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A Physicist Explains How Online is Killing Newspapers

During a recent visit to The New York Times' world headquarters in Manhattan, I asked a few staffers about the "geek squad" that reportedly is exploring lots of exciting alternatives to the conventional way the company has operated in the past.

"There are several groups, actually, one on this floor, another a few floors down, and a another several floors up," explained one young reporter. "The company is looking into every conceivable option."

That is heartening. But throwing everything at the wall to see what sticks is a classic entrepreneurial error, and what the Times needs now is to completely reinvent itself.

Management could begin this painful process by applying a concept from physics -- local optimum -- to gain insights into how the organizational structure of a traditional media company typicaly reacts to the disruptive effects of new technologies.

It works like this: Any entrenched business model has evolved over time so that each company in the industry has optimized locally to the point that small changes (like firing a few reporters or photographers) isn't going to help any given newspaper survive hard times; rather, it is going to hasten its demise.

Physicist Michael Nielsen, who co-authored the standard text on quantum computation at MIT, used this insight in a section of a long blog post (really an essay) yesterday called "Why online news is killing the newspapers." First, he refutes the notion prevalent inside so many traditional media companies that bloggers are "news parasites, feeding off the original reporting done by the newspapers." *

Nielsen compares a successful blogging operation that includes lots of original reporting -- TechCrunch -- with the sagging fortunes of The Times, through the prism of achieving a new local optimum. In order to compete with TechCrunch, which has optimized its organizational structure around the Internet, the Times would have to go through a far more radical and painful reorganization than it has yet been willing to consider, at least publicly.

Nielsen notes that the audience for technology news, as well as advertisers seeking the attention of that audience, are migrating over to TechCrunch and away from the Times. Of course, online ads produce far less revenue than their print cousins, but that is not a problem for TechCrunch, because it is not saddled with entrenched costs like newsprint, printing presses, distribution systems, and the large, unionized workforces left over from a previous industrial era.

The irony of the local optimum model, according to Nielsen, is that it is precisely inside the best-run organizations (like the Times) that the forces preventing change will be the strongest. "The reason is that those organizations are large, complex structures, and to survive and prosper they must contain a sort of organizational immune system dedicated to preserving that structure," he writes. "If they didn't have such an immune system, they'd fall apart in the ordinary course of events."

This "organizational immune system," in normal times, is a good thing. But during a period of catastrophic change, the system turns on itself, and helps the company devour itself from the inside out.

There is much more to this brilliant essay than I can possibly summarize here, including a fascinating section on why Google News could only have been started by a company operating outside of the traditional media industry, so to read it in its entirety, please follow this link.

* Of course, I consider myself a "news parasite" feeding off of Nielsen's blog post!

[Thanks to Adam Hodgkin via the Read20 List for bringing my attention to Nielsen's essay.]