Content Bridges

Nine Questions: New England Guilds, Tribune Fallout, San Diego Vacuum and the News Industry's Most Successful Alumnus

Things are turning ugly. Globe staffers up the ante in Boston. John Carroll calls Sam Zell an idiot. Online ads on newspaper sites drop to double-digit negatives. Which leaves me, as we approach this summer of our discontent, with more questions than answers. Here's Nine:

1. Down the road, will the Globe Guild members like their new owners better than the New York Times Company? Certainly, the Globe's sense of loss is understandable -- and real. Still, it's intriguing to compare the Globe Guild's rejection of the Times' offer to the Portland Guild's recent partnering with venture capitalists to take Maine Newspapers down a new road. The Maine Guild accepted givebacks to get the deal done, and to get a share of the company. My sense: It's always easier to be enthusiastic about the new, unknown guys than the management you've dealt with for years, even it is the New York Times. 

2. Where will lenders -- the new owners-to-be of bankrupt newspapers like the Tribune and the Inquirer -- turn for new leadership? They've got old-time publishers to choose from -- lots of them in the market -- as they replace the entrepreneurs like Sam Zell and Brian Tierney who fatally entered the trade in the last several years. They've got broadcast people, borrowing a page from Zell's playbook, as inevitably newspaper and local broadcast operations do grow together. They've got their pick of ad veterans, if they smartly see that local media success is going to be dependent on inventing scalable digital businesses.

3a. Won't Connecticut Attorney General Richard Blumenthal's okay of Tribune's merged TV/newspaper operations in Hartford seem quaint fairly soon? Sure, the FCC-related value of diverse community voices is a good idea. Going forward, though, the divide between local news video and local story/blog writing creation is an artificial one. Bottom line: The marketplace will probably take care of local news diversity rather than the increasingly outmoded rules of Old Media. 

3b. Aren't we finally able to put a pricetag on Sam Zell's unwarranted optimism and hubris? It looks like his $250 million "loan" to Tribune will be wiped out in the bankruptcy, as will his $90 million warrant. Still, it's just pin money for the guy who sold his real estate investment trust for $36 billion in 2006 and knows enough -- endowing the Zell Center for Risk Research at Northwestern -- to make judicious bets.  

4. While the San Diego News Network (Chris Jennewein's new hangout) is hardly a commercial threat yet in San Diego, the cratering of the Union-Tribune --  a one-time employer of 1422 people that will soon be paying only 572 850 -- leads to this question, in San Diego and elsewhere: How big a marketplace hole does a disappearing daily leave in its wake? My guess is that with an economic recovery, we'll see lots of small-shop entrepreneurs aiming to pick up local merchant dollars now in flux. 

5. Why would anyone expect the Kindle to "save" newspapers when it hardly supports advertising and takes 70% of subscription revenue? 

The New PI: A Quick Interview with Michelle Nicolosi

PI print readers woke up Wednesday morning to find their daily paper replaced by mere pixels....and Tweets. The online-only PI, seeking to define Second Life anew, added a Twitter feed to its home page. "Seattle Tweets" captures a few Twitter microposts, this afternoon heavy on TV station tips to whale video. Hey, it's the Northwest.

Reporting that its daily pageviews have grown a bit to 1.9 million on its first of school, from an average of 1.7 million pre-switchover, the new PI is heavy on blogs Seattle 911 (crime), Seattle Sports Blog and The Big Blog (a lively pastiche of local culture and news), a smattering of breaking news and featured photos. An easy-to-launch live March Madness CBS is featured the top of the page. A personalizable mypi down the right rail. Lots fewer PI stories, of course, with the reporting staff gone.

Many AP stories, some of them regional/local (which may ironically show AP's ramping value to shrinking newspaper companies).

And: no links (today) to the Seattle Times or the more direct media competition, Seattle Weekly, The Stranger, and Crosscut. 

Yahoo HotJobs has already been plugged in as the jobs site, through Hearst's involvement in the newspaper consortium. Autos is a link to Kelley Blue Book, real estate is mainly (archival) editorial for now.

Amid the maelstrom of change, I asked Michelle Nicolosi, who heads the site, to answer some basics. She's the Executive Producer of the new PI, and you can see from her resume, she's been around the online newspaper world. 

Day 2, here's a sense of what's inspired her, how she hopes to distinguish the site  her online philosophy and how her 20-person staff will do the new journalism:

Q: Which sites -- newspaper or non-newspaper -- do you look at for inspiration or as models? 

