Wednesday, September 30, 2009

Berkeley Media Tech Summit goes live

The UCBerkeley Media Technology Summit at the Googleplex in Silicon Valley is being live-blogged now in the window below, thanks to participant Chuck Peters, the tech-savvy chief executive of the Gazette Co. in Cedar Rapids, IA.

The summit, which will run through mid-day Thursday, is intended to provide more than 100 invited leaders from media and technology companies with new insights into the technologies, consumer behavior and economic models that will affect their businesses at a time of momentous change.

Live blogging starts about 8:30a PDT. A detailed schedule of conference events is here. Bios of the speakers are here.

The live-blogging cadre recruited by Peters includes Mary Lou Fulton, formerly of the Bakersfield Californian but now working at the California Endowment, Mike Orren of Pegasus News and John Temple, the former publisher of the Rocky Mountain News. We will tell folks at the conference how to participate, so others are bound to join in.

If for some reason the embed below fails, you also can access the live blogging here.

Working closely with with Dean Neil Henry and Assistant Dean Gina Rieger, I helped organize the summit for the Graduate School of Journalism at the University of California at Berkeley. The Koret Foundation, Google and the McCormick Foundation are generously sponsoring the event.

Leaders are scheduled to attend from such traditional media companies as Advance Publications, Associated Press, BusinessWeek, Cable News Network, Comcast, Community Newspaper Holdings, Emmis Broadcasting, E.W. Scripps, Fox Television Networks, Hearst Corp., Lee Enterprises, McClatchy Co., MediaNews Group, National Public Radio, News Corp., New York Times Co., Schibsted, Thomson Reuters, Times Publishing Co., Tribune Co., U.S. News and World Report, Village Voice Media, Wired Magazine and Yahoo.

Next-generation media organizations registered include the Center for Investigative Reporting, Chi-Town Daily News, Everyblock.Com, Google News, Internet Archive, MinnPost, New America Media, PaidContent.Org, Pegasus News, Salon Media Group, San Diego News Network, Texas Tribune, True/Slant and West Seattle Blog.

From the technology world, the scheduled speakers include corporate vice presidents from Google, Microsoft and Yahoo, as well as leaders from such leading start-up companies as Truviso and YuMe. Also planning to appear are experts from the worlds of advertising (Starcom MediaVest) and finance (Austin Ventures and Piper Jaffray). Cutting-edge market research will be presented by professors from Berkeley, Harvard and MIT. Representatives of non-profits plan to attend from the McCormick Foundation and Pew Charitable Trusts.

Tuesday, September 29, 2009

Size matters in non-profit news

Second of two parts. The first part is here.

The five-member staff of the Chi-Town Daily News was laid off after Labor Day when its founder could not raise the $300,000 necessary to fund the balance of its annual budget.

But Pro Publica, the biggest of the new-breed journalism non-profits, is thriving on a budget that will hit $9 million this year.

This disparity dramatically illustrates the difference between the resources available to an earnest but under-funded grassroots news start-up and a non-profit journalism project that has entered the ranks of the major-league philanthropic organizations.

The size and scope of Pro Publica, a formidable and enviable national investigative reporting project, hints at the way other big-league journalism non-profits may evolve.

By far the largest of the new journalism ventures, the New York-based project started life two years ago with a pledge of $30 million in ongoing support from Marion and Herbert Sandler of San Francisco.

Since then, Pro Publica has undertaken comprehensive and granular coverage of federal stimulus spending and worked with such partners as the New York Times to investigate the case of the medical professionals accused of killing seriously ill patients at a hospital struck by Hurricane Katrina in New Orleans. It has investigated the environmental danger of a gas-drilling practice called hydraulic fracturing and tackled the thorny issue of what to do wtih the terrorism suspects now detained at Guantanamo.

The ambition and funding of Pro Publica is surpassed in the realm of non-profit journalism only by National Public Radio and the Public Broadcasting System, which are long-established organizations that depend on a combination of government support, philanthropic largesse and contributions from listeners and viewers like you.

Pro Publica operates at a level far beyond any of the non-profit news start-ups that have emerged to date to address the crisis in local coverage caused by the contraction of newspapers and local broadcast media.

Unlike the Chi-Town Daily News, whose tiny staff of five was laid off this month because founder Geoff Dougherty could not raise the entire $300,000 necessary to make this year’s modest payroll, Pro Publica has an annual budget of about $9 million, according to Richard Tofel, its general manager.

The Pro Publica staff consists of 32 full-time journalists and 5 administrators, plus a few paid short-term interns and fellows, said Tofel. Its expenses in 2008 included a salary of $570,000 for editor Paul E. Steiger, the former managing editor the Wall Street Journal, and $296,370 for Tofel, according to the organization’s tax return.

“The Daily News needs $1 million to $2 million per year to do a great job of covering a city as sprawling and complex as Chicago,” wrote Dougherty in his blog. His estimate is consistent with the annual budget targets developed by the operators of such other journalism non-profits as MinnPost, Voice of San Diego and the still-to-be launched Texas Tribune.

As a consequence of its bare-bones budget, the scope and caliber of reporting at the Daily News was understandably limited, trending in the month prior to the layoff to such things as a new soup-kitchen website or the coverage of dull-but-important bureaucratic news.

Dougherty never got close to raising the money he said he needed to realize his goal of recruiting and training volunteer journalists to cover each of the 70 neighborhoods in the city. Despite “hundreds of phone calls and letters to foundations, corporations and individual donors over the past four years,” he said, he raised a total of only $600,000 since 2005.

