Impact of the Internet: Newspaper Industry

BMGT 723
Electronic Commerce: Business Models and Technology
May 6, 2002

By:
Dipl.-Oec. Dan S. Cryns

The Impact of the Internet:
Newspaper Industry

Introduction

Internet commerce compounds the creative and destructive force of the Internet. There are innovations that make marginal changes to expand industries and others that create new industries while destroying old industries as well. As a result, some elements of that force have generated a significant impact upon the traditional newspaper industry. It seems fair to assess that those of the newspaper industry that strategically adapt will survive.

The Internet enables many-to-many commerce as opposed to traditional one-to-many commerce. In many-to-many commerce the roles of customer and merchant are fluid, people can be both producers and consumers of information (e.g. ′co-creation′ by submitting reviews at Amazon. com). This changes businesses   particularly information businesses. However, not only does the role of the press change but the identity of the press as well - any person can become an information provider. In contrast, in the traditional newspaper industry the roles and the identities of both the merchants and consumers are clearly defined.

Changes induced by the Internet

Even though the newspaper industry faced a lot of challenges in its history since the XVth century from disruptive innovations like Radio and Television on the one hand, and on the other from mounting economic pressure (e.g. decline in readership, rising costs for paper and ink) during the last decades, thus far it has survived. One reason newspapers have been able to do so has been their traditional and enormous advantage in their control over the production and distribution channels; that is, the ownership of the printing presses, delivery trucks, and the capital-intensive and expensive means of production. The barriers to entry have been high, and it has simply been just too expensive and difficult for others to enter the field.

But the emergence of online services and the explosive growth of the Internet, particularly the World Wide Web have changed all this. Now, one can be a publisher and electronically transmit information around the world not by investing hundreds of thousands of dollars or more in equipment, but by spending a couple hundred dollars, or less, with virtually no capital expenditures and spread this information at close to zero marginal costs. It has the potential of changing the cost structure of a newspaper, traditionally dominated by the cost of tangible elements such as paper and ink, and to greatly diminish the cycle time for delivering the news. Such changes motivate newspapers to compete in new ways: new strategic models include competition on speed, cost or differentiation.

The number of newspapers available on the Internet has been steadily growing over the past two years. According to Editor & Publisher Online Media Database, the number of newspapers in the world with an Internet edition was 5,000 in February 2002. In most developed countries, almost all of the major newspapers either have an online presence or are currently in the process of implementing projects for doing so. One important reason for this phenomenon is the exponential growth of the Internet, which turns it into a medium whose importance, cannot be neglected. Second, the habit of reading the news online appears to be an increasing trend, so editors are afraid that if they don′t go online as soon as possible, they will lose their readers to other competitors. Third, most newspapers can afford the initial investment required to set up an electronic edition, since most of the cost has already been invested to create the printed version (high fixed/sunk costs for producing the first copy). Finally, the Internet offers a variety of funding opportunities: subscription fees, advertising, pay per use, and can serve as a highly efficient medium for classified advertising, a major source of revenue for most newspapers.

The Internet′s Threat to the Newspaper Industry

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