Not so very long ago, the newspaper business was a snap: Build the largest possible audience, sell the most possible ads, charge the highest possible rates, print the fattest possible papers and pump out the biggest possible profits.
This enviable model worked exquisitely for generations, because publishers had little, if any competition. But it is now clear, as attested by the 50% drop in newspaper advertising since 2005, that the old ways can no longer succeed.
So, most publishers – after arguably procrastinating far too long – are faced with choosing the best possible going-forward strategy for their mature, if not to say declining, businesses.
They will be in good company. In the last few weeks, Warren Buffett, the Newhouse family and Rupert Murdoch each embarked on one of the three most likely paths available to newspaper publishers. Though individually logical and defensible, the three paths are remarkably divergent.
Who will be right? All of them? One of them? None of them? Only time will tell. But one thing is certain: Sooner, rather than later, every newspaper operator will have to pay her money and take her chances on an array of strategies that run the gamut from hope to capitulation.
Here's a quick way to think about the three approaches:
∷ Farm It – Keep doing what you do today as well as you can in the hopes of optimizing the existing franchise for as long as possible. This presumes that (a) the company will operate in a reasonably hospitable and predictable market environment and (b) management is sufficiently skillful to execute smartly with the available resources.
∷ Milk It – Accept the inevitable decline and fall of the traditional newspaper model and then whack costs to extract the most profits from the decaying business for as long as possible. On the day you no longer can turn a profit, throw the keys on the table and call it quits.
∷ Feed It – Determine that even the most proficient management cannot overcome the fundamental changes in the marketplace that have been cutting readership and revenues since the Internet arrived two decades ago. Instead of retreating, however, you leverage the waning strengths of the legacy business and invest aggressively in new digital products to reposition it for the future.
Now, let's match a publisher to each strategy:
Farming: Warren Buffett
The farmer in the above scenario is the grandfatherly billionaire who last year added his hometown paper, the Omaha World-Herald, to his long-standing ownership of the Buffalo (NY) News. In May, he bucked the widespread pessimism about the future of newspapers by buying 63 titles from Media General and then quickly adding the papers serving the Texas towns of College Station and Waco. What was he thinking?
A long-standing value investor, Buffett looks for unique and well-established businesses that happen to have fallen out of favor in the investment community. In buying his papers at significant discounts to the prices they historically might have fetched, Buffett has gotten his hands on franchises that are as unique and well established as they come.
The investment thesis is simple: Monopolies or near-monopolies in the communities they serve, newspapers are widely known and well respected brands with (a) unsurpassed newsgathering capabilities and rich content archives, (b) deep and long-standing relationships with local advertisers and community leaders, and (c) vast (and free) marketing capabilities via the print and digital media that they publish. Even though aggregate industry advertising revenues are half today of the record $49.4 billion realized in 2005, most newspapers produce pre-tax profit margins that put Walmart and Amazon to shame.
Buffett is concentrating on small and medium papers in defensible markets, while steering clear of metro markets, where costs are high and competition is fierce. But he says he has no transformational ideas in mind.
“I do not have any secret sauce,” Buffett told the New York Times. “There are still 1,400 daily papers in the United States. The nice thing about it is that somebody can think about the best answer and we can copy him. Two or three years from now, you’ll see a much better-defined pattern of operations online and in print by papers.”
Meantime, Buffett has pledged to continue trying to make his new acquisitions the best newspapers they can be.
Milking: The Newhouse family
Buffett’s welcome vote of confidence in newspapers was overtaken within a week when Advance Publications declared on May 24 that it would reduce print publication to three days a week at the New Orleans Times-Picayune, thus making the Crescent City the largest American metropolis to be deprived of a daily dose of wood fiber in its news diet.
The tragedy in the cutbacks ordered at the Times-Picayune and three nearby Alabama markets is not the loss of the print medium itself – because we can still tune into a host of digital devices for the weekend weather report and the latest celebrity shenanigans – but rather the loss of the hands who previously produced the local news. Advance Publications, which owns all four of the soon-to-be-former dailies, is axing 84 of 175 newsroom positions in New Orleans and a total of 153 of 235 journalists in Birmingham, Huntsville and Mobile, according to reports here and here.
Once dismantled, the local reporting infrastructure in these four communities almost certainly will never be rebuilt. The loss of transparency, accountability and advocacy will be incalculable, because the few remaining journalists won’t have the time to calculate it, what with all the 24/7 tweeting, video-making, Facebooking and web updating they will be expected to do.
