Judy unchained

Judith Miller, the New York Times reporter incarcerated for 85 days for refusing to identify a confidential informant, walked out of jail after her source, the vice president’s chief of staff, said it was all right to identify him.

Now, it turns out the whole affair may have been a big misunderstanding, according to the Washington Post. Maybe it was and maybe it wasn’t.

But one thing is certain: The case has made many news organizations more cautious about using the confidential sources that traditionally have provided crucial information for vital stories that otherwise would not see the light of day.

Ms. Miller was jailed for contempt of court when she refused to testify before a federal grand jury investigating whether someone in the administration unlawfully outed former covert CIA agent Valerie Plame.

Ms. Plame was identified as an operative after her husband, former Ambassador Joseph P. Wilson IV, scotched the administration’s assertion that Saddam Hussein was trying to buy enriched uranium in Niger to build atomic bombs in Iraq. The discredited uranium story was a major piece of evidence offered by President Bush in support of the Iraq invasion.

In every state but Wyoming, reporters generally are shielded by law from being forced to identify their confidential sources. But the Plame case is a federal matter, so no such protection exists. Ms. Miller was jailed in July until she either agreed to testify or the grand jury's term lapsed, which is scheduled to occur in October.

Ms. Miller was freed when Lewis “Scooter” Libby, the chief of staff for VP Dick Cheney, released her from her promise to protect his identity. As part of the deal for her freedom, Ms. Miller promised to testify immediately.

According an amazing account reported by the Washington Post, a big misunderstanding may have been behind the case that landed Ms. Miller in prison longer than any other American journalist ever has been jailed for protecting a source.

The Post said Mr. Libby approved a formal waiver to release Ms. Miller to testify more than a year ago, but that her legal team apparently did not understand this.

“Joseph Tate, an attorney for Mr. Libby, said yesterday that he told Ms. Miller's attorney, Floyd Abrams, a year ago that Mr. Libby's waiver was voluntary and that Ms. Miller was free to testify,” reported the Post. “He said last night that he was contacted by [Robert S. Bennett, another of Ms. Miller’s layers] several weeks ago, and was surprised to learn that Ms. Miller had not accepted that representation as authorization to speak with prosecutors.”

Because neither Ms. Miller nor Mr. Cooper ever wrote a story, the article actually exposing Ms. Plame was written by Robert Novak, who never sought to protect his sources, if any, from the grand jury.

Based on what we know now, it appears that Ms. Miller may have gone to jail to protect a source who didn’t want to be protected for a story she never wrote about a crime that may not have been committed.

This is getting curiouser and curiouser.

Doubling downers

With Tribune Co. and Knight-Ridder both battling Chronic Metropolitan Newspaper Fatigue Syndrome, perhaps the best prescription is to combine the companies to create a “synthetic” national newspaper, says one Wall Street analyst.

In the out-of-the-box solution proposed by Paul Ginocchio of Deutsche Bank, Tribune would raise approximately $6 billion to buy Knight Ridder by divesting a couple dozen TV stations and disposing of such non-publishing assets as the Chicago Cubs.

The resulting entity would have total daily circulation of 6.3 million, making it second only to Gannett's 7.6 million subscribers. The jumbo combo, says Paul, would create a “synthetic” national newspaper with titles in 15 of the top 31 markets, reaching 11% of U.S. households daily and 14% on Sunday.

Each paper presumably would keep its unique title and format, but advertising would be sold not only on a per-title basis but also in group-wide or regional buys. If it worked, says Paul, there might be sufficient “critical mass to coax other large-market newspapers into joining," thus providing advertisers with a far-reaching, one-stop shopping solution.

“We’d much rather own small-market papers, which we think have a good chance of continuing to dominate the local advertising arena,” says Paul. “Nonetheless, the best chance for a large-market operator to thrive is to be able to capture a growing share of national advertising. Despite a slowdown in the last year and a half, national advertising over the last decade has outgrown retail and classified as a category.”

Creating a lean, mean national advertising machine is a good idea, but it’s not novel. National ad-rep firms already offer the opportunity to buy all papers -- or just some of them -- with one order and one bill. While national advertising did increase in the last decade, it is a vulnerable category, as discussed further below.

Paul is quick to add that he doesn’t expect his idea to be embraced any time soon. Further, he acknowledges that it could be scuttled by antitrust issues or the spirited bidding that would erupt if the formidable assets of two of America's leading publishing companies suddenly went into play.

Paul's idea, though, represents the kind of innovative thinking that will be necessary, if publishers are going to adapt successfully to the challenges posed by both low-cost print competitors and the interactive media.

As discussed here previously, the industry has begun taking baby steps toward strategically restructuring its assets. But Paul’s idea, which is a giant leap, is a bit like jumping out of the frying pan and into the fire. Here’s why:

With national, retail and classified advertising shrinking all at once, it admittedly is tough owning newspapers these days in places like the Tribune's Chicago, Baltimore and Los Angeles and K-R's Philadelphia, Miami and San Jose. But a publisher's weak hand isn't strengthened when it doubles down its bets by buying a similar collection of struggling properties from someone else.

Each of the primary metro advertising categories -- national, retail and classified -- is contracting, for a variety of secular, not cyclical, reasons.

:: National advertising recently has been reduced by the telescoping of four aggressively marketed cellular phone companies into two (ATT/Cingular and Nextel/Sprint). Financial and tech advertising has been limp since the Bubble. Most airline ad budgets have been trimmed by bankruptcy or the fear of it. Movie ads have been crimped by a year-long sag in ticket sales. Because national ads are purchased by large, sophisticated companies, their marketers may be among the first to diversify into competing broadcast and interactive media.

:: Always sensitive to the ups and down in the economy, retail advertising certainly has had its share of ups and downs of late. Beyond the ordinary fluctuations, the total available ad dollars are likely to shrink as Federated buys May, Kmart swallows Sears and so forth. Consolidation leads to the closing of stores and/or the retirement of beloved brands like Marshall Field's in Chicago, which Macy's plans to dump.

:: Classified advertising has been plundered by Craig’s List, Monster, eBay and the rest of the usual suspects.

So, you have to ask: How much would Tribune gain by shouldering K-R’s burdens?

Rather than grubbing for larger shares of shrinking advertising markets, metro newspapers would be wiser to develop their interactive businesses and build or buy efficiently produced micro-local print products to serve the individual communities in the markets they dominate.

The appeal of one-size-fits-all mass media is declining rapidly in an era when new technologies enable the instant and individual consumption of content.

Smart media companies will focus on architecting new paradigms for the future, not bundling together yesterday's problems like so many recycled papers.

Nobody’s dancing a jig

As accustomed as they are to dealing dispassionately with mayhem affecting other folks, even the hardest-bitten newspersons are unhinged when calamity strikes at their own places of business.

As more than 100 newsroom jobs per day vaporized last week from the New York Times to the Birmingham (AL) Post-Herald to KSWB-TV in San Diego, many journalists evidently took the developments as an insult to their profession and, by extension, a repudiation of them as individuals.

In their understandable anger and dread, most of them failed to recognize that the cutbacks are but one manifestation of the most profound restructuring of the economy in more than half a century.

Everyone, especially their readers, viewers and listeners, needs to understand this story. Instead, we are getting simplistic sound bites from people who ought to know better.

"Wall Street appreciates cost-cutting and improving margins and increased profitability," John Morton, the ordinarily perceptive dean of publishing analysts, told the New York Times. "Those are the things that make them dance a jig at night."

Much as I respect John, he is dead wrong in this case. Nobody is dancing a jig about a tectonic shift in the economy that is forcing businesses of every type to become lower-cost producers -- or die.

