Tuesday, March 29, 2005

Strip-mining our newspapers to death

"The harvesting of the newspaper's monopoly position has apparently begun," writes our friend Jay Rosen in his thoughtful blog, Press Think. "The assisted suicide is under way."

Like several commentators, Jay believes newspapers are supersizing profits in a long, slow, going-out-of-business strategy. Jay and I would rather see publishers put a significant portion of their 20%-plus profits into building new audiences via the new media.

The subtle liquidation strategy is not being pursued "in every company, or every town, which kind of makes it interesting," says Jay. "The reasons are obvious why it will never be announced as such. Stated publicly, the laying down would be a scandal."

As Jay prepared his post, which you can read here, he fired me a couple of emails to solicit my perspective on his thesis. Here is what I told him:

Thomson sold all 60 of its newspapers in 2000-01 to focus strictly on electronic media. Scripps substantially has redeployed its assets into its cable channels and associated online media (see this).

Gannett, Tribune, Cox and Hearst all have significant broadcast and/or cable TV operations and I think Hearst has the most ABC affiliates of anyone. In addition, many family companies have sold their newspapers (Louisville Courier Journal, Los Angeles Times, Chicago Sun-Times, Baltimore Sun, Boston Globe, San Francisco Chronicle) so they could allocate their assets among multiple generations of heirs.

Apart from the notable strategic decisions by Scripps and Thomson, however, I can't think of any major newspaper companies that have taken overt acts to exit the business. Further, I don't think many, if any, senior newspaper executives are consciously pursuing the sort of "liquidation" strategy you hypothesize.

Rather, I believe senior industry executives are responding rationally to compensation programs that reward them for delivering steady, predictable, near-term earnings growth that will support their target stock prices.

To quote myself: "In light of the significant competitive threats to the long-term health of their business, why would newspaper companies emphasize profit growth instead of further investment in building new audiences through new media? Because a company's success in the stock market, as Bernie Ebbers or Ken Lay will tell you, is a significant factor -- maybe the significant factor -- in a senior executive's compensation package, as discussed previously here.

Unless compensation plans are changed, publishing companies will continue to prize short-term profits over the long-term health of their enterprises." Unless institutional investors change the incentive structure, the execs will continue to emphasize profits at the expense of the enterprises they manage.

If nothing changes, the business will be (unconsciously?) strip-mined to death and a vital public trust will be vitiated or destroyed.

Otherwise, everything is going real good.


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