Newspapers Don’t Understand How Screwed They Really Are

A few years ago I wrote a post on a now defunct blog with the title “Newspapers Don’t Understand How Screwed They Really Are”. Over the last few years (and particularly the last few weeks) I think they might just be starting to get the message. Unfortunately some of the same misconceptions that apply to the print media are the same as in the retail industry. Journalists operate under the delusion that they provide a valuable service that consumers should be willing to pay for. They are wrong.  

The problem, as they see it, is that newspapers in the past made the mistake in giving away content, and now the challenge is to change consumer expectations and habits. I would counter that the only reason that newspapers can still command any sort of audience is due to consumer expectations and habits, and messing with this is not likely to achieve the results they might be expecting.

The media industry has a short memory. The reason why newspapers never charged for online content is that no-one was ever willing to pay for it. The few sites that put up paywalls lost their audiences, and never regained them, even when they backtracked. An audience is a valuable commodity. Getting someone’s attention, time and involvement is a very challenging problem, and audiences think they should be rewarded for their investment, not penalised. To ask an audience to invest more than just time and attention requires an extraordinary level of value in the product you are selling.Value that does not exist in simply digitising a newspaper.

A few commentators in the news media have finally admitted that raw news is a commodity. That only took ten years to sink in. There is no value in a journalist regurgitating something from a wireless service. Not when there are so many other outlets that just post the feeds directly. No, that battle is lost, white flags have gone up, prisoners have been exchanged.

The battleground now appears to be “opinion” and “analysis”. Certainly the News Ltd paywalls are counting on the proposition that people will be willing to pay for opinion. But the trouble is that opinion has even less value than news. Every blogger has an opinion. Every comment on a blog or a forum is an opinion.

What makes the news media believe that the opinions of journalists are worth more than the opinions of anybody else? Particularly when journalists usually have such limited real world skills? Surely the opinion of a professional businessman who blogs is just as valuable as a journalist who regurgitates what professional businessmen blog about? Why not just get rid of the middle man and go straight to the real expert?

This is the heart of the dilemma. A newspaper’s value is not the work of the journalist, the value of a newspaper is as a compilation of information into a consumable format. A newspaper needs to have a strong editorial consistency and a well established target audience. Otherwise you may as well be compiling your own list of interesting news sites with Google Reader.

Imagine if several like-minded professional bloggers consolidated their efforts, would it end up looking like the opinion section of a newspaper? Well imagine no more, just visit Catallaxy or On line Opinion. Not only is the opinion just as valid, in many cases it is the same people providing opinion! It’s just that you get to pay for it on the newspaper site!

The challenge for newspapers is that opinion makers need to be heard. The outlet may be a newspaper or a blog, a seminar, a book, it really does not matter, as long as they can keep the attention of the public. Newspapers need exclusivity in order to pay. Once paywalls go up then people simply find other opinion makers to follow, or follow their opinion makers on free blogs. No-one who commands an audience will allow themself to be limited exclusively to newspapers. And if you can simply go to a blog and read essentially the same article then what is the point of paying?

There may be a more compelling case for charging for analysis. However the potential audience is much more limited to the realms of business or finance. No doubt some business focused publications will continue to thrive for the foreseeable future, but it is unlikely that printed versions will continue.

The Kohler example is an interesting case study. Here we have a group of experts who have built their reputations with traditional media and then go out into a new media venture to attack the old media, winning significant market share in the process. Without the same overhead as their old media rivals they are able to undercut and decimate the old media readership, based on the reputations they built when they were part of the system! And in the ultimate ironic twist they are then bought out by their old media rivals, so nothing has really changed in the long run!  Except that many former loyal old media customers are now new media customers and will simply move on to the next new media provider who offers better value.

This scenario is an anachronism, a moment in time that creates a few transitional opportunities for the few that are lucky or smart enough to straddle the divide. It is like the music industry which is still dominated by a few aging artists who rose to prominence during the dying days of the old music industry marketing machines. But the global music machine is no more, new artists now have to contend with having smaller fan bases, excelling in self-promotion and developing other income streams such as playing live in order to survive. Hmmm… that seems a familiar path.   

The best advice I could give to the media industry is to get rid of all journalists. They add very little value. There is always someone willing to write for a ready-made audience for free, you should never have to pay much for opinion. Do it while you still have an audience to leverage. The worst possible thing that any media organisation could do is to sacrifice their audiences and balance sheets by pointlessly continuing to pay excessive premiums for basic journalism. Whoops, Fairfax, too late!

  

The Sound of Dinosaurs - Part 2

The point of yesterday’s post was not to bash retail. There are far many more issues with retail than I can hope to cover in a few blog posts, and I don’t really care about retail. It’s just such a good case study for identifying future trends. The real point I was trying to make is that the knowledge and skills of sales people are no longer of much value to the consumer, and certainly not worth the retail premium. Other factors such as the ability to “try before you buy” are always going to be a factor for some types of retail, but the idea that the salesperson had some sort of privileged insight into the merchandise is long gone.

