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Friday, January 30, 2009

Schumpeter Lives in 2009 Media!

A lot of us took some economics in our college years. I actually majored in it. If you were very lucky as I was, a professor here or there might have made a passing mention of Joseph Alois Schumpeter. He was an Austrian who moved to America as the Nazis rolled across Europe. Harvard became his home until his death in 1950.

Schumpeter is getting more attention these days as he popularized though did not invent a concept known as "Creative Destruction." To wildly oversimplify, creative destruction might be summarized as a process by which a new idea enters the marketplace and makes existing capital relatively worthless. The new idea tends to be innovative and radically so.

We have seen creative destruction in mundane ways. Wal-Mart essentially took out Sears and Montgomery Ward and local department stores via tight inventory control management and low cost operations. Radical innovators cost some real hardship to those involved with the existing status quo companies. Layoffs rise in the obsolete companies and many suffer in the short term. Others suffer long term as they are unable or unwilling to be retrained in the new emerging world.

Schumpeter laid out this concept way back in 1942 in a book entitled Capitalism, Socialism, and Democracy. Actually, it is not that radical. It merely articulated that innovation by entrepreneurs is the force that fosters growth in a free market. The innovators eventually destroy the value of established companies who are losing their quasi-monopoly power.

As I mentioned above, it happened in retail and it happened in automotive with foreign competition. But, you can bet someone will be gunning for Wal-Mart and soon if their market share holds up.

Right now, creative destruction is occuring in media as well. The big brands of Disney, GE, Newscorp, Viacom/CBS, and Time Warner are all under siege. Digital and other new media, some of it advertising free, are now doing real damage and the pace of hurt is quickening. With the slowing economy, painful layoffs are occuring across all media and advertising agencies are full of jumpy people looking over their shoulders.

Newspapers (about which we will soon devote a separate post) are fighting for their lives in many areas and have lost forever most young Americans to on line alternatives. Local TV and radio stations are having problems with debt service in some markets and in 2009 some mid-size ad agencies will close their doors or be so downsized as to be unrecognizable but for the name on the door.

The major media both nationally and locally have had a lock on the consumer for more than 55 years. As the digital innovators have gotten some traction, the major media are weakening rapidly. There is nothing sinister going on here; it is merely the same process that has invaded countless other industries.

How do you fight back? Learn new skills. Embrace change with gusto. Read, read, and read some more. And if your management will not look for new clients who accept the reality of today's marketplace, change jobs ASAP (admittedly easier said than done today). If you make a spirited effort and go with the change rather than deny it, you can wind up on the creative side of the term creative destruction.

If you would like to contact Don Cole directly, you can reach him at doncolemedia@gmail.com

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