Maybe Newspapers Don't Belong Online


We’re not convinced the best way newspaper companies such as Hearst, McClatchy and A.H. Belo can serve their various private and public shareholders is to try and win the online advertising game.

Usually here is where we say newspapers need to try charging for access to their content. But this time, let’s explore further.

In our story about investors who wanted to take the Seattle Post-Intelligencer and its costs off parent-company Hearst’s hands, we relayed the argument that instead of wasting capital trying to innovate online, maybe newspaper companies should pare down to their remaining profitable papers and funnel their earnings into a nice fat dividend.

After all, manufacturing newspapers is the newspaper companies’ core competency; solving the online advertising problem is not. We noted that Earthlink is doing something similar in the Internet-service provider business.

We asked “Did any of the railroads manage to become profitable airlines? No.”

Since then, an investor pointed us to a white paper from the Mitchell Madison Group’s Arnon Mishkin that seems to support part of our argument — that it’s at least worth considering if the best place for newspapers might not be online.

Here’s our favourite bit:

The conventional wisdom is that all media companies need to figure out how to take their business model and transform it to the web – Almost all of them have heeded the late Harvard Professor Theodore Levitt’s famous lesson of what killed the railroads: “They thought they were in the railroad business, not the transportation business.”  But after 10 years of following Levitt’s advice, it’s not at all clear that the traditional media model works on the web.

There is also the possibility that the web will not be a place where content will create sources to be viable on the web. value.  In fact, there’s just one unfortunate thing about Levitt’s compelling mantra about railroads and the transportation business. 

It’s wrong.

Transportation may have been a wonderful business on rails and sea, but it has proven a dreadful business in the air.  Even today, the market cap of Burlington Northern is $22 Billion; the market cap of Carnival Cruise is $14 Billion while the market cap of American Airlines is less than $1.5Billion. The railroads may have done many things wrong, but avoiding the airline business was not one of them.

Read the entire white paper (.PDF) >

Photo: Matt Callow

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.