As Stephen Colbert joked earlier this week, cannibalism has become big news. Across the country, media have sensationalized stories of humans devouring their own kind. But if an analysis by Reuters media writer Jack Shafer proves correct, cannibalism isn’t just in the news. Rather, it’s the news that’s being cannibalized.
Newspaper owners might claim to be retooling their products for the future, but despite the business double-speak, they are really squeezing what profits they can from those publications before they must stop the presses for good, Shafer says. And he uses the changes at Advance Publication’s New Orleans and Alabama newspapers, including The Birmingham News, as examples of this strategy.
Shafer bases his analysis on a 2004 book by Philip Meyer, The Vanishing Newspaper: Saving Journalism in the Information Age. In the media world, an eight-year-old book might as well be the Dead Sea Scrolls, but Meyer’s predictions of a “slow liquidation” of newspapers is proving more prescient than most End Times prophecies.
Here’s how it works. A newspaper that depends on customer habit to keep the dollars flowing while it raises prices and gives back progressively less in return has made a decision to liquidate. It is a slow liquidation and is not immediately visible because the asset that is being converted to cash is intangible —— what the bean counters call “good will.”
Good will is the organization’s standing in its community. More specifically, it is the habit that members of the community have of giving it money. In accounting terms, it is the value of the company over and above its tangible assets like printing presses, cameras, buildings, trucks, and inventories of paper and ink.
When Meyer wrote his book, the market value of newspapers — what you can sell one for — was already in free-fall, but like any other objects dragged by gravity, the decline of newspaper market value has accelerated and might not reach terminal velocity before it hits the ground. As Shafer points out, even the country’s two most prestigious newspapers have seen steep declines in market value.
Rupert Murdoch’s News Corp. bought the parent company of the Wall Street Journal for $5.6 billion in 2007, but wrote down $2.8 billion of that in 2009, essentially admitting that its value had halved in two years. The New York Times Co, once worth $7 billion, is now valued at less than $1 billion.
If you are looking at daily newspapers purely as businesses that exist to make money, options for the future are limited. One option, investment and innovation, is uncertain. (More on that in a moment.) A second option is to sell them and get out while the getting is good, but with prices depressed, that might not yield as great a return as a third option: Squeeze every penny out of them before they go under, even if by doing so you guarantee that their value will eventually drop to zero when you’re done.
For the sake of understanding, let’s play with some made-up numbers.
Let’s suppose a newspaper chain could sell one of its properties for $20 million today. But let’s also suppose that by stripping down that same newspaper to a skeleton crew of reporting staff and production workers and by consolidating news desks and production among nearby properties, that same chain could squeeze $25 million of profits from the same newspaper before driving it into the ground. As a purely business proposition, the slow liquidation scenario makes sense.
Advance Publications is a privately held company, so it doesn’t have to disclose its real numbers. (Hence, we have to play with imaginary ones or make educated guesses about the real ones.) But while the numbers above are made up, there’s reason to believe the concept they illustrate is not. In New Orleans, staff at the Times-Picayune have said they were told that the newspaper was profitable before these changes. In Birmingham, staff at the News have inferred from actions upstairs that the newspaper here was profitable, too. In both places, reporters and editors have been left scratching their heads, some wondering aloud why Advance would make such drastic changes if those newspapers were making money.
Given the known facts and reasonable suppositions, Shafer’s slow liquidation hypothesis makes sense.
What’s more, it fits with the Newhouse family’s history. As Warren Buffett pointed out in his open letter responding to a New Orleans’ resident’s pleas for him to buy the Times-Picayune, “They do not have a history of selling anything.” As a friend in the business who used to work for one of the three Alabama papers said to me last week, there are two things hard-coded in the Newhouse DNA: They hate unions, and they would rather close a publication than sell it to someone else.
For years there has been a common trope in the business that newspapers must do more with less, but the reality has been something very different, Shafer says. Newspapers are charging their readers more while giving them less for the price of a subscription or single-copy sale.
Almost everywhere you look across the newspaper landscape, page count is down. Coverage areas have contracted, and newsroom staffs have shrunk dramatically. Over the past decade, newspapers have deleted features readers long took for granted, such as reporting from their own foreign, Washington and state bureaus. Last month, the Los Angeles Times folded its Sunday magazine, further winnowing the number of newspapers publishing a Sunday glossy. Newspapers have dumped free-standing book review sections, abandoned late-breaking news to websites, given up on providing comprehensive stock listings, winnowed comics pages, cut editorial cartoonists from their staff, and reduced the number of community listings and announcements.
In exchange for less and less, owners are charging readers more and more. The Chicago Tribune recently doubled and tripled some readers’ subscription rates. The New York Times boosted home-delivery rates in January. And in DC, readers gave the Washington Post ombudsman hell in January after the paper pushed through a stealth price increase for single-copy sales from 75 cents to $1, providing its customers no announcement or publisher’s note about the increase in the paper or online.
Shafer predicts that, as newspapers liquidate their goodwill, managers will paint over the rust and decay with bold pronouncements of value and claims of innovation. Indeed, in Alabama and New Orleans, the changes have been sold to the public as a transition to a new business model that will give readers similar value to what they get from print. When things get really tough, Shafer says, newspaper owners will say they have been left with no other choice but to pare down.
“But don’t be fooled,” Shafer writes. “If you’re winding your company down with no strategy to wind it up, you’re burning goodwill even if you don’t acknowledge it.”
