No media business should look at its revenue streams in isolation. That's the message publishers can take from a new study into how Craigslist destroyed US newspapers' once highly profitable classifieds businesses.
To make sure media business aren't similarly caught in future, they should realise that disruption to one part of your business will have knockon affects on the rest, according to the study from Robert Seamans at New York University's Stern Business School.
The big scary headline figure from the study is that local newspapers lost $5 billion in revenue between 2000 and 2007 as a result of Craigslist's entry into the market. We all know this story, and report author Robert Seamans tells TheMediaBriefing that despite price movements, there was no hope of a fightback in the end:
"Local newspapers did respond appropriately after the fact. They moved very quickly to cut ad rates - within a year they increased prices. [But] there's no question the old school classified ad businsess local newspapers relied on is dead."
Local papers dropped their classifieds pricing by more than 20 percent in a bid to hang on to their market share - but what the price decrease did to the rest of the business is the interesting bit. The knock-on affects were huge - and not entirely negative....
And the reason for these knock-on affects? US local papers were subsidising their subscriptions/cover prices to increase what they made from classifieds.
To somewhat oversimplify the study's narrative, newspapers found the amount they could make from classifieds dropped over time, so in response they increased prices, which led to a drop in circulation, which led to a drop in display ad rates.
The study also found those papers most dependent on classifieds were slower to put content online, in part to avoid cannabalising what print classifieds business remained.
This has wider implications, because all media platforms involve these multi-sided relationships. Seamans says:
"Think of the newspaper as a platform that connects different sides of a market - classifieds, display ads and customers. Things [such as Craigslist] affect one of those sides, but you can’t just think about that in isolation. It has these spill over affects to other sides.
"Historially it has been really profitable to have this type of set-up, where you underprice on one side because you more than make up the money on that side. Video console manufacturers do the same thing. I don’t think it is possible to undo that and it’s also not clear whether it would be a good thing.
"All media should think very carefully how the different sides [of their business] are interlinked with each other."