Monday, October 6, 2008

Why the KC Star is doing something smart for a change

The KC Star has announced a price increase and it is making the rounds of criticism on the blogosphere especially by Blog KC and TKC. BlogKC writes about it here.

It might surprise you to think that I think they are both wrong in their assessments of the business sense of the Kansas City Star. Certainly it is easy to pick at The KC Star's bias, their crappy website, their lack of quality but this latest move is a good move for them....although not for you and me.

Tony quotes some self proclaimed axiom of business, "The best way to go broke is to gain a larger share of a shrinking business" or something to that effect. It reminds me of funny lines from the musical Gypsy from Momma Rose where she would always make up quotes and attribute them to the Bible like, "The good book says the good Lord helps those to help themselves". Except the bible doesn't say that but she believed it.

Let's all agree that Tony is not a business genius but he does have a nice blog. Do you know how many companies have made a fortune by gaining a larger share of a declining business category? Loads of them. There are holding companies that only buy businesses in declining categories. Let's talk briefly about the life cycle of a brand. Early on you invest in building the brand through promotion and advertising. When the brand is mature you make sure you are priced just high enough to get maximum return on investment asyou work to squeeze out as much competition as possible. At the end of the life cycle you harvest as much remaining profit as possible taking advantage of those who refuse to be early adopters of the next better thing. Early adopters still account for only a small percentage of the market. This is often a great time of profit for a company because they own and have paid for much of their equipment, have eliminated as many inefficiencies as possible (ie layoffs), and aren't looking to reinvest for the future in things like innovation and new equipment. They are riding out the wave and trying to cash in. This is precisely where The Star is today and the newspaper business in general. The USA Today took a price increase last year.

In addition, you know all those economists we see on TV talking about the economy and inflation? Inflation is real and it will be thing that hurts average America more than anything else over the next couple years. Everything costs more and get ready. Prices on things consumable are definitely going up next year. The only 2 things not going up are homes and wages. In this regard, the Star doesn't have a choice but to raise prices. The cost of raw materials forces them to do so. Many businesses that have felt they couldn't take a price increase for the past 4-5 years are seeing now as the time to do it because everyone expects it.

But even if that weren't true they are smart to raise prices. The Star has a base of subscribers that won't live without a newpaper and they will complain but they will pay more because there isn't an alternative for them. If they don't use the computer where else can they read AP Wire stories? You'll see a few that say they are leaving but it will mostly internet people who were probably leaving anyway. For the early adopters who now get their news from the internet, they aren't coming back to the paper even if they reduced the price and for those uneducated bastards who don't read anything and just watch TV....well, the newspaper industry gave up on them years ago and so did the rest of us.

So, I say the Star is actually smart for realizing where they are in their life cycle. They will never grow their circulation from this point forward but they know a number at which it will not fall below for another 10-15 years due to baby boomers. After that, either the deadwood media will either be dead or it won't but it won't be The Star setting the trend.

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