Saturday, March 19, 2011

Schumpeterian Gales of Creative Destruction: 10 Dying U.S. Industries on the Verge of Extinction

From the Special Report "Dying Industries" from IBISWorld:

"While the U.S. economy is headed further into recovery, not every industry is performing well. Industries go through life cycles, and largely speaking, these are growth, maturity and decline. Even in a recovery, declining industries continue to underperform, and within IBISWorld’s database of close to 700 industries, about 200 are in their decline phase. Of these 200, IBISWorld has identified 10 industries that may be on the verge of extinction in the United States:

1. Wired Telecommunications Carriers 
2. Mills 
3. Newspaper Publishing  
4. Apparel Manufacturing 
5. DVD, Game & Video Rental  
6. Manufactured Home Dealers 
7. Video Postproduction Services 
8. Record Stores 
9. Photofinishing 
10. Formal Wear & Costume Rental 

39 Comments:

At 3/19/2011 9:42 AM, Blogger sbw said...

Don't bet on the death of newsgathering, editing, and publication. There is still value there, particularly at the local level. Pundits fail to disaggregate national, regional, and local media, concentrating on the zombie nationals that should die. Also, journalism schools began to miss the point of journalism about the time of Watergate. Today, journalists try to make your decisions for you. That's dead.

 
At 3/19/2011 9:57 AM, Blogger juandos said...

"Don't bet on the death of newsgathering, editing, and publication"...

Hmmm sbw, isn't Ibis indicating the death of 'hardcopy' newsprint instead of the news itself?

Hey Professor Mark this Ibis papger is a great find, thanks for posting it...

 
At 3/19/2011 11:35 AM, Blogger morganovich said...

i would not bet on the extinction of wired telcom carriers.

those that have any sense are also data carriers.

the next jump will be fiber to the premise (FTTP) and they are well positioned to take advantage of it.

if plans like net neutrality go through, then you will see a rapid ship back to pay per use pricing (which is likely coming anyway in the next 5 years as metcalfe's law swamps moore's law). this will give carriers excellent revenue/cost control.

if you have ever had a FTTP link, you know that there is absolutely no substitute. wireless will not ever be able to compete with fiber on speed, bandwidth, or reliability.

 
At 3/19/2011 11:43 AM, Blogger Buddy R Pacifico said...

Newspaper Publishing

Newspaper publishing is "old media". What is the difference between old and new media besides paper and screens?

Here is what Slate writes about the Huffington Post:

"Old-media types don't feel right about rewriting the copy of their competitors and calling it a story. Huffington glories in carving the meat out of a competitor's story, throwing a search-engine optimized (SEO) headline on it, and posting it. She even claims to believe that she's doing the originator a favor by sending traffic back to it via a crediting link."

According to the Huffington Post the the New York Times goes paywall on March 28th. It further states that there will be a five-article limit for free articles that originate from search engines.

Is this the beginning of a beach head for old media?

 
At 3/19/2011 1:49 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 3/19/2011 1:56 PM, Blogger PeakTrader said...

The U.S. is a most dynamic economy:

Example:

COLORADO BUSINESS EMPLOYMENT DYNAMICS DATA
Colorado data for the quarter ending March 2007.

In that quarter, 146,688 private jobs were created (7.6 percent of total private employment)...131,774 jobs were destroyed (6.8 percent of total private employment)—14,914 net rise (0.8 percent).

Roughly speaking, this means between January and March 2007 one private sector job was created for each 13 existing jobs while a job was lost for every 14 existing jobs.

Jobs added from existing expanding establishments 115,669 (6.0%).

Jobs added from newly opened establishments 31,019 (1.6%).

Jobs lost from existing contracting establishments 106,576 (5.5%).

Jobs lost from closed establishments 25,198 (1.3%).

 
At 3/19/2011 2:42 PM, Blogger Jason said...

if you have ever had a FTTP link, you know that there is absolutely no substitute. wireless will not ever be able to compete with fiber on speed, bandwidth, or reliability.