This upheaval is bringing a sobering new reality to such once-mighty companies as Delta Air Lines, Hewlett-Packard and Sony, to name but a few. Each recently has announced major work-force cuts, reductions in pay and benefits, plant closings and other once-unthinkable economies.

So, let's get a grip and get some perspective:

Ups and downs in the business cycle aside, American workers gained unimaginable levels of wealth and economic security in the industrial boom that followed World War II. (To be sure, not all shared equally, with persons of color statistically more likely to be left behind.)

The growing post-war economy helped everyone from social workers to electricians gain unprecedented job security, along with generally increasing wages, health insurance, pension plans and the ability to take vacations, buy a home and purchase an average of 2.4 TVs per household.

Amid all this prosperity, a "buy now, pay later" mentality emerged. Companies agreed to historically generous pay and benefits programs for both current workers and future retirees. Governments at all levels accepted ever-larger deficits. Consumers shouldered growing amounts of debt.

But that was then and this is now. After more than half a century of expansion, the economy is restructuring with a vengeance to favor low-cost producers -- and to penalize sharply the businesses that developed high cost structures during the 50-plus years of prosperity.

A large part of this pressure, of course, comes from the fact that modern technology and logistics makes it possible to operate call centers more efficiently in India and the Philippines, or to make steel, computers, running shoes and Happy Meal tchotchkes more cheaply in China, Pakistan or Central America. This, of course, has cost huge numbers of Americans their jobs.

At the same time offshore production has become more efficient, the sales of many of our most prominent companies, as well as lots of smaller ones, have not been robust enough to cover the substantial un- or under-funded commitments they incurred in the last half century.

Ford and General Motors haven't been able to develop new models or cut their costs fast enough to compete with overseas competitors, because they are locked into union contracts that require high wages and benefits for current workers; make it enormously expensive to reduce force at underutilized plants, and mandate generous health care and pension benefits for retired workers who, thanks to modern medical science, are living longer than anyone thought they would.

Despite the pressure on profits caused by the high (and in many cases rising) fixed costs of raw materials, labor, shipping and pension obligations, auto markers keep discounting prices to preserve their dwindling market share and, they hope, to generate enough cash to feed their struggling businesses. Their eroding profitability does not augur well for their future.

None of this is to say union agreements or commitments to retirees ought to be summarily scrapped. But the fact is that a whole lot of big-name companies are locked into cumbersome commitments they can't afford to keep. Something has to give. Companies and unions either will have to work things out (with perhaps the assistance of the federal government?) or they will implode. Companies like GM are on the ropes and the AFL-CIO started blowing apart this summer.

The success (or tyranny) of the low-cost providers is illustrated best by the airline industry, where travelers recently have enjoyed incredible bargains at the expense of the traditional companies. The legacy airlines trace their roots to the days when the federal government regulated routes and rates to assure operators of hefty profits regardless of their costs.

Although the legacy airlines have tried to slash fares as much as possible to keep up with the discounters, they have not been able to reduce their costs fast enough to keep revenues ahead of expenses. As a result, half of the seats available to travelers today are owned by bankrupt airlines, a rather chilling thought.

As but one example, the once-proud Delta Air Lines, which considers itself the nation's second-largest carrier, is losing billions and teetering on the brink of oblivion because its steep conventional cost structure makes it impossible to compete with such low-cost, yet profitable, providers as AirTran, JetBlue and Southwest.

The low-cost providers benefit not only from more efficient fleets and cherry-picked routes, but also from lower labor costs. The bargain carriers don't pay union wages and benefits, because they have no unions. They have no pension obligations, because the companies are too young to have have any retirees.

After filing for bankruptcy earlier this month, Delta last week put out a remarkably candid plan for turning itself into a lower-, if not to say, low-cost provider. The steps include cutting expenses by $8 billion by the end of 2007 (51.6% lower than they were in 2002), trimming its work force by 9,000 jobs (17.3%), reducing pay for remaining employees (including a 25% cut for the CEO) and curtailing health and other benefits.

Just as Wal-Mart has driven down the price of pillows and peanut butter through superior logistics, aggressive purchasing and the even more aggressive management of its labor costs, every manufacturer, retailer and, yes, newspaper must chop its operating costs to compete successfully with low-cost challengers.

The traditional media companies have it even tougher than most other businesses. In addition to carrying the type of legacy labor commitments faced by automakers, airlines and others, they face three additional burdens:

:: First, they are challenged by low-cost competitors that can deliver faster, cheaper and as-good, if not sometimes better, content.

:: Second, they are battling to save advertising market share being grabbed by the encroaching interactive media, which not only efficiently deliver highly targeted audiences with great precision but also can verify that the message was received.

:: Last but not least, the legacy media companies have high fixed costs that can't be trimmed easily. Traditional companies have to build and operate expensive broadcasting or publishing infrastructures, regardless of whether they serve an audience of one or a million. Print publishers also face the formidable costs of paper and distribution.

Because most of the overhead for a media company is inescapable, the only place to significantly reduce costs when times are tight is in headcount. The newsroom, unfortunately, is where staffing is most elastic, for it can be expanded when times are good and contracted when business is soft.

Media companies act at their own peril if they cut too deeply in the newsroom, however, because it is the efforts of these women and men that draw the crowds that the advertising department sells for money. Weaker content equals smaller crowds and smaller crowds equal less money. If the company loses enough money long enough, it will close its doors forever, as happened last week at the Birmingham Post-Herald and KSWB in San Diego.

In an era of profound upheaval for nearly all American business, it is unreasonable to expect that media companies, which rely on the success of other businesses for their advertising revenues, could be exempt from the squeeze. Like their counterparts across a broad array of industries, senior media executives today are trying to navigate through a period of profound, rapid, uncharted and inexorable change.

Yes, they are dancing as fast as they can. But no one is dancing a jig.

763 pink slips in a week

Several major news organizations last week slated 763 jobs for elimination. Here are the details:

:: In the second round of layoffs announced this year, the New York Times Co. intends to eliminate 500 (mostly newsroom) positions at the Times, the Boston Globe and other properties. The decision coincides with a threat from Standard & Poor’s that it may downgrade the parent company’s debt rating.

:: Knight Ridder is reducing the news staffs of the Philadelphia Daily News by 19%, the Philadelphia Inquirer by 15% and the San Jose Mercury News by 22%. Together, these initiatives will claim about 160 jobs.

:: The Birmingham (AL) Post-Herald was shut down on one day’s notice by Scripps, summarily putting 43 journalists out of work.

:: The Tribune Co. is eliminating local news operations at its TV stations it in Philadelphia (KPHL) and San Diego (KSWB), subcontracting the news time slots to the NBC affiliates in each town. Thirty jobs will be eliminated at each newsroom.

For an earlier discussion of newsroom cuts and staffing levels, see this post.

Right step, wrong foot

Although it's a step in the right direction, the debut of the premium section of the New York Times web site sure got off on the wrong foot.

Try though this dedicated user might, it was not possible to register successfully for the new Times Select service that places the top columnists and certain other goodies behind a members-only firewall. Home-delivery subscribers are entitled to free access to Times Select and online-only users can join for $49.95 a year.

Those who are able to register get access not only to Thomas Friedman, Maureen Dowd & Co., but also get free access to up to 100 archived clips per month and an advance peek at certain stories. Access to the archives, which otherwise clip you $3.95 per clip, is worth the price of admission in and of itself. Apart from the columnists and a few other features, the daily news report will run in the clear and remain available for about a week until it goes into the pay-per-view archives.

The problem with Times Select, which I am sure will be solved in the fullness of time, is that you can’t get in.