In fact this particular aspect of retail has changed so much that people don’t even seem to remember how important sales staff skills used to be to the success of the retailer. We still occasionally see retailers trying to revive this idea, but it usually falls on deaf ears. It has certainly been a failure for Dick Smith and the “Talk to the Techxperts” slogan. You could argue that the Apple Store has revived this approach, but I think the success of the Apple store has more to do with the idea that it is a cool place to hang out. The Apple Store sales staff certainly don’t seem to sell very much.

A bit of personal history for context. One of my first roles in IT was working in a computer shop, fixing PCs, writing autoexec .bat and config.sys files, and selling software. Back in the pre internet era the primary ways a customer could find out about software and systems was to either read a short review in a magazine that was a couple of months out of date or to talk to retail sales staff.

A good sales person was expected to know the product, and be able to demonstrate it. In fact the best sales staff owned and used the products they sold. In my job this was a case of owning a decent computer (a big investment on my pathetic retail wage), buying the software and using it extensively in my personal time. Fortunately I loved what I did, so it was no great chore. I was part of the community, an advocate, a fan, a trusted resource and that is what made a good sales person.

Now the retailer holds no monopoly on product knowledge. A consumer can go to MetaCritic or Amazon to find hundreds of passionate users providing a large range of opinions. They can go to YouTube to watch video demonstrations, training, hints and tips, even advice on how to modify, improve or integrate with other products. And all for free, without any ulterior motives except passion, interest and a willingness to share. How can even the most dedicated sales person compete with the wisdom of crowds?

I know many people will argue that consumers want to talk with real people, and there is an element of human interaction in the sales process that cannot be replicated on line.  But I would argue this is just habitual. People who need constant reassurance during the sales process can seek out forums of like-minded souls, and maybe even chat with the original designers and inventors. How can the value of a single stranger’s opinion compete with that, just because you happen to be in the same physical location? On line communities are real, the interaction is real, the friendships are real, and they don’t disappear once the cash register has rung.

The Sound of Dinosaurs

A couple of weeks ago a bicycle retailer in Melbourne closed up shop and called on the government to restrict damaging internet retailers. Now many people will see this event as a consequence of increasing competition from the internet. But the real story is not simply a matter of the internet competition, the deeper issue is about a fundamental shift in the economic value of skills and expertise of retailers, and the increasing maturity of consumers.

The bike retailer is such a good example of the self-delusion the retail industry is facing. It is the sound of dinosaurs complaining about evolution. The lack of GST for retail purchased under $1000 has become the scapegoat for the industry, but if there is any form of retail that is least impacted by international internet sales it is bulky goods such as bicycles. A quick scan of Ebay reveals that cheapest shipping of a single bike from the US is around $300 and UPS can charge in excess of $1000, so no-one is going to buy a bike from the net just to save up to $100 on GST! 

So let’s assume that what has really killed the Melbourne bike retailer is competition from local internet retailers, who are probably buying their stock from exactly the same wholesalers, and paying more or less the same GST.  The internet retail has no retail premises to pay rent for, probably orders stock on demand and doesn’t need any retail sales staff. How can the bricks and mortar guys compete?

Well they can’t. That is the point. The only thing that keeps them going is inertia and consumer habits. Which means that there can be no gradual decline here; once consumers make the switch to internet shopping it is over. Now retailers think that they can charge a premium because they offer “service”. Retailers argue that sales staff know the merchandise and can offer customers advice to help them make the best decision from a wide range of choices.  They used to complain that people would come into the store to find out about a product and then go online to purchase. What rubbish. 

The internet is full of real experts. People who buy the products, use the products and are happy to share experiences and provide feedback without any self interest. Good sales staff may know how to sell, but no sensible consumer with the internet at their disposal would trust the advice of a salesperson. No retailer argues about being the primary source of advice for consumers any more. 

For any significant purchase a consumer is going to walk in to a retailer with a good idea on exactly what they want to purchase, and what price they expect to pay. The most common question a retailer will get now is simply “do you have it in stock at the advertised price?” Except for impulse purchases the only real service that retail provides is immediate availability. And if a consumer is willing to wait a day or two for delivery they are almost certainly going to be able to get a significant discount. 

This is the current state of retail, but this is not a status quo that can be maintained indefinitely. As internet providers squeeze retailers the inevitable result is that retailers will carry less stock, which will make them even less relevant. As internet providers gain market share they will have more power over wholesalers to provide stock on demand, so ordering from a retailer or an internet provider will result in much the same process, waiting for the wholesaler to ship. 

There is no strategy for retailers to turn this around, and for many types of products and services traditional retail outlets will have no future. Quite frankly consumers are better off in the long run developing the habit of product research and price comparing, rather than indulging in impulse purchases that retailers depend on.