Monday, November 24, 2008

One exec’s savvy take on the news biz

A nationally prominent investor offered a number of penetrating observations the other day about what ails the newspaper business. His rundown is worth a quick read.

:: A monopoly mindset: “The newspaper business basically grew up as a monopoly, and like every other monopoly, it built processes and approaches that reflected its monopoly status.”

:: Order taking vs. effective ad sales: “You need a Ph.D. in order to understand the rate card. In the days where the customer had no options, you could give him the rate card and say, 'Take it or leave it.' But today, that doesn't work. I think the newspaper industry truly still doesn't understand that it is in a business with customers, and the business must reflect the needs and demands of the customer.”

:: Order taking vs. effective ad sales, cont’d: “Every single newspaper has a cadre of salaried salesmen.... I've never seen any kind of a sales force that was effective if, in fact, they had no incentives.”

:: Giveaway subscription rates: “If you buy a newspaper from a vendor, you will pay 50 cents. But if you get it home-delivered, which costs the company 10 times as much, you pay 30 cents. I don't understand. Okay? I mean, you try and make those numbers work, and it don't make any sense.”

:: An outmoded concept of news: “When I grew up, the definition of 'breaking news' was [the newspaper delivered to] your front door…. Well, that's not the case anymore. Now, you hit your homepage, now you turn on CNN, or some other news-TV program, and that's how you find out what the latest news is.”

:: The chief competitive advantage: “Most…newspapers do not have a comparative advantage on international news…. On the other hand, [they] have staff and people and knowledge locally that nobody else has…. That’s the only thing I can't find from 10 other sources.”

:: The chief competitive disadvantage: “Eighty-six percent of the cost of the newspaper business is print, paper, distribution, and promotion. That's untenable long-term and short-term…. If you attack the problem and solve it, you then make newspapers a much more economic advertising venue. Right now, that infrastructure sets the floor. That makes newspapers uncompetitive.”

The executive is Sam Zell, who made the comments (available here in their entirety) at the recent Foursquare media conference in New York. 

While I don’t necessarily agree with the way he is addressing several of the issues and the debt on his precariously financed Tribune Co. is selling for as little as 9 cents on the dollar, you have to admit that he at least has identified the problems correctly.

13 Comments:

Anonymous Dave D. said...

...Mr.Zell has made a fortune turning around property that others couldn't make a go of. He has a good handle on what's wrong and the drive to fix it. But Sam is about to lose his butt in the Tribune deal. He's hated by the news employee's who have publicly rebelled against the changes he's made.
..It seems that a large number of newsmen don't think they should have to change, so they fight Mr. Zell and others. As he says in his piece, they don't see the connection with their job and the business that pays the bills.

8:31 PM  
Anonymous bevo said...

I do disagree about his comment and observation regarding rack sales, international news, and local news.

Rack sales. The customer who pays 50 cents for the paper probably does not buy the paper every day. They are paying for that convenience. They may only want a particular day or days but not the whole week. Why sell them the days they do not want?

The customer who takes home delivery has a contract. The circulation manager can then discount that steady stream of cash to determine how much the paper should spend to acquire that customer. If the circulation manager really knew his readership (and most don't), the he could build a customer lifetime value model.

If you have not a clue what a CLTV model is, then you have three choices. One, quit your job now and go sell shoes at Nordstrom's. Two, go get back to school and get an MBA in market research. Three, hire me as a consultant. My open rate is $600 an hour.

International news. Everything produced by CNN is junk. If you want to see fantastic international coverage watch CTV or CBC or BBC. CNN's international bureaus do not rival CBS' bureaus from the 1950s, 1960s, and 1970s. What do you know? Those were the days when CBS produce a first rate newscast that delivered value.

As a society, we have no idea why Russia and Georgia fought a border war. We have no idea what is going on in, let alone locate correctly, the former Soviet Central Asia republics. Only the Times and, to a lesser extent, the Post can effectively tell a story from outside our borders.

Local newspapers incorrectly and erroneously believe that their customers do not care or want to know about events that happen outside the US.

Wrong! Our young adults are dying daily because newspapers specifically could not leg out a story. They swallowed whole lies pedaled by the administration. Anyone who had bothered to read about the Middle East, take an international Poli Sci class, or get their information from non-US based media knew the Bush administration was lying from the get go about Iraq. But not our newspapers.

Now, we pay a price because publishers thought a wired out international page provided value.

Local content. When the zoning board grants Wal-Mart a new permit, what will happen to the current Wal-Mart building? Great question. Most local newspapers MIGHT mention the zoning board's new permit. No local newspaper will mention the second part.

Wal-Mart is the largest private landholder in America. Millions of retail square feet sit idle because Wal-Mart refuse to sell their vacant buildings (many are less than 10 years old) to many competitors. Have you seen that story in your local suburban journal?

What can you do with a 100,000 or 150,000 square foot that sits empty? How many suburban journals have written that story? The reporters at most of these local papers lack the knowledge to even begin formulating a hypothesis for such a story.

Fewer still can turn that hypothesis into a compelling story that customers want to pay money for.

In other words, Sam Zell, your papers deliver almost no value to your customers.

He is right about some of his points. He is wrong on other points. Given the financial situation at his properties, I am not sure why he is worth listening to.

8:34 PM  
Blogger Tim Windsor said...

So if I want to hire "bevo" for his valuable, $600/hour thoughts about CLTV, how can I do that if he posts anonymously?

On bevo's point about rack sales, I disagree. Under the new model, rack distribution should be free and home delivery - as a service - should be closer to actual cost.

