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Apple's iPad tablet

Justin Sullivan/2010 Getty Images

In Apple's world, no development is described in ordinary terms. Every new milestone in the company's evolution is "incredible" or "amazing"; each new product or device is "revolutionary" - or in the case of its new tablet computer, "truly magical," as CEO Steve Jobs put it.

Members of the Apple cult lap up this hyperbole, hang on every word from the Book of Jobs, then rush to the mall to open their wallets for whatever the iHype machine has to sell them. That part - the grip that a single electronics maker has over a fiercely loyal minority of consumers - really is almost magical. No wonder traditional media companies crave a piece of it.

Who wouldn't want to be sprinkled with a little bit of Apple's pixie dust? The iPad tablet, unveiled this week after a months-long campaign of leaks and whispers, is being hailed by some as the salvation for struggling old media. Newspapers, magazines, book publishers, TV networks and others suddenly have an appealing new way to sell their wares.

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The iPad is portable. It's forest-friendly. In the case of newspapers and magazines, it may even allow them to charge for some things they now give away for free. But that doesn't mean it's The Answer, and it surely doesn't represent a road back to the lush profits of media's glory years.

Arguably, it was those fat profit margins that helped drive traditional media companies into their current state. How? By causing complacency at the worst time.

Go back a dozen years. The Internet was catching on, Netscape had gone public, AOL was flourishing. To most print media executives, the potential threat the Web posed to their revenues seemed remote. Investors didn't see it, either, valuing New York Times Co. at a healthy $6-billion (U.S.) in late 1997. Gannett, publisher of USA Today, was worth $12-billion, and would soon be worth $20-billion. Meanwhile, a once-strong California company named Apple had been left for dead. Market capitalization: about $2-billion.

Today, Apple is a $174-billion company, and it has $25-billion in cash - enough to buy The New York Times, Gannett and CBS with plenty to spare.

One company found a brand-new business model; another group of companies found their model under attack, and failed to respond. That part is obvious. But why? There are many reasons, but we'll focus on two.

The first is the nature of digital media. Since the capacity of the Web is essentially infinite, it lends itself to specialization. If you can't be a gateway to everything, like Google is, you need to be the best at something. It rewards those who find a niche. Apple did that, starting with music. But the old media business model, both in print and broadcast, was anti-niche: it was based on the concept of providing something to everyone. (It's no coincidence that one of the few newspapers to build a large paying readership online, The Wall Street Journal, serves primarily a niche audience - business people to whom it provides essential information.)

The second reason was financial management. Though Apple's vault bursts with cash, it has no debt. Same with Google. Microsoft carries $36-billion in cash and still refuses to have more than a tiny amount of debt. This is absurd, but it reflects the paranoia of successful technology companies. Since their products must be constantly reinvented, they tend to keep a ton of money on hand to spend on developing new ones. Many media firms, by contrast, loaded themselves with debt - a cash cow never stops giving milk, right? - which weakened them when they were forced to innovate.

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What had kept old media so healthy for decades was an unassailable moat around their business. Competitors faced nearly impossible barriers to entry. If you wanted to open a TV station, you first needed a government licence. To begin a newspaper required massive investment in printing, distribution, and talent. But the Internet lowered those barriers.

The iPad doesn't change that fact. Yes, it opens up new revenue streams. That was true for the music industry, too, when Apple invented the iPod. But despite the proliferation of 250 million of those devices, and the massive growth in iTunes and other digital music services, the global music industry's sales are 30-per-cent lower today than they were five years ago. Far from "revolutionary," media companies might find the "magical" iPad is a mixed blessing. It's Apple that owns the printing press now.

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