Newsonomics: When News Companies Are No Longer Built To Last
I’ve gotten feedback about vulture capitalists, hatchet men, and chop shops, and of close-to-retirement publishers getting that unexpected knock on the door from visiting corporate vice presidents.
I’ve heard about 30-year-old journalists turning in their resignations, and other young reporters trying to stick it out, writing me: “I’m a reporter at [a local Digital First Media paper], and your story reflected all the questions and frustrations I’ve had continuously in the past two weeks. I’m still here because I love my job, and I’ll hold out while I can, but the scariest part is seeing important news going uncovered, knowing the things we should be investigating, but just can’t. We do good work, but community is truly underserved…I have many years of many changes in this industry ahead. Staying optimistic.” Another one for a younger reporter: “Thank you for a brutally accurate, sobering look at the state of the newspaper industry and DFM.”
Brutal. Sad. Depressing. Those were among the more common adjectives I got in response to last week’s column, “Newsonomics: Do newspaper companies have a strategy beyond milking papers for profit?” as I described the follow-on impact of Digital First Media’s failed May sale to Apollo Global Management. The column struck a midsummer chord, and it was as depressing to write as to read. I usually try to concentrate on the positive — the small building blocks that might help, brick by brick, to rebuild a journalism business in this mainly digital age. They range from pioneering national topical startups like Skift (“Rafat Ali’s go long, go deep vertical strategy”) to established local ones like the L.A. Times (“Austin Beutner’s California turnaround plan”).
The depth and breadth of reaction, both on social media, in comments, and directly to me by email, got me thinking more about the wider implications of the Digital First Media case history. Let me expand on those, responding to five good questions some have raised over the past week.
“Aren’t they all the same?”
Well, no, not all newspaper companies are the same. We can ask the question about milking across the industry. At its most pejorative, you can call it milking or you can call it harvesting — something you’d do with the organs of the just-barely alive. The polite term is managing decline. That kind of management must be done by anyone running a legacy print-based news operation. (And local broadcasters, take note — you soon as well.) When revenue spirals downward, CEOs and publishers must prudently cut expenses. Every news publisher manages decline in order to stay in business. The smartest ones focus as much on growth. The key question is the balance between the two, both in focus and in financing.
Take a wide view of how business works, from Neal Zuckerman, partner and managing director of Boston Consulting Group, which has worked with hundreds of diverse companies, in good times and bad, leading-edge industries and mature ones. He addressed his comments to business-side media people at an INMA meeting in May:
Revenue growth is the primary driver of total shareholder return for companies that grow over time. You can spend all your time telling a better story. You can do all the cost cutting you want. You can even give it all back to your shareholders in dividend or buying your stock back. But if you can’t get the top line to grow, you will not be a good grower. And that, of course, is what transformation is all about in many regards.
Revenue hasn’t grown for U.S. newspaper companies since George W. Bush was president, in 2007. It won’t grow this year, and you’d have a hard time finding anyone betting it will in 2016 or 2017.
Without it, simply, there is no future. That’s just the way the world works, well beyond the little news business many of us know well.
But even if the problem of growth is universal, newspapers companies’ responses to it aren’t. Most newspaper-based companies aim to do more to improve the products their customers receive. Digital First Media offers an extreme.
While it concentrates its hopes for revenue growth around its AdTaxi marketing services enterprise, it is forsaking its news products and their future. Even for a company now focused more than before on print revenue, it’s ordering cutbacks in the print product across the country, most publicly at The Denver Post. But the greatest testament to its lack of a plan — to its lack of a belief in the product it provides its readers and communities — is in digital. Its digital news products look and act outdated and have little support behind them.
Finally, of course, it’s the industry-leading disinvestment in staff — the fastest way to increase near-term profit — that makes it mid-2015’s poster child.
“Hasn’t it always been this way?”
For decades, newspaper businesses have topped business profit margin charts. They ran “double-truck” two-page ads from supermarkets that were operating on profit margins of just a few percent — but were able to take hefty 15 to 35 percent margins to the bank themselves.
Across all those post-World War II decades, most of the daily press managed themselves on a church-and-state model. Ad sales operated separately from newsrooms, working out of different floors, occupying different space and adhering to their own standards. The separation served the business, and all understood both parts of the business were needed to make the enterprise go.
The paper was the product. It only made sense that you’d want that paper to plop on the doorstep with a nice, full sound.
For those of us managing newsrooms in that era, we knew well that we were a key part of a profit-making business. We served on the company’s executive committee and occasionally had ledger books tossed our way to emphasize the need to make budget. But most publishers believed in a good product and in public service — if only for business reasons.
That DNA, found throughout American dailies, marked newspaper companies as a largely different species of business. Those running them knew that their businesses were unique, with twin mandates of profit and public service. For those less devout, they at least pretended publicly to serve their communities. These newspaper companies almost all grew from family ownership, and those families lived in the same community; their bonds to their cities and towns, however uneven, seemed unbreakable. Then chain ownership amalgamated the family papers — improving many, weakening some, but largely holding to the same balance of profit and public accountability.
