Tuesday, September 13, 2011

Newspaper and magazines face more than a technology shift, they are facing an economic one, as well

Why is it that newspapers such as the New York Times can grow digital advertising yet still experience sharp declines in revenue overall? How is it that a magazine publisher can brag about the number of iPad downloads their new app has had, yet still suffer losses on their P&L?

For many media observers, the rise of new digital platforms is obscuring the fact that as the middle class continues to shrink in America so, too, the market for newspapers and magazines.

To see just what an impact the economy is having on media it might be wise to look at other consumer markets, as well. Yesterday the WSJ reported on efforts by Procter & Gamble to adjust its product offerings. In her article, reporter Ellen Byron looked at how P&G is striving to appeal to both the high-end market and low-end market in response to a shrinking middle class.

"It's required us to think differently about our product portfolio and how to please the high-end and lower-end markets," says Melanie Healey, group president of P&G's North America business. "That's frankly where a lot of the growth is happening."

Fortune Magazine, launched in the midst of the Great Depression.

Today, the AP reported on new Census figures that show that the poverty rate in the U.S. has grown to 15.1 percent, the highest level of poverty since 1983. Further, now nearly 50 million Americans are now without health insurance, thanks mostly to losing that insurance during the recession.

For many Americans, newspapers and magazines are simply luxuries that are no longer affordable. This, I might add, at a time when many newspaper publishers are constructing paywalls around their online news products.

At the center of my own criticism of the media's response to both economic and technological changes effecting the industry is the seemingly natural response of publishers to try a "convert" their existing products to digital platforms rather than to launch new products that are more appropriate.

Returning to the lessons of P&G it might be helpful to look at how that company responded to the Great Depression of the '30's:
First, competing brands were advertising less, so P&G was able to increase advertising spending to gain share. Second, P&G identified several gaps in the market and, with a strategy of acquisition and innovation, moved to fill them with new products. And at a time when competitors were putting less marketing and other support behind their products, the cost of P&G's strategy was relatively less than it would have been under normal business conditions.

Leveraging developments in the chemicals industry, P&G introduced the first synthetic detergent in 1933, the first synthetic shampoo in 1934, and the first liquid oral dentifrice in 1938. All of these products were successful-but they were also precursors to many products launched in the 1940s and 1950s, such as Tide and Crest, two of the most successful brands in the company's history.

Today, there are still great launches taking place, especially in tech and tech services. But if media companies are reluctant to launch new products in this environment they may be wise to consider acquisition strategies that will accomplish the same objective.