Business model evolution in the newspaper industry
A case study of Helsingborgs Dagblad
Supervisor: Joakim Winborg
Spring 2013
Authors: Max Forssén & Dorothea Castell
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Abstract:
Title: Business model evolution in the newspaper industry: A case study of Helsingborgs Dagblad
Program: Master program in Entrepreneurship, Corporate Entrepreneurship and Innovation
Course: Internship and Degree Project (ENTN39)
Authors: Dorothea Castell & Max Forssén
Supervisor: Joakim Winborg
Keywords: Business model, Evolution, Change, Drivers, Triggers
Thesis purpose: The purpose of the thesis is to explore the business model evolution in the newspaper industry by identifying and analyzing the factors that caused business model changes
Methodology: A case study of a local newspaper based in Northwestern Scania. Semi structured interviews were conducted together with secondary data.
Theoretical framework: Three concepts were used and explained with help from theory; business models, business model evolution and causes for change.
Conclusions: Six significant changes in HD’s business model where technology played a major role. It can be concluded that proactive decision-making is the most successful approach. HD through a trial and error process changed their business model in order to adapt to the evolution of the newspaper industry.
Table of Contents
1. Introduction 1
1.1. Background 1
1.2 Problem discussion 1
1.3 Research question 2
1.4 Purpose 2
1.5 Key concepts 3
2. The theoretical frame of reference 4
2.1 Business models 4
2.2 Business Model Evolution/Change 6
2.3 Causes for change 9
3. Method 12
3.1 Overall research design and process 12
3.2 Data collection 13
3.3 Method for data analysis 15
3.4 Reflections of method choices 17
4. Presentation of findings 18
4.1 Introduction of the company Helsingborgs Dagblad 18
4.2 The development of Helsingborgs Dagblad 18
5. Analysis and discussion 30
5.1 Identified business model changes 30
5.1.1 Extending the business: HD’s multi-channel strategy 30
5.1.2 Reduction of channels: Leaving the multi-channel strategy behind 33
5.2 Analysis of triggers to business model changes 34
5.3 Identified patterns 39
6. Conclusions and implications 41
6.1 Conclusions 41
6.2 Implications for research 41
6.3 Practical implications 42
List of references 43
Appendix 47
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1. Introduction
To begin with, we will present an introduction of the business model of the newspaper industry and the challenges it is currently facing. In addition, we will present the research question and the purpose of the thesis.
1.1. Background
The changing media landscape has caught a lot of scholarly attention in the past decade (Swatman et al., 2006; Dal Zotto & Picard, 2006; Franklin, 2010; Rosenstiel et al.,2012). With the rise of the digital era, the traditional business model of newspapers is facing enormous challenges (PriceWaterhouseCoopers, 2009). Besides the internet as a major challenge, newspapers have had difficult times before: the radio and the TV were at their beginning also perceived as a possible threat as it was common expectation that those media would substitute the newspaper (Waldmann, 2011). However, history has taught us something else, as TV and radio have caused decline in reader and advertisement revenues – but despite the expectations – newspapers survived this threat.
With the possibilities that arose with new technologies, the information sector is nowadays increasingly making use of digital channels (von Reibnitz & Bird, 2012). As a result, the readers have gotten used to have access to free information. This trend of readers moving from reading a physical paper to making increasingly use of online offers, caused the next challenge: the advertisers started to move in the digital world as well (von Reibnitz & Bird, 2012). Physical traditional newspapers experienced a decrease of advertising revenues, because they could not offer the same audience for the advertisement as the internet. To put it short, the complete way of consuming news has changed. The existence of a website called www.newspaperdeathwatch.com mirrors the problem: newspapers are struggling to stay in business all over the world.
However, not all newspapers have vanished yet and it is not carved in stone that they will end to exist. Still, no general valid and promising business model for the newspaper has been found with which this challenge could be overcome. A recently published study of the Pew Research Center has investigated this problem and concluded that those newspapers that have not demised until now have tried out different things to face the challenges (Rosenstiel et al., 2012). Switching to e-business models or even extending the core by offering services that are not in line with the traditional focus of distributing news and selling advertisement, such as establishing event agencies or entering the e-commerce market are only some examples of how newspaper companies try to tackle the future (Rosenstiel et al., 2012).
