In the “Innovator’s Dilemma,” Clayton Chrstensen asserts that new technologies can cause great firms to fail. I read this book several years ago, but was reminded of its big ideas recently.
Whatever you do to make money, Clayton says, your successful business model could be the very thing that prevents you from growing in new directions and could kill your core business. Old habits die hard, and this message is fairly daunting in this age of rapid technological change. If you don’t keep pace with technology, it can disrupt your business. Wait too long, and someone else will come along and leverage technology to do what you do - and then some - better, cheaper and faster, and you’ll be out of business, or wishing you were working for the competition.
Newspaper classifieds are a great example of this vicious cycle. Newspapers are good at selling, printing and distribution. But what happens when your competition doesn’t need to print and distribute? And what happens when readers can post their own ads and get immediate results? How do you compete? Apparently most newspapers are still grasping at straws.
Newspapers could have invented on-line classified. But they waited. Now they’re forced to get in bed with on-line publishers
Tom Mohr, former president of Knight Ridder Digital, recently wrote a piece in trade magazine Editor & Publisher that said to face the online future, “the independent companies of a proud industry (pride comes before the fall) must aggregate into an industry-wide network.”
In an interview, Mohr said “On the web, players are at least national and often global, while newspaper companies, from a digital standpoint, are much smaller footprints. It is very difficult for newspapers to realize the value of the assets they bring from the local angle.”
This quote was published in a recent press release which announced a major partnership between Yahoo and 7 big newspaper publishers representing 150 newspapers in 13 of th 15 biggest media markets. The deal gives Yahoo access to newspaper content and it gives the newspapers a way to expand the reach of their local classified listings through Yahoo’s Hot Jobs.
The Yahoo / newspaper deal makes sense. At this stage of the game, newspapers almost have to aggregate into networks to maximize on-line revenue and offset off-line losses. But the point I want to make is that newspapers waited too long to face the facts that the Internet changed the game, and now are forced to use partnership to stop the bleeding where classified ads are concerned. I don’t know if this partnership move will ultimately prosper newspapers that much, but I do believe that newspapers might have avoided this situation. They could have owned the online classified industry if they weren’t so good at, well, being newspapers. While they were still #1, they coulda-woulda-shoulda been re-inventing themselves to compete in the new media landscape. Likewise, I think the NFL teams could benefit from aggregating our on-line audiences, but we should do it now while we’re strong. Of course changing business models when you’re at the top of the food chain is much more easily said that done.
What can the NFL learn from the newspaper business?
The NFL is the #1 sport in the United States (if not the world). It commands the most money for its TV rights, attracts the biggest audience and its licensed merchandise sales are very strong. Locally, NFL teams are fairing better than ever with sold out stadiums and many new facilities being built. But if Christensen is right, then we should be watching out for areas where technology might come along and change the game. (I believe it already has). And if we don’t expand our business models to embrace more completely the new opportunities afforded by Web technologies, then the NFL and its clubs may find the future less profitable than it could have been. Just look at what’s happening to big media companies for a preview of what could be in store for us.
Big media is our biggset customer, and big media is in trouble
It’s no secret that the media landscape is splintered. Broadcast TV, phone, wireless, satellite and cable offerings are converging over the Intenet. Meanwhile, consumer behavior is changing from passive audiences to active participants who can customize when and how they access media and the content it offers. While the NFL still attracts a massive audence to TVs on Sundays, who’s to say this will last forever? What will our TV audience look like in 5 or 10 years? Will the Big TV networks still be big? If not, who will foot the bill for the NFL?
The magic of the Web, from a commercial standpoint, is that it enables companies to do business with MORE, smaller customers. MAKE A LITTLE FROM A LOT. Some of the biggest money makers on the Web (Google, E Bay, etc.) focus on making a little (bit of money) from a LOT of customers. This has never been the NFL’s model. We are best at doing the biggest deals.
While we are still riding high, I believe each NFL team and the league itself should be looking for ways to leverage the Web to do business with smaller and smaller companies (mid-tier and small businesses), and we should be looking for ways to tap into the (non-entertainment) spending power of our fan base. The Web virtually eliminates distribution costs and offers a platform for direct transactions with both busiensses and consumers. In fact, the NFL might actually increase its revenue base by immitating newspapers.
