Sell! Newspapers ‘in free fall’

In the continuing parlor game — “What would you do with ____ [fill in media organization here]?” — I’ve been asking people what the brash, bold, ballsy thing they would do. In newspapers, I’m hearing three such options:

1. Sell. Fast. Find some local egotist who wants to be a publisher and get the hell out of town. Today, Jack Welch is reported to be interested in buying the Boston Globe (see more grisly details in the Wall Street Journal). I’d take him out for a very drunken dinner and get him to sign on the line before it’s too late. The advantage for the seller is that the hell is over. The problem if you care about journalism or the community is that they will descend deeper into hell. Witness what is happening in Philadelphia now: The new owner of the paper is suddenly discovering that the business is shrinking and he’s better shrink it faster if he’s going to pay off his loans. Oops. Note well that the Times story said that the newspaper industry “appears to be in a free fall/.” Yow. [Disclosure: I still consult at The NY Times Co., but you can bet it’s not about strategic asset sales.]

2. Get out of the printing business and into the news business. I’ve heard more than one exec suggest trying to offload printing and distribution and concentrate on the real business of news and advertising. That doesn’t change the P&L much; you’ll have to buy those services so long as you are tied to a physical product. So it’s no cure for the business. But it gets rid of certain obligations and liabilities and makes other options easier — like selling the thing.

3. Give it away. A few weeks ago in the Guardian, a former newspaper editor made back-of-the-envelope calculations to argue that giving away the paper makes sense because it reduces marketing costs and increases circulation and ad revenue (while also increasing paper costs) but that the real value is that it would force the organization to stop protecting the paper and to drive people online. I like that in theory. I’ll be no one will have the balls to do it.

Note that I did not list going private. At best, that merely puts off the inevitable. See Philadelphia. Nor do I buy the argument that newspapers should become beneficiaries of not-for-profit foundations. That, too, is just an attempt to shield the paper from reality.

I am not ready to give up the idea that news is commercially viable. It is. News is getting bigger than ever. It’s just run with terribly inefficiency by the old guys. With a fresh start, news can and should be a viable business. See Netzeitung.

No, you have to do something brash, bold, and ballsy to drive the paper to its future. Anything else is as good as giving up.

: See also Will Bunch at the Philadelphia Daily News: “And so I’ve never been more pessimistic about newspapers than I am today.”

: And see this from PaidContent:

Merrill Lynch analyst Lauren Fine came out with a report today on the state of the newspaper industry, and wrote that even as online rises in importance, but still small overall. “Although online now represents 6-7% of newspaper ad revenues on average, the proportion is still small overall. Even if we assume double-digit growth for online ad revenues through 2012 and then 5% thereafter, while print ad revenues drop by 1.5% annually, we do not see online representing over 50% of total newspaper ad revenues until more than 30 years from now. (Of course, we can get there sooner if print declines faster.) In terms of EBITDA, even if we assume 50% margins for online ad revenues and 25% for print (but declining slightly every year), a back-of-the-envelope calculation suggests that industry EBITDA will be flattish for the next 20 years, supporting our assumption of flat to slightly declining perpetual free cash flow for the industry.”

Well, I’d assume a faster drop for print. But I’ll also say this represents the essential problem of the industry: They think they can maintain (or grow) their monopoly-supported margins and cash flow. They can’t. News operations will have to be smaller. That doesn’t mean they have to be unprofitable. But bloat is out.

: And see Jack Shafer’s very good column today questioning the holy writ in newsrooms that more bodies means better journalism and questioning the even holier gospel that investigative journalism is the great protector of democracy.

However appalling newsroom downsizing may be for journalists, it will ultimately reveal what the people who run and own newspapers really think their publications are for. Scratch a serious reporter, and he’ll offer volumes about the “public service” his newspaper performs in the form of investigations: It watchdogs government. It keeps corporations honest. It uncovers the dastardly deeds of foreign dictators and prevents genocide. It exposes quacks and charlatans. (It turns the common man into a Socrates if he reads the editorials!)

Newspaper people have enormous egos, if you get my drift, and don’t mind massaging the big hairy things in public. Yet the press is hardly the sentry and bulwark of society reporters imagine it to be.

: But here a much calmer newspaper publisher, Carolyn McCall of the Guardian (which is owned by a trust), speaking in London. Three of her five points for managing the digital transition:

3. Innovation must be used for learning purposes. Newspapers can’t be afraid to fail. They must experiment and take risks to see what works. McCall mentioned the Guardian’s blog experiment, Comment is Free, which has proven a huge success with hundreds of contributing bloggers and dozens of comments on each post.
4. Software developers are now just as important as your journalists, an insinuation that would have been mocked only three years ago.
5. Newspapers must drive digital revenue growth.

