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September 05 2012

18:04

Journal Register Co. declares bankruptcy…again: Is this the industry’s first real reboot?

It was just three years ago that the Journal Register Co. filed for bankruptcy, its collection of small local newspapers hit hard by the economic crisis and the secular decline of the newspaper industry.

But it came out of bankruptcy in only six months, and the changes started coming quickly: bringing in John Paton as CEO, committing to growing digital revenue, hiring away top talent, experimenting with open-source software and open-to-the-community newsrooms…it’s been hard to keep up with its one-new-initiative-a-week pace. They’ve been on the move, in a way that frankly hasn’t been the norm in the American newspaper business.

Through it all, Paton emerged as the industry’s most vocal cheerleader for a digital-first culture — and that was even before “digital first” went from a mantra to the name of a new parent company that would also run the much larger MediaNews chain of newspapers. JRC reported digital revenue growth as strong or stronger than their peers and seemed to be making good progress towards a company-wide culture change.

So today, JRC announced…it was declaring bankruptcy again. Here’s Paton:

The Company exited the 2009 restructuring with approximately $225 million in debt and with a legacy cost structure, which includes leases, defined benefit pensions and other liabilities that are now unsustainable and threaten the Company’s efforts for a successful digital transformation.

From 2009 through 2011, digital revenue grew 235% and digital audience more than doubled at Journal Register Company. So far this year, digital revenue is up 32.5%. Expenses by year’s end will be down more than 9.7% compared to 2009.

At the same time, as total expenses were down overall, the Company has invested heavily in digital with digital expenses up 151% since 2009. Journal Register Company has and will continue to invest in the future.

Journal Register expects to emerge from bankruptcy in around 90 days; operations will continue uninterrupted during the process.

Since JRC is as watched as any newspaper company outside The New York Times Co., here are three quick thoughts on today’s move, based on Paton’s post, the company’s press release, and our previous reporting.

I. Room for further consolidation?

JRC is owned by Alden Global Capital, a hedge fund that has investments across much of the publicly traded U.S. newspaper industry. Those investments, combined with its merger-without-merging with MediaNews last year, has led some, like our own Martin Langeveld, to posit that Alden is pushing for a major consolidation of the newspaper industry.

It’s easy to imagine how some of JRC’s recent moves — like its outsourcing of national business news and its chain-wide aggregation project Project Thunderdome — could scale well across a broader swath of the industry.

JRC will apparently enter bankruptcy with a buyer at the ready — something called 21st CMH Acquisition Co., “an affiliate of funds managed by Alden Global Capital LLC,” which has submitted a signed stalking horse bid. So it appears that, in the end, Alden will still be in control, with Paton continuing as CEO.

(I’m not sure how much to read into the creation of something called an acquisition company — is it just to acquire JRC, or is it a staging area for further acquisitions and consolidation, a sort of decades-later echo to what Gannett did buying up family-owned papers? Does 21st CMH stand for “21st Century Media Holdings”? Just a guess.)

Newspaper valuations have for the most part stopped plummeting — if only because there’s only so far for a still-profit-making company to fall. (Year-to-date, some are actually up in stock price: The New York Times Co. is up 21.5 percent, Gannett’s 13.5 percent.) But it’s reasonable to think there are still any number of companies that would be happy to find an exit to scale. By re-buying, in effect, a slimmed-down JRC, Alden seems to be showing it’s still interested in that model.

(Although it’s more than a little crappy that JRC’s employee FAQ says decisions about everyone’s job status will be “made by the ultimate purchaser” — when that ultimate purchaser is apparently just another arm of the current owner. It’s theoretically possible that, at a bankruptcy auction, someone could outbid Alden for JRC, but it seems highly unlikely; Alden’s one of the few folks wanting to put money into newspapers rather than pull it out.)

II. A second shot at shaving debt

It’s worth noting that Paton didn’t become CEO until after the last bankruptcy was concluded. (Paton joined JRC’s board in August 2009 when the company came out of bankruptcy; he became CEO in early 2010.) Paton is arguing now that the terms of the previous bankruptcy were built on higher hopes for print than has since proven justified — that the company didn’t shave enough off its debt and contractual obligations to hack it in today’s business.

We’re on the right track with digital revenue, he’s saying, but we’re still handcuffed by fiscal decisions made from a print-is-healthy mindset:

All of the digital initiatives and expense efforts are consistent with the Company’s Digital First strategy and while the Journal Register Company cannot afford to halt its investments in its digital future it can now no longer afford the legacy obligations incurred in the past.

Many of those obligations, such as leases, were entered into in the past when revenues, at their peak, were nearly twice as big as they are today and are no longer sustainable. Revenues in 2005 were about two times bigger than projected 2012 revenues. Defined Benefit Pension underfunding liabilities have grown 52% since 2009.

Timing is, truly, everything. The newspaper companies that made terrible-in-hindsight decisions to bet on print at peak valuations — McClatchy buying Knight Ridder, for instance — were stuck with crippling debt obligations. But if you just stuck around long enough, that major metro that cost $562 million in 2006 could be had for $55 million in 2012. Alden, as a fund, focuses on distressed assets, those available at market values below their true value. (You can see why they’d be interested in newspapers.)

JRC seems to suffer from an analogous problem: It went through its bankruptcy at a time when some executives still thought the downturn was cyclical and not permanent. That left it with obligations that likely can’t be sustainable in the primarily-digital-revenue model Paton is building toward. One imagines that Paton won’t make that same mistake this go-round. (Sister company MediaNews already had its strategic, debt-trimming bankruptcy.)

That’s little comfort if you’re owed a share of those pension benefits now deemed “no longer sustainable,” of course. But the reality is that most newspaper companies are still not close to a footing that’s sustainable for the long term. Anyone who thought the cuts were over is going to be disappointed for, at a minimum, several more years.

