Posts about newspapers

Newspapers as charities, utilities, infrastructure

In the panic over the possible sale of Knight Ridder’s papers, some are grasping for new business models that aren’t business models at all: They are suggesting that newspapers should be taken over by charities or — this is new to me — even viewed as public infrastructure. I understand the nervousness and the need to seek alternatives — especially in the face of news that the dreaded Carlyle Group may be a buyer. Welcome to The Philadelphia Daily Fair & Balanced.

The Daily News’ Attytood blog has been lighting candles, crossing fingers, and blogging incantations in hopes that the local Pew Charitable Trust might take over the paper, following the example of the Poynter Institute’s benevolent ownership of the St. Petersburg Times. White Knights, indeed.

If that happened, it would be a fine thing for Philadelphia. But it is by no means the solution for the problems of newspapers today. Indeed, I think it is a dangerous dream, for it continues to separate newspapers from their publics, their markets, their real masters.

: Now see Editor & Publisher, which gives us what I think is a naive view of how to save papers: Turn them into charities, with legislation to give tax breaks, even.

Joe Mathewson, who, amazingly, teaches business journalism, dismisses those of us who argue that the marketplace matters.

But does “healthy” have to mean “profitable”?

Let’s dream for a moment about newspapering freed from the profit motive. Purists may argue that newspapers, like any other enterprise, should have to earn their way in the marketplace, and if they fail the market test, so be it.

But in fact newspapers, as important to the civic health of our society as public transportation, have a claim on public allegiance that goes beyond financial measure.

Newspapers as infrastructure? That’s a new one to me. We’ve seen them portrayed as everything up to religion. But newspapers as roads and buses? Sorry. I don’t buy it. News comes in many forms, in many media, and there is no law of nature or principle of democracy that says a paper is public infrastructure that should have public support. In fact, I’ll argue that is another dangerous dream, for it potentially puts journalism and free speech at the mercy of government support and thus government control, which should be the last thing we’d ever want.

Mathewson wants legislation to make it happen:

There are two tax-favored models before us: public broadcasting and real estate investment trusts. Some rather simple tax legislation would be required, available solely to newspapers, not to broadcasters or to companies that own both — which incidentally would free these papers to cover the federal government without fear of jeopardizing their corporations’ interests at the Federal Communications Commission. Such special legislation wouldn’t be novel, for Congress long ago recognized the importance of healthy newspapers when it authorized joint operating agreements as an exception to the antitrust laws.

A newspaper company, like a public broadcaster, could be organized as a not-for-profit, tax-exempt corporation. It could still sell papers and advertising, it could still develop new Internet revenues, it would still pay market wages and salaries (or maybe better), it could re-invest in improving its own staff and facilities and operations, it just couldn’t make a profit. And it wouldn’t pay taxes or dividends….

But if the owner is an otherwise-profitable company, a deductible gift might do more for the bottom line than a fire sale. Congress could encourage such donations by allowing the company to deduct the full value of the newspaper as a charitable contribution, creating a special exception to the current ceiling on corporate gift deductibility, which is 10% of taxable income.

Another possible transition from for-profit to not-for-profit might be a buyout and donation by civic-minded wealthy individuals or families, the same folks who give millions to build a new library or a new hospital wing…. Facilitating this, too, would require an amendment to the tax law, to waive for this purpose the 50-percent-of-adjusted-income ceiling for personal tax deductions — just as Congress did for 2005 contributions to Katrina relief, and all other 2005 charitable gifts.

Law enforcement might help in this. When Larry Ellison of Oracle was charged by the state of California with a securities-trading violation, he settled by agreeing to donate $100 million to charity. That would have been enough to buy a good-sized newspaper and donate it to a not-for-profit, maybe even endow it.

Mind you, these are still businesses with considerable margins, albeit margins that will be sure to shrink. And there are plenty of other means of providing news: online, radio, TV, magazines.

And I’ll fret again that newspapers are in the pickle they’re in because they have operated as isolated monopolies. Make them isolated charities or publicly supported utilities and you’ll have disasters.

: Note that the Carlyle Group is, at the same time, looking to buy a hunk of Dunkin Donuts. They’re just cash cows.

: Note also that Knight Ridder’s paper in Akron is running out of pencils. Maybe they should find a few and try selling them on streetcorners. New revenue streams.

