Net beats papers as top news source

The Internet for the first time has beaten newspapers as a preferred destination for news, according to the Pew Research Center for People & the Press.

“The Internet, which emerged this year as a leading source for campaign news, has now surpassed all other media except television as a main source for national and international news,” Pew reported yesterday.

Forty percent of those responding to a survey conducted earlier this month said they got most of their news from the web, while only 35% cited newspapers. In September, 2007, a similar poll found that 24% favored the Internet and 34% preferred newspapers.

“For the first time in a Pew survey, more people say they rely mostly on the Internet for news than cite newspapers,” said the non-profit polling organization. “Television continues to be cited most frequently as a main source for national and international news, at 70%.”

The Internet is an even more commanding source of news for young people. Fully 59% of Americans under the age of 30 named the Internet as their favored source of news, while only 28% cited newspapers. Pew’s records show that young people have preferred the Internet over print since at least as far back as August, 2006, when the spread was 32% for the Net vs. 29% for newspapers.

The unmistakable trend for the population as a whole is shown in the graph below.

How debt did in America’s newspapers

The stock of Lee Enterprises was worth about $1.5 billion when the company borrowed almost an identical amount of money to buy the Pulitzer newspaper group in the summer of 2005. Today, Lee’s shares are worth only $13.5 million.

That’s right: $13.5 million. Thus, the stock in this once well regarded company has dropped by more than 99% in 3½ years, vaporizing more than $1.5 billion in value as investors fled in fear the company would default on its debt and render their shares worthless.

Lee is but one example of what happened to many publishers who borrowed too much money to fund ambitious acquisitions between 2005 and 2007, taking advantage of the then-juicy profitability of newspapers and the once-easy access to abundant, relatively cheap debt.

Had the newspaper industry continued to thrive in the last three years in the way it had for the decades since World War II, the executives who engineered these transactions would look like heroes today. But that’s not how things worked out.

Shareholders, lenders, readers, employees, former employees and soon-to-be-former employees are paying the price for acquisition strategies that loaded several publishing companies with debt they cannot handle today because industry sales have dropped by 25% since 2005 and profits have dried up despite desperate efforts to throttle expenses.

The first major newspaper bankruptcy already has occurred. Less than a year after it was taken private by Sam Zell, the Tribune Co. filed for protection from creditors owed a staggering $12 billion. Stock in the company, whose shares were worth $8.2 billion when Zell bought it 366 days ago, is worth nothing today.

Beyond Lee and Tribune, publishers struggling with too much debt include Journal Register Co., GateHouse Media, McClatchy, MediaNews Group, Minneapolis Star Tribune, Morris, New York Times Co. and Philadelphia Media Holdings. The details in each case may be different. But the story is the same.

Long one of the most rigorously managed companies in the industry, Lee today is struggling to avoid default on $1.4 billion in debt, the unpaid remainder of the money it borrowed to finance the acquisition of the St. Louis Post-Dispatch and 13 other papers in 2005.

The company also is in danger of becoming the fourth newspaper publisher this year to be booted off the New York Stock Exchange because the price of its shares has fallen below the required minimum.

Lee’s shares closed Friday at 30 cents apiece, far below the $1 minimum required for continued listing on the Big Board. The stock has been trading below the minimum for about half a month. If the price fails to reach $1 for 30 days in a row, the stock will be banished to the Pink Sheets, where it will join GateHouse, Journal Register and the Sun-Times Media Group, whose shares closed Friday respectively at 5 cents, 0.4 cents (that was not a typo) and 4.5 cents.

This is a vastly different outcome than anyone expected when Mary E. Junck, the chief executive of Lee, proudly announced that she had bought Pulitzer in January, 2005.

Noting that the acquisition would more than double the sales of her prospering company, she said “the acquisition of Pulitzer allows us to take an exciting and logical next step into another exceptionally attractive group of markets.”

Although this purchase took Lee’s debt higher than it ever had been, Mary said she was “confident that the combined cash flow of the business will enable us to return quickly to an investment- grade profile,” adding that this deal is “exactly the kind where we excel as an industry leader in building revenue and circulation.”

For a short while, the acquisition worked as planned. Newspaper advertising revenues hit an all-time industry high of $49.4 billion in 2005, but began a slow slide in April of the following year that since has turned to an absolute avalanche. Ad sales are on track this year to come in at $38 billion or less, representing a 25% decline from where they stood in 2005.

Twenty-five percent is a magic number for most newspapers, because it is pretty close to the industry’s traditional average operating profit. Newspapers and their lenders were counting on margins of that magnitude, or better, to repay their hefty borrowings.

As sales began decaying, papers tried to cut expenses fast enough to preserve their profits. But the accelerating sales decline – and uncontrollably accelerating expenses in areas like newsprint, fuel and employee benefits – has overwhelmed even the most draconian cost cutting, severely curtailing profits. Lower profits mean that newspapers are not generating the money they need to repay their loans.

Today, companies like Lee either are out of compliance with the terms of their loans – or close to defaulting on them.

In some cases, the papers literally do not have enough cash to pay the sums they owe. In other cases, the publishers are failing to comply with the myriad technical conditions in their loans that prescribe things like a minimum stock value or certain ratios of profitability to debt. A default on these so-called technical terms can trigger sanctions as severe as the failure to make a timely payment on a loan.

In Lee’s case, the falling value of its stock – occasioned by mounting investor concerns that it would default on its debt – forced the company earlier this year to declare as a loss about half of the $1.46 billion it spent to acquire Pulitzer.

Last week, the company said the same accounting rules that forced the first writeoff will require it to declare a loss on at least another $180 million of the value of the Pulitzer deal. In that event, Lee will have been forced to write off some $900 million, or 62%, of the money it spent on Pulitzer. The final figures are being calculated and likely will be announced by the end of the year.

Even though Lee generated $211 million in operating profits on sales of a bit more than $1 billion in the last 12 months, the company said the plunge in the value of its stock is likely to put it out of compliance in the spring with the requirement in a $306 million note that the company maintain a mininmum net worth higher than it is today.

Lee is hoping to persuade creditors to relax the net-worth provision of the note. If the company fails to do so, a default of that note automatically would trigger breaches of some of the company's other debt, too.

The severity of the situation is underscored by a warning from Lee’s auditors that they may have to add a statement to the company’s annual report questioning its “ability to continue as a going concern.”

In plain langauge, that means auditors are worried that the Lee's debt load threatens its ability to remain a healthy and sustainable business.

And remember, Lee is not alone. It is but one of several publishers who are, more or less, in the same wobbly boat.

‘Shutdown’ was the alternative in Detroit

The decision to abandon seven-day home delivery in Detroit was not a bold strategic initiative but a last-ditch effort to save two failing newspapers, according to one former Gannett executive.

“The choice was to shut down or to try to salvage the newspaper,” said the former executive, who was familiar with the months-long deliberations earlier this year that resulted in the decision to scrap home delivery four days a week at the Detroit Free Press and the Detroit News.

The radical plan, which is likely to cost some 190 people their jobs by March, was not as much a carefully conceived business decision as it was an act of desperation, said the executive, who declined to be identified because he did not want to compromise continuing business relationships.

“They cut all they could,” he continued, recounting high-level management discussions that took place over the summer. “We saw the papers as continuing to deteriorate – and that was before Lehman Brothers” collapsed and the global economy melted down.

Home delivery will be confined to Thursday, Friday and Sunday by the end of March under the plan announced today by the Detroit Free Press, the Detroit News and the agency that handles ad sales, production and delivery for both competing papers.

“Compact” print editions of both papers will be available at retail outlets on days when home delivery is not available, said the executives announcing the changes A digital replica of the compact print edition will be delivered to subscribers via email for $12 a month (CORRECTED from earlier post which said $12 per week.)

Gannett owns the Free Press. MediaNews Group, which in part is financed by Gannett, owns the News. The papers, in turn, own the Detroit Media Partnership, the agency that administers their joint operating agreement.

The restructuring will result in the elimination of the jobs of approximately 9% of the 2,100 people employed at the newspapers and the newspaper agency, said David Hunke, the president of the agency. He said final numbers would be detemined after negotiations with the several unions representing the workers.

(Separately, it was reported today that MediaNews is seeking $20 million in concessions from the unions at its troubled newspaper operations in Denver.)

While Dave and the editors of both papers promised “vastly improved” digital products to satisfy the evolving information needs of their customers, they offered few concrete details of what new products were in the offing. The live webcast of their news conference was interrupted by repeated lapses in the transmission.

Although the executives tried to put the best face on the situation, the mood was decidedly downbeat. The low point came when Detroit News editor Jonathan Wolman described the present situation as “unsustainable.”

Though intermittent home delivery may save money in the near term, it poses two potentially fatal risks in the long run:

:: Significantly reducing daily newspaper consumption among the most loyal print readers.

:: Triggering a further erosion of already weak print advertising revenues.

“Once you get readers out of the everyday habit of reading a paper, you will lose them forever,” one former Gannett circulation executive said here last week. “Newspaper readership already is declining. If the newspaper only shows up on Thursday or Sunday, your customers will lose the newspaper habit and change to another medium.”

Radical as the restructuring may appear to be, the newspapers remain saddled with certain large and inescapable costs, said Alan Flaherty, a nationally recognized newspaper production expert.

“Nothing they do at this point can mitigate the cost of owning the $170 million (or maybe more) plant that they occupied in about 2005,” said Alan in an email. “At 7.5% interest and a 15-year life, the $170 million investment represents a weekly capital lease expense of $370,000.” That’s a bit less than $20 million per year.

Now, more press capacity than ever is likely to be idled.

“Part of the Detroit issue will be how much of the distant circulation they find it cost-effective to retain,” said Alan. “They've got about 70,000 in two-paper daily circulation (about 14% of total) more than 50 miles from Detroit. That's high. I don't think servicing all those customers will withstand the current financial crunch. Figure a loss of maybe 25k circ beyond the retail trading zone.”

With the distribution footprint reduced and home delivery truncated, circulation revenue likely will deteriorate.

With three-day-a-week home delivery, “circulation revenue will plunge to a nearly negligible level,” he said. “People won't pay much to receive a product that will be perceived more as an ad vehicle than anything else.”

Other newspaper executives reacting to the decision fear that the value proposition to advertisers will be compromised.

Not only do newspapers need significant penetration in their designated market areas to continue to appeal to advertisers but they also increasingly must prove to advertisers that the people taking the paper are committed and consistent subscribers.

“The home-delivery customer always has been the value proposition for advertisers,” said a circulation executive who asked not to be identified because of conflicting business relationships. “Historically, single-copy sales were seen as being less valuable than home delivery. How are you going to change that message now?”

The press released issued by the Detroit papers shrewdly included strong endorsements for the restructuring plan from several advertisers. “This is exciting, feels great and goes a long way in preserving the viability of newspapers," said Tom Lias, president of Gorman's Home Furnishings, who was quoted in the press release.

Rather than scaling down two struggling newspapers to make them into a pair of weak sisters, Alan Flaherty believes the wiser choice would have been to shut down the Detroit News.

“I can't figure out why closing the News was not part of the next phase in cost-cutting,” he said. “Does the second news operation result in enough incremental readers to justify its cost? If it doesn't, then closing one title would have been the easy choice in the current extremis position.”

The Gannett Blog reports that MediaNews is in line for a guarateed profit payment of $4 million annually through 2009, which continues for a number of subsequent years at a steadily diminishing amount. If so, then MediaNews would have no motive for closing the News without a buyout from Gannett.

In light of the above, Alan thinks today's announcement may be part of “some kind of a tug-of-war between Gannett and MediaNews that is playing out behind the scenes.”

That sounds about right.

Get ready for some really cheesy TV

As the newly appointed chairman of the Federal Communications Commission in 1961, Newton Minow gave a landmark speech decrying television as a “vast wasteland.”

It didn’t help. TV programming got only worse in the intervening 47 years.

Now, as difficult as this may be to contemplate, television is about to become even cheesier, thanks to NBC’s decision to slot Jay Leno into a 10 p.m. talk show on every weeknight.

The decision, which was made for unabashed financial reasons, will turn NBC into the lowest-cost producer in the final hour of prime-time programming an an age when audiences are shrinking and revenues are weakening.

NBC’s talk-is-cheap strategy inevitably will encourage the competing networks to move to other forms of low-cost, prime-time programming, such as so-called reality shows featuring sweaty amateur gladiators, grainy police-chase videos, singing baristas and similar mindless junk.

But what can a network do in these economically uncertain times?

“We do have to continue to rethink what a broadcast network is,” said NBC boss Jeffrey Zucker last week, as reported in the New York Times. Without changes, he added, “the broadcast networks will end up like the newspaper business, or worse, like the car companies.”

Even though Leno makes some $30 million a year, the economics of his show are far superior to those of a traditional drama like CSI or Grey’s Anatomy.

A network pays $3 million to $5 million for each episode of a typical TV drama. Depending on how much NBC pays Kevin Eubanks and the rest of the crew, the per-show cost of the Leno show would come in at about a tenth the cost of the cheapest drama.

In his speech to the National Association of Broadcasters in 1961 (text and audio here), Newt Minow reminded the crowd that the television “possesses the most powerful voice in America.” And then he lowered the boom:

“I invite each of you to sit down in front of your television set when your station goes on the air and stay there, for a day, without a book, without a magazine, without a newspaper, without a profit-and-loss sheet or a rating book to distract you. Keep your eyes glued to that set until the station signs off. I can assure you that what you will observe is a vast wasteland.”

Now, it’s about to get vaster. If you want to see what you will be missing, check out the following clip from the 1961 hit, “Sea Hunt.”

A copycat in the Blagosphere

The artwork dominating the front page today of the Chicago Tribune wasn’t just weird. It was a badly executed knockoff of a clever graphc published a few days earlier in the New York Times.

As you can see from the illustrations below, someone at the Trib superimposed a bar code over a profile of Gov. Rod Blagojevich for a story discussing political corruption in Illinois.

But the arresting image of the recently arrested governor wouldn’t make a lot of sense to a reader who didn’t have the benefit of seeing the original concept four days earlier in the Times. In the original, which accompanied this article, the tiny caption on the bar code says “Illinois Senate Seat.”

As proven in the declining quality of each successive Indiana Jones movie, sequels rarely live up to the original. This was no exception to the rule.

Editorial cartoonists, endangered species

Editorial cartoonists, the last of the truly ink-stained practitioners of journalism, rank among the most endangered, too.

Nearly a fifth of these uniquely talented newsfolk fell victim this year to staff cuts, reports Rob Tornoe of Politicker.Com, who believes he is the only full-time editorial cartoonist employed at any website.

At least 16 full-time editorial cartoonists have departed American newspapers this year, says Rob, leaving about 80 still on the job. If the Rocky Mountain News goes down, which unfortunately seems a forgone conclusion, two more would be added to the toll, representing an 18.7% reduction in the population of this group.

If you assume that publishers on average trimmed about 10% of their work forces in 2008, then the job-mortality rate among editorial cartoonists is nearly twice as high as it is for reporters and editors.

In a interview this weekend with Lee Judge, who recently was laid off at the Kansas City Star, NPR reported that there had been as many as 300 editorial cartoonists in the 1980s. "It's pretty hard to find a new job when your resume says you are a professional smart ass," says Lee in the interview.

Lee's ability to crack wise in spite of his decidedly unamusing personal circumstances is what makes editorial cartoonists such a rare species. They have harder jobs than the rest of the people in the news business, because they not only have to come up with a fresh angle on the news but it have to make it funny, too.

They also also have to be able to fittingly caricature their subjects. For a guy who can’t even color inside the lines, I am gobsmacked by what they can do.

Here’s Rob’s list of the 15 cartoonists who, beyond Lee, left their newspapers this year:

:: Jim Lange – Oklahoman, involuntary early retirement

::Chip Bok – Akron Beacon Journal, voluntary buyout

:: Peter Dunlap-Shohl, Anchorage Daily News - voluntary buyout

:: Jim Borgman, Cincinnati Enquirer - voluntary buyout

:: Don Wright, Palm Beach Post - buyout/retirement

:: Stuart Carlson – Milwaukee Journal Sentinel, - forced buyout

:: Dwane Powell – The News Observer, voluntarily departure instead of downgrade to part-time status

:: Richard Crowson – Wichita Eagle, laid off

:: Dick Adair – The Honolulu Advertiser, laid off

:: David Catrow – Springfield News-Sun, voluntarily left for other work

:: Jake Fuller – Gainesville Sun, laid off

:: Dave Granlund – MetroWest Daily News, laid off

:: Brian Duffy­ – Des Moines Register, laid off

:: Steve Greenberg – Ventura County Star, laid off

::Eric Devericks – Seattle Times, laid off

If the Rocky Mountain News goes under, two more would be added to the list, says Rob. They are news cartoonist Ed Stein and sports cartoonist Drew Litton.

Like his print brethern, Rob often finds a way to extract humor from even the grimmest situations. Here's his deft take on the heavy toll of layoffs in the newspaper industry:

Questions about Decherd’s 140% raise

Not everyone in the newspaper business is suffering equally though the most difficult time in the industry’s history. Robert W. Decherd, for one, is doing pretty well.

The chief executive of A.H. Belo Corp. recently got a 140% pay raise that will boost his base compensation to $600,000 a year from $250,000 in 2007, according to the Dallas Morning News, his flagship newspaper.

Given that Bob’s company recently froze salaries and pared 13% of its work force, I repeatedly tried to reach him this week to ask about the justification for, and timing of, his big pay bump.

But a woman answering the phone in his office said he was too busy to come to the phone and his corporate spokeswoman said he would have no comment on any questions I might have.

Not wanting a list of good questions to go to waste, I have decided to feature Bob in the first of an occasional series of Empty-Chair Interviews with key industry leaders. Here is the inaugural installment:

Q. In a memo to your colleagues at the company in October, you said: “As of Nov. 1, salaries will be frozen at current levels in most instances until the company returns to profitability.” In light of that policy, how did you get a 140% raise?

A.

Q. Since A.H. Belo began trading as an independent company in January, the value of its shares have fallen from $16.35 on Jan. 2 to close yesterday at $1.71, representing a decline of 89.5% that has wiped out some $222 million in shareholder value. The principal job of a CEO is to increase shareholder value. If the performance of any other employee in your company fell short to this degree, would he or she be getting a 140% raise?

A.

Q. In the first nine months of the year, the operating profits of your company plunged by 99.8% to $156,000, according to your most recent financial statement. In the interests of improving shareholder value, a major responsibility of the CEO is seeing to the profitability of the company. If any other employee in your company fell short in his duties to this degree, would he or she be getting a 140% raise?

A.

Q. In a memo to shareholders in October, you stated that you intended to eliminate 502 jobs in the company to reduce the work force by 13% to save $30 million a year in payroll. This suggests the average pay for a Belo employee is about $60,000. If you had not taken a $350,000 raise, nearly six people still would have their jobs today. Instead, those six people are trying to find work in the most depressed economy since the 1930s. Does it bother you that those six people, not to mention all the others, lost their jobs so you could get a 140% raise?

A.

Q. At $600,000 per year, you will be getting paid 10 times more than the average Belo employee. Can you explain what you do that makes you 10 times more valuable than those workers?

A.

Q. When you appeared last week at the UBS conference for media investors in New York, you did not seem to know the answer when one financial analyst asked you the circulation of your newspapers (podcast). After conferring with one of your colleagues, you said the Dallas Morning News has circulation of “about 325,000,” whereas it is 338.9k daily and 483.8 on Sunday. You said circulation at the Riverside Press Enterprise is “under 200,000,” whereas it is 149.6k daily and 160k on Sunday. You never gave an answer for the Providence Journal, which happens to be 131.6k daily and 186.6k Sunday. Don’t you think someone being paid $600,000 a year to run a handful of newspapers ought to know their respective circulations?

A.

Q. At the UBS conference, you stressed the quality of the company’s newspapers several times but also mentioned in passing that the compnay will “have to get past content generation.” What does that mean?

A.

Q. Do you see any tension between taking a large raise and the fair-dealing section of your company’s code of ethics which states, in part: “Directors, officers and employees should endeavor to deal fairly with A. H. Belo’s customers, suppliers, competitors and employees”?

A.

Motown madness: Home delivery cut

The reported plan to cut home delivery to just a few days a week at the Detroit dailies does not merely tweak the classic newspaper model. It eviscerates it, perhaps mortally.

While this bold initiative may restore the short-term profitability of the Detroit Free Press, the Detroit News and the joint operating agency that serves them, the experiment in non-daily home delivery could well be self-defeating in the long run.

Because these indeed are the most desperate times for newspapers in the 300-year history of the industry in the United States, it is understandable that some publishers may contemplate desperate measures.

But there is no logic to the widely reported plan that the Detroit dailies will restrict home delivery to Thursday, Sunday and perhaps one other day of the week. While papers on the other days of the week presumably would be available for single-copy purchase, the speculation is that the Detroit dailies would restrict the availability of free content on their websites and charge for access to a day’s full news report.

Gannett owns the Free Press, which is reported by the Gannett Blog to be preparing to eliminate 300 jobs. MediaNews Group, which in part is financed by Gannett, owns the News.

In moving to intermittent home delivery, the Motown papers run two potentially fatal risks:

:: Significantly reducing daily newspaper consumption among the most loyal print readers.

:: Triggering a further erosion of already weak print advertising revenues.

“Once you get readers out of the every-day habit of reading a paper, you will lose them forever,” said one former Gannett circulation executive who was appalled by the news from Detroit.

“Newspaper readership already is declining,” he continued. “When you break someone’s daily habit, he will go to other media for news and information. If the newspaper only shows up on Thursday or Sunday, your customers will lose the newspaper habit and change to another medium.”

Nationwide, newspaper circulation has fallen back to the level last seen in 1946. Only 18% of the Americans buy a newspaper today, as compared with 36% in 1946, when the nation’s population was half as large as it is today.

It is axiomatic that declining circulation will lead to further reductions in print advertising sales. Even at today’s depressed level, print advertising delivers some 90% of the industry’s revenues. Interactive advertising produces the balance of sales and there is no proven model for funding newspaper-style reporting with web-only revenues.

Not only do newspapers need significant penetration in their designated market areas to continue to appeal to advertisers but they also increasingly must prove to advertisers that the people taking the paper are committed and consistent subscribers.