A lot of ideas come from looking at all the cool new tools that are constantly being developed, and sitting back and thinking, ‘hmm, how can I use that?’ Google Reader inspired me to ask some of our staffers to start creating "what I'm reading" headline lists that we surface on their blogs. Cover it Live gave us a new way to run conversations online. Twitter's been a great addition to the tool kit—we're using it to surface a running narrative of what's happening now across the city by creating a combined Twitter feed from the Tweets of 15 or so local agencies and leaders.  I love to run through the winners of the Webby Awards and the SND online awards every year, there are always great inspirations there. The Guardian  and The Sydney Morning Herald have always been two favorite sites to look to for innovations and inspiration. The New York Times is incredible of course, and I love El Pais.  

Q: Much has been made of your linking to Seattle's main non-newspaper sites and perhaps following a strategy of becoming a central point of regional aggregation. How central to your strategy and operation will linking out be and how have those sites responded to the move?  

Our mission is to be the best source of news in information in the Northwest—to put together the best mix of content for our readers. We'll do this by producing lots of original content, but we'll also point offsite to great content by other publishers.   Refusing to tell readers about stories we didn't write feels kind of old school to me. We know what our readers are interested in. Why not put together the best mix, regardless of where the stories came from, and who wrote them—so long as the sources are credible, of course. Linking to other credible content of interest will make us more useful to our readers. 

Q: If PI is a regional aggregator, why are there no links to Times stories specifically and to Seattle Weekly, Crosscut, The Stranger. Are you defining linking as all but competitive media?
   
We're linking to all credible sources -- if you're not seeing it there right now, that just means it's not in the mix at the moment. That doesn't mean we're not linking to them. In fact, we linked to The Stranger the very first day we started doing this.  

Q: How do you compete with a direct (newspaper) competitor, The Seattle Times, which now will have 10X the staff resources?  We’re going to focus on what readers are telling us they want and on what makes seattlepi.com essential and unique—within the context of our local news mission, of course. We’ve been successful thus far by paying close attention to our readers and will continue our “survival of the fittest” attitude about content that isn’t working.  

We have partner content from TV Guide.com, business publisher Xconomy.com, and starting today, a lot of great new content from Hearst magazines, including Cosmopolitan, Country Living, Esquire, Good Housekeeping, House Beautiful, Marie Claire, Popular Mechanics and Redbook. We'll continue to develop partnerships like these as we go to create the best possible mix of news, information and entertainment.   As I already mentioned, we're putting together a more useful home page that points you to the best mix of news, regardless of who wrote it.   We're going to have a great assortment local leaders joining seattlepi.com as columnists. We've got dozens of folks ready to write for us now, and hope to keep expanding.

 We have a collection of more than 150 reader bloggers, sharing their passions and stories.  We've got one of the best video game reviewers going blogging for us, and wonderful people writing about everything from politics to cooking to dating to living with cancer. 

Q: How traditionally story-driven and how blog-driven will the site's content be? 

We'll still write stories, of course. We'll also write a lot of briefs and quick updates. Being online-only means we won't always have to write a full story when there's an update—instead we can point readers to previous coverage for the background. In the paper you can't do that.

We're going to be doing both, depending on what's appropriate for the subject/circumstances. Last night for example we live-blogged a school board meeting (in the blog tool) then wrote a story and published it as an article.  

We'll focus our staff efforts where we have something unique and civically important to offer: coverage of government, spending, crime, and harder news in general. A recent survey of our readers—and traffic patterns on seattlepi.com—tell us that readers are most interested in breaking news and hard news stories. They’re also interested in both news and feature photo galleries. The ‘daily news of the world in photos’ gallery is one of the most popular features on seattlepi.com.

Bruce Sherman, Retire in Peace

So Bruce Sherman's out of the game. Failure apparently has its price, eventually.

You remember Bruce, the anonymous-to-newspaper-people fund manager. He's the guy who pulled the plug on the newspaper industry's sense of normalcy, setting off a chain reaction of events that remain with us to this day.

As co-founder of Private Capital Management (PCM Management), a Naples-based division of Legg Mason, Sherman took a long long at Knight-Ridder in 2005, and didn't like what he saw. He thought management could be managing better. He let Tony Ridder know that, but didn't see the changes he wanted. So he said: I think we could do better. I think we should sell the company.

Amazingly, Tony Ridder blinked, Knight Ridder was sold -- at a price of $67.25 a share (cash and stock), a number that not yet three years later is mind-blowing.

(Check out a good history of "Sherman's March," an AJR story, here.)

That sale -- at 9.5 times KR's 2005 cash flow -- marked the beginning of the end for public newspaper companies. Knight Ridder -- the second-largest newspaper company in the US, with plum properties across the country -- could only find one bidder, McClatchy. McClatchy CEO Gary Pruitt then quickly turned around and sold off a dozen papers, including Bay Area properties to Dean Singleton (iconic photo of the two of them here), but still rues the day he made the KR buy.