This may be true, but will the additional bandwidth be useful to average users? For instance, will an additional 50% bandwidth be worth the huge cost when the vast majority of users are satisfied with the status quo? Personally, I don't have a need to go 4G...3G is perfectly fine for what I do wirelessly.

Of course, there will always be "gadget cool" fanbois out there, but will there be enough to force the change?

Recall the huge capital expenditures telecoms made in the tech bubble salad days of the late 90's. They still haven't recovered their costs and the terrestrial bandwith is still not fully utilized...primarily due to improvements in routers.

 
At 3/19/2011 3:30 PM, Blogger juandos said...

"This may be true, but will the additional bandwidth be useful to average users?"...

jason asks what might be the multibillion dollar investment question of the not to distant future...

Personally I think morganovich's comment about fiber optics into the business/home is on the money...

Consider the possibility of 3d transmission and the amount of bandwidth needed for that to work out...

I don't see wireless in the near future handling that...

 
At 3/19/2011 3:31 PM, Blogger juandos said...

Professor Mark, could you check the spam filter please...

I think one of mind is stuck there...

 
At 3/19/2011 3:41 PM, Blogger Mark J. Perry said...

Juandos, I just "liberated" your post...

 
At 3/19/2011 8:07 PM, Blogger morganovich said...

jason-

"This may be true, but will the additional bandwidth be useful to average users?"

absolutely. try watching an HD movie over 3g and see how you like it.

the pipes are already creaking under the very early stages of internet TV and internet based video on demand.

neflix online is 26% of prime time internet use and climbing.

add in hulu and all the others, particularly when you start getting multiple streams into each house, and the current structure is already woefully inadequate for the existing demand ramp.

as juandos commented, just wait until 3d streaming hits.

3g is a toy. internet via 3g is already slow. there are very severe bandwidth limitations associated with wireless. it will never be able to do video of any size and quality, particularly in a pipe that shared.

you only have so much spectrum, so much frequency to modulate, and so much gain from encoding modes.

 
At 3/19/2011 8:24 PM, Blogger morganovich said...

"They still haven't recovered their costs and the terrestrial bandwith is still not fully utilized...primarily due to improvements in routers."

first off, you are not correct about the costs for the access guys. sure, lots of dark fiber is still available, but that's backhaul. it does nothing for the last mile. ask comcast if their internet investments paid off.

second, you comment about routers is also inaccurate. they are the problem at present. i heard john chambers (ceo of cisco) speak about this precise issue.

the problem is that routers get faster with moores law. (doubling every 18 months) there is, unfortunately, going to be an end to that. it's not about possible, it's about feasible. to build a full size modern fab using the e-beam tech you need to make the next couple of geometry jumps, even if you can afford the fab, it will need the equivalent of it's own 3 reactor nuclear plant to run it.

but even if moore's law holds, it still gets swamped by metcalfes law. (the use of a network goes up at n^2) this was chambers's point. imagine a network of people sending video to one another and you'll see how this works.

the response is to make a dumber network and shift data passively (fiber brag gratings etc) and on individual bandwiths of multiplexed light.

if that hits an OE (optical to electrical) connection when it reaches the last mile, it's like taking a plane from SF to NYC and then sitting in traffic for 2 weeks getting from kennedy to your hotel.

that is why that last mile has to go optical. the additional costs and delay associated with the conversion are unmanageable any other way.

10 years ago, people were still happy with v.90 (56kbps)

now we need what, 5-6 mbps just to stream full sized HD video?

that's roughly a 100X increase in a decade. moores law only provided a 32X jump in power in that same period and this leaves out the power needed to run such systems.

 
At 3/19/2011 9:29 PM, OpenID Sprewell said...

