about the image above

November 23, 2014

The Newsonomics of Aaron Kushner's Virtuous Circles

First published at Nieman Journalism Lab

Aaron Kushner is the anti-Advance.

Tomorrow, Advance makes digital origami of the Syracuse Post-Standard, going to three days a week of print (good Poynter inside view of the change). Its strategy: addition by subtraction. Subtract costs by cutting four days of print — in New Orleans, Michigan, Alabama, Harrisburg, now Syracuse, and maybe, soon, Portland — and add profits. My calculations showed about a 11 percent increase in short-term profits (“The Newsonomics of Advance’s New Orleans Strategy“), due to hard cuts in newsprint, distribution, and major downsizing of staff, including in newsrooms.

Kushner and his 2100 (as in “we’re in it for the long-term”) Trust ownership group have taken a very different approach since he took over the Orange County Register on July 25 — not even six months ago. It’s addition by addition. Addition of costs in the short run, aimed at the addition of both revenues and profits in the longer term. If there were a Pulitzer for getting the most done in six months, Aaron Kushner should win it.

Many publishers find themselves somewhere between the thinking of Advance (although they are hesitant to drop days for fear of sending the business into a fast death spiral) and 2100 Trust. The prevailing strategy across the country: Keep seven days of print, but also keep trimming, trimming, trimming.

Kushner’s Orange County play is watchable enough. It becomes even more intriguing if 2100 Trust should win in the upcoming Tribune Company auction. On that bid, Kushner restated his interest when we talked Tuesday, though with caveats. One big caveat is whether the Tribune sells off the Register’s neighboring L.A. Times separately, or as part a package of its eight papers.

The newspapers have a great deal of corporate overhead and things they share. It will not be simple and will be expensive to take apart. They also have significant pension obligations that are really important to employees of Tribune Corp. and that needs to be managed, either by the current owners or the new owners. Separating out the papers on the pension and all the stuff that’s shared, and all the corporate overhead, is difficult. Our view is that it would be simpler and cleaner to have the Tribune papers operate as a group. If that ends up being the most lucrative path for the new owners, time will tell.

With that potential purchase in the back of our minds, let’s look at the newsonomics of the Register’s contrarian approach. It’s a strategy of would-be virtuous circles, and that’s important. The Register’s circles seek to find an upward spiral for a business model that’s been spinning downward for almost a decade. In part, the strategy is truly contrarian; in part, it reflects a building back of what had been a much-diminished metro newspaper.

First, let’s take the Register’s most recent news. The Register showered its 124,000 seven-day print subscribers with golden envelopes in November. In each envelope: a check for $100, made out to the Register. Subscribers were asked to pick their favorite local nonprofit or charity, endorse the check, and send it back to the paper. A “massive number” of subscribers responded, and 1,300 nonprofits are about to enjoy the fruits of the campaign. No, the nonprofits don’t get cash; they get advertising in the Register’s print or digital products.

It’s a massive stroke of goodwill, and p.r. It can be called a $12.4 million program — if all the 124,000 subscribers returned the $100 “checks”– though the $12.4 million is a price (of buying Register advertising), not a cost. So, for instance, the top three charities — The Salvation Army, The Wounded Warrior Project and the Orange County Rescue Mission — will collectively be able to spend $300,000 with the Register. That’s a considerable sum. It should both augment the profiles of the 1,300 charities that got some allocation and make the Register both more of a community citizen and a place to consider advertising down the road.

“We asked readers to think hard,” as they received their checks, says Kushner. Readers couldn’t divvy up the $100, but had to decide on one organization that they most wanted to help. The program empowers people to have an impact — with the always popular Other People’s Money. Perhaps, though, it will encourage them to donate more of their own money as well. Kushner says it isn’t a one-time program, but “ongoing.”

This is a smart, pro-community, good-for-business idea. It’s one I think we’ll see picked up around the country. It’s authentically good for community — and it’s a lot cheaper than a $12.4 million investment.

Keep in mind that if Register “charges” full price for those ads, as we would think it would, its actual costs won’t come close to the pricing.

