You’re not in the railroad business, you’re in the news business

Countless times in the past 15 years I’ve heard online news gurus exhort newspaper executives to “get” the digital media future with admonition: “Railroads thought they were in the railroad business. They didn’t realize they were in the transportation business.”

The lessons were were supposed to learn from this MBA-style wisdom is that

  • Newspapers needed to realize they were in some other business than the news business — communications, perhaps, or community, but certainly not news on paper.
  • Newspaper executives needed to focus on customers not product.

But what if this bit of sage advice isn’t so sage after all? What if it’s just plain wrong in every respect?

My current iPad book is Bully Boy, by Jim Powell. It’s about the disastrous consequences of just about every policy initiative Theodore Roosevelt under took throughout his political career.

Besides being a racist, imperialist warmonger, Roosevelt fashioned himself as a trust buster — along with other progressives of the era — with a chief target of his wrath following on the railroad industry.

Consider:

  • Every publicly subsidized railroad company of the 19th Century went bankrupt and were rescued out of receivership by railroad owners who prided themselves on building their companies without the aid of taxpayer money, such as James J. Hill, Edward Harriman and J.P. Morgan. Hill, especially, built his business by investing in quality and keeping prices low — hardly the practice of an anti-consumer monopolist.
  • When Harriman, Hill and Morgan decided to consolidate rail operations, Roosevelt initiated a lawsuit under the fairly recent Sherman Anti-Trust Act and successfully broke up their holding company, Northern Securities.
  • Roosevelt’s next anti-trust target was John D. Rockafeller‘s Standard Oil, which was accused of monopolistic practices because it used its superior technology, assets, economies of scale and frugal business practices to secure lower shipping rates on rail lines compared to smaller and regional competitors.
  • From the 1870s or so until the government began controlling rates, passenger and shipping rates across rail lines continued to fall as more lines were built and technology improved (rail also still competed with water transportation, which helped push prices down).
  • The reason rail companies were portrayed as evil in news reports and populace myth were that even as prices fell, they fell faster for big shippers (benefiting from economies of scale), and farmers, small meat packers, small fuel producers, resented paying higher rates.
  • The main competitive pressure for farmers, however, wasn’t rail prices, it was other farmers.  Many Civil War vets, after the war, went into farming. In 1850, there were 1.4 million farms in the U.S.  By 1900, there were 5.7 million. The number of acres of land in production rose from 293.5 million acres to 841.2 acres.  Still, farmers, blamed rail “monopolies” for their woes.
  • Feb. 4, 1887, Congress passes the Act to Regulate Commerce, which creates the Interstate Commerce Commission, which begins to regulate railroads, including setting long-haul rates.  This process intensified after Roosevelt became  president when he increased the number of board members from five to seven so he could appoint two people more aligned with his policies on railroads.
  • In 1903, Congress passed the Elkins Act, which outlawed rebates on railroad shipping.
  • In increasing the power (greatly limiting the ability of railroads to appeal rate decisions) and size of the ICC in 1905, Roosevelt declared, “The government must in increasing degree supervise and regulate the workings of the railways …”
  • Starting after the turn of the century, the rise of labor unions in the rail industry further increased costs and depressed profits.
  • Railroad investment in its own infrastructure peaked in 1907 — decades before interstate highways.
  • During World War I, the federal government nationalized the rail system, leading to $900 million in loses for railroad companies.
  • In 1971, historian Albro Martin estimated that more than $5 billion in investment capital that might have helped upgrade the rail system before World War I went to other financial opportunities. Martin wrote, “Developmenst like the diesel locomotive were delayed twenty years even though the steam locomotive had passed its peak by 1914.”

Railroads did not fail to invest in better passenger service because of lack of focus on customers, but because government control constrained investment, dried up profits and made it impracticable to add air conditioning or other comfort improvements, let along invest in new and faster engines.

Whether you agree with progressive trust busting or not, certainly, knowing these facts, it’s hard to make the argument that railroad executives were the authors of their own demise.

What are the implication for newspapers?

Perhaps publishers need to do a better job of remembering their in the news business after all.  Yes, focus on customers, not the product, but one thing that I’ve relearned numerous times over the past four years is the product customers most want is news.  Embrace the fact: You’re in the news business, not the communication business.

