By: Gigaom
Why digital-native media will (almost) always win
Although the writing has been on the wall for traditional print-based media for some time, few companies have made any dramatic steps to try and adapt because they are too busy running their existing businesses. That's why digital-native entities will almost always win.

Much of the traditional media business has been in the doldrums for some time now, a victim of declining circulation and the free-fall of print advertising that has sucked the oxygen out of many traditional business models. And yet, many of these companies still have only taken small steps (if any) towards trying to carve out a future for themselves by adapting to the digital world. Why is that? As Paul Smalera of Reuters argued in a recent post, the biggest issue is not that they can’t see the need to change, it’s that they are caught between trying to manage their existing businesses — which in most cases still produce the bulk of their revenue — and trying to create new ones. In media as in every other field, the fastest and most successful innovators will almost always be the ones that have no legacy business to worry about.

The impetus for Smalera’s post was a table produced by LinkedIn as part of a report that looked at which industries and sectors prospered (or failed to) during and after the recession. At the very bottom of the list of industries that have shrunk was the newspaper business — which won’t come as any surprise to those who have followed the industry’s twists and turns over the past decade, or anyone who has noticed events like the recent sale of the Philadelphia Inquirer and the Philadelphia Daily News for about 10 percent of what they fetched in a sale just six years ago. At the same time, however, Smalera notes that the “online publishing” sector was one of the fastest-growing industries:

In other words, traditional media outlets like newspapers may not be succeeding, but online publishing has never been better. It’s not clear exactly what kinds of companies or businesses were included in LinkedIn’s definition of online publishers for the purposes of the report — presumably it would cover digital-only entities like The Huffington Post and the rest of the AOL empire, as well as Yahoo’s publishing units (both of whom have been hiring writers away from traditional print outlets) and a number of other online-only publishers such as Politico. And obviously some traditional companies like the New York Times and the Wall Street Journal have significant online operations, although whether they were included isn’t clear either.

It’s also worth noting that Bloomberg and Thomson Reuters have been hiring journalists at a fairly rapid pace over the past year or so, and while they fall into a different category in LinkedIn’s ranking, that’s definitely a sign that digital media is in pretty good shape (Bloomberg has also been able to absorb Businessweek magazine’s estimated annual losses of $20 million or so). For both companies, of course, the consumer-facing parts of their media businesses are funded by proprietary information services that are designed for financial and other specialty markets — so their digital businesses subsidize their “traditional” media assets, instead of the other way around.

Many print-first outlets are trapped in the valley of death

Smalera suggests that newspapers in particular have been trapped in a classic “innovator’s dilemma” as described by Clay Christensen in his book of the same name, in which they have failed to adapt to the web as quickly as they should have because they have been busy running their existing businesses:

They have been trapped in a terrible mindset that they are in the business of selling newspapers. The leap from paper to digital may be vast, but to newspaper publishers, it seemed like vaulting to a different business entirely, one they were loathe to get into [and so]…

they get caught in the Valley of Death – the one Harvard business professor and Silicon Valley guru Clayton Christensen has written about in countless books and articles. Instead of innovating for the next business cycle, these companies die crossing the Valley, wringing every last drop of cash out of the last cycle.

I think Intel chairman Andy Grove actually popularized the term “valley of death” in that kind of context, but Smalera is still on target with his main point, which is that it is almost impossible for companies who have a dominant business of one kind — in one particular market, serving one particular kind of customer — to successfully cannibalize their own business by investing heavily in a new one. Even if they agree that change is necessary, the impetus will always be to continue spending most of the company’s time on managing the existing business, especially if it continues to produce a majority of a firm’s revenues (as print still does for most newspapers).

I had lunch recently with a senior executive at a media property that is part of a much larger media and entertainment conglomerate, and he talked about how difficult it was to get resources for the things that he and others knew they needed to do or experiment with, because the bulk of the company’s interest lay in maximizing the revenue and profitability of its existing businesses — not experimenting with new and untested ones. That’s why the creators of Huffington Post were able to build a massive new media entity worth $315 million in a little over five years, while the giants of the traditional media industry more or less stood still. Inertia is a powerful force.

Post and thumbnail images courtesy of Flickr users Zarko Drincic and Yan Arief Purwanto

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