Executives of Advance Publications – which is owned and operated by the heirs of S.I. Newhouse, who started building the newspaper empire at the age of 17 in 1895 – were at pains to say they intended to replace the print products scheduled to depart this fall in New Orleans and Alabama with state-of-the-art digital news operations. (UPDATE 8.8.2012: Steven Newhouse, the family member who heads digital operations, defended the moves in New Orleans and Alabama here as a necessary pivote in business strategy.)
But that’s the same thing they said three years ago, when they announced a nearly identical strategy to replace the seven-day Ann Arbor (MI) News with AnnArbor.Com. Staffing in the Michigan newsroom was cut in half and the Sunday circulation of the surviving two-day-a-week paper tumbled to 34,923 this year from 54,207 in 2009, according to the Audit Bureau of Circulations.
The quality of what's left is so poor that even the director of the Knight Wallace Journalism Program at the University of Michigan says he doesn’t read it. “Is AnnArbor.com discussed much in Ann Arbor? No,” Charles R. Eisendrath told the New York Times. “Is it an authority? No. I don’t trust anything that is done on the cheap.”
As unfortunate as it may be that Ann Arbor, New Orleans or Mobile are deprived of the power of a vigorous press, the strategy evidently selected by Advance makes sense if you believe that the best days of newspapering are behind us. By cutting staff to a bare minimum and printing only on the days it is profitable to do so, publishers can milk considerable sums from their franchises until the day these once-indomitable cash cows go dry. Maximizing the cash you take out of a contracting business – and reinvesting it productively elsewhere – is a legitimate hedge against its eventual demise.
Feeding: Rupert Murdoch
After coaxing from various advisers and subordinates for more than three years, Rupert Murdoch last month agreed to spin his newspapers out of News Corp. and into a separate company empowered to innovate the traditional publishing businesses into the future.
If all goes according to the plan Murdoch articulated in a series of interviews after announcing the spinoff, the yet-to-be-named entity is a candidate to become the poster child for the “Feed It” strategy described above. But a lot of things could go wrong between now and then, especially given the inauspicious circumstances surrounding the decision:
The contemplated spinoff is reminiscent of the tender scene in the Superman movie where Marlon Brando sends his beloved infant son to earth in a rocket so the lad can escape the impending destruction of the planet Krypton. The difference, in this case, is that Murdoch is packing some seriously toxic doses of kryptonite into the soon-to-depart rocket. In addition to the secular woes facing most of the newspapers in the United States, the United Kingdom and Australia, the about-to-be-jettisoned News Corp. properties face additional legal and financial liabilities stemming from the ongoing phone-hacking scandal in the UK.
But the outlook isn’t entirely hopeless. As encumbered as the new spinoff might be, it will have the advantage of a dedicated management team that is single-mindedly focused on finding next-generation publishing models to assure the future health and well being of such diverse franchises as the staid Wall Street Journal and the randy London Sun.
In various interviews after announcing the planned spinoff, Murdoch promised to launch the new company with no debt and ample cash to aggressively pursue digital publishing opportunities across a variety of platforms. “News is the most valuable commodity in the world,” Murdoch told CNBC. Though there may be near-term staff cuts at some units in Australia and the UK, Murdoch said: “Net, around the world, we will be increasing [staffing] numbers, operating costs and, hopefully, revenues.”
Murdoch says it will take at least a year to sort out the internal details and obtain the regulatory approvals necessary to finalize the spinoff. A lot could change in that time. If the spinoff materializes in anywhere near the way Murdoch is spinning it, however, it could turn out to be a model for iterating the way forward for newspapers.
Even if the plan falters, Murdoch seems to be thinking about things the right way: Get off the decaying planet as fast as you can, so you can test your superpowers on a new one.
This enviable model worked exquisitely for generations, because publishers had little, if any competition. But it is now clear, as attested by the 50% drop in newspaper advertising since 2005, that the old ways can no longer succeed.
So, most publishers – after arguably procrastinating far too long – are faced with choosing the best possible going-forward strategy for their mature, if not to say declining, businesses.
They will be in good company. In the last few weeks, Warren Buffett, the Newhouse family and Rupert Murdoch each embarked on one of the three most likely paths available to newspaper publishers. Though individually logical and defensible, the three paths are remarkably divergent.
