The real sin: not running businesses

Like priests looking for someone to sacrifice, Alan Mutter, Steve Buttry, Howard Owens, and Steve Yelvington have been on the lookout for the sin that led newspapers astray. For Mutter, it’s not charging; for Buttry, it’s not innovating; for Owens, it’s tying online dingies to print Titanics (my poetic license); for Yelvington, it’s inaction.

But I think Owens hit on it when he wrote this: “I realized I needed to flip the expense/revenue picture upside down. Instead of thinking about how to generate more cash, I needed to figure out how to create a news operation that could exist profitably based on a reasonable expectation for local online revenue.”

Right. In other words, the sin was not running a business. It was not creating a sustainable P&L.

Newspapers have been too busy trying to protect specific budget lines that protected specific interests – the size of the newsroom, the ego expressed in gross revenue that yields stock performance and salary bonuses, the size of unionized staffs (up or down), the rules that governed advertising relationships even as they disappeared. They made preservation their mission.

What they should have done instead is rethink the bottom line: How is journalism going to be sustainable in new business realities?

Said Owens: “In a market where the newspaper newsroom might cost $10 million, I knew how to make $1 million online, or even $2 million, but I didn’t know — and still don’t — how to make $10 million. So if I can make a million online, why do I need operate a $10 million newsroom, especially given the greater efficiencies of online publishing?”

He built a realistic budget based on new business realities. Now picture news executives across the country hitting themselves on the head saying, “Damn, why didn’t we think of that?” They should have. But to do so would have required them to completely tear apart their businesses. Witness Detroit, banking, retail, advertising, insurance, and every other industry undergoing upheaval – nobody wants to do that.

Just as the bloggers linked above took their share of blame, so will I. Owens suggests that the problem with tying old and new operations together. At Advance, where I worked for a dozen years, we created separate online companies, which had some benefits: enabling the sites to build what was right for online (that is, interactivity), creating real value for advertising (rather than throwing in online as value-added), creating smaller and differently skilled staffs. But it also created problems: sites that were dependent on newspaper content, rivalries that killed collaboration and limited the responsibility anyone would take for the future. In the end, everyone needed to rethink what they were creating and what value it had, how they were creating it, how they related to their communities, and how the business could be run. But I didn’t see that happening anywhere in the industry. Everywhere, I saw people looking for someone to blame and somewhere to hide. I don’t put all the blame on the individuals because that’s how companies and industries operate.

Individuals who want to succeed in this upheaval become entrepreneurs. That’s what Owens – and many others – are doing. That, I’ve come to see, is the basis of the future of news.

In our New Business Models for News Project at CUNY, we threw out the old business assumptions with the old business. That’s why we tried to answer the tough question people were asking: What happens to journalism if the paper disappears? (their implied answer was that journalism does, too). What we came up with was one entity being replaced by well more than 100 entities – 1,000 entities, perhaps – each run according to new opportunities and needs, each smaller, each contributing real value, each sustainable (some very profitable; some choosing no profit). Everyone in this ecosystem has to think about running a business rather than preserving one.

Someone else looking for sinners is James Murdoch, whose MacTaggart Lecture at the Edinburgh Television Festival excoriated the BBC for bigfooting the news market in the UK and the government for enabling it and for regulating everybody else. I agree with him to an extent, this extent: that profit, in his words, will make journalism sustainable, independent, and innovative.

Except I doubt that this sustainable, independent, and innovative journalism will necessarily come from Mr. Murdoch’s father’s business and its cohorts because they are the ones that even today are trying to maintain the scale and models for their old businesses rather than inventing new ones. Look, instead, to the entrepreneurs who are starting over and rethinking the business from the bottom up, as Owens is.

  • http://www.sunvalleyonline.com Dave Chase

    The corollary to not running them as businesses is not running it like a “native”. While there’s a relation to each other, newspaper and online local businesses require different sets of assumptions. This isn’t limited to newspapers. I wrote about my old employer (Microsoft) who has arguably only had two new successful stand-alone businesses in the last 10+ years – Expedia and Xbox – see it at http://blog.seattlepi.com/seattlestartupbuzz/archives/177827.asp. In both cases, they ran them like “natives” to their respective markets rather than tying them too tightly to legacy businesses. Unfortunately for Microsoft shareholders, they haven’t done that with enough other businesses such as MSN.

  • Ric

    Slightly OT: when is the US media going to wake up and realise that it too is a victim of the BBC’s unchecked and wildly over-budgeted expansion?

    I have lost count of the number of times I’ve seen comments on US sites where contributors have said they’ll never pay for X, Y or Z because they can “get it free on the BBC”.

    The BBC is funded to the tune of £3.5bn ($6bn) or so a year by a tax imposed on British people with threat of imprisonment for non-payment.

    It is stifling private sector innovation (read about Shiny blogs).

    In a time of converging media it is in a hugely advantageous position. It is the only one that has no need for reinvention or to devise new revenue streams. It can carry on relying on the threat of prison to ensure its funding.

