Crossroads for the industry: toward growth or exit ramp

(Michael Tucker, the product marketing manager for DiGiCol at Gannett Media Technologies International Inc. of Cincinnati, has taken a thoughtful look at the world of newspapers and their suppliers.

(In a preface to this treatise, he wrote, "When I was a journalism student at Penn State, one of the things I learned was that nobody knows enough to be a critic. So, as a starting point to this exercise in editorial and interpretative writing, be advised that it is my intention to identify and define problems that need to be corrected between newspapers and their suppliers and recommend solutions. It is, however, my own personal opinion as an experienced supplier and former newspaper professional.")

On Oct. 26, 1996, I marked my 15th anniversary of working for companies that supply technology to newspapers.

You can count on one hand the number of system suppliers here today that were doing business 15 years ago. And you'll have fingers to spare. (You might need two hands to count the number of people still in the business who worked for those suppliers.)

Today, a large supplier company might have as many as 50 employees. Fifteen years ago, a supplier that size barely ranked as small.

As new technologies evolved over the last 15 years, so did markets. The healthiest suppliers were those who were able to adjust quickly to changes in both technology and market trends.

The dozens who went out of business never did.

This fall, I spent several weeks contemplating the state of today's publishing technology markets, reflecting my thoughts about the last 15 years off my bedroom ceiling, and toting up the many uncertainties that the late 1990s hold for both newspapers and their suppliers.

We -- newspapers and suppliers -- are at a crossroads: either a trek toward future growth or an exit ramp.

Newspapers face real competition for ad dollars from would-be on-line publishers and the Internet in general. Suppliers face the challenges of other markets, markets in which they will hone their newspaper-specific technology into a generic shape for use in diverse publishing environments, both print and multimedia.

Some companies -- newspapers and suppliers alike -- will decide on an exit strategy; others will go for the gold. Regardless of whether you work in the newspaper business or for a supplier, you'll pass through that crossroads -- one way or another.

Whichever direction you choose, decision time is approaching. Witness the geographic swap meets conducted (almost weekly, it seems) by the larger newspaper companies who trade properties whenever there is the mutual benefit of eliminating competition in a market where regional dominance is already enjoyed.

For instance:

Company A owns all but one suburban daily in the suburbs of a Midwest metropolitan market; Company B owns the only competition. In a major Southeast metropolitan market, Company B owns all but one daily -- and Company A owns that one.

Nowadays, Company A and Company B swap their orphans to gain total market dominance.

This is happening across the United States. It positions newspaper owners to easily sell an entire regional market if they want to get out of the business. To those who don't, buying a regionally dominant cluster of dailies or weeklies is viewed as a "no-loss" situation.

Publishers who stay in the business will become more aggressive at increasing market share and profitability. Ownership will continue to consolidate under fewer companies, strengthening the long-term prospects for growth and revenues from both print and electronic news publishing.

No more 'white knights'
But what about the technology suppliers that newspaper publishers will have to rely on for the high-tech weaponry necessary to achieve the aggressive goals of the future? Anyone who thinks, as most people did five years ago, that all the solutions will come from the shelf at Computer City is going to hit a wall.

The larger media companies are beginning to wake up to this. They are taking steps to build their own technical infrastructure to offset declining availability of products and services from the supplier community.

Smaller companies are taking steps to ensure proper staffing exists to handle technical tasks and projects that used to be the domain of the suppliers (network configuration and redesign, systems integration work, etc.).

But many companies are doing nothing at all because they believe in "white knights."

Adobe Systems has been somewhat of a white knight to the newspaper business. I think the newspaper business would be in dire straits right now, if not for the close attention of Adobe Systems over the last four or five years and its remarkable contribution of technological innovations.

But in 1996 Adobe didn't exhibit at NEXPO for the first time in years. A conversation with someone high up in the food chain at Adobe made it clear that Adobe was fed up with the newspaper business -- too much of a pain, and not worth the trouble.

You have to admit it's interesting that such a close and sacred patron decided to blow off the No. 1 newspaper trade show.

Other white knights include an imploding handful of long-established suppliers who have survived off of Paretto's Law (80 percent of your business will come from 20 percent of your customers).

For these three or four companies, it's more along the lines of 100 percent coming from one customer. Take that one customer away, and it's all over.

This leads one to see the supplier community as a dwindling band of financially anemic divorcees (or divorcés) -- all dressed up and nowhere to go.