Numerous buyers reviewed KR books. They were newspaper companies, private equity and more. All but McClatchy came to the conclusion that the business had serious cracks. Those cracks now have all been exposed as the Tribune tumbled into faux "employee ownership" and then bankruptcy, and company after company have seen for-sale signs unanswered. Today, the San Diego Union-Tribune went, at an undisclosed price, to an L.A. private equity company, after nine months on the market.

When I saw the Sherman announcement, I thought back to the day in November, 2007 when I got an unexpected call from Naples. I answered and heard, "Mr. Sherman's office calling for Ken Doctor." Was it a prank, a lion of private capital calling an independent analyst?

Paid Content: You Can't Tell the Players Without a Scorecard

Make 'Em Pay! Sounds like a old Clint Eastwood movie. Now, though, it's the theme of the newspaper industry month. We can't blame the industry for trying new tacks; that's only to be encouraged in the time of ransacked newsrooms.

Furtive cable bundling. Special e-newspaper readers. Hints of content pony walls. Tax relief and government training monies. 

Let's take a quick look at the landscape, and try to score them:

1. Cablevision's Newsday/cable idea: I pooh-poohed the paid Newsday notion, when it first leaked out last week. Putting up a pay gate around a site that draws 4.5 minutes per month per average visitor just isn't a good idea. From Cablevision's furtive comments, we can now divine that it meant to say it would somehow bundle Newsday as a cable offering, details to come. As Peter Kafka over at AllThingsD has pointed out, this idea may have more appeal for its ad value than its news value. The big new idea here, though, could be an old, tweaked one. Bundling! Imagine bundling Newsday online access in with Cablevision's cable bills all over Long Island. If you've actually looked at your cable bill lately, you know it's undecipherable. Cablevision -- owner of Newsday -- could peg any amount it wanted to Newsday value, call it an information access charge or whatever, and attribute the money to ..... Newsday. Sound familiar, maybe a bit like, the early days of classified bundling (the '90s), in which newspapers attributed whatever they wanted out of a recruitment/auto/real estate print buy to online. The trick here would be for Cablevision to continue raising rates to make the "bundling operation" really profitable for the whole company, and not just a shell game.

         Odds of Happening: 2-1.

         Impact: Great model....if you are a cable company that owns a newspaper. Would Comcast like to pull Tribune out of bankruptcy?

         Added Bonus: Having "The Housewives of Orange County" subsidize newspaper reporting.

         2. Hearst's e-paper idea: Hearst's Interactive Media President Ken Bronfin piqued imagination last week with news that the company has developed a "wireless e-reader with a large-format screen." As with the Cablevision word, we know little more so far. Jeff Bezos' pet Kindle and lately PlasticLogic's to-be-released-in-2010, oh-so-cool bendable screen (good informative piece by Emma Heald here at Editors Weblog) have re-lit hopes that people will want to read newspapers on this new device, paying for them of course. We know Kindle has some thousands of buyers for newspaper products, at $10 or so a month. 

         Odds of Happening: 2-1.

         Impact: Seems niche-y, rather than mass.  Wireless sounds good, if it can update newspaper content on the fly. Otherwise, we're back to today's latest technology bringing you yesterday's news. Of course, even if it is the latest news, how many people want it in the newspaper format (As Steve Yelvington points out, this is the old Roger Fidler idea, late of Knight Ridder, updated by newer technology)? My problem with e-readers has been that by presenting news in the newspaper format metaphor, they appeal to baby boomers and up, who are habituated to the format -- but don't prefer to spend their time reading digitally. Additionally, for younger-than-baby-boomer readers, they're puzzled why you'd have a proprietary reader, when you already have a laptop or smartphone that can get you the latest on anything, and offers other usefulness.

         Still, the device does offer the promise of a Chiropractic Full-Employment Act, as we (to use a USA Today-ism) all pack around so much digital garbage that our backs are permanently swayed. Here is one of those great USA Today snapshots, published fortuitously last week, showing the e-burdens Americans tote around these days.

         My sense is that the way Hearst may intend to make this work is as follows:

• Give away the e-reader to subscribers, or discount it substantially, figuring that the money saved from printing and distributing a daily paper (or Hearst magazines) -- more than a quarter of the cost of producing it -- will be saved if Hearst can hold on to the subscriber.
  
• Offer a have-it-your-way approach: 1) E-reader, "free" with upfront payment or guaranteed contract, a la cell phone contracts. 2) Print, which is priced higher.
  