III. It’s put-up-or-shut-up time

Paton’s been the industry’s most effective evangelist for a digital future. (It helps that he took over a newspaper chain not known for quality or tradition beforehand; he has a free hand that Arthur Sulzberger or Don Graham don’t to do deep institutional surgery.) JRC and Digital First have been great at putting forward an innovative face, from its heavy-hitter advisory board to small demonstration projects (Ben Franklin Project) and more substantial rethinkings of workflows (Project Thunderdome).

And they’ve done so in a way that is both open (they’re happy to tell you about the amazing things they’re doing) and closed (not reporting financial results, as publicly traded companies must).

But it’s been harder to be certain how Paton’s optimism has translated into results. Digital revenues are growing, but from an unspectacular base. Many of the company’s initiatives seem, while interesting, unlikely to move the revenue needle much. Print revenues are a problem, just as they are at its peers. Today’s release illustrates that JRC hasn’t yet found the magic formula.

But could Paton’s plan be a model for the local and regional newspaper industry as a whole, as some have dearly hoped?

Paton now will have his chance to prove it. In around 90 days, he’ll have had his chance to shed the costs he wants to shed. No longer will “we were built for print” be a good excuse; if two bankruptcies can’t clear out all those cobwebs, I’m not sure what could. “Digital first” will move from a slogan to a corporate name to a foundation of the company’s business structure.

The newspaper industry’s problem today is not that its leaders don’t know how to make money in media. Lots and lots of money still flows through newspaper offices every day. It’s that they can no longer make that money at the scale they could 10 years ago — but their cost structures are still tied to that old scale. That’s why the past half-decade has been a seemingly endless string of layoffs and cutbacks, shaving dollars and people to keep up with revenue declines, while still being stuck in a fundamentally print-driven structure.

Meanwhile, as newspapers were busy writing press releases about layoffs, their nimble online-native competitors have been able to start from a blank sheet of paper and build for a digital scale of revenue.

This bankruptcy will allow JRC to have get the closest thing the newspaper business has seen to a true reboot.

Now all Paton has to do is deliver.

September 03 2011

15:17

Forced vacation use ordered at L.A. Times

LA Observer :: More cost cutting: the same week that parent Tribune asked the bankruptcy judge to tapprove bonuses for 640 managers, Los Angeles Times employees received an email saying they will not accrue vacation for the rest of 2011. They also have to use up some of their banked vacation days, like it or not. LA Observer published the memo.

Continue to read Kevin Roderick, www.laobserved.com

December 22 2010

17:00

Keeping Martin honest: Checking on Langeveld’s predictions for 2010

Editor’s Note: This year, we’re running lots of predictions of what 2011 will bring for journalism. But our friend Martin Langeveld has been sharing his predictions for the new-media world for a couple of years now.

In the spirit of accountability, we think it’s important to check back and see how those predictions fared. We did it last year, checking in on his 2009 predictions. And now we’ll check in on 2010.

Check in next year around this time as we look back at all the predictions for 2011 and how they turned out.

Newspaper ad revenue

PREDICTION: At least technically, the recession is over, with GDP growth measured at 2.8 percent in Q3 of 2009 and widely forecast in Q4 to exceed that rate. But newspaper revenue has not followed suit, dropping 28 percent in Q3. McClatchy and the New York Times Company (which both came in at about that level in Q3) hinted last week that Q4 would be better, in the negative low-to-mid 20 percent range. This is not unexpected — in the last few recessions with actual GDP contraction (1990-91 and 2001), newspaper revenue remained in negative territory for at least two quarters after the GDP returned to growth. But the newspaper dip has been bigger each time, and the current slide started (without precedent) a year and a half before the recession did, with a cumulative revenue loss of nearly 50 percent. Newspaper revenue has never grown by much more than 10 percent (year over year) in any one quarter, so no real recovery is likely. This is a permanently downsized industry. My call for revenue by quarter (including online revenue) during 2010 is: -11%, -10%, -6%, -2%.

REALITY: CLOSE, ONE CIGAR. Actuals for Q1, 2, and 3: -9.70%, -5.55%, – 5.39%. And Q4, while not a winner, will probably be “better” than Q3 (that is, another quarter of “moderating declines” in news chain boardroom-speak). So, a win on the trendline, and pretty close on the numbers.

Newspaper online revenue

PREDICTION: Newspaper online revenue will be the only bright spot, breaking even in Q1 and ramping up to 15% growth by Q4.

REALITY: CLOSE, ONE CIGAR. Actuals for Q1, 2, and 3: +4.90%, +13.90%, and +10.7%. Since Q1 beat my prediction and was the first positive result in eight quarters, I’d say that’s a win, and pretty close on the ramp-up, so far. Q4 might hit that 15%.

Newspaper circulation revenue

PREDICTION: Newspaper circulation revenue will grow, because publishers are realizing that print is now a niche they can and should charge for, rather than trying to keep marginal subscribers with non-stop discounting. But this means circulation will continue to drop. In 2009, we saw a drop of 7.1% in the 6-month period ending March 31, and a drop of 10.6 percent for the period ending Sept. 30. In 2010, we’ll see a losses of at lest 7.5% in each period.

REALITY: HALF A CIGAR. Actual drop in the March 31 period was 8.7%; actual drop in the Sept. 30 period was 5.0%. So, half a win here.

Newspaper bankruptcies

PREDICTION: I don’t think we’re out of the woods, or off the courthouse steps, although the newspaper bankruptcy flurry in 2009 was in the first half of the year. The trouble is the above-mentioned revenue decline. If it continues at double-digit rates, several companies will hit the wall, where they have no capital or credit resources left and where a “restructuring” is preferable and probably more strategic than continuing to slash expenses to match revenue losses. So I will predict at least one bankruptcy of a major newspaper company. In fact, let’s make that at least two.

REALITY: CORRECT — TWO CIGARS. Well, MediaNews Group filed its strategic bankruptcy in January, as did Morris Publishing. So this was a quick win. Canwest Ltd. Partnership, publisher of 12 Canadian papers, filed in January as well.

Newspaper closings and publishing frequency reductions

PREDICTION: Yup, there will be closings and frequency reductions. Those revenue and circulation declines will hit harder in some places than others, forcing more extinction than we saw in 2009.