It was weird to see the wired telcos at the top of this list: I bet they're just looking at the drop in phone line subs and not realizing that those same phone companies are increasing internet subs over the same lines, as morganovich says.

sbw, nobody said newsgathering is dead, only newspaper publishing, particularly at the local level. morganovich, wireless will never compete with wired for value and throughput- that's just an inherent technical limitation- but the wired oligopoly is so ineptly run that a lot of people look to wireless for liberation. I closely scrutinized this 4G pricing chart late last year as I very much wanted to ditch my wired internet service, to try and spur some competition in internet service. I would have had to download less video, which I considered doing, but ended up sticking with my cable internet because I have to buy strictly on value right now.

 
At 3/19/2011 9:29 PM, OpenID Sprewell said...

As these 4G networks get built out, there are now effectively 4-6 internet options for the light-to-medium internet user who Jason highlights, up from only 2 in most markets: that's big. Many will stick with wired so they can continue watching hulu, but there's a significant minority of internet users, say 30-50%, that will gladly ditch wired, particularly when that comes with the convenience of internet on the go. This is similar to the sizable minority who are now ditching their PCs/laptops for tablets, though the venerable home PC will probably always be around in some form or other.

Buddy, for every worthless website like the huffpo, I can list ten that put out original content that is much better than what you find in "old media." It is good to finally see the NYT get some financial sense, but a paywall will not save old media: they're doomed no matter what.

 
At 3/19/2011 9:51 PM, OpenID Sprewell said...

As for the streaming argument that morganovich makes and that various TV backers like Mark Cuban cling to, that's a canard. The future of online video is overnight downloads, not streaming. You'll set your Apple or Google TV to download your favorite shows overnight and watch them whenever. That's already what people do with Tivos, except they're currently saving the TV stream as opposed to downloading an online video. Streaming will always be a small portion of online video: the only reason some people assert otherwise is that they stupidly take the streaming TV model and impose it online, without realizing that internet tech is different.

 
At 3/19/2011 11:35 PM, Blogger Jason said...

that is why that last mile has to go optical. the additional costs and delay associated with the conversion are unmanageable any other way.

You are right about the optical/electrical conversion. This is where the bottleneck is and where the biggest technological challenges are. But...

Converting the last mile to fiber is the highest cost. This is where right of way is least controlled. Perhaps it makes sense in high density areas like New York or tech hubs like Seattle or San Francisco. But not in, say, Omaha or Walla Walla.

Morganovich, will people will download 3d movies when bandwidth is restricted or a pay for model is adopted by ISPs? And I'm all for knuckleheads downloading 3D HD movies paying more for the pleasure of doing so. Someone has to pay for it, right?

I wonder if it's possible we are at the optimum state presently, where the use/cost ratio is at a maximum. Any additional cost to provide more use only provides marginal benefit.

 
At 3/20/2011 8:46 AM, Blogger juandos said...

"Juandos, I just "liberated" your post"...

Thank you sir...

"The future of online video is overnight downloads, not streaming"...

Hmmmm sprewell, I seriously doubt that...

Walk through any airport today and every kid and many adults who's gotten a very nice smart phone or slick laptop (with the perquisite service contract) is watching something streaming on their device...

I see it everyday I walk into work at Lambert Field (St. Louis, Mo)...

 
At 3/20/2011 10:26 AM, Blogger morganovich said...

jason-

actually, fttp is mostly starting in suburban and more lightly populated areas. that's where all the major projects are right now.

it is the cities where it is too difficult at present. the costs to dig and build there are much higher.

it's easy to run a line to a single dwelling home, but even if you get optics to a new york city apartment building, then what? nothing built before the 90's has anything like the infrastructure you'd need to run fiber to the units. having a river come to the door is not very useful if it then comes to your apartment through a drinking straw.

i've been working with a number of FTTP CLECS and this seems to be the broad consensus at the moment.

