Tossed By a Gale

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By: Harsh Muchhal, MBA 4641-Strategy Dynamics.Page 2

TABLE OF CONTENTS:

1. OBJECTIVES 3

2. MODELS USED 3 - 4

a. The five force model 3

b. PESTEL analysis 4

c. SWOT analysis 4

3. INTRODUCTION 5

4. INDUSTRY HISTORY 5

5. STRATEGIC ANALYSIS OF THE INDUSTRY 6 - 8

a. The five force analysis 6

b. Trend analysis 7

c. Threats and Opportunities 7 - 8

6. CONCLUSION 8

7. REFERENCES 9




OBJECTIVE:

To access the external environment for the newspaper industry and evaluate the industry prospects

for the future.

MODELS USED:

1. Porters five forces model: Michael Porter in 1979 proposed five forces model to determine

the factors that influence the attractiveness of an industry. An attractive industry is that in

which the five forces acts together to increase the profitability of the industry and vice versa.

The diagrammatic representation of his model is as in Fig.1 and Fig 2.

Figure: 1




Figure: 2

2. PESTEL Analysis (Trend analysis): Pestel stands for Political, Economic, Social, Technological,

Environmental and Legal factors that affect an industry. It is a strategic model that is often

used to evaluate and understand the growth or decline of a business. It evaluates all the

factors that may affect the industry. It is summarised as in Fig 3.

Figure: 3

3. SWOT Analysis: It is a tool to determine Strengths, Weaknesses, Opportunities and Threats

to an industry. It is used to understand both Internal and External environment of an

industry. Fig 4 shows its value in situation analysis.




Figure: 4

INTRODUCTION:

Tossed by a gale is the story of the current situation about the news industry. The newspaperindustry is going through the dreadful financial trouble. The newspaper is now sometimes seen as

‘endangered species’. The employment in the industry has fallen by 15% in last two years. A number

of British local newspapers have shut in last three years. French newspapers have survived due to

high government subsidies. This situation is not only restricted to the newspaper industry, but to

the news industry as a whole. The television news channels are struggling because the audience has

divided. The number of people listening to radio news has also decreased. According to survey, the

percentage of people reading newspaper has decreased by more than 24%. Also number of people

who prefer to get their news from internet has increased surprisingly in last five years. Although only

a fewer number of this gets news only from internet however others prefer to read newspapers too.

The internet has given the readers an advantage of searching for only the required news. For

example, someone who is interested in business need not look through sports, local or weather

news (The Economist, 2009).

INDUSTRY HISTORY:

The newspaper industry has seen ups and downs in history. The first time industry had for face a

downfall was when radio was invented. And second when television was invented. Hundreds of

newspapers came to an end and many journalists and editors lost their jobs. In fact Radio was the

first segment of media to understand the profits through advertising. With the market of television

the newspaper industry faced another downfall as news through television became moredominating. The revenues through newspaper adverts again diminished significantly when TV

adverts became more dominating and nationalised (The Economist, 2009).

HOW DOES THE NEWSPAPER INDUSTRY LOOK LIKE:




Figure 5

The above drawn is the external environment for newspaper industry. The main suppliers of the

content are Journalists, adverts, photographers, speakers etc. All the people are the target

customers. Its competition lies in the options from the same strategic groups, substitutes and those

that complement eg Newspapers, journals, magazines, mobile phones, television, radio, aggregators.

STRETAGIC ANALYSIS OF THE INDUSTRY:

The most common axiom since early times in business is “Winning in today’s marketplace” (Fahey et

al , 2010). Although the external environment is not in control of an industry but an analytical

approach towards gives a better understanding of the market.

The five force analysis:

According to PORTER, there are 5 forces that govern the success of an industry. Following is the 5

force analysis of the newspaper industry.

1. Industrial rivalry: The more concentrated the industry is the more is the rivalry. The

competition to survival in this industry is between local newspapers, national newspapers

and magazines like The week, Time, Readers Digest etc.(Isaacson, 2009) Even though the

products like local newspaper covers a small market or geographical area, summing them up

would bring in the actual figures. This sector has diverse competitors. There are many

newspapers wanting to capture the same market which has increased sensitivity in the

market. Lowering the prices resulted in decreased profit for the industry.

2. Substitute: A number of substitutes are now available in the market. The growing

technology has taken place of newspapers. The young generation is apt to use the new

technology. In history, radio and television had brought downfall to the newspaper market.




Products like iPhone, blackberry, and iPad are the recent ones. Why should one look at every

news if he can search the specific one over the net? Internet is one of the major sources

where youth wanders for news. A lot of newspapers have started publishing their work

online which is mostly available to the readers for free. However a few of them charge for

the news. Also the available substitutes are multitasking and hence have made its market.

3. Buyers power: Buyers play an important role in deciding the success of newspaper industry.

They have a choice of wide variety of newspapers, magazines and other substitutes like TV

news, radio news, internet and also aggregators. A few of them are available for free.

