Friday, June 17, 2005

Parallels Between Consumer Products and Publishing

The news that James Kilts, CEO of Gillette, is joining the board of the New York Times may seem like an unusual choice, but it brought to mind an article from early 2005 that described the rationale for the acquisition of Gillette by P&G. In essence, Kilts and P&G management were responding to the shift in the balance of power that was too heavily skewed toward the retail giants like WalMart and Tesco (in the UK). Here are a few snippets from the article:

Just a decade ago global manufacturers like P&G and Unilever held the balance of power -- they were in charge, dictating to the supermarkets exactly how they wanted their products and promotional material displayed.

But as the dominance of supermarkets has grown (Tesco now accounts for 1 in every 8 GBPs spent on the high street) the influence of the likes of P&G and Unilever has diminished.

The proposed merger of P&G and Gillette is the biggest sign to date of how the tables have turned.

On first reading this article, it struck me how publishers are in a similar situation to the manufactures with respect to having lost bargaining power to aggregators that are making deals that benefit the aggregator at the expense of the publishers that supply the content to their services. Some deals made between aggregators and search engines, for instance, may benefit consumers and the aggregators, but the publishers of the orginal content earn little or no incremental revenue from these deals.

In the case of Gillette and P&G, their combined resources will help them influence the shape of the distribution landscape. And, with a combined advertising budget of approximately $3 billion (in 2004), the combined entity will have the resources to reach consumers directly via Web advertising. (Note that P&G was in the news last week for cutting its commitment to TV advertising, which portends its accelerating shift in ad dollars to the Web.)

Publishers that license their content to syndicators and aggregators are facing a similar situation. Publishers with strong brands like the NYTimes need to reassert their value in the market through new distribution and advertising models on the Web. The Times has made some smart moves in the recent past, including acquisitions that add to their publishing bulk and make them a more important advertising property. With the addition to their board of an experienced CEO who can relate his experience in "turning the tables" in the consumer products market to the publishing market, The Times has made a smart choice in naming Kilts to their board.
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