They key here is whether there is a new strategy to “wind it up.” Readers in Alabama and New Orleans have been told that the transition to digital will yield “exciting changes for our readers,” as Mobile Press-Register editor Mike Marshall described them in a front-page headline two weeks ago. (It should give readers pause that Marshall will become the statewide opinion editor under Advance’s reorganization.)
In fact, readers who depend on Advance’s three Alabama newspapers are being sold used cars, and like Kurt Russell in the movie by that name, the management is painting over a worn-out yellow taxi with blue water-based paint.
At the media and technology site, GigaOm, Mathew Ingram argues that newspaper companies should innovate and not just liquidate, but Advance’s immediate digital offerings are a disappointment, he says, even as the company promises a digital future for journalism in the markets it dominates.
But those promises have been noticeably vague, and the evidence from places like Ann Arbor and Seattle — both of which lost their daily newspaper in recent years — doesn’t exactly fill anyone with confidence. One of the prominent themes in criticisms of Advance from people like actor and New Orleans resident Harry Shearer is that Nola.com, the company’s online portal, is lackluster at best and embarrassing at worst when it comes to doing actual journalism.
As is obvious to anyone who visits Nola.com, it uses the same Advance Publications template as MLive.com and AL.com. The company might have changed the color scheme, but it has only changed what the template looks like. As Steve Jobs once said, design is not what a thing looks like; it’s how a thing works. The Advance template might not be as blinding as it was two weeks ago, but its architecture hasn’t changed.
While the template is an improvement over the cacophony of links the old sites provided, there’s nothing truly innovative about the new design. The sites boast a new “river of news,” but the news river design is as old as blogs, which many readers immediately pointed out. And there are two aspects of it that are worrisome.
First, despite columnist John Archibald’s argument that the News has racked up its share of investigative and enterprise reporting through the years, the new site is not built to showcase the kind of community-shaping journalism that takes time and hard work to produce. To the contrary, the new site design favors incremental journalism — small, quick-hit posts. In New Orleans, the Times-Picayune‘s series on problems in Louisiana’s prisons are worth the Pulitzer board’s attention next year, but damned if they are accessible from the front page. Instead of prioritizing deep, hard-hitting journalism, the new AL.com design is built to gin traffic with car-wreck-of-the-hour type stories, or as happened Thursday, a crime report of a woman arrested after biting her husband’s junk.
Not all newspapers are following the same path. At The New York Times, that company has its own Research and Development Lab, where its tech geeks crack open and toy with prototypes of new devices and sometimes invent their own.
Above is a tour Bits Blog author Nick Bilton gave the Nieman Journalism Lab in 2009, when iPads and Kindles were still the technology of the future, but compared to anything Advance is doing, Bilton looks like Tony Stark.
Content isn’t just news. It’s advertising, also. And there, too, Advance isn’t proving up to the challenge. Its new web template doesn’t offer innovative digital marketing for its customers. Instead, it depends on banner ads and annoying fold-overs sold on a cost per mille basis, which Reuters blogger Felix Salmon has described as a “race to the bottom.” As I wrote two weeks ago, that advertising model cannot support local journalism.
One of Salmon’s favorite subjects, Gawker Publisher Nick Denton, has eschewed banner ads, CPMs and especially cost-per-click ad options.
“Media buyers may know many of their measures of performance are misleading; the savvier ones know clickthroughs are an indicator of the blindness, senility or idiocy of readers rather than the effectiveness of the ads,” Denton wrote in 2010. “But — on the agencies’ spreadsheets — garbage inventory from garbage sites aggregated on garbage networks often shows a lower cost per click.”
If news sites intend to produce anything more than garbage, they must provide advertising that rises to the same level, he says. Denton might be the master of the media Dark Arts, but he is a true innovator, building new products for advertisers, including a new, proprietary commenting platform called Powwow, which he intends to market to clients.
For journalism companies, true innovation can no longer be merely using new platforms such as Twitter and Facebook to leverage content. Innovation must mean inventing new platforms — the next Twitter or Facebook — for that content.
Advance Publication’s reorganization in Alabama and New Orleans indicates that it is preparing to go in the other direction — to embrace the slow liquidation Shafer writes about. Here, it is creating two companies — the Alabama Media Group and Advance Central Services Alabama. The second is the print, production and distribution company, which clearly has a short shelf life. The first company is the content and advertising arm. It is supposedly built for the future, but looking at if through Shafer’s lens, its days are numbered, too.
After Advance announced the reorganization, the industry magazine Ad Age cited Kantar Media estimates of the advertising imbalance in New Orleans: $64.7 million in print and $5.7 million in digital. There’s no clear way, following their current model, that Advance can grow its digital revenues, and no matter how streamlined the new editorial organization might be, it cannot use its current digital revenues alone to pay for its current output of content.
For decades, Advance gave its newspaper employees the so-called Newhouse Pledge: “No full-time, non-represented, regular employee will ever be laid off because of economic conditions or because of the introduction of new technology.”
That promise gave Advance employees assurance that their company cared about them (at least as long as they didn’t join a union), but in 2010, the company rescinded the pledge and began cutting staff from its newspapers.
There is still time for Advance Publications to take a new direction other than slow liquidation, but to do so it must dedicate itself to true innovation, and it must make that promise, not just to its employees, but to the communities its papers serve. There must be a New Newhouse Pledge, a promise that any profits derived from its reorganizations will not line the pockets of the Newhouse family, but instead be reinvested — every single cent — in creating new platforms for news and advertising in a digital age.
Otherwise, it won’t be the aggregators cannibalizing papers like The Birmingham News. Those papers will be eaten alive by their owners.