By contrast, the New York-based Pro Publica has collected some $14 million in donations since inception, including $8.5 million in 2008. In addition to an $8 million donation from the Sandlers in 2008, Pro Publica collected $554,734 from half a dozen other organizations like the MacArthur Foundation, the Monarch Fund, the Peter G. Peterson Foundation and the Atlantic Philanthropies, according to its tax return.

Counting the Sandler gift, the average donation at Pro Publica last year was $1.2 million per donor. If you take out the $8 million provided by the Sandlers, the average donation among the other benefactors was $90,789.

Pro Publica recently received $1 million from the Knight Foundation to hire two noted consulting firms to help raise more money. “We will be involved in fund-raising for the rest of our institutional life,” said Tofel in a telephone interview. “We will never be done. Even the New York Philharmonic is not done.”

Fund raising is a way of life, too, at MinnPost and Voice of San Diego, two other notable online journalism non-profits. But it occurs at a far smaller scale than at Pro Publica.

MinnPost founder Joel Kramer said he and his wife, who both work without pay, have raised $2 million from some 1,700 donors since the non-profit news site was founded in November, 2007. That works out to an average of $1,176.47 per donor.

At Voice of San Diego, chief executive Scott Lewis said his organization has raised a bit more than $3.5 million from 962 donors since launching in 2005. That works out to an average of $3,669.44 per donor, thanks in large part to a series of gifts totaling $1.3 million over the years from its original angel, local businessman Buzz Woolley.

Woolley, who provided 30% of the site’s operating budget in 2008, told James Rainey of the Los Angeles Times that he would like to reduce his contribution “to avoid a perception that one individual holds too great a sway.”

Although Lewis said donations to his organization are on track with expectations, he and his colleagues expect to be engaged in continuous fund raising to ensure it thrives “into perpetuity.”

It's a choce he wouldn’t trade for anything. “I am living a dream,” he said. “I would do it 1,000 times again.”

Monday, September 28, 2009

Non-profit news ventures go big time

First of two parts. The second part is here.

The founder of the Chi-Town Daily News, a pioneering grassroots journalism project, happened to phone last week shortly before word got out that a wealthy businessman had donated $5 million to launch a major non-profit news venture in San Francisco.

“I can’t believe it,” said Geoff Dougherty, whose non-profit news venture ran out of money at summer’s end, forcing him to lay off himself and his four-person staff and put the site into a state of suspended animation in the hopes of finding someone, anyone to take it over. “I can’t find a few hundred thousand dollars anywhere in Chicago to keep the doors open.”

Dougherty would have been even more discouraged if he had known Warren Hellman was about to announce a $5 million donation to provide the seed financing for a new non-profit organization to help fill the void created by the incredibly shrinking news coverage at the financially strapped dailies in Northern California.

Though Dougherty may have been on the right side of history, his timing unfortunately was off.

Like a number of others across the country, he began trying to develop a new model to support public-interest journalism before the kinds of folks who could have written million-dollar checks came to recognize the crisis in coverage caused in the last few years by the retrenchment of the traditional local press.

But recent developments suggest that movers and shakers across the country get it now. And they are getting busy. So get ready:

The fight to save public affairs reporting likely is moving to a whole new level that will be characterized by more financial firepower, more professionalism and more civic muscle than ever before.

This will accelerate the development of new media models and hearten those who care about quality journalism. It also undoubtedly will lead to any number of intriguing and unanticipated outcomes for both non-profit news start-ups and the incumbent media organizations with whom they will compete.

The move of non-profit journalism into the ranks of major-league philanthropy is illustrated not only in the Hellman gift in San Francisco. It also is reflected in the $3.5 million raised in a matter of months for the Texas Tribune, a soon-to-be-launched statewide online news site, and the $14 million raised by Pro Publica, the national non-profit investigative reporting venture founded in 2007.

Organizers and executives at each of these ventures say they are aiming to become self-sustaining civic institutions that are as visible and enduring as the private universities, museums and performing-arts organizations that historically have been built and supported by contributions from foundations, corporations and wealthy individuals.

The emerging shift in the nature of journalism start-ups appears to be taking place because a growing number of philanthropists and civic leaders are waking up to the danger posed to their communities and our democracy by the breakdown of the newspaper business, which has been ravaged by a host of structural changes and the general inability of publishers and editors to react creatively to them.

Excesses, errors and lapses aside, newspapers for generations did nearly as much good for the public as they did for the fortunate few who owned them. Because newspapers deployed the largest news-gathering staffs in each of the markets they served, they were, in the best cases, the eyes and ears and consciences of their communities.

But those vital functions are faltering, as publishers continue nibbling away at their ever-shrinking news coverage in the hopes of preserving an anachronistic and rapidly deteriorating business model.

In response, a growing number of dismayed civic leaders seem to be concluding they can’t count on their local newspapers to provide the diligence and leadership they had in the past.

So, the leaders are beginning to turn their wealth, connections and energy to exploring new ways to support public-interest journalism. One of the ways they are doing this is by generously underwriting the sort of innovative, non-profit ventures that previously were started on a shoestring by well-intentioned, but typically underfunded, idealists and entrepreneurs.

An example of the new approach to non-profit journalism is the Texas Tribune,which plans to launch shortly to fill what organizers say is a gap in in-depth reporting in the Lone Star State.

As reported here in July, Austin venture capitalist John Thornton put up $1 million of his own money to start the Texas Tribune and then began working his considerable base of business and social contacts to assemble solid funding for the project in the neighborhood of $4 milion to $5 million.

Thornton anticipates that it will take “three to four years” to bring the Trib to the point it can wean itself away from charitable funding by generating $2 million in annual revenues through donations, subscriptions and sponsorships to support a staff of 15 journalists.

Thornton’s approach – or something similar it – almost certainly will be replicated in a bigger way in San Francisco, where Warren Hellman, one of the most respected and prominent business leaders in the community, will leverage his stature to gather additional support for his ambitious non-profit news venture.

To ensure the success of his project, Hellman already has enlisted as partners KQED, the largest public broadcaster in Northern California, and the Graduate School of Journalism at the University of California at Berkeley. For good measure, Hellman said he is well along in discussions to have the New York Times carry the reports that will be produced by the nascent news project.

It’s far too early to know how the San Francisco project will shape up. But you can get a sense of the possibilities by comparing the scale of grassroots non-profits with their bigger, institutional counterparts. That’s what we’ll do in the next installment.

Next: Size matters in non-profit news

Friday, September 25, 2009

Only 5% in UK would pay for web news

U.S. publishers planning to erect pay walls may want to take note of a new poll that found only 5% of newspaper site readers in the United Kingdom would be willing to pay for interactive content.

In a Harris Interactive Poll conducted for PaidContent:UK, researchers found that 74% of respondents simply would go to other sites if they were required to pay for access to the news they now get for free.

As for the balance of the respondents, 8% said they would take advantage of any free headlines on the news sites and 12% said they were unsure. The poll was published here this week.

The other interesting finding in the poll is how little readers are willing to spend to read the news. Fully 72% of respondents said they would not want to pay more than £10 per year, or $1.33 per month in U.S. dollars.

That compares with an average acceptable price point of $4.64 per month found in a recent poll conducted for the American Press Institute and the belief expressed by Steven Brill of Journalism Online that publishers can collect $8.33 a month in subscription fees.

Twenty percent of the respondents to the UK poll said they might be willing to pay up to £20 a year (US$2.67 per month) and 8% were willing to go as high as £50 annually (US$6.65 per month).

No one was willing to go any higher.

Thursday, September 24, 2009

S.F. gets biggest-ever local news non-profit

A $5 million grant from a single philanthropist will fund the launch in the San Francisco area of the most ambitious project yet to build a non-profit news organization to fill the growing vacuum left by the contraction of the mainstream media.

San Francisco businessman Warren Hellman today pledged $5 million to kick off fund raising for a new non-profit news organization being developed in partnership with KQED, the largest public broadcasting affiliate in the market, and the Graduate School of Journalism at the University of California at Berkeley.

Hellman said the group is “fairly far along” in discussions to have its reports carried in the Bay Area print edition of the New York Times.

Hellman’s gift will far surpass the funding that has been assembled to date by each of such other notable non-profit local news projects as MinnPost, Voice of San Diego, Chi-Town Daily News and Texas Tribune. As illustrated in the table below, the average funding since inception for the four other non-profit local newsrooms is $2.4 million, according to data provided by each of them.

The San Francisco project evidently is being launched in a manner similar to the Texas Tribune, which was founded earlier this year with an initial gift of $1 million from John Thornton, an Austin venture capitalist. Thornton said in an email this week that he has raised nearly $2.5 million of the $4 million in additional donations he hopes to accumulate to fund the statewide online news site until it can begin generating sufficient revenues to become self-sustaining.

Hellman characterized his contribution to the San Francisco news project as “seed” funding, suggesting the nascent organization will attempt to grow its resources beyond the initial donation. If Hellman’s cornerstone gift can attract follow-on donors to the same degree Thornton has been able to leverage his donation, then the organization’s resources for covering Northern California could rival or surpass the $14 million that has been raised since inception by Pro Publica, the donor-funded nationwide investigative-reporting initiative launched in 2007.

Pro Publica, which is the biggest of the non-profit journalism ventures that have emerged in recent years to fill the void created by shrinking newspaper coverage, has an annual budget of about $9 million to support 32 full-time journalists and 5 administrators, according to Richard Tofel, its general manager.

There could not be a better place than Northern California to gain public support for new ways of reporting and delivering the news, said Hellman in a prepared statement. “The Bay Area has a voracious appetite for news and is one of the most engaged and community-minded regions in the nation,” said Hellman. “We are confident that this is an ideal place to create a new economic model that will sustain original, local, quality journalism, and we believe that the Bay Area will step up to support these efforts.”

Hellman is chairman of Hellman & Friedman, a successful private-equity firm that says it has raised and managed more than $16 billion in the last 22 years to invest more than 50 companies in such industries as health care, software, finance, manufacturing, energy, professional services and media. Its media investments have ranged from Axel Springer to Double Click and from Getty Images to Young & Rubicam.

Hellman’s decision to fund the most ambitious non-profit local news initiative in the nation climaxed a six-month examination of the problems and prospects for local news conducted as a pro-bono project by McKinsey & Co., the international consulting giant.

The study found that “local newspapers have collectively reduced their newsrooms by nearly 50% during the last five years,” according to the press release. “The impact is seen in the number of original, professionally written stories about the Bay Area, which at one major regional newspaper has declined from 100 to 40 stories per day.”

Hellman persuaded McKinsey to conduct the study after he was asked earlier this year to consider coming to the aid of the ailing San Francisco Chronicle, which has reduced staffing in its newsroom several times in recent years in efforts to staunch losses amounting at some points to more than $1 million per week. The Chronicle news staff today numbers some 170 journalists, as compared with a peak of 560 in 2000.

