This from today's NY Times [emphasis added]:
CBS... has been in discussions with Time Warner about a deal to outsource some of its news-gathering operations to CNN... reducing CBS’s news-gathering capacity while keeping its frontline personalities, like Katie Couric, the CBS Evening News anchor, and paying a fee to CNN to buy the cable network’s news feeds.
For CNN, a deal with a broadcast network would mean a new revenue stream without having to add much in costs. For CBS, an arrangement with a cable channel would allow it to cut costs while maintaining the CBS News brand...
Structural change. In any industry, it can be a long time coming. But then, when it does, it's seemingly so sudden and so obvious in hindsight, leaving many to wonder what took so long and what all the fuss was about. Acknowledging that every industry is different and that this particular deal may have at least as much to do with tactical stumbles on CBS's part as it does any notion of industry grand-strategy, please allow me a quick diversion into another industry to illustrate the point.
Once upon a time, the computer industry was vertically integrated: chips, disk drives, monitors, software, printers and even keyboards were all manufactured--quite literally--by the same company that sold them under its own brand. Digital, Wang, Prime, Data General, IBM, Hewlett Packard, Unisys (and others more easily forgotten) asked customers to settle for second- (or third-) rate components in one area in order to get the pieces they had to have and ensure it all worked together properly. (I had the privilege of consulting to all of these folks between 1988 and the mid '90s, and while I had a ringside seat for only some, I was in the tent with a clear view for all.)
Then suddenly (it seemed, but not really) along came Intel and Microsoft and Dell and Canon (whose printers account for nearly all of what's sold under the HP brand) and people scratched their heads and wondered why they'd ever settled for less, and what on earth had sustained all these second- and third-rate products hidden inside these vertically integrated 'stacks'. (Yes, I know, what came next was not necessarily the perfect competition I'm making it out to be in every case, at every layer, but it was -- at least -- a more horizontally-oriented industry all-of-a-sudden (think pancakes) instead of a bunch of soup-to-nuts, buy-it-all-from-us-or-else brands with their own factories for everything.
Similar tales can be told about the automobile and aircraft industries (among others) however I don't have firsthand knowledge of those and so I leave such analysis to others. All are different. And yet at a very high level, all have been the same:
It becomes clear who's really really good at one particular 'horizontal' aspect of the business (e.g., working 'backwards': customer relationships, brand, distribution, manufacturing (yes, even in services), product development, R&D, etc.) and who's just pretty good. Everyone knows these things, but it's hard to tell because the pieces don't compete with each other directly ('pure plays'). Instead, they're all part of larger packages.
Everyone knows though, who's passionate and committed and has totally nailed a particular discipline and is climbing a learning curve and getting to scale faster than everyone else... and who's just in it (a particular horizontal layer) because they have to be to stay in business and pride or lack of imagination have kept them from having the hard conversation about what is core and what is context.
Internal factors play a huge role here. Pride and corporate politics can be overwhelming. Managers develop fiefdoms and want to stay attached to the mother-ship because they know also that it's cold out there and that their 'stuff' is not really competitive globally.
A quick side story on the side story:
I once consulted to a large computer company that made it's own keyboards (this was ~1991). They'd commissioned me to do a study of a) what customers liked and b) how cost-competitive they were. It was the first time they'd done either thing (telling in itself) and we cast the net very wide indeed to get it right.
Long story short: their manufacturing costs for these keyboards were roughly 8X what others were charging in bulk including shipping from faraway places with factories that had dirt floors and workers who subsisted on meager if not wholly inadequate diets.
But the clincher was this: when we did focus groups, the customers liked the cheap stuff better. It 'felt' better on their fingers. The keyboards were lighter. They could type faster. Case closed. With a vengeance. (I recall the client choking on their diet sodas behind the glass, struggling for something positive amidst the rubble of damning customer consensus... and then explaining to me why their stuff was technically much better and they had the charts to prove it. It didn't matter.)
My client had all but exited the business within a year, redeploying the capital to focus on other things they did much better (and still do).
What does any of this have to do with CBS and CNN? Why the rant?
Just this. As it becomes easier to coordinate assembly of the 'pieces' in a particular industry -- due to better communications, global capital flows and a host of other things. I.e., when the efficiency-driven, convenience-driven reasons for being vertically integrated and settling for best-in-house instead of best-of-breed begin to fade away and Coase's Law and the theory of the firm begin to dissolve (just as he predicted seventy years ago -- he's still with us, btw), we begin to see these kinds of changes in these headlines.
An organization with kick-butt field reporting and the scale to support it far into the future beats out an organization that once used to be known for that... but no longer. And the firm with the pretty faces decides that that's not such a bad thing to be... the face to the 'customer'. The brand. It's a perfectly honorable (and sometimes even very powerful) position to be in (though my personal opinion is that CBS may eventually lose that also). But regardless, clarity is good: You do this. We'll do that. And let's do business together because we're not really competing anymore.
Firms re-invent themselves as pancakes rather than bamboo shoots... horizontally-oriented, best-bar-none specialists rather than vertically-oriented best-in-house behemoths.
Yeah, I've taken some liberties here. Coase talked about other aspects as well. And CBS may merely be in its long-awaited death throes as CNN ascends. But this is a blog post, not a masters thesis.
Here's what I find funny: the obligatory denial-of-reality that's needed to keep the staff of the doomed division from defecting en masse and decimating any negotiating leverage that may remain:
Sandy Genelius, a spokeswoman for CBS News, said, “We are extremely pleased with and proud of our news-gathering operation. No outside arrangements are being negotiated...”
Someone's got to play calming music for the passengers as the deck tilts steeper and steeper.