• So it would be an attempt to both reduce costs immediately and offer an alternative to more tech-savvy younger readers.

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         Added Bonus:  A new device to add to the Graveyard of Proprietary Devices, sure to be on one of the popular stops on the Silicon Valley 2020 Tour.

          3. Hearst paid content idea: New Hearst News head Steve Swartz' leaked memo talks about charging for access to some online content, to be determined. Hearst execs have been told, since the announcement, not to erect any paywalls yet. In fact, they've been told to reach out and lasso more community content, another (better) idea newly regaining attention all around the country.

        

Paid Newsday Site? What's 4 1/2 Minutes Worth to You?

(Brief update on parsing what Cablevision meant, here)

Numbers can be terrible reality checks.

Want to know how likely it is that Cablevision's new charge-for-Newsday-online will work? A few rational arguments to follow, but consider this number: The average unique visitor on Newsday.com spends four minutes, 25 seconds per month on the site. Ouch. That number can sub for lots of focus groups, price elasticity testing and the like. Newsday's would-be digital audience has voted with its fingertips. That number is up almost one minute from a year earlier, here courtesy of E and P's monthly Nielsen rankings, but still ranks Newsday as having the lowest online engagement of the top 30 newspaper sites.

Confronted with having to pay for a site you may use less than five minutes a month, you think you are going to pay for it? Wrong site. Wrong year. Wrong metro area.

It will be fun to watch though, since we all needed another case to chew on. Our best case has been Little Rock. Yes, the Democrat-Gazette has done better than average in circ retention, but it is still laying off dozens of people this week. It has applied a tourniquet and that only helps for awhile when you have an internal hemorrhage. They've been able to keep circ better because it is Little Rock, with far less competitive media, and it is the big dog in the state.

Long Island is no Little Rock. In New York, Newsday faces strong competition from the three other dailies plus dozens of local websites. Much of its coverage, in print and online, can be readily found for free elsewhere on the web. So assuming, it gives free, or next-to-free access to its print subscribers, it is unlikely to pick up much new revenue from non-subscribers who can go elsewhere. Similarly, I don't think it's a strong retention device for holding to print readers, though it may work there to some degree for the short-term.

To be more successful, Newsday would need to shift its model to being more hyper-local about Long Island, rather than bringing the world to Long Island, and it doesn't show much signs of doing that.

Cablevision swung for the fences with the $650 million (now written-down) purchase. It tried to parlay the industry triple play (cable, Internet, telephone) into a Home Run. This new move seems to be another attempt to swing for the fences, after apparently whiffing on the dreams of internal synergy that have upended so many media companies. Right now, it looks like you'd have to score the Cablevision auction "victory" over Rupert Murdoch and Mort Zuckerman as a strike out at the end of the ninth inning, but we'll get ready for the second game of the doubleheader.

Ads and News: 'Google News' Latches On to an Old Idea

You remember. The exquisite journalistic/commercial mix that sustained newspapers for many a year. News and Ads. Ads and News. Both, together, side by side. Reaching mass markets that wanted to know things and buy stuff.

We're seeing daily the damage done to that newspaper model, as newspapers themselves become higher-priced, niche vehicles for comfort-seeking baby boomer+ readers and as Google and other news aggregators become the new mass marketers, reaching broad swaths of every population group everywhere.

So, within that context, it's no surprise that Google has just added its paid search ads in it Google News pages. There they are, on the right hand side of the page, just as we've all become accustomed to on the search and other (just added on Google Finance and Google Earth as well) pages.

That's of course what Google does, making most of its $20 billion or so a year from those small paid search (Ad Words) ads. In response to the claim that Google is a one-trick pony, CEO Eric Schmidt likes to say, yeah, but it's a pretty good trick: The Internet. It's not really the Internet though; it's those little paid search ads. 

Remember, too, that when Google launched Google News a couple of years ago, it made a point of saying it wouldn't have any ads on it. That statement blunted publishers' concerns that Google was using -- say it ain't so -- newspaper-produced news to make money! It, of course, reserved the right to sell ads, but "had no plans."

Flash forward to 2009. Google News is now the eighth-biggest news site on the web, having moved steadily up on the competition. (Only two newspaper-owned networks, the New York Times and the Tribune, are ahead of it.) Google is shuttering some money-draining initiatives and even freezing staff. So it needs money too.

How will newspaper publishers respond?

What they'd like to do is demand payment. AP, Reuters and AFP -- wires -- have all extracted money from Google for for content licensing.

Local news publishers, though, have not.