The journey that resulted in Hellman’s bequest got its start in February, when Carl Hall, a reporter who left the Chronicle to join the staff of the Northern California Media Workers Guild, approached Hellman to see if the financier could help the Guild explore the potential purchase of the Chronicle.

While Hall said the initial impulse was to try to find a way to shore up the money-losing Chronicle, he said in a telephone interview that further research indicated “the business model may not be there to put a sustainable, for-profit economic foundation under quality, professional journalism.”

Attention turned to what could be accomplished by a well funded, non-profit newsroom focused on the beat coverage, investigative reporting, enterprise projects and science and cultural reporting increasingly curtailed by economically strapped daily newspapers.

Hall said the depth and scope of coverage planned by the news project is beyond what other non-profit news operations have attempted in places like Chicago, Minneapolis and San Diego. The other operations do solid interpretive, investigative and cultural reporting but do not attempt to emulate what Hall called the “meat and potatoes” coverage historically provided by metro dailies.

While the operators of non-profit newsrooms in other markets say they are functioning on budgets of some $1.2 million or less, the annual budget envisioned for the new San Francisco newsroom is intended to be significantly larger, said Hall. In part, he said, that will be because the operation will be committed to professionalism. “We don’t want volunteer labor,” he said. “The staff has to be decently paid, professional-quality journalists.”

Hall declined to disclose the details of the non-profit’s projected staffing and budget.

The new organization will be influenced, supported and complemented by the radio and television news coverage already produced by KQED and by the efforts of Berkeley journalism students who for several years have operated innovative and well respected hyperlocal websites in places like the Mission District of San Francisco and such neighboring communities as Oakland and Albany.

“I see this new effort to create a high quality, regional and local digital news site that’s sustainable, that's tied closely to very local efforts like the ones the school has launched – and that is built from the ground up,” said Paul Grabowicz, the associate dean of the Berkeley j-school.

“That's one of the main attractions for me,” said Grabowicz in an email. “We're trying to envision what the future will be and create something from scratch to take us there. And hopefully others will be able to learn from what we learn, whether they're existing news operations or brand new start-ups."

Although neither the Chronicle nor the MediaNews Group papers serving most of the rest of Northern California were named as participants in the new non-profit venture, it should not be considered an antagonist to the existing media, said Neil Henry, dean of the Berkeley journalism school.

“This is intended to provide original and meaningful journalistic content in new and engaging ways to help address the shrinkage of news due to the industry's contraction,” he said in an email. “It is certainly more friend than foe to the existing industry in that it seeks to find ways to save local journalism, which is certainly in the industry's interest, as well as the public's.”

Hall said Guild members at the mainstream dailies shouldn’t feel threatened, either. He said new competition in the market ought to encourage the existing media to hang on to the staffs they have – and perhaps consider augmenting them.

“When more people sell ice cream,” said Hall, “more ice cream will get sold and everyone will do a better job of selling it.”

Wednesday, September 23, 2009

‘It will take unions to save newspapers’

A number of readers disagreed sharply with my suggestion that newspaper unions may be losing their relevance. One of them was Andy Zipser, the editor of The Guild Reporter, the official publication of The Newspaper Guild-CWA. Here’s what he had to say:

By Andy Zipser

The Newsosaur, in a lengthy posting Monday, exhibited a poverty of imagination that cries out for charitable intervention.

Commenting on the refusal by Sun-Times Media workers to roll over and play dead, the Newsosaur laid out a stark choice: the unions can agree to sweeping wage and other contract concessions demanded by a prospective buyer of their bankrupt employer, essentially disemboweling themselves. Or they can stubbornly cling to outmoded concepts, like a living wage, decent benefits and a sense of workplace dignity -- and see the whole enterprise go down the toilet. "Either way, the unions lose," the Newsosaur concluded, before raising the logical question: given the above, have newspaper unions become irrelevant?

But as any poll-taker knows, how you pose a question is critically important in determining what answer you get. Black-and-white choices will elicit black-and-white answers. It's to the credit of power-brokers like Chicago's Jim Tyree that the choice for Sun-Times workers has been framed in such absolute terms, since it suits his purpose, but the rest of us should be smart enough to resist being stampeded into an intellectual dead-end.

Tyree is merely the latest in a parade of opportunists (can you say Sam Zell?) who see a chance to leach profit out of a failing enterprise by further starving its human capital. In this world view, the men and women who actually create the wealth that Tyree wants to claim are liabilities rather than assets, disposable commodities rather than stakeholders who may have a thought or two about how to turn things around.

Tyree is hardly alone in his contempt for working people, but there are alternatives. One particularly worth noting is the experiment now under way in Portland, ME, where a group of private investors recently bought the Press-Herald and three other media properties from the Blethen family, better known for its majority ownership of the Seattle Times. As in Chicago, the papers were a distressed sale, with the Blethens darkly warning that they'd have to pull the plug if a buyer couldn't be found. And, as in Chicago, the Blethens attempted to cram a wish-list of concessions down the unions' throats, asserting that without such changes no buyer would step forward.

In fact, a buyer did emerge – the only prospective bidder that approached the employees and their unions as stakeholders, not as sticks of furniture. The discussions that ensued lasted far longer than anyone anticipated, but the result was a series of quid pro quos: the employees gave up 10% of their wages and agreed to a two-year wage freeze, a two-year suspension of 401(k) contributions and a pension freeze. The buyers gave up a 15% equity stake to the unions, as well as three seats on a nine-member board of directors. Joint labor-management committees meet regularly to discuss changes and improvements.

