Newspapers and Their Changing Environment

A lot of people are complaining that newspapers are dieing.  That's not completely true.  Newspapers with an advertising based revenue model are dieing.  Companies that didn't depend upon that model are not.  Consumer Reports, Stratfor and Seeking Alpha didn't choose to follow that model, and they are doing fine.

What happened is that newspapers grew up in a particular business environment, did well and expanded.  A couple things changed that are contributing to their problems.  The economic environment changed and newspapers were/are too big to be supported by their revenue model.  This economic environment changed necessitates a business change that newspapers do not want to accept.  If newspapers were a quarter their current size, their revenue model would be fine.  For people running newspapers, that is not an acceptable solution.

The Roman's had a saying, "Times change, we change with them."  Until people running Newspapers are willing to change, they will continue to bleed a slow death.  More interestingly, other organizations, the Stratfor's, the Seeking Alpha's etc. will emerge and offer a better product with a sustainable business model that is aligned with the new economic environment.

Understand the Long Term Effects of Decisions

Many times people get so focused on what is happening day to day that they miss the larger, slower moving things.  If you are going to intelligently make long-term decisions, make sure you understand the long-term direction of the business you work in and the industry that it works in. [Editor: You don't really want to ask that question, do you?]

Today Michael Lewis has a wonderful article explaining how decisions made by John Gutfreund, the Sr Partner and CEO of Salomon Brothers, changed finance.  

When investment banks were private partnerships, the partners who ran the firm were risking their own money.  Their interest were aligned and they balanced the opportunity to make a profit with controlling the risks their traders were taking.  When Salomon and then the other investment banks IPO'd, it absolved partners/CEOs/directors from having to understand the risks by transfer that risk to stockholders.  People running the firms kept the profits, while the investors and ultimately the goverment held the risks.   

Now, there are no investment banks and Wall St is essentially dead.  The article is a wonderful and humorous description.  Michael Lewis became famous with Liars Poker and he continues the tale with this article.

http://tinyurl.com/EndWallSt

It's a wonderful article relating how a CDS is similar to Fantasy Football, how Steve Eisman worked out the perverse logic that subprime loans were going to be the ultimate undoing of the financial system while sitting in a conference for subprime brokers, and includes the delicious line: "You can’t really tell someone that you asked him to lunch to let him know that you don’t think of him as evil."

It's a wonderful example of looking at how people didn't look at the direction of the industry they worked in, the companies they worked for or what was happening in the world.  As the world changes over the next few years, these will be important questions you want to ask.  If firms like Goldman Sachs, Merrill Lynch, AIG and others can be brought to their knees, how are you and your firm and your firm's marketspace doing?

Photoillustration by: Ji Lee