Now they find themselves in a too-familiar fix. Not only have they allowed to Google to index and snippet their stories -- "fair use" has never been finally adjudicated in the course -- but they've grown dependent on Google traffic overall. Google traffic began as a gateway drug and now has become an addiction, often among the top 3 drivers of "sideways" traffic. If publishers could collectively agree to pull their content off Google, their own traffic would suffer greatly.

Google has colonized the news and is now making claims to better local news customization as well. For news publishers, it's one more sign of a humbled, niched place in the world, a world in which they don't control two things that built their success -- the advertising technologies of the day and the distribution vehicles to serve them.

Sam Zell's Plan D: It's All About Buying Time

Sam Zell's House of Cards has fallen flat. Today's bankruptcy filing changes everything and nothing.

If we still have the capacity for amazement, after a year of subprime meltdown, worldwide recession and the election of Barack Obama, Tribune going banko would be stunning. Its filing reminds us that no news brand is sacred; that we really have no idea what the 2015 news landscape will look like. It's now more imaginable that Tribune papers, and the Tribune itself, can go away, like its former kissing cousin, Knight Ridder.

Still, the bankruptcy option looks to me like just another phase in the Sam Zell strategy. Julie Moos has a good chronology of the Tribune saga, on the Poynter site. I'd sum up his brief year of ownership in four plans:

Plan A: Assume you're smarter than the other guy. Sam Zell, aka the Grave Dancer, thought he was buying a distressed property in a not-unhealthy industry. In fact, he was buying a distressed property in a distressed industry. The normal bottom-feeder drill of buying low, cutting back significantly and then improving margins didn't work. His innovation efforts -- mostly embodied by redesigns that made no significant difference to circulation or advertising -- missed the point of how much the Internet has changed the news business. He tried applying '80s thinking to a generation-next opportunity. He under-estimated the 2008 newspaper economy, ignoring his own company's 2007 performance. Grade: D.

Plan B: Start selling assets. Zell gets his gold star here. He managed to set one of the few competitive newspaper auctions in recent memory, finally unloading Newsday for Cablevision for $650 million, after Rupert Murdoch and Mort Zuckerman bid up the property. He failed, though, to move on selling the L.A. Times to a very interested David Geffen. He delayed his own sale of the Cubs, by pursuing a misguided attempt to sell Wrigley Field to the State of Illinois. By the time he turned around, the credit market had frozen up, Mark Cuban found a new date with the SEC, and selling newspapers has become near-impossible, as a number of formerly high-value properties languish on the market. Further, he'd assessed selling the real estate in, around and under his newspaper properties. There, too, though the twin crashes of commercial real estate and credit foreclosed that possibility. Grade: C+

Plan C: Re-negotiate with lenders. Somehow Citibank, Bank of America, JP Morgan Chase and Merrill Lynch had bought into Zell's poor projections, and the new Tribune emerged with $13 billion in debt. Zell apparently tried reordering some of his debt, threatening today's bankruptcy filing. The filing tells us he was unsuccessful. Curiously, his brethren in the industry have had more success at that, probably due to their lesser leverage and greater confidence in their abilities to run news companies. Gannett, McClatchy, Lee, MediaNews and and others have all moved on debt restructuring, paying high interest rates in some cases, but gaining more flexibility. Grade: F

Plan D: Go bankrupt. We believe that employees' 2008 contributions to the phantom ESOP are all but history. We're unsure where Zell's own investment stands. We do know that bankruptcy will unleash all kinds of reassessment of Tribune holdings, and possibly allow altering of collective bargaining agreements. Short term, the bankruptcy won't be the kind of calamity it might have be for General Motors; newspaper advertisers and readers are making a short-term buying decision, not guessing whether their five-year warranty will still be backed up. Grade: A

You can look at each Plan, A-D, essentially as part of the larger plan of Buying Time. Sam Zell didn't expect to run through A, B, C and D, in less than a single year (He closed the Tribune deal on Dec. 21, 2007.) But the man knows how to move assets around to buy time. His problem is that he's had a weak endgame. Every time he sells an asset, he loses cash flow. Every time he loses cash flow, he's less able to meet debt. That's more a dead-end than an endgame, but he thought he could play it long, maybe past the 10 years it takes to get a good payout on an ESOP. The clock now says he'll have to think differently.

Buying time, though, is what everyone in the newspaper industry is doing. The New York Times did it today as well, mortgaging its landmark building for $225 million. Scripps is doing it by "selling'' the Rocky Mountain News. All the companies are doing it as they refinance their businesses with lenders.

Buying time for what, when? That's the bigger question. 2009 looks to be dismal, with ad projections down as much as 6% over 2008, as offered at today's UBS Media gathering. So all publishers can do is get their enterprises from the dismal today to an uncertain tomorrow. Strategy is one thing. Buying time is another, and that's what today's news is all about.

