Googled (35 page)
Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
CHAPTER TWELVE
Is “Old” Media Drowning?
(2008)
O
n a sunny July afternoon in Sun Valley, three friends who had competed and cooperated for a quarter century—Robert Iger, the CEO of Disney; Les Moonves, the CEO of CBS; and Peter Chernin, the COO of News Corporation—gathered for sodas. They sat beside a tranquil pond, but their world was not serene. By the summer of 2008, the economy had started its swoon. The shrinking of the audience for their broadcast networks and TV stations had accelerated. Their stock prices were getting mauled. “At least we’ve had a good run,” Chernin said, half joking.
n a sunny July afternoon in Sun Valley, three friends who had competed and cooperated for a quarter century—Robert Iger, the CEO of Disney; Les Moonves, the CEO of CBS; and Peter Chernin, the COO of News Corporation—gathered for sodas. They sat beside a tranquil pond, but their world was not serene. By the summer of 2008, the economy had started its swoon. The shrinking of the audience for their broadcast networks and TV stations had accelerated. Their stock prices were getting mauled. “At least we’ve had a good run,” Chernin said, half joking.
“Yeah,” Iger replied with a laugh, “but I feel like we’ve gotten to the orgy and all the women have left!”
“We sound like three old men sitting in Miami Beach with blankets over our legs!” Moonves cracked.
The network and station business was once much easier. “The era when I worked at ABC was fantastic,” recalled Michael Eisner, who was a program executive at the network before leaving to become CEO of Disney in the early eighties. “There were three networks, and all I had to worry about was ‘Did we have a good show?’ Even if we had a bad show, we did OK.”
What does it feel like to be a media executive navigating these swiftly churning waters? Before he became CEO of Sony, Sir Howard Stringer spent much of his life in traditional media, starting as a researcher for CBS News and becoming an award-winning news producer, president of CBS News, and president of CBS Broadcasting. Today, seated in the Sony dining room in New York, he said, “If you read every piece in every newspaper and magazine about new technology, you would walk into the East River! There are so many options out there, simultaneously, that it’s a dizzying experience. For every time you see an opportunity, you also see a threat. Every time you see a threat, you see an opportunity. Or if you see a threat, you’re afraid you’re missing an opportunity. That’s the one-two punch of the technological marathon we’re all in. You worry about missing a trend. You worry about not spotting a trend. You worry about a trend passing you by. You worry about a trend taking you into a cul-de-sac. It means that any CEO or senior executives of a company have to induce themselves to have a calm they don’t feel, in order to be rational in the face of this onslaught.”
Sony, like others, had reason to fret about missed trends. Before Stringer was CEO, the company that in 1979 had introduced the Sony Walkman was being challenged in 2001 by a stylish upstart, Apple’s iPod. By 2003 Apple’s iTunes offered singles that could be downloaded simply and for just ninety-nine cents, hampering the sale of albums by record companies like Sony. Although the Walkman was still the dominant portable music player in 2003, the iPod was gaining. I asked then CEO Nobuyuki Idei, are you worried about the iPod?
No, he replied, dismissing the question like a man brushing lint off his jacket.
Sony and Dell know manufacturing. Apple does not. Within a couple of years, Apple will be out of the music business.
Sony and Dell know manufacturing. Apple does not. Within a couple of years, Apple will be out of the music business.
Probably no other traditional media business has been so disrupted by the digital wave as has music. And none was slower to respond to the challenge. Music companies like Sony gave an incentive to digital pirates by insisting that their customers buy entire albums rather than allowing them to purchase individual songs. The music companies failed to understand that technology awarded power to consumers to mix and choose their own music, failed to strike an accommodation with Napster and other music download sites, failed to create a digital jukebox like iTunes, failed to enter the lucrative concert business for their artists, failed to start a TV platform like MTV Edgar M. Bronfman, Jr., the CEO of the Warner Music Group, said, “It’s fair to say we didn’t get it”—meaning the digital revolution. “But I’m not sure what we could have done.” He added, “The record business is in trouble. The music business is not.” He believes the music companies were murdered by technological forces beyond their control. In fact, they committed suicide by neglect.