    When will international publishers realise that the BBC’s reach extends far beyond Britain’s borders and is unsustainable when everyone else faces a complete reboot and fundamental overhaul of their business model?

  • http://marginalizingmorons.blogspot.com/ CaptiousNut

    It almost goes without saying that a business, not run like a business, will eventually cease to be a business!

    Consider the teetering Boston Globe, for example.

    I simply could not believe the innocuous comment of mine that they deleted/censored yesterday from their site.

    http://marginalizingmorons.blogspot.com/2009/08/homeschooling-censorsed-at-boston-globe.html

    They have the smallest-minded moderators running their forums whose priorities couldn’t be further removed from the good BUSINESS sense of expanding readership and page views. Heck, I’ve seen threads where they erased half the comments!

    Almost two months ago the Globe deigned to give a global warming skeptic a column. Not only was the extra-curricular article its *most emailed* for quite a while, it generated a whopping 500 comments – more than I have seen for any other article.

    But judging how they run their forums, it’s clear that no one over at the Globe can process empirical truths – no one there has the slightest clue that today’s public wants dialogue and debate. You’d think there’d be at least one higher-up who looked at those 500 hits and scratched his head.

    One could say are stupid, lack business sense, or are incorrigibly ideological. It doesn’t well matter, they are doomed. Heck, their pay checks are getting slashed, their jobs are on the line, and yet they are STILL out there in total denial, acting like petty satraps.

    http://marginalizingmorons.blogspot.com/2009/07/hard-evidence-smacks-globies-in-face.html

  • http://tomaltman.com Tom Altman

    Owens: “Individuals who want to succeed in this upheaval become entrepreneurs. That’s what Owens – and many others – are doing. That, I’ve come to see, is the basis of the future of news.”

    The real question is will media companies allow the entrepreneurs the latitude within a “big old media company” to try anything new without worrying if it is sucking dollars from here or there. They have to be allow to try. Otherwise, someone will do it without them.

  • http://singaporeshortstories.blogspot.com/ Singapore Short Stories

    Journalism today is driven by individuals. Individuals make the news and share with the rest of the online world rapidly through the myriad of online social media.

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  • http://www.thepomoblog.com Terry Heaton

    The original sin was vanity, the belief that the business model of print (display advertising) would translate to the Web. Just one piece of this silliness is the notion that there’s a “fold” on web documents. The Web excels at direct marketing, yet everything about the online newspaper model is based in mass marketing. Vanity of vanities, saith the preacher; all is vanity.

    • http://wyman.us Bob Wyman

      Terry Heaton wrote: “silliness is the notion that there’s a “fold” on web documents.”

      Talk of the “fold” of web pages did not originate with newspapers. The reality of the “fold” and its effect was well established by empirical studies outside the newspaper business.

      bob wyman

      • http://www.thepomoblog.com Terry Heaton

        Bob, I love you, but tossing in “empirical studies” to justify falsehood doesn’t make it real. There is no fold, so there is no “reality” of the fold or any effect other than the wishful thinking of a community that wants one to be there to validate ad rate differences based on location (a newspaper model). Even if you can make the case that more people see are exposed to an ad at the top of a page than one further down the page, it says more about the content up top than the position of the ad. But even if I’m completely full of it, there still is no “fold,” and our insistence that there is devalues the entire document.

      • http://wyman.us Bob Wyman

        Terry. Back in the 90’s I personally did empirical studies in this area and I’ve seen many since that confirm what I found. I’ve headed engineering in two “web traffic analysis” companies, each of which once had leadership market positions, and I currently work for a company that spends vast quantities of money analyzing the effect of “position” on user behavior… I’m not an amateur in this space…

        The “fold” when applied to web pages is an analogy. It refers to the line that separates parts of the page visible to the user when it is first displayed from parts of the page that the user must scroll to in order to see. There is no question that content that cannot be seen without scrolling the page is less likely to be seen than content that is displayed without scrolling.

        Yes, there is a “fold.” (At the thing that we call a “fold” is there…) It may be different on every screen (depending on screen size, resolution, user settings, etc.) but it is there and it has to do with the geometry of the display area, not the content which is displayed.

        bob wyman

      • http://www.thepomoblog.com Terry Heaton

        Bob. I’m not challenging your credentials. I just think you’re wrong about even the perception of a “fold,” and I think that Web design based on such a perception is one of the big problems for media companies today. If the real value is “above the fold,” then we need to produce lots of pages, so that we have enough “above the fold” inventory to sell. The empirical fact that more people see a page prior to scrolling (which is what you’re really saying) is much more a factor of design than the willingness of people to scroll, as witnessed by the success of blog software in the display of sites like tmz.com. Of course, Jakob Nielsen argues that nobody sees banners above or below the fold, so what difference does it make?

  • John Newby

    I’m sure a few have been thinking about how to build a newsroom model that will be sustained by a realistic and lower revenue model; the problem arises that unless one has the buy-in all the way to the top, they will have their feet cut out from underneath them.

    There are newsroom models that will work in the new revenue model, but most will never find it. I find it interesting that many newspapers would rather shut down than change their model.

    • Andy Freeman

      > I find it interesting that many newspapers would rather shut down than change their model.