What’s that? Immitate Newspapers? Are you crazy? Newsprint is dead!!
There’s no question that the traditional model for newspapers is under attack. Traditionally, newspapers make about 1/3 of their money from classified ads, and as we’ve seen, the Career Builders and Monsters and Craig’s Lists of the world are eating that lunch. Hence the deal with Yahoo!
But step back for a second. Look at where newspapers have made their money - and continue making their money today. The answer is volume. In every issue of a typical, big-market daily, there are thousands of ads. In fact, ad count is one of the key performance indicators at any newspaper company. The more advertisers active in an issue the better. Once those presses start running, the marginal cost of each issue begins to decline, so at some point those extra ads are going straight to the bottom line. The Web, with its self-service model and ZERO production and distribution costs is clearly a threat. But that’s obvious. What I want to stress here is a principle.
Selling big deals is great, but the Web gives us a way to do lots of little deals too. And I suspect that if we do it right, the little deals could add up to bring in more money than the big deals one day, or at least make up for losses that could come as our “big media” deals lose their power.
Chris Anderson offers some compelling thoughts on Big Media versus “long tail” niches in his book, the Long Tail. He says “hits”, while still big money makers, make up a smaller percentage of the overall market for many products. Moreover, he maintains that the “rest” of the market which he calls the long tail, can add up to an even bigger pile of money than the hits themselves. There are critics of this theory, but Anderson does present some compelling data which turns the tried-and-true “80/20 Rule” on its ear.
Even though TV is stilll king, and NFL ratings are still the big bread winner, research indicates that avid fans already spend more media hours consuming NFL content outside TV than they do on TV. In other words, fans collectively spend more hours looking at team web sites, listening to NFL talk radio shows, reading newspapers about the NFL, etc than they do actually watching the game. About 52% of fans’ NFL consumption time is spend in these other media channels. Most of this time is spent outside the actual game when fans are consuming previews, reviews or actually interacting with other fans discussion their own opinions. My question is, how are we planning to monetize this long tail?
So how can we keep all our big deals AND get into these new areas?
First, we need to identify where the “small” deals might be found:
1. There are 10,000 businesses in the state of Indiana. We only do business with a few hundred sponsors. How can the Web give us a way (other than tickets) to do business with more small and midsized companies?
2. Total advertising spending inside Indy DMA is over $1 billion annually, yet average sponsorship budgets are less than 10% of that number. How do we bridge the gap and tap into the larger section of the ad pie?
3. We have 17,000 season ticket accounts. These 17,000 people buy 55,000 season tickets. Tickets are sold out and we’ve only done business with less than 1% of our fans. We have 6 million Americans who say the Colts are their favorite team. How can we do business more of them?
I have some ideas, and all of them are powered by the Web.
While the newspaper business has been under assault these past few years, they continue to do one thing well. Newspapers, at least the big dailies, do business with THOUSANDS of advertisers. When you add up all the people posting classifieds, and combine those numbers with the total display advertising relationships, you can see that newspapers have built their business on VOLUME.
The Web offers the NFL a means to do more volume, but in order to do so, we may need to question certain things we’re doing today. We’re already experimenting successuflly with DirectTV, Sirius Radio, Yahoo, NFL Network and more. Now it will be interesting to see how we utilize the Web to maximize revenue, espeically from “non-game” content.
You know I had to chime in on this one! Newspapers have missed the boat for 2 reasons:
1. They took their eye off of their local audience. Huge media businesses thought it would be much more efficient to centralize their news operations nationally to reduce costs. It disconnected them from their local audience.
2. While business was good, they sat and watched while the web took over scratching their heads. I once tried to get a $6,000 budget to develop an application that would map Garage Sale classifieds online so readers could download their Garage Sale route. It was denied. Classified revenue continues to die because it costs too much and the web is easier.
The Colts have an awesome opportunity to increase penetration here locally. I love the fact that you’re looking into this information deeper and not simply tossing one for the other.