Perhaps golden ages always are this way: slow to take shape, suddenly glorious, then quickly over. It depends, of course, on what you mean by "slow" and "quick."
Richard Gingras, senior director of news and social products at Google (NASDAQ:GOOG), illustrated the point at Harvard University's Kennedy School of Government last spring with a story about newspapers. He had been among the founders of Salon.com, the Web's first strictly online publication, in 1995, Gingras said. He was often frustrated by overly romantic notions about the "exquisite beauty" of the newspaper business model. He continued,
Go back 75 years or longer, the newspaper business was a dog-eat-dog business, a very competitive business. The newspaper with the leading position in the market might do well. Number two and three might do okay, and everyone else suffered. But then something happened in the late forties that changed the world of newspapering, and that change was the introduction of television… and it very quickly, within a few years, took about fifteen percent of the advertising market…. That's a huge amount of money in a very short period of time, and interestingly, it took it all out of newspapers. It didn't take it out of direct mail, magazines, radio. It took it out of newspapers.
It[television] continued to grow; and so what you saw over the fifties was this progression that occurred so that what you saw was a contraction in the number of newspapers. In cities like New York, you had, depending on how you define what a newspaper was, more than a dozen, maybe two dozen newspapers. The average market had maybe five or six. But by the time we got to the early sixties, that went from five, four, three, down to two, down to one, maybe two in some markets…. And what happened then was that the guys who remained standing - from a democratic perspective this wasn't good thing because we had fewer voices - but from a business model perspective, for those who remained standing, they had tremendous power, near-monopolistic control over the newspaper ad market in those cities, and they took appropriate advantage.
The nature of the product expanded. We went from newspapers that had maybe two sections to newspapers that had life-style sections, food sections, garden sections, automotive sections on Saturday… a very wide assortment of products, largely driven by a very wise assessment that there were opportunities there. The ad sales department came to editorial and said, "You know, we could sell a whole lot of advertising to car dealers if we had an automotive section that wasn't just listings. It was very powerful, and so the newspaper developed as this all things to all people product in their communities.
That's certainly the way newspaper publishers remember it. Time's David von Drehle recalled last week the photograph, one of several in the lobby of The Washington Post building, of Eugene Meyer and his son-in-law, Philip Graham, beaming at the edition of their paper that reported the news of their purchase in 1954 of the Post's main rival among morning newspapers in the city.
That day in 1954 was the key to everything the Post later became, Don [Graham] told me one day about 10 years agowhen we bumped into each other in the lobby. Watergate, all the Pulitzer Prizes, the foreign correspondents, the celebrity columnists - all of it was possible because the patriarch and his son-in-law managed to lock up the morning.
The same story was repeated with minor variations in most other major cities across the country in those years. Afternoon papers shrank and disappeared in the competition with television for evening attention. General interest magazines declined, too, under the onslaught of new sources of news and entertainment. (they had enjoyed a golden age of their own since the 1920s - Colliers, The Saturday Evening Post, Life,Look, Holiday, Reader's Digest, Time, Newsweek.) But all the while proprietors of dominant morning papers prospered as never before - Sulzbergers and Pattersons in New York, McCormicks in Chicago, Chandlers in Los Angeles, Hearsts in San Francisco, Taylors in Boston, Coxes in Atlanta, Knights in Miami.
Starting in the early 1990s, the most prescient among these families began slipping out the door, often citing estate problems as the reason. William O. Taylor sold The Boston Globe to The New York Times for $1.1 billion. The warring Chandler clan sold the Los Angeles Times and four other major metropolitan papers to Chicago's Tribune Co. for $7 billion, in 2000. Anthony Ridder sold the 32 newspapers of the Knight Ridder chain to the McClatchey Company for $4.5 billion, in 2006. And in 2007, Rupert Murdoch bought Dow Jones and The Wall Street Journal from Bancroft family heirs for $5 billion.
In the next five years, major US newspapers lost something like ninety percent of their previous market valuation. A consortium of local businessmen bought The Philadelphia Inquirer and The Daily News for $55 million in 2012. Sports magnate John Henry bought The Boston Globe earlier this month for $70 million Last week Washington Post Co. (WPO) CEO Donald Graham announced his family would be selling the strongest metropolitan (as opposed to national) newspaper in the country to Amazon (NASDAQ:AMZN) founder Jeff Bezos in a private transaction for $250 million. The Los Angeles Times and Chicago Tribune remain on the block. New York Times Co. (NYSE:NYT) chairman Arthur O. Sulzberger Jr. said, credibly, that he and his cousins were not interested in selling.
What happened? Just like television, the Internet intervened. A completely new form of advertising, making bold claims for itself, appeared practically overnight in 2002.