“The home-delivery customer always has been the value proposition for advertisers,” said the circulation executive, who asked not to be identified because of conflicting business relationships. “Historically, single-copy sales were seen as being less valuable than home delivery. How are you going to change that message now?”

Last but not necessarily least, intermittent home delivery would appear to be a practical nightmare for any publisher.

“It’s hard enough to get reliable carriers if they work every day of the week,” said the circulation executive. “If they are only working two or three days a week, you will be hiring part-time part- timers. How reliable will they be? What kind of service can they provide?”

Poor service, he added, would lead to a rising tide of subscription cancellations. And falling circulation would further crimp ad sales sagging under secular declines in emloyment, auto and real estate advertising.


In the reports of not-every-day delivery are true, the papers in Detroit may be about to kick off a self-fulfilling cycle of decline that eventually may consume them.

Attorney suing Tribune cites pension risks

It is not clear that all employee pension funds at the Tribune Co. emerged “unscathed” in the bankruptcy filing, said the attorney for a group of employees suing Sam Zell over the takeover and subsequent management of the company.

Philip L. Gregory, who filed a class-action suit in September charging mismanagement of the employee stock ownership plan that was created to help fund the acquisition of the company, said an annual payment to the ESOP on behalf of the company’s workers remains in limbo as a result of Monday’s bankruptcy filing.

The payment, which was supposed to be made in the first part of 2009, would be equal to 5% of the annual pay of the employees covered in the plan in 2008. Based on my estimate that annual compensation averages $75,000 for the company’s 18,000 employees, the sum in question would appear to be approximately $67 million.

As a result of the bankruptcy filing, it is not clear whether the payment will be made, said Philip. If the payment were made, however, it would be for naught, because “the ESOP will have zero value going forward,” he said.

Because the employee contribution to the ESOP had not been funded prior to the bankruptcy, the Wall Street Journal concluded this morning that Tribune's workers “emerged largely unscathed.”

But Philip takes issue with that.

“While employees have not lost anything because no contributions were made yet to the ESOP, they all worked for the last year on the assumption that a certain percentage of their salary would be contributed to the ESOP,” he said. “If no contributions will be made, then they will have lost the value of that pension contribution.”

While the portions of his lawsuit directed at Tribune Co. will be stopped by the bankruptcy action, Philip said he intends to go “full speed ahead” with his challenge to GreatBanc Trust Co., the trustee designated to manage the ESOP on behalf of the employees.

The complaint filed in federal court in California accuses the trustee of failing to exercise proper fiduciary responsibility in representing the interests of the employees.

Despite three requests for comment on this post, Tribune spokesman Gary Weitman had no immediate comment on the concerns expressed by the attorney. But he did object to the publication of the post, saying in an email:

“You just gave this guy a platform and offered no analysis or counterpoint to what he said. Come on. The WSJ ran a considered story that examined the facts and analyzed the retirement plans. This guy clearly has an agenda and you just helped him further it, just because he ‘said it.’ So much for journalistic integrity. You should be ashamed.”

Breaking out the wood for Blago

Newspapers went all out today to billboard the arrest of the goofball governor of Illinois, ginning up elaborate graphics and coining clever (but not always coherent) headlines.

However, the traditional front-page treatment was the most effective in the state where Lincoln is feared to be rolling over in his grave.

Reporting on the pre-dawn arrest of Gov. Rod Blagojevich, the Rockford Register Star broke out the wood to run a bold, black, eight-column, all-cap, page-one banner that said it all: “BLAGO ARRESTED.”

Breaking out the wood, btw, is an expression from the days when newspapers were composed with hot type. The fonts used in headlines larger than 120 points (a bit less than two inches) generally were carved out wood, because lead type would be too heavy to lug around. When a big story called for a big headline, editors would say they were going to break out the wood.

Fast forward to today.

Beyond cosmetics, the other remarkable feature of the coverage at the Register Star was a jumbo graphic smack in the middle of the front page featuring the governor’s autograph scrawled across the editorial the newspaper ran to endorse him when he first ran for governor in 2002.

“Dear Wally, I won’t let you down” said a hand-written note accompanying the autograph. According to the newspaper, the note was sent to editorial page chief Wally Haas shortly after it originally ran.

In publishing the autographed editorial, the newspaper not only captured the bitter irony of the governor’s downfall but also owned up to its modest role it putting Blago into office in the first place.

This sort of transparency for a newspaper is as refreshing as it is rare. It’s also the sort of thing that lets a paper stand tall in a community, even when it took a position that it wishes it could take back.

‘No pressure on me,’ says Trib editorialist

John P. McCormick, today may have the most secure employment of anyone at the Tribune Co., or anywhere else in the newspaper business.

He is the sole individual named in the affidavit charging that Illinois Gov. Rod Blagojevich bluntly demanded the firing of certain editorial writers in return for the governor’s support of a plan to finance Wrigley Field, the home of the Chicago Cubs. The plan never went forward.

“Fire those fuckers,” Gov. Rob Blagojevich is quoted as saying in an affidavit filed after he and his chief of staff were arrested on corruption charges in co-ordinated raids at 6:15 a.m. today at their respective homes.

John (left) was the only editorial writer identified by name in the statement laying out the charges against the governor, who also is accused of trying to shake down individuals hoping to be appointed to fill the Senate seat being vacated by President-elect Barack Obama.

Despite suggestions in the affidavit that a “financial representative” of the Tribune Co. would carry the governor’s demands back to management, John said in an email today that no one at Tribune Co. ever sought to influence the tough stance taken by him and his colleagues against Blagojevich.

“No,” said John in response to a question about feeling any heat from management. “No one in any capacity at the Tribune, its parent company, its financiers, nobody” tried to influence him.

John said he had no inkling of the pending arrest of the governor or that his name would emerge in the affidavit. “I knew nothing about any of this until this morning, when, en route to work, I heard a radio bulletin that the FBI had taken the governor of Illinois into custody,” he said, adding:

“None of us yet knows all the details of what is alleged to have occurred in this squeeze play. What I do know is that no pressure reached me, or my boss Bruce Dold, or his boss, Tribune editor Gerry Kern. The feds say somebody wielding power and money tried to muscle Tribune Co. at a difficult time for our industry – and didn't get away with it. The Tribune Co. was the object of a huge extortion attempt and didn't budge. ”

John’s account was echoed by Gerry. “No one within Tribune Co. has ever complained to me about the positions taken by our editorial board or attempted to influence our coverage of the governor in any way,” he said in a press release. “It should be clear to anyone reading our recent coverage of the governor and his administration that it is fair, balanced and factual.”

As for John, he says, “I hope I'll still be able to report and write about public corruption.”

From his seemingly safe perch at Tribune Tower, it looks as though he’ll have an ample opportunity to do so as the trial of the foul-mouthed governor unfolds.

Can Tribune Co. survive bankruptcy?

The good news is that today’s bankruptcy filing won’t make things much worse for the Tribune Co. The bad news is that the filing won’t improve things, either.

While bankruptcy protection in an ideal case enables a struggling company to restructure its debt, streamline its business and put itself on a sounder footing for the future, it’s hard to imagine how the newly unburdened Tribune Co. can improve its long-term prospects in the most toxic environment in history for newspapers.

In filing for bankruptcy in a federal court in Delaware, Tribune has erected a firewall between itself and the creditors who are owed some $12 billion. The company took the step because “we have too much debt in light of [a] dramatic and unexpected decline in revenues, which has been amplified by the current recession,” according to a statement posted in a QandA at its new bankruptcy information website.