A glance at the record company business suggests the depth of its travails. Into the nineties, best selling albums sold at least 15 million copies, said Jeffrey Cole of the Annenberg School’s Center for the Digital Future at the University of Southern California. In 2007, the top-selling album registered only 3.7 million sales. People are listening to more music, but paying much less. Some performers, such as Madonna, bypass traditional music companies altogether. Following the predigital model of the Grateful Dead, who built their audience by encouraging fans to tape their performances, acts like Coldplay made single songs available for free over the Internet. (When released, Coldplay’s album
Death and All His Friends
shot to number one.) In 2007, worldwide digital music sales rose to 15 percent of all music sold, up from less than 1 percent in 2003. Yet this rise could not compensate for the decline of more expensive compact disc sales, which fell 10 percent that year. Music companies were in the business of selling albums, and since their sales peak in 2000 of nearly 800 million, album sales in 2007 plunged to just over 500 million. This helps explain why music company revenues have dropped significantly from $14.2 billion in 2000 and will dive to $9 billion by 2012, according to Forrester Research.
Death and All His Friends
shot to number one.) In 2007, worldwide digital music sales rose to 15 percent of all music sold, up from less than 1 percent in 2003. Yet this rise could not compensate for the decline of more expensive compact disc sales, which fell 10 percent that year. Music companies were in the business of selling albums, and since their sales peak in 2000 of nearly 800 million, album sales in 2007 plunged to just over 500 million. This helps explain why music company revenues have dropped significantly from $14.2 billion in 2000 and will dive to $9 billion by 2012, according to Forrester Research.
In one sense, newspapers share this dilemma. Most newspapers enjoy healthier profit margins than music companies, but these are shrinking. Investors punish their stocks because, compared with a Google or Apple, newspapers have dismal growth prospects. The speed with which the world of newspapering has changed was captured in interviews conducted by the
Los Angeles Times Magazine
with six former editors of the
Los Angeles Times
newspaper. William F. Thomas, the editor from 1971 to 1989, suggested that the so-called good old days were akin to what was commonplace at Google: “I never experienced any real restraints on anything we wanted to do for budget reasons.... The only limit I recall was when they started enforcing a no-first-class rule.” By the time John S. Carroll took the helm in 2000, the newspaper’s corporate owners were seen as predators, people who understood math but not journalism, and Carroll, like his two successors, chose to quit in 2005 rather than obey directives from Chicago. With the benefit of hindsight, this fine editor blamed not just his former bosses, but himself as well. Carroll told the magazine that, like most editors, he was preoccupied with the fireman’s part of his job, answering news alarms, covering and editing daily stories. “If I had it to do over again, I might have taken some time off and tried to figure out where the Web was going and tried to do something about it.” This mistake—not to treat the arrival of the Internet with urgency, not to pour resources into a vibrant online newspaper—was one that most of his peers made as well.
Los Angeles Times Magazine
with six former editors of the
Los Angeles Times
newspaper. William F. Thomas, the editor from 1971 to 1989, suggested that the so-called good old days were akin to what was commonplace at Google: “I never experienced any real restraints on anything we wanted to do for budget reasons.... The only limit I recall was when they started enforcing a no-first-class rule.” By the time John S. Carroll took the helm in 2000, the newspaper’s corporate owners were seen as predators, people who understood math but not journalism, and Carroll, like his two successors, chose to quit in 2005 rather than obey directives from Chicago. With the benefit of hindsight, this fine editor blamed not just his former bosses, but himself as well. Carroll told the magazine that, like most editors, he was preoccupied with the fireman’s part of his job, answering news alarms, covering and editing daily stories. “If I had it to do over again, I might have taken some time off and tried to figure out where the Web was going and tried to do something about it.” This mistake—not to treat the arrival of the Internet with urgency, not to pour resources into a vibrant online newspaper—was one that most of his peers made as well.
In 2007, newspaper advertising, which accounts for about 80 percent of most U.S. newspaper revenue, fell 9.4 percent, according to the Newspaper Association of America. Adjusted for inflation, ad revenues were 20 percent lower than in their peak year, 2000. Circulation had dropped about 2 percent each year after 2003, and some papers, including the
Los Angeles Times
and the
Boston Globe,
lost about a third of their circulation in those years. The falloff in both advertising and newspaper sales would accelerate as more readers went online to sites like Google, Yahoo News, the
Huffington
Post, or
Gawker.
