Tag Archives: Product diversification

Goodbye, Newsprint? Not So Fast!

Do you still flip through the inky news-printed sheets of a telephone book to search for the phone numbers of your friends? If you do, you were undoubtedly saddened by the recent news that AT&T will no longer distribute phone books to the residents of Houston, Texas, America’s fourth largest metropolis.

The demise of classic telephone books may seem to be inevitable, considering the growth of information search on the internet and the adoption of mobile telecommunication systems. But it might be premature to write off other sectors of the established “paper and ink” media market just yet.

The weekly magazine Newsweek, for instance, just received a new lease on life from the Daily Beast, an online service that values Newsweek’s ink-stained pedigree. This unique marriage of old media and new media organizations may indeed portend the future of the consolidating publishing industry.

Introducing … the Daily Beast’s Print Edition!

The surprising union of Newsweek and the Daily Beast might actually owe its existence to the unexpected success of the most unusual newspaper in Washington, DC. It’s the paper publication of Politico, the web site for political news junkies that launched a year before the 2008 presidential election, and that has arguably become the most influential political news service in the nation’s capitol.

Many web based readers outside of the capitol region are unaware that Politico publishes a traditional paper edition. And yet the print edition is responsible for helping the organization earn much of its revenue. The owners of Newsweek and the Daily Beast were undoubtedly aware of Politico’s successful hybrid model of paper and electronic distribution systems when they decided to merge their own operations.

Newsweek itself, the venerable news magazine that first launched during the Great Depression, was recently sold by the Washington Post after having fallen upon hard times. Meanwhile, Tina Brown’s web based news organization The Daily Beast was searching for a traditional print publication to help diversify its distribution system. Last week’s joint agreement between the decades-old news weekly and the spunky web based upstart appeared to emulate the Politico business model.

Different Ad Formats, Different Prices

Why are traditional printed newspapers so valuable to web based news organizations? The reason is a simple one: newsprint advertisements can be sold for higher prices than online advertisements. Although the circulation statistics of print newspapers continue to fall as young readers flock to the internet, their remaining readers continue to grow relatively older, relatively more homogenous in their needs and preferences, and thus relatively more attractive to firms that focus on middle aged and elderly consumers. Such consumers tend to be closer to retirement age, and thus tend to have accumulated larger amounts of personal wealth, than their younger counterparts.

In a sense, the evolving market for the printed editions of newspapers and magazines is growing increasingly similar to the aging viewer demographics for the flagship evening news broadcasts of the Big Three television networks. Have you ever noticed how many advertisements for heart medications, urinary disorder drugs, and other pharmaceuticals now run on these evening newscasts? As younger viewers leave Katie Couric, Brian Williams, and Diane Sawyer behind, the demographic profiles of their remaining viewers grow more attractive to organizations that sell services to the middle aged and elderly.

That’s not to say that all Newsweek readers are elderly and wealthy, of course. Nevertheless, they are most certainly different than the readers of the Daily Beast’s online content; furthermore, as readers of printed pages, they draw higher prices for advertisements from organizations that wish to reach them. Interestingly, some experts believe that the tactile nature of news print, and the visual ease of reading ink on paper, lengthens and enriches the reading experience, thereby driving up the value (and thus the price) of newsprint based advertising as well.

New Models

What will the new Daily Beast / Newsweek product actually look like? Tina Brown, the founder of the Beast and the new editor-in-chief of the joint entity, can be expected to draw upon her past experience in resuscitating the classic Vanity Fair publication. She might also take heed of Bloomberg’s recent success with Business Week as well.

Vanity Fair was originally a fashion magazine that prospered during the Roaring 1920s; it was later folded into Vogue during the Great Depression. Brown successfully brought back the title for publisher Conde Nast during the prosperous era of the 1980s. And Business Week, like Newsweek, first developed a stable readership base during the Great Depression; it was recently purchased by the online news organization Bloomberg and repositioned in much the same manner as Brown envisions doing for Newsweek.

