Hal and Eric want to save journalism

Author James Fallows has a long Atlantic feature story on why he believes Google is sincere in wanting to save journalism from its business models. (OK, long Atlantic feature is redundant, but at 9,000+ words it’s longer than most academic papers.)

While the author’s friend (and Google CEO) Eric Schmidt plays a central role, so too does chief economist Hal Varian. (Somehow Fallows doesn’t mention that Varian wrote the best-known information economics book and was the founding dean of Berkeley’s information school.)

Two excerpts from the article:

[P]eople inside the press still wage bitter …debates about whether…customers will ever be willing to pay for online news… But at Google, I could hardly interest anyone in the question. The reaction was: Of course people will end up paying in some form—why even talk about it? The important questions involved the details of how they would pay, and for what kind of news. “We have no horse in that race or particular model in mind,” Krishna Bharat, one of the executives most deeply involved in Google’s journalistic efforts, told me, in a typical comment. His team was already working with some newspapers planning to put their content behind paywalls, others planning to remain free and hoping to become more popular with readers annoyed when paywalls crop up elsewhere, and still others planning a range of free and paid offerings. For Bharat and his colleagues, free-versus-paid is an empirical rather than theological matter. They’ll see what works.

Some insights from Hal Varian:

…“Unbundling” is an insurmountable business problem for journalism. “Bundling” was the idea that all parts of the paper came literally in one wrapper—news, sports, comics, grocery-store coupons—and that people who bought the paper for one part implicitly subsidized all the rest. This was important not just because it boosted overall revenue but because it kept publishers from having to figure out whether enough people were reading stories from the statehouse or Mexico City to pay the costs of reporters there.

“Newspapers never made money on ‘news,’” Hal Varian said. “Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.” The Internet has been one giant system for stripping away such cross-subsidies. Why look to the newspaper real-estate listings when you can get more up-to-date, searchable info on Zillow—or better travel deals on Orbitz, or a broader range of movie showtimes on Yahoo? Google has been the most powerful unbundling agent of all.
…
Burdened as they are with these “legacy” print costs, [dead tree] newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news. Varian cited a study by the industry analyst Harold Vogel showing that the figure might reach 35 percent if you included all administrative, promotional, and other “brand”-related expenses. But most of the money a typical newspaper spends is for the old-tech physical work of hauling paper around. Buying raw newsprint and using it costs more than the typical newspaper’s entire editorial staff.

The article also talks about Google’s ideas about changing the substance of journalism via Google News. Its head, a Bangalore native, hopes to reduce pack journalism and provide a more multicultural perspective for Americans and other English-speaking people around the world. (Sorry, it’s hard to take seriously any search engine that promotes RT — Pravda on TV — as co-equal with CBS or the NY Times.)

Still, Fallows does a good job of capturing the “deeply symbiotic relationship” that Google realize it shares with quality content provider. He also lists a range of initiatives, big and small, that Google is taking to help newspapers make the inevitable transition from dead trees to online as their primary source of revenues.

And more generally, Fallows and Google offer a more nuanced and sophisticated view of Web business models for the coming decades. Given the high failure rate of Web 2.0 business models, I were leading an online startup I’d make it a must read for my entire staff. The ideas about bundling, cross-subsidies, scarcity and pricing are also ones that are broadly applicable to any class on business models or information economics.

Very optimistic news premium

This morning’s Wall Street Journal had two ads promoting the availability of the WSJ on electronic readers.

• A 1/6 page ad promoting the (apparently struggling) Reader Daily Edition for the Sony Reader — paid for by Sony.
• A full page ad promoting the Wall Street Journal for iPad — a $4/week ($216/year) — paid for by the WSJ.

Normally we think of complementers as desiring to sell their software (or content) on whatever platform people have. But clearly the WSJ thinks the volumes (and probably the margins) are much higher on the iPad product.

What’s going on here? Derek Thompson of The Atlantic thinks the WSJ is cream-skimming with the affluent early adopters of the WSJ:

This is what we in the biz know as cojones. I looked up WSJ subscriptions for Web and print today. It turns out that getting the WSJ on the iPad is more expensive than a subscription to WSJ.com; or WSJ the paper; or WSJ.com and WSJ the paper combined.

To me, it seems like a futile attempt to avoid commoditization by yet another news organization (a possibility Thompson also suggests).

I don’t see how the price is tenable in the long haul — it seems like wishful thinking by Rupert Murdoch (who’s been much exorbitant in his pricing than the previous owners.)

The WSJ is creating a great opening for the FT, Thompson Reuters, Bloomberg’s Business Week or Yahoo to create an advertising-supported alternative to the WSJ product. The WSJ has great depth, but by partnering with other sources, it seems straightforward that someone could create something that serves the business news interests of the masses.

Finally, this suggests that the ambiguity about the iPad will be as much about the content business models as the form factor and applications. Fortunes are made in situations of high ambiguity, although right now the iPad content (and application) business seems a bit overcrowded for anyone entrant to make a lot of money.

Schmidt is the fox promising to help chickens

The posturing this week over dying newspaper business models has been entertaining. Unfortunately for the papers, it only confirms that most of the industry will be gone a decade from now.

On Tuesday, Google billionaire† (#40 on the Forbes 400) Eric Schmidt pretended (once again) that the Monster of Mountain View has the newspapers’ interests at heart in a WSJ op-ed modestly titled “How Google Can Help Newspapers.”

