Tuesday, August 20, 2013

Jeff Bezos And The Washington Post

The conventional wisdom about the impact of digitization upon content businesses is that the music business is the model. Digitization makes illegal copying easier; revenues from digital advertising is lower than traditional advertising. Newspapers have had difficulty replacing both subscription revenue and advertising in a world where customers have become accustomed to getting their new for free.

But there is another interpretation. In digital businesses, the impact of scale is dramatic. After you have covered your fixed costs, the incremental profitability of an additional customer is high, verging upon 100%.

The reason scale is important is that traditionally newspaper brands, particularly in the US, have tended to be regional. But there is no intrinsic reason why newspaper should not be national in a world unconstrained by the need to deliver physical papers. We already have examples of national newspaper brands, the Wall Street Journal, the New York Times, and USA Today are the three leading examples of newspapers with national audiences. These newspaper superbrands, to which we can anticipate that the Washington Post will be added, represent a reordering of an industry. Old assumptions about scale and business models go out the window in a world of national newspaper brands vs. local newspapers.

As evidence of this, consider the following. The NY Times divested itself of the Boston Globe. Boston can be serviced with NY Times content plus some regionalization.The NY Times, the Wall Street Journal and the Washington Post all now have firewalls. Only Gannett's USA today lacks a firewall, perhaps because it has a different demographic and a head start as a national paper. The Economist, admittedly a weekly newspapers represents another example of the value of a national or international brand as does the Financial Times of London.

Most commentators about the acquisition have tended to focus upon the opportunities for synergy with Amazon and Kindle devices. There may well be opportunities but these opportunities will require a national newspaper with a wide range of content as a device for attracting the attention of Amazon buyers. It's a scale game. You can't create great content without high quality, diverse and local editorial content.

You can think of a consumer's attention as being equivalent to the shelf space in a supermarket. Owning one of the major national newspaper brands will likely prove a cost effective way of reaching customers and giving them more reasons to make Amazon a central part of their life.

The predictions from this conclusion are straightforward - a change in the scope of competition and dramatic competitive pressures on smaller newspapers. If you run a smaller newspaper, it's time to rethink your strategy and operating model.

No comments: