The Newsonomics of Jeff Bezos' (and Warren Buffett's) "Runway"
First published at Nieman Journalism Lab
Let’s consider Jeff Bezos’ runway.
“Runway” was one of the benefits he recently said his purchase of The Washington Post would give the institution — “runway” as in financial room.
We’ll have to stretch the metaphor to think about what it may mean. More lengthof runway, simply meaning more time to get the Post set in the right direction? More width of runway, meaning more room for more products and business models to be tested to find the best way forward? To stretch further: Are we talking landing or take-off?
None of our other recent buyers have talked publicly and specifically about offering “runway.” Yet that’s what Aaron Kushner is providing in Orange County, and now with his new Long Beach foray. It’s a multi-million dollar, long-term investment in the business.
Just this week, Politico owner Robert Allbritton, who provided plenty of runway for that startup to build scale, bought Capital New York. Out of the box, more runway: investment in editorial expansion.
We haven’t yet heard about John Henry’s plans for The Boston Globe, though we know he provided hundreds of millions of dollars of runway in order to resuscitate the Red Sox franchise.
Warren Buffett’s newspaper operations have had to focus strongly on systems and technology transition issues in its first year; will he now provide runway to his properties’ capacity for growth? We have one clue to the question. He told Berkshire Hathaway shareholders in March that they should expect fewer newspaper profits in the next several years. That would indicate he’s willing to provide some kind of transition cushion.
What do all of these newspaper buyers have in common? They don’t have to look back at loss and what used to be. They’ve bought strong brands with tens or hundreds of thousands of reader/customer relationships and thousands of advertising relationships. Those are the kinds of assets that a master marketer like Bezos knows he can build on.
They are also private company buyers. (Berkshire Hathaway is, of course, publicly traded, but Buffett has never been one to cater to the markets’ whims — and in any event, his collection of newspapers is a rounding error within the larger company.) You can’t do a medium- to long-term turnaround and satisfy the quarterlies-watching public markets. Trying to do both — long-term turnaround and short-term profit maximization — looks impossible. It is also not in the long-term interest of the companies themselves, their readers, or the communities they serve.
These new billionaires and multi-millionaires are getting into a hallowed industry cheaply. They know that — just as they also know the bottom may not yet have been found. But they seem to be exhibiting patience, and that’s a new phenomenon on the news scene. If your point of view shifts from revenue numbers in 2014 to the size, engagement and penetration of the business in 2018 — given the ability of cheap digital technology to reduce costs and multiply customer relationships — whole new vistas open up.
Some, inevitably, will be more civic-minded than others. In this game of Billionaire Bingo, some communities and newspaper companies will fare better than others. Don Graham believes he found just the right combination of savvy, wealth, and civic mindedness in Bezos. Both Bezos and Buffett seem to be saying this about their new properties: You’re important to the society. You may have more financial value than current markets understand. Customers — reader and advertisers — will reward you if you innovate. I’ll provide with a cushion as you move from here to there.
When we think runway, we think horizon. The Grahams looked into the same horizon and came away frightened. In Don Graham’s candid interview after announcing the sale, he explained that the 2012 year-end financials had decided him on selling. There was no light at the end of the tunnel — only more tunnel.
That’s the simplest description for what all newspaper owners, in the U.S., Europe and Latin America now see as they peer into 2014 and beyond. A year ago, they had hope that new paywall revenue would approximately make up for print ad loss. Then, some new arithmetic could kick in. Through new initiatives, they could begin to grow again.
2013 has tossed cold water on the scenario. Print advertising continues to decline markedly, off a smaller and smaller base. Print ad loss is swamping paywall revenue, even as paywall revenue looks like it may plateau in the second or third year of operation.
Look where we’re at in the digital transition, two decades after its start. The industry’s own stats, via the Newspaper Association of America, put 2012 digital ad revenue at 11 percent of total revenue. Some part of the other reported “new revenue”, at 8 percent, is digital. We can figure, from both public reporting and private reports (and being generous), that newspapers top out at around 25 percent of their news-related-operations revenue coming from digital. (It must be noted that as far behind as they may seem, they are way ahead of magazines and broadcast — each earning no more than 5 percent of total revenues from digital sources.)