REALITY: WRONG. Nope, everybody managed to hang on, nobody of any size closed.

Mergers

PREDICTION: It’s interesting that we saw very little M&A activity in 2009 — none of the players saw much opportunity to gain by consolidation. They all just hunkered down waiting for the recession to end. It has ended, but if my prediction is right and revenue doesn’t turn up or at least flatten by Q2, the urge to merge or otherwise restructure will set in. Expect to see at least a few fairly big newspaper firms merge or be acquired by other media outfits. (But, as in 2009, don’t expect Google to buy the New York Times or any other print media.)

REALITY: WRONG. Google didn’t buy the Times or any other newspaper, but by the same token, there were no significant mergers or acquisitions all year. So much for Dean Singleton’s promise of “consolidation” in the industry after MediaNews emerged from its quick bankruptcy.

Shakeups

PREDICTION: Given the fact that newspaper stocks generally outperformed the market (see my previous post), it’s not surprising that there were few changes in the executive suites. But if the industry continues to contract, those stock prices will head back down. Don’t be surprised to see some boards turn to new talent. If they do, they’ll bring in specialists from outside the industry good at creative downsizing and reinvention of business models. Sooner would be better than later, in some cases.

REALITY: NOT FLAT WRONG, BUT NOT CLOSE. Perhaps the closest any company came to truly shaking things up was Journal Register Company, which in January appointed as its CEO John Paton, an executive with experience in Hispanic media. He’s not an outsider, but he’s preaching a very different gospel that includes a clear vision for a web-based future for news. Elsewhere, Tribune, still dealing with bankruptcy, tossed CEO Randy Michaels, not for strategic reasons but because accusations of sexism and other dumb behavior were “tarnishing” the company’s name.

Hyperlocal

PREDICTION: There will be more and more launches of online and online/print combos focused on covering towns, neighborhoods, cities and regions, with both for-profit and nonprofit bizmods. Startups and major media firms looking to enter this “space” with standardized and mechanized approaches won’t do nearly as well as one-off ventures where real people take a risk, start a site, cover their market like a blanket, create a brand and sell themselves to local advertisers.

REALITY: CORRECT. This is happening in spades. AOL’s Patch launched hundreds of sites. It may be a “standardized” approach, but it’s not “mechanized,” and hired more journalists than any company has in decades. At the same time, one-off ventures continue to sprout in towns and cities everywhere.

Paid content

PREDICTION: At the end of 2008, this wasn’t yet much of a discussion topic. It became the obsession of 2009, but the year is ending with few actual moves toward full paywalls or more nuanced models. Steve Brill’s Journalism Online promises a beta rollout soon and claims a client list numbering well over 1000 publications. Those are not commitments to use JO’s system — rather, they’re signatories to a non-binding letter of intent that gives them access to some of the findings from JO’s beta test. Many publishers, including many who have signed that letter, remain firmly on the sidelines, realizing that they have little content that’s unique or valuable enough to readers to charge for. JO itself has not speculated what kind of content might garner reader revenue, although its founders have been clear that they’re not recommending across-the-board paywalls. So where are we heading in 2010? My predictions are that by the end of the year, most daily papers will still be publishing the vast majority of their content free on the Web; that most of those experimenting with pay systems will be disappointed; and that the few broad paywalls in place now at local and regional dailies will prove of no value in stemming print circulation declines.

REALITY: CORRECT. Most papers are still publishing the vast majority of their content free on the web. ALSO CORRECT: Broad paywalls have done little to stem the decline in print. JURY STILL OUT: But it’s too soon to tell whether those experimenting with paywalls are disappointed. All eyes are on the impending paywall start at the New York Times.

Gadgets

PREDICTION: The recently announced consortium led by Time Inc. to publish magazine and (eventually) newspaper content on tablets and other platforms will see the first fruits of its efforts late in the year as Apple and several others unveil tablet devices — essentially oversized iPhones that don’t make phone calls but have 10-inch screens and make great color readers. Expect pricing in the $500 ballpark plus a data plan, which could include a selection of magazine subscriptions (sort of like channels in cable packages, but with more a la carte choice). If newspapers are on the ball, they can join Time’s consortium and be part of the plan. Tablet sales will put a pretty good dent in Kindle sales. One wish/hope for the (as yet un-named) publisher consortium: atomize the content and let me pick individual articles — don’t force me to subscribe to a magazine or buy a whole copy. In other words, don’t attempt to replicate the print model on a tablet.

REALITY: CORRECT, MORE CIGARS. My iPad description and data plan price point were right on the mark. It’s hard to say for sure whether iPad sales have put much of a dent in Kindle sales, since Amazon doesn’t release numbers, but Kindle sales are way up after a price cut. The magazine consortium, now called Next Issue Media, still has no retail product, but it does look like it intends to “replicate the print model on a tablet” rather than recognizing atomization. Meanwhile, the Associated Press is recognizing atomization with its plan for a rights clearinghouse for news content.

Social networks

PREDICTION: Twitter usage will continue to be flat (it has lost traffic slowly but steadily since summer). Facebook will continue to grow internationally but is probably close to maxing out in the U.S. With Facebook now cash-flow positive, and Twitter still essentially revenue-less, could Zuckerberg and Evan Williams be holding deal talks sometime during the year? It wouldn’t surprise me.

REALITY: WRONG, MOSTLY. Twitter is still fairly flat in web traffic, but it’s growing via mobile and Twitter clients, so its real traffic is hard to gauge. No talks between Twitter and Facebook, though.

Privacy

PREDICTION: The Federal Trade Commission will recommend to Congress a new set of online privacy initiatives requiring clearer “opt-in” provisions governing how personal information of Web users may be used for things like targeting ads and content. Anticipating this, Facebook, Google and others will continue to maneuver to lock consumers into opt-in settings that allow broad use of personal data without having to ask consumers to reset their preferences in response to the legislation. In the end, Congress will dither but not pass a major overhaul of privacy regs.