regarding your idea about an "optimum" state, it's already falling apart. (and would disintegrate completely under net neutrality)

contrary to what sprewell is arguing, the demand is already there and already swelling at an accelerating rate. netflix on demand alone is 25%+ of prime time internet use. web video is now nearing 40%. note that this does not even include online gaming, which is also taking up more and more bandwidth as games become more complex.

http://techcrunch.com/2010/11/19/web-video-37-percent-internet-traffic/

up 10 full percentage points from a year ago.

http://gigaom.com/video/survey-online-video-up-to-27-of-internet-traffic/

the download and watch later model will never be able to compete with the convenience and variety of VOD.

far from being a canard, it is happening right now. i have no idea how you can possibly call a service that has taken up 10% of the internet in a year some sort of fabrication. the evidence overwhelmingly suggests otherwise.

if you want a business model that's going to die, take a look at TV channels. a child born today will likely have no idea what they ever were and find the of having to wait to watch a show at a certain time preposterous.

determining what happens under usage based pricing will then become purely a function of relative price.

a serious cable package will run you what, $85/month?

that's a great deal less than the $10 for netflix streaming. add on $0.50 per movie of download charge, and that's 150 movies a month.

i suspect that would be attractive to many people.

consider how many already pay far more to use cable PPV.

it's quite clear people are willing to pay $4-7 to watch PPV, so why would their preferences change online?

audio is a much smaller issue, but also one that will build up. the first generation of home audio systems (control4, crestron, meridian's soolos, and even low end stuff like sonos are now enabled for pandora and rhapsody.

i stream music to my house nearly all day.

if a meaningful percentage of folks begin to do this over the next 5 years, that too will be a huge deal for the net.

i, for one, will happily pay the sub fees and eventually the internet charges to get that kind of control over content and no commercials.

 
At 3/20/2011 11:03 AM, Blogger morganovich said...

dr perry-

you seem to have impounded one of my posts as well.

perhaps your spam filters are set a little bit too tightly as this seem to happen frequently if you include more than one link in a post.

 
At 3/20/2011 11:06 AM, Blogger morganovich said...

the upshot of it was that, contrary to sprewell's claims, VOD over the internet is anything but a canard.

it is 37% of prime time internet traffic, up from 27% a year ago. 10% of the internet in a year seems awfully real to me.

download and play can never compete with the variety and convenience of VOD. the evidence is overwhelming that it is already losing.

 
At 3/20/2011 11:16 AM, Blogger morganovich said...

jason-

FTTP is predominantly a suburban phenomenon at present and will be for the next couple years.

running fiber to a single family home is easy. running it to an NYC apartment building is not. not only are the permits more difficult to get and the digging much more expensive, but one you get it to the building, then what? nothing built before the mid-late 90's can handle an easy fiber upgrade. how do you get it to the apartments?

a river of data to the building is not very useful if it gets to the apartments through a drinking straw.

regarding pay for use, that's just a question of cost. a serious cable package is what, $85/month? netflix on demand is $10. pay 50 cents per download in internet charges, and that's 150 movies a month. i suspect many people would find that attractive.

consider how much money is spent on $4-7 PPV now. this demand will (and is, look at what amazon is doing) shift to the net due to greater selection.

and this leaves out streaming music which will become a bigger deal as home systems increasingly incorporate functionality like rhapsody and pandora.

and then we come to online games, also a likely contributor going forward.

and this does not even hit on the potential metcalfian disaster than widespread video chat will bring.

far from currently being at an optimum, we are currently in a completely untenable situation in which demand is far outpacing bandwidth possibilities with no clear end in sight.

we either need to move to a dumber core and fiber to the home, or prices are going to spike and internet use will moderate. i view the latter as an unlikely medium term outcome. those high prices will attract all manner of market entrants and investment looking to capitalize on it. the demand is there, and the net will evolve to serve it. it seems to me that making any other bet goes against all internet history and economic sense.

 
At 3/20/2011 12:21 PM, Blogger sbw said...

IBIS: the overall business model is struggling to survive. In particular, advertising dollars have shifted dramatically away from newspaper publishers and now toward the web.