A mere 20 years late, Schmidt channelled John Sculley in his utopian vision:

It's the year 2015. The compact device in my hand delivers me the world, one news story at a time. I flip through my favorite papers and magazines, the images as crisp as in print, without a maddening wait for each page to load.

Hmmm.. My hand holds an iPhone pretty well, and since day one the New York Times has been sold as one of its killer apps. But wait, there’s more:

With dwindling revenue and diminished resources, frustrated newspaper executives are looking for someone to blame. Much of their anger is currently directed at Google, whom many executives view as getting all the benefit from the business relationship without giving much in return. The facts, I believe, suggest otherwise.

Google is a great source of promotion. We send online news publishers a billion clicks a month from Google News and more than three billion extra visits from our other services, such as Web Search and iGoogle. That is 100,000 opportunities a minute to win loyal readers and generate revenue—for free.

Wow! Isn’t that generous of Google?

It’s not clear whether Schmidt had planned the op-ed for a long time, or if he was reacting to the report released Monday by a newspaper coalition showing Google makes more money than anyone else off of “unlicensed” use of newspaper content. The study said Google enabled 53% of the monetization of these articles.

The Fair Syndication Consortium summarized its findings:

• During a 30-day period (October 15 – November 15, 2009), 75,195 Web sites reused at least one U.S. newspaper article without a license.
• On these sites, 112,000 near-exact unlicensed copies of articles were found.
• Among the top 1,000 sites reusing the most articles, blogs represent less than 10 percent of the total.
• In addition to the 112,000 full article copies (defined as more than 80 percent of the original article and more than 125 words reused), an additional 163,173 excerpts were found (defined as less than 80 percent of original article and more than 125 words).

These results exclude any articles found on Google News.

Of course, there are some problems with the study, since under fair use provisions of copyright law, a “license” is not required. Fortunately, the Consortium is willing to let this continue “to start.”

This week, Google also announced they would allow less free access to Google-indexed paid content, in an existing program called “First Click Free.” This effort is intended to mollify the few publishers (WSJ, FT) who charge for content.

But in the end, Google’s going to keep its core business model: organizing the world’s information without having to pay for any of it, continuing to siphon off the revenues that once kept newspapers alive. Absent a gun to their head (e.g. in Europe), they’re not going to share any significant amount of the billions they’ve accumulated from that information and the stickiness it creates on their sites.

Thursday, newspaper bible Editor & Publisher quoted yet another prediction that newspapers will try and fail to institute paywalls:

Fitch is fully expecting that many newspapers are going to try and charge for content next year, only to realize it was a mistake. A handful of properties, notably the Wall Street Journal, the New York Times and smaller local papers will be able to or have pulled off an online pay strategy, according to Fitch, but don’t expect a widespread trend.

Simonton and Rizzo explain that for the rest of the lot, the competition has become too fierce. Furthermore, that competition with free content only will pull in readers, thus gaining share and the attention of advertisers.

In other words, we know how this story will end. The national category killers will be able to charge, while small hyperlocal papers operating on a shoestring will make money either online or in print-only publications. The rest are toast.

The end of the 20th century means the end of the traditional big-city newspaper, with the inevitable conversion to online-only meaning layoffs for more than 80% of the news staff. Bloggers will rule the day, supplemented by headlines from local TV stations.

So what we’ll end up with is a world with more convenient, lower quality news — indexed free by Google but little of it gathered by professionals. Today’s teenagers will say “so what?” while old codgers will lament the loss of intelligent discourse.

Personally, I shudder to think what the lack of (relatively unbiased) in-depth news coverage will mean for municipal elections — probably even greater success for machine politics, vote fraud and family dynasties.

† With my frequent posts on Total World Domination, I figure I have already made it on Schmidt’s blacklist.

Black day for Gray Lady

New York Times, July 22, 2009:

Corrections
An appraisal on Saturday about Walter Cronkite’s career included a number of errors. In some copies, it misstated the date that the Rev. Dr. Martin Luther King Jr. was killed and referred incorrectly to Mr. Cronkite’s coverage of D-Day. Dr. King was killed on April 4, 1968, not April 30. Mr. Cronkite covered the D-Day landing from a warplane; he did not storm the beaches. In addition, Neil Armstrong set foot on the moon on July 20, 1969, not July 26. “The CBS Evening News” overtook “The Huntley-Brinkley Report” on NBC in the ratings during the 1967-68 television season, not after Chet Huntley retired in 1970. A communications satellite used to relay correspondents’ reports from around the world was Telstar, not Telestar. Howard K. Smith was not one of the CBS correspondents Mr. Cronkite would turn to for reports from the field after he became anchor of “The CBS Evening News” in 1962; he left CBS before Mr. Cronkite was the anchor. Because of an editing error, the appraisal also misstated the name of the news agency for which Mr. Cronkite was Moscow bureau chief after World War II. At that time it was United Press, not United Press International. (Go to Article)

New York Times, August 2, 2009

THE TIMES published an especially embarrassing correction on July 22, fixing seven errors in a single article — an appraisal of Walter Cronkite, the CBS anchorman famed for his meticulous reporting. The newspaper had wrong dates for historic events; gave incorrect information about Cronkite’s work, his colleagues and his program’s ratings; misstated the name of a news agency, and misspelled the name of a satellite.

“Wow,” said Arthur Cooper, a reader from Manhattan. “How did this happen?”

The short answer is that a television critic with a history of errors wrote hastily and failed to double-check her work, and editors who should have been vigilant were not.

