by Ken Auletta
On a sunny July afternoon in Sun Valley, three friends who had competed and cooperated for a quarter century -- Robert Iger, the CEO of Disney, Les Moonves, the CEO of CBS, and Peter Chernin, then the COO of News Corp -- gathered for sodas. They sat beside a tranquil pond, but their world was not serene. By the summer of 2008, the economy had started its swoon. The shrinking of the audience for their broadcast networks and TV stations had accelerated. Their stock prices were getting mauled, while the value of digital companies like Google soared. "At least we've had a good run," Chernin said, half-joking.
"Yeah," Iger replied with a laugh, "but I feel like we've gotten to the orgy and all the women have left!"
"We sound like three old men sitting in Miami Beach with blankets over our legs!" Moonves cracked.
Their world, like that of most traditional media executives, had been upended by the digital revolution. Other disruptive technologies -- the introduction of electricity, for example -- introduced even more profound changes than did the Internet. Without electricity, there would be no manufacturing of cars or airplanes, no lights, refrigerators, telephones, air conditioners, televisions, subways, computers -- or Internet. But what's unique about this time, and what the three men sitting around the pond understood, was that the velocity of change is different. It took telephones about 70 years to reach half of American homes, electricity about 50 years, color TV two decades. Yet the Internet reached more than half of Americans in a mere decade; Facebook built a community of 300 million users in just 5 years.
The swiftness of change makes those responsible for corporate decisions more insecure, and more paranoid. Such emotions are not conducive to clear thinking. For the past 15 or so years, most traditional media executives were in denial. Take Sony, the company that in 1979 had introduced the Sony Walkman. By 2001, it was being challenged by a stylish upstart, Apple's iPod. By 2003 Apple's iTunes offered singles that could be downloaded simply and for just 99 cents, crippling record companies like Sony's efforts to sell albums. I asked then CEO Nobuyuki Idei, Are you worried about the iPod?
No, he replied, dismissing the question like a man brushing lint off his jacket. Sony and Dell know manufacturing. Apple does not. Within a couple of years, Apple will be out of the music business.
Probably no other traditional media business has been so disrupted by the digital wave as has music. Newspapers were not far behind. Newspaper publishers did not respond with alarm to online news, and editors were preoccupied with the fireman's part of their job, answering news alarms, covering and editing daily stories. This mistake -- not to treat the arrival of the Internet with urgency, not to pour resources into a vibrant online newspaper -- was one most newspapers made. By 2009, U.S. newspaper ad revenues of $31 billion were half what they were in 2000, and today Google's ad revenues equal two-thirds of newspaper ad revenues At the same time, more readers have gone online to sites like Google, Yahoo News, or The Huffington Post.
Most traditional analogue businesses -- magazines, books, television, movies, radio, telephones, advertising -- were suffering. Yet they compounded their woes by wailing about how digital companies like Google were culprits, were somehow guilty of murder. Google CEO Eric Schmidt bridled at the suggestion that Google was somehow the fall guy for an Internet that had inevitably changed the rules of the game. "There is a systematic change going on in how people spend their time," he told me. "I think it's important that Google understand that we are one of the companies that is making that happen. It's very important that we be polite about it, and not be arrogant or obnoxious, because there is real damage being done. But also, our rationale is that it's the end users who are choosing this. This is not a concerted effort by us to do anything other than adapt to the way end users behave."
The world has been Googled. We don't search for information, we "Google" it. Type a question in the Google search box, as do more than 70 percent of all searchers worldwide, and in about a half second answers appear. Want to find an episode of Charlie Rose you missed, or a funny video made by some guy of his three-year-old daughter's brilliant 90-second synopsis of Star Wars Episode IV? Google's YouTube, with 90 million unique visitors in March 2009 -- two-thirds of all Web video traffic -- has it. Want to place an online ad? Google's DoubleClick is the foremost digital advertising services company. Google's advertising revenues account for 40 percent of all the advertising dollars spent online. In turn, Google pumps ad dollars into tens of thousands of Web sites, bringing both traffic and commerce to them. Want to read a newspaper or magazine story from anywhere in the world? Google News aggregates 25,000 news sites daily. Looking for an out-of-print book or a scholarly journal? Google is seeking to make almost every book ever published available in digitized form. Schools in impoverished nations that are without textbooks can now retrieve knowledge for free. "The Internet," said Google's Chief Economist, Hal Varian, "makes information available. Google makes information accessible."
To avoid being drowned by the digital wave that companies like Google create, traditional media companies need figure out how to ride rather than crash into it. David L. Calhoun spent his career at General Electric, where he rose to Vice Chairman before becoming Chairman and CEO of The Nielsen Company in 2006. When Calhoun joined, Nielsen had long dominated the audience measurement field but was facing a challenge from the digital technology of company's like Google. He became convinced that media company executives spend too much time defensively moaning about Google and too little time playing offense. He said he wanted his company to "lean in," to embrace change; those who "lean out," he said, resist change. Companies that concentrate on defense "are frozen," he said. "If Google's looking at you, you look like an iceberg. And Google is looking at everybody."
Unless old media companies want to fight their customers, try to deny their desire for new choices and new conveniences, pretend they can reclaim past glories, they have no alternative but to figure out how to ride the wave.