The opportunity of bankruptcy

Tweet: How bankruptcy can help a newspaper get theah from heah. Don’t squander it. **

I fear that Tribune Company – and other newspaper companies – will come out of bankruptcy having squandered the opportunity it presents to rebuild from the ground up.

At the New Business Models for (Local) News Summit at CUNY last week, my friend and mentor Jim Willse, late of the Star-Ledger in New Jersey, asked us to create a model for an existing news organization to morph into what we proposed as the new structure. That’d be painful and thus controversial, I said, to which Willse – never one to mince words – responded, “No shit.”

Can they get theah from heah? I’m not sure. A company that employed more than a thousand workers may end up employing just a hundred as it gets rid of printing and distribution infrastructure – the barrier to entry that became a barrier to change. Those shut-down costs are tremendous (that’s where bankruptcy helps, though). The cultural shift for people who remain is huge (I have spoken with many newspaper and magazine folks lately who – like me – held out hope that it was possible … until they gave up and quit). The need to reinvent business methods and models is urgent. And in the end, if it all works, the new company will be much smaller, a fraction of its former size, which is hard for executives, analysts, and shareholders to swallow – but it’s profitable and thus sustainable and that has to be the ultimate goal.

To make this volcanic transformation, I say a newspaper must start by getting out of the printing business (as Dave Morgan argued at our CUNY conference last year). Oh, it may still print a product as long as enough advertisers and readers stick with it to make it profitable and as long as it is valuable to promote the the digital brand of the future. But print can no longer drive the business; it’s just not sustainable.

When the Ann Arbor News folded this summer and was replaced by its owners with an online, community-based site, they chose to continue publishing twice a week to continue distributing coupons, circulars, and ads; it is printed by another paper in the company. [Disclosure: I consulted on the project.] Similarly, in the UK, the Birmingham Post went online and went weekly in print. My reputation aside, I’m not religiously opposed to paper. But maintaining a printing business is no longer an advantage; it’s a burden. So I say get out of the business and outsource whatever printing you do.

What about distribution? Well, as the circulation of the paper dwindles to naught, its value as a delivery platform also falls – to the point that coupon companies and stores like Best Buy will have to find alternative means of distribution. I think there’s a nice, if transitional business there for someone. Should it still be the newspaper company? Well, I’d give the same advice that is given to every startup: concentrate on one thing and do it well, get rid of the rest. So I’d say the paper should – as many pretty much do today – outsource its distribution.

Ad sales? That’s perhaps the toughest transition. Classifieds aside (they’re permanently lost anyway), newspapers are built to sell mass metro audiences to large advertisers. Sales staffs don’t drum up new business so much as they manage existing lists. Those folks aren’t likely to be able to sell entirely new kinds of advertising highly targeted marketing help for whole new populations of smaller merchants who couldn’t afford the newspaper before. Beside, such a staff doesn’t scale when you have to sell to so many new customers in networks. Build-it-and-they-will-come automated platforms don’t work; advertising still must be sold. This is why, in our models, we projected new sales forces – citizen sales – arising to sell at a local level. So for our transforming paper, I’d build networks of local sites and local sales and keep just enough of the old people to sell the big, old accounts that remain – if they can be re-educated.

Marketing is all but gone. If this newly constituted service isn’t sold by its public – if that public doesn’t collaborate with it and feel an ownership stake – then it will fail.

Now for editorial: I’ve written often about the new roles journalists will take on. As the marginal cost of information in a community falls to zero – as the internet and its tool enable communities to share much or most of what they know and need to know – then the question for journalists is how they add value and fill in gaps with reporting at the core as well as curation, community organization, and training. In our models, we forecast almost as many journalists as worked in the old paper newsroom, but they work for – and often own – more than a hundred companies. The core of journalists working at the new news organization is smaller.

Bankruptcy enables a newspaper company to shed its past. It can get out of contracts and leases for paper, printing plants, delivery, trucks. It can also get out of labor contracts, reducing severance costs. That is terribly painful but I fear it is as inevitable as the end of the ITU (the typesetters’ union). It offers a one-time chance to rethink, reinvent, and rebuild the company for the future. Is it better to stretch out the pain and never get anywhere? And if tough decisions and actions are not made, the likelihood that the company will die and all will be lost only increases.