Tribune's Descent Sends Shock Waves

Tribune's Descent Sends New Shock Waves

Post-Bankruptcy Filing Content Bridges post

Has it been less than a single year? One year since Sam Zell took over the Tribune Company as its management, like Knight Ridder's two years earlier, simply ran out of juice and said, "hey you try it, we've run out of ideas and energy?"

In one quick year -- who's doing the photo slideshow online? -- we've seen what happens when the barbarians do enter and start to rule within a formerly genteel kingdom. If it were any other industry, we might see it more as entertaining, but when it comes to the news industry, it's been jaw-droppingly sad.

As the Tribune prepares for the possibility of a bankruptcy filing this week -- and, if not now then probably later -- we can see the shock waves radiating out from the news:

• Yes, Sam Zell's words and actions have been outrageous, sometimes outrageously and even refreshingly true -- on non-commissioned salespeople, on subscription pricing, on trying new things -- but in the end, it's not about Sam Zell. Look around. Just in the last couple of weeks, we've seen Scripps sign the Rocky Mountain News' death warrant; reports that McClatchy has shopping around the Miami Herald (an offer that insiders tell me has been floating around South Florida for months); the Journal Register Company, living on borrowed time and about to shut down two dailies; and Freedom's East Valley Tribune testing the very meaning of "daily" newspaper.

         The business model's busted.      

         Whether you are good journalism advocate Gary Pruitt or it's-just-another-business Sam Zell, the cards dealt are fairly similar. What separates Zell from the pack, but maybe just barely, is the mountain of debt he gorged on to make the ill-conceived ESOP scheme work. From Day One, he put the sword over his own head and then cried wolf.

Along the way, we've learned that Zell isn't too good with math. He told Portfolio's Joanne Lipman just last month that:

"When we looked at the historical numbers, we saw an average erosion of about 3 percent. At the time we underwrote the transaction, we used a 6 percent erosion."

But look at Tribune's 4Q, 2007, the quarter running up immediately to Zell's finalization (on Dec. 21, 2007) of the buyout, and you see that its publishing operating revenues compared to a year earlier weren't down three percent or six percent. They were down 13% for the quarter (and 9% for the year overall). So why would Zell budget half of what the last quarter was telling him, as newspapers' deeper decline was evident for all who, well, evident for all those those who read newspapers.

I suppose in a more trusting time we might have expected lenders Citibank, Bank of America, Merrill Lynch and JP Morgan to have actually vetted his numbers. But hey, they were probably no-doc loans.

• We'll see if this is the first bankruptcy domino in the newspaper business. In the wider financial meltdown, newspaper companies have become just part of a much larger problem. Creditors have been eager to work with McClatchy, Lee, MediaNews, Freedom, Gannett and others -- just about everybody -- to adjust lending terms. They've loosened (in the short term) covenants linking (diminished) cash flow to debt, given term extensions -- and picked up a little vig on interest rates. They seem to so far figure that that's a better route than forcing the companies into bankruptcy. A Tribune filing though may lead to lender rethinking, in what we've learned is a herd trade.

• If talk of default increase and bankruptcy is ramping up now, what about March? The consumer recovery, at the most Obamamistic, is six months away. As with the sudden Rocky announcement Friday, we're seeing newspaper companies increasingly throwing in the towel. Once those 4Q revenue numbers trickle out, it'll be worse.

• There are two bad markets determining the fate of newspaper companies now. One, of course, is the news and advertising market. Print ads are down toward 20% and online will decline mildly this year. And here comes the latest 2009 forecasts -- down 3-6% overall -- to be presented at Monday's UBS Media Conference.
  

         The second, of course, is the real estate market. We all know the story there, yesterday's story. If you had to bet, though, which market will come back first, newspapers or real estate, you'd have to bet on real estate. And therein may lie the next newspaper industry act. Whether it is McClatchy trying to sell bayfront Miami Herald land, or Tribune selling the Colonel's Tower, the fate of newspaper companies may depend on the real estate recovery. If that land and/or the buildings on it seem to be coming back to commercial life, newspaper companies or their lenders may see new moves. And that may determine a good deal about what we'll have for daily reading by 2010 and 2011.

Slaughtering the Cash Cows a Bit Too Early

New Post: Christian Science Monitor Flipping the Switch



For an industry already on a ventilator, today's FAS-FAX numbers just steal more breath.

The double-digit declines -- the Atlanta Journal Constitution at 13.6% daily, the Dallas Morning News at 9.2% daily and the critical-listed Newark Star-Ledger down 10.4% daily -- shouldn't be a surprise, but they are surprising in their magnitude.

