Hearst, MediaNews: you can invent the future in San Francisco

MEMO

TO: Steven Swartz (CEO, Hearst Newspapers) and Dean Singleton (CEO, MediaNews Group)

See that bridge? When finished in 1937, it was not an incremental step. It was a leap into the future.

Wouldn’t it be a terrific idea to search for the boldest, most imaginative solution to your problems in California?

Mr. Swartz, you’ve let it be known that Hearst will shut down the 339,000-circulation San Francisco Chronicle unless it is able to sell the paper or extract major concessions from its unions. Mr. Singleton, MediaNews owns just about every daily paper surrounding San Francisco, but revenue declines have forced you to impose mandatory furloughs on employees.

As Alan Mutter, the Newsosaur, suggests as part of a detailed analysis of the situation, and has suggested previously as well, MediaNews could be part of the solution. Antitrust issues are unlikely to get in the way of a combination of some kind. Major staff cuts are simply inevitable. But there is an opportunity to go far beyond a simple consolidation of operations.

I’ve suggested this before but, you might have missed it. So I’m going to repeat myself somewhat.

Mr. Swartz and Mr. Singleton, the real opportunity for Hearst and MediaNews in the Bay Area is to plan now for a truly transformational step toward the news enterprise of the future, rather than another incremental set of staff cuts and tonnage reductions on the path to oblivion.

It’s time to reinvent, to define a whole new way of doing business. In the Bay Area, that does mean merging the MediaNews papers and the Chronicle into one regional operation, but not stopping there.

Continue reading this post at Nieman Journalism Lab.

Reinvent, for the end is near!

I'm preaching again from my "online first, print once or twice a week" soapbox. It's the right solution for news markets both large and small, but punditry seems to be focusing on the less plausible outcomes: preservation, somehow, of the traditional model, or the elimination of print altogether.

At the traditional end is Alan Mutter, the Newsosaur, dissecting the situation in San Francisco and speculating on options. He notes that the facts on the ground are: Hearst has spent $1 billion, cumulatively, buying and running the Chronicle; the MediaNews-owned network of papers in surrounding communities exceeds the Chron's circulation 2-to-1; and the two companies are already interdependent in a number of ways. So while a local gadfly might throw a monkeywrench in the form of some legal challenges, Mutter's crystal ball says:

With the outlook for the newspaper business now worse than ever, a more radical solution than nipping and tucking the Chronicle to profitability would seem to be in order. And it probably is this:

Folding the Chronicle into the network of MediaNews Group papers that completely surround it – a network, significantly, that Hearst itself played a major role in building.

In that event, the Chronicle’s now-independent news, ad sales, production, distribution and administrative staffs would be merged into a single entity managed by MediaNews. Deep staff cuts likely would result in every department, not the least of which would be the already decimated newsroom.

But then what? Continue to print and distribute all those papers seven days a week? How is this not just more nipping and tucking? MediaNews has been consolidating the operations of its Bay Area regional cluster, step by step, for nearly 20 years, and yet its own difficulties continue. If it assimilated the Chronicle, the elimination of the remaining competition might create a configuration that would stem the flow of red ink for a few years, but it would not be a new business model reflecting the needed bold reinvention of the industry. Rather, it would be an extension of strategies that have failed in the Bay Area and elsewhere.

Meanwhile, across the continent, everyone seems to know what to do with the New York Times, except Arthur Sulzberger. Following up on Marc Andreessen's widely-quoted October pronouncement that "you have to shut off the print edition, right now," Michael Hirschorn speculates in the Atlantic that the demise of print may be more sudden and more imminent than the standard scenario of a gradual lights-out. He notes the New York Times Company's perilous cash position and its upcoming $400 million refinancing need, and predicts:

At some point soon—sooner than most of us think—the print edition, and with it The Times as we know it, will no longer exist....Most likely, the interim step for The Times and other newspapers will be to move to digital-only distribution (perhaps preserving the more profitable Sunday editions).