After fussing around at NYTimes.com for the better part of an hour in the morning, I seemed to have completed the registration process, but still couldn’t get access to the premium content. After waiting half a day, I called the customer-support number and was told to be patient, as the first-day volume had overwhelmed the system. Twelve hours after registering, I still am on the outside looking in.

Fortunately, NYTimes.Com publishes a companion newspaper that is conveniently delivered to my doorstep.

Although the inaugural day was inauspicious from a technical point of view, the Times is on the right track in starting to charge for access to some of the valuable content that it, like most other newspaper publishers, has been giving away for a decade in history’s longest-running introductory offer.

The gift the newspaper industry keeps on giving has provided abundant free content to the increasingly popular news sections of the web sites operated by Google, Yahoo and many others. The news sites, which contribute significantly to the staggering revenues and market values of the Yahoogles of the world , then compete with newspapers for eyeballs and ad revenues.

So, it’s high time that newspapers stop helping the competition and start building their own online sales. As the Times reported in one of those still-free articles, the most commercially successful “free” online newspaper site is that of the Washington Post, where 8.5% of the publication's total ad sales come from the web. This compares with 5.8% for Knight Ridder, 4.8% for the NYT and 4.5% for McClatchy.

As positive as Times Select is likely to be for the NYT, the plan, as discussed here previously, will not necessarily work for every newspaper. The content that publishers sell has to be unique and valuable material a reader can’t find anywhere else. The NYT and Wall Street Journal, which probably grosses $40 million on its all-subscription-all-the-time site, can pull this off with a straight face. But most other publications will have to create new, premium content before they can begin charging successfully for online access.

That’s all the free advice for today.

Weekend (or weakened?) Journal

You can’t blame a revenue-challenged publisher for wanting to boost advertising sales by adding an extra day to the week.

The option is not available to most newspaper chains, which already publish seven days at their major properties. But it was available to Dow Jones, and, by golly, they took it.

So, we now have the new Weekend Edition of the Wall Street Journal, where the usual tales of financial buccaneering and corporate intrigue are juxtaposed with articles about foie gras milkshakes, “comfy shoes” for guys and “bicycles built for her.”

The Weekend Edition is at once an obvious strategy and a tremendous risk for Dow Jones.

It is obvious, because the company needs to do something to shore up advertising revenues that sagged 6.3% in the first six months of this year vs. an average industry gain of nearly 3%. Technology advertising, which peaked with the Bubble in 2001, has fallen more than 19% a year for two years straight. Financial advertising this year dropped nearly 20%. These categories historically have been the bread-and-butter advertisers for the bulls-and-bears Bible.

The Weekend Edition is a courageous, if perhaps irrationally exuberant, attempt to tap new sources of advertising for a publication that seems to have tapped out its traditional advertising base. By switching the emphasis on Saturday from T-bills to meat thermometers, the Journal hopes to recruit a new class of upscale brands and retailers hoping to reach its enviable, upscale audience.

The industry buzz is that the Journal has gotten some 100 advertisers to commit to schedules in the new Weekend Edition. The question is whether this is net new business, or simply lineage shifted from the daily paper to the new edition. It also remains to be seen how long the schedules will last. And that depends directly on how many $85 meat thermometers people will buy.

Adding a day and tweaking the content to entice new advertisers is logically consistent. But there’s a big oops. And it is this:

Although readers rightfully value the Journal for its hard-nosed, hard-news reporting, the Weekend Edition violates their expectations with silly articles on “eco-friendly” leaf blowers and discount-frock shopping.

To the degree journal readers want to know about foie-gras frappes and leaf blowers, they already subscribe to other publications that satisfy those needs more authoritatively than the superficial knock-offs in the Weekend Edition.

Perhaps the pain of subverting the Journal is what led the founding editor of the Weekend Edition to jump ship less than a month before launch. The highly regarded Joanne Lipman joined Conde Nast in August to start a new monthly business magazine. Given the aforementioned weakness in financial and tech advertising, that seems like another Mission Impossible. But that’s a story for another day.

