Presentation to the AIA Communications Council
Thank you for the opportunity to be here today.
I’ve been looking forward to this meeting since Alexis Allen first invited me a month ago, because I used to teach media-military relations at Georgetown University and even published a book on the subject in the early 1990s.
I view media coverage of the defense industry as a subset of the broader defense beat rather than a form of business news, since journalists often apply standards to their reporting about defense companies that they would not use in discussing purely commercial enterprises.
The double-standard arises partly because the defense industry is the only sizable part of the private sector that is totally dependent on the federal government for its revenues, and partly because of the unique moral concerns surrounding the conduct of war.
Those factors lead reporters to write the kind of searching inquiries into the origins, costs, design features and performance of defense-industry products that are only rarely seen in the coverage of other sectors.
So I think that providing a public face for the defense industry, as many of you do, is a good deal different from representing Microsoft or Ford.
What I’d like to do for about twenty minutes today is explore three topics that bear directly on the communications challenge you face every day…
— First, I want to look at how several major trends in the defense sector have complicated the task of explaining it to outsiders.
— Second, I want to look at how some corresponding trends in the media sector are altering the character of the outlets with which you deal.
— Then, I will conclude with a few lessons about how you should be trying to explain your companies in a rapidly changing media environment.
After that, I’d be happy to engage in some Q & A.
Before I embark on my three topics, though, I want to give you a word of warning up front.
I am temporarily operating with a deficit of five teeth in my mouth as I await the arrival of dental implants.
That has made it a little harder than usual for me to form phrases such as “multi-platform radar-technology insertion program.”
If someone had asked me a year ago where I most needed implants in my body, I think my mouth would have been around ninth or tenth on the list.
But as they often say these days at the White House, we are where we are.
So if I occasionally slur a word in my remarks today, don’t worry — I haven’t overdosed on allergy drugs.
Defense Industry Trends
Let’s turn to that first topic I mentioned, the big trends in the defense sector that are making it harder for reporters to grasp what your companies do.
Obviously, the biggest trend in the sector over the last several years has been the rapid increase in demand since 9-11, which has restored the buying power of military investment accounts to the levels of the Reagan defense buildup.
In inflation-adjusted dollars, today’s military budget is as big as anything we’ve seen since World War Two, and even though personnel costs make up a larger portion of the bill than in the years before the all-volunteer force, there’s no question the defense industry has been a big beneficiary of surging defense outlays.
That trend by itself would attract media attention to the defense business, but there are three other macro-trends in the sector that have made it harder for you to tell your story.
First of all, there has been consolidation among first-tier suppliers.
Back in 1993, when then-Deputy Defense Secretary William Perry predicted that two-thirds of prime contractors would have to exit the sector due to falling demand, the first tier of the industry consisted of about twenty medium-size companies.
Most of those companies were relatively simple enterprises with a handful of signature products…
— Hughes made satellites and electronics.
— Rockwell made aircraft and munitions.
— Northrop made airplanes and electronics.
— Litton made warships and electronics.
And so on.
Even the biggest suppliers in the sector, like General Dynamics and McDonnell Douglas, were pretty easy to describe in terms of what they sold to the military.
But the decade following Perry’s so-called “Last Supper” saw a wave on consolidations that really did shrink the ranks of top suppliers by two-thirds.
The new combinations that emerged weren’t just bigger in a few key lines, they were defense conglomerates with many more products that made them harder for outsiders to understand.
Who could have imagined in 1993, for example, that Northrop — which then derived most of its sales from aircraft — was destined to become the biggest shipbuilder in the Western Hemisphere, not to mention a key player in orbital reconnaissance, military networking and technical services?
The official justification for letting a handful of companies gobble up the whole sector was that military demand was expected to be depressed for decades after the cold war ended, and therefore growing more diverse was the only way that defense contractors could stay viable in the lean years ahead.