REALITY: CORRECT. Indeed, we don’t have any major overhaul by Congress, but we’re actually seeing more responsible behavior from all of the big players with regard to privacy, including better user controls on privacy just announced by Microsoft.

Mobile

PREDICTION (with thanks to Art Howe of Verve Wireless): By the end of 2010 a huge shift toward mobile consumption of news will be evident. In 2009, mobile news was just getting on the radar screen, but during the year several million people downloaded the AP’s mobile app to their iPhones, and several million more adopted apps from individual publishers. By the end of 2010, with many more smartphone users, news apps will find tens of millions of new users (Art might project 100 million), and that’s with tablets just appearing on the playing field. During 2009, Web readership of news (though not of newspaper content) overtook news in printed newspapers. Looking out to sometime in 2011 or 2012, more people will get their news from a mobile device than from a desktop or laptop, and news in print will be left completely in the dust.

REALITY: JURY STILL OUT, BUT LOOKING CORRECT. To my knowledge, nobody has a handle on how many news apps have been sold or downloaded, but certainly it’s in the tens of millions, counting both smartphone and tablet apps. One the other hand, a lot of people with apps on their phones don’t use them. As to where mobile ranks among news delivery media, the surveys haven’t picked up the trends yet, but wait till next year.

Stocks

PREDICTION: I accurately predicted the Dow’s rise during 2009 and that newspaper stocks would beat the market (see previous post), but neglected to place a bet on the market for 2010, so here goes: The Dow will rise by 8% (from its Dec. 31 close), but newspaper stocks will sink as revenue fails to rebound quarter after quarter.

REALITY: ON THE MONEY. As of mid-afternoon December 15, the Dow is up 10.19% for the year, so I claim a win on that score. The S&P 500 is up 11.11%, and the NASDAQ is up 15.63%. Among newspaper groups, McClatchy (up 33%), Journal Communications (up 26%) and E.W. Scripps (up 44%) handily beat the market, but all the other players indeed sank or underperformed the market: New York Times Company is down 23%, News Corp. is up 5%, Lee Enterprises is down 30 percent, Media General is down 30% and Gannett is up 4%.

May 03 2010

14:00

The Newsonomics of reborn newspaper profit

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

The first quarter newspaper numbers are in. They paint a consistent picture.

Across the board, the reporting of public news companies reflects a new, if unsteady reality. In short, that reality is one of profit. Not the big profit of 20-percent-plus profit margins — the envy of many other industries — that were a truism as recently as five years ago. Now, the profit’s more tepid, mostly in single digits: The New York Times, 8 percent; Gannett, 8 percent, McClatchy, 1.5 percent. Expectations run that news companies will show a five to 10 percent profit for the year, absent unforeseen calamity.

But that mild profit is good news. Recall that a year ago, much of the industry was in freefall. A number of companies — stunned by the quick near-Depression downturn of ad revenues — went operationally into the red. They responded with draconian cuts in staff and newsprint, and as the recovery has emerged, they’ve positioned themselves as smaller but profitable companies, though their first-quarter revenues still largely lagged the first quarter of the horrific Q1 2009. Wall Street has rewarded them with improved credit ratings and advanced share prices. There seems to be, say investors, some future here. This week’s tenacious auction in Philadelphia with lenders led by the Angelo Gordon private equity company — now a big player in the U.S. daily business — winning the papers with a $135 million bid only reinforces the notion that newspaper valuation may have been trashed too much.

It’s a fragile stability. One big question for all publishers: where do we go from here?

Here the newsonomics are constrained. While Google is off buying a company a month and Apple charts its own strong growth path, most newspaper companies have little room to maneuver. Sure, the private Hearsts — a diversified media company with newspaper interests — can invest in new companies and technologies, but for publicly owned newspaper companies, it’s a different story.

First off, their meager profits are uncertain. They then face three ways to use those profits. The three:

  • Debt reduction: Debt has been the anchor around many newspaper companies’ necks, as those that borrowed to complete acquisitions reeled as the business changed and then the economy tanked. Thirteen newspaper companies have declared bankruptcy, with that clean-up continuing. Yes, they’ve discharged a lot of debt (Alan Mutter tracks the $1.9 billion discharged in just four of the bankruptcies), but almost everyone — those now out of bankruptcy and those that avoided it — still has debt service to bear. In most cases, it is reduced, given either bankruptcy or workouts with lenders, which extended payments. Debt reduction remains not only a necessity, but a strategic goal. In most quarterly reports, news company CEOs trumpet their abilities to reduce debt, a sign of their revitalization — and an indication they hope to have more maneuvering room in the future. New York Times Co. on its 1Q debt picture: “The Company continues to improve its liquidity, reducing its debt, net of cash and cash equivalents by approximately one third to $671 million from its balance at the beginning of 2009. The majority of the Company’s debt matures in 2015 or later.” Over at Gannett, CEO Craig Dubow made a prominent point of his company’s recent $260 million quarterly debt reduction. Much of McClatchy’s first quarter statement focused on debt reduction and its refinancing.
  • Product investment: Publishers don’t have to look much beyond their own recent FAS-FAX circulation numbers — another 8.7-percent daily decline — or their talks with community members. They realize their major cuts in staff and product has diminished their business prospects; they’ve cut into bone, in parlance you often hear. A few companies, including Belo and MediaNews, have cautiously added back a little staff here, a little newshole there. They’d like to invest more in product, but agreements with lenders and their own sense of how fragile the newspaper recovery is holds them back.
  • Profit improvement: These are, after all, public, for-profit companies. Investors of all kinds expect them to grow their profits, after re-establishing the stability of them.

To put it simply, at this point, there’s not enough profit to satisfy all three goals. So, in 2010 — a year crying out for investment in innovative mobile media product creation and marketing services/advertising infrastructure build-out — news companies have far fewer resources than they’d like and they need. While once they were the big guys, looking at buying startups, for now, they’re largely on the sidelines, marveling at the mojo, the profits, and the acquisitions of the Googles and the Apples.