Who will be right? All of them? One of them? None of them? Only time will tell. But one thing is certain: Sooner, rather than later, every newspaper operator will have to pay her money and take her chances on an array of strategies that run the gamut from hope to capitulation.
Here's a quick way to think about the three approaches:
∷ Farm It – Keep doing what you do today as well as you can in the hopes of optimizing the existing franchise for as long as possible. This presumes that (a) the company will operate in a reasonably hospitable and predictable market environment and (b) management is sufficiently skillful to execute smartly with the available resources.
∷ Milk It – Accept the inevitable decline and fall of the traditional newspaper model and then whack costs to extract the most profits from the decaying business for as long as possible. On the day you no longer can turn a profit, throw the keys on the table and call it quits.
∷ Feed It – Determine that even the most proficient management cannot overcome the fundamental changes in the marketplace that have been cutting readership and revenues since the Internet arrived two decades ago. Instead of retreating, however, you leverage the waning strengths of the legacy business and invest aggressively in new digital products to reposition it for the future.
Now, let's match a publisher to each strategy:
Farming: Warren Buffett
The farmer in the above scenario is the grandfatherly billionaire who last year added his hometown paper, the Omaha World-Herald, to his long-standing ownership of the Buffalo (NY) News. In May, he bucked the widespread pessimism about the future of newspapers by buying 63 titles from Media General and then quickly adding the papers serving the Texas towns of College Station and Waco. What was he thinking?
A long-standing value investor, Buffett looks for unique and well-established businesses that happen to have fallen out of favor in the investment community. In buying his papers at significant discounts to the prices they historically might have fetched, Buffett has gotten his hands on franchises that are as unique and well established as they come.
The investment thesis is simple: Monopolies or near-monopolies in the communities they serve, newspapers are widely known and well respected brands with (a) unsurpassed newsgathering capabilities and rich content archives, (b) deep and long-standing relationships with local advertisers and community leaders, and (c) vast (and free) marketing capabilities via the print and digital media that they publish. Even though aggregate industry advertising revenues are half today of the record $49.4 billion realized in 2005, most newspapers produce pre-tax profit margins that put Walmart and Amazon to shame.
Buffett is concentrating on small and medium papers in defensible markets, while steering clear of metro markets, where costs are high and competition is fierce. But he says he has no transformational ideas in mind.
“I do not have any secret sauce,” Buffett told the New York Times. “There are still 1,400 daily papers in the United States. The nice thing about it is that somebody can think about the best answer and we can copy him. Two or three years from now, you’ll see a much better-defined pattern of operations online and in print by papers.”
Meantime, Buffett has pledged to continue trying to make his new acquisitions the best newspapers they can be.
Milking: The Newhouse family
Buffett’s welcome vote of confidence in newspapers was overtaken within a week when Advance Publications declared on May 24 that it would reduce print publication to three days a week at the New Orleans Times-Picayune, thus making the Crescent City the largest American metropolis to be deprived of a daily dose of wood fiber in its news diet.
The tragedy in the cutbacks ordered at the Times-Picayune and three nearby Alabama markets is not the loss of the print medium itself – because we can still tune into a host of digital devices for the weekend weather report and the latest celebrity shenanigans – but rather the loss of the hands who previously produced the local news. Advance Publications, which owns all four of the soon-to-be-former dailies, is axing 84 of 175 newsroom positions in New Orleans and a total of 153 of 235 journalists in Birmingham, Huntsville and Mobile, according to reports here and here.
Once dismantled, the local reporting infrastructure in these four communities almost certainly will never be rebuilt. The loss of transparency, accountability and advocacy will be incalculable, because the few remaining journalists won’t have the time to calculate it, what with all the 24/7 tweeting, video-making, Facebooking and web updating they will be expected to do.
Executives of Advance Publications – which is owned and operated by the heirs of S.I. Newhouse, who started building the newspaper empire at the age of 17 in 1895 – were at pains to say they intended to replace the print products scheduled to depart this fall in New Orleans and Alabama with state-of-the-art digital news operations. (UPDATE 8.8.2012: Steven Newhouse, the family member who heads digital operations, defended the moves in New Orleans and Alabama here as a necessary pivote in business strategy.)
But that’s the same thing they said three years ago, when they announced a nearly identical strategy to replace the seven-day Ann Arbor (MI) News with AnnArbor.Com. Staffing in the Michigan newsroom was cut in half and the Sunday circulation of the surviving two-day-a-week paper tumbled to 34,923 this year from 54,207 in 2009, according to the Audit Bureau of Circulations.