[Disclosure: I write for and very occasionally consult for the Guardian.]

  • Anon

    I’ll bet no one will have the balls to do it

    What Associated Newspapers have done in London isn’t quite what you describe, but one might argue that launching a free paper (Metro) in a city where you operate the only paid for title (Evening Standard), then launching a free version of that paid-for title (Standard Lite), then turning that free version into a stand-alone free paper (London Lite) is pretty close in terms of cajones…

  • The only time I read the printed paper is when I am riding the subway [The Tube], when I’m in in London every two weeks or so.

    Usually I get The Times, even if I do prefer The Guardian, becasue the Time’s tabloid format is far more commuter-friendly than the Guardian’s “French” format. These things matter.

    More and more I’m just picking up the free papers- Metro etc- than paying money for The Times. I can get rich, informed news and commentary online…. more and more I realise the point of reading a newspaper on the train is just to make the journey less unpleasant.

    As someone who makes a good of his living via the distribution of free content, I have no sympathy for people who are having their life sucked out of them from defending their paid models.

  • Hugh,

    Since paid circulation is just a small percentage of a newspaper’s revenue, I’d say it’s more than “defending a paid model” that is causing the ship to sink.
    It’s more about defending a controlled distribution model, when it’s obvious that distribution of information is now free for anyone to pursue, like yourself.

    Once you realize you can be disintermediated, it becomes clear that the old advertising model doesn’t work as well as it used to, so you find you must provide and extract value in another way.

    Which is what you do. You leverage your relationships in order both give and get value.

    So advertising now looks a lot more like a gesture exchange than an interruption.

    Just ask our friend Steve. ; )

    P.S. The only way newspapers will win is to move from the big advertising one to many relationship, to the small attention one to one relationship.
    They don’t need to turn the ship, they need a fleet of smaller boats.

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  • It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.
    – Mark Twain in Eruption

    During the years 1870 to 1900, daily newspapers quadrupled in number from 489 to 1,967. Circulation (aggregated) rose from 2.6 million to 15 million copies. Weeklies grew from approximately 4,000 to 12,000 in number, mostly in rural areas.
    The US population doubled during that period. The enormous growth of publications signaled something else going on: as Arthur Schlesinger, Sr. called it “the rise of the city”. And that condition was accelerated principally due to mechanization, industrialism and a greatly expanded communications network that included:
    Widespread use of electricity fueling industry and light bulbs (helps in the convenience to read).
    Invention of the telephone by Bell (reached one phone per 100 households by 1900) and intercity lines covered the country.
    Western Union quadrupled its telegraph lines between 1880 and 1900.
    Railroads expanded its miles of track from 93,000 to 193,000 miles.
    And probably most important for publications, the federal postal service’s expansion of services combined with the Postal Act of 1885 (provided a 1-cent-a-pound rate for newspapers and magazines) paved the way for low-cost delivery of publications.
    Introduction of the typewriter and adding machine facilitated the faster pace needed to handle the complexity of correspondence and record keeping.
    The socio-economic life of the US greatly changed and thus brought incredible growth and opportunity for journalism, which was seized by the publishing world.
    As an example, Pulitzer’s New York enterprise (NY World in the mid-1890’s) showed a $10 million valuation and $1 million net profit. Translated into 2005 dollars as a percent of GDP, that’s $8.2 billion and considering that the World was just operating in the NY market, it makes Google look like retail shoe store. As the winds of change would have it, even from that lofty perch the World was defunct by the 1930’s.
    Newspaper and magazine share of market for ad dollars decreased by nearly 36% (from 1935 to 1980) after the introduction of radio and television. The fact that newspapers remained strong profit centers reflected the rapid growth in advertising expenditures that outstripped their loss of market share.
    Newspapers have been profit harvesting for the past thirty years. That practice is over and the plight of the Inquirer and Daily News is emblematic of that.
    Socio-economic change similar in scope to the latter part of the 19th century is upon us again. Print publishing is, after all, a manufacturing enterprise and prospered during the industrial evolution as a result. Anyone foolish enough to buy a newspaper today with the notion that the profit harvesting will continue or that you can tweak the product to meet the socio-economic challenges of this period will suffer great disappointment.
    The market share for printed products in their current form will diminish greatly over the next decade. Again, technology merely facilitates and influences the socio-economic trends and is not the cause. Newspapers have lost touch with their readers and failed to represent the context of a complex society within which news reporting must operate. Journalists can restore it insofar as they relinquish their bias for the format and embrace the call of society for context and meaning and deliver it in the ways available to them.

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