An imaginary conversation about the Seattle Post-Intelligencer

As the Seattle Post-Intelligencer’s fate continues to hang in the balance, Steven Swartz (CEO of P-I owner Hearst) and Lincoln Millstein (Hearst’s Senior VP-Digital) have lunch:

Millstein: Steve, we need to make up our minds about the P-I. The 60-day clock we put them on stopped three days ago.

Swartz: Yes, I’m sorry — I’ve been tied up dealing with the Chron, shuffling management, getting that e-reader going, and whatnot. But you’re right, let’s figure it out. I’m running out of time in my “100 days of change,” also. What’s your thinking?

Millstein: I’m thinking we go with an online-only P-I. We’re going to end up facing that choice in other markets, including San Francisco, and Seattle gives us the opportunity to test the model and find out what works and what doesn’t.

Swartz: But can we make money? We’ve been losing more than $1 million a month there — $14 million last year. I’m not interested in an experiment to see if an online-only brand can stand up against a print/only combo — I’m interested in making money. In the immortal words of Jack Welch: “fix it, sell it, or close it.” There’s no buyer in sight, so we’re down to fixing or closing.

Millstein: I say we fix it. We’ve got the numbers down to breakeven. That’s doing pretty well, in this economy. We can build profitability going forward. We’ve got a staffing plan: with just a few dozen content people we’ll have an operation that can cover Seattle well enough. We need to hire a sales and marketing staff, some tech people, some admin types, but overall we’ve cut that $ 14 million loss down to total expenses of $5 million. We can sell ads to cover that — the site is leading the market in unique visitors and pageviews.

Swartz: OK, but just to cover $5 million in cost, you need $100,000 a week in ads, and as I said, breaking even is not good enough — this is still a business. The right number would be $250,000 a week, or more. $13 million a year in revenue.

Continue reading this post at the Nieman Journalism Lab

More on an online-only Seattle P-I

I speculated the other day that an interested purchaser of Hearst's for-sale Seattle Post-Intelligencer could ignite an interesting battle by taking it online only and competing head-on with the P-I's current JOA partner, the Seattle Times—or that the Hearst Corporation, itself, could do so.

Support for this notion comes from Bill Richards at Crosscut, an online news enterprise covering Seattle and the Northwest, in a story entitled "Hearst may be remaking, not eliminating, The P-I." His analysis goes: (a) There won't be a buyer, because there were no takers in 2004 when Hearst issued an offering, so there won't be any now; (b) as I suggested also, the $14 million in reported 2008 losses are not sufficient reason for Hearst to kill it off—the corporation has plenty of cash and can take the hit, and in recent years they've spent a lot in the Seattle market to preserve their options; (c) "Hearst has given up on making newspapers profitable"; but (d) here's their "emerging strategy:"

Hearst dumps its print paper, in part because much of The P-I’s classifieds have migrated online, but forges a bunch of alliances with Web-based classified outfits so they can be integrated into a new e-paper and recapture some of that lost revenue.
An online P-I might make money for Hearst. Here’s where we veer off into speculation — but backed by some interesting data. Loyal Crosscut readers will recall we ran a projection a little over a year ago showing how an electronic paper might already be profitable. We created an imaginary paper, the Bugle-Interrogator, that was just about the P-I’s size (100,000 daily circulation) and using industry data we calculated killing the B-I’s print paper would save more than half its annual expenses. We also figured online ad revenue would arc upwards without a print option for advertisers, making an online B-I profitable.

Richards also mentions that Lincoln Millstein, Hearst's senior VP for digital media, was on the scene when Hearst Newspapers President Steve Swartz announced the 60-day sell, fix or close plan. Add to this Hearst's strategic investment in E-Ink, the outfit that invented and supplies e-paper screen technology for the Kindle and other e-readers, and the fact that (quoting Richards) "Swartz, who has a reputation as a corporate hard-charger, promised '100 Days of Change' for the Hearst’s newspaper division when he became its president last month"—and you can begin to imagine a plausible scenario in with Hearst makes Seattle a laboratory for trying out not only an online-only news "paper," but other more sophisticated strategies for digital delivery of news as well.

An opportunity in Seattle?

What's interesting about Hearst's announcement today that it plans (in the immortal words of Jack Welch) to fix (by going all-digital), sell or close the Seattle Post-Intelligencer is that the paper lost "only" $14 million last year as the junior partner in the Seattle JOA. Given Hearst's considerable and profitable assets elsewhere, that doesn't seem like enough to throw in the towel just like that, although chances are that 2009's results will be somewhat worse. Clearly Hearst has determined that there's no hope in sight for positive cash flow in the current set-up.

Chances are seriously against the likelihood of finding a buyer willing to take on an entity that loses money, and where the owner really has no control over revenue generation or operations. It's the same as the Denver situation, where the Rocky Mountain News is likely to disappear shortly for lack of a purchaser. Outside observers agree there's virtually no chance someone will want to buy the P-I "as is."

But Hearst has left open the possibility of moving to a digital-only version of the P-I. As reported in the P-I (italics added): “Steve Swartz, president of Hearst Newspaper Division, told the newsroom that Hearst Corp. is starting a 60-day process to find a buyer. If a buyer is not found, Swartz said, Hearst will pursue other options. The options include moving to a digital-only operation with a greatly reduced staff, or completely shutting down operations. In no case will Hearst continue to publish the P-I in printed form, Swartz said.”

Just how a digital-only option would work within a JOA is unclear, because the JOA is predicated on two printed products capable of publishing print advertising sold by the lead partner, and presumably doesn't define how profits or losses are shared if one partner goes digital-only.

Here's the intriguing possibility: someone steps forward to buy the P-I, transforms it into an all-digital enterprise, and goes it alone, pulling out of the JOA. This sets up a full-scale, head-to-head, old-fashioned newspaper war between a printed newspaper and an online news venture, which could be most interesting. The other half of the existing JOA, the Seattle Times, is on the ropes itself, trying to sell its print assets in Maine to stay afloat, so it is unlikely to be able to outbid any potential buyer of the P-I, whether or not it has a right of first refusal under the JOA agreement.

So, how about it, Microsoft millionaires? For a few million bucks, you can pick up what's left of the P-I, become a digital press baron, and find out whether, in one of America's most digital towns, a digital news business can prevail over an analog paper. And, if nobody steps forward, how about it, Hearst? Couldn't this be a great laboratory for testing whether online-only can prevail over print?