For 150 years newspapers have depended on retail advertising to support 75% of publishing news. That model doesn't have to work any more if news is not published expensively on paper. We can charge $6/month - cable channel rates - and make money for the value editors add to news.

IBIS wrote a space filler article. It would have been better to ask how, with retail/mfg declining, the economy will put dollars into households. Match sectors 1875-1925 with 1975-2025 to appreciate the issue.

Don't cry over local newspapers. They will survive.

 
At 3/20/2011 2:50 PM, Blogger Ron H. said...

juandos

"Consider the possibility of 3d transmission and the amount of bandwidth needed for that to work out..."

Thanks for the hard to read link. :-) I had to renew my subscription to "Acronyms-R-Us" before I was able to understand it.

 
At 3/20/2011 4:19 PM, Blogger morganovich said...

j-

FTTP is largely a suburban issue. it's cheaper and more effective. it's easy to run a fiber to a signle family home. to run it to a manhattan apartment building requires more permits and much higher costs, but the real issue is "then what do you do?". anything built before the late 90's will not have the ability to handle fiber. running a river of data to the building is useless if it gets to the units through a drinking straw.

 
At 3/20/2011 4:25 PM, Blogger morganovich said...

regarding pay for use, that's already a proven model. look at what is spent on pay per view annually.

if i can get streaming for $10/mo vs the $85 i'd pay for cable, the 50c it costs for data to stream a movie is no big deal. even at $1, it's still pretty attractive, and it's difficult to see how it could cost that much.

 
At 3/20/2011 6:24 PM, Blogger juandos said...

" I had to renew my subscription to "Acronyms-R-Us" before I was able to understand it"...

You know Ron H its only going to get 'more acronym' rich in the near future too...:-(

Then again it could all become unnecessary thanks to an interfering federal government...

From Popular Mechanics (via Instapundit): Inventors: Patent Reform Could Stymie American Ingenuity

 
At 3/20/2011 8:28 PM, OpenID Sprewell said...

juandos, are those people in the airport watching youtube or hulu usually? Because if they're using youtube, they're actually downloading, not streaming, while I presume hulu uses streaming, though I haven't checked. Of course, youtube has a lot more users than hulu, so there's probably a lot more downloading going on. Anyway, that's largely a technical distinction as my point was about overnight downloads, but it's worth noting.

morganovich, as I pointed out, much of VOD/web video is actually downloads. Nobody said online video hasn't done well, downloaded video is online video too. And we're in agreement that the TV model will soon be dead. :) I completely agree that usage-based pricing with no ads will be the dominant model, though that probably puts us both in the minority. ;) Yes, overnight downloads are a bit more inconvenient than on-demand, but they will be cheaper and people will respond to that. Download your favorite TV show overnight? 50 cents. Download it right now at 6 PM? $1.25.

 
At 3/20/2011 8:34 PM, OpenID Sprewell said...

I agree that various forms of on-demand video are doing well right now, but the fact is the vast majority of time spent watching video is still on the old TV technology. The question isn't what model is doing well online now, the question is what model people will use when all those TV shows finally move online for good. Right now people have a choice, they can pay and download commercial-free through Apple TV or they can stream with ads on hulu. I'm saying that the former model, combined with overnight downloads because those are more efficient, will be the dominant one. I agree that video conferencing, which by definition is streaming, ;) is going to be a huge challenge to the current network infrastructure and billing.

The fundamental disagreement here is that you seem to think that the only way out of the coming video avalanche is to overbuild network capacity by even more. I'm saying that the coming tsumani will finally force us to start using that network more efficiently, by sending video overnight, when the tubes are fairly empty just like our roads at night.

 
At 3/20/2011 8:35 PM, OpenID Sprewell said...