Nobody realized that within a decade demand levels would bounce back to Reagan-era levels, so when they did the sector ended up dominated by a handful of very complicated behemoths.
Now, the consolidation trend may have made each company harder for outsiders to fathom, but it didn’t necessarily make the sector as a whole any more complicated — after all, defense companies still made warships, airplanes, missiles and tanks, right?
Well not entirely, because as the consolidation wave of the 1990s was playing out, two other trends appeared that eventually altered the core competencies and end products of the sector.
One of those trends was net-centricity, the growing emphasis on networking that grew out of the information revolution.
Net-centricity provided much of the impetus for military transformation because of the way in which better connectivity was thought to facilitate agility, awareness, precision and cooperation.
We’re still waiting for all that functionality to arrive in places like Fallujah, where our high-tech force is taking a beating from a rabble of poorly-resourced religious fanatics, but here in America the enthusiasm for networking transformed the defense marketplace.
The surviving defense contractors discovered that while policymakers weren’t all that enthusiastic about replacing traditional war-fighting platforms, they were very interested in complicated networking schemes that were potentially just as lucrative.
And so within a few years after the new millennium began, Boeing — traditionally just a big airplane company — found itself building the most ambitious battlefield network and the most capable tactical radio ever conceived.
Meanwhile its business planners were pursuing a contract to develop next-generation communications satellites with laser cross-links and data throughputs measured in gigabits per second.
As in the earlier example of Northrop, the notion that Boeing might one day be the lead contractor on a hundred-billion-dollar networking project for the Army would have seemed very improbable a decade earlier.
But by the end of George W. Bush’s first term in office, every major military contractor was so deeply engaged in such “transformational” projects that they were creating new business units to execute them.
Each of the new divisions had phrases like “system integration” in their names, and therein lay the second public-relations challenge of the last several years for the sector.
Unless you’re an engineer, all of the big networking projects sound pretty much the same — arcane and technical and thoroughly boring.
They may portend a revolution on the modern battlefield, but explaining them to reporters or selling a story about them to editors is not easy.
Obviously, when you have collection of look-alike divisions building look-alike networks that sound impossibly complicated, that doesn’t make it any easier for you to differentiate your company or product from the competition.
If one of the networks had caught Osama bin Laden that would have been different, but right now the military networking revolution is still in its infancy, so good luck on explaining it to reporters whose college degrees are mostly in the liberal arts.
And then there is that other trend playing out in tandem with networking — the migration of military markets out of hardware and into services.
The growing share of military purchases claimed by services shouldn’t come as any surprise, since the commercial economy has been following a similar vector for three decades.
But if you’re accustomed to thinking of the defense industry as consisting of companies that turn out high-tech hardware with unique military applications, then it’s going to be a little hard to grasp the emerging business mix at places like Lockheed Martin.
Lockheed’s services unit is not only well on its way to being the biggest source of corporate revenues, but it also is leading company efforts to diversify federal sales away from military-unique activities.
Trends in the services part of the business are so strong that Lockheed shifted its financial metrics a few years back to more accurately reflect the contribution of services to the company’s bottom line.
That same trend is playing out at other big companies like Boeing, where margins in the services unit sometimes exceed those achieved in hardware lines.
The migration into services is good news for defense companies facing a potential leveling off in military hardware outlays during the years ahead, but like the boom in networking, growth in services complicates your job as communicators.
Compared with Lockheed’s aeronautics or space units, its services business is a very complex portfolio of competencies and clients that is not so easy to explain to the uninitiated.
Other companies face a similar communications challenge, because the composition of demand in the defense sector is changing quite markedly from what was seen in the cold war, with information services, logistics, linguistics and other technical services looking like major growth areas.
So the bottom line on all of these defense-industry trends is that the sector looks increasingly diverse and difficult to understand for outsiders, meaning those whose job it is to represent the industry will have to work harder to tell their story successfully.
Media Industry Trends
Let’s turn now to that second topic I identified at the outset, the trends that are rapidly transforming the media sector.
