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http://online.wsj.com/article_email/SB113142165259390911-lMyQjAxMDE1MzAxODQwMjgxWj.html

Newspapers in an Electronic Age

By CLARK GILBERT and SCOTT D. ANTHONY
November 8, 2005; Page B2

As innovative technologies and business models with transformational
potential continue to emerge, the world of the newspaper publisher has
grown progressively darker. Five years ago, eBay and Monster.com started
to slice off pieces of the classifieds. Recently, Google's news and search
offerings and the Web logs began to threaten the hegemony of the
traditional media's command-and-control structure. Throw in podcasts and
free commuter newspapers and you have a potent brew indeed.

The newspaper industry is now roughly 400 years old, and, generally
speaking, it is confronting a "disruptive" change unprecedented in its
history. The emerging challengers can't comprehensively measure up to
leading newspapers' detailed reporting capability, institutional
advantages and deep local reach. All of them, however, feature revenue
streams and content delivery models that run counter to those of most
newspapers -- and they are breaking paths into new territories.

Still, newspaper companies are not standing idly by. Every major player
has made a move on the Internet, and their properties -- and appetite for
acquisitions -- are growing rapidly. Knight Ridder, Gannett and the
Tribune Corporation built CareerBuilder.com and bought a controlling stake
in news aggregator Topix.net. In the last year, the New York Times
acquired About.com, the Washington Post picked up Slate, Dow Jones bought
CBS MarketWatch and News Corp. acquired Intermix and MySpace.com.

So how, then, do we judge the recent spate of acquisitions? Are these
rational choices meant to extend these companies into the online space, or
are these the signs of panicked companies reacting to the threat of online
media?

Our research over the last year in the newspaper industry suggests market
analysts (and media companies) can use three criteria to resolve these
questions. First, do these acquisitions enable companies to reach into new
market spaces populated by "nonconsumers," people who can't solve the
problems they face because they lack access, knowledge or expertise?

On the consumer side, consider people who use searchable databases and
blogs to access content not available in traditional media or to engage
with the content in new ways. "Nonconsuming" advertisers might be
companies who do not currently advertise with print media but are very
active online. Only one of the top 25 online advertisers at a major U.S.
newspaper we worked with was a leading print advertiser. Some companies
are increasingly turning to online advertising brokers, but only paying
for promising leads on new customers. Brokers eschew print media in favor
of more targeted and efficient "local search" advertising.

The second criterion is whether or not an acquisition plugs a capability
gap, particularly related to employing new business models. Most newspaper
Web sites remain almost entirely reliant on classified listings and
display advertising. Serving new advertisers requires behavioral and
demographic marketing that many newspaper companies lack. Lead generation
is another example. Autobytel generates almost 70% of its revenue from
leads it provides to auto dealers. Many newspaper sites do not even have
this as a product offering.

Through these first two lenses, the recent acquisitions like Topix appear
promising. Not only do these companies have large audiences, they provide
newspapers with new business models and access to segments where online
brokers are actively participating.

Finally, there is the issue of post-acquisition integration. Companies
oftentimes unintentionally destroy the very asset they were hoping to
acquire when they integrate it too closely with the parent organization.
Therefore, our third question is: Does the acquirer recognize that
reaching nonconsumers and leveraging new implied business models requires
substantial autonomy from the core print business, even while efforts are
made to transfer those capabilities into the newspaper?

It's still too early to answer that third question for the recent slate of
mergers. But along the first two dimensions, much of the activity appears
promising. While these deals (ironically) are getting less ink than
mega-mergers in industries such as oil and medical devices, they have a
greater chance of letting incumbent firms sail through turbulent waters.
The key now will be for newspapers to manage those acquisitions
effectively so they continue to grow in new directions.

Mr. Gilbert is a professor at Harvard Business School. Mr. Anthony is a
partner at Innosight LLC.

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# posted by newshare @ 1:58 AM