Newspapers: Problem child or cash cow?

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.

Boston Box

  • 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?

Your thoughts?

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7 responses to “Newspapers: Problem child or cash cow?

  1. Great site, Kevin. You are watching newspaper cash cows being tipped over. They were milking 20 percent profit margins in monopoly markets up until 18 months ago. Now the milk is drying up. There are new media giants starting up every year some turning into stars like Digg, Google, UTube, MySpace, EBay, DrudgeReport…

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  2. This is a great post – thank you for the thought provoking idea’s and explanatory model.

  3. Hadn’t heard of the Boston Box before. Good stuffs. Thanks for sharing.

    -kpaul

  4. That certainly rings true for a lot of newspapers. However, some of us are also out there experimenting with “question marks” (man, that box needs a more inspiring name!) and hoping they grow into stars. If you’re only milking the cow, as Robert Picard would say, your only choice is to one day make “entrecote” (translation: steak). You can read his 2002 paper on this here: http://www.leaonline.com/doi/abs/10.1207/S15427439TC1102_04

  5. William Doolittle

    I worked for daily newspapers, small and large, for 50 years. I owned a daily. and sold it to a chain, and ran it for them. The unspoken truth is that these chain newspaper owners, public and private, have been demanding and getting 20 to 30 percent margins for decades–after offset came and eliminated the back shop. Then, in many cases, the Wall Street vultures said, in effect, you must keep those margins up regardless. Also many chains borrowed heavy to expand and now they are stuck. The ability of newspapers to re-train and tool up for really heavy competition is lost because the companies have been strip-minded. So they are trying to convert to the web and keep up the margins in print. It is lose lose for most of them as they adulterate their print products further losing what’s left of the older readers. The young, new audience is not reading newspapers period. Now, in death throws, the papers swing their efforts to the web without adding reporting staff, so they further adulterate their print and fail to provide any quality or originality to their web sites. Neither can they get enough income out of their their web sites to make up for the advertising losses to the upstart web sites. While browsing web numbers are up, the local families that shop in their stores and read the local ads in prints declines, as does penetration. I know of a nearby paper that has 35 percent pentration, but still earns the 20 percent margin. Meanwhile the owners and publsiher are rtaking enormous salaries out. It’s almost as if they know whats coming even as they say things are improving and tyhey are doing great.
    The proof of how dire situation is the market for newspapers. They are not selling. There are hundreds on the market, but the big chains are pulling back and local investors are watching the dismal record of those local investors who have bought newspapers. Philadelphia is missing debt payment. The Journal Register with scores of papers in delisted, its stock close to worthless–no ready buyers. Murdoch appears to be unable get his price for the Ottaway papers. Far a year later he has not sold after he had promised to unload them quickly none have been sold. When he bought Dow Jones he vowed to unload the papers right away.
    Who knows if the bottom feeders are interested, and local deals are falling through. Meanwhile, the more talented young people are shunning the newspaper business. Younger reporters and editors are leaving in droves, middle agers are waiting, hoping for a buy out. and the older ones are retiring early. if they have not been already forced out. So the next time you hear newspaper owners bemoan the web remember this, “”The fault, dear Brutus, is not in our stars, But in ourselves, . . .”

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