I guess I don’t need to tell you that the media sector has been on its own roller coaster over the last several years, but unlike in the defense sector the ride for the media has been down, down, down.
This has produced a wave of mergers and reorganizations not unlike what the defense industry went through in the 1990s.
In recent months…
— The Knight Ridder newspaper chain has been broken up.
— The Tribune Company has been taken private.
— The Thomson Corporation has acquired Reuters.
— Rupert Murdoch has made a bid for Dow Jones.
— And the management of the New York Times Company has been challenged by dissident shareholders.
The media landscape is changing rapidly, especially the part of it you deal with most frequently that we call the news business.
I want to focus on three trends in the news business that seem to be transforming the outlets and cast of characters who report about the defense industry, with both good and bad consequences for you.
The first trend is the decline of print, a long-term pattern likely to persist for the foreseeable future.
By print I mean the traditional hard-copy information sources that still form the core of the news business, most notably newspapers and magazines.
The business outlook for major newspapers is one of unremitting gloom, with daily circulation declining at an annual rate of roughly 2.5% and advertising revenues falling even faster.
For example, it was reported last week that the flagship newspapers of the Tribune Company all suffered circulation losses in the most recent reporting period…
— The Chicago Tribune was down 2%.
— The Los Angeles Times was down 4%.
— And Long Island Newsday was down 7%.
Coming on top of similar slippage in previous reporting periods, the erosion of circulation was dispiriting enough, but then on Tuesday of this week Tribune disclosed that April advertising sales were down by a stunning 10% year-over-year.
The same story is unfolding almost everywhere in the newspaper business.
Even at the handful of big papers where circulation is stable such as USA Today and the Wall Street Journal, advertising revenues seem to be in a long-term slide due to the competition from other media.
Now, declining circulation isn’t anything new for newspapers, which have lost about 16% of their readership since circulation peaked in 1984.
What is new is the speed of the erosion, and the even faster drop-off in advertising dollars.
In response, the big metro newspapers are shrinking their pages, offering buyouts to long-time reporters, paring their Washington bureaus and eliminating foreign coverage.
The Boston Globe recently eliminated its foreign desk — not just its foreign correspondents, but the whole section of the newsroom responsible for overseas news.
A similar trend is playing out at the big weekly newsmagazines, with industry leader Time Magazine cutting guaranteed circulation from four million to a little over three million earlier this year.
Time, Newsweek and U.S. News now collectively reach less than nine million subscribers each week in a country of 300 hundred million people.
The erosion of audience and ad revenues for printed news media means there is less staff and less space to cover every type of news, including news about the defense industry.
Thus, you probably will have less reason to worry in the future about scrutiny from the Washington Post or Newsweek, but face more of a challenge in generating positive coverage about your companies.
I notice that the Post didn’t manage to report the most recent quarterly results for General Dynamics in its daily editions, even though GD is one of the biggest companies headquartered in the metro region.
A second macro-trend that I see playing out in the media sector is the decline of television as a major news source.
That trend may seem counter-intuitive to you, since the conventional wisdom for the last thirty years has been that news consumers are abandoning print for network and cable news sources.
Well, it isn’t so — the evening news programs on the big three networks have lost an average of one million viewers annually in each of the last 25 years, while the combined prime-time audience of all cable news outlets represents only about one percent of adults nationally.
There was a time, back when I was an under-graduate in Boston, that the evening news programs on CBS, NBC and ABC were viewed by half of all the households with televisions and 85% of the televisions actually turned on at the dinner hour.
Today, only 18% of households watch the network news, representing barely a third of the sets turned on at that hour.
It appears that the combined audience for all three evening news programs on the networks will be about 25 million on a typical night this year, while the average evening news audience for the four cable channels together will be around one-tenth of that level.
So even if we assume multiple viewers of many televisions, four out of five Americans seem to doing something else with their evenings.