It's much too soon to tell whether the Portland experiment will work in the long-run, but it's worth noting that in the short-run its employees are energized and optimistic. They share a belief that they're finally part of a joint enterprise, not a resented drain on the corporate coffers. And if the future holds a place for newspapers – if, that is, they're not all doomed to go the way of quill pens and palimpsests – it's a fair bet that the survivors will be those most successful at enlisting the active support of everyone on the payroll.

Will the Portland model work elsewhere? Maybe. Or maybe other models will evolve, each most appropriate to its locale and workforce and economic situation. The point is that such evolution won't occur in a vacuum. It takes organization and resources and at least a little institutional heft to get a publisher's attention, to convince would-be buyers that here's someone with whom it's worthwhile talking, to assure everyone at the table that deals can be struck and promises kept.

In other words, it takes a union.

(It's worth noting, for example, that it was the Portland Guild that approached Richard Connor and his partners when they were first thinking about the purchase – and as Connor subsequently acknowledged, without such overtures the deal would not have happened.)

Are strikes passe, as the Newsosaur suggests? Perhaps, but it sells unions short to imagine that's all they know how to do, so maybe it's the question that's irrelevant, not the union. And just as not all unions are run by thugs, not all publishers and newspaper owners – actual or aspiring – are corporate plunderers. A relevant union, therefore, is the one that offers a steel hand in a velvet glove: ready to slap down the arrogance of a Jim Tyree while remaining equally ready to shake the hand of a prospective partner.

The Newspaper Guild has its hand extended.

Monday, September 21, 2009

Are newspaper unions becoming irrelevant?

Union members at the Sun-Times Media Group never have been more powerful than they are today, but the power they wield is a weapon of mass self-destruction.

The unions can continue voting – as they did last week – against the sweeping wage and other contract concessions being demanded by the potential purchaser of their bankrupt company, thereby almost certainly condemning the business to liquidation if a sale is not arranged in a matter of weeks.

Or, in the interests of saving the flagship Chicago Sun-Times, its 58 sister papers and as many jobs as possible, the workers can agree to double-digit pay cuts, the elimination of seniority rights and a host of other contract protections they have long held dear.

Either way, the unions lose.

If they reject the concessions and the company folds, the 1,900 employees at the company likely would lose their jobs, including the 630 represented by unions.

If the unions agree to the concessions demanded by potential buyer James C. Tyree, some people probably will lose their jobs, anyway. Those left will see skinnier paychecks and weaker benefits, while laboring with fewer protections and more uncertainty than workers at the troubled company have ever known.

If the concessions demanded by Tyree are as non-negotiable as he says they are, then an eventual agreement by the unions to his terms will mean that a great many of the protections historically enjoyed by their members would be summarily forfeited. Though the resulting bargain may be the best anyone can hope for in these dire times for newspapers, a capitulation by the union would render it largely impotent in future transactions with management.

The situation shaping up in Chicago is hardly unique. Cave-or-else demands from management have been swallowed this year by unions representing workers from the Boston Globe to the San Francisco Chronicle and countless papers in between.

The problem of shrinking union clout is not exclusive to newspapers. It has become increasingly common among unions representing workers in a host of once prosperous, but now contracting, industries.

As but one example, the membership of the United Automobile Workers has shrunk to 431,000 today from 1.5 million in 1979. The UAW’s remaining members (and retirees) have been forced to accept any number of major contract concessions. Those still on the line have learned to live with the gut-gnawing uncertainty of how long, and under that circumstances, they will retain their positions.

Only 12.4% of American workers belonged to unions at the end of 2008, as compared with 20.1% in 1983 when such data first were compiled by the U.S. Bureau of Labor Statistics. Interestingly, the BLS reports that 36.8% of government employees belong to unions but only 7.6% of workers in private industry are represented by unions.

Just as journalists, ad reps, publishers and other people in the newspaper industry need to think about doing their jobs in new and vastly different ways, so do unions. The problem is that a clear future role for unions is not evident, because they have lost the leverage that once gave them their power.

The power of a union, of course, is its ability to withdraw the services of its members in an action otherwise known as a strike. Because few among us believe a newspaper these days could survive a strike, this option is off the table.

Given that both unions and management know this, the question of the day is this: Are newspaper unions becoming irrelevant?

Before you answer, some perspective:

Unions came to power during the Industrial Age, when sheer manpower was necessary to dig coal, smelt steel, build cars and, yes, set type one letter at a time. Without workers, companies couldn’t produce. Without product, companies couldn’t sell. Without sales, companies could not make a profit.

Unions had their greatest influence in industries where competing companies made the same product. If union workers went on strike at Ford, then General Motors and Chrysler gained a great opportunity to sell more cars and make more money. Some of the extra profits could be reinvested in capturing future market share from Ford. Not wanting to be crippled by strikes, all the auto markers for the mos part worked pretty hard to keep peace with their unions – and that’s how we got the sumptuous union contracts that now threaten to topple the un-competitive American auto industry.

With labor comparatively scarce and the economy expanding vigorously in the era following World War II, there generally were enough sales and profits in most industrial concerns to be shared comfortably between companies and their workers. Unions in a broad array of industries took advantage of the burgeoning prosperity to broaden and strengthen their membership, achieving landmark gains in pay, benefits and job rights.

But all that has changed now, especially for newspapers.

Newspapers need much less manpower to publish today than they did in the past. If a publisher going to an all-digital operation weren’t fussed about producing original content, a reasonably useful, popular and potentially profitable website could be run with almost no employees.