Recall that newspaper CEOs have been saying for a couple of years now that circ declines should plateau soon, as they've pruned out-state and other costlier, and less-attractive-to-advertiser circulation. The story they've told themselves, and us, is that the print business was stabilizing. 

In fact, the circulation decline is going the other way -- deepening. Down 4.6% daily and 4.8% Sunday, these are new lows and a trend further downward from the largely 2.5-3.5% declines we've seen over the last four years. 

Let's connect the dots.

One big reason the numbers are declining is the product itself. In the last year, we've seen unprecedented cuts in the product -- and the customers are noticing. It looks like the amount of newsprint is down about 10-15%; some in stories, some in ads. Trusted bylines have disappeared overnight. Readers notice, and talk to their friends, and they're saying: it's not the newspaper it used to be. When the subscription notices come, they're a little less likely to be acted upon. 

In a sense, newspapers have been slaughtering the cash cows -- print revenues still drive more than 85% of the business -- a bit too fast. No doubt, what we're talking about big picture is the transition of the business from print to digital. What today's numbers show is that the movement is accelerating, an acceleration caused both by larger forces (younger readers preferring online, the new green revolution) and by publishers' own cost-cutting. The continuing crunch issue in that: readers online are still worth no more than a dime compared to the dollar in print. So while slashing print costs is a necessity, it is robbing print revenue at the same time. It's an ungainly process, and once started is hard to manage. In fact, it could be like a runaway train, which once dispatched, takes on a velocity of its own. If you're the CEO of such a company, you may feel more like you're a passenger along for the ride, than the engineer in control. 

Today's numbers, of course, predate the financial meltdown and now all-bit-official recession. Consumers are shell-shocked, reeling from paper losses on real estate and retirement accounts and fearful of job loss or reduction. We've seen ad spend forecasts decline almost weekly, and we can guess that the next FAS-FAX will be hurt further by these consumer fears.

Otherwise, the data shows a mostly familiar story:

• National papers are doing better than metros. The Wall Street Journal and USAToday are both flat, the New York Times down 3.5%. We've seen this trend, more or less, for four years now. 
• Community dailies are doing better than metros. Check out the Jen and Fitz list. It's heavy on these dailies that have both better community connection and less commoditized content. Same trend as last four years as well.  
• Yes, overall audience, now measured by industry's Scarborough combined report, is growing. However, flagging online growth numbers -- largely because of the reliance on classified bundling -- show that taking advantage of this new combined audience is an early-stage, slow-moving, work-in-progress.  
• New blood does not equal turnaround.  Despite Brian Tierney's spirited, take-it-to-the community campaign in Philly, the Inquirer's down another 11% daily. In Minneapolis, on-the-brink Avista suffered another 4% daily decline. Tribune, with its raft of changes (though most of the redesigns occurred at the end of the reporting period), took losses, including 7.75% at the Chicago Tribune. 
• Sunday's as hard hit as daily. The big ad day was down another 5%.  That will translate into still less of a mass market, and less print revenue in 2009. 

Well, maybe we can blame a little-bitty part of today's announced swoon on broadcasters. Newspaper people have long liked to joke how their morning papers served as both tip sheets and often actual reportage for broadcasters. Rip 'n read. Now ABC News is adding injury to insult, cancelling all print subs. So to whatever extent ABC staff (and local broadcasters) are using newspapers these days, they'll take the content -- for free -- off the web, like apparently almost everyone else. The memo:

As of December 1, we will cancel all subscriptions (newspaper and magazine) for executives and production employees and move them to on-line. This change will have the added benefit of helping the environment. If there are particular circumstances where you believe this will materially impair your ability to get your work done, you should make your case to your executive producer or supervisor by November 15th. 

9 Questions: Business News Wars, Gary Pruitt, the Yahoo Bump and the New COOL

As I train down to D.C. for the Online News Association conference (moderating a panel hopefully titled, Optimize and Monetize, tomorrow; if you're there, say hello), the dizzying news industry news of the last week raises more questions than answers. Here's my top nine of the moment. Feel free to add to them:

