BUSINESS BLOGS
BUSINESS BLOGS
category: business
04 Mar 2009

If newspapers can’t be saved, are TV networks next?

Maybe.  Yesterday Paul Graham highlighted four factors that might lead the Web to “kill” TV.  I’m not a fan of “X will kill Y” pieces, but the fact remains, this is a pretty darn good piece, some highlights, then my eight cents:

About twenty years ago people noticed computers and TV were on a collision course and started to speculate about what they’d produce when they converged. We now know the answer: computers.

It’s clear now that even by using the word “convergence” we were giving TV too much credit. This won’t be convergence so much as replacement. People may still watch things they call “TV shows,” but they’ll watch them mostly on computers.  What decided the contest for computers?

Four forces, three of which one could have predicted, and one that would have been harder to.

- One predictable cause of victory is that the Internet is an open platform. Anyone can build whatever they want on it, and the market picks the winners. So innovation happens at hacker speeds instead of big company speeds.

- The second is Moore’s Law, which has worked its usual magic on Internet bandwidth.

- The third reason computers won is piracy.

- The somewhat more surprising force was one specific type of innovation: social applications.

(…)

Now would be a good time to start any company that competes with TV networks.

Well, there are a few companies that “compete” with TV networks.  I guess WatchMojo.com does, to some extent.  Revision3, Next New Networks, Mania TV, Ripe Digital and a bunch of others do too.

Rocketboom’s Andrew Baron adds a fifth:

5) To expand on Graham’s fourth point, into what I’m suggesting as a fifth point, beyond just social activity, we also have a lot more options for activity in general in our lives. Its much easier to find ways to fill it up with enjoyment, besides sitting at home silent and pacified in front of a unidirectional TV program.

Agree or disagree with Graham and Baron, I’d add a sixth factor which is related to Graham’s second but really an altogether separate point: cost structure.  Yes, Moore’s Law reduces cost, but if a competitor to TV strives to compete with TV (in other words, spend just as much, or not take advantage of Moore’s Law) by emulating their high cost structure, they will fail.

After all, which one of these competitors prevail and become winners and which ones will lose won’t really have to do with factors 1 through 4, or 5 for that matter, but factor 6: the cost structure.

We’ve Seen the Script in Print Media

The economic meltdown has only put a spotlight on the need to keep a lid on costs, but even without the meltdown, those who built companies with “wacked out” cost models were doomed to fail.  In 1999 my old company AskMen took on a slate of competitors in the print media space that included GQ, Esquire, Vogue, FHM and Maxim.  None of those companies took the Web seriously because the Web was a much smaller but cannibalistic company.  One company that took the Web seriously was TheMan.com, enough so to raise $17M from Highland Capital.  Like AskMen, TheMan was an online magazine, but it shut down in November 2000 because the dot com meltdown accelerated the inevitable: a poor cost structure.

The Web amplifies your strengths and your weaknesses.  While traditional media companies have had a lot of time to camouflage their cost weaknesses, online ones don’t.  And now, due to the meltdown, both old and new media companies are under the gun to get lean.

The “Inescapable Conclusion”

Look at some of the inescapable conclusions that Hearst’s president of Hearst newspapers Steven Swartz came to, in a memo obtained from WSJ, via PaidContent.org:

“One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today. It is equally inescapable that during good times our industry developed business practices that were at best inefficient.”

I’d say that factors 1 through 4, or 5, essentially make the cost structure matter far more important.

It’s awfully hard to take a 500 pound man and try to shake him into a 200 pound man blob.  But to take a 150 pound man and add muscle to make him into a 200 pound man machine is quite feasible.

If you’re starting a company right now, avoid adding too much fat early on, because only when the tide goes down do you find out which one of your competitors is swimming around naked.