Sometimes innovation is not enough

For a brief period of time, I had the opportunity to see Knight Ridder corporate from the inside. I managed KRI’s venture capital investments in the form of Knight Ridder Ventures from 1997 to 1999. At the time, KRI was two cultures, 99% newsprint and 1% HTML.

Tony Ridder became CEO, several years before my arrival and began a program of shedding non-newspaper assets. The team running KRI were, by and large, very talented people and the most ethical group with whom I have ever worked.

Turning KRI into a ‘pure newspaper play’ made the business more comprehensible to Wall Street, but it didn’t make it a better business. By 1997 it was clear that that a meteor had it the Earth. It turns out that being a dinosaur was the fatal choice, not the decision to run once it hit.

The real irony of this situation is that for 15 years KRI was, by far, the most innovative newspaper company in the country, including its early experiments in teletext and having the first online newspaper (the Mercury News on AOL in the mid 90s).

As I have written elsewhere, the Web presented a double whammy to newspapers everywhere. KRI was especially susceptible to these issues because its circulation was concentrated in metro markets like the Bay Area, Miami, and Philadelphia — markets where Internet penetration and usage of online services are highest. That makes it the first high profile victim, not the last. Local and rural newspapers see the writing on the wall, albeit faintly. But the effects go well beyond newspapers and even magazines.

The traditional advertising supported media model is based on bundling content with advertising, with a large helping of proprietary distribution infrastructure. The entire media value chain is being reconstructed with the “help” of online. Social media are re-defining content. Advertising networks are re-defining revenue generation models. Blogs are redefining the concept of “editorial brand” in media.

The fatal flaw of the online newspapers has been to be newspapers, online. This is obvious to everyone. What is not obvious is what local newspaper companies can do online that is defensible. Online local aggregation is kind of an oxymoron. It can be done more efficiently on a national scale, as Craigslist is proving.

Perhaps Craigslist holds a model for what newspapers become – a series of specific unbundled “newspaper-like” services, but done with community-generated content and executed on a national scale. Cross a Craigslist community model for local content creation and an Ebay-like reputation mechanism and you have a pretty good proxy for local news gathering. What’s missing are the editorial and investigative functions, but the blogosphere suggests editorial chaos self-organizes with some voices louder than others. Like most creative destruction, it is much easier to imagine a new entrant doing something like this than an established newspaper company.

I especially would not like to be a television network executive these days. The rise of YouTube and the 100 other video-sharing sites represent a similar unbundling of entertainment and advertising delivered in a low cost distribution channel. The impact of cable on the fragmentation of the TV audience is nothing compared to the explosion of Internet video. If they think “Well, the quality of Flash movies is lousy. We have time,” they are wrong. They only have Internet Time. The executive team at KRI thought newspapers would be around for 20 more years, despite declining circulation. And they likely will, just not KRI.