      Why is it interesting when organizations of people behave like people? (“would rather die than change” is the reason for many suicides.)

  • http://www.comradity.com Katherine Warman Kern

    Mr. Jarvis,

    I read this and wonder why. The theory driving decisions seems to be that losing money to achieve big popularity leads to money. I am struggling to think of a single example of when this has worked. And why the myth is perpetuated.

    The fact is that Starbucks and Amazon are the most successful (read:profitable and enduring) brands launched in today’s highly competitive and fragmented marketplace. Both built their businesses from the bottom up.

    That’s what I thought “scalable” meant. (here’s my post about the two meanings of scalable http://bit.ly/D1bqW) But many seem to think it means prove you have big popularity first, then we’ll figure out how to make money.

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  • http://www.alacrablog.com Steve

    I quote myself: “Talking about the future of news is interesting; talking about the future of newspapers is a waste of time. It’s over.” No one ran a newspaper group more like a business and less like a journalistic endeavor than Tony Ridder. He supported (albeit unenthusiastically) many innovations, was ruthless in terms of cost-cutting (Darth Ridder) and loved the business. But it is impossible to achieve enthusiasm (employee, investor, stakeholder) for any high-margin business that suddenly turns into a low-margin business. And Craigs List did that to newspapers.
    Tony’s mistake was making his company a pure newspaper play when it was on the road to being a diversified media company, with print, broadcast, cable and business information assets.

  • Dave

    Water water everywhere –– and not a drop to charge for

    A PR person once said to me, “Journalists are so arrogant. They think they own the news.”

    At the time, it bothered me a just a bit because I worked hard to get the work out there and share it with readers/viewers. But it grew on me because she was right. My bosses were arrogant, and getting things right took a back seat to getting them “out” and being first. Facts were overlooked, apples were compared to oranges, and we went for the fast dollar where we could see it. The brand was getting diluted for the quick buck. That’s when I said “enough” and left.

    Now I think of news as water. We all must have it, and some will pay for it in special cases (niche), but the majority of us can get it ourselves when we need it. And we can share it with those close to us (hyper-local). As I have read here before, “if news is important enough, it will reach me.” Water will break the dam, leak through the pay walls, and find a way to trickle or flow to people.

    So much of the water (news) out there is polluted or tainted –– and only an ignorant few will pony up for that. I am sure many of those who tout this type of water do not drink it. No, they have access to clean water, then taint it themselves. Then they say people must pay for their sludge.

    When people are forced to pay, they will look for a better, cleaner (accurate) source of water, where they can be assured they are getting real substance (facts).

    Do they really think people will pay for dirty water?

    Trust me, it will leave them all wet.

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  • http://www.lectroid.net Marc

    Jeff, I would argue the opposite, I believe newspapers were far too focused on revenue in the early days (and are still today) and because of that stifled any real chance they had to carve out a long-term niche.

    I can’t tell you the number of good ideas that were killed in the crib, never allowed to blossom, because their traffic numbers didn’t stack up to some imaginary target in a 6 month window.

    Look at Flickr, how long did it take them to host 1 billion images? Years, right? And 2 billion? It was months. 3? 4? (What are they up to now, anyway?)

    My point with Flickr is what started as a labor of love grew slowly and only when it started really rolling along did they looked at ways to monetize it. Had Flickr been launched by a newspaper chain, they’d have pulled the plug in the first 6 months for lack of interest.

    • http://wyman.us Bob Wyman

      Marc wrote: “I believe newspapers were far too focused on revenue in the early days…”
      This simply supports the point that Jeff was making. You are agreeing with him!

      The business of business is profit — not revenue.

      An excessive focus on revenue rather than profit has prevented many newspapers from seeing that by adopting lower cost distribution methods and other “innovations,” they may be able to increase profits even though gross revenues are grossly reduced.

      bob wyman

      • http://www.lectroid.net Marc

        Actually, if newspaper web operations were focused solely on profits in the early days then there would be no newspaper websites today (or at least none without some “page 3″ T&A).

        What they should have done is focused on *product* (which is the true business of business, just ask GM).

      • http://www.buzzmachine.com Jeff Jarvis

        Precisely.

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  • http://briancarr.net Brian Carr

    Jeff —
    Agree that the real sin is not running a P&L. However, this doesn’t seem to square with your consulting work on the newly re-launched AnnArbor.com
    How can a local blog P&L survive with a staff of 54 people, including two secretaries? Seems well overblown to be profitable, even if 50% are volunteers.

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  • Mrs. P

    Funny that I find this so late in the conversation. It’s almost like you really didn’t want anyone outside your circle to respond. It seems quite apparent to me that the problem with newspapers is right here on this page. Newspaper men debating with newspaper men – totally out of touch with the public. To pick up the lost revenue you hire snake-oil salesmen who convince you to pay him millions so that he can teach your salespeople how to convince local businesses that you’ve got the secret to the next big thing. And they believe you until you prove them wrong! Your answer – hire someone who has actually run a successful, productive business who truly has their hand on the pulse of the people.

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