But a more nuanced answer is that even a newspaper like The Times, with layers of editing to ensure accuracy, can go off the rails when communication is poor, individuals do not bear down hard enough, and they make assumptions about what others have done.

In 1200 words, the brutally honest investigation by Clark Hoyt (NYT public editor) dissects the problems enumerated by the 200 word correction to the flawed 1200 word original.

This is sad, really sad. Even with my ongoing disappointment with the groupthink bias of most of the major media, the New York Times is the flagship of American journalism. As a former journalist, it’s painful to watch the failure of the processes that are supposed to assure its quality and thus protect its reputation (at least with its undeniably liberal core audience).

More seriously, the Times has resources unmatched by any other journalistic outlet. With unflinching public editors like Hoyt (and Daniel Okrent before him), it also examines its own mistakes with a candor unmatched by both any American institution (thus providing at least some level of accountability). If the Times is making this sort of mistakes, what is happening at other newspapers, magazines or TV networks that we don’t know about?

Of course, the new media — blogging, advocacy radio, social network-driven campaigns and citizen journalism — have their own problems. As in everything else, caveat emptor.

Odd unbundling decision

This morning brought is the penultimate issue of the weekly TV listings insert in the San Jose Mercury News, as well as for its sister papers in the Bay Area News Group. On August 16, the TV listings will only go to those who pay $26/year. While I certainly get the Merc’s need for new business models, this seems like a non-starter.

Once upon a time, TV listings were one of the main reasons people bought the Sunday paper; I know that’s what caused me to take the SD papers rather than the LA Times, even when I preferred the latter’s news and features. Apparently such sections have been a money loser for years, and several papers (including both Boston papers) have already dumped theirs, in part due to the cost of providing comprehensive information on all the various cable and DVS stations.

Perhaps the Merc is giving away so many papers — to keep the ad rate base up — that they need to charge for something. Certainly charging for the TV section must means that it plan to keep the section ad-free, since the section and its ads will be seen by only a small fraction of the 650,000 Bay Area News Group daily newspaper readers — I’d wager less than 10%.

A decade ago, I might have ponied up for the section or gone out and spent $40/year to subscribe to the dead tree TV Guide. Today, many people use the TV Guide Channel, that combination of listings and shows that makes TMZ seem like Masterpiece Theatre.

The TV Guide Channel doesn’t help our family, because Comcast no longer provides it free on basic cable. Still, we’ll get by just fine without the Mercury’s TV section: TVGuide.com provides more accurate information, for free. If TVGuide.com gets greedy and wants to charge, TV listings are a commodity and so I have plenty of other alternatives: TitanTV, TV.com, AOL or a number of other sites.

So why charge if it’s doomed to fail? Perhaps it’s one last attempt by the TV section staff to prove they’re valuable rather than get laid off immediately. Who knows? Perhaps there are enough non-Internet savvy seniors to keep the section around for another year or two.

Further evidence of newspaper decline

On Sunday, the SF Chronicle stopped printing its paper, laying off 200 union printers and shifting the work to an outside contractor. Compared to going out of business, it’s small potatoes, but it’s one more data point in the long secular decline of newspapers (not to mention unionization of non-government workers).

By going to the market (rather than vertical integration), the Chronicle was able to not only save costs but get more up-to-date printing presses. The Chronicle does not see printing as a core competency, and thus abandoning the traditional vertical integration (at least in a large metropolitan area like SF) makes sense. Still, the in-house story seemed slanted towards the nominal benefits (“wrinkle-free era begins”) rather than the cost savings.

Still, this is fiddling around the margins. The real issue is (as with record companies) how to charge when everyone expects to get it for free.

Eric Etheridge of the NYT summarizes the latest hopes of newspapers to be able to increase online revenues to replace disappearing printed paper revenues. One of the newest briefs in support of the newspapers comes from Richard Posner, a law and economics guru who is perhaps the most influential US judge today who will never sit on the Supreme Court. And The Newspaper Project keeps grasping at straws that it hopes will someday mean “Happy days are here again!”

On the other hand, Kevin Kelleher thinks efforts to impose a pay wall after all these years are doomed to fail. He opens in dramatic form:

Dear reader, the newspapers are sorry. They made a terrible mistake that drove you away: For years and years, they let you read their stories online for free. And so in the depths of the worst recession of our lives, they are now going to make us all pay.

If that sounds at all illogical, there's an excellent chance you are not a newspaper executive. It makes sense to Les Hinton, CEO of News Corp.'s (NWS) Dow Jones & Co. and publisher of the Wall Street Journal, who not only acknowledged the mistake in a recent speech but credited it with feeding Google's (GOOG) vampyric "lust for newspaper blood." Hinton said all those free news stories on the Web "gave Google's fangs a great place to bite."

I think the jury is still out, but if I had to bet whether the average (not top 5) US newspaper will be able to institute a pay wall, I’d put the odds south of 4-to-1.

Newspapers show some spine

At the annual meeting of the Associated Press on Monday, a big issue was the problem of Google free-riding off local newspapers and thus commoditizing the value of daily journalism.

There is a great summary by John Murrell on Good Morning Silicon Valley (part of the Mercury News), and specific reports by Staci Kramer at PaidContent and Peter Kafka at All Things Digital. Ironically, these are all free online sites (although the former and latter are affiliated with newspapers).