Now that Tribune is under court supervision, it not only will be protected from its creditors but also will have the right to walk away from unnecessary leases on real estate, equipment and vehicles. It will be permitted to renegotiate bills owed to vendors of everything from newsprint to paperclips, likely enabling debts to be settled for cents on the dollar.

Wages, benefits and other obligations to employees usually are unaffected by a bankruptcy filing, but union contracts in some cases can be altered or abrogated.

Many employees who took buyouts in the last year got lump-sum payments but some people who were discharged more recently may be affected by the company's decision to discontinue pending severance payments, deferred compensation and certain other payments to former employees.

Outstanding payments to former employees will be subject to "later proceedings before the court," according to an internal statement quoted by LA Observed. Among those payments are some multmillion-dollar packages owed to former Times Mirror executives.

Bankruptcy typically wipes out the equity investors in a business. In this case, that would include Sam Zell, who ponied up $315 million to gain control of a company valued at $13.5 billion when he took it private a mere 353 days ago.

But the equity wipeout also may include the amount invested on behalf of the “about 20,000” employees who are members of the Employee Stock Ownership Plan that Zell created to enhance the tax efficiency of the transaction that netted him a company for which no other credible buyer emerged. Most of the retirement funds of Tribune employees are not invested in the ESOP, because the plan has been in existence for barely a year.

Tribune promises to take advantage of bankruptcy protection “to use our great brands and the enormous talent of our people to create a fresh, entrepreneurial company that rewards innovation and creates sustainable, relevant information products for our customers and communities.”

That sounds great. But there has been no evidence over the last year that Zell or the shock jocks he dispatched to run the company have any ideas about how to arrest the long-running decline in newspaper advertising that – significantly – predated their ownership. The decline has accelerated this year in the worst recession since the 1930s.

Fixing the Tribune would be a tall order for any management team, but it already has proven to be well beyond the capabilities of the incumbents. Far from effectively using Tribune’s brands, market power and talented staff, the Zellistas have terrorized the company through successive layoffs and pointless vindictive tirades.

The question now is whether the floggings will continue or whether the company – unshackled from an unconscionable debt load that bankers never should have sanctioned – will be truly free to try to invest in the innovative niche print, online and mobile products that could save its wasting franchises.

Or, will the Zellistas continue to strip-mine Tribune Co. until there is nothing left but the squeal?

Randy Shilts, the conscience of Castro Street

If you see the new movie about Harvey Milk, the brave and talented man who became one of America’s first openly gay elected public officials, take a moment to remember another San Francisco legend: Randy Shilts, the first openly gay reporter for a major American newspaper.

Randy, who for 13 years was one of the stars of the San Francisco Chronicle, literally wrote the book on Harvey Milk, the subject of the acclaimed new Sean Penn movie, “Milk.” Randy’s book is titled “The Mayor of Castro Street.”

But Randy’s most enduring achievement is that he is the journalist who forced the world to pay attention to AIDS despite the indifference of the general public and the animosity of many of the people who were most vulnerable to the disease.

Even though Acquired Immune Deficiency Syndrome to date has claimed more than 2 million lives and the epidemic has infected some 33 million people around the world, who knows how much worse things would have been if Randy had not taken the initiative in the early 1980s to sound the alarm about the then-unknown disease?

Like Harvey Milk, who was shot to death at the age of 48 by a fellow city official in 1978, Randy also died way too young. He was only 42 when he succumbed in 1994 to the disease he dedicated himself to battling well before he knew he had it himself.

Through his tireless, passionate and spot-on reporting about this mysterious and frightening disease, Randy identified AIDS as a public health issue that demanded serious scientific research and immediate government attention. After sounding the early warning about AIDS, Randy later wrote “And the Band Played On,” the definitive book tracing the history of the disease and the early failure of scientists and society to respond rapidly to the threat.

To understand the enormity of Randy’s achievements, you have to understand that AIDS was not a subject most people wanted to hear about when it first came to light in he 1980s as an inexplicable syndrome that overwhelmed – often fatally – the immune systems of gay men. In fact, the original name for the disease was GRID, which stood for Gay-Related Immune Deficiency.

Because the disease initially was believed to affect exclusively homosexuals engaged in activities many people could not bear to contemplate, the subject was not considered fit for serious inquiry among most medical researchers, government officials and newspapers or broadcast outlets.

The topic was off-limits, as well, in large parts of the gay community, where many individuals either wanted to deny or cover up the problem. That’s because AIDS drew unwelcome and unfavorable attention to the gay community at a time it was making significant progress toward reversing decades of unwarranted prejudice and discrimination. (The battle continues to this day, as demonstrated by the passage last month of a shameful amendment to the California Constitution forbidding marriage between two people of the same gender.)

While AIDS quietly scourged the gay community in San Francisco in the early 1980s, few people had the standing – or the inclination – to draw attention to the problem. Few people, that is, except Randy Shilts, who fortuitously had been hired by the Chronicle in 1981 at almost the same time a bulletin to public health officials published an article about an unusual outbreak of a rare form pneumonia in a group of gay men in Los Angeles.

David Perlman, the indefatigable science editor at the Chronicle who last week marked his 90th birthday while working at his desk at the newspaper, spotted the bulletin and wrote what is believed to be the first story in the mainstream media about the emerging medical mystery.

The story resonated with Randy, because he had been observing similar cases of the rare pneumonia in the gay community in San Francisco, recalled Dave in a Chronicle podcast commemorating Randy’s achievements. “Randy was the first reporter who could see it would not be simply a gay disease,” said Dave.

While Randy never doubted the significance of the story or his ability to cover it, he first had to gain the confidence of the editors who had hired him to cover gay issues to broaden diversty in the newsroom.

Even though this was San Francisco in 1980s, many of the men in the surprisingly buttoned-down newsroom were nervous about working with the ebullient guy sporting bright flowered ties, loud suspenders and an ostentatious mane of curly blond hair. A few were downright hostile.

At a Newspaper Guild meeting a year or so after Randy joined the staff, he rose to argue for the importance of health benefits for domestic partners. “One of his colleagues shouted, ‘Sit down, you little faggot,’” recalled Jerry Roberts, who later rose to be the managing editor of the newspaper and just wrote a terrific piece fact-checking the Milk movie. “Nobody stood up to defend Randy, who left the meeting in tears, which tells you something about the enlightened views of the S.F. press corps about gay rights at the time.”

Assigned to the 2 to 10 p.m. shift as a general-assignment reporter, Randy soon began producing important enterprise stories.

“The one I remember from pre-AIDS fame was a series he put together on police brutality, pulling together lots of public records about a batch of cops who consistently got disciplined…for excessive force,” said Jerry. “His original tip came from complaints from gays about being hassled by cops. By the time he was done, it was in no way, shape or form a ‘gay piece,’ just a good, solid investigation of an under-the-radar problem in city government that affected everyone.”

The strength and accuracy of Randy’s reporting – augmented by his enormous personal charm – soon gained him the respect of his colleagues and the confidence of his editors.

He needed it, too, because he not only had identified a major public health problem but also had a fairly radical solution for it. He wanted city officials in San Francisco to shut down the bath houses where many gay men went to engage in unprotected sex with multiple, often anonymous partners.

Randy’s unstinting coverage of the issue not only discomfited the mayor and the director of public health but also met with widespread hostility in the gay community. Opponents viewed the proposal not as a legitimate public health initiative but as a return to the days of official harassment of gay establishments and an unwarranted infringement on the rights of the newly liberated community.

The controversy was front-page news when I joined the Chronicle as metro editor in 1984, arriving from Chicago thinking that I knew a thing or two about big-city journalism. But I had a lot to learn about AIDS, the gay community and the gnarly politics of AIDS in San Francisco.