With a small and shrinking number of exceptions, few newspapers have direct competition from other newspapers. But the competition from the alternate media is so ferocious that a newspaper shut by a strike today almost certainly would never open again. The news and advertising vacuum would be filled rapidly by a host of online media, as well as perhaps a few enterprising competitors who cheaply produced print products at a local job shop. So, the threat of a strike – the weapon that historically gave unions their strength – is simply out of the question.

Last but not least, the newspaper industry is tens of billions of dollars smaller than it used to be, leaving less money than ever for management to split with workers. Advertising is likely to be some $20 billion lower this year than it was as recently as 2005, when the industry sold a record $49.4 billion in ads. Newspapers today are struggling to pay their debts and break even, let alone book anything like the juicy profits they used to make.

Because there is nothing to suggest things suddenly are going to start going the other way for newspapers, the best unions can hope to do today is try to wheedle minimal, incremental changes in the pay cuts and givebacks their members are facing. In a situation like the one at the Sun-Times Group, where a potential buyer can walk away without suffering any material financial pain, the unions may not even have the power to wheedle.

Unions did great things for American workers, improving workplace standards for members and non-members alike. My father was a union man, my mother was a union woman and I was a proud and active member of the Chicago Newspaper Guild until I was promoted into an exempt position at the Sun-Times. I am not anti-union. But I am pro-worker.

So, I can’t help but wonder whether one way newspaper unions could help their members would be to admit the futility of their efforts and save them the cost of union dues.

Now that I have put this painful question on the table, the comment window is open. I am bracing for a good thrashing from my former brothers and sisters in the labor movement.

Nothing would please me more than to be proven wrong. But I frankly – and sadly – don’t see a more constructive approach for unions to take.

Thursday, September 17, 2009

The paper that ‘invented’ foreign news

In a captivating and inspiring new book, John Maxwell Hamilton, a former foreign correspondent who now is dean of the Manship School of Mass Communications at Louisiana State University, gives a great deal of credit to the Chicago Daily News for pioneering foreign news coverage among American newspapers.

Although the Daily News went out of business in 1978, I am happy, as a loyal alumnus, to honor the memory of the paper with this excerpt from Hamilton’s book,
“Journalism’s Roving Eye: A History of American Newsgathering Abroad.”

By John Maxwell Hamilton

While no newspaper accounts all by itself for modern journalism, none has a greater claim than the Daily News, founded in 1875.

The guiding genius was its proprietor, Victor Lawson. Adorned in a black frock coat, top hat, and Prince Albert beard, Lawson was a tough businessman, sharp about collecting what was owed him, creative in gimmicks that promoted sales, and high-mindedness. He rejected advertisements that promised more than they delivered and filled his newspaper with news that was both entertaining and uplifting.

His newsroom was filled with many of the country’s best journalists. Legendary Daily News editor Henry Justin Smith saw “the newspaper as a daily novel written by a score of Balzacs,” said reporter Ben Hecht.

The Daily News, as one historian has noted, was the first newspaper “to articulate a vision of public community.” By 1916, Daily News circulation reached 400,000, or 100,000 more than any other American daily. When Adolph Ochs had wanted to establish his credentials in order to buy the faltering New York Times in 1896, he sought a recommendation from Lawson and later kept a picture of the Chicago newsman in his office.

Lawson’s signal contribution to foreign news came as the Spanish-American War drew to a close. With the United States now a world power, he decided to start a permanent foreign service. “It is no longer desirable, or even safe,” he told an editor, “for public opinion in this country to rely, as it now does, almost exclusively on foreign agencies, most of them subsidized by foreign governments, for their news of foreign countries.”

Lawson embarked on this bold – and expensive – idea as “largely an experiment.” His newsroom thought it folly to write about the world when raucous and corrupt Chicago was spread out before the paper. And anyway, it really wasn’t obvious what a foreign service made up of American journalists systematically reporting for American readers should exactly do. Lawson initially tried a recurring column from London, “Queer Sprigs of Gentility.”

While “Queer Springs” did not last long, the experimentation continued. In 1911 the home office asked for a weekly summary of the best jokes from the European press, a challenge for the Paris bureau since the funniest humor there was too risqué for the Chicago reader. For years the Daily News printed the names of visiting Chicagoans who signed the guest book in overseas bureaus. As a cost-savings at one point, correspondents were commanded to cease using the word “stop” in cables, a decision that led to endless mix-ups.

Over time, however, Lawson’s correspondents became highly accomplished. When World War I broke out, he capitalized on their experience. He deposited gold coin in strategically located overseas banks, where it was drawn on by the 30-odd correspondents he deployed “at the places of impact.” The Daily News, said Editor & Publisher, scored “more beats on the war in its special foreign service than perhaps any other paper in the world.”

Newspaperman Lord Northcliffe called Edward Price Bell, whom Lawson had sent abroad in 1900, “the best American newspaperman London has ever had.” “Our men,” pronounced Bell in turn, “are journalistic intellectuals, with definite personalities, with considerable personal reputations, and charged with duties in the highest realm of newspaper work.”

The Daily News was not about to forget the average reader, who might not care much about foreign affairs. Sports stories were a fixture on the front page, sometimes the banner story. Serialized fiction and Hollywood news entertained readers. “There are more romances told or suggested in a single issue of a metropolitan daily,” Lawson believed, “than you will find in a dozen novels.”

Though the banner story might be on sports, however, the first inside page was filled every day with foreign news, some of it highly specialized. This continued after Lawson died in 1925. Daily News series in 1928 and 1929 included William Stoneman on Schlesweg, Carroll Binder on the Calabria region of Italy, and John W. White on the reasons for South American ill will toward the United States.

