A publisher’s most excellent adventure in hardware business. Not.

pin.pngFrom Fortune‘s Hearst to launch a wireless e-reader:

Against a backdrop of plummeting ad revenue for newspapers and magazines, and rising costs for paper and delivery, Hearst Corp., is getting set to launch an electronic reader that it hopes can do for periodicals what Amazon’s Kindle is doing for books.

According to industry insiders, Hearst, which publishes magazines ranging from Cosmopolitan to Esquire and newspapers including the financially imperiled San Francisco Chronicle, has developed a wireless e-reader with a large-format screen suited to the reading and advertising requirements of newspapers and magazines. The device and underlying technology, which other publishers will be allowed to adapt, is likely to debut this year.

hearstcorp.png

What could be the business model here for a content creation/media distribution company like Hearst?

What Hearst and its partners plan to do is sell the e-readers to publishers and to take a cut of the revenue derived from selling magazines and newspapers on these devices. The company will, however, leave it to the publishers to develop their own branding and payment models. “That’s something you will never see Amazon do,” someone familiar with the Hearst project said. “They aren’t going to give up control of the devices.”

By now, you might be thinking what does Hearst know about hardware?

A decade ago, Hearst invested in E-Ink, the company that supplies expensive screens to the current crop of e-readers like the Amazon Kindle and Sony PRS-700 Reader Digital Book.

The urge to cross over core competencies into unchartered territories is a disease that has often caused acute problems for many well-known companies. Microsoft, the diva of cross-dressers, has tried everything from cable programming to online publishing. Best Buy, Wal-Mart and Virgin thought they could be online music giants. Prada and Ferrari pretended they know how to design consumer electronics.

And now Hearst, a media publisher apparently with more money to burn than hardware chops to show for, is out to demonstrate what happens when a company can’t summarize its business model in 5,000 words. You thought ‘synergy’ was dead after it was brutally strangled by Sony after an intense, decade-long effort?

10 thoughts on “A publisher’s most excellent adventure in hardware business. Not.

  1. The large print publishers have a good grounding in information design and usability, quite necessary for the transition to E-reader devices. It’s entirely appropriate for the publishers to become deeply involved in the design, manufacture and distribution of these consumer platforms because the extant hardware industry has been moving too slowly to meet periodical needs.

    What hasn’t been sufficiently addressed is the future of the single copy sales business in a world where the publication is no longer a physical product.

    It should not be necessary to have a Kindle subscription or an iTunes account, or any subscription at all, to purchase a new single copy of a magazine or newspaper that interests you.

    With wireless technology the newsdealer or bookstore can deliver your purchase almost instantly to your device. But the periodical distributors and retailers are not structuring themselves for this opportunity.

  2. Jerry Leichter: “they at least have the ability to recognize an opportunity, an opportunity that’s at direct odds with the way they’ve traditionally worked.”

    Of course, recognition is the first step, but not a sufficient one, as you suggest.

    For example, I know a few executives in the music industry in New York, some former clients. They do understand what’s going on. They do recognize what they lack and what they should perhaps be doing. But they have had a very comfortable life based on 30 years of working in a certain way, that has become for them a way of life. There’s no way they are going to change so close to retirement. Not on their watch. And so it goes.

  3. Ziad: “Whether or not a publisher owns capital equipment like printing presses to execute its publishing business is not relevant to whether they can switch to providing consumer electronics.”

    Why not? It’s not their wish to switch that I’m questioning, it’s their ability to do so that’s in question.

    Microsoft, for example, just doesn’t have in its DNA the creative ability to profitably sustain content creation businesses. It has failed miserably so far and, until a massive management change, will continue to bomb in the future. That doesn’t mean for instance that MSFT couldn’t have benefited from a more vertically integrated hardware+software+service approach in digital media, but it simply couldn’t pull it off after repeated tries.

    Many in the handset manufacturing business are also finding out that it’s simply not enough to manufacture gadgets to be successful in the smartphone business. It takes the combination of factors I wrote about last year.

    Likewise, Hearst may think that it’s not in newsprint publishing, but in content creation/distribution business. Unfortunately, it has no experience in the hardware business it wants to switch into.

    So, yes, like the proverbial “railroad companies didn’t realize they were in the transportation business, so they lost to the airline companies” wisdom, it’s good to know what business you’re in. But that says nothing about your ability to execute on that recognition.

    When Hearst puts together world-class teams for hardware, OS, application and UI design, component sourcing, resource management, online store, QA, etc., I’ll take it seriously. Until then it’s wishful thinking, like so many others.

  4. Just what is it that makes a company capable of providing consumer electronics? Sony was seen as a great example of such a company for 40 years. Why did they prove so singularly incompetent at understanding what it would take to compete with the iPod – a product that is an evolutionary development of a product category that Sony itself created with the Walkman? Conversely, who would have guessed that Apple, an also-ran in the computer business for years, surviving at the time on products aimed at at design professionals, would come so quickly to understand how to produce a mass-market product and a whole eco-system around it?

    This whole notion of “core competencies” explains way too little. Just as the really successful companies take what “everyone knows” is a commodity product and somehow get a large premium for their version, so they also miraculously are found to have, somewhere hidden inside of them, just the competencies needed to succeed in new areas. Again, look to Apple for obvious examples of both.