April 09 2010

14:13

January 22 2010

15:06

This Week in Review: The New York Times’ paywall plans, and what’s behind MediaNews’ bankruptcy

[Every Friday, Mark Coddington sums up the week’s news about the future of news and the debates that grew up around them. —Josh]

The Times’ paywall proposal: No question about media and journalism’s biggest story this week: The New York Times announced it plans to begin charging readers for access to its website in 2011. Here’s how it’ll work: you can view an as-yet-unidentified number of articles for free each month before the Times requires you to pay a flat, unlimited-access fee to see more; this is known as a metered system. (If you subscribe to the print edition, it’ll be free.) Two Times execs answered questions about the plan, including whether you can still email and link to articles (you can) and why it’s different from TimesSelect, the abandoned paid-content experiment it tried from 2005-07. Gabriel Sherman of New York’s Daily Intel, who broke the rumor on Sunday, has some details of the paywall debate within the Times.

There’s been a ton of reaction to the Times’ plan online, so I’ll tackle it in three parts: First, the essential reading, then some other worthwhile opinions, and finally the interesting ephemera.

Four must-reads: It makes sense to start with New York Times media critic David Carr’s take on the plan, because it’s the most the thorough, cogent defense of the Times’ paywall you’ll find. He argues that Times execs “have installed a dial on the huge, heaving content machine of The New York Times,” giving the site another flexible revenue stream outside of advertising. If you’re up for a little algebra, Reuters’ Felix Salmon has a sharp economic analysis of the paywall, arguing that the value of each article will become much greater for subscribers than nonsubscribers. For the more theoretical-minded, CUNY prof C.W. Anderson has some fascinating thoughts here at the Lab on how the paywall turns the Times into a niche product and what it means for our concept of the “public.” And as usual, Ken Doctor thoughtfully answers many of the practical questions you’re asking right now.

Other thoughtful opinions: Poynter’s Bill Mitchell poses a lot of great business questions and wonders how the Times will handle putting the burden on its most loyal online-only users. Steve Yelvington reminds us that we’re not going to learn much here that we can apply to other papers, because “the Times is fundamentally in a different business than regional dailies” and “a single experiment with a single price point by a single newspaper is just a stab in the dark.” Before the announcement, former Editor & Publisher columnist Steve Outing, Forrester Research’s James McQuivey, and Reuters’ Felix Salmon gave the Times advice on constructing its paywall, almost none of which showed up in the Times’ plans. Two massive tech blogs, TechCrunch and Mashable, think the paywall won’t amount to much. Slate’s Jack Shafer says people will find ways to get around it, NYU’s Jay Rosen echoes C.W. Anderson’s thoughts on niche vs. public, and CUNY’s Jeff Jarvis doesn’t like the Times’ sense of entitlement.

The ephemera: The best stuff on Twitter about the announcement was collected at E&P In Exile and the new site MediaCritic. Steve Outing and Jason Fry don’t like the wait ’til 2011, and Cory Doctorow is skeptical that that’s even true. Former E&Pers Fitz & Jen interview a few newspaper execs and find that (surprise, surprise) the like the Times’ idea. So does Steven Brill of Journalism Online, who plans to roll out a few paywalls of his own soon. Dan Gillmor wants the Times to find out from readers what new features they’d pay for, and Jeff Sonderman makes two good points: “The major casualty of NYT paywall is sharing,” and “Knowing the ‘meter is running’ creates cautious viewing of the free articles.”

Apple’s tablet to go public: Apple announced that it will unveil its “latest creation” (read: its new tablet) next Wednesday. Since the announcement came a day after word of the Times’ paywall plans broke, it was only natural that the rumors would merge. The Daily Intel’s Gabriel Sherman, who broke the story of those Times plans, quoted Times officials putting the Times-tablet-deal rumors to rest. The Wall Street Journal detailed Apple’s plans for the tablet to do to newspapers, magazines and TV what the iPod did to music. Meanwhile, Columbia j-student Vadim Lavrusik and TechCrunch’s Paul Carr got tired of the tablet hype — Lavrusik for the print industry and Carr for tech geeks. (The Week also has a great timeline of the rumors.)

MediaNews goes bankrupt: Last Friday, MediaNews Group — a newspaper chain that publishes the Denver Post and San Jose Mercury-News, among others — announced it would file for bankruptcy protection. (A smaller chain, Morris Publishing Group, made the same announcement the day before.) For the facts and background of the filing, we’ve got a few sources: At the Lab, MediaNews veteran Martin Langeveld has a whole lot of history and insight on MediaNews chief Dean Singleton. News business analyst Alan Mutter tells us about the amazing fact that Singleton will come out of the filing unscathed but Hearst, which invested in MediaNews to save the San Francisco Chronicle, stands to lose $317 million in the deal. And MinnPost reports that the St. Paul Pioneer Press was the only MediaNews paper losing money.

Looking at the big picture, Ken Doctor says that bankruptcies like these are just a chance for newspapers to buy time while adjusting their strategy in “the fog of media war.” Steve Outing takes a glass-half-full approach, arguing that the downfall of old-media chains like MediaNews are a great opportunity for journalism startups to build a new news ecosystem.

How much do Google News users read?: An annual study by research firm Outsell and Ken Doctor on online and offline news preferences made waves by reporting that 44 percent of Google News users scan headlines without clicking through to the original articles. PaidContent noted that Outsell has a dog in this fight; it openly advocates that news organizations should get more money from Google. Search engine guru Danny Sullivan was not impressed, giving a thorough critique of the study and its perceived implications. Syracuse j-prof Vin Crosbie also wondered whether the same pattern might be true with print headlines.

In a similar vein, BNET’s David Weir used comScore numbers to argue that Google, Yahoo and Microsoft support big newspapers, and Jeff Jarvis made one of his favorite arguments — in defense of the link.

Heartbreak in Haiti: I’d be remiss if I didn’t mention the journalism and media connections to the largest news story in the world for the past two weeks — the devastating earthquake in Haiti. Several sites noted that Twitter led the way in breaking news of the quake and in raising money for relief. The money aspect is new, but as Columbia j-prof Sree Sreenivasan noted last June, Twitter came of age a long time ago as a medium for breaking global news. That’s what it does. The coverage also provided an opportunity for discussion about the ethics of giving aid while reporting.