“See that glint!” exclaims a character in Sir Arthur Conan Doyle’s 1928 Professor Challenger short story, a tale of the mad British scientist’s secret drilling in Sussex to reach the earth’s life force. “That’s the telescope of the Chicago Daily News.”

When the first Pulitzer Prize was given in the category of “correspondence” in 1929, the recipient was Paul Scott Mowrer, who became editor of the newspaper in the 1930s. His brother, Edgar, won the prize a couple of years later for his reporting for the Daily News from Germany. At the high point, more than 100 North American newspapers subscribed to its foreign service.

Will Irwin singled out the Daily News in a 1911 Collier’s article on the state of journalism. “Even should it change hands, should a get-rich-quick policy destroy its character, the ‘News’ would go on paying for a generation by power of its old honesty,” he wrote. And it did, first under Walter Strong (a relative of Lawson’s wife), then under Colonel Frank Knox, and next under John Knight. Each time it sold for a record price.

Each time, too, there was trauma that reminded correspondents of the fragility of excellence. Knox drove off Bell, whom he thought too much an Anglophile. Mowrer left when Knight brought in Basil “Stuffy” Walters, who spun theories about RPUs (reader pulling units) and emphasized bright layouts and story condensation, which made him unpopular with correspondents used to being left alone. It was widely whispered around the newsroom that when Mowrer saw the revamped newspaper, he commented, “They’re putting bobby socks on the Madonna.”

And sure enough, the momentum eventually did peter out.

In the Daily News’ heyday, homebound commuters boarded a train or bus with the newspaper tucked under their arms. With the post-war rise of sprawling suburbs, more and more readers drove their own cars to work. They listened to their radio on the road and watched television in their living rooms.

Getting newspapers to inner city projects was perilous; getting them to the suburbs on time was increasingly difficult because of the distances involved and congested expressways. The morning papers were delivered when most motorists were in bed.

By 1977, the four remaining Daily News correspondents had been recalled. Only once did the last foreign editor get permission to send a stringer on an assignment. The next year, on the same day that a Daily News reporter won the prestigious William Allen White Award for editorial writing, Marshall Field, the last owner, stood on a city room desk and announced the end of the paper.

So, what should the journalistic congregation conclude from this sermon? Great journalism, like the democracy that it is meant to support, cannot be taken for granted. It is, really, an experiment, just as Lawson’s foreign news service always was. His paper is an object lesson in the never-ending need to invent new ways to do journalism. “May the spirit of the writer’s newspaper survive,” wrote one staffer in the paper’s final edition on March 4, “somewhere in newspaper heaven.”


Wednesday, September 16, 2009

Inflated traffic stats cloud pay-wall plans

Newspapers trying to assess the financial impact of potential paid-content schemes are starting with a wildly inflated sense of the size of their online audience that could come back to bite them in a big way.

In “nearly every market” included in a study of 118 newspapers of every size in every part of the country, Greg Harmon of Belden Interactive found that publishers on average report the number of unique visitors to their websites is 1.3 times larger than the population of their respective communities – and fully 10 times greater than their print circulation.

Those numbers are not just moderately overstated. “They are magnificently incorrect,” said Harmon, who presented his findings to an industry conference earlier this week sponsored by the American Press Institute.

Worse, no one knows what the true numbers are. And that’s a major problem, because:

Understanding the true size of news-site traffic is crucial to developing a model that will accurately predict the revenues – and the inevitable audience loss – that would result from any paper’s decision to charge for the content it now provides for free.

To illustrate the enormity of the miscalculation that could be produced by basing a paid-content model on the wrong audiene number, let’s consider the case of Newspaper X. The hypothetical paper serves a community of 1 million residents, has a circulation of 100,000 copies and claims 1.3 million unique monthly visitors at its website.

If the publisher of Newspaper X starts out with the belief that she has 1.3 million unique visitors to her site and generously assumes that 15% of them will pay $4.50 per month to read the news, then she will project that charging for content will produce $10.5 million in annual subscription revenue.

But what is the likelihood that NewspaperX.Com really has 1.3 times more readers than the number of people who live in its city? Common sense, as well as Greg Harmon, will tell you the chance is implausibly slim.

To develop a more conservative projection, the publisher of Newspaper X could trim the number of unique visitors to equal the 1 million people who live in the market. Based on the assumptions described for the first case, the paper’s annual online subscription revenue would fall to $8.1 million, or 23% less than would be produced by starting with 1.3 million unique visitors.

But let’s get serious. Could every man, woman and child in town really be logging on to the newspaper’s site at least once a month? Not likely.

What if the actual number of unique visitors to the newspaper site happened to equal the number of its print subscribers? If the true traffic to the site were only 100,000 unique visitors per month, then online subscription revenue would be just $810,000 per year, or 76% of the sum that would be produced by 1.3 million visitors.

Don’t like those outcomes? Pick any unique-visitor number you want. No one can argue with you, because publishers haven’t the slightest idea of what the right number might be.

The online traffic numbers cited by most newspapers today are generated by server -logging systems that are almost universally acknowledged to overstate the number of individual visitors.

But publishers to date haven’t worried about cleaning up their data, because the unrealistically high figures generated by their systems support the story they like to tell about the broad reach delivered by their combined print and online products.

Advertisers typically haven’t been fussed by the inaccuracy, because they buy print ads by the inches and online ads, for the most part, according to a certain number of page views. As long as the publisher states she delivered the promised number of inches and page views, the advertiser is happy.

Now that publishers are trying to decide whether and how to charge for access to their websites, however, it is absolutely essential for them to know true size of their audience.

