Posts about bankruptcy

Bankruptcy squandered

Tweet: Here’s what I think bankrupt newspaper companies should be doing.

The AP lists the status of six newspaper companies that have declared bankruptcy: Tribune, Freedom, Philadelphia, Sun-Times, Journal Register, Star-Tribune, representing 66 daily newspapers among them.

Mostly they are using bankruptcy merely to restructure the debt they shouldn’t have gotten themselves into in the first place — the debt that nearly killed them. Often they are leaving in place vestiges of the legacy management that made those bad decisions and did not make the brave strategic moves the digital age demanded. Tragically, none of them has used the great if difficult opportunity bankruptcy gives them to reinvent their businesses and themselves, as I suggest here:

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.

This is another reason I say that the future of news is entrepreneurial. Given the opportunity of market leadership and 15 years since the introduction of the commercial web and then, failing that given the opportunity of bankruptcy to change, the legacy institutions can’t bring themselves to do it for any of many reasons: It’s too expensive to change and cut back; it’s too painful to corporate valuation and ego built on size over profitability to reduce the scale of the company; it’s too difficult to shift the culture (especially after much of the best talent left with buyouts); the strategic vision just isn’t there. Whatever, the tale is too often told.

Even so, it’s not too late for the legacy institutions. Perhaps foolishly, I refuse to give up on them. If these companies took just one or two papers each among their 66 to experiment with new models, to radically rethink and resize them and to learn instead of demolishing their old institutions brick by brick, they and their still-dying industry would be much better off; they might find a new way.

I consulted on my former employer, Advance’s, project to do that in Ann Arbor, killing the Ann Arbor News and starting a new, blog-based, community-based company and service, AnnArbor.com; the industry should be watching and learning from it. That’s one model, but my no means the only one. Our work at CUNY in new business models for news (funded by the Knight Foundation) presents another vision, also not the only one.

Before it is too late, I’d like to see these companies — especially companies still in or going into bankruptcy — try more models:
* staying in print but splitting up the functions of the company and outsourcing everything possible;
* investing in a widely distributed network of independent local and interest sites with the company adding value with curation and sales;
* creating a pure ad network;
* creating a very high quality product and — yes — charging a lot for it;
* creating a series of special-interest niche services and, in some cases, publications;
* creating the still mostly free but higher value craigslist with more curation for quality and more services;
* experimenting with new services for local merchants — especially those too small to ever have afforded big, inefficient newspapers — including helping them succeed through Google, Yelp, et al;
* creating citizen sales forces to scale while serving those small merchants;
* what else?

A few days ago, I had a related email discussion with John Paton, head of Impremedia, which rolled up a number of publications to become the largest Spanish-language publisher in the U.S. In the process, the company has made the difficult decisions to shrink by outsourcing and finding efficiencies and focusing and has changed its culture to put digital first. The industry should be watching these efforts as well. John asked why legacy companies are these days so often counted out in the discussion of the future of news. I recounted my views, above, and added that entrepreneurs have an easier time building from the ground up than big institutions do trying to rebuild from the top down. But I ended saying this: How can the legacy companies stay in the game? By acting like entrepreneurs, by bravely facing the new realities and by making bold moves to utterly transform themselves. It’s by all means possible. But it’s hard. And it’s rare.

There’s still a minute before midnight to try.

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.