So it appears that old and new media models are increasingly converging as news organizations continue to search for incremental advertising dollars.  Is there a future for paper telephone books, though? Those relics, unlike printed newspapers, may indeed be obsolete.

Big Tobacco is Back!

Let’s review the recessionary wreckage of America’s aging industrial landscape. Can we see a glimmer of progress anywhere on the horizon?

A hint of renewal? A speck of growth? A spark of innovation?

Across the United States, it’s tough to find a blue collar industry that appears well positioned to take on global rivals. In the automobile business, for instance, GM has now delayed the launch of its electric automobile Volt until 2010 while Toyota continues to win awards for its Prius. And energy companies like Exxon continue to Drill Baby Drill for oil in places like Iraq while Chinese firms leap to the forefront of the renewable energy sector.

And yet there is one American industry that is exhibiting signs of stabilization and growth. Ironically, it’s the oldest industry of all, one that traces its roots to the very first colonial settlement in 1612 in Virginia.

That industry, of course, is tobacco.

Rise and Fall

Ever since the native American tribes introduced tobacco to the first American settlers at Jamestown, the leafy product has been a major component of our domestic manufacturing and export base. Pipes, cigars, and cigarettes quickly spread throughout Europe during the ensuing centuries, trailed by the inevitable spread of lung cancer and other respiratory diseases.

American servicemen further carried the flame of the major U.S. cigarette brand Camel when they ventured forth across Europe to fight the first world war. Like Coca Cola, Wrigley, and Hershey, the Marlboro Man became a dominant global brand during the heyday of American industrial might in the 1950s.

But the Surgeon General’s report of ill health effects hurt the industry in 1964. Over the ensuing decades, the government banned cigarette advertisements from broadcast television and radio, slapped punitive taxes on the sale of tobacco products, and even banned smoking outright in airplanes, restaurants, bars, and most other public places.

Phoenix Rising

And yet, like a phoenix rising from the ashes of a pile of cigarette butts, the industry has been finding its way back to stability and growth. Just this past week, the U.S. Centers for Disease Control reported that the percentage of Americans who smoke actually increased to 20% last year. And Reynolds American, proud heir to the Virginia based R.J. Reynolds tobacco empire, is negotiating the purchase of a smoking cessation product manufacturer called Niconovum AB.

It may not be very surprising that tobacco usage is spiking upwards during a period of economic hardship; after all, one would expect financially stressed Americans to reduce expenditures on expensive luxuries and increase them on small and relatively cheap “guilty pleasures.” But a tobacco company investing in a smoking cessation device? Why would a firm invest in an ancillary product that is designed to eliminate the use of its primary one?

At first glance, such a strategy might strike one as product diversification run amok. And yet such hedging strategies often play an important role in many business scenarios.

Both Sides of the Table

A classic example of this strategy was the sale of Sharps military carbines to the Confederate army of the southern states during the American Civil War of the 1860s. This firearm was also popular with the Union army of the northern states, and thus Sharps found itself supplying a pair of military forces that were actively engaged in destroying each other.

The modern manifestation of such domestic civil warfare is the bruising series of political election campaigns that pit Democrats against Republicans on the first Tuesdays of each November. Many American companies and their lobbyists routinely make political donations to candidates in both parties; in fact, they often support opposing candidates for the same political offices! Although candidates today use television advertisements instead of firearms to wage their battles, the results are often equally brutal: after each election, one political career may die while the other survives to fight another day.

This “investing in one’s opponent” strategy may also appear in more subtle ways. Until recently, for instance, Microsoft sold subscriptions to its OneCare antivirus software service; this line of business would inevitably grow whenever nefarious hackers exploited weaknesses in its Windows operating system. And stock market analysts continue to advise their clients to diversify their holdings and purchase industry index funds that invest in firms that compete with each other.

So Reynolds American’s strategy of investing in a smoking cessation product is actually a time tested corporate technique for hedging one’s bets. In fact, by playing both sides of the table in this manner, the tobacco industry may well ensure that it survives to experience its fifth century of existence.