That parenthetical "perhaps", however, is huge. It's not a step toward oblivion, it's the way out of the swamp. It represents the strategic reinvention that's urgently necessary right across the newspaper industry. Virtually every newspaper in America is publishing money-losing editions several days a week. There's no way to know for sure, but it's probable that Sunday is the only day the Times is profitable. And that the same is true in the Bay Area at the Chronicle and the MediaNews cluster.

In Detroit, JOA partners Gannett and MediaNews, faced with the same situation, came to the brink of deciding to kill off all their money-losing editions and to henceforth print only on Sunday and maybe one or two other days. But, fatally hesitant to kill off their seven-day franchise forever, they plan instead to retain a single-copy-only edition four days a week. Nipping and tucking. My guess is that within a year, that edition will be history.

The opportunity for Hearst and MediaNews in the Bay Area, and for the New York Times, is to plan now for a truly transformational step toward the news enterprise of the future, rather than another incremental set of staff cuts and tonnage reductions. It's time to reinvent, to define a whole new way of doing business.

In the Bay Area, that does mean merging the MediaNews papers and the Chronicle into one regional operation, but not stopping there.

The merged entity should cut print back to one big, highly profitable weekend (not Sunday) package (distributed everywhere starting Friday afternoon). The same approach at the Times.

The Weekend Times, and the Weekend Chronicle (or pick a neutral title, like Bay Observer), would be bigger, better, more thoroughly read and more valuable to advertisers than the current versions. They should drop all breaking news and focus on analysis and features. Their biggest value to readers would be as a guide to all other media.

Newspapers, especially on Sunday, have always served this "media guide" function, but haven't constructed themselves around it. Guide functionality is currently manifested in Sunday paper TV listings and reviews, book sections, movie sections, travel sections, arts sections, food and wine, fashion, real estate, home style or "living" (think of all of these—travel, arts, cuisine, fashion and design—as entertainment media) and the like. (For some strange reason, few papers have done much to become guides to the internet, but that should be added to the mix.)

And yet this whole package is sold as a "news" paper, in a package wrapped with a breaking news section. This may have made sense until a decade ago, but it doesn't any more. And unless it's changed, the danger is that Sunday editions will start losing money also, eliminating any hope of returning to profitability.

Let's do this:

Take the camouflage off the Sunday package: Lose the hard news wrap.

Build up the "guide to all media" functionality—that's the part subscribers are paying for, because they want and need it. Keep arts, travel, books, movies and all the rest. Add technology, internet and even magazine coverage. Include some geographically zoned sections if ad demand warrants it. Build other weekly, monthly or seasonal niche publications using the enterprise's wealth of content.

Shift publication to the start of the weekend—Friday afternoon—to maximize the value to readers as well as newsstand shelf life. Drop all other daily editions. Concentrate sales on moving the bulk of the week's advertisers into this edition—there's still plenty of advertising that wants and needs to be in print, and this will make the weekend edition hugely profitable.

Devote 20 to 30 percent of staff resources to the weekend product and turn everyone else into online reporters. With the right structure, the site can be at breakeven now, and start making money as the economy picks itself back up. (As it will.)

Attract social networks around content areas. This is critical—in a sense, newspapers have always served as community social network hubs; they need to do so online.

Get the online sector ready for a big jump in mobile e-readership as new devices and apps catch on.

Differentiate the online site from the weekend print brand; they're two different animals from now on.

Return to profitability.

Year-end crunch time at newspaper firms

During the next month or two, the crisis at America's newspapers will come to a head. There will be boardroom decisions that go well beyond the incessant paring of staff we have seen all year. Here are the reasons why it's crunch time now:

• Those of us still subscribing to "ink-on-dead-trees" versions of newspapers noticed that after a 4-day weekend with apparently ad-laden papers, what got tossed on our porches yesterday and today was mighty thin. Retailers expect a very slow holiday sales season, and they're going to be stingy with their ad dollars from here on out.
  
