Saturday, February 04, 2006

Why Being Big Means Little: The Lessons for Media Businesses from Western Union

On January 27, 2006, Western Union sent its final telegram, 150 years after it sent its first. There’s a bit of a message for the media industry in this historical footnote.

In the late 19th century and into the 1930s, Western Union was the pinnacle of the communications business. Indeed, believing that telegraph was the be all and end all of communications technology, Western Union turned down the offer to buy Alexander Graham Bell’s telephone patents in 1876 for $100,000. (They soon realized their mistake and actually hired Thomas Edison to develop a telephone device, which he did. But Bell’s fledgling company won a patent infringement suit against the giant Western Union which then withdrew from voice telephony).

But Western Union thrived for a time, even as the Bell System overtook it in size. In 1900 Western Union sent 63 million telegrams. In its peak year, 1929, it handled 200 million telegrams. Telegram service was slowly eroded by the increased availability and decreasing price of long distance voice. But it also lost market share as teletypewriters were introduced, a newer technology that did not require skilled Morse code operators. Much later, facsimile spelled the end to what was left of the telegram’s commercial market. In the past year 20,000 telegrams were sent, mostly as novelties or as formal notifications.

What does this say to and about the media industry? Western Union, at one time the monopoly national communications company, was co-opted by new technologies. Though profitable for many years after its heyday, it’s decline brought it to bankruptcy and rebirth as a money transfer service—a very different business. Even then, it was blindsided by an upstart, PayPal, as the first mover in the Internet money transfer business. Its belated response,, closed shop the end of 2005.

So the lessons, once again, are, first, that bigness guarantees nothing when it comes to the future, even when at one point a near monopoly. (The same could be said for AT&T, which survives in name only because Southwestern Bell, the company that bought the remains of the old Ma Bell in 2005 and assumed the AT&T name.) Previously I wrote about how none of the 10 largest retailers in the U.S. in 1962 were around 30 years later. Second, just because newer technologies and players don’t ruin a business or an industry overnight that doesn’t mean that a long decline, with occasional ups amidst the many downs, is in progress. Finally, even when a player does make a strategic move into a concentric market (as W.U. did from electronic text to electronic money), the game is not necessarily won. For the moment, Western Union still has a decent business transferring money internationally. But newer players, such as PayPal, are nipping at its heals.

The media industry was much like banking for the first seven decades of the 20th century, staid and predictable. Newspaper publishers knew exactly who their competitors were—other newspapers. Broadcasters knew that once they got their sinecure from the FCC they were set. Book publishers came and went with easy entry and exit, but with the “security” of knowing that “the book” as a format was forever. Hollywood studios understood that the bottleneck of distribution and marketing would keep the number of major competitors manageable.

But all that is out the window (or, perhaps, Widows), much as is the old telegram. Newspaper circulation continues its decades long slide. Knight Ridder reports lower earnings each quarter. Television networks are making their hit shows available for download the day after broadcast. Some Hollywood movies are released on DVD and cable the same time as in the theater. Podcasts and vodcasts come from regular folks and media heavyweights alike. Radio emanates from satellite and the Internet. Video on demand fills 42” high definition screens—and 3” cell phone screens.

Where will you be the day your hometown daily newspaper ends its print run or the TV listings start to show only the names of new programs available each day, not the time they are on?

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