4:09 AM  
Anonymous Anonymous said...

I agree with Zell's critique, most of which was said long before he arrived on the newspaper scene. But I also note that it's much easier to criticize than to create, or to fix. And Zell doesn't seem to be doing too hot a job on the creation or repair ends of the newspaper business.

4:37 AM  
Anonymous Dave D. said...

..Your last paragraph sums it up for the whole industry, Bevo. But Sam is in it for 1/3 of a Bil, so he has some body parts at risk. The Tribune employee's have a duty to embrace his vision, not fight it. No snark here, I assure you, but I'm interested in knowing of any newspapers you've improved or that have been made more wealthy by methods you endorse. Not in the past, but in this grim newspaper market. What's your way through the bleak forest.

5:38 AM  
Anonymous Anonymous said...

I think the newspaper industry can still be competitive. Maybe without so much actual paper. But I think, unfortunately, it needs to be razed and rebuilt from the ground up. The existing infrastructure is unsustainable. Most newsroom people will not change. Their absurd resistance to anything Internet is proof of that. Get rid of almost everyone - news, sales, production - and start from scratch. It's the only way.

7:43 AM  
Anonymous Anonymous said...

I have seldom seen a public figure assassinated by the press more effectively than Sam Zell. The reasons are clear, as he is pushing radical reforms that are long overdue, in my opinion. Unfortunately, I think he won't make it because of the virulence of this economic downturn. And that will only give his critics an argument that they were right and Zell was a disaster. But he has some very good ideas, and a monopoly industry used to counting its profits from having no competitors, needs to pay attention to what Sam Zell found when he tried to change the newspaper industry.

7:42 PM  
Blogger Alberto E. said...

In the extended interview Sam said “you can make a case that the world in the future is all Kindles, and you'll send out an email to everybody to their Kindle, and that's how they're going to get their newspaper every morning. That's a real possibility at sometime in the future.”
This morning I read that the current wait time for a Kindle is 11-13 weeks. Maybe the future is closer than we think…

8:13 AM  
Anonymous robert ivan said...

@Alberto
As a graphic communications professional, newspaper industry expert, graduate student at NYU, and basic all around 30 year old human being, I do not know ONE SINGLE person who owns a Kindle.

Total Sales as of Today's date:
240,000 Kindles
1,000,000 Zunes (microsoft’s mp3 player that no one owns)
6,124,000 iPhones
163,000,000 iPods

If newspapers want to latch onto another uninspired delivery platform, then by all means select the Kindle.

9:33 AM  
Blogger tgd said...

Re: the Kindle comments:

As if oft the case, the wisdom is in the concept, not the proper noun itself.

Robert Ivan's numbers make the case: While some of us of a certain age (cough me cough) initially thought it was an interesting device, my kids and their peers laugh at it. To them, it's a bulkier, less useful and more expensive version of their favorite device, the smartphone.

To the broader point, though, the Kindle is interesting as an example of delivering news, information and content to end users in whatever form and format they find it useful.

I'm still pessimistic - too many in the industry still think we publish a product, and too many think they're enlightened because they deign to talk to treating "the web" (in all its 2001 glory) as an equal partner to the real product.

12:04 PM  
Blogger Davisull said...

On Bevo's point: Sam's comment on "an outmoded concept of news" is not taken far enough. "News" cannot mean just "big stuff that happened." On that you indeed turn to television or some sort of headline agglomerator.

Newspapers have to learn that they should report the "what" in little space and the "why" in big space. As Juan Giner says, 80 percent looking forward, 20 percent looking backward.

2:41 PM  
Blogger Richard Wakefield said...

I will tell you the marginal economic value added per net pasid added for $150 per hour. I've done this for both weeklies and dailies.

For $600, the consultant should be able to sell newspapers as well as come up with value.

2:43 PM  
Anonymous CharlesR said...

Do daily newspapers -- or news media -- really have any leverage over major advertisers? I mean, advertisers have more efficient ways of reaching potential customers now. Plus all the loss of talent and experience in most newsrooms means that newspapers no longer pose a journalistic threat to "the business that pays the bills" (or offer a real value to readers who are looking for spit-in-yer-cheerios, hell-raisin' stories).

Cheap oil, transportation and telecommunications deregulation, the deterioration of labor's clout, Justice Department and FTC inaction on antitrust issues -- all beginning in the early 1980s -- set in motion the whirlwind we're experiencing today. Remember how second dailies in cities across the country failed back then, during the Reagan recession? By the Bush recession of the early '90s -- when so many dailies were owned by chains -- papers started cutting back on non-local coverage. I experienced that at my chain-owned paper, which once was a dominant player in a big region, when it started closing lots of bureaus, then created insipid community sections and weeklies. We suffered through wave after wave of consultants and charlatans, and spent a whole lot of time focused on internal dynamics -- and trying to reconcile the latest buzzwords with common sense. (At one daily our top editors organized themselves into an action team, then issued an action plan to the employees. First on the action plan: Every employee had to come up with an individual action plan. I did. I quit.) Because I'm starting to ramble, I just want to get to the point: Most daily newspapers, Mr. Zell, have been struggling to give advertisers what advertisers wanted for as long as I can remember. And that's precisely why so many daily newspapers are in real trouble now -- the ownership, in the effort to cut costs, allowed themselves to become irrelevant. I expect a lot of newspapers will fold in the next 18 months. The ones that have any hope of riding out the storm need to find creative ways of maintaining and growing quality editorial.

8:58 PM  

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