Randy quickly brought me up to speed through solid reporting and fluent writing that were combined with intensity and a terrific sense of humor. One thing Randy never mentioned to me – though I learned about it elsewhere – was that his work was far from universally appreciated in the gay community he was trying to protect.

He was insulted, spit on and even subjected to a few threats on his life. But he stuck to his guns and stuck to the story and was vindicated when the bath houses were shut down.

“With a passion I have rarely seen equaled in the business, Randy pushed, wheedled and cajoled until his AIDS stories made their way from the back pages of the Chronicle to the front page,” said Susan Sward in a tribute published shortly after his death. After traveling to Africa, where AIDS was believed to have originated, “he hurled himself into the stories he wrote,” said Susan. “It was grim, it was horrible, and he saw it as his job to give witness.”

After “Band Played On” was published, Randy leveraged his newfound celebrity to urge an international convention of scientists to speed their research into the disease.

“You in science are not getting hundreds of millions of dollars in government research grants simply because you look fabulous in white coats,” Randy told researchers in Montreal in 1989. “You're getting that money because you're supposed to produce under the tightest deadline pressure the epidemic demands. Any solution to HIV infection that comes only after most HIV-infected people are dead will not be relevant science.”

By the time he gave that impassioned speech. Randy himself was battling the disease. But he didn’t tell very many people about his illness, because he didn’t want the story to be about him.

“I am a professional journalist, not a professional AIDS activist,” Randy told Charlie Rose in the television interview embedded below. “There are plenty of activists but not many journalists who can do what I have been able to do…. What I try to do is find issues that are not being written about. And then I do it.”

Randy never stopped working.

He got the formal diagnosis that he had AIDS on the day he finished the manuscript for “Band Played On,” which was published in 1987. After HBO made a critically and commercially successful movie of the book, Randy wrote a third volume about gays in the military called “Conduct Unbecoming.” He dictated the final chapter of that book from a hospital bed and it was published in 1993 at almost the same time President Bill Clinton took aim at anti-gay discrimination in the armed services.

As you can see from the following video, which was shot months before he died, Randy was courageous until the end.

“He was a wasted man full of tubes,” recalled Susan Sward, who visited him shortly before he died. “But he would not say good-bye.”

Tribune deal: Reckless from the very start

Less than a year after being taken private by Sam Zell, the Tribune Co. may be on the verge of filing for bankruptcy because it cannot service its massive $12 billion in debt, according to the Wall Street Journal.

As discussed when the buyout was announced in 2007 (the full post is reproduced immediately below), the plan seemed reckless from the very start, because the newspaper industry back then was well into a secular decline subsequently exacerbated by the worst recession in generations.

Zell, a previously successful radio and real estate investor who characterizes himself as a "grave dancer" drawn to troubled assets no one else wants to buy, acquired the diversified media company immediately before Christmas in 2007 in a complex structure featuring an employee stock ownership plan.

Although it is not clear how the Tribune ESOP would be affected by a potential bankruptcy filing, this backgrounder on ESOPs tells what happened to employee ownership plans at other failed companies. It is not particularly encouraging. However, owing to the newness of the plan, most Tribune employees would not have an enormous portion of their retirement savings invested in the ESOP.

To be sure, it remains possible that Tribune Co. can gain sufficient concessions from its creditors to stave off a bankruptcy filing. In that event, the lenders would relax the requirements that the company pay nearly $1 billion in interest by the end of this year and another $512 million in June, 2009.

While Tribune actually may have enough cash to make either or both of those payments, the deteriorating profitability of its business may cause it to be in violation of loan requirements that require its operating cash flow to reach a prescribed level in proportion to its debt, according to the New York Times.

Failure to comply with these so-called coverage ratios would put the company into a technical default. A technical default, just like one where the company has insufficient cash to make a payment, can force a company to go to court to seek bankruptcy protection from its creditors.

Another alternative, of course, is for the borrower and lender to renegotiate new terms for a loan. The threat of a bankruptcy filing sometmes is used by borrowers to urge creditors to modify a loan, because bankruptcy often results in the creditor recovering less than the full value of his loan.

Some of the facts and figures in the encore post below have changed slightly over time. The debt, for example has been reduced by some $1.4 billion through the sale of Newsday and other initiatives.

But the Tribune Co. remains as precariously financed today as it was when Zell first engineerined the buyout.

What also has not changed is that Zell never, ever had a plan to propely fulfill his stewardship of some of the greatest newspapers in America.

Here's the original post from April 2, 2007:

Tribune bets the Tower

The plan to take Tribune Co. private will push aggressively the envelope of how much a newspaper-heavy media company can borrow in a period of constricting audiences and sagging advertising revenues.

There’s nothing wrong with loading a company with lots of debt, if you have a plan to build sales, boost profits and generate enough cash to service an imposing schedule of escalating principal and interest payments. But tardy payments – or, worse, a default – would prove disastrous to the company; its new investor, Sam Zell, and possibly its new employee stock ownership plan.

To ensure Tribune can satisfy its demanding new debt covenants, the company appears to have no alternative but to reduce expenses sharply throughout the operation and take a hard look at selling more assets than the lovable but ill-starred Chicago Cubs. Raising sales would be nice, too. But there would be scant margin for error.

To fund the planned buyout, Tribune Co. will raise its debt load by 167% to a formidable $13.4 billion from the present $5 billion, according to analyst Alexia Quadrani of Bear Stearns.

The new debt, which will be 9.2 times the company’s operating earnings, will make Tribune the second most leveraged of the 20 largest public media companies, as illustrated in the graph below.

Leverage is determined by the ratio of debt to a company’s earnings before interest, taxes, depreciation and amortization (EBITDA). Lenders pay close attention to this ratio in evaluating a company’s likely ability to repay its loans. Most bankers these days draw the line at lending roughly 7.5x earnings for newspaper companies.

Highly leveraged companies, which the Tribune appears set to become, pay greater interest rates on their loans than less-levered companies to offset the risk of potential default, thus increasing operating expenses.

Immediately after learning of Tribune's planned financing, two independent bond-rating agencies plunged the company's issues to further into junk territory, instantly raising its borrowing costs. Higher borrowing costs mean the compnay will need to devote even more of its profits to debt service.

The leverage planned for Tribune is three times greater than the average debt-to-earnings ratio of 3.1x for the 20 largest publicly held media companies. By contrast, the debt of Gannett and McClatchy, respectively the largest and second-largest newspaper publishers, is 2.2x and 2.3x their EBITDA over the prior 12 months.

The only publicly held media company with a greater debt burden than planned for Tribune is Charter Communications, a cable-television operator with a 10x debt-to-earnings ratio. The most highly leveraged company after Tribune would be Cablevision Systems, another cable company, which has borrowed 6.9x its earnings over the last 12 months.

At the other end of the continuum, Google has zero debt and Yahoo has borrowed only 0.4x its earnings. These new-media powerhouses are generating so much cash from their expanding operations that they don’t need to borrow money to finance their growth.

As a newspaperman-turned-cable-guy, I can tell you that the economics of the cable industry are far more predictable than those of the modern newspaper industry.

If Tribune Co. goes through with the massive borrowing that appears to lie in its future, the new mega-millionaires running Tribune Tower in Chicago will be taking a big leap of faith in their ability to increase sales, cut expenses and raise earnings.

Here’s hoping they look carefully before they leap.

The outlook is rocky for The Rocky

Sad to say, the days of the Rocky Mountain News are numbered. And the number of days probably is about 90.

In a toxic environment for newspapers exacerbated by the worst recession in two generations, it seems highly unlikely that a buyer will emerge to sustain the feisty tabloid put up for sale today by its owner, the E.W. Scripps Co.