But where television's claim on mindshare and the resulting advertising revenues that flowed to it unfolded over fifteen or twenty years, and was fairly widely understood, the challenge that search advertising has posed to newspapers is still not common knowledge. The stealth mode surrounding Google's public offering is, I think, largely to blame. I've read five good books about Google in recently years, four of them by veteran journalists - David Vise of the Washington Post (The Google Story: Inside the Hottest Business, Media and Technology Success of Our Time, 2005), John Battelle, of the late, lamented Industry Standard(The Search: How Google and Its Rival Rewrote the Rules of Business and Transformed Our Culture, 2005), Ken Auletta, of The New Yorker (Googled: The End of the World as We Know It, 2009), and Steven Levy, of Wired (In the Plex: How Google Thinks, Works, and Shapes Out OUR Lives, 2011)- and one by an insider, Douglas (I'm Feeling Lucky: The Confessions of Google Employee Number 59 ). All are good; each tells the story from a different angle; and, in general, each is better than the previous one (as you would expect with a breaking story). But none yet has told the story of the earthquake that took place in juxtaposition to those who were affected by it, the other claimants to the huge stream of advertising dollars - to newspapers, in particular.
Google was founded in 1998, when a couple of computer science graduate students, Sergey Brin and Larry Page, took leave from graduate school at Stanford to form a company to build out the search engine they had developed, which at that point as one of many. Less than a year later they raised $25 million from two leading venture capital firms in Silicon Valley, but a year after that they were still without revenues and beginning to run out of money. That's when they began to take a serious interest in advertising. And with a lightning series of innovations, and an unerring sense of business strategy, they turned their search engine into a high-torques money machine.
They weren't the first - Bill Gross, serial entrepreneur who has started an incubator company he called IdeaLab, had recognized the potential of Internet search to serve as an advertising vehicle and acted on it before anybody else - intention-based advertising, as Battelle puts it, as opposed to old-fashion newspaper content-based advertising. And Gross, a Caltech undergraduate, understood that nearly instantaneous computer-mediated auctions were the right way to sell ads, not one old-fashioned handshake at a time (after an expense-account lunch). Gross started GoTo.com, later renamed Overture, in hopes of turning his search engine into a universal Yellow Pages (remember them?)
But it was Google that figured out how to do it, by maintaining its focus on the desires of the searcher, and by rigorously separating its search results, based on web pages' popularity, from the ads it placed on the right side of each page. Advertisers bid for placement on pages produced by various keywords - relatively little for a search term such as "khakis," relatively more for, say, "used transmissions" - and paid only when the searcher clicked through. This was AdSense, one of the most successful product rollouts in history. And the next year the company turned the concept around, rolling out AdWords - a content-based advertising scheme designed to put a Google-mediated ad on any website, blog or catalog page that wanted one. "Here's the deal," the product manager would spiel to bloggers: "you take ten seconds to put a little snippet of code on your website, and from that moment on Google sends you a check every month." (It's a little like letting them paint an ad on your barn.)
Almost overnight Google was profitable; soon it was wildly profitable. It kept that fact under wraps, since secrecy is the only way to protect bright ideas in Silicon Valley, at least until you've built an insuperable lead - the "hiding strategy," chief executive Eric Schmidt called it. (Microsoft (NASDAQ:MSFT) is still trying to catch up with Bing.) Internet advertising, most of it Google's, reached $36.6 billion in 2012, according to the Internet Advertising Bureau. Meanwhile, total newspaper advertising fell to around $24 billion the year before, according to aPew Research Center report, or barely half of what it was for the seven years before the financial crisis of 2008. (The ensuing recession is part of the story, of course.) This is a much bigger hole in newspaper ad sales than than that 15 percent swing to television which sent newspapers into roll-up mode back in early fifties. But it the story so far has had little of the usual explication and analysis.
Clearly newspapers face a lengthy period of transition. The advantage will belong to those with the patience and ingenuity to manage the change. It is hard to quarrel with Graham's judgment in selling a business nearly as dear to him as his children. Bezos has deep pockets, four children, peripatetic curiosity, and a famously long view of things. If anyone can make something even larger of the tradition that the Meyer and Graham families and their employees built over eighty years, he can.
How? It is easy to doubt Bezos's intuition - that nobody will be reading printed newspapers twenty years from now (despite the fact he begins staff meetings with everyone reading six-page printed memos - see "The Ultimate Disrupter," a timely Fortune, by Adam Lashinsky, for details). Radio didn't disappear, and it seems highly likely, to me at least, that neither will newsprint, though surely it will be transformed. Newspapers are a network business, with powerful bandwagon effects, and therefore the New York Times' and The Wall Street Journal's prospects are good. Those that are big, in print and online, should become bigger.
So here's a prediction. Bezos will experiment with price. That word all but dropped out of newspapering's vocabulary during its golden age and still hasn't found its way back into most discussions. At some point, look for the Washington Post to cut its $1.25 street price to a dollar, or, conceivably, even fifty cents, and home delivery prices correspondingly, in an effort to increase penetration (as the measure of network strength is known). I know, this runs completely counter to every trend in the industry, but that is why Bezos' entry into the business is a good thing. If there is one thing the man who invented Amazon understands, it is scale.