Los Angeles Times
and the
Boston Globe,
lost about a third of their circulation in those years. The falloff in both advertising and newspaper sales would accelerate as more readers went online to sites like Google, Yahoo News, the
Huffington
Post, or
Gawker.
The flight of advertisers from magazines was usually not nearly as severe, in part because advertisers believed they got more value from glossy, picture-filled pages. But even before the 2008 recession leveled magazines, many had slipped. Business magazines, said Time Inc. editor in chief John Huey, were battered by a severe drop in auto and tech advertising. Conde Nast would feel compelled to close
Portfolio
magazine in early 2009 and just months later
Business Week
was put up for sale. And the weekly news magazines, whose pages age rapidly in a time of instant news, were so bereft of advertising as to appear anorexic.
U.S. News
World Report
at first announced that it would switch from a weekly to a biweekly publication schedule, then within months retreated further, saying it would only publish monthly.
Portfolio
magazine in early 2009 and just months later
Business Week
was put up for sale. And the weekly news magazines, whose pages age rapidly in a time of instant news, were so bereft of advertising as to appear anorexic.
U.S. News
World Reportat first announced that it would switch from a weekly to a biweekly publication schedule, then within months retreated further, saying it would only publish monthly.
It is true that if we add Web site visitors, newspapers and magazines had a net increase in readers. Twenty million unique visitors came each month in early 2008 to the largest newspaper Web site, the
New York Times.
The rub is that because the online audience pays less attention to ads and spends less time with an online newspaper, advertisers only pay 5 to 10 percent of what they do for the same ad in a newspaper. According to Jim Kennedy, vice president and director of strategic planning for the Associated Press, newspaper revenues in 2007 totaled sixty billion dollars, with online revenues accounting for only four billion of this total. Theoretically, a newspaper that abandoned print to publish online could save 60 to 80 percent of its overall costs, having done away with the expense of paper, printing, and distribution. To date, however, with the exception of the
Wall Street Journal
and the
Financial Times,
few if any daily newspapers have succeeded by charging for online subscriptions. With online newspapers generating minute advertising and zero circulation revenues—and with younger readers migrating online and exhibiting less loyalty to a particular news brand—newspapers that attempted to publish only online would undoubtably subtract more revenue than they would add.
New York Times.
The rub is that because the online audience pays less attention to ads and spends less time with an online newspaper, advertisers only pay 5 to 10 percent of what they do for the same ad in a newspaper. According to Jim Kennedy, vice president and director of strategic planning for the Associated Press, newspaper revenues in 2007 totaled sixty billion dollars, with online revenues accounting for only four billion of this total. Theoretically, a newspaper that abandoned print to publish online could save 60 to 80 percent of its overall costs, having done away with the expense of paper, printing, and distribution. To date, however, with the exception of the
Wall Street Journal
and the
Financial Times,
few if any daily newspapers have succeeded by charging for online subscriptions. With online newspapers generating minute advertising and zero circulation revenues—and with younger readers migrating online and exhibiting less loyalty to a particular news brand—newspapers that attempted to publish only online would undoubtably subtract more revenue than they would add.
Hemmed in, the print press in 2008 engaged in a blizzard of cost cutting.
Newsweek
shed two hundred jobs, Time Inc. six hundred; the San Jose
Mercury News
cleaved two hundred newsroom employees. The headcount at the world’s best newspaper, the
New York Times,
dropped almost 4 percent in a single year, and the McClatchy chain, which historically prided itself on its no-layoff policy, began laying off employees in September and by the spring of 2009 had reduced its workforce by 25 percent. After years of patching and pasting to get by, newspapers seemed to be in free fall. The Tribune Company cut five hundred weekly news pages in its papers and laid off employees, then filed for bankruptcy. The
Philadelphia Inquirer
and the
Philadelphia Daily News
would soon follow, as would others. The New York Times Company, with a bulge of debt payments due in the spring of 2009, sought a second mortgage on its headquarters building and accepted a $250 million loan at an inflated interest rate of 14 percent from Mexican billionaire Carlos Slim. The
Christian Science Monitor
shut down its daily print edition and went online, as would the
Seattle Post-Intelligencer.
