Unbundling and the Growth of Small Publishers

In a short video clip on Ad Age, Google CEO Eric Schmidt discusses the problems the newspaper industry faces.  He blames their decline on three things:  loss of classified ads, higher costs for newsprint and the decline in non-targeted ads. 

While we agree with these reasons, we think the newspaper industry is being hit harder by a broader, deeper trend - the unbundling of products. 

Newspapers are a classic example of a bundled product.  Most people only read a small percentage of the stories in a newspaper.  But because of historical industry economies of scale, it made sense for newspapers to bundle a wide range of stories in one package. 

The industry sold this bundled package to people with different content interests.  For example, someone who only read the arts and entertainment section would buy the same package as someone who only cared about sports. 

But new media technologies and, in particular, the Internet has changed this.  Online publishing uses different economic models that don't follow traditional media economies of scale.  This has reduced industry entry barriers and turned newpaper scale advantages into cost disadvantages. 

Readers are also no longer locked into a few bundled media choices.  They can access exactly what they want from a myriad of media sources. The result is newspaper subscriptions are in decline as readers choose to get their information from a wider variety of suppliers.

While unbundling has hurt newspapers, it has also created a wide range of opportunities for small niche publishers.  With low cost production systems and the wide reach of the Internet, small publishers are thriving in a myriad of specialty niches.

Product unbundling is most noticeable in the media industry, but the trend is broader and impacting a wide range of industries.  And as it has done in the media industry, unbundling is creating new niche opportunities in many industry spaces.