AP: The Price of Dismemberment
Important Details: The deepening gloom in US newspapers over the past week has been marked by more severe job cuts: 10% of Gannett‘s local workforce, another 10% of the Los Angeles Times newsroom, and 40% of the Newark Star Ledger’s overall staff. Once-sacrosanct bonds with staff and with readers are being broken, as unprecedented revenue declines force stiff re-appraisals. Among those re-appraisals is one that has lasted for as long as 150 years: newspapers’ membership in the Associated Press (AP).
AP provides lots of services for newspapers, including stories, photos, graphics and data for print, plus newer web-oriented services including recent mobile and video initiatives. AP services have always been a given, and their costs for member newspapers (the AP is officially a not-for-profit, newspaper-owned cooperative) have been called “assessments”, rather than prices. Assessments are generally circulation-based, and have amounted to about 5% of newsroom budgets. But now, everything’s on the table, as newspapers’ cash flow crisis and increasing focus on local (as compared to national and global) news has prompted questioning of AP and its value.
Just last week, the new Tribune company, led by its CEO Sam Zell, an AP board member, said it was considering cancellation of AP services. Soon after Scripps indicated that it too was thinking of terminating its relationship. These moves follow the cancellations that AP has gotten from a half dozen or so individual newspapers, including The Star Tribune of Minneapolis, The Bakersfield Californian, The Post Register of Idaho Falls, The Yakima (Wash.) Herald-Republic, the Wenatchee (Wash.) World and the Spokane Spokesman-Review. In “cancelling,” these papers all activated contract clauses calling for a two-year notice period before services and charges would stop, but the Spokane paper has also challenged that two-year rule’s legitimacy.
In addition to the cancellations, ferment in areas of the US as diverse as Florida, Ohio and the Northeast has seen the establishment of ad hoc coop groups, as formerly competitive newspapers partner with other dailies in adjoining cities to share content on makeshift “wires.”
Ben Marrison is the editor of the Columbus Dispatch, which has also given notice of cancellation. He’s also been a leader in the Ohio coop, and recently summed up his paper’s and group’s disenchantment with AP: “The changes to AP’s rate structure were not as substantial as we were led to believe or that we need to maintain our service. Given the choice of maintaining our staff or AP’s service, it’s in the best interests of our operation to maintain our local reporting staff.”
Among those defending AP is its current board chairman, Dean Singleton. CEO of MediaNews, the fourth-largest US daily publisher, Singleton has made the point that while the 5% of newsroom budget cost is a tempting target to eliminate in tough times, “let somebody try to do without AP and let’s see how the readership does,” he said last month. “The AP is the best buy that I know. It’s 5% of my newsroom budget, 35% of my newsroom content.” Gary Pruitt, CEO of third-largest US daily publisher McClatchy, also recently reaffirmed his support for AP.
AP has responded to member concerns with a series of price reductions and an expansion on how much of AP content members can use without additional payment. Last week it cut assessments overall by another $9 million in 2009, a cut that follows $21 million in fee reductions announced earlier this year. Further, its board will consider both rate structures and the two-year cancellation rule at an early 2009 meeting.
Implications: Newspaper member-owners of AP now pay about 27% of its annual costs. Broadcasters, internet portals and non-US based media make up most of the rest. In ponying up about a quarter of the cost of running the 3000-journalist strong organization, US news publishers possess a rare asset in these increasingly digital times. Publishers have seen their market strength sapped and their need to rely on upstart partners, such as Yahoo! (with its ad-oriented newspaper consortium), increased. Less and less is within their control, as the old business model goes off the tracks and the new one is just starting to chug along.
Given those straits, it’s ironic that some newspaper owners are talking AP cancellation. Certainly, “advisory cancellation” has worked in the short-term, eliciting reduced rates. Given the choice of cutting local reporting staff or cutting a “wire service,” the specific budget choice is a terrible one.
Outsell believes that if news publishers are going to survive these times, they have to think strategically — about 2010 and 2015 — as they grapple with the tough realities of 2009.
To that end, Outsell believes the harnessing of AP by its member-owners needs to take the following into consideration:
- Think of AP as a strategic, owned asset in a lonely world of big competitors with deep pockets. As we wrote earlier (see Insights 29th April 2008, AP: What’s the Difference Between a Coop… and a Network), newspapers — in the Yahoo! news consortium and other such partnerships — have finally gotten the religion of partnering, and recognised how essential it is to digital success. It’s the network that makes or breaks web businesses. Call AP a coop, or call it what it’s becoming in the digital age — a network — and newspaper owners can newly value one of the few networks they can in part call the shots on.
- Think of the replacement cost of AP services. Certainly, there are increasing number of vendors out there, offering news, sports and business content, mobile and video services. Certainly, much of their content is world-class and their business models are flexible. What’s the true cost, in dollars and in staff time, in business development, in product development and in implementation in replacing a suite of AP services with a diverse set of one-offs?
- Think of how AP can be further re-formed and reformulated in the digital age. The company’s moved to revolutionize itself, especially over the past several years. It has made missteps and has sometimes been slow in execution, much to members’ chagrin. The task now is to look forward and create an AP that can be a support to newspapers in their time of greatest need. Initiatives such as the Digital Coop, the Mobile News Network (a leading iPhone app and, as of this week, available for the Blackberry), and the about-to-be-relaunched Online Video Network, are examples of what the coop needs to get right and keep right. Further, Outsell believes that AP must take steps to package a robust advertising program — not its core competence — with its diverse content offerings; much competition will offer “free” content accompanied by revenue-share-basis advertising, and without that component, AP will be at a competitive disadvantage.
- Understand the alternatives. AP doesn’t exist in a vacuum. It’s one of a half-dozen national/global media companies all fighting for air in the new digital world. AP must compete with Reuters, with AFP and with Bloomberg. It must meet the broadcast challenges of ABC, NBC, CBS, the BBC and CNN, which just this week announced its own competitive wire product for newspapers. It must fend off the New York Times, the Washington Post, the Wall Street Journal, the Financial Times, the Guardian and the Telegraph. All those companies are headed in the same direction: becoming globally-oriented purveyors of multimedia news and information. While all feel pressure from the tough economic times, some are staffing up, trying to grab market share. Already, the price reductions AP has provided to its struggling members means that AP will have to cut its own budgets $20-30 million for 2009. That’s budget which will make the AP less competitive — and less able to help its own members with their own digital transformation.
Rocky Mountain News editor and publisher John Temple, indicating his Scripps-owned paper might cancel AP, recently said, “I think there are different papers that could put out a paper without AP in different ways. I believe you can do it and satisfy the needs of your readers.” Indeed, “putting out a paper” can be accomplished lots of ways. It’s the new multimedia, multi-device world, though, that local media need help with if they are to succeed. The paper down the road won’t help them much with that, but a re-energized, ready-for-prime-time “wire” might.