This information matters not only for the purposes of projecting potential revenue but also – and perhaps more importantly – in guessing how many visitors would stick around if they suddenly were required to pay for the content they are accustomed to getting for free.

As Harmon has discovered in studying the website traffic at dozens of newspapers for several years, online news consumers are not created equal. The audience, he says, falls into three distinctly different categories:

:: 25% of the unique visitors consist of loyal readers who visit a newspaper site an average of 20 times per month and sometimes multiple times a day.

:: 21% of the audience comprises incidental readers who visit between one and three times a month.

:: 54% of the visitors are what Harmon calls “fly-bys” – people who may come once a month in response to a link on another website that steers them to the newspaper.

Given their low engagement with news sites, incidental and fly-by readers don’t appear to be prime candidates for paying for content. Further, it seems reasonable to surmise that most would spurn a site demanding payment, possibly never to return.

If you are a publisher trying to intelligently evaluate the business potential of charging for online content, you are left with a spreadsheet full of holes:

:: You don’t really know how many unique visitors you have.

:: You have to guess at the percentage of loyal visitors who will be amenable to paying for content.

:: You have to guess the price loyal visitors might pay.

:: You have to estimate not only how much web traffic you will lose but also how far your ad revenues will tumble in response to the almost certain decline in page views.

Put it all together and you can see why half of the publishers in the United States can’t decide what to do about paid content. Given the frightening uncertainty they face, it’s a wonder more of them aren’t straddling the fence.

Tuesday, September 15, 2009

Ideal pay-wall fee may be less than you think

If the willingness of consumers to pay for online news turns on how much it will cost, a bit of early research suggests the ideal price may be less than some pay-wall proponents might hope.

In work conducted in the course of his newly completed study for the American Press Institute, Greg Harmon of Belden Interactive gathered some of the first actual sentiment from real consumers as to what they might be willing to pay for online content.

Harmon cautions that his early soundings are not sufficiently complete to draw any hard conclusions, so consider yourself warned. But real-world market intelligence has been so rare in the emotional paid-content debate that it’s worth discussing, with the explicit understanding that more research properly lies ahead.

Here is what Harmon found in quizzing a sample of 450 people in what he called one “typical” newspaper market:

Asked what they would spend for a monthly subscription to the newspaper’s site, the respondents willing to pay for news said that they would cough up an average of $4.64. But, Harmon noted, 211 respondents, or fully 47% of the group, said they would not pay at all.

Repeating for emphasis: Forty-seven percent said they would not pay at all.

The price point Harmon identified contrasts significantly with the assertion by Steven Brill, the founder of Journalism Online, that newspapers could charge an average of $8.33 per month for access to secured websites.

In announcing last month that some 500 publications had signed non-binding letters of intent to explore the possible use of his planned payment service, Brill said the publishers (whom he declined to identify) collectively stood to generate $900 million in content payments. This week, Brill upped the number of unnamed papers to 1,000.

If Harmon’s findings prove to be accurate, then Brill’s $900 million estimate would be aproximately 1.8 times the size of the market opportunity suggested by Harmon’s research.

A shortfall in anticipated online content payments of this magnitude would be a major setback for publishers, given that Brill’s projection is equal to almost a third of the $3 billion in online revenues the industry books in a year.

If a substantial number of consumers shunned newspaper sites requiring payment, the revenues gained from selling access to content might not make up for the decline in advertising sales that would result from the resulting drop in traffic. The failure of pay-wall revenues to equal or surpass online ad sales would spell disaster for any publisher.

In fairness, if must be noted that Brill may be right and Harmon’s work-in-progress research may be wrong.

Because no one knows for sure, it is perhaps understandable that Harmon discovered nearly half the publishers in the United States can’t decide what to do about charging for the costly-to-produce content they now give away for free.

Monday, September 14, 2009

ViewPass update

After the New York Times last week dubbed the ViewPass project “dormant,” a number of people have asked what happened to my proposal for an industry-owned solution to do a better job of monetizing newspaper web traffic. Here’s the answer:

ViewPass was proposed as a publisher-financed and -owned solution to monetize interactive audiences by encouraging registration across a broad variety of websites to gather an unprecedented level of accurate demographic and contextual readership data which would be used to auction advertising inventory at premium prices.

It was conceived to harness the most significant asset that publishers have – their aggregated audience of some 3.5 billion page views a month – to maximize the revenue they can earn online.

Where warranted, ViewPass also would enable micropayments, subscriptions and all sorts of other ways to charge for content, though it is questionable whether pay walls can succeed. Apparently half of newspaper publishers, as reported here, have the same concern.

When my business partner Ridgely C. Evers and I visited with senior newspaper executives over the summer, a number of them expressed great enthusiasm for ViewPass.

While several top newspaper executives said they would be happy to join the network, none of them to date has stepped forward to offer the financial support necessary to build and deploy the system. Absent support from the industry, of course, there is no way to build an industry-owned solution.

As I write this, representatives of most newspaper companies are meeting at the American Press Institute today – the latest in a series of such meetings that began in April – to discuss what to do about paid content. If they come to the conclusion that they want us to build ViewPass, we will. If they don't, we won't.

They have to want it as much as we do. Arguably, even more.

Only 51% of pubs think pay walls will fly

A bare 51% of the newspaper publishers in the United States believe they can charge successfully for access to their interactive content, according to a survey released today. The other 49% of publishers either fear that pay walls will fail or just aren’t sure.

The survey, which was conducted for the latest in the series of industry conferences this year studyng how to monetize the valuable content most newspapers give away for free, shows that publishers who are worried about charging for content have good reason to be concerned.

While 68% of the publishers responding to the