Reading roundup: In addition to being out in front of the whole New York Times paywall story, Gabriel Sherman authored a nice, long think piece for The New Republic on the difficulties of one of America’s other great newspapers, The Washington Post. For what it’s worth, Post patriarch Donald Graham thought it was “not even a molehill.”

Over at Snarkmarket, Robin Sloan uses the economic concept of stock and flow to describe the delicate balance between timeliness and permanence the world of online media. It’s a brilliant idea — a must-read.

Finally, a promising new site named MediaCritic, run by Salon veteran Scott Rosenberg, citizen journalism advocate Dan Gillmor, and Lucasfilm’s Bill Gannon, had its soft launch this week. It looks like it’s going to include some nifty features, like Rosenberg’s regular curation of Twitter commentary on big media subjects.

January 18 2010

17:51

Singleton’s next chapter: Can he steer MediaNews to a digital future?

[Our regular contributor Martin Langeveld spent 13 years as a publisher in MediaNews Group. That gives him an inside perspective on the company's bankruptcy filing, which he shares with us here. —Ed.]

In August 2006, as part of a deal that netted MediaNews Group the Contra Costa Times, San Jose Mercury News, and the St. Paul Pioneer Press, the Hearst Corporation agreed to make a $300 million equity investment in MediaNews. At that point, the peak of MediaNews’ company’s expansion and with revenue and cash flow at an all-time high, the holdings of the principal stockholders — the Singleton and Scudder families — net of debt, were arguably worth more than $500 million each.

But last Friday, whatever was left of that equity, as well as Hearst’s stake (not finalized until a year later), evaporated as part of an announced plan to file a “prepackaged” Chapter 11 bankruptcy. For Hearst, it’s a hefty writeoff of a bad investment. For the Scudders, it’s a bitter payoff after nearly 25 years of active participation in MediaNews management. For MediaNews CEO William Dean Singleton and his financial wizard, company president Joseph (Jody) L. Lodovic IV, it’s a fresh start (which includes a 20 percent equity stake for the duo, and retained control of the company).

Could readers of the company’s papers now see new investment in its newsgathering capabilities, long hammered by budget reductions? For MediaNews employees, could this be an opportunity to participate in the transformation of the company into a truly digital enterprise? Both answers depend on what kind of vision is shared by Singleton, Lodovic, and the former bondholders who are now their equity partners.

MediaNews’ story

In 1983, Singleton, then a brash 32-year-old newspaperman who already had bought and sold several newspapers, enlisted the help of his friend Richard B. Scudder to buy  the Gloucester County Times in New Jersey. Scudder, former publisher of the Newark Evening News (which his family owned for three generation before selling it in 1972), was founder and president of the Garden State Paper Co., the first commercial-scale producer of recycled newsprint.

Singleton and Scudder went on to create MediaNews Group in March 1985, and steered the company through a long series of deals that eventually built it into the sixth-largest newspaper group (by circulation) in the country — today it owns 54 daily newspapers with a total weekday circulation of about 2.3 million, plus a slew of weeklies and niche products. It also has a television station in Anchorage and a group of radio stations in Texas.

From the outset, Singleton and Scudder agreed to manage MediaNews for growth, and never to pay dividends. Neither of the partners ever personally owned any stock — they put it in trusts for Scudder’s children and grandchildren and for Singleton’s future children. Singleton was only 33, unmarried and childless at the time, but Scudder was 72, so the trust strategy would avoid inheritance taxes in the event of his death.

The company never went public, but because a small portion of its debt was publicly held, it was required for years to file disclosures with the SEC, providing a detailed window into the complex financial structure that enabled its growth. (That window closed in 2008 when the company reached an agreement with bondholders to avoid the filings.)

The financial wizard behind the company’s financial maneuvers was Jody Lodovic, who became chief financial officer in the early 1990s and rose to become president. Together, Singleton and Lodovic created partnerships with Gannett in Texas and New Mexico and with Gannett and Stephens Media in California to which each company contributed its newspapers, with MediaNews assuming the management. They pioneered the concept of “clusters” of papers that could realize economies of scale. They deftly exploited joint operating agreements in Detroit, Charleston, W.V., York, Penn., Salt Lake City and ultimately in Denver at the conclusion of a long battle between MediaNews’ flagship paper, the Denver Post, and the Rocky Mountain News. At times, when cash was tight or they got offers they couldn’t refuse, they sold papers, including the original New Jersey cluster dear to Dick Scudder’s heart.

For Singleton, the elimination of most his company’s debt is a long-delayed goal. As early as 1996, at a retreat for the group’s management and publishers, he outlined strategies including a few more years of acquisitions followed by a push to reduce debt. But somehow, acquisition opportunities kept coming along, and debt reduction was put off. Singleton began to feel that at some point, there would be only two or three newspaper companies left standing, and he wanted MediaNews to be one. To be in the running, the company had to keep growing. Ultimately, revenue tanked not long after the final big deals with McClatchy and Hearst, and MediaNews found itself in workout last April. Given the complexity of its financial structure, it’s not surprising that it took eight months to package the bankruptcy.

For Singleton, it’s not the first disappointing turn, but certainly the biggest. In 1975, pre-MediaNews and at the age of 24, Singleton was involved in an attempt to revive the Fort Worth Press, which had been closed by E. W. Scripps after losing money for two decades. The venture ended in failure after three months. MediaNews bought, but couldn’t make a go of the Dallas Times-Herald, which was closed a few years after Singleton sold it. Later, MediaNews bought the Houston Post but couldn’t make it profitable and sold the assets to Hearst, which owned the dominant Houston Chronicle. Hearst paid $120 million and immediately closed the Post. (The laid-off staffers, calling themselves the Toasted Posties, set up an early social networking site of sorts to stay in touch and swap gossip about Singleton; it was succeeded by a now-dormant blog, and later by a Facebook page.)