The Great Recession changed that landscape. Ad revenue dropped 19 percent in 2009 alone; digital disruption was making real, permanent damage to ad revenues. The industry endured a near death. As many as 14 significant bankruptcies (plus other financial restructurings) brought a new class of outside-the-industry money people into it — as lenders and investors, then as owners.
They asked some smart questions about an industry that had long ignored commonsense efficiencies. But they also often failed to see the difference between a newspaper business and an auto manufacturer or a brewery or an insurance company. Alden Global Capital — Digital First Media’s primary owner and now driver of its accelerated cost-cutting, profit-increasing strategy — at one point owned stakes in more than a half dozen newspaper companies. While all newspaper companies, regardless of ownership, are managing decline in one way or another, this new milking strategy stands out.
Newspaper companies once seemed to be the prototypical companies built to last. Now, as print declines rapidly and DFM focuses disproportionately on print, we see something new emerge in the field: companies not built to last.
Ironically, when Alden decided to put DFM up for sale, it found only one serious potential buyer for the whole company…another private equity company. Human nature, even in sardonic newsroom culture, tries to find reason for occasional optimism. So even as the long tale of Digital First Media trying to sell itself whole to Apollo Global Management spun out, newsies would ask hopefully, “They have a plan, don’t they?” If this were a play, we could have called it The PE Company Next Time. Instead, DFM employees and readers got The Milkman Cometh.
“Why would a young person enter journalism?”
We’re far past the romanticism of Watergate. Only Manhattan seems to still be a gathering point for ambitious younger journalists, though they’re found in small knots here and there around the country. Salaries used to be civil-service middle income, and the Guild secured those jobs for a long time. (Its membership is currently down 20 percent from its peak.) Now, though, the money is getting worse as other money gets better, with newspaper reporter having replaced lumberjack as the worst job of 2015, with an average annual salary of $36,267. And the growth outlook for newspaper reporter job looks a lot like all the other negative numbers in and around the industry: -13.3 percent. In case you’re wondering: For a family of four, the federal income level for SNAP food assistance, formerly food stamps, is $31,008.
Ah, but journalism’s never been just about money, right? That’s precisely the point. As those who corresponded with me wrote, it’s about storytelling, community connection, public service — and believing you’re part of an enterprise that’s making a positive difference, that has a future. Thousands of good editors across the country do their best at mentoring, teaching, and sharing, trying to hold back the tide of loss and shrinkage.
But the message of “managing decline” permeates too much of the business in too many places. It itself is toxic for the news business. I spend as much time (if not more) talking to news startups as legacy news companies. Among the successful ones, “morale” isn’t the issue. Only a singular passion for a local, national, or topic-based news business will make a startup successful. As I put it writing about Jim Brady’s mobile-first, millennial-reaching Billy Penn, it will “demand a kind of fanatical execution.” Or, in another word, passion.
So one truth too little discussed among local newspapers is brain drain. Veteran, experienced (and more expensive) reporters are pushed to buyouts. Newspapers, again with DFM an extreme example, seem to flail at strategy, with their unsure footing producing still more unease among staffers. Too many of the most innovative, let’s-get-with-it ones leave. In a world where technology companies have reset the rules about recruitment, hiring, and retention — rules that have copied by some national news startups — local news companies offer less and less, rather than more and more.
“Is it personal?”
Some readers know the stops in my newspaper career, in my 21 years with Knight Ridder. Digital First Media was created in part out of the MediaNews Group, which had bought a good number of the Knight Ridder papers in 2006. Given that purchase and with other purchases and property swaps, it turns out that almost every city I’ve lived in has become a DFM property. The newspaper titles have personal meaning: the Boulder Daily Camera, the St. Paul Pioneer Press, the San Jose Mercury News, and the Santa Cruz Sentinel, of which I am a remaining and recommending subscriber.
I know firsthand — as a journalist and now, more importantly, as a reader — the devastation each of these newspapers have witnessed. Each is a shadow of itself. The Merc is down to fewer than 100 journalists from more than 400, but the story of its decline, and the others, is more phenomenal than those job cuts. Sitting in Silicon Valley — the epicenter of the world’s greatest growth engine — it’s shrunken in reporting and in impact, precisely at the moment the technology and digital media worlds are reengineering life on this planet.
Certainly, I do feel a sense of loss, but it’s a universal one. It’s highlighted here by the DFM story, but it’s one each of you knows in your own community.
“What do all these people do?”
As I reported last week, that’s a key question Heath Freeman, Alden’s president, is asking.
It’s a very good question. In fact, the workflow, skills, and reimagining of job descriptions have all been way too slow to develop over 20 years of digital-fueled change. Today, much more finally is in motion, as serious efforts to “reskill” at both The New York Times and The Wall Street Journal, among others, are taking off.
At DFM, it’s not the question — it’s the questioner. If the question is asked by someone wanting to rebuild a longterm franchise — and with the financial commitment to do that — it’s a good question. If it’s mostly a budget-cutting exercise, one done without the knowledge and appreciation of how community journalism is actually done, it’s a phony one.
It does make you wish we could bring back the late, lamented Texas journalist Molly Ivins for a talk with Heath. What he would hear, taken from her classic 2006 column: “I don’t so much mind that newspapers are dying — it’s watching them commit suicide that pisses me off.”