I still remember my first day at the Orange County Register back in July 1994.
I assumed, now that I was going to work at a real paper, I’d have access to the latest and greatest technology and could use my hard-earned statistical analysis and computer cartography skills to do some Pulitzer-prize winning computer assisted reporting.
Then I saw my workstation, a PC XT with 4 MHz of computing power and no floppy drive – incredibly archaic even by 1994 standards.
The next two years were both thrilling and demoralizing, as I tried to make sense of the contradictions between newspapers’ huge profits and their almost complete lack of investment in technology, training and adequate news resources.
It was always a source of grousing amongst us reporters, as we couldn’t understand why such a profitable industry paid so poorly and invested so little in new initiatives.
Then, I left the newspaper industry, became a product manager and learned about the “Boston Box.” And suddenly, I understood why such a profitable industry invested so little in its people and products.
The Boston Box, also known as product lifecycle management, divides products into four basic categories.
- Problem child/Question Marks: A new product that requires significant investment to grow and become profitable, e.g. new Internet initiatives.
- Star: Assuming the product crosses the chasm, it becomes a star – characterized by high profits and growth. A star needs to be carefully nurtured and given the investment required to continue growing.
- Cash Cow: At a certain point the product reaches maturity and is no longer growing in market share and or revenue stagnates and begins declining. At this point the goal is to maximize profitability and milk the cow for as much cash as possible.
- Dog: Finally, the decline steepens and the goal is to profitably retire the product before it begins sucking resources from new replacement products.
Can you guess which category traditionally newspapers belong in?
You guessed it. The cash cow. Lets see stagnate revenues and gradual declines in market share over the last 20 years as circulation declines. So what does a “smart” manager do? Minimize investments and maximize profitability. They focus primarily on cost reduction to maximize efficiency, instead of investing for growth.
Whenever possible they merge with thecompetition to create a monopoly (product quality isn’t as much of an issue) and eliminate “redundancies.”
The problem with this thinking is that if they focus primarily on cost cutting, the quality of their product deteriorates and the customer base flees, resulting in yet more cost cuts and lost customers, accelerating the downward cycle.
On the other hand, if investors view the business as a cash cow and are expecting it to deliver 20% net profit margins, it’s hard to make significant investments without upsetting the “street.”
The problem newspapers and local TV news face now is that in order for them to make the transition from the old to the new, they need to invest heavily in new ventures that will initially take away from their profitability. And not only that, but now newcomers are using market shrink strategies to grab market share, e.g. Craigslist, and stealing revenue from newspapers.
So are newspapers cash cows, problem children – or dogs? And what’s going to happen next?