The quality of what's left is so poor that even the director of the Knight Wallace Journalism Program at the University of Michigan says he doesn’t read it. “Is AnnArbor.com discussed much in Ann Arbor? No,” Charles R. Eisendrath told the New York Times. “Is it an authority? No. I don’t trust anything that is done on the cheap.”
As unfortunate as it may be that Ann Arbor, New Orleans or Mobile are deprived of the power of a vigorous press, the strategy evidently selected by Advance makes sense if you believe that the best days of newspapering are behind us. By cutting staff to a bare minimum and printing only on the days it is profitable to do so, publishers can milk considerable sums from their franchises until the day these once-indomitable cash cows go dry. Maximizing the cash you take out of a contracting business – and reinvesting it productively elsewhere – is a legitimate hedge against its eventual demise.
Feeding: Rupert Murdoch
After coaxing from various advisers and subordinates for more than three years, Rupert Murdoch last month agreed to spin his newspapers out of News Corp. and into a separate company empowered to innovate the traditional publishing businesses into the future.
If all goes according to the plan Murdoch articulated in a series of interviews after announcing the spinoff, the yet-to-be-named entity is a candidate to become the poster child for the “Feed It” strategy described above. But a lot of things could go wrong between now and then, especially given the inauspicious circumstances surrounding the decision:
The contemplated spinoff is reminiscent of the tender scene in the Superman movie where Marlon Brando sends his beloved infant son to earth in a rocket so the lad can escape the impending destruction of the planet Krypton. The difference, in this case, is that Murdoch is packing some seriously toxic doses of kryptonite into the soon-to-depart rocket. In addition to the secular woes facing most of the newspapers in the United States, the United Kingdom and Australia, the about-to-be-jettisoned News Corp. properties face additional legal and financial liabilities stemming from the ongoing phone-hacking scandal in the UK.
But the outlook isn’t entirely hopeless. As encumbered as the new spinoff might be, it will have the advantage of a dedicated management team that is single-mindedly focused on finding next-generation publishing models to assure the future health and well being of such diverse franchises as the staid Wall Street Journal and the randy London Sun.
In various interviews after announcing the planned spinoff, Murdoch promised to launch the new company with no debt and ample cash to aggressively pursue digital publishing opportunities across a variety of platforms. “News is the most valuable commodity in the world,” Murdoch told CNBC. Though there may be near-term staff cuts at some units in Australia and the UK, Murdoch said: “Net, around the world, we will be increasing [staffing] numbers, operating costs and, hopefully, revenues.”
Murdoch says it will take at least a year to sort out the internal details and obtain the regulatory approvals necessary to finalize the spinoff. A lot could change in that time. If the spinoff materializes in anywhere near the way Murdoch is spinning it, however, it could turn out to be a model for iterating the way forward for newspapers.
Even if the plan falters, Murdoch seems to be thinking about things the right way: Get off the decaying planet as fast as you can, so you can test your superpowers on a new one.
Alan, You have nailed the paths that nearly all daily newspapers are following. Your examples are manifested in a number of similar situations in other media groups, and in smaller chains and stand alones. It is sad to see, but inevitable, just as the changes in direct marketing with the USPS. Thanks for the valuable insights.
ReplyDeleteAlan, You have nailed the paths that nearly all daily newspapers are following. Your examples are manifested in a number of similar situations in other media groups, and in smaller chains and stand alones. It is sad to see, but inevitable, just as the changes in direct marketing with the USPS. Thanks for the valuable insights.
ReplyDeleteGood breakdown of the possible paths for newspapers.
ReplyDeleteOne thing I think many need to do is hyper-localize. Our local rag, The Providence Journal likes to think of itself as a national paper but they barely cover the local news. That changed when they were bought by Dallas based Belo Corp.
And another thing - you cannot charge top dollar for an online only subscription. I refuse to pay as much for just being able to access it online as I did for the actual paper copy.
Although the milking strategy is regrettable for those of us who love newspapers, it is -- as you say -- a legitimate route for newspaper publishers who, after all, are running businesses. It also seems, to me at least, to be the route that many chains are taking.
ReplyDeleteMy only issue is when publishers choose the milking strategy but them claim publicly to be investing in feeding or farming when they clearly are not doing so. Either they are lying to deflect criticism, or they honestly believe in feeding or farming but are too inept to execute properly. In either case, it's sad.