1.2 Problem discussion
Nowadays the term business model is widely spread and its use has been increased exponentially since the information technology boom in the late 1990’s (Amit & Zott, 2011; Hedman & Kalling, 2003). Aspects of change, evolution, development, organization and innovation have been studied in relation to business models by various scholars (Morris, 2005; Linder & Cantrell, 2000; Sosna et al., 2010). No matter how different the approaches to business models are within the literature, quite a few scholars share one conclusion: What Linder & Cantrell (2000) describe with their change model - depicting “the core logic for how a firm will change over time in order to remain profitable in a dynamic environment” – is what Demil & Lecocq (2010) call dynamic consistency. The bottom line is, that the most sustainable business models are flexible and constantly developing, as most are continually under pressure to change and adapt to modified circumstances.
This also applies for business models in the newspaper industry: they have been under constant pressure to change during more recent years (Swatman et al., 2006; Dal Zotto & Picard, 2006). This leads to our area of interest: What kind of drivers and triggers are leading to a change within an existing business model? Scholars have given this question quite much attention (de Reuver, 2009; Sosna et al. 2010, Johnson et al., 2008; Osterwalder & Pigneur, 2010). On a general level, many different things have been mentioned, such as technological developments, legal regulations, competition, as well as the need for growth or higher profit (Linder and Cantrell, 2000; Chesbrough, 2010), while technological developments seem to play a major importance (Osterwalder & Pigneur, 2010; Sosna et al., 2010; de Reuver, 2009; Johnson et al., 2008). However, those aspects are commonly only mentioned aside and a proper discussion is lacking. Especially in literature about business model development in the newspaper industry, literature lacks to focus in detail on the relations between different types of driving forces and the actual changes taken place. This might be due to an understanding of the changing process of a business model close to Casadesus-Masanell and Ricart’s (2010): They state that the key driver of change is the firm’s strategy itself, as it specifies how to act upon contingencies in the environment, other industry players etc. However, the focus on the strategy does often not allow the original driving force to get enough attention itself.
1.3 Research question
Derived from the foregoing problem discussion of these issues, the following research question is posed:
Ø How have technology and other factors influenced the business model evolution in the newspaper industry?
1.4 Purpose
The purpose of the thesis is to explore the business model evolution in the newspaper industry by identifying and analyzing the factors that caused business model changes. Change is not always fostered by the organization itself, with proactive decision making to take certain opportunities or anticipating potential threats by adapting the business model beforehand. In fact - as the literature review gave the impression – there are also external events forcing organizations to change their business models; circumstances that organizations have actively adapt to.
The Swedish newspaper company Helsingborgs Dagblad (HD) is a practical example of a regional newspaper that has adapted to the above mentioned challenges and evolved – according to the company’s own perception – from a newspaper to a media company (Jönsson, 2013a), with the goal to become the leading media company in Northwestern Scania (HD, 2013b). It is therefore especially suitable to serve as a case to be studied in this context. By acquiring a deeper understanding of how triggering events affected their business, both from an internal and external view, the result will build on current research on how a business model can be affected within the newspaper industry.
1.5 Key concepts
Finally, the reader shall be introduced to the authors’ perception of the key concepts that are related to the research questions of this study. These are as follows:
· Business model
As the term business model plays a major role in the thesis, the term has to be defined. In the following chapter (see chapter 2.1), the difficulties of this definitions are presented. Based on this discussion, the authors decide to follow the understanding of Amit and Zott (2011), because they summarize the core elements that all business model definitions address, in one or another way: (a) a value proposition, (b) a revenue model, and (c) a value network.
