Sunday, May 29, 2011

Newspaper Industry: Comeptitors, Options Everywhere

Reading “Competitor Analysis: Understand Your Opponents” and Ramesh’s analysis of The New York Times new take on an online pay wall got me thinking about the newspaper industry, my industry. I haven’t applied Porter’s “Five Forces” model to it until now, and the picture isn’t pretty.

1. Threat of new entrants – Extremely high. Online, hyper-local news providers such as Patch.com and others are new players in many media markets of all sizes, including Pittsburgh. Content is often free. Costs are kept down by hiring recent college graduates and producing only online, not print, content.

2. Bargaining power of customers – High. Individual readers can choose to read online content for free at most newspapers instead of paying 50 cents to $1 for a newspaper. Large advertisers – another type of customers – likely have a great deal of power to bargain.

3. Threat of substitutes – Extremely high. Most markets have multiple news sources. Many people are content to seek news from TV stations or national publications. Even those who want focused, local news from print publications have more than one option (business journals, magazines, competing newspapers).

4. Bargaining power of suppliers – Fairly low, and I think the inability for most newspapers to come up with a way to charge for online content proves that.

The biggest takeaway for me from the competitor analysis article is the competitor positioning map. I think it’s an excellent, visual way to show what segments of the market your competitors have staked out. It’s a helpful, back-of-an-envelope way of showing a particular industry’s current universe of competitors and strengths. But why not also analyze the failures of former competitors? I think it’s something the article leaves out.

For example, Best Buy, the leading electronics retailer, is tweaking its traditional “big box” story business model so it won’t become the next Circuit City (Ref 1), which went bankrupt and no longer exists. According to the Associated Press, Best Buy has announced a plan to reduce the size of its big box stores by 10 percent, which will eventually generate $70 million to $80 million in savings. It will also create hundreds of mini-stores in the U.S., which apparently have produced better revenues. Best Buy will also try to offer more to online customers as online shoppers are a fast-growing segment of the electronics retail market. For a company as big as Best Buy, it’s a pretty substantial shift in strategy and seems likely to pay dividends down the road. If it weren’t for the failure of Circuit City, I wonder if Best Buy would have been motivated to make such changes.

References: Ref 1: http://www.dailyherald.com/article/20110414/news/704149875/

http://www.minnpost.com/johnreinan/2011/05/23/28540/patchcom_is_growing_fast_in_minnesota

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