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  • http://twitter.com/rowlandr Robin Rowland

    It appears to me that the books you quote are somewhat one sided when it comes to the history of railroading and much more research is needed. While I agree that the news is the key part of the news business, I am not sure how your railroad analogy applies to the crisis in the media.
    Many of the railroad barons of that era were rather careless when it came to safety. Different railroad companies, sometimes running on the same tracks in the early days, had conflicting procedures and safety rules. When national safety rules were imposed, railroad safety improved. It is not clear whether some regulations were responsible for a lack of innovation or whether it was beancounting and lack of vision.
    The USRA actually improved the design of the steam locomotive and USRA locos were standard in the US long after the First World War nationalization ended, because they worked well for the railroads.
    High quality steam locomotives were used worldwide, not just in the US, until after the Second World War and continued in use as secondary locos into the 1960s. The switch to diesel was delayed by the Depression and the Second World War and in many parts of the world (including the US) electrical locos were often ahead of diesel.
    Railroad lines, either public or private, profit making or subsidized, are the preferred mode of transport in many parts of the world (Hey, it’s actually easier and more relaxing to read a newspaper or news on your tablet in a train than a plane). So you are right about being in the railroad business and being in the news business.

    How does too much government regulation cause a problem in the media, which is completely unregulated in a free society? Why blame the unions (when the Guild came in the 1930s working conditions on newspapers improved immensely) ?

    Finally, how many media executive in the past two decades who have invested in quality, whether it’s newspapers, television or online? Probably you can count them on the fingers of one hand.

    • http://howardowens.com Howard Owens

      “I am not sure how your railroad analogy applies to the crisis in the media.”

      Robin, I’m not the one who started comparing the railroad industry to the newspaper industry. Others did that many years ago.

      The point of the post is that the comparison is bad business advice because the railroad industry wasn’t damaged because the owners fail to perceive their industry correctly. They perceived it just fine, but the industry was largely killed off by unnecessary, burdensome over regulation.

      “Many of the railroad barons of that era were rather careless when it came to safety. ” Bunk.

      There is no evidence of carelessness of safety in the case of railroad owners who were not subsidized to a great extent by the government. Of course, there would be safety and other problems with any new and rapidly growing industry, but the word “careless” is out of place. No business owner is going to be “careless” in the area of his primary source of revenue. Being “careless” is what puts you out of business.

      “When national safety rules were imposed, railroad safety improved.” Safety was improving already. As the likes of Hill, Harriman and Morgan consolidated failing lines with their existing lines, the tracks were replaced and upgraded. There’s no evidence the government needed to get involved.

      “It is not clear whether some regulations were responsible for a lack of innovation …”

      Regulation is ALWAYS responsible for lack of innovation.

      But more importantly, when the capital that funds innovation is diverted from one industry to others because the poor prospect of a good return — which over regulation caused in the railroad industry — then of course there’s going to be a lack of innovation, no matter how great your vision.

      “How does too much government regulation cause a problem in the media, which is completely unregulated in a free society?”

      At no point do I say that government regulation has one whit of anything to do with media. Clearly, you missed the point of the piece.

      And I bring in the unions in the railroad industry — without mentioning the newspaper guild AT ALL — because it was one factor driving up costs for railroad owners, as further evidence to the the tired saw that they went out of business because they failed to perceive their industry correctly.

      The fallacy that the Newspaper Guild has been beneficial is entire other issue.

      “Finally, how many media executive in the past two decades who have invested in quality, whether it’s newspapers …”

      The point is, bad advice such as advanced by the gurus who compare newspapers to railroad has blinded leaders to the fact that the best way to concern yourselves with customers is to put out a better product. The newspaper decline started long before the Web came along, because of the lack of focus on quality (I’ve written quite a bit about this before).

  • vouchey

    I love railroads, but don’t know much about the business. As for newspapers, their success is dependent on two different sets of customers: readers and advertisers. You have to work to satisfy them both equally. And that’s what makes the business so interesting.

    • http://howardowens.com Howard Owens

      Satisfy the readers and the advertisers will follow. They’re really not competing interests.

  • http://www.facebook.com/andy.harris.75286 Andy Harris

    Agreed

  • http://www.facebook.com/andy.harris.75286 Andy Harris

    Agreed. The Customer Is The Boss (as well as the customer). Sometimes we forget that we need to listen to the customers so we can deliver want he or she or they want. Not the opposite (what we want or think they want). Get to know your customer !

  • http://profile.yahoo.com/ZTV752EB4NN4BV3BO4VPY6PJT4 Frank

    Newsrooms never changed with the demographics…They didn’t want to…….It would mean ushering out the old…and..bringing in the new…….THE WORLD WE LIVE IN VERY DIVERSE……Entrenched middle-aged white men whom run newsrooms…..Maybe they get it……Maybe they don’t…….You tell me???????

  • errostjessica

    I really agree with this post which is such a beneficial to people to know about newspaper. You should be delivered as per the customers requirement.