· Evolution of business model
The thesis focusses on the evolution of the business model from HD. In order to do so, it must be defined what “business model evolution” means. As discussed in chapter 2.2, business models are not only static descriptions of the way a company does its business but can rather be perceived as a flexible and dynamic description of the business. The value proposition, revenue model, or value network (Amit & Zott, 2011) can change over time, such as a new value proposition can be added, if the consumer behavior changed and demands it. We argue that a business model evolves when a business model change takes place. The adapted definition of business model change is as follows: According to Demil & Lecocq (2010), it is a “substantial change in the structure of its costs and/or revenues from using a new kind of resource, developing a new source of revenues, reengineering an organizational process, externalizing a value chain activity - whether triggers deliberately or environmentally”.
2. The theoretical frame of reference
The following chapter shall introduce, present, and discuss theoretical tools and theories that will be used for the analysis of this case study, following later on.
2.1 Business models
Since the mid 1990’s, the term business model has gotten increased scholarly attention (Amit & Zott, 2011; Casadesus-Masanell & Ricard, 2009; Osterwalder & Pigneur, 2010; Hedman & Kalling, 2003). However, the term can be used in different ways depending on the context, author and focus of the respective study (Amit & Zott, 2011).
Johnson et al. (2003) explain that the constituent parts of a business model, which together create and deliver value, are as follows: the customer value proposition (CVP), the profit formula, the key resources and finally key processes. Similar in content are the categories presented in the RCOV-framework by Demil and Lecocq (2010), even if they are slightly different named. Their description of a business model is “the logic of the firm, the way it operates and how it creates value for its stakeholders” and the business model framework consists of three main components: Resources and Competences (RC), Organization (O) (internal, external, volume, structure of costs) and Value proposition (V) (volume, structure of revenues). Most of the generic business model frameworks as the both presented above address the same core issues: value proposition, revenue model, value network (Amit & Zott,2011).
Besides different components of business models, there are also different levels of how to understand the function of a business model. As the research of Morris (2005) has revealed, there are three different levels a business model definition can refer to: The economic, the operational and the strategic level. The economic level is the most basic one as it is concerned with the profit generation of a company; other scholars might call it revenue model (Linder & Cantrell, 2000). Business models in the operational level are capturing the processes and infrastructure that a company needs to successfully create value. It basically represents the architecture of a company (Morris, 2005). Finally, business models that belong to the strategic level describe “the overall direction in the firm’s market positioning, interactions across organizational boundaries, and growth opportunities” (Morris, 2005, p. 272).
E-business models
„Business models are perhaps the most discussed and least understood aspect of the web” according to Rappa (2005) and have caused many scholars to research within this field. Having in mind that the thesis focuses on the newspaper industry in context with technological developments, e-business models shall find some attention.
Even though many newspaper companies have protected and maintained their core business, most of them have adapted in some or another way to e-business – from distributing their news online on a news site to launching e-commerce platforms (PriceWaterhouseCoopers, 2009, p. 4). Either of those ways shows that the newspaper industry has increasingly to deal with e-business models.
The famous business model canvas from Osterwalder was originally a result from research on e-business models, firstly presented in his work “An e-Business Model Ontology for Modeling e-Business” together with Y. Pigneur. Their presentation of an e-business model ontology shall describe the “logic of a business system for creating value in the Internet era” (Osterwalder & Pigneur, 2002). The final framework is composed of four main components, namely product innovation, infrastructure management, customer relationship and financial aspects (Osterwalder & Pigneur, 2002). The second category is especially important for e-business models, as the web has challenged the traditional customer relationship enormously (Osterwalder & Pigneur, 2002).
According to Mahadevan (2000), an e-business model with special orientation to e-commerce consists of the value stream (identifying the value proposition for customers and key partners), the revenue stream (assuring that the business creates revenues) and the logistic stream (dealing with several different logistic solutions). Timmers (1999) explains the business model in e-business context as (1) an architecture for product, service and information streams, (2) description of the involved actors and their respective roles, (3) description of potential value for involved actors, and (4) description of the revenue sources. Both, Mahadevan’s and Timmer’s suggestions have drawbacks: while Timmers does not systematically classifies revenue models, Mahadevan does not address the role of customer relationship enough.