Known as a cost-cutter

Though he continues to have a reputation for ruthlessly cutting costs when necessary, Singleton takes a genuine pride and interest in his newsroom staffs. When visiting newspapers, before heading out for dinner with the publisher, he makes of point of visiting the newsroom to see what’s going on. He keeps an eye on editors, reporters and photographers with promise and has promoted some to the Denver Post. He has a mail subscription to every one of his dailies, and when he’s traveling, his sister and personal secretary Pat Robinson sends some of them to his destination in Fedex boxes so he can keep up. Editors are not surprised to get a call from Singleton asking about a local story, or exhorting them to run more local news on the front page. He lets each local paper formulate its own editorial views and endorsements. Before the going got rough, Singleton and Scudder convened annual gatherings of MediaNews publishers to talk strategy; they enjoyed these confabs far better than meetings of publishers.

And as Singleton told the Wall Street Journal in an interview relating to the current bankruptcy process, he continues to press his vision for consolidation of the newspaper industry, telling the Journal he wanted to be the “aggressor” in that effort.  The group’s employees fear that by consolidation, Singleton means more outsourcing or more centralization of operations regionally and nationally. There’s been a lot of that already, and there could be more, but Singleton and Lodovic will now be free to expand their partnerships, to seek mergers with other groups, or to rationalize the market through exchanges of newspaper properties. “Look at the map,” Singleton told the Journal in response to the question of where such consolidations might occur.

Singleton has lived with multiple sclerosis for 24 years; the disease has now robbed him of the use of his legs. In a long and particularly revealing interview last year with the Colorado Statesman, he discussed its effects:

I cheated it for many, many years. The last three years, I haven’t cheated it so well, and it has become more aggressive. I’ve lost the use of my legs and partial use of my arms and fingers. I feel fine most of the time. I’ve never missed work because of it. But clearly the current prognosis isn’t particularly good. The good news about Multiple Sclerosis is, it doesn’t kill you. But it does disable you. Not being able to walk or button your shirts or tie your tie — it’s troubling. But I’d rather be disabled and alive than fully able and headed to the other side. So I count my blessings for all the things it hasn’t taken. But it certainly has taken a lot. I look worse than I feel. I feel pretty good.

I’m still very energetic and do what I want to do. I travel if I want to travel, and get around to the newspapers and go anywhere I want to go. I enjoy life a lot, but I just enjoy it differently without some of the physical things I once had. It’s comical when I go on the road. I can’t button a button because my fingers don’t work. I can’t type anymore. I can’t use a computer because my fingers don’t work. If I go to hotels where I stay regularly, I’ve always got a concierge who’ll come up and button my shirts and help me tie my tie. If I stay in a strange hotel, I ask one of the housekeepers if she’ll button my shirts. She almost wants to call the police or something. You get all kinds of weird looks when you ask a housekeeper, “Would you come here and button my buttons for me?”

And I love it. In some places you get somebody who can’t speak English, so you have to explain how to button a shirt. And some places you get somebody who does, and they first think you’re joking. And then they understand your nod and they start laughing and everything. One of the fun things I have in life when I travel is the look on somebody’s face when I ask them to button my shirt. So you make the best of it.

Clearly, the MS puts some urgency in Singleton’s quest for a legacy. The elimination of most of his debt gives him an opportunity to rebuild newspaper operations that have been hammered for years by revenue declines and the company’s inability to invest adequately in its future (many of the papers are still operating on content management systems installed as Y2K solutions).  Whether he, or Lodovic, will have the vision to turn the company into a truly digital enterprise is an open question. Singleton has an understanding of the web (he helped lead the formation of the Yahoo Newspaper Consortium), but he’s not an active computer user. He has often expressed faith in the future of print, and has strongly espoused charging for content in order to protect the print side of the business: “I think print’s going to be important for a long time…Print is still the meat. Online’s the salt and pepper.”

With that attitude it seems unlikely that Singleton and Lodovic come to share the digital vision of another CEO leading his company out of bankruptcy, Journal Register’s John Paton, who told Jeff Jarvis recently (speaking of his previous company, Spanish-language publisher impreMedia):

The first thing we did was to decide that in our company, a print company, when it came to products we would be digital and brands first and print last. It was our radical way of focusing everyone on the future. By recognizing our competitors and our future were digital everything we built and did had to follow that decision.

Paton is free to pursue that vision at Journal Register, which is also newly unencumbered by debt. The readers and employees of MediaNews could benefit from a similarly unequivocal determination at the top to radically reinvent the business in a truly digital direction.

Disclosure: I worked for MediaNews Group as a publisher for 13 years from 1995 to 2008 at its cluster of four dailies in western New England. In a previous post, I outlined in more detail my suggestions for a more digitally-oriented MediaNews Group.

January 08 2010

15:00

What 2010 will bring newspapers: Bad revenue news, bad bankruptcy news, and maybe a nice tablet

[Yesterday, we showed how our Martin Langeveld's predictions for 2009 turned out. A few hits, a few misses, but lots of thoughts provoked. Here's his list of what we can expect in 2010. —Josh]

Newspaper ad revenue: At least technically, the recession is over, with GDP growth measured at 2.2 percent in Q3 of 2009 and widely forecast in Q4 to exceed that rate. But newspaper revenue has not followed suit, dropping 28 percent in Q3. McClatchy and the New York Times Company (which both came in at about that level in Q3) hinted recently that Q4 would be better, in the negative low-to-mid 20 percent range. This is not unexpected — in the last few recessions with actual GDP contraction (1990-91 and 2001), newspaper revenue remained in negative territory for at least two quarters after the GDP returned to growth. But the newspaper dip has been bigger each time, and the current slide started (without precedent) a year and a half before the recession did, with a cumulative revenue loss of nearly 50 percent. Newspaper revenue has never grown by much more than 10 percent (year over year) in any one quarter, so no real recovery is likely; this is a permanently downsized industry. My call for revenue by quarter during 2010 is: -11%, -10%, -6%, -2%.