The charge seems to be led by newspaper publisher Dean Singleton, CEO of MediaNews Group (owner of the Mercury News among others) and this year chairman of the AP board. Another irony is that the first serious effort to save newspapers and the jobs of journalists from the commoditization of their work is coming from Singleton, who has been long derided by journalists with being more concerned with the bottom line than the noble calling of the profession. Today, he seems to be doing more to solve the problem than A.O. Sulzberger, Jr., scion of the clan that controls the venerable New York Times.

The AP will use tags and other technical changes to trace the use of its content by those that are not licensing its content. Or, as Kramer quoted an AP executive earlier, “What we’re really talking about here is much broader use, the commercialization of news that is scraped.”

Kramer’s interview with Singleton includes this clear shot at the free news portals (without mentioning the G-word by name):

“I think our industry has been very timid about protecting our content, probably because we’ve done so well in the past few years that we didn’t recognize that misappropriation is as serious an issue as it is. As we’re now relooking at business models, it’s become clear that we must protect the rights of our content. ... We perhaps have been timid about enforcing [those rights]. No more. We own the content but we’ve let those who spend very little, if any, get the most advantage from it.”

Kafka thinks it’s all for naught:

The thing is, even if the news guys somehow stopped people from using Google to find information they need, it wouldn’t do anything to solve the essential problems plaguing their business. Such as:

• An overabundance of undifferentiated, commodity information.
• The wholesale evaporation of classified advertising and local retail advertising.
• Investors who paid too much for newspapers and other media assets during the last 10 years, using too much debt.

I find it encouraging that the news(paper) industry has decided to stand up for the value of its content, and (despite my disagreements with specific newspapers) wish them well at creating a business model to be compensated for their efforts.

Still, I agree with Kafka that this is not a problem that’s going away with a simple policy change. Clay Shirky wrote a column last month that documents 15 years of unsuccessful efforts by newspapers to deal first with online service providers (like AOL) and then the Internet as conduits for information.

One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of “When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem.” I think about that conversation a lot these days.

The problem newspapers face isn’t that they didn’t see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several.

After considering various options, the papers were hit by a perfect storm:

As these ideas were articulated, there was intense debate about the merits of various scenarios. … In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn’t get much discussion in the nation’s newsrooms, for the obvious reason.

The unthinkable scenario unfolded something like this: The ability to share content wouldn’t shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM’s requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.

Whether or not the current initiative succeeds, the newspapers must try something different, and this seems like a good start.

One newspaper budget cut too many

A former roommate (from our journalism days) emailed to share a rather egregious newspaper. The dead tree LA Times Friday published a page of their entertainment section (“Calendar”) with placeholders where the headings should be:

• “tag briefs subhead large”
• “Tag briefs subhead”
• “ALL-CAPS LEDE-IN”

Pictures of the pages are shown on Lies.com.

The general reaction by readers and pundits was this sloppiness was the result of one budget cut too many. Once the most lucrative newspaper franchise in the country, the LAT has been hurting for years.

The greedy Chandler heirs sold the paper to the owners of the Chicago Tribune, which didn’t work out well for either one. Now — as with other papers — the current owner is trying to figure out how to extract profit from the real estate without wrecking that journalism stuff.

Despite the timing, the online-only LA Observed quotes an inside source who attributes it to a run-of-the-mill computer problem. Apparently a similar result was achieved in a November letter to the editor, at least in the online edition.

Graceful newspaper exit

Updated 9am with WSJ coverage

Unlike the closing of the Rocky Mountain News, the online-only Seattle Post-Intelligencer, and the pending cutbacks (threatened online-only) at the San Francisco Chronicle, Wednesday‘s story from San Diego has a (temporarily) happier ending.

The U-T (as it’s been known since even before the 1982 merger of the two Copley Press papers) announced its own sale to Platinum Equity, a Beverly Hills private equity firm. The sale will mark the exit of the Copley family from owning the 140-year-old paper since 1928. As with other family-owned newspapers, the current owner (David Copley) has more interest in spending the riches, not running a business, and Copley has been dismembering the family empire for the past three years.

Terms were not announced. Rumors have it that the price was near $15 million, although Copley reportedly retained a share in the paper’s future success. The Voice of San Diego estimated that a metro daily should bring $500 per subscriber — which for the U-T would amount to $140 million.

Why did Platinum buy the paper? It doesn’t know how to run a newspaper, but it is working with David Black and his Black Press which owns the Akron Beacon Journal and bought the nearly-defunct Honolulu Star-Bulletin (a sickly paper in a two-newspaper town) for $10K in 2001.

One theory (advanced in the LA Times) is that the new owners are planning on consolidating the San Diego paper with other papers — since both the main Orange County and Los Angeles papers are for sale.

Another theory is that the new owners — like other private equity firms — will just be more ruthless about cutting costs. While local politicos hope for improved coverage, David Black promises “reorganization and severances.” Black has a reputation for hyperlocal coverage and deep cost cutting.

A third explanation is Platinum is not buying a newspaper, but a real estate company that comes with a paper. One estimate is that the paper’s 13.5 acres of land is worth about $105 million, which would be a pretty good acquisition for only $15 million.

This latter possibility would not be encouraging for either newspaper employees or the San Diego public. When private equity firms bought Mervyn’s, they sold the real estate at a profit and left the department store to wither into bankruptcy.

