we know them probably would never have existed.” So says Warren Buffett in his most recent letter to shareholders.
About the Oracle
Known to investors as “The Oracle of Omaha”, Buffett is chairman of Berkshire Hathaway (BRKA and BRKB on NYSE). Berkshire owns or controls over forty companies including Dairy Queen, Geico, and Fruit of the Loom. The portfolio also includes two newspapers: The Washington Post and the Buffalo News.
Newspapers & Easy Profits
The 20th century newspaper business was an easy place to make huge profits. Everybody got their information from newspapers. If you wanted a job, you went to the want ads in the newspaper. Same if you were looking for a new car or a sale at the supermarket. Advertisers paid for newspaper ads because that’s where the eyeballs were. Readers bought newspapers because that’s where the ads were. It was an upward spiral of profitability.
And it didn’t take a great deal of effort to run a profitable newspaper. Buffett quotes a newspaper owner who was asked about his success: “I owe my fortune to two great American institutions: monopoly and nepotism.”
Competition Enters
But now competition has entered the picture in the form of CNN for news and Craig’s List for want ads. Some people visit these sites at work on company time. It’s easier to look busy in front of a PC! But if you’re reading a newspaper on the job, you might find yourself focusing on the the “help wanted” ads. Times are changing.
Response: Online Newspapers
Most newspapers have responded to the threat by creating online editions. But this strategy has limits. As Buffett puts it, ”...the economic potential of a newspaper internet site – given the many alternative sources of information and entertainment that are free and only a click away – is at best a small fraction of that existing in the past for a print newspaper facing no competition.” In other words, the writing is on the wall for newspapers that don’t innovate soon.
What About Your Business
And you thought this blog entry was about newspapers! It is, but only partially. It’s really about you!
- What is it about your business that makes you vulnerable to changes in technology?
- Is your industry subject to crumbling economics? In the long run, all industries are subject to change.
- When was the last time you purchased a shelf-full of World Book encyclopedias? Or do you get encyclopedia-type information from Google?
- What can you do to prevent your industry from succumbing to crumbling economics?
- How will your business change in the face of ubiquitous high-bandwidth and web-based applications?
All questions to ponder.