Furthermore, when you look at what actually passes for news on television these days, I’m not sure we would have called it news back in the days of Walter Cronkite and David Brinkley.
For example, the highest-rated “news” program on cable is Fox’s Bill O’Reilly, but is it really accurate to call that news?
Now, I don’t want to ignore the very sizable audience for local news that television generates, but the trend data for television ratings make it clear that there is relatively little appetite for national or international news in the average viewer’s home.
Which brings me to the third trend I see reshaping the news business — a trend I suspect some of you will be skeptical is actually occurring.
I don’t think it’s just print news or television news that is losing its audience, I think the whole idea of news is losing ground in the marketplace.
News as we know it today is a relatively recent phenomenon, a sort of mass consensus about what matters from day to day that came into being with the emergence of the penny press in the late 19th Century.
Prior to that, keeping up with national and international events was mainly a preoccupation of wealthy and educated elites.
Normal people didn’t read a daily paper because they either couldn’t read or they couldn’t afford the cost, and there was no other way of keeping up with developments on a daily basis.
Once the penny press came along in the form of Joseph Pulitzer’s New York World and William Randolph Hearst’s New York Journal, the concept of news coalesced around a handful of beats that subsequently carried over into news-weeklies, then radio, then television.
But the persistence of news as a popular commodity was tied to the concentration of media ownership in a few hands, so when media markets began to fragment with the advent of cable and the internet, agreement on what content mattered began to break down.
What we are seeing today in the news business isn’t so much the waxing or waning of specific media, but the erosion of consensus on what should be regarded as important.
The internet is a good reflection of this, because although many consumers turn to online sources for news now, the average online user only looks at the news for six minutes — compared 30 minutes for people reading a paper or 15 minutes for those watching television news.
The online consumer then moves on to whatever else interests him or her, presumably something that would not fall within the traditional definition of news.
So the biggest challenge that you and reporters alike will face in the years ahead is that most of the potential audience simply doesn’t care about what you have to say, and it now has plenty of other places to turn for content that is more appealing.
Obviously, that’s a bigger problem for journalists than it is for you, though, because you will increasingly have the luxury of only playing on a story when you care about it, secure in the knowledge that most of America isn’t paying attention anyway.
Lessons for the Future
That brings me to five lessons that I think can be derived from what I’ve said about recent changes in media and the defense industry.
I’ll run through them quickly, and then we can have an exchange on whether I got the lessons right.
First of all, you can’t expect past levels of defense-industry coverage from traditional media because the outlets no longer have the resources to sustain the beat and their audience isn’t really interested.
When you’re in a fight for survival as newspapers and network news are, you have to focus on what the audience really wants, and coverage of the defense industry usually isn’t very high on the list.
Second, if you still crave detailed coverage of your corporate performance and programs, you increasingly will have to turn to news services like the Bloomberg, the trade press and on-line outlets.
News services in particular are likely to become more important to you in the years ahead because their content is taking the place of coverage previously provided by the Washington bureaus of major papers.
Third, it will become increasingly easy to target your messages to specific groups because of the way the media and its audiences have fragmented.
People who read blogs tend to be under the age of 40, while the average age of network-news viewers is 60, reflecting the fact that the news audience is becoming more segmented rather than more integrated.
Fourth, opportunities will grow in the future to package your own news product, because new media are hungry for free content and the barriers to media access have been lowered.
When you consider the fact that the entire newspaper industry spends as much on news and editorial content in a year as Lockheed Martin generates in sales every eight weeks, it probably isn’t going to be hard for you to match the quality of what other sources are generating for the media.
Finally, if you still insist on trying to reach a mass audience without relying solely on advertising, you will have to turn increasingly to entertainment media or hybrids such as the History Channel.
The underlying reality of today’s media landscape is that the demand for news in the traditional sense is waning, so your message will have to be a good deal glitzier to reach the masses.
Well, what do you think — did I get the lessons right?
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