Still, if the UT dies — or goes online only — there are already other alternatives. San Diego also has a decades-old (printed) weekly newspaper (San Diego Reader) plus three online-only papers: the Voice of San Diego, San Diego City Beat and the planned San Diego News Network. Online news snippets are also available on six local TV websites and three local news radio stations.

Update Thursday 9am: The Wall Street Journal account this morning is entitled “San Diego Paper Lands Fire-Sale Buyer”. Two excerpts:

The deal price wasn't disclosed, but a person familiar with the matter said it was less than $50 million, a price largely driven by the Copley Press real estate, which includes the complex housing the Union-Tribune and another facility.
…
The paper generated about $100 million in cash flow in 2004, according to people familiar with the paper's finances, meaning the Union-Tribune could have been worth $1 billion based on valuations at the time. Now, the paper is close to break-even, these people say, as it has been battered by the collapse of newspaper classifieds.

In only five years, the value of being a monopoly user heir has fallen 95%. This is likely to engender panic among the coupon-clipping 3rd and 4th generation heirs of newspaper dynasties like the Sulzbergers (NY Times) and Grahams (Washington Post).

Cartels are bad except when they’re not

House Speaker Nancy Pelosi has written a letter asking the Justice Department to exempt Bay Area newspapers from customary antitrust restrictions. I'll leave aside my cynicism about someone who normally rants against business control and monopolies flacking for a local paper that provides fawning coverage.

However, the reality is that for major American newspapers, antitrust exemptions — in the form of joint operating agreements — have failed and always will fail.

The Seattle Post Intelligencer (now defunct) was part of a joint operating agreement, as was the Rocky Mountain News.

The JOA is supposed to allow business cooperation but editorial competition to allow multiple papers to survive in a given city. However, towns with multiple dead tree newspapers are an anachronism that will eventually go away.

In some towns, there are multiple attempts at building alternative media. For example in San Diego there are two online alternatives: the non-commercial Voice of San Diego will be joined today by the advertiser-supported San Diego News Network. Both are up against the local news monopoly, the San Diego Union-Tribune — which is still for sale.

As has been true for a decade, the firms don’t need to find ways to save their dying 20th century business models, but to instead find a new business model that acknowledges the impact of the Internet and Google on their traditional business.

Dead tree paper now dead

A few days after winning concessions in San Francisco, Hearst pulled the plug on the oldest newspaper in Seattle. As expected, the Seattle Post-Intelligencer published its last edition today. (The demise probably won’t rank in the top 10 newspaper failures this year).

In a familiar pattern dating back decades, the newspaper reported its own demise and its residual post-newspaper activities:

The Seattle Post-Intelligencer will roll off the presses for the last time Tuesday.

The Hearst Corp. announced Monday that it would stop publishing the 146-year old newspaper, Seattle's oldest business, and cease delivery to more than 117,600 weekday readers.

The company, however, said it would maintain seattlepi.com, making it the nation's largest daily newspaper to shift to an entirely digital news product.

"Tonight we'll be putting the paper to bed for the last time," Editor and Publisher Roger Oglesby told a silent newsroom Monday morning. "But the bloodline will live on."

However, that bloodline will be mighty thin. Eliminating the print edition meant layoffs for more than 140 of the 167 reporters, photographers and editors. Only 20 “news gatherers” will remain, supplemented by 20 ad sales reps for SeattlePI.com. The paper will be supplemented by “150 citizen bloggers.”

Absent new business models, these sort of layoffs will be coming to most big city newspapers by 2020. If newspaper publishers — and journalists — want to survive, it’s time to try more radical measures rather than incrementally cutting their staff 10% a year for the next decade.

The definition of stupidity is doing the same thing over and over again and expecting different results. — Albert Einstein

Chronicle to readers: We're not dead yet!

Facing the threat of closing, reporters and photographers of the San Francisco Chronicle voted Saturday to make major concessions. As the Chronicle itself reported Saturday night:

Members of the San Francisco Chronicle's largest union overwhelmingly agreed to contract concessions that clear the way for cutting at least 150 union jobs and eliminating certain benefits and rights, measures the company says are essential to save the newspaper.

The 366 workers who cast ballots approved the revisions by a margin of around 10 to 1. If a majority of employees had vetoed the changes, management said they would have had to cut 225 positions represented by the California Media Workers Guild, Local 39521, with limited severance, to achieve the necessary savings, according to the union.
...
The Guild represents 483 Chronicle employees, including 218 in editorial and 265 in advertising, circulation, finance, ad production and other functions. The union had recommended membership approval.

Saturday's agreement is just the first step in Hearst's efforts to achieve the hoped for cost savings. The company still must negotiate a deal with its other major union, the 420-member International Brotherhood of Teamsters, Local 853.

Like many other papers, the Chronicle has no solution to its woes.

NY Times publisher Arthur “Pinch” Sulzberger said last week that there is no imminent solution, and when (if) there is one, it’s unlike to be one-size-fits-all:

I am not here to tell you I have the answers to our current dilemma – attracting more revenue, be it by charging for an online article reporting on the day’s activities in the Middle East the way iTunes charges for U2’s latest hit single; or examining new journalistic organizational structures, such as moving from a traditional profit-making model to a not-for-profit entity whose funding is secure in the hands of, say, Bernie Madoff.

One of the many reasons why such a solution is so elusive is that what works for The New York Times is not going to work for Newsday or The LA Times; what works for NYTimes.com is not going to be a solution for Politico, Salon or Slate. As I will discuss shortly, each site has a different relationship to the Internet and has to be evaluated on a case-by-case basis.

