Thursday, December 11, 2008

Will Gannett, in Detroit, go boldly where no media company has gone before?

Jim Hopkins at Gannett Blog is speculating on speculation that there will be a radical restructuring of the Detroit Free Press/Detroit News publishing operation, with an announcement possible at a rumored employee meeting slated for next Tuesday, December 16 :
The Gannett-controlled publisher of the Detroit Free Press and The Detroit News is working on something super-duper-secret called "Project Griffin." [Actually, apparently it's 'Griffon.'] It would represent an enormous gamble by Gannett and its partner, MediaNews Group, to staunch multimillion-dollar losses in a city whose economy is cratering around the auto industry crisis. Hanging in the balance are the jobs of perhaps 2,000 employees.

Yet with nothing to lose but, well, more losses, the idea is to blow up the traditional newspaper business model in an especially dramatic way. A formal announcement could come as soon as Tuesday -- if you believe the speculation.

Under the purported plan, one or both Detroit papers would end home delivery entirely, except for perhaps two or three days a week -- the more-lucrative Thursday, Friday and Sunday editions. Other days, there would be some sort of slimmed-down single-copy-only version. And everyone would be encouraged to subscribe to already-available electronic editions of the Freep and the News.
This plan is also reported at Blogging for Michigan. The Tuesday meeting is apparently confirmed in an email this morning from CEO David Hunke.

This concept resembles the frequency-reduction scenario I've explored previously, and that has also been mentioned by Alan Mutter, Tim Windsor and Steve Outing. As I commented on Gannett Blog:
Certainly a money-losing metro should be considering a conversion to digital-first publication combined with printing just 1-3 days per week (plus a commuter freebie where appropriate). This [kind of restructuring] cuts a ton of expense while potentially retaining most of the ad revenue; and more importantly, it takes the right step into the future, while continued cost-cutting within the old model is a guaranteed dead end. The Tribune bankruptcy and Rocky Mountain News closing are going to stimulate a lot more of this kind of thinking.
Moreover, publishing less than 4 days a week would free publishers from that pesky FCC cross-ownership rule.

Is the rumored plan plausible? Let's look at the situation on the ground. The Gannett Company owns the Free Press; MediaNews Group owns the Detroit News; they jointly own The Detroit News Inc. (aka Detroit Media Partnership), which is the agency that operates both papers under a Joint Operating Agreement—but Gannett owns 95 percent of the operating partnership; MediaNews has only 5 percent. So Gannett is in charge of everything except the News newsroom. (See SEC filings for the exact structure.)

MediaNews is savvy about JOAs; they've been involved in more of them than any other chain. In Denver, they ended a long-running war with E. W. Scripps by means of a JOA combining the Denver Post and the Rocky Mountain News. But that combo loses money, and Scripps has put the Rocky up for sale; the virtually certain outcome will be that the Rocky closes and MediaNews at last has uncontested dominance in the Denver newspaper market.

Gannett might wish that MediaNews would similarly fold their tent and leave Detroit, but that won't happen, because under the terms of the Detroit JOA, MediaNews is "reimbursed for its news and editorial costs associated with publishing The Detroit News," and if the JOA is profitable, it also receives a "fixed preferred distribution" set at $4 million for 2008 and 2009, and declining in later years. In other words, MediaNews is guaranteed not to lose money in Detroit. Assuming the JOA is currently in the red, they're forgoing the fixed preferred distribution, but their newsroom expenses are fully covered. (By contrast, in Denver Scripps had to fund news operations out of the meager JOA proceeds, so it was operating at a loss.)

In this situation, MediaNews has no incentive to pull out, and Gannett can not force the issue by offering a buyout without running into potential anti-trust issues. They need to maintain a two-newspaper market to avoid the regulators. But with a dismal economic scene in Detroit, with or without an auto bailout, it will be nearly impossible for the JOA to be profitable in its current configuration. No amount of cost-cutting will do the trick. The only way out is, in fact, to "blow up the organization" and launch an entirely new business model. Under the circumstances, this kind of thinking ought to help Gannett's battered stock price, which can't sink much lower, in any case. And MediaNews should be pleased to go along for the ride; since they have total downside protection, they can only win.

Look for a bold rationalization of the market that pushes the boundaries of what's permissible both under anti-trust and FCC rules. In my mind, this should include: a big shift to an online-first-and-foremost culture; a Free Press published Thursdays and Sundays; a slim, Monday-Friday Detroit News free paper; and a strong alliance between the Free Press and a leading TV broadcaster in town. Certainly this kind of scenario entails more job cuts, but it would represent a strategic restructuring that has a good chance of succeeding, not a tactical retrenchment that's just a step on the way to oblivion. We'll find out Tuesday whether David Hunke is a strategist, or a tactician.


Anonymous said...

Take a look at what happened in Albuquerque and Birmingham just recently, when Scripps withdrew and shut down their papers in both cities in return for an annuity payment that lasts as long as the JOA was to have lasted (in the case of ABQ, 2050). Now translate that to Detroit and say Gannett goes to Billy Dean and offers him $6 million a year annuity, as opposed to the $4 million he now gets. Billy Dean is about to win in Denver, and is a position to own Minneapolis once the Strib fails, do he needs money to make the transition.
You also misunderstand how JOA operate. They give exemption from anti-trust laws only. There is no government or Justice Department regulation of these newspapers for obvious reasons that the government doesn't regulate newspapers in this country. Once a JOA is granted (and it is almost automatic under the terms of the Newspaper Preservation Act), that's it. Any one of the parties can pull up and leave if it wants to fold up its tent. They only agreed to publish jointly. This is how we have ended up with monopoly newspaper cities.

Anonymous said...

Isn't there an expiration date of the JOA, and isn't that coming up soon. So the News is dead, either now or in five years. Billy Dean is in it for the money he can get out of it, not for publishing a newspaper. Believe me, the News is dead, dead, dead.

Anonymous said...

No, no, it's not Griffin or Grifon, it is Project Gryphon, named after the animal in Alice the Wonderland. You would think a reporter would get the spelling and reference correct just once.

Martin Langeveld said...

@Anonymous 12:46 -- True, there is no regulation of newspapers, I did not say there is. True, either party can leave, but my point is that MediaNews has nothing to gain by leaving. If Gannett offered a buyout, that could potentially come under antitrust scrutiny, especially if neither paper is considered to be failing. JOA operators are not exempt from antitrust investigations -- there was one in Seattle a few years back.

@Anonymous 12:52 -- The Detroit JOA doesn't expire until 2025.

@Anonymous 12:58 -- It's Griffon, named after the sailing ship Griffon, the first European vessel to sail the upper Great Lakes in 1679. At least, that's what it should be, but since it's a bunch of newspaper guys, it's entirely possible they spelled it wrong.

Anonymous said...

The JOA expires in 2025. And, more importantly, the News' Web site gets about as many hits and page views as the Freep's site. So the JOA needs BOTH Web sites to keep going. That means the News will be around until at least 2025.
Here's one important thing to remember: The Detroit News is the strongest partner in a JOA in the U.S. For example, the San Franscisco Examiner had a circulation that was about 20 percent the size of the San Francisco Chronicle when both papers were under a JOA. The News, despite Gannett's incredibly stupid decision to make it an afternoon newspaper from 1989-2005, has a circulation today that is about 61 percent the size of the Freep's.
And the SF Examiner did not have the advantage that the News does of a Web site that gets as many (and sometimes more) hits than the Free Press.