In an April 14th editorial by Maureen Dowd in the New York Times, she describes a conversation with Eric Schmidt, the CEO of Google, about the current battle between old-line producers of the news, like the New York Times, and new-generation aggregators of news content (produced by others) like Google. A battle has been brewing in the news business as the old-line producers of news content, who have for centuries published and distributed their content on paper, are being dramatically outmaneuvered by on-line news aggregators.
Newspapers and magazines have long made their revenue by selling advertising and subscriptions. In the last five years, they have experienced unprecedented declines in both, so much so that many venerable papers and magazines are closing shop and disappearing after more than 100 years of operation. Hundreds of others are downsizing significantly, reducing staff and lowering salaries in an effort to stay afloat.
The Internet has created a whole new approach to how people can receive their news and has shaped the demand for news in some very innovative ways. In short, by collecting a wide range of sometimes very specific information about site visitors, news aggregators can serve up targeted advertising (which is much more valuable to advertisers and to you) as well as allow you to browse a collection of news content personally arranged by you to fit your specific demand.
You no longer have to wait for the daily paper to arrive or worse yet, wait a month for a magazine to make its way to your mailbox. You can skim dozens of news sources (without subscribing to any of those papers and magazines), select just the articles you have interest in, view advertising tailored to your specific demands and pay nothing. Think of the inefficiency involved in the hundreds of ads you have no interest in, cluttering up your paper version of the news; and the dozens of news articles you have no interest in, which you simply pass over in your daily paper. In addition, newspapers create millions of tons of paper waste, fuel waste and other resource waste inevitably involved in hard copy news. News aggregators have captured the news content and the advertising income away from old-line news organizations and have dramatically improved the efficiency of serving up both. By moving between the news creators and the customer, they have established intimacy directly with the consumer while dramatically increasing consumer benefits.
The money quote from Dowd’s editorial comes when she asks Eric Schmidt why he can’t simply write a check to the producers of news for the content they share. He rightly states that news organizations could “opt out” of providing their news online for free and then says, “The best way to get out of this is to invent a new product. That’s the way Google thinks. Incumbents very seldom invent the future.”
If we think about agriculture and all the inefficiencies and variation created by both biological production processes and fixed systems of production (hard assets that only pay for themselves over decades and impose a more-or-less fixed cost of production that is difficult to substantially improve year-by-year since it is, quite literally, “fixed in concrete”), we are left with the question and warning of Eric Schmidt. The best way out of this problem is to invent a new way of doing things coupled with the warning: incumbents very seldom invent the future.
When you can walk into a big box retailer and purchase a whole boneless pork loin for $12, less than the cost of a single meal at a sit-down restaurant, we know that huge subsidies are currently being paid for that pork loin. These subsidies don’t come from the government either; they are drawn from the equity of producers and some of the other links in the pathway from farm to plate. They result from the inflexibility of biological production processes to respond to sharp declines in demand. The chain benefits from this lag on the up-side as the same inertia prevents rapid increases in production as demand returns, which often results in very handsome profits.
The world continues to change in rapid and dramatic ways, many of which directly drive instability of income into short-run inflexible food production systems. The free market offers the context in which long-run opportunity for everyone will be by far the greatest. Certainly no “pork czar,” given the reigns of the industry to control supply responses (for instance), would offer any hope whatsoever in managing these risks better, and would assuredly make the outcome worse for both producer and consumer.
So where do we go from here incumbents? Some ideas next time.
Editor’s Note: Dr. Dennis DiPietre is a swine consultant in Columbia, Missouri. His monthly commentary is sponsored by Elanco Animal Health. For more information, go to: www.elanco.com
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