To Find Riches in Information, Ignore the Hoopla
If you’re wondering what all the talk about information industry really means, don’t look for answers in the big media deals--the $10-billion bidding for Paramount Communications or the $21-billion linkup of Bell-Atlantic and Tele-Communications Inc.
Look instead to less ballyhooed companies in publishing and newspapers. Look to McGraw-Hill Inc.
McGraw-Hill, a 105-year-old company that began when James McGraw, a teacher, published a magazine about trolley car railways, is today the $2-billion publisher of Business Week and other magazines, a textbook publisher and a provider of specialized information for industries and financial markets.
Compared to the New Age glamour of Sumner Redstone’s MTV and John Malone’s TCI, McGraw-Hill is outwardly as exciting as mittens and hot chocolate.
But after transforming itself in the last 10 years, McGraw-Hill is a prime example of what the information industry is and how it works. The way it has adapted information services and book publishing to computers is a good indicator of the resilience and likely future of the newspaper and magazine industries.
The future was no secret when Joseph Dionne, a former teacher himself with degrees in education from Hofstra and Columbia universities, became McGraw-Hill’s chief executive in 1983. “Everybody knew that computers and publishing would combine, but nobody knew how,” Dionne says.
The combination began in McGraw-Hill’s specialized information business, which supplies detailed construction reports to contractors and real estate investors and lenders. Some reports were weekly, others were monthly, and yearbooks were published. It was a high-cost business about to collapse, as Dionne describes it, “with 19 regional plants printing details of construction projects on hard-to-read sheets of paper.”
So McGraw-Hill put the service on computer lines, began selling up-to-the-minute information--and attracted customers it never had before. Printing in 19 locations was dispensed with, although paper is still used when customers want printouts to consult while traveling.
In financial information, McGraw-Hill put its Standard & Poor’s stock service on line along with information for bond trading, the oil industry and others. But it didn’t put a terminal in customers’ offices as Dow Jones, Quotron, Bloomberg and other market services have done. “My customers, the big investment houses, have their own internal networks. They don’t want a machine from me; they want information,” says Dionne.
McGraw-Hill also made information available on compact discs so that customers could correlate industry data with internal company spreadsheets, again following a consistent pattern that the information age means greater customer choice.
Choice is carried to a surprising degree in book publishing. McGraw-Hill offers college professors libraries of hundreds of readings and asks what kind of textbooks they want for their classes. A professor can then choose readings and specify in what order they should appear, and McGraw-Hill will beam the “book” electronically to the college bookstore or other desktop publisher. Books can be created in 48 hours, and extras can be delivered with a flick of the database.
Contrast that with traditional publishing, printing thousands of volumes, hoping they all sell, filling warehouses with remaindered books. The cost savings of the information age are impressive.
The lessons of the last 10 years for Dionne, now 60, are that McGraw-Hill was fortunate to change when it did. “Business information has to be instant today,” he says, meaning there is less opportunity for trade magazines. Dionne sold Chemical Week and Electronics magazines in recent years, and the company, which was 60%-dependent on advertising revenue a decade ago, is 26%-dependent on ads today.
Instead it sells information directly to customers via computer lines. Information sold that way is more timely and therefore more valuable to the customer. Yet the cost of delivering it electronically can be lower, so the business is more profitable.
It’s a business poised to grow as avenues for information multiply. “There will be many wires into the home,” Dionne says. But he isn’t interested in fighting with telephone companies to own those wires--he reckons any system will carry McGraw-Hill’s information. The company is experimenting with beaming parts of Business Week to readers with specific interests.
That’s the way ahead for newspapers too, predicts technology expert George Gilder, who sees the information industry finding its real beginnings in newspaper and magazine links with computers. In Gilder’s vision, as excerpted in a recent issue of Forbes, newspaper readers will scan stories on a “front page” and then click a button for more information or greater analysis. Advertisements will “open up” to more detailed information, in pictures and voice. In a sense, readers will become the “editors,” accentuating what they want to read.
In fact, many newspaper companies are already working on such innovations. Away from the glare of big media deals, they are identifying customer preferences, working on technology and fashioning their information-gathering and organizing capabilities--their real strengths--for the demands and opportunities of the information age.
Note well: It’s called the information age, not the age of mergers, or of media.
