Rupert Murdoch once stated that “the internet will destroy more business than it creates.” At the time, in 1999, the statement was in sharp contrast to the overwhelming positive view of the internet’s future. Murdoch was right, however. Here is a short list of some of the major industries that have been either destroyed or fatally wounded by the internet.
The Destructive Nature Of The Internet
Radical changes in an industry that depose the leading vendors usually occur when some event occurs that “liquefies” the status quo.
Usually this means that the benefits or services provided in that industry suddenly become more readily available or drastically cheaper in a newer form, often presented by a new company.
Since the internet is essentially a global “free” distribution system, the industries that have been destroyed are those where distribution of a product or service was controlled, but the product or service could be digitized and distributed on the internet.
It is these businesses, where control of distribution was transferred to the free platform of the internet, where Rupert Murdoch’s prediction of destruction has come true.
Here is a short list of some of the major industries destroyed by the internet.
- The Music Industry
- The Newspaper Industry
- The Television Industry
- The Travel Agent Industry
- The Stock Brokerage Industry
- The Yard Sale
In the next paragraphs, we will examine each of these industries briefly.
The Music Industry
Perhaps the greatest collapse of all has been the changes brought about in the music industry.
Established record companies controlled distribution of physical music product.
This was the root of the power of music companies. It was virtually impossible for a musical artist to sell physical music products (records and tapes) without a recording contract from a record company.
The only real power that record companies had, however, was control of the distribution system. Although competition between companies and between artists prevented any single company from achieving a controlling monopoly, the control of distribution was strong enough to ensure that the rewards of the business were concentrated at the record company, not recording artists or record stores.
The digitization of musical products and the illegal and legal downloadable music has completely destroyed the music industry of the 1980s and earlier.
Although the internet did create a new business model for music, with the iPod and iTunes downloadable song format, the collapse of the major record companies like Columbia, Atlantic, and Capitol Records has been far greater in size than the Apple music business has become.
The Newspaper Industry
Newspapers are a dying breed, as everyone knows, but it is easy to forget just how big newspapers once were.
As late as the 1970s, many newspapers still ran an early and late edition, in order to provide people with the “freshest” news possible.
But the entire newspaper industry has been fatally wounded by the widely available free sources of news on the internet.
In fact, the newspaper industry may only continue to be around today because of the older generation who subscribed to newspapers their entire life and continue to do so.
There is an ancillary trend to the decline of the newspaper industry of a change in the “quality” of journalistic reporting on the internet, but we will avoid discussion of that trend for now.
The Television Industry
The television industry has been severely eroded in its history twice: first by the introduction of cable TV, which diluted the concentration of power in the broadcast networks, and the secondly, by the internet, which made content available both legally and illegally, both with and without advertisements.
The primary impact that the internet has had on the television industry is the sharp drop in the price that can be charged for commercials.
In the broadcast era, before the advent of VCRs (video cassette recorders), the major broadcast networks could command premium prices for commercials shown on popular shows.
For the most part, the only place where major networks have retained the ability to charge high prices for commercials is with sporting events. These events lose their value in rebroadcasts, and the core audience that advertisers seek are present only at the live broadcast.
Since the “audience” for a popular television show, such as South Park or The Simpsons, can be as large on the internet as it is on television, an advertiser who purchases a commercial on these shows may never reach much of the intended audience.
We have always believed that when the personal computer and the television become fully integrated (which has still not completely happened), the television industry will become even more substantially weakened.
There is no reasons, for example, that television shows be broadcast at a certain time. The future is very likely to be on-demand television shows, displayed on your television as easily as they are today, but without an intermediary distribution system, such as satellite or cable TV.
Although the broadcast TV systems do still exist, the number of people reached by free broadcast TV is so significantly smaller than that reached by other methods that it is virtually irrelevant to advertisers. After all, persons who receive TV by broadcast only are either poor or culturally adverse to television culture. Either type is of little interest to advertisers.
The Travel Agent Industry
Often overlooked when discussing the impact of the internet, the travel agent industry has been substantially altered.
There was a time when everyone purchased their airline travel either from the airline directly, at a ticket office or at the airport, or from a travel agent.
A “good” travel agent usually took the time to provide you with a list of options for you to select, from various airlines. You choose your selection and the travel agent printed the ticket for you.
Travel agents today have completed transformed their business. Instead of selling tickets as their primary source of revenue, successful travel agents have become “vacation planners and consultants.”
Items such as cruises, or complete resort package vacations are now the vital products of the industry. The “expertise” provided by an agent’s knowledge are what a customer expects, not simply a list of travel options.
Travel agencies that did not make this transformation simply do not exist anymore. Travel agencies that have made this transformation have done so with great difficulty, but some have become quite successful in this new field.
It is hard to quantify just large the travel agent industry was, but since most commissions of airline tickets approximated 10%, and the vast majority of tickets were purchased through agencies, it is reasonable to think of the industry as roughly 5-8% of the size of the airline industry.
In the 1970s, 80s, and 90s, that was a very large industry. Today, it is gone.
The Stock Brokerage Industry
The internet also destroyed the stock brokerage industry.
Prior to the advent of online trading, it was necessary to contact a stock broker to make a trade. For the most part, these were persons with whom a client developed a long standing personal relationship, based on trust and history.
Today, the very term “stock broker” is obsolete. Those individuals who do make stock transactions on behalf of client instructions position themselves today as “financial advisors.” The business model is often based upon a percentage of assets managed, not on a per-transaction fee as in the past.
The per-transaction fee always had a built-in conflict-of-interest, but most persons found ways to be comfortable with this.
The internet’s introduction of online trading completed destroyed the stock brokerage industry. The days of brokers being called into early-morning meetings and being told how to “make $1,000 in commissions today” are long gone.
Just as there was an ancillary argument as to whether the newspaper industries collapse was bad for journalism, there is an argument that the disappearance of stock brokers has hurt individual investors. We will also avoid discussion of this argument for now, although it is one we take quite seriously.
The Yard Sale
Lastly, the yard sale, or garage sale industry, if there is such a thing, has been almost completely destroyed by a single company: ebay.
This particular industry transformation is unique and interesting in its own way, however.
In contrast to the general idea that a larger market generally lowers prices, due to greater competition, the “garage sale” industry seems to have increased the prices of many items, particularly older items.
Prices had to be low at garage sales, since the seller only has access to those customers who show up on the one particular day of the sale.
The ebay model not only makes it easy to extend the sales period, it attracts far greater audiences.
Certainly garage sales still exist, but for the most part, what used to be sold for pennies on tables in the front yard on a Saturday, now can be sold on ebay for more.
The Destructive Nature Of The Internet
When Rupert Murdoch made his famous quote, he was very focused on industries where distribution was controlled by core companies.
When the products and services in that industry could be digitized, the destruction of the distribution systems led to the destruction of those industries.
There is no question that the internet has been a positive growth force in the economy, not just in the US, but globally.
But it is also worth remembering that the internet has left a lot of destruction in its wake, as well.
Comments may be emailed to the author, Robert V. Green, at email@example.com