Gannett, the nation’s largest newspaper publisher with eighty-five dailies, watched its stock price drop 87 percent in a twelve-month period.
Newsweek
shed two hundred jobs, Time Inc. six hundred; the San Jose
Mercury News
cleaved two hundred newsroom employees. The headcount at the world’s best newspaper, the
New York Times,
dropped almost 4 percent in a single year, and the McClatchy chain, which historically prided itself on its no-layoff policy, began laying off employees in September and by the spring of 2009 had reduced its workforce by 25 percent. After years of patching and pasting to get by, newspapers seemed to be in free fall. The Tribune Company cut five hundred weekly news pages in its papers and laid off employees, then filed for bankruptcy. The
Philadelphia Inquirer
and the
Philadelphia Daily News
would soon follow, as would others. The New York Times Company, with a bulge of debt payments due in the spring of 2009, sought a second mortgage on its headquarters building and accepted a $250 million loan at an inflated interest rate of 14 percent from Mexican billionaire Carlos Slim. The
Christian Science Monitor
shut down its daily print edition and went online, as would the
Seattle Post-Intelligencer.
Gannett, the nation’s largest newspaper publisher with eighty-five dailies, watched its stock price drop 87 percent in a twelve-month period.
Not everyone in the news businesses was on a starvation diet. Three wire services—the AP, Reuters, and Bloomberg—defied the industry trend. There were several reasons for this. The bleak economic climate for newspapers, ironically, benefited the wire services. As newspapers contracted, they outsourced more of their news gathering to the wire services. (“The cold our customers caught,” said Thomson Reuters CEO, Thomas Glocer, “has been good for Reuters—unless the patient dies! That would be bad for Reuters.”) And unlike most newspapers, the wire services moved early to tap new sources of revenue. The AP, according to its CEO, Tom Curley, “gets about 20 percent of our revenues from digital sources.” The AP’s 2008 revenues totaled $750 million, which means digital sources—Google News and Yahoo and advertising from newspaper and broadcast links and other customers—generated about $150 million. And broadcasting revenues were even larger. More than half the AP’s worldwide revenues now came not from the fees newspapers paid but from its broadcast and online operations.
Bloomberg and Reuters, for their part, were sitting on data-generating gold mines. Bloomberg, like Reuters long before it merged with Thomson, started as a collector and provider of financial data; essentially, it was in the service business, not the news business. The value of this business is demonstrated by contrasting two business transactions. In 2007, when Rupert Murdoch acquired Dow Jones, parent of the
Wall Street Journal
(and former owner of Telerate, a data business it failed to invest in and eventually sold), he paid five billion dollars. In 2008, when Merrill Lynch sold its 20 percent ownership in Bloomberg, the company was valued at a whopping twenty-two billion dollars. Both Bloomberg and Thomson Reuters tapped a rich revenue source from the terminals they rented to companies, and with readers hungry for business information from around the world, they expanded into news. According to Thomas Glocer, by 2008, Reuters had 2,600 reporters, and six hundred broadcast outlets as customers for its video news service; its profit margins topped 20 percent. Unlike newspapers, the three wire services were publishers who did not have the expense of paper, printing presses, or distribution.
Wall Street Journal
(and former owner of Telerate, a data business it failed to invest in and eventually sold), he paid five billion dollars. In 2008, when Merrill Lynch sold its 20 percent ownership in Bloomberg, the company was valued at a whopping twenty-two billion dollars. Both Bloomberg and Thomson Reuters tapped a rich revenue source from the terminals they rented to companies, and with readers hungry for business information from around the world, they expanded into news. According to Thomas Glocer, by 2008, Reuters had 2,600 reporters, and six hundred broadcast outlets as customers for its video news service; its profit margins topped 20 percent. Unlike newspapers, the three wire services were publishers who did not have the expense of paper, printing presses, or distribution.
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