In our heart of hearts, we all wish there would be the equivalent of the deus ex machina moment when the gods descend and provide us with a perfect business model for the new media. Alas, Mt. Olympus has been quiet for quite a while, and real life tends to be a bit messier and less predictable.

10 most likely to fail

Most people want to be voted most likely to succeed. 24/7 Wall St. has a list of 10 newspapers it has voted most likely to fold (or go online-only).

1. Philadelphia Daily News*
2. Minneapolis Star Tribune*
3. Miami Herald
4. Detroit News*
5. Boston Globe*
6. San Francisco Chronicle
7. Chicago Sun-Times*
8. New York Daily News*
9. Fort Worth Star-Telegram*
10. Cleveland Plain Dealer

Seven* of the 10 papers are in two-newspaper towns (NYC with 4), which are going the way of the manual typewriter. Interestingly, the Globe was for decades considered a much stronger and more successful paper than its downmarket rival, the Boston Herald.

Facing the threat of closure, the San Francisco Chronicle announced Tuesday job security concessions from one of its unions, whose members will vote Thursday on the proposed contract changes. No word as to whether the Teamsters will also cooperate, or whether Hearst will just go ahead close another paper.

Hat tip: WSJ Bankruptcy Beat blog

That river in Egypt

The Merc had two articles Sunday encouraging people to buy a car. The first article, on the front page above the fold, screamed

A New Car?
Are You Nuts?

Still, this story was pretty balanced, at least compared to the other story.

The personal finance story in the business section seemed esigned to sell cars. Within it, however, another incongruity jumped out at me:

WHERE DO I LOOK FOR USED CARS?
You can find used cars on dealers' lots, at independent used-car lots, through private-party advertisements in print publications like the San Jose Mercury News and online at www.mercurynews.com., and through friends and family.

Is this the only way people buy used cars today? Perhaps this quote was copied from an old story written during the last recession.

When I checked Google for “buy car” I got Edmonds, CarsDirect, Cars.com, CarMax, Autobytel.com. Oh, and there are also several thousand cars listed (in just the SF Bay Area) on Craigslist.

The Merc has a pretty educated readership — or at least they did before that pesky Internet thing came along. Are they thinking that denial is going to cause people to forget about online alternatives?

Newspaper death watch

This morning, the Rocky Mountain News (1859-2009) reported its own demise — which, unfortunately for its employees, was not exaggerated at all.

The closure was announced Thursdays by officials from its publisher E.W. Scripps Co. (Scripps and United Press were founded by Edward W. Scripps, whose widow Ellen endowed numerous nonprofit institutions in San Diego and one of the Claremont Colleges).

The reporters and photographers will get two months’ severance. No word on the fate of business employees, who work for a joint venture with the rival Denver Post (which is owned by the same company as our own Mercury News).

The News was put up for “sale” in December but of course no buyers were found in a declining industry and a town that can’t support two newspapers.
Just to recap the death watch:

• San Francisco Chronicle: will be sold or closed unless unions cut wages “within weeks”.
• Seattle Post-Intelligencer will close or go online only if no buyer is found by next week.
• Christian Science Monitor going online-only in April.
• Minneapolis Star-Tribune filed for bankruptcy last month.

Other newspapers up for sale (perhaps under the threat of death) are the main papers in Miami, Austin, and San Diego.

The publisher of the LA Times and Chicago Tribune is in bankruptcy, as is the publisher of both Philadelphia papers. The debts of the New York Times are now officially junk bonds, while Mark Andreessen has started a deathwatch for the gray lady itself.

I was going to try to make by own newspaper death watch, but there’s already a website of that name by former Computerworld editor Paul Gillin. Also, Seth Hettena has a “Newspaper Bankruptcy Watch” category in his blog. So I’ll leave it to them to track the gory details.

As Gillin notes, the newspaper business model has failed. It was killed by Google (which abandoned promises to help newspapers) and other free sources of online news. Hopes of going advertising only isn’t going to work.

In an interview earlier this month, Ken Auletta said:

And if you say, “We’ll do it all through advertising”--well, what if advertising doesn’t cover the cost? Does Facebook make money? Does YouTube make money? Neither of them makes money. They have a great audience, great traffic, but don’t make money. You can build it, and they may not come; in this case, the money may not come. Now, maybe they will: they’re unbelievable sites, and they provide a great service to people. But they’re not making money. And they’re businesses.

Continuing down this path is Controlled Flight Into Terrain. There are only two fixes. The two-part solution has long been obvious:

• Kill the Associated Press — or at least prevent it from providing content from AP member papers to free online websites. Towards that end, five papers in NY/NJ are bypassing the AP to share content directly.
• Start charging for local content (as a few papers are already doing) or take the local content offline altogether.

As Andreessen (and many others) have pointed out, the current strategy isn’t working, so it isn’t risky to try something else given that the alternative is almost certain extinction.

Photo credit: photograph by Joe Mahoney taken Thursday in the Rocky Mountain News newsroom.

SF leads creative destruction

With an influence far disproportionate to its population (744,000) or size (<47 square miles), San Francisco prides itself on being at the forefront of social, political and economics change. Soon it may become the largest city in the US without its own daily newspaper. As Editor and Publisher reported Tuesday night:

The San Francisco Chronicle will be sold or closed unless major cost-cutting measures -- including an unspecified "significant reduction in the number of unionized and non-union employees" -- can be realized within weeks, parent company Hearst Corp. said Tuesday evening.