It also leads to an overwhelming conclusion: Something's got to give. I'll wager my career that most suppliers will agree that the way newspapers and their suppliers do business these days must change.

Here's a story that explains why.

Recently, for what seems to be the hundredth time in about a year, I heard how a newspaper -- this time, a major Southern daily -- invested well over a year's time in planning, research, travel and endless weekly meetings, all devoted to acquiring new technology.

Then this major potential customer decided ... to make no decision.

Days later, I heard that a capital request for a strategic investment in technology had been rejected by corporate at a small Midwest daily. While this was at least a yes-or-no decision, not a delay in deciding, it was made against the logical, practical and financial strategic thinking that documented and supported the proposed investment.

Neither of these familiar actions was as disturbing as the one taken by a major daily in the Northeast.

Through the process of supplier selection, a committee of 12 narrowed its list down to three suppliers who were proposing $200,000-plus solutions. And the choice was?

A $50,000 solution -- one that was completely contrary to the panelists' request-for-proposal and that failed to satisfy more that a small fraction of their stated requirements. The seller wasn't even on their short list of suppliers.

The real rub for the suppliers who spent a year trying to get the business is that the newspaper wouldn't even explain its decision. That's painful, considering the three suppliers who fought to get that newspaper's business probably spent cumulatively more on the sales effort than the newspaper did when it finally made a purchase.

These cases are alarming enough, but nothing tops the good news/bad news phone call many suppliers have received on numerous occasions over the last five or six years.

It's almost always the same. The caller is excited and anxious: "We want to move ahead with your proposal immediately. We have the money to buy now!"

Suppliers love to hear these words, but wait: It's been so long since anyone has spoken with the potential buyer, it takes almost a day to figure out what it was the company had proposed to sell this client.

Once you've gathered all the faded documents, you have to call back to express your regrets that the product they finally decided to buy after nearly two years of thinking about it is no longer available.

I could go on, but you get my point.

New technology = profitability, growth
In the '90s, newspapers have been under constant pressure to squeeze relentlessly for profitability.

The consequence: Newspaper managers have become numb to the idea of investing in any technology that doesn't show the promise of instantly generating new revenues and a short-term ROI.

It wasn't always this way.

In the late 1970s, I was in the way when the conglomerate media merger movement hit full stride: A large media company acquired the newspaper for which I worked.

Immediately, the new owners began to overhaul and replace the machinery and technology used to produce the newspaper. A new press was installed, as were new computer systems for business and finance, circulation, advertising, news and production.

The entire front-end of our operation went from hard copy to electronic processing in about a year.

The return on the investment for 1980s vintage newspaper systems was so fantastic that the process of implementing the same type of overhaul at nearly every plant that had aging equipment became almost a voluntary corporate move -- industry-wide.

In fact, it became a widely accepted strategy for improving profitability, reducing operating costs and positioning for the future.

As the '70s came to a close, new computer technology became the sine qua non for prosperity and growth in the newspaper business around the world. In the early '80s, the excitement surrounding new publishing technologies was so mesmerizing that it drew professionals (including me) from the newspaper business into new careers with companies that supply publishing technology.

For most of the '80s, smart money could reap instant paybacks on investments in technology by eliminating labor overhead with new pre-press production systems (especially in Europe in the late '80s). Sometimes an ROI for a "back-end" (boiler room) production system could be realized in just a few months, through savings in materials costs alone.

Newspapers moved like pioneers in a gold rush. Some moved better than others, but they all moved, and without hesitation.

Equipment suppliers, key participants in all this, provided the technology necessary to reach the pot of gold at the end of the proverbial rainbow. Like the newspaper companies, the supplier companies enjoyed healthy financial returns.

For a while, it looked like a pretty good business-to-business relationship, to the mutual benefit of newspapers and suppliers. Newspapers became state-of-the-art information providers, while many of the suppliers established prominence in the high-tech domain of the publishing industry (some even became public companies).

In fact, the situation looked so good as the 1980s progressed that industrial giants like Kodak, Du Pont and Fuji decided to get involved by acquiring many of the companies who supplied technology to newspapers.

As the '80s came to a close, the relationship between the newspaper industry and its technology suppliers began to take on a new profile. What industry pundit Jonathan Seybold coined as the "fourth wave" became widely heralded by the techno-brain trusts at newspaper companies as the long-awaited change that would yield the next big wave of profits from technology.

The fourth wave's inexpensive shrink-wrapped software that could run on PCs and Macs would allow newspapers to eliminate the overhead expense of software and hardware maintenance contracts they kept with their suppliers.