While Scripps and everyone else would be tickled if someone turned up to buy the paper, the announcement more likely is the death knell for the oldest newspaper in Colorado.

That's because a new buyer not only would have to be willing to pay Scripps a reasonable price but also would have to be prepared to fund an operating loss that is expected to reach $15 million this year and potentially could grow in the future.

The purchase of the Rocky by even a well-heeled third party would be further complicated by the fact that the Rocky cannot function as a standalone newspaper.

As the partner in a joint operating agreement with the Denver Post, the Rocky and POst share such crucial chores as selling ads, printing the papers and delivering them. The two respective newsrooms are the only truly independent parts of the operation.

Given the circumstances, the only logical buyer for the Rocky is the Post, which is owned by MediaNews Group. Inasmuch as MediaNews already publishes one newspaper in Denver and doesn’t need any more operating losses, the only reason Media News would buy the Rocky is to shut it down to save the costs of producing it.

In buying the Rocky, MediaNews would have more to gain than any other buyer, because the purchase would give it unrivaled control of the market. Thus, it could afford to pay $1 more than any other prospective buyer and still come out ahead.

In a typical transaction to unwind a JOA, the surving publication agrees to pay the departing parner an annuity for a number of future years.

The offer to sell the Rocky to all comers, which expires at the end of the year, helps insulate Scripps and MediaNews from any accusations that the sale was improperly anticompetitive under the antitrust statutes. When the search comes up empty, then Scripps likely will move forward with the sale to MediaNews.

Before a sale can take place, federal law requires that a company employing more than 100 workers must give its employees 60 days notice when a plant is targeted for a shutdown.

Add together the time it takes to hunt for buyers and the notice period required prior to a shutdown, ant it appears the Rocky has only about 90 more days to live. Ironically, its closing would come weeks before its 150th anniversary in April.

(CLARIFICATION: In my original version of this post, I estimated the number of days at 60, because I did not include the time it would take to hunt for an alternative buyer.)

When the ritual is complete, the Denver JOA almost certainly will be terminated, just as nearly a score of similar arrangements have succumbed in other markets over the years.

Three of the most recent JOA shutdowns were at the Scripps-owned properties in Albuquerque, NM; Birmingham, AL and Cincinnati, OH. If you know your ABCs, you know that D, as in Denver, unfortunately is next.

Gannett Blog: Tour de force crowdsourcing

The waves of agonizing layoffs at Gannett this week showed the power of crowdsourcing in the hands of a skilled journalist.

Jim Hopkins, the former USA Today staffer who is the proprietor of the terrific Gannett Blog, urged his readers to report on the details of the layoffs at their papers. Soon, he began posting a comprehensive, rolling update of the carnage that, at this writing, is in its sixth instantiation.

The task would have been impossible for Jim to complete on his own – and probably well beyond the capability of even a small army of reporters, especially given that the company was not eager to share this sort of information with the media.

Jim was assisted, of course, by dozens of professional newsfolk who watched valued colleagues ushered out the door. In some cases, the contributors were the valued colleagues themsleves.

But quality crowdsourcing doesn’t have to be only about journalists writing about themselves.

Imagine what a newspaper could do if it put out a call for information from nurses about hospital lab errors, schoolteachers about dangerous classrooms, homeowners about property-tax increases, Little League coaches about ill-tended playing fields, or employees being laid off by a big factory.

Although most of Jim’s former colleagues were glad to have his blog around today as a valuable virtual watercooler, many of the comments were not so generous in October, when he asked readers to make modest voluntary contributions to help him raise $24,000 a year to cover expenses after his own buyout check ran out.

“Could you get a part-time job, that would pay you $24,000/year (e.g., a PT freelance editing/copy-editing gig at $35/hr for 15 hours/week and 48 weeks a year)?” asked one anonymous commenter. “That would still give you time to work on the blog.”

“For months you have had all the answers for Gannett problems,” said a second anonymous commenter. “Now the gravy train has ended as the Gannett ‘good-bye checks’ have ended...wow...your new digital ad plan does not cover expenses? Let’s beg for 5 bucks every few months? Where's the tin cup...maybe include a few pencils in it....”

I am glad Jim kept blogging despite the flak. I’ll bet some of the snarksters are glad today, too.

Tweets can’t be beat on breaking news

When the siege of Mumbai broke out, Paris-based journalist Frederic Filloux found himself far from home and struggling to learn what was happening. His experience provides a perfect example how our thoroughly wired world is reshaping the media business.

The former editor of Liberation, the influential French daily, Frederic now develops new products for Schibsted, the innovative Norwegian media giant. Frederic is co-author of the blog Monday Note, where this article originally appeared.

For an alternative point of view on the Twitter phenomenon, see this at Valleywag .

By Frederic Filloux

I began catching up with events in Mumbai at 1 a.m. Wednesday in a Kiev hotel room. I started with frenzied remote-control shuttling between CNN and SkyNews (no BBC World, which I prefer). The same stuff everywhere. Fuzzy footage of the carnage, so-called experts on the phone with the host, etc.

At the same time, I turned to my laptop and logged on to the New York Times. A little better: fresh stories, frequent updates. Same for a couple of French sites.

Out of professional habit, however, I went to the wrong sources. None were as compelling as Twitter, the place to go on that very night.

To get an idea, just go to Twitter.com, log in, go to the “#mumbai” channel and you’re in. Saturday morning, as I’m writing this note, Twitter is true to its name: tweets, prattling, back to normal – boring, questionable.

But in the heat of the terrorist attack, Twitter was more valuable than global TV’s endless loops. Twitter was the fastest stream of raw news — in less than 140 characters for each snippet.

Fact is: Twitter is impacting news reporting. Thirty years ago, radio broadcast epitomized live journalism. Then came CNN, which still relied on the radio format in many instances. In version 1.0, circa 1991, Peter Arnett reported live on his sat phone on the bombing of Baghdad from the roof of the Al-Rasheed Hotel. Later, CNN developed live-television broadcast capabilities.

But even with the advent of high tech TV, holes remain. These are about to be filled with a mixture of mobile phone and Internet, the first iteration being applications such as Twitter.

The Mumbai events are not the only ones where Twitter played a critical role. The list includes the earthquake in China and the wildfires in California. (See the Wikipedia page on Twitter for further references).

As the Canadian blogger Matthew Wingram reports, Twitter is undoubtedly a source of journalism. But, is it reliable?

No more, no less than the usual live reporting.

Some even argue that the multitude is, by essence, way more reliable than the individual (see James Surowiecki’s book “The Wisdom of Crowds”). In June, 2006, Wired ran a great story titled “The Rise of Crowdsourcing” with many examples of harnessing the multitude for a purpose, scientific research or innovation.

Live reporting on the web is nothing new.

As I was doing research for this article, I randomly asked — on Twitter — if someone could supply meaningful examples (without knowing who was seeing my question, I’m not a micro-blogging regular). An answer came immediately from Philippe Cove, media reporter at Radio France International (his excellent French language blog here) who sent me this link pointing to the Online Journalism Blog. There, I found a list of events, widely covered by live blogging, going back to 1998.

Today, live blogging is expected by the audience. And it works.

When French tennis player Jo-Wilfrid Tsonga became the star of the Australian Open Championship, the French site 20minutes.fr [where Frederic was the founding editor, a fact he modestly omitted in this article] decided to provide live, minute-by-minute coverage of the semifinal. It sounded like a weird idea for such a visual event. As it turned out, the coverage drew 40% of the site’s audience that day. Since then, 20minutes.fr repeated the feat many times, always to high scores (it helps that the execution is flawless).