You can’t blame Dow Jones for starting the Weekend Edition in hopes of putting some life into a stock that was foundering until the report last month that some members of the controlling Bancroft family might like to see the company sold. Although the stock is trading around $40 a share – about $8 above its 52-week low – the company needs to get fixed before it is sold, if ever it will be.

Apart from the danger of befuddling traditional Journal readers, the management of Dow Jones has a lot at risk in the Weekend Edition.

Round numbers, I estimate it will cost about $1 million per week in payroll, paper and delivery expenses to learn if the Weekend Edition has legs. There will be additional costs for promotion and ad sales, including hiring the guy who staged the opening and closing spectacles at the Olympics to run “launch experiences” in Atlanta, Boston, Chicago, Dallas, Detroit, Los Angeles, Minneapolis, New York, Philadelphia, San Francisco and Washington, D.C.

If the Weekend Edition successfully boosts over-all revenues beyond the costs involved in producing and delivering 1.75 million additional newspapers per week, then it will be a win.

If the Weekend Edition flops, there not only will be a major loss of money and face at Dow Jones, but potentially a major loss of employment in the household of Peter R. Kann and Karen Elliott House, the husband-wife team who respectively are the CEO of Dow Jones and publisher of the Wall Street Journal.

Now that the great experiment has been launched, all we can do is sit back and wait to see whether the Weekend Edition has strengthened, or weakened, the Journal.

If you crave insightful business and financial reporting over the weekend, however, grab a copy of Barron's.

Random acts of weirdness

Eager to justify, if not surpass, their ultra-billions in market capitalization, eBay and Google have been engaging lately in what only can be described as random acts of weirdness.

The corker was the announcement that the normally well-disciplined eBay is shelling out $2.6 billion to $4 billion for Skype, a nifty online phone service that produced $60 million in sales in the last 12 months. On the high end, the transaction is valued at 666 times sales, the devil's own PIN.

Even after CEO Meg Whitman explained the tenuous rationale for the deal, it is unclear how Skype will help eBay sell more Beanie Babies.

The idea, she says, is that eBay will encourage visitors to sign up for Skype and then click a "Skype Me" button so they can speak directly to merchants selling stuff on eBay. Meg believes this will help eBay build a business brokering real estate, autos and other high-end products.

Assuming, arguendo, that this actually could help sell more Hummers or McMansions, why not create an 800-number using the standard phone system? For one thing, everyone already has a phone and knows how to use it. For another, eBay could test the idea before deciding whether to spend $2.6 billion to $4 billion to see if it works.

If the phone idea clicked, eBay wouldn't have to buy Skype. If it didn't, which it won't, then Meg could spend the $2.6 billion to $4 billion on a more worthy cause.

Over at Google, where there must be an equal or greater amount of hubris in the water supply, somebody hatched the idea of buying ads in magazines and then reselling bits of the pages to the merchants who pay 7 cents a click for Ad Words.

This piddling effort somehow is supposed to help Google diversify its $4.5 billion in sales. But I don't get it.

The good news is that this soon-to-be-proven-futile exercise will cost Google far less than the $2.6 million to $4 million that eBay is paying for Skype.

The problem with the eBay and Google projects is they illogically overreach the demonstrated capabilities of the companies and the scope of their brands.

The irony is that eBay and Google have tons of opportunity to build value by partnering with people who urgently need the know-how they can provide.

Specifically, eBay and Google ought to be working with print publishers and broadcasters to create rich online auction and advertising environments that will extend their reach and revenue. Although this will build audience and sales along the way for the legacy media companies, that's OK. The old-line companies represent no real competition to the online upstarts.

Not only would the partnerships create more business for everyone without cannibalizing anyone's existing sales and share, but it also would deter eBay and Google from making costly and embarrassing digressions into markets where they don't belong.

Until cooler and wiser heads prevail, however, it looks like hype, as in Skype, will carry the day.