Newspapers as mainframes

I believe that newspapers are and should be businesses, that market pressure is not only good but necessary, for newspapers are all about serving the public and if the public doesn’t want them, well, does that tell you something? The problem is that newspapers became monopolies, which made them fat, sassy, snotty, and lazy. See this very good post by a technologist turned VC who worked at the embattled Knight Ridder about newspapers as mainframes:

The short-form story in the modern history of computing is the deconstruction of the mainframe. Nothing in computing exists today that did not exist in some precursor form back in the original mainframes. The evolution of computing is the continuous unbundling of each of the components, cost reduction and miniaturization, and subsequent empowerment of the user at the point of delivery. Newspapers are Mainframes. The transformational power of the Internet lies in its incessant pressure to unbundle….

The business model of the newspaper is based on two principles – network effects and bundling.

The network effect is the classifieds business. The reason there is only one major newspaper per city, nearly everywhere, is that the classifieds business is a winner-take-all business. This made newspapers ‘natural monopolies.’ The net effect of the natural monopoly was that the competitive pressure for innovation disappeared. How many industries can you name where the product form, features, and delivery has not changed in 75 years? The marketing gene was largely bred out of the industry by becoming local monopolies. Monopolies fail catastrophically because of their inability to respond when the competitive landscape changes dramatically. This is the incumbent’s disadvantage. The very immunity to competition that made newspapers such great businesses also created resistance to market forces.

The bundling is the aggregation of all the varied content to attract and retain the audience. The core premise is you’ll read some content regularly, not necessarily all content….

But the Internet is that ruthless and incessant force for unbundling. Everything is a click away. Search costs are crushed.

Newspapers are Internet victims, but they are far from being the only industry under siege. Newspapers are especially impacted because two of the three main components of their cost structure are obsoleted. Advertising sales moves from traditional ‘push’ to advertiser self-service. All the physical assets of printing and delivery are obsoleted by the shared infrastructure of the Internet. If most of the cost structure goes to zero value, what’s left are news gathering and editing organizations and IT.

I like that: A newspaper is an IBM 360. A blog is an Apple 2. Go read the rest. Then see the post above about people trying to see newspapers as something other than businesses.

Defending the money guys

Brian Horey, general partner of Aurelian Partners, does a good job defending Knight Ridder’s investors in emails to Dan Gillmor.

News: The new order

Susan Crawford, bearer of one of the most dazzling brains online, has perfect advice for the old-media people who think search is an enemy. European publishers complained about Google making money off “their content” when the truth is that Google is sending prospective members to “their” communities if only they were ready to welcome them. Susan says:

What Google does is respond to search queries by providing snippets — thumbnail pictures and a line of text here, a line from a page there, a headline — and helping people get to where those things were posted. That’s pointing, not copying, and it’s a key element of Web 2.0.

The publishers, and the news agencies, are having trouble with this evolution — heck, they had enough trouble with Web 1.0, much less the groupness we’re seeing now– and are relying on incumbent laws (like copyright law) to protect their ability to charge for content.

But there’s a great opportunity here that shouldn’t be missed: news companies can become not only providers of great stories (well-researched, well-written, unlike blog posts) but also sources of order. There is so much information now — we need help! We need priority, and sense of impact, and sense of global connections. We need visualizations, and links, and commentary. All of these things are valuable. We’ll pay — with our attention, our loyalty to the brand, and maybe even with money if the reporters’ own personalities are allowed out to play.

A search engine, alone, can’t provide this kind of judgment. Not even Google can say which story is likely to have an important impact on our collective future. There is a Web 2.0 model for publishers, and they can only get there by letting go.

I think it’s about order and also about relationships, about connecting people to information and each other.

The last presses: Now Donald Graham joins in

Well, just as I write that American publishers aren’t facing the reality of life after presses, Donald Graham of the Washington Post starts to sing a new tune:

Washington Post chairman Don Graham said publicly for the first time this week that the future of news is on the Internet, not in print newspapers like the Washington Post.

“The Web site simply has to come through, ours and that of other newspapers, for us to be successful,” Graham told investment analysts Wednesday in New York.

Graham delivered the keynote address for UBS Bank’s annual Global Media Conference. His speech focused on how the Internet is dramatically changing the way he runs his company.

“Our Web competitors, Google in particular, are coming up with clever new products which are designed to make our life harder,” Graham said. “Young readers are less inclined to read us than I would have guessed.”

After detailing the strengths that print journalism still holds–chief among them the effectiveness of print advertising–Graham acknowledged that the Internet can do some things better.

“The business is changing faster than I expected,” Graham said. As an example, he offered the Post’s coverage of Samuel Alito’s nomination to the Supreme Court.

[Hat tip: Jay]

My Media Guardian column Monday will be a version of the Last Presses post; I’ll link to that when it’s up.