Advertisers, with the aid of the Register’s creative services, can choose a combination of print and online advertising. Both presumably can run on an as-possible, rather than targeted, schedule; that’s only fair for a freebie. It also gives the Register the ability to place ads in its metro paper and 24 community weeklies, as extra, or “house,” ad space is open. Smartly, the Register, in print, will try to fit the ads into its existing page run, rather than adding pages. Even as it adds some pages, you can figure that the cost of the newsprint and ink is maybe an eighth or a tenth of the price of the ad. For digital advertising, of course, there’s no hard cost. Further, commissions don’t need to be paid, we’d assume, for salespeople handling the ads. Lastly, the first quarter — the slowest time for newspaper advertising — is a good time to start the program.

All of that business rationale doesn’t detract from the community value of the program; it just makes it much more affordable for the Register. A $12.4 million program may cost a fifth of that. It’s a good example of smartly using supply and demand. Consider, for a moment, all the remnant (non-sold digital inventory) stacking up for publishers (and everyone else) around the web. Why not embrace that space with a golden-envelope-like, pro-community digital ad program?

The ROI here may be soft. It is, though, one of Aaron Kushner’s would-be virtuous circles:

  • Reward valuable subscribers.
  • Invest in community institutions.
  • Improve subscriber retention and growth.
  • Make the Register a more vital place to advertise.

It is the Register’s very public investment (“The Orange County Register is hiring dozens of reporters”) in new newsroom staff that has drawn the most wonder.

orange-county-register-new-hires-2

Since Kushner’s arrival, the paper has added about 90 positions. (Photo above shows the faces of new newsroom staffers hired at the Register. With the recent burst of hiring, though, their faces have spread well beyond the frame that used to easily contain them. Photos courtesy the Orange County Register) Today, the newsroom total is 270, up from the pre-Kushner low of 180. Included in the 270 are 24 full-time, full-year interns — drawn from around the country for an intern program that is the place to be. The numbers, themselves, are impressive, a 50 percent increase. They represent one of the largest hirings of journalists since Patch placed 900 or so solo journalists in outposts across the U.S. two to three years ago.

At 270, the Register is about half the newsroom size of the former behemoth next door, the L.A. Times. The raw numbers are profound, but what’s behind their deployment is even more eye-opening.

The Register is applying a spirited strategy to match its staffing revolution. It’s been widely reported as a print-first strategy. I think that mischaracterizes it, though print is getting well-funded. It’s a reader-first strategy, and a wily one that aims at doing the right things in the right order, with capital to match. It’s addition by addition, of content and community connection. Print may be getting the first makeover, because that’s what readers are used to paying hundreds of dollars a year for; the paywall coming later this year will reaffirm the value of their subscription.

The centerpiece of content and community connection is the Register’s re-engagement of its local community. The Register, like many dailies, had invested in community weeklies over the years. Like many, they’d gone through richer and leaner times, sometimes stepchildren of the mothership. Now 15 of the 24 weeklies have been completely redesigned, under the leadership of the peripatetic digital innovator Rob Curley. They’ve got lots more of that new staffing devoted to them and both more news space and community contribution space. Stories can run first in the weeklies — and then be picked up, if broad enough, by the Register overall. (You can get a good, wider sense of the new strategy in this recent interview with Curley.) This isn’t newfangled hyperlocal; they’re simply trying to do a hell of a job at local.

It’s a move that understands that many readers take in the paper inside out — from their neighborhood to the wider metro area. To get the weekly papers, you have to be a Register subscriber overall, and that’s an important new step, just announced. If you’re a subscriber, you get the shiny new now broadsheet (formerly tabloid) new weeklies, most 24 pages in size. If not, you get a smaller Community News product, with samplings of news and, of course, localized advertising. The message, reminiscent of the membership pitches we’re hearing from Charleston to Los Angeles, is clear: When you’re in the club, we treat you like family.