This new genre has been applied to all sorts of events, such as the battle for the control of the French Socialist party two weeks ago. This political drama, unfolding in the middle of the night, was much more compelling when followed through live blogging, rather than by radio or all-news TV. The conventional media appeared out of sync (to say nothing of newspapers having to wait 36 hours before publishing their own account, well reported, no doubt, but almost useless).
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What’s next for live blogging? Mashups.

Mixing news (text, photos, videos), with maps, graphs, timelines, is one of the next big things on the Net (for at least six months). For a good implementation of the idea, see this amazing application called Dipity. It is a timeline dynamically fed by all the crowd-powered news you can think of (Flickr, Digg, YouTube and, of course, Twitter), plus any RSS feed you need. Just set the news feed on the event you want, and it adds up automatically. You can, of course, embed your Dipity feed on your site or blog (see here for examples)

Now comes the time to delve into the mundane: Who makes money with this?

Short answer: Nobody does.

Twitter enjoys a stunning growth: about 3 millions users, a gain of 343% in one year, according to CNET. Great.

The two-year old venture is financed by capitalists who coughed up $20 million in several rounds (the last one at a $98 million valuation).

Twitter is not Facebook and has a much more modest burn rate: a staff of 17, no huge photo library requiring thousands of servers, just short bursts of text. Still, Twitter endures the pains that come with its fast rise. Recently, it undertook a management reshuffle as its financial backers were bluntly dismissing the business model query: “It’s like the stupidest question in the world,” said Fred Wilson of Union Square Ventures in Wired. “It’s like, ‘How was Google going to make money?’”

Well, it seems we’re back to the usual trick: First, get the audience and monetize later. Except that, in the current context (the collapse, volume and price, of the ad market), the trick gets harder, especially on Twitter’s grand scale.

And the comparison with Google is nonsense. Google offers an unparalleled service, to the casual user as well as to thousands of businesses, which are making money (or getting traffic) with it. No such thing with Twitter. Better find something else, for instance charging hard dollars for legions of corporations considering Twitter for business uses. That’s what Yammer does, though on a much smaller scale.

These uncertainties evidently were not a deterrent for Facebook. It reportedly offered to acquire Twitter for $500million, mostly in stock (Facebook itself is a privately held company). Not a good idea: valuing Facebook’s share is a lottery game (see Monday Note #60). The talks collapsed a month ago, according to the Wall Street Journal blog All Things Digital.

That was not necessarily a bad thing for Facebook: Execs quoted by All Things D said “if Twitter was offered to Facebook’s 120 million users, Twitter’s new owner might have to deal with huge SMS fees, $75 million annually.” This is because Twitter relies a lot on text-messages in the US market.

While eyeballs do add up in the millions, monetization remains elusive. Probably for a long time.

Where extreme cuts may come at papers

Operating in an atmosphere of unprecedented uncertainty and growing dread, publishers are systematically reviewing every aspect of their businesses with an eye to saving a buck any way they can.

They are preparing cascading contingency plans that can be implemented according to the degree that sales might decline. The industry’s revenue crisis is detailed here in the first installment of this series.

Not every contingency prepared by publishers will be implemented. The options eventually selected will be based on the state of the general economy, the health of a particular market and the specific economics of a given newspaper. Here’s a glimpse of what may lie ahead:

The list of potential expense reductions includes squeezing staffing, shuttering bureaus, carving out layers of middle management, telescoping multiple sections of the paper into one, tightening newshole, scrapping syndicated features and wire serevices, axing op-ed pages and book sections and eliminating classified ads on certain days of the week.

In an example of what could become commonplace, the Newark Star-Ledger reduced headcount by almost half in the fall by threatening to close the paper by the end of the year if its cost-cutting targets were not met. The reduction was enabled through enriched severance benefits and concessions from labor unions throughout the plant.

Another alternative will be to ask employees to accept voluntary pay cuts, to agree to work longer hours, and to ease manning requirements and other work rules. Bonuses may be reduced or eliminated for the fortunate few who still would have qualified for them.

Publishers will outsource anything that makes sense, including ad sales, ad composition, copyediting, page layout, printing, customer service, fleet maintenance and delivery.

Many newspapers will look to selling their historic downtown edifices to raise operating capital and repay debt. If they can’t outsource printing, they will move their presses to the warehouse district of town and relocate the administrative, ad and editorial staffs to rental space in class-B locations.

Continuing a trend that began this year, publishers will be seeking to partner with neighboring papers to save costs on ad sales, content generation, printing and delivery.

If the economy deteriorates too far too fast, partnerships of convenience may give way to outright mergers in markets shared by multiple newspapers.

This would be especially likely in cities where one or both of the properties is financially distressed, enabling the publishers to argue that the traditional antitrust objections to such transactions should be waived in the interests of preserving the editorial voice of at least one surviving publication. To make a merger more palatable to regulatrs, the publishers might agree for a while to have the surviving paper continue printing some features carried over from the one that does out of business.

Likely merger candidates would include the papers in Minneapolis-St. Paul, where the Star Tribune and MediaNews Group face heavy debt obligations, and northern California, where MediaNews is struggling and the San Francisco Chronicle could lose up to $100 million despite a series of stringent budget cuts. The combinations in both markets may be driven by Hearst Corp., which is not only a major investor in Media News but also owns the Chronicle.

Other places where potential mergers might occur are south Florida, where the Palm Beach Post, Miami Herald and Sun Sentinel are suffering in one of the most toxic real estate markets in the land, and Southern California, where the San Diego Union is up for sale, and plunging revenues and profitability are causing havoc at the Los Angeles Times, Orange County Register, Riverside Press Enterprise and the far-flung portfolio of MediaNews properties.

While the Chicago Tribune and the Sun-Times Media Group each would be healthier if it were the sole surviving publisher in Chicago, it is not clear how either company could afford to buy the other. With the situation the same between the Globe and the Herald in Boston, the publishers in both cities seem to be locked into indefinite wars of attrition.

If things get bad enough, joint-operating agreements might be terminated in places like Denver, Detroit and Seattle. When government-sanctioned JOAs were terminated in the past, the surviving newspaper agreed to pay the departing publisher an annuity for an extended period of time. As the successor interest to Knight Ridder, cash-strapped McClatchy, for example, is on the hook to pay Cox until 2021 for its willingness to the close of the Miami News in 1998. Future JOA buyouts may not be so generous.

Things could get particularly dicey for individual, free-standing publishing companies like the Star Tribune, Boston Herald and Philadelphia Media Holdings, the latter of which may find it increasingly difficult to sustain the publication of both the Inquirer and Daily News.

Even though this is the worst time in history to be selling or financing a newspaper company, several operators, including Copley, Cox and Journal Register, have put publications on the block. Journal Register, which was among the first of the many precariously financed publishers to default on its debt, has stated that it will close papers it cannot sell.

Companies like GateHouse Media, Lee Enterprises, McClatchy, MediaNews, Morris, New York Times Co., Philadelphia Media, Star Tribune and Tribune are obligated to improve their profitability in the coming years to repay the principal and interest on money they have borrowed to make acquisitions.

In the event the publishers are unable to meet those obligations, their creditors will move in to slash expenses; attempt to sell off assets to generate cash, and take every other step necessary to sustain the properties as going concerns.

This will last as long as the newspapers continue to generate operating profits. But it is highly unlikely in this environment that any creditor would provide additional cash to prop up a money-losing newspaper.

In other words, a newspaper that cannot sell enough advertising or cut enough expenses to sustain profitable operations is not likley to make it to the other side of 2009.