In July 2007, Business Week columnist Jon Fine wrote:

When Do You Stop The Presses?

Play with me on this one: Which major American newspaper should be the first to throw up its hands and stop publishing a print product?

It's a question worth asking. This could be the worst year for newspapers since the Great Depression. The double-digit revenue declines long forecast by doomsters have arrived.
…
WHEN, EXACTLY, do you junk something that no longer works? And which major paper should go first—not today, but within the next 18 or 24 months?

San Francisco Chronicle, I'm looking at you.

Killing print requires acknowledging not just that the old mode is dead but also that the future means less revenue and shrunken staffs. This is why it makes sense soonest at a money-losing newspaper already grappling with those realities, and one in a major city that generates enough local ad dollars to support a sizable online business.

On paper, San Francisco is perfect: a Web-centric town, a cash-drain daily, and private ownership. Which does not mean this will happen. San Francisco is the ancestral home of the Hearst empire, the birthplace of William Randolph Hearst and the town where he ran his first paper.

(This is the same Hearst who built Hearst Castle, served as the model for Citizen Kane, and was credited with starting the Spanish-American War.)

The official account at the Chronicle and Hearst Corp. makes it sound more like a threat to the unions than a plan to close the paper. The reports did not give a deadline nor specific requirements for cuts, which are intended to stem chronic Chronicle losses that reached $50m in 2008.

In contrast, when Hearst made a comparable announcement in Seattle on January 9, Hearst announced a 60 day deadline and that (as the NYT reported) “if it could not find a buyer, it would either shut the paper entirely or make it an Internet-only operation with a much-reduced staff.”

The problem is the numbers for converting a newspaper from print to Internet-only work about as well as converting from a computer systems company to an OS company (ask NeXT how well that worked out). As MediaDailyNews noted dryly: “As with most newspapers, online ad revenues are a small fraction of print; the P-I would not be able to support anything on the scale of the current operation.”

Perhaps for these reasons, Hearst did not mention an Internet-only Chronicle. Still, SFGate.com is considered to be a successful newspaper portal, and it’s possible Hearst (or successor) will operate the portal as an Internet-only news site.

It seems improbable that the paper will be saved by a buyer. As others have noted, there are many newspapers for sale right now — including a few making money — but no buyers anywhere to be found. With no buyers in sight, wage cuts would merely forestall the paper’s inevitable end.

If the paper folds, then I expect some publisher to buy the brand name to create an ad-supported free shopper to compete with the Examiner. Ironically, Hearst owned the Examiner until it sold it in 2000 to purchase the stronger Chronicle — but the Examiner’s low-cost, low-quality business model will probably outlive the Chronicle. Other survivors are likely to be hyperlocal papers.

The news was also covered by Public Press, the new startup SF newspaper that is hoping to use an PBS-type business model to support a 501c3-published newspaper.

The Chronicle (20th largest by one ranking) would be the largest printed US paper to disappear, joining the Christian Science Monitor which ends its printed daily paper next month. While the recession is accelerating the inevitable, the bad news will continue for a 10-15 years until the disappearance of most or all of the metropolitan daily papers, marking the end of some 150 years of history in the US.

Google starving newspaper revenues

Penn law school professor C. Edwin Baker summarizes the problems of newspapers. Much of it is a familiar story: declining revenues that bring layoffs, reduced quality and further declines; a problem of free riders who use the content without paying for it.

He argues that Google is killing newspapers in a zero-sum fight for ad dollars:

Possibly most serious, advertising is a more or less fixed pot. Huge portions of advertising revenue now supports the suppliers of the “search” for all sorts of already-produced information (including product and personal information) rather than journalistic entities which produce news – which is the story of huge capitalization of Google. Internet advertising that basically did not exist thirteen years ago clocked in at $21.2 billion in 2007 – with 41% going to advertising related to “searches” – and the amount is rising rapidly. That compares with annual newspaper advertising of roughly $40 billion, an amount in decline due primarily to this increasing diversion to online advertising. Though advertising always goes down even in minor recessions, even more so in anything like what the country is currently experiencing, the movement to online advertising is of historic significance for the news industry. Essentially the advertising that has long paid for journalism is in irreversible decline.

Unfortunately, Baker has no answer to these systemic problems: his claimed answer, nationalization of the press, is a nonstarter for reasons too numerous to mention in this post.

A better, more decentralized answer may be the efforts of the Public Press Project in San Francisco, whose response to plummeting ad revenues is to build a newspaper without advertising. Their argument (grossly simplified) is that if member supports works for local PBS TV stations, why not a local newspaper?

The US news industry was created by decentralized initiative, and I believe the solutions will have to begin here too (even if reform of the AP may be a prereq to their salvation).

Of course, I may be a little biased, since I know founder Michael Stoll, a journalist and adjunct professor here at SJSU. In fact, I arranged for two management students from our Sbona Honors Program to work with Public Press this semester to help them develop their business model.

The problems of newspapers are the same as they have been for the past decade: if they don’t have a revenue model, they won’t exist. Finding some way to get to paid content is the crux of the problem.

Newspapers won't be saved by Google

Google announced today that it is phasing out PrintAds, with all operations discontinued by March 31. Its CEO’s promise last June to help save newspapers apparently was only valid for one year or the next bad quarterly earnings report, whichever came first.

