After establishing the early successes of Netflix, our class discussion switched over to Act II: Netflix trying to transition from its mail distribution of actual DVDs to streaming movies online (atoms to bits). This got me thinking, what other industries are firms making the very same transition from physical hard copies to digital versions of their product? My first thoughts: the newspaper industry. To start this post, I offer the following video, the most relevant part starting at 1:52:
As the video alludes to, revenues in the newspaper industry are dropping and the industry is cutting jobs. A lot of this is due to the fact that the newspaper industry has tried to adapt to the increasingly mobile environment, which is in a lot of ways similar to what Netflix is attempting to do. As people become increasingly mobile with smartphones and tablets, and spend more and more time using social media, newspaper companies have put more and more of their content online. One would think this would be successful: changing a product to better suit the customer. However the following graph suggests otherwise:
The drop in print advertising is not all that concerning because newspapers are trying to become more digital anyway. The real problem is that digital newspaper advertising is (no pun intended) at a virtual stand still. As Netflix found out, an “atom” based business model does not always perfectly translate to the bits world. Since there is so much advertising space online, the amount companies are willing to pay for ad space online is far lower than they were formerly willing to pay in the Sunday newspaper.
Over the last few years, we have seen the rise of competitors: purely online newspapers, the pure play newspapers. As we saw in the movie streaming industry, the costs for an exclusively online format is a lot cheaper, as there is a lot less cost of distribution and renting space. Additionally, having a product in atoms (whether physical DVDs or newspapers) is a lot more expensive than an online digital version, especially with the increasingly low cost of memory due to constantly improving memory chips.
However, as the video states, pure play online newspapers, like the Huffington Post, do not generate enough revenue (each online reader produces 16-20 times less revenue than a print reader) to provide the worldwide coverage that print and online papers, like the New York Times, provide. Thus, if the pure play format wins, our news will be not as comprehensive, in depth, and informative. So what is the solution? Many newspapers are starting to charge for online newspaper subscriptions. However, as stated in the video, the New York Times “thinks that approach will cut newspapers off from the global conversation.” How many people are going to be willing to pay for online subscriptions when more and more news is available on Facebook, Twitter feeds, and smart phone aps? This remains to be seen. But I ask all readers to answer the poll question, what the medium from which you get the majority of your news?
Is the newspaper industry in trouble? Much the same as Netflix, their ability to fine-tune their transformation from atoms to bits will tell the story.