Fourth-wave -- desktop -- computing technology would mean no more six-figure investments with the traditional technology suppliers and, the believers and buyers thought, bigger returns on smaller investments.

The impact of fourth-wave technologies (Macs, PCs and the long list of desktop shrink-wrap software packages) turned out to be fatal for many companies whose livelihood came from supplying technology to newspapers. A major reason for this was their unwillingness to accept desktop publishing solutions by integrating them into their product lines to create value-added solutions.

In 1987, about 35 companies supplied systems to the newspaper industry. At the end of 1990, there were fewer than 10. And today, the landscape of the supplier community has changed. The healthy companies are those who provide application software solutions to multiple markets, not just newspapers.

One-stop shopping for newspapers' would-be buyers is a thing of the past.

Self-fulfilling prophecy
The mentality of the newspaper buyer community contributed greatly to the fourth-wave demise of technology suppliers. Virtually all newspapers that grasped at shrink-wrapped straws had one idea in mind:

Interim solution.

Newspapers have been surviving off interim technology solutions for more than five years. I wonder how many of them can look back and say that they are better off financially and operationally for having done so -- versus having made an investment five or six years ago to acquire a turnkey solution from an established supplier.

It's ironic that the biggest complaint I heard on the floor at NEXPO '96, the technical exposition last June in Las Vegas, was that shoppers couldn't find anything to meet their need for a new classified advertising system.

It's ironic, because at the turn of this decade, a buyer mindset took hold: "Don't spend money with the traditional suppliers ... wait and watch ... don't make any hasty moves ... the classified ad systems being offered by the suppliers have no ROI ... it's just a matter of time before I'll be able to find a shrink-wrapped solution. ..."

Moreover, the economic and social conditions prevailing at the beginning of the 1990s led most newspaper companies to believe that they needed to learn to do more with less.

This has certainly come to pass as a self-fulfilling prophecy. Now, without careful implementation of new technologies, replacing legacy systems with solutions that offer less functionality -- especially for ad order entry and production -- will take a financial toll that won't be realized until it's too late to compensate.

For example, if a system doesn't have the capability to perform precision pricing for multi-product, zoned edition classified advertising, you can't sell it the same way you used to. Some suppliers may not be able to sell one at all.

This is just one example of fallout from the demise of many companies who supplied technology to newspapers.

Similarly, it's painfully clear to existing technology suppliers who want to survive and grow that they have to provide products that can be marketed to more that just the newspaper industry. It's possible, then, that newspaper-specific software applications could become almost unheard of.

A super growth spurt could change this, but right now, with annual revenues of about $45 billion, the entire newspaper industry has an annual income about equal to that of Du Pont. It might be appropriate for newspaper suppliers to start looking at the newspaper industry as one of several customers.

Having said all this, the suppliers are still beating on the doors of the newspaper industry, and newspapers are still calling their suppliers. Competition between suppliers is as relentless as ever.

The sales cycle is also longer than ever, and it's in the mutual best interest of newspapers and suppliers to change this. The process of budgeting for capital equipment should be Priority 1 for the Newspaper Association of America and the National Newspaper Association, as should an industry-wide discussion of how to shop for technology.

These issues are so important that they should set the agenda for NEXPO '97.

Aside from people, technology is the most important investment a newspaper can make to protect and expand its business. If you don't have the right people shopping, you won't end up buying the best solution for your business, or you'll buy nothing at all -- thereby prolonging the problem and compromising the position of your business.

Macintoshes aren't apples
Shopping for technology is like shopping for fresh produce: You've got a serious problem when your buying cycle exceeds the shelf live of the product.

This needs to change. Find the right people, hire them if possible, pay them well and get on with it. Get the technology you need now to get your business to where you want it to be two to three years from now (or don't, if you're eyeing the exit ramp). Otherwise, if you're a newspaper today, your business will have the longevity of a snowmobile franchise in Florida.

Right here, right now, we are witnessing conflicting visions of what the outlook is for prosperity in the newspaper business. Let's cut to the chase.

Pick up any trade publication (there are five that are national and newspaper-specific) and you'll find that everyone's talking about the Internet and not much else. A 1996 study, conducted by American Opinion Research (AOR) in cooperation with the Foundation for American Communications (Facs) and sponsored by Hearst Newspapers, found a 50-50 split among 888 publishers, ad and marketing directors and editors polled across the country on the subject of the Internet: "On-Line: Will it Hurt or Help Newspapers?" (It's available free on the 'Net at http://www.facsnet.org/top_issues/state/main.HTML.)