• The fourth quarter is normally the best for newspapers because of holiday-related advertising, but with slow retail sales in the offing, there's every indication that the revenue slide will continue. Total revenue (including online) was down (click on "Quarterly"), year-over-year, about 13 percent in the first quarter, 15 percent in the second quarter, and 18 percent in the third. Notice a trend? (For a longer trendline, the losses during the prior four quarters in 2007 were -4.8%, -8.6%, -7.4% and -10.3%,) If the fourth-quarter bleeding holds at "just" 18 percent, total revenue for the year will come in at a hair over $38 billion, down 16.1 percent versus 2007 (which was down 7.9 percent from 2006).
• Faced with these numbers, "stakeholders," also known as bankers and stockholders, will want to see evidence of serious restructuring. After December 31, most newspaper companies will have to report end-of-fiscal-year results, face Wall Street analysts, and hold stockholder meetings. Some, both publicly and privately owned, are laden with bank debt and will face loan covenant defaults. Banks are not in a position to be especially lenient about this, and will demand evidence of serious restructuring before issuing default waivers at the customary fees. Even firms that still possess fairly solid balance sheets will be looking to conserve cash and otherwise prop up ratios to placate stockholders.
• The first calendar quarter of the year is typically the slowest for newspaper revenue, so the pressure will be on to announce and implement drastic measures as early as possible.
• There will be no bailout in this sector, they're on their own. And the industry quietly failed in its single attempt (the API Summit on Saving an Industry in Crisis) to come together to develop an industry-wide strategy, agreeing instead to reconvene in six months—when it will clearly be too late.

So what will happen? I wouldn't expect much in the way of positive thinking in upcoming weeks. The talk in newspaper boardrooms will be tactical, not strategic (about "newspapers," not "post-newspapers"), and the actions under consideration will mostly be steps down a dead-end avenue. They include:

• Further layoffs and buyouts, where there's still "fat" left to cut
  
• Closing or selling underperforming papers
• Closing distant bureaus; paring coverage of Washington, D.C. and foreign venues
• Pulling out of A.P. in favor of the new CNN service (or no wire news at all), and creating shared statehouse bureaus
• Combining printing, packaging and distribution operations with neighboring papers, even with competitors
• Merging newspapers in neighboring markets, even when those markets have separate, distinct identities, interests and concerns
• Cutting frequency—not radically and strategically as suggested here and elsewhere—but one or two days at a time, prolonging the agony.
• Outsourcing whatever is outsourceable at a savings, regardless of quality
• Cutting virtually all investment in capital resources and new business development (or R&D as it's called elsewhere)
  

Alan Mutter, the Newsosaur, is in the midst of a series, "Thinking the Unthinkable," with two installments so far, discussing these kinds of options.

There have been plenty of suggestions made by journobloggers (yours truly among them) and other industry observers on how to restructure in positive ways that will allow newspapers to become post-newspaper information utilities. Some are even being implemented here and there.

Tomorrow, I'll have a roundup of solutions, free for the taking.

The ever-dwinding newspaper share of ad dollars

Tim Windsor's post the other day, in which he updated his chart of constant-dollar U.S. newspaper advertising revenue, got me thinking. I commented in his post that perhaps a better way to look at the numbers would be to view them as a fraction of the Gross Domestic Product. But then I realized that total advertising expenditures across all media, as a fraction of GDP, might vary a bit over time, which would skew that approach (although it turns out that total advertising spending is pretty constant at about 2 percent of GDP, ranging mostly between 1.8 percent and 2.3 percent, with few outliers).

So I downloaded 49 years worth of cross-media advertising revenue from the data available at the Television Bureau of Advertising. All of their numbers come from Universal McCann, so they have the advantage (hopefully) of being consistent over time. The newspaper revenue data is identical to that published by the Newspaper Association of America. I loaded it all into a spreadsheet and calculated the "share of total" for each of the media over time. Here's what it looks like:



(Sorry about the fuzziness of that graph; any tips for publishing a sharper image from an Excel file would be much appreciated. The graph labels, reading across, are Newspapers, Magazines & Farm Publications, TV & Cable, Radio, Yellow Pages, Direct Mail, Business Papers, Billboards & Out of Home, Internet, and Miscellaneous.)

For the sake of simplicity I combined Magazines with Farm Publications, as well as TV with Cable. Around 1989 Universal McCann started including "out of home" (ads on buses, etc.), which causes the blip and jump in the Billboards line. And Yellow Pages is included in Miscellaneous prior to 1980, which accounts for the sudden sag in the Miscellaneous line.

