Disruptive Technology and Local Media

This is a partial reprint of a landmark study that Borrell Associates conducted in 2002 and 2003 with Clark Gilbert, then an assistant professor at Harvard Business School and protg of Harvard Prof. Clay Christensen, author of The Innovator's Dilemma. Mr. Gilbert is now affiliated with Brigham Young University-Idaho. We are republishing portions of this report because it offers a poignant lesson today not only for it initial audience of newspapers, but also for local yellow pages publishers, broadcast TV stations and radio stations trying to tackle the Internet with existing management, content and sales personnel. The lesson is, they will fail.

The study was originally formed as an applied research project. It involved four major media companies with holdings in newspapers and television. The concept was to take the work on disruptive innovation pioneered by Mr. Christensen, study the patterns, collect data on how these media companies and others were pursuing Internet initiatives, and provide analysis. We wanted to know if these local media companies might be following the same patterns as other companies and, if so, what lessons we could teach.

The initial report, written amid a downfall in print recruitment advertising, predicted a continued decline for classified advertising, including the eventual downfall of automotive and real estate classifieds. Two years after the report was published in 2005, automotive advertising began to decline, and has been in decline ever since. Two years later (present day), real estate advertising has begun its nosedive.

The fear of the report appears to have already been realized. Despite smart management and a high degree of awareness, no company - including newspapers armed with this knowledge - has been able to achieve new net gain by tackling a disruptive technology with an integrated management approach. In fact, the newspaper industry has lost $2.6 billion in annual classified advertising revenue since its peak in 2001 on the print side, while it has gained about $1.9 billion in online classified revenue - for a net annualized loss of $700 million. We expect this annualized loss to increase to $1 billion in 2007. In the last quarter of 2006, all "Big Three" classified categories (automotive, real estate and recruitment) were in simultaneous decline for the first time. The decline deepened in Q1 of this year.