And the transition from print to digital isn’t anywhere near over: News companies are still closer to the beginning than to the end. In other words, the next several years are going to be tough years of transition — yes, still — even as the ongoing shift of readers, advertisers, and business models toward digital finally allow reductions in onerous legacy costs.
Faced with that reality, the Grahams blinked. Given their long and worthy stewardship, who can blame them?
For the Grahams, it was clearly not just the numbers — not just the the financial drain — but an emotional and intellectual fatigue as well. Though different in tone and timing, this 2013 affair reminds us of 2006 and 2007 when Knight Ridder’s Tony Ridder, Tribune’s Dennis FitzSimons and the Wall Street Journal’s Bancroft family turned over their companies without much of a battle. When push came to shove by pushy investors or desirous suitors, they were simply ready to move on.
With eyes wide open, enter Jeff Bezos. How will he navigate this new runway his deep pockets are paving?
In addition to his provision of financial runway, he offered three Amazonian principles: “Put the customer first. Invent. And be patient.” And: “If you replace ‘customer’ with ‘reader,’ that approach, that point of view, can be successful at The Post, too.”
How could these principles — trotted out by many CEOs, but actually put in place by this one — actually play out for the Post? Let’s quickly consider three scenarios:
- Go mass market with the Post. Regain market share, building on the powerful circulation still in place in the affluent D.C. metro area. The Post, like many papers, has priced up and started charging for all-access digital/print subscriptions. At last report, it had 447,700 daily circulation and 646,700 on Sundays. What if Bezos went the other way, borrowing a page from his Amazon Prime strategy? With Prime — at $79 a year for guaranteed two-day delivery — he got members at a low price point. Then he found those members would buy as much as 40 percent more than non-members. What if the Post charged a low rate to enlarge its tent of members, and Bezos used his marketing genius to use that low rate as just the beginningof deeper commercial and editorial relationships — and sales. In the short term, that would mean more operating loss, but it could also be — Amazon-like — an investment in the future.
- Marry the best of Amazon and the best of the Post. Sure, Bezos is CEO of a public company and sole owner of a private one, which would create some conundrums. But let’s blue-sky it. Why not combine Prime, in the D.C. area, with a Post subscription? Why not offer Kindle Fires pre-loaded with the next-generation Washington Post tablet experience? The Kindle Fire is already constructed as something of a loss leader — selling hardware cheap to make more money selling content. The Philly newspapers and now the Chicago Tribune are packaging up tablet and newspaper subs. Bezos has a brand-name product with which to do that and can offer a smorgasboard of media, books, and news to sweeten the deal. AmazonFresh delivers groceries in Seattle and L.A.; why not add D.C. to that list, combining it with the Post or Post specials? With Amazon same-day delivery ramping up, what kinds of combos make logistical and consumer sense?
- Out-Politico Politico. Bezos has got to be asking how startup Politico outflanked the Post, both in political coverage and then with its Pro line (“The Newsonomics of Influentials from D.C. to Singapore to Raleigh“). What if wanted to retake those markets, investing heavily? Think Ezra Klein’s Wonkblog multiplied and niched.
- Out-Snow Fall The New York Times: In Joe Hagan’s in-depth profile of Mark Thompson’s impact on the Times, New YorkmMagazine pointed out how “to snowfall” has become a verb in the Times newsroom (and elsewhere). Multimedia creation is finally getting into the marrow of legacy news operations. Here, again, what if Bezos asked the question of how a newPost tablet product — in addition to its quite traditional current presentation — could take the Snow Fall metaphor and lead the pack in its innovation?
So we’re back to the runway questions: How wide, how long? How many of the “new ideas” that Don Graham acknowledged the next generation of the Post needs can fit on it? We can hope for nodes of innovation, with new owners and new money on both coasts and in between. Headed into 2014, that’s what the news industry needs.