The move has been interpreted as a cost-cutting move, but in many ways the upside was more important for the newspapers than it ever was for Google. In fact, with PrintAds gone, Google will continue to help destroy the once-omnipotent local media monopolies, by commoditizing them. Now, the newspapers have one less hope for survival and the bad news will keep on coming. (PaidContent notes that the competing Yahoo Newspaper Consortium will continue).

Tuesday also included ominous news from America’s premier newspaper property, the New York Times Company. The parent of the NY Times announced it sold $250 million in convertible debt to the world’s largest man, a politically-connected monopolist, who Time dubbed “an investigative reporter’s dream”: 

Did the New York Times Company have any choice over who put money into the firm? Probably very little. The newspaper industry is viewed as a poor investment. Several newspaper chains are already in the process of liquidation, particularly Journal Register and Gatehouse. The third largest newspaper company, McClatchy (MNI) is in deep trouble. A number of the nation's largest dailies, including the Rocky Mountain News, are for sale and some will be closed if they do not find buyers.

NYTco shareholders were apparently not thrilled at the prospective dilution (or perhaps the terms of the debt), pushing the “A” shares down 7.8% or $72m. (The family-owned class B shares aren’t publicly traded.)

PaidContent notes that the alternatives — dumping distressed properties at depressed prices — were even worse. Of course, pouring money to keep the existing businesses alive assumes that current valuations are near the bottom of a notoriously cyclical industry, rather than a mere waypoint in an irreversible slide towards oblivion. Right now, the trendline clearly supports the latter interpretation.

By coincidence, on Seeking Alpha today Jeff Jarvis offered an imaginative (and relatively complete) list of alternative revenue models for newspapers.

Newspapers have known for years that they will have to make the transition from paper to an online-only business. The imperative is to use their existing revenue streams and (most importantly) supply of unique content to establish a new sustainable revenue model before the printed paper goes away. Otherwise, they will just be one voice in a more crowded, democratic and commoditized 21st century media market — and one with a demoralized workforce trapped by memories of 20th (or 19th) century industry paradigms.

Web? What web?

Newspapers have been in a long decline over 25 years, first with competition from electronic media and then, for the past decade, with the commoditization of information via the Internet. Publishers and owners — once used to spending the rents provided by their local monopolies — have now been choosing between bad options: cutting, selling or even closing their long-time cash cows.

The industry has split into two factions: those who embrace the Internet and those that just want it to go away. The former are desperately seeking new electronic delivery modalities and products, or even abandoning print altogether (and relegating the term “ink-stained wretches” to the dustbin of history). The latter are continuing to focus on killing trees, sometimes in combination with shutting off the electronic redistribution of their content that is fueling commoditization of their industry. These are tough choices, because neither strategy seems particularly promising.

On Sunday, NYT media columnist David Carr highlighted a tiny newspaper in Asburk Park, NJ. For NYT readers, Asbury Park needs no introduction: a small town 60 miles away on the Jersey Shore. For the rest of us, Asbury Park is the site of Bruce Springstein’s early career and in the title of his debut album.

Carr notes that the TriCityNews website has “has a little boilerplate about the product and lists ad rates, but nothing more.” The paper’s owner is defiant:

“Why would I put anything on the Web?” asked Dan Jacobson, the publisher and owner of the newspaper. “I don’t understand how putting content on the Web would do anything but help destroy our paper. Why should we give our readers any incentive whatsoever to not look at our content along with our advertisements, a large number of which are beautiful and cheap full-page ads?”

Local (if not hyperlocal) content has always been the most strategically defensible response to national electronic competitors. The problem is that the economies of scale work against highly local papers: the more focused the content, the more daunting the economics of paying that content. One possible future is that what we have left will be low-cost (if not schlocky) community papers that complement the TV stations and Google (or Yahoo) News.

Every time there’s a recession, newspapers merge or go out of business: this time, the 2009-2010 trough of the business cycle will be the perfect storm. About the only saving grace is that the newspapers that remain are the survivors of two decades of Darwinian elimination.

Beginning of the end of newsPAPERs

The venerable Christian Science Monitor has become the first major U.S. newspaper to give up the paper while (it hopes) keeping the news. Just shy of its 100th birthday, the newspaper announced Tuesday that it will discontinue the daily newspaper next April, replacing it with an improved online edition and (I suspect temporary) weekly paper edition.

A few analysts predicted that the San Francisco Chronicle would be the first to make the move, but at least it has local department store ads.

The Monitor is facing some atypical cost and demand pressures. Its strong coverage of international news means that it has a loyal but scattered following. Unlike the much larger national dailies — the WSJ, NYT and USA Today — it lacks the scale economies to support nationwide distribution of the print edition, and also to attract major advertisers. It also has long publication leadtimes which make it hard to keep its news, well, newsworthy. It’s been losing money for years, supported as a mission of the Christian Science church.

This doesn’t mean that the other papers are immune: the Monitor is the first of many. NYT publisher Arthur Sulzberger Jr. was asked last week how the NYT feels about the death of printed newspapers. As CNET reported:

"The heart of the answer must be (that) we can't care," Sulzberger responded, though he added that the radio, the television, and even the telegraph were all supposed to kill print reporting. "We do care. I care very much. But we must be where people want us for our information. It's the thought of cannibalizing yourself before somebody else cannibalizes you."

Ken Doctor on Seeking Alpha predicts the transition from paper to electronic will be mostly complete by 2015. (Not 2014? 2016? I digress). If he’s right, the Kindle (current US market leader) has a bright future in front of it.