Newspapers Economics and the need for new business models
Hal Varian, the chief economist of Google and co-author of the seminal book “Information Rules” just publishes an article on the changing economics of newspapers. The paper and his blog post is worthwhile reading.
The articles goes well along my analysis of the newspaper market, where I argue that just a transfer of the paper business model to the Internet does not work since the business model of traditional papers is unbundled by the Internet. A newspaper is three businesses (content, advertising (selling of readers’ attention) and classifieds (bringing demand and supply together) bundled together by paper. And on the Internet, the glue of paper does not exists any more. So the revenue model of newspapers will not work on the Internet.
Varian argues that newspapers actually never earned money with news from their frontpages but from special interest sections like Automotives, Travel, Home & Garden or Food & Drinks. These sections attracted contextually targeted advertising which is much more effective than non-targeted advertising like you have in the news section.
And in the Online world, special-interest sites attract the search-engine traffic and not general-interest sites like the Internet pages of newspapers.
Well, when you follow his arguments than a mere transfer of the traditional business model to the web will never work for newspapers.
Simply put. The Internet is different. It has different economics and therefore you have to adapt your business model to the changing economics. Either you do it or you die! And this not only true for newspapers but also for other industries.
[update March 29th, 2010] Seth Godin writes in his blog what it means when the economics are changing in the publishing industry. He highlights the possibility that great authors have the potential to lead their own tribe. They will not be bond to the paper publishers any more. The text is worthwhile reading since it shows new business opportunities for authors.
[update August 5th, 2010] Google posted another paper on the subject. It comments in this paper the Federal Trade Commission’s News Media Workshop and Staff Discussion Draft on “Potential Policy Recommendations to Support the Reinvention of Journalism.” The paper is definitely more interesting than the title.
Too many leaders assume newspapers, other media, music are unique in finding their current business model obsolete. In fact, business models have been becoming obsolete in multiple industries owing to the internet among other forces. Cloud computing will hasten the decline of still others. I wonder how many leaders regularly ask, “if I was a newcomer, how might I completely disrupt my business?”
@kay Even if they would ask this question, the current economics are against the incumbents. As Christensen says the disruption comes from the low end of the market, so many times the incumbents are even happy to surrender the low-margin market to the newcomers. Check out my post on the mathematics of classical retailing vs. discounting: https://blog.business-model-innovation.com/2010/03/changing-financials-changing-economics-retailing-and-business-model-innovations/