The main metro paper has gotten a major facelift as well. Among the add-backs:

  • Increased page count by 40 percent and doubled the amount of color used;
  • Created a daily, six-to-12-page business section;
  • Added coverage in global and national news, prep sports, food and sports;
  • Hired three new investigative reporters.

It is addition by addition — though addition that followed much subtraction. The Register had been bled down to 180 newsroom staffers, from its 1990s zenith of 380, through its years of ownership shuffles and bankruptcy. So, in a sense, King Kushner is presiding over a royal restoration. That doesn’t minimize the investment, or its contrarian nature; it just puts in into context. Many of its principles harken back to the days of deep local coverage, days when circulation was a lot higher.

Even in 2004, it was 370,911 Sunday and 302,864 daily. Today, it’s 294,000 Sunday and 160,000 daily, for print. (The new ABC data have myriad categories, but print-to-print comparisons work best.)

When Kushner took over the paper, with its 180 newsroom staffers, it was profitable. Now, with the substantial investment he’s made in staffing and product, it’s unclear if it still is. 2100 Trust is making an investment in product, with the intention of so satisfying core readers — in print and in digital — that it can recoup that investment and more.

So, let’s look at those numbers:

  • The cost of the new FTEs: Figure the 24 interns are $30,000 each, or $720,000. Figure the 66 new staffers are $85,000 each, including benefits, on average, given cost-of-living in southern California. That’s $5.6 million a year.
  • The cost of added newsprint and related costs: Let’s guesstimate $4 million.

So let’s say the new ownership has added $9.6 million to the cost structure of the Register.

Let’s assume the 2100 Trust would like to maintain the profit of five to 10 percent that it likely inherited. What kind of new revenue does it have to bring in?

Advertising will likely be down. Print advertising is drifting downward, still, at metros. Digital may rise a bit. Figure the Register could be down $5 million this year. Other revenue sources — the Register bought into a new events business through its purchase of the OC Metro group in December — may help, but that probably will take a couple of years to kick in.

So the big bet is on readers. Core readers.

Already, the Register has seized its pricing opportunities. It took over a Register without much circulation pricing discipline. Kushner has rapidly introduced, and is cycling into, new pricing. The new price is $30 per four weeks for a seven-day subscription, or $390 a year. That means lots of readers are beginning to pay more, lots more, for the Register.

So let’s do some estimating. Let’s say they are paying, on average, $60 a year more than before. If all those 124,000 maintain their subs, that brings in $7.4 million annually. If the Register can yield an average $80 per year from those same subscribers, that would be $9.2 million annually. There are lots of other up and down factors here — cancelled subs because of the pricing and added revenue from Sunday-only buyers, among them.

Further, the Register’s metered paywall goes up this year, Kushner says. Once that goes up, the Register’s subscribers will no longer have the choice of dropping their subscriptions in favor of free digital. That loophole will be closed — and that supports the higher prices.

Long story short, it’s possible the Register could take in about as much new money in circulation revenue as it is putting into its expanded news products. It still wouldn’t be enough to make up for ad revenue decline, but that’s a problem common among metros.

So Kushner’s bet is a bet on the core. Core product. Core readers.

It’s another intended virtuous circle:

  • Make major content improvements early.
  • Price up print to reflect what it really costs to produce broad and deep journalism.
  • Erect a metered paywall to close the chasm between more expensive print subscriptions and free digital access.
  • Hold on to a loyal audience, growing it slowly, and making it more attractive to local advertisers, increasing print and cross-platform buys.
  • If it works, keep rounding the circle, with improved and new reader and advertiser products. Goal: real growth, and, with it, new profits.

That’s the playbook, based on the restoration of a community-oriented newspaper’s mandate. The golden envelope program reinforces that positioning, at low cost and high profile. 2100 Trust is doing the right things in the right order. The big question: Can it round that circle fast enough to satisfy its investors?

For everyone else, it provides another lab. We have the Advance labs and we have the Register labs, each a relatively pure form of marketplace experimentation. Within two years, we’ll know which approach, if either, wins a prize.

Article Tags

Categories

Related Posts