• As we keep one eye out for the WSJ.com re-launch Sept. 16, I'm wondering why there's no WSJ -- or Marketwatch or Barrons -- app in the iPhone App Store. It's the place to be and be seen, show the flag and at least seem au courant. So far AP is there, with deep local, NYT has a strong, if straightforward presence, Internet Broadcasting has put together a decent aggregation product and Express is porting over its useful Palm/Blackberry product. But news company participation beyond that is weak, and not well-niched.  Will a mobile iPhone app be part of the 9/16 re-do?
• How much more prominent will video be on the WSJ site? It's halfway down now on the home page now, though still a bit higher than NYT's video display. Both text-based companies are starting to master video, but their sites seem to say: text and photos. And, though, we know the Washington Post is doing massive video training, led by Chet Rhodes, here, too, we see little front-and-center placement. News customers are getting beyond a world of  "content types" -- text, story, photo, audio, video, bar chart, etc. -- and just expect to get all the relevant info delivered on a single page, with best coverage (regardless of type) highlighted.
• New York's tabloids had a field day with the lipstick-on-a-pig nonsense (Post: "Boar War"; Daily News: "Lipstick Bungle". Will the Post be right with its data box head,  "Slim pickins"? Indeed, did one of globe's top three rich guys buy at a suitably low-price, considering? Considering among other things that the New York Times is still the top newspaper brand in the world, and that it has barely tapped markets around the world. there are about 900 million English speakers here and there, and yet the Times today derives only about 4% of its revenues from outside the US (mainly International Herald Tribune-related.) That's a big potential upside. Slim's confidence in the Times also underscores the difference in value in national/global brands (like the Times and Dow Jones, as compared to local and regional papers. The big question here is how much the buy is a strategic, long-term one, with hands largely off, and how much a Harbinger-like one, pushing for greater short-term change and divestment of non-Times brand properties?
• As newspaper market caps plummet, how great a percentage of those valuations are now built on real estate? Sam Zell's people probably know more about the land under his holdings in L.A., Chicago, Baltimore and Florida, than they do about what's going on top of the land. NYT has taken criticism for its airy new HQ, which has been valued for as much as $1B. For the industry as a whole, with goodwill being discounted daily and future revenues highly uncertain, these real estate holdings are getting to be a prominent piece of newspaper valuations.
• If Gary Pruitt's not setting the table today, then how soon will tomorrow come? The McClatchy CEO issued a statement to tamp down journalists' and analysts' saying his stepping apart from four family trusts may signify financial restructuring and/or going private. Maybe that's so -- and the move is long-planned and coincidental to the company's current stress. Pruitt had to know that the trustee change would be found by journalists, and that would start speculation. So why not get out ahead of it, with a statement? Yes, the means of restructuring are tough, but something is going to give somewhere at McClatchy, and it's hard not to see this move as one part of setting the table for it.
• Isn't Dow Jones' touting of the "Heard on the Street" expansion just another volley in the budding all-out war between WSJ and NYT over business news? WSJ made some news, gleefully talking staff expansion and iconic Heard on the Street expansion as the Times has had to mainly talk about cutbacks. Heard's expansion, and the folding in of the WSJ's "The Skeptic" blog, makes sense. It's a strategic journalism, taking a well-known column, turning it into a brand, turning loose staffers to follow the business sun around the globe and expanding its presence in print and digitally. Online, Heard still seems more newspaper-like than blog-like (how will it be handled in the redesign?). We don't get the sense of constant updating by its newly assigned staff of 12. NYT's Andrew Ross Sorkin's Dealbook is the growing competing brand -- and it may get a boost as the Times moves forward with a business and tech news upgrade of its own the end of this month.
• As the long-awaited, much-planned-for and much-trained-for Yahoo ad platform rolls out later this month with the San Francisco Chronicle and the Mercury News, how much will the platform separate the growers from the shrinkers? Many consortium companies -- more than 40% of US circulation -- have invested in sales training and re-training. Some have hired anew, all for the purpose of making the most out of the behavior-tracking Yahoo platform. They believe its power will up their local rates and gain them substantial revenue streams from selling Yahoo inventory. The rub, though, is, as is often the case, execution. Case in point: in phase one of the Yahoo/newspaper ad deals, in which buys have been enabled more manually, a few newspaper titles have gone to town, well into deep six figures, while others have practically no new revenue to show. As consortium members look at consortium benchmarks over time -- the rollout of news sites on the platform won't be completed until the end of 2009, they'll see how well, or poorly, they're performing compared to peers. As we see quarterly earnings from 2Q, 2009 on, we'll all see who's making most of the Yahoo Bump. 
• How soon before Yahoo-owned video service Maven is integrated into the consortium ad play, at least as an option? Just as readers are getting more content-type agnostic, ad buyers increasingly want more centralized ways to buy audience, whether behavioral-targeted display or pre-roll?
• How COOL is that? Could that be the budget regimen for 2009. COOL, as in expense reduction through: Clustering (having close-by properties share services), Outsourcing (you name it!), Offshoring (ad production plus) and plain old Letting Go, as in people, buildings, distribution trucks, etc. More on COOL soon.

Person Robert Thomson

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