    In fact, I would argue that what makes for successful, innovative companies is exactly the ability to recognize opportunities others don’t just miss but positively dismiss; and the ability to remake themselves to the realities surrounding those opportunities. There are “core competencies” here, but they have *nothing* to do with straightforward issues like “knowing how to build hardware”.

    Is Hearst capable of this kind of adjustment? It’s unlikely – very, very few companies are – but what their effort does shows is that they at least have the ability to recognize an opportunity, an opportunity that’s at direct odds with the way they’ve traditionally worked. That’s a *huge* first step. Maybe it doesn’t head in the right direction; maybe they can take the first step but not the second and third. But at least they aren’t sitting there in the middle of the road, waiting to be squashed flat.

    — Jerry

  5. For other failed efforts at synergy in media and content, see AOL Time Warner.

    Jerry and Kontra missed the point a little on publishers in the “hardware business”. Whether or not a publisher owns capital equipment like printing presses to execute its publishing business is not relevant to whether they can switch to providing consumer electronics.

  6. It seems obvious that Hearst is just taking a shot here but I agree that it’s likely to fail. The reason behind “the shot” is given away by the single angry statement that was “leaked,” and that Kontra highlighted in the quote above.

    Amazon controls the Kindle and if someone doesn’t come up with an alternative, they could conceivably lock up the (supposed), emerging market. I don’t know much about this market, but I would think it likely that various other private attempts both to lock it up a la Amazon, or open it up a la Hearst, will come and go to some degree.

    Eventually, a company that actually knows how to design consumer products well and has a lot of experience in electronic media distribution will probably launch a sort of category killer device that will take over the market. Gee, I wonder who will that be?

  7. Jerry Leichter : “Publishers have *always* been in the “hardware” business”

    You’re confusing some but not all newspaper publishers who own their own printing presses with all publishers. If you look at a diversified media/publishing company like Hearst, you’ll see that a lot of their content is manufactured by (outsourced) third party printers and disseminated by (outsourced) third party distributors. Not many content providers are in the printing and distribution business by way of owning their own physical plants.

    “Almost everyone has advised them “forget the technology, be a content provider”- and it isn’t working.”

    Clearly. But what I’m arguing here is that whether they recognize this or not is not the issue. What these companies utterly lack is any expertise in designing, manufacturing and marketing electronic devices in a way to profitably couple them with their own media assets. The canonical example is Sony, the one I mentioned above. Sony, which has more hardware expertise than any other media company on the planet, spent nearly two decades chasing after that illusory synergy. The results have been disastrous.

    “There really is no good equivalent for the old paper distribution mechanisms yet.”

    Many believe the problem with newspapers is not (just) the print vs. electronic issue, but how to gather news, staff the operation, edit, engage readers, etc.

    “Now, whether they’ll actually get anywhere, I don’t know.”

    I am willing to bet this Hearst effort will fail.

    “Companies *have* managed to successfully make major changes in direction – but it’s rare.”

    Exceedingly rare. And none in this arena.

    “The economies of scale are only there as long as you can use DRM and draconian laws to maintain your old business models.”

    Which is becoming unglued. Hence, the drama.

  8. Publishers have *always* been in the “hardware” business. What’s a printing press, after all? Who else owns and operates high-end, high-speed printing presses? Newspapers have also traditionally owned their own distribution mechanisms – trucks, home delivery agents, etc.

    Now, granted that what Hearst is trying to do here is different. But you need to be careful how you define “the business” that newspaper/magazine publishers are in. For the last decade or so, we’ve been defining them as “content providers”. Hell, *they’ve* wanted to define themselves that way. But historically that’s *not* what they were. Yes, they hired or paid the reporters and writers – but what really defined them was that they *had the delivery mechanisms*. And what’s been killing them is that the Internet provides entirely new delivery mechanisms that are orders of magnitude cheaper. Almost everyone has advised them “forget the technology, be a content provider”- and it isn’t working.

    Hearst is recognizing a need here. There really is no good equivalent for the old paper distribution mechanisms yet. I read a ton of news on line, but I still get my NY Times and Wall Street Journal on dead trees, because reading a long article on my laptop just doesn’t work well. (Also, the paper is much more flexible and much lighter.) The technology is getting tantalizingly close. In theory, Hearst (and other publishers) have years – hundreds of years! – of experience in how to produce reading material in a form and format that people are happy with.

    Now, whether they’ll actually get anywhere, I don’t know. It depends on how seriously they approach the effort, how willing they are to let the actual reality of today and not the past they wish would return, actually drive them. Companies *have* managed to successfully make major changes in direction – but it’s rare. On the other hand, life as a “content provider” is probably not worth living, at least if you’re big. The economies of scale are only there as long as you can use DRM and draconian laws to maintain your old business models.

    — Jerry

  9. Berend Schotanus: “Everybody has a right to try and a right to fail.”

    And so publicly? :-) I’m all for failure by trial, as long as I don’t have to pay to bail them out.

  10. Well, at the heart of the Western freedom system lies that evertbody has a right to persue his own dream. Everybody has a right to try and a right to fail.

Comments are closed.