Newspaper online revenue (included in the overall prediction above) will be the only bright spot, breaking even in Q1 and ramping up to 15% growth by Q4.

Newspaper circulation revenue will grow, because publishers are realizing that print is now a niche they can and should charge for, rather than trying to keep marginal subscribers with non-stop discounting. But this means circulation will continue to drop. In 2009, we saw drops of 7.1 percent in the six-month period ending March 31 and 10.6 percent for the period ending Sept. 30. In 2010, we’ll see a losses of at least 7.5% in each period.

Newspaper bankruptcies: I don’t think we’re out of the woods, or off the courthouse steps, although the newspaper bankruptcy flurry in 2009 was in the first half of the year. The trouble is the above-mentioned revenue decline. If it continues at double-digit rates, several companies will hit the wall, where they have no capital or credit resources left and where a “restructuring” is preferable and probably more strategic than continuing to slash expenses to match revenue losses. So I will predict at least one bankruptcy of a major newspaper company. In fact, let’s make that at least two.

Newspaper closings and publishing-frequency reductions: Yup, there will be closing and frequency reductions. Those revenue and circulation declines will hit harder in some places than others, forcing more extinction than we saw in 2009.

Mergers: It’s interesting that we saw very little M&A activity in 2009 — none of the players saw much opportunity to gain by consolidation. They all just hunkered down waiting for the recession to end. It has ended, but if my prediction is right and revenue doesn’t turn up or at least flatten by Q2, the urge to merge or otherwise restructure will set in. Expect to see at least a few fairly big newspaper firms merge or be acquired by other media outfits. (But, as in 2009, don’t expect Google to buy the New York Times or any other print media.)

Shakeups: Given the fact that newspaper stocks generally outperformed the market, it’s not surprising that there were few changes in the executive suites. But if the industry continues to contract, those stock prices will head back down. Don’t be surprised to see some boards turn to new talent. If they do, they’ll bring in specialists from outside the industry good at creative downsizing and reinvention of business models. Sooner would be better than later, in some cases.

Hyperlocal: There will be more and more launches of online and online/print combos focused on covering towns, neighborhoods, cities and regions, with both for-profit and nonprofit business models. Startups and major media firms looking to enter this space with standardized and mechanized approaches won’t do nearly as well as one-off ventures where real people take a risk, start a site, cover their market like a blanket, create a brand and sell themselves to local advertisers.

Paid content: At the end of 2008, this wasn’t yet much of a discussion topic. It became the obsession of 2009, but the year is ending with few actual moves toward full paywalls or more nuanced models. Steve Brill’s Journalism Online promises a beta rollout soon and claims a client list numbering well over 1,000 publications. Those are not commitments to use JO’s system — rather, they’re signatories to a non-binding letter of intent that gives them access to some of the findings from JO’s beta test. Many publishers, including many who have signed that letter, remain firmly on the sidelines, realizing that they have little content that’s unique or valuable enough to readers to charge for. JO itself has not speculated what kind of content might garner reader revenue, although its founders have been clear that they’re not recommending across-the-board paywalls.

So where are we heading in 2010? My predictions are that by the end of the year, most daily papers will still be publishing the vast majority of their content free on the web; that most of those experimenting with pay systems will be disappointed; and that the few broad paywalls in place now at local and regional dailies will prove of no value in stemming print circulation declines.

Gadgets: The recently announced consortium led by Time Inc. to publish magazine and (eventually) newspaper content on tablets and other platforms will see the first fruits of its efforts late in the year as Apple and several others unveil tablet devices — essentially oversized iPhones that don’t make phone calls but have 10-inch screens and make great color readers. Expect pricing in the $500 ballpark plus a data plan, which could include a selection of magazine subscriptions (sort of like channels in cable packages, but with more à la carte choice). If newspapers are on the ball, they can join Time’s consortium and be part of the plan. Tablet sales will put a pretty good dent in Kindle sales. One wish/hope for the (as yet unnamed) publisher consortium: Atomize the content and let me pick individual articles — don’t force me to subscribe to a magazine or buy a whole copy. In other words, don’t attempt to replicate the print model on a tablet.

Social networks: Twitter’s own site usage will continue to be flat (it has actually lost traffic slowly but steadily since summer), but that probably means more people are accessing Twitter through various apps on computers and smartphones, so actual engagement is hard to gauge.  Facebook will continue to grow internationally but is probably close to maxing out in the U.S. With Facebook now cash-flow positive, and Twitter still essentially revenue-less except for lucrative search deals with Google and Bing, could Mark Zuckerberg and Evan Williams be holding deal talks sometime during the year? It wouldn’t surprise me.

Privacy: The Federal Trade Commission will recommend to Congress a new set of online privacy initiatives requiring clearer “opt-in” provisions governing how personal information of web users may be used for things like targeting ads and content. Anticipating this, Facebook, Google and others will continue to maneuver to lock consumers into opt-in settings that allow broad use of personal data without having to ask consumers to reset their preferences in response to the legislation. In the end, Congress will dither but not pass a major overhaul of privacy regs.

Mobile (with thanks to Art Howe of Verve Wireless): By the end of 2010 a huge shift toward mobile consumption of news will be evident. In 2009, mobile news was just getting on the radar screen, but during the year several million people downloaded the AP’s mobile app to their iPhones, and several million more adopted apps from individual publishers. By the end of 2010, with many more smartphone users, news apps will find tens of millions of new users (Art might project 100 million), and that’s with tablets just appearing on the playing field. During 2009, web readership of news (though not of newspaper content) overtook news in printed newspapers. Looking out to sometime in 2011 or 2012, more people will get their news from a mobile device than from a desktop or laptop, and news in print will be left completely in the dust.

Stocks: I accurately predicted the Dow’s rise during 2009 and that newspaper stocks would beat the market. The Dow will rise by 8% (from its Dec. 31 close), but newspaper stocks will sink as revenue fails to rebound quarter after quarter.

December 22 2009

15:19

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.

November 19 2009

23:38

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.

(Our work is funded by the Knight Foundation, the MacArthur Foundation, and the McCormick Foundation.)

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