Availability of choices resulted in lowering of product prices and so the profit. There are

minimal switching costs resulting in division of audiences.

4. Threats of new entrants: The threats of new entrants are very low as the fixed costs are high.

Low profit margins often repel the investors. The legal system of a nation is usually a barrier

for such sectors. Also factors like per unit cost and cost when printed in large numbers do

not appeal to investors. Also, it will not be easy for a new entrant to access the distribution

in accordance to printing costs.

5. Supplier power: In this industry, suppliers of news are not very much in power. A few

companies hire only few journalists for the task and some encourage coverage by general

public. Aggregators in this case seldom hire a journalist and still offer the most interesting

news to its readers. Also a number of suppliers have lost their jobs during the downfall (The

Economist, 2009).

With the ever changing era of technology, there has been a shift in the type of customers to the

industry. Mostly youth is not interested in any king of news except what is called red hot topics. Andthe elderly age group is interested in politics or sports leaving working people who is more

interested in financial situation of a company, country or world as a whole.

How attractive is the industry? – Trend analysis.

One of the major tools helping us analyze macro-environment is Political, Economic, Social,

Technological, Legal, Environmental analysis. It helps us understand market growth/downfall,

potential and position. The roles played by above situations in newspaper industry are as discussed.

1. Political Situation: The tax policies, labour law, trade restrictions etc have intervened into

this industry making it complex. Tax benefits that news industry is getting make it an

interesting one however the restriction on active geographical areas restricts the

opportunities in the industry. For example the French newspaper industry is alive on

increase in their government subsidies (The Economist, 2009).

2. Economic Situation: However the bane of the industry and ebbing in revenues through

adverts cannot be entirely blamed onto the recession, however, its effect on the industry

can be directly seen.

3. Social Situation: Although the population has increased significantly in last years, part of it

reading newspaper has significantly decreased (Isaacson, 2009). The majority of the youth is




either not interested in news or has another way to look for it.

4. Technological Factors: The elevation in technology has provided options for the customers

to buy an iphone or a TV and make things simpler. They can look for specific news on the

internet and save time as well as penny. Internet provides with diverse and international

news. Aggregators like Google and yahoo collects the best news from the word and makes it

available online. There are often the “parasites” to the industry but the quality of the news

is reliable (The Economist, 2009).

5. Legal Factors: The fact that aggregators use others works attempts to say that it is not illegal.

Such factors play an important role in determining its prospects. Also employment law etc

have had an impact on its stability.

6. Environmental Factors: By rule, newspapers are supposed to be printed only on recycled

paper in order to forfend global warming. This impacts to the quality of the paper. The only

option remaining is improving the quality of journalism and fruitful editing.

Threats and opportunities for the industry:

Threats to the industry: The trend analysis (PESTEL Model) shows that ever increasing technology is

one of the biggest threats to the industry. The splitting of customers has resulted in fewer customers.

Substitutes in the market like iPhone, Blackberry, Samsung Galaxy etc attracts its users as they can

seek for the specific kind of news in less time and also it is cheaper than newspaper. Poor quality of

journalism in newspapers and Issues of global warming repels its users. It has fixed costs and low

profit margin. Aggregators of news like Google and Yahoo are parasites to the industry. Decrease in

revenue generated through advertisements is one of the major threats to the industry.

Opportunities for the industry lie in implementation of micropayment systems so that the news is

available online and still the revenue is collected. Targeting the youth would result in increase in

sales. Current issues and strong journalism specific to a target group of people should increase the

opportunities. Skill usage of editors plays a major role in the decision making of its customers.

CONCLUSION:

The application of, Porters model, PESTEL analysis and SWOT analysis, it is clear that the industry has

a very little hope to survive. The collaboration of newspaper with technology would help the

industry to survive. It should not completely rely on advertisements as a source of revenue but alsoshould start charging its customers as The Guardian already does for its exclusive articles (Isaacson,

2009). The quality of journalism should have a direct impact on its sales. Reaching door to door

would increase the sales. Experts providing their view on current happenings would interest people.

Different people look for different type of news, so differentiation of customers can give a better

understanding. The youth is mostly interested in sports and glamour. A unique blend of these

targeting specific age/work groups would increase sales. The newspaper should be at times socially

responsible as it plays a vital role in building a society. Social issues etc as a supplement to the

newspaper could attract especially women and youth. Although the newspaper industry would

decline but not the news industry.




REFERENCES:

1. Liam Fahay and Robert M. Randall, 2010, The portable MBA in Strategy, 2nd

edition, John

Wiley & Sons Inc, New York.

2. The Economist, 2009, ‘Tossed by a gale’, 16th

May, pg 81-83.

3. Isaacson, 2009, ‘How to save your newspaper’, TIME , 2nd

March, pg 27-29.

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Tossed By a Gale