The argument usually made against that is that people are too used to instant gratification, either from flipping the TV on or jumping on youtube. I say those aren't pertinent examples because when you flip the TV on, you usually get crap, unless you flick it on at the right time, and the currently snack-sized web videos are not what most online video will consist of when longer form TV-style shows finally move online. Many people already use Tivos and watch later because they want to skip ads, that type of delayed watching will be the dominant model for most online video, ie overnight downloads, because it is simply more efficient for the network and people are fine with doing it.

 
At 3/20/2011 8:36 PM, OpenID Sprewell said...

sbw, the question isn't whether news gathering will survive, of course it will, the question is whether the existing news gathering organizations like the NYT or CBS or the Chicago Trib will: I say none of them will. This is because the online market is completely different and they have no idea how to navigate it, as has been shown already in a variety of ways. So yes, there will be a thriving online news market where reporters get paid, but none of the old media orgs will survive to see it. ;)

 
At 3/20/2011 9:11 PM, OpenID Sprewell said...

Sigh, right as I was trumpeting the increased competition for internet access, one of them was getting taken out, as the cartel consolidates further.

 
At 3/21/2011 6:26 AM, Blogger juandos said...

"juandos, are those people in the airport watching youtube or hulu usually?"...

sprewell, what's the hottest thing on television right now if one is a sports fan?

The NCAA play-offs, right?

Walking through the airport that is all I see being played on what seems like every slick wireless gadget in the hands of boys and men...

What's also interesting is NetFlix and what women seem to be watching...

Regardless though whether its downloading a video clip or streaming a live event its still all about the bandwidth...

 
At 3/21/2011 7:57 AM, Blogger sbw said...

Sprewell: the question is whether the existing news gathering organizations like the NYT or CBS or the Chicago Trib will

I agree. That's what I said in my first post. But they will fail not because of IBIS valid observation of the loss of retail advertising, but their 40-year (since Watergate or TET) decline in understanding what journalism is supposed to do -- not make your decisions for you but improve the accuracy of your mental map of the world, so you can make better decisions yourself. Nationals are suffocating in their bubble. People don't pay for stupid.

 
At 3/21/2011 1:59 PM, Blogger Luis said...

"Don't bet on the death of newsgathering, editing, and publication"

sbw, in my town the local newspaper is giving away its paper for free on Wednesdays. They are doing everything they can to keep their advertisers.

 
At 3/21/2011 5:39 PM, Blogger Voxpopuleye said...

I'm guessing travel agents are "dead understood." When can we expect traditional real estate agents to join those ranks?

 
At 3/21/2011 5:48 PM, Blogger Voxpopuleye said...

All of the sudden "hyper-local" news is all the rage. This assumes most busy people truly care THAT MUCH about their city councils and neighborhood happenings. Just watch what happens at Patch.com in the coming months. They're already cutting back on local budgets.

I'd just like to get everyone's take on real estate agents. I'm sensing a repeat of what happened with travel agents; just as easy to get most of that info. on-line and cut the fat out of commissions.

 
At 3/21/2011 5:50 PM, Blogger Voxpopuleye said...

Sorry for the duplicate post.

Now I know how Mel Tillis felt when he wasn't singing.

 
At 3/21/2011 10:00 PM, OpenID Sprewell said...

sbw, so I guess we're agreed on a fair amount, but the only reason I keep responding is that you seem to think some old media organizations, perhaps only the local ones, will survive, whereas I see them all dying. As Luis and Vox point out, local papers like the Yuma Sun have been hit hardest, presumably because they don't have the scale of the nationals (or maybe just don't have billionaires like Zell or Helu looking to bail them out). My point is that all the old media orgs will die and good riddance. :) However, if their reporters are any good, they can keep blogging online and will eventually be able to make money that way. I see a sea of bloggers replacing the old newspaper model, it's going to be great. :D

 
At 3/21/2011 10:00 PM, OpenID Sprewell said...

Vox, real estate agents will be hit hard like most middlemen, 60 minutes had a piece on how real estate sites like Redfin are disintermediating them.

 

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