This study is revealing in that remarkably, only 10 percent of those polled think the Internet will offer advertisers more options and will help build new advertising revenues. And a mere six percent think that the Internet will actually "provide" more options to advertisers.

Hello?

I know where I'll be when the other 90 percent are wondering where their ad dollars went -- I'll be marketing technologies to the businesses that pirated those dollars.

If cost is an issue, think about hiring a college intern to put your on-line products together. Some companies have found that there's a lot of good original talent available for a very reasonable price.

Consider buying the technology you need to put out an electronic edition on a daily basis. Some persistent shoppers are finding technology solutions that make it possible to produce both a print and electronic edition every day -- without having to expand their production operations. This can sometimes be accomplished with the right automation technology (shovelware) and the proper systems integration work -- sometimes, not always.

For most newspapers, the cost isn't prohibitive. The bigger you are, the more it costs; the smaller you are, the less it costs. Having the right people onboard helps keep costs down; again, find the right people, pay them well and get on with it.

If you already have good technical people who need some training in this area, I recommend contacting the Poynter Institute (http://www.poynter.org/poynter). It has a good program lined up for 1997 that focuses on technology as it relates to on-line publishing.

If you don't run your business based on a strategic plan for both print and electronic publishing, you may be vulnerable to major hits by entrepreneurial on-line enterprises. It might be a good idea to start thinking about adopting some kind of program.

Otherwise, keep your eyes open. One of the first signs of ad dollar attrition will be visible when the local Multiple Listing Service suddenly controls all the real estate advertising you receive -- which you will have to fetch by visiting http://www. ...

Automotive advertisers already are going a similar route in some metro markets.

Don't hesitate
Whoever controls the data, controls ad production and trafficking. Get control of your advertisers' data.

The surest approach to doing this is referred to as "advertiser automation." Sell your major accounts on the idea of producing their own ads by using technology you provide.

Why spend money to automate your advertisers? You'll get a lock on all the advertising data from each of your biggest advertisers. (And since they'll be doing all the ad production work, you'll no longer be liable for make-goods and credits!)

This is just one more no-brainer where technology is at issue today.

Another one is this: He or she who hesitates now, loses later.

If you take 12 to 18 months at this point to pick and choose technologies and suppliers -- to pull together an on-line media enterprise -- to parallel your print products, the amount of ad dollars that will be sucked up by competitors in the interim may very well exceed your entire technology investment -- if and when you get around to making it.

If you're going to move at all, move now, and move as fast as you can. The clock is ticking.

One thing leads to another: Newspapers will need multimedia advertising sales tools to sustain the on-line activities they undertake. Selling print media advertising with printed materials works okay, but try selling multimedia ad space using printed collaterals.

The rest of the industrial world has been referring to high-tech tools that facilitate the sales process as "sales automation systems." Here's an idea whose time has come -- more time selling, less time pushing or waiting for paper in the office.

This is another no-brainer, but the problem is, too many ad sales representatives don't know how to operate a laptop computer, and for that matter, don't want to learn.

The bottom line: Find the right people; pay them well.

I've passed through that crossroads I previously mentioned and I'm still on the road. As the record shows, exit ramps are not a part of my professional repertoire.

I see a bigger and better newspaper business on the horizon, and on-line publishing will help make it happen. As a supplier, so will I.

But newspapers and suppliers need to start all over. A completely new relationship must be cultivated. Let's synchronize our watches and kick off a new ball game.

For starters, I recommend abolishing the request-for-proposal process, the selection committee and the on-site demo. Instead, let's have newspapers tell the appropriate suppliers what it is they want to accomplish, what their objective is, or what problem they want solved.

After a face-to-face or phone conference to discuss the situation in detail, the supplier should respond with (or without) a proposal. If product demonstrations are subsequently required, buyers should visit the sellers.

The purchasing decision can't be the result of a democratic process. Top -- not middle -- management should be accountable for that decision, and it should make it in a timely manner.

Figure out how to cut the shopping and buying cycle down to three to six months, and do it.

OK, I'll forget about my pipe dream, if you forget about yours. Like the man in the Midas muffler shop said: "You can see me now, or you can see me later."

-- Michael Tucker

Gannett Media Technologies International,
(513) 665-3777,
e-mail: info@gmti.gannett.com

From THE COLE PAPERS, January 1997, Copyright © 1997, All Rights Reserved.