[paragraph added 12/01:] In a nutshell: newspapers had unchallenged dominance with about 37% of all advertising (national and local) in 1949. Television grew rapidly during the 1950s, to about 14% in 1960, and continuing to grow thereafter. Starting in the late 1970s, direct mail started a long uptrend from about 20% to more than 25% in 2007. Newspapers were overtaken by TV & Cable in 1992, and by direct mail in 2001. In 2008, they could slide below radio.

My chart stops at year-end 2007, because 2008 projections for all media are hard to come by at the moment. But as discussed already by Tim and by Alan Mutter, the full-year newspaper results for 2008 look rather dismal. Assuming it finishes in the $35 billion ballpark and total ad spending for the year is down just slightly (it was buoyed nicely by the elections and the Olympics), the newspaper share will probably be 13%, or less. So that dark blue newspaper share line will resemble, even more than it already does, the "Phases of a Crisis" graph presented at the recent API Summit for newspaper execs.

Notice that in contrast to Tim's graph, there are no camel's hump peaks in 1988 and 2000, as there are in his constant-dollars view. Newspapers have been on an unrelenting down-trend for a half-century, with very few upticks, and they're now sliding off the cliff. They maintained market share for more than a year or two only from about 1964 to 1974 (at the expense of magazines and direct mail).

For fans of stacked graphs, here's another way to look at the trends:



Once again, I'll ask: Where is the Manhattan Project to reinvent the newspaper business, before it's too late?

Who Will NOT Pay for The News

Now that the press barons have returned home after circling the deck chairs in Reston, excuse me, "developing a shared vision for going forward," we'll be anxiously awaiting the results. Meanwhile, I recommend a look at the available video output from another comfortable confab, the Monaco Media Forum, held last week. There's half a weekend's worth of viewing there, so I haven't yet digested it, but expect to comment on it Monday.

Alan Mutter has a roundup today of third-quarter financial results from the publicly-traded newspaper firms. Most of those that have not plunged in the red on an operating-profit basis are seeing 40 to 90 percent declines. Elsewhere, an analysis of the New York Times Company's QIII results looks pretty scary, if you know what a quick ratio is. (Their currently liabilities are more than double their current assets, which is something that would put any normal company into bank covenant default and make it very difficult to refinance debt.)

So, the question of the moment is certainly: Who Will Pay For The News. Those with a vested interest in the topic may want to maker their calendars for O'Reilly Tools of Change for Publishing Conference, February 9-11, 2009 in New York. Although it's a book industry gathering, it looks like newsies might learn something as well. Jeff Jarvis will be there, as a keynote speaker, no less. (What would a conference be without him?)

Meanwhile, a substantial piece of thinking to chew on (yes, I know it's ancient, but I'm just catching up with it): "Free! Why $0.00 Is the Future of Business,"a piece in Wired by Chris Anderson (see also his related Long Tail blog post). If you haven't previously encountered it, it's long but worth adding to your weekend reading, and it has new relevance during the current crises in newspapers and elsewhere. Samples:

The rise of "freeconomics" is being driven by the underlying technologies that power the Web. Just as Moore's law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero....

This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all....

The huge psychological gap between "almost zero" and "zero" is why micropayments failed. It's why Google doesn't show up on your credit card. It's why modern Web companies don't charge their users anything. And it's why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.

Traditionalists wring their hands about the "vaporization of value" and "demonetization" of entire industries. The success of craigslist's free listings, for instance, has hurt the newspaper classified ad business. But that lost newspaper revenue is certainly not ending up in the craigslist coffers. In 2006, the site earned an estimated $40 million from the few things it charges for. That's about 12 percent of the $326 million by which classified ad revenue declined that year....

Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.

There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities — and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. Free shifts the economy from a focus on only that which can be quantified in dollars and cents to a more realistic accounting of all the things we truly value today.

Barons of the press, repeat that: Reputation and attention are the new scarcities. Again: reputation and attention are the new scarcities. (Keep repeating. Monetization will follow.)