The Minneapolis Star-Tribune has already come out of bankruptcy but without such a radical transformation. It, like other news companies, is taking out bricks a few at a time rather than building a new kind of company. That’s the opportunity I fear other bankrupt newspapers – Tribune Company, the Philadelphia Inquirer, the Chicago Sun-Times – are squandering. The same can be said of other industries.

To take advantage of bankruptcy, a company has to have courage and bold visions of the future. Do newspaper companies? So far, we haven’t seen evidence of it. But it is possible.

** At Craig Newmark’s good suggestion, I am going to try to summarize posts – longer ones, at least – at the top. Old fart that I was, I at first thought of this as a UK-style subhed. But then I realize that the appropriate model is to put it in a tweet. So I’ll try that.

  • Ann

    Isn’t it ironic that Jeff uses a profile photo from Old Media while his blog promotes New Media?

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

      I like irony, don’t you?

  • http://dupontluxuryhomes.com Alex Beattie

    Well said, Jeff. Would love for you to extrapolate upon the old – accounts, and reps and the ‘if they’ll learn,’ for it’s my belief that the old guard are impeding progress and stalling forward movement..

    Certainly times are moving forward, but there’s quite a bit of this ‘denial’ still hanging around.

    Thanks again for your terrific insight!

  • http://www.key.co.za Andre Bruton

    The Tweet worked and gave enough information to attract me to the article! Exactly my thoughts, but reinventing themselfs – I doubt it. They will die. New social driven news feeds will drive future news – realtime but unedited.

  • http://wyman.us/ Bob Wyman

    While bankruptcy is the obvious and rational path for the enterprise to take in order to escape the shackles of the past and move to a new and more profitable future, it must be recognized that this is not necessarily the most beneficial course of action for the stockholders of a newspaper company since bankruptcy will inevitably mean that they lose some or all of their beneficial ownership of the corporation. Stockholders may be much more happy to take advantage of time to slowly re-balance their portfolios or hold losses in stock until those losses can be usefully applied against income from other investments. Additionally, we need to recognize that a large number of other stakeholders are better served by crippled and dying traditional newspapers than they would be by reborn and vibrant papers of the future. Many senior executives of the existing newspapers are likely to lose their positions as a result of the bankruptcy reorganizations that are proposed. Additionally, many employees, such as pressmen, truck drivers, maintenance workers, etc. are likely to lose their jobs upon reorganization…

    We must be careful to understand that there is a distinct difference between what is good for “journalism” or “society” and what is good for the shareholders and economic stakeholders of the newspapers. Unfortunately, in the short term, these interests may not be aligned even though the long term inevitability of reorganization may be apparent to all.

    bob wyman

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  • Robert Levine

    >>>When the Ann Arbor News folded this summer and was replaced by its owners with an online, community-based site, they chose to continue publishing twice a week to continue distributing coupons, circulars, and ads; it is printed by another paper in the company. [Disclosure: I consulted on the project.]

    Please don’t forget to mention that this consulting project involved the Ann Arbor News getting rid of all the journalists they employ and forcing them to re-apply for their jobs.

    • Andy Freeman

      > Please don’t forget to mention that this consulting project involved the Ann Arbor News getting rid of all the journalists they employ and forcing them to re-apply for their jobs.

      The horror – they had to apply for jobs, jobs for which they had priority. Is interviewing for a different position really such an offense, or is it just unreasonable for journalists.

      Would really have been better if the company had just laid off the ones that it thought that it didn’t want instead of giving them all a shot at being part of the new organization?

      In the end, some had jobs and some didn’t. Why does it matter how they got to that point?

      • Robert Levine

        >>>The horror – they had to apply for jobs, jobs for which they had priority. Is interviewing for a different position really such an offense, or is it just unreasonable for journalists.

        I think it’s unreasonable for _anyone_, given that it’s essentially the same company! And it’s even more unreasonable that **Jeff said this would improve journalism**. Just disgusting.

      • Andy Freeman

        Journalists must have it different.

        Every job that I’ve had has essentially been constant interviewing to keep the job. It didn’t matter how well I did last week – what mattered was what I did now, whether or not it was the same as I did before.

        As to whether it was actually the same company, didn’t the biz model and format change significantly? Were they really filling the same positions as before?

      • Robert Levine

        To what you said below:

        >>>Every job that I’ve had has essentially been constant interviewing to keep the job. It didn’t matter how well I did last week . . .

        You’re missing the point. From what I understand, these were all “at will” employees, so any of them who weren’t performing could have been warned or dismissed anyway. This was a special case . . .

        >>>As to whether it was actually the same company, didn’t the biz model and format change significantly? Were they really filling the same positions as before?

        Yes, because the writing that needed to be done didn’t change so much. (If it were, they would have hired other journalists! They did not do that.) They basically just gave a ton of money to a consultant with some vague ideas and cut the salaries of the people who did the work. One wonders if there was a union and, if so, what happened to it. Jeff?

      • Andy Freeman

        > You’re missing the point.

        Is there a point other than you think that interviewing is a big deal and I don’t?

        > Yes, because the writing that needed to be done didn’t change so much. (If it were, they would have hired other journalists! They did not do that.)

        If it’s exactly the same set of journalists (no one lost a job, no new folks were hired), the only thing that happened is that they interviewed for a job that they were guaranteed to get.

        Does that really count as poor treatment?

        If there were some changes, or at least the possibility of change, interviews gave folks an opportunity to talk about their vision for going forward, outside of the context of day to day work. Is that really such a bad thing?

        > One wonders if there was a union and, if so, what happened to it. Jeff?

        Union contracts don’t necessarily survive bankruptcy.

        Since pretty much every other contract is up for grabs then, why should employment agreements be any different?

      • Andy Freeman

        It occurs to me that maybe we’re talking about different things, so I’ll describe what I think an interview is.

        An interview is a conversation between two parties. Each party wants something from the other and is willing to give something in return for having its want satisfied. If both believe that the other is willing to satisfy its want in return for what it is willing to give, an agreement to exchange those things is made.

        It has been suggested that AAN agreed coming in that it was willing to make the relevant agreement with certain folks. If so, those interviews consisted of a conversation and a decision by the potential employee.

        Are journalist interviews different? If not, what’s unreasonable about that conversation and decision?

        Note that the problem can’t be the terms of the new employment – Levine objected to the interview itself.

  • Jim Willse

    The bankruptcy option would certainly be a painful one – at the CUNY conference, with callous disregard of Brother Jarvis’s recent medical travails, I compared it to chemotherapy. In the early 90s, had the misfortune to serve as publisher of the New York Daily News while it was in Chapter 11. At the start of the yearlong process, the paper was a couple of weeks away from running out of cash. By the time it emerged from bankruptcy under a new owner, the legal tools had allowed us to leave a lot of bad business mojo behind, and the place was making a profit. But Jeff is right – if bankruptcy has merit, it will not be to “reorganize” a business model that is fatally flawed going in. It has to produce a new business.

  • http://www.findingthegear.com David Gehring

    Google took the ad revenue. Craigslist took the Classifieds. There doesn’t seem to be any revenue model left to fund the News Content writing effort. So, what about using those idle printing presses for custom publishing. Print stuff someone is willing to have printed instead of News. Stuff like Local Lifestyle magazines or Organizational branded magazines like local High School mags where students sell adds on Main Street to fund the printing. Who can say No to those kids?

    Then use custom publishing profits to pay Journalists to write the News Content out of some commitment to the greater social good. It would keep us all better informed, and also continue to contribute to Google’s fabulous bottom line while not requiring Google to actually spend money creating the awesome abundant content they monetize! Hey, anything we can do to help Google’s margins, right?!?

    • Andy Freeman

      > Google took the ad revenue.

      Google didn’t take the ad revenue.

      Google gets ad revenue for its pages (adwords) and for placing ads on other people’s pages with their permission (adsense).

      The most that you can say is that Google gave advertisers other places to spend their money.

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  • http://www.businessbankruptcylists.com/ bankrupt companies

    hmmm… Sounds interesting… Since bankrupt companies
    are available from all over the world, hope this will useful to readers..

  • Dermitt

    I happen to like print because print is more fun. It means that all these other people have to organize, produce, deliver and retail the thing for me. That costs lots of money and sells for next to nothing. It’s a luxury that I allow myself, all on the sweat of their brows. The only way to survive now is to lower the price some more to sell more of the things. More work for less. I’d buy a couple more papers if the price dropped. Bankruptcy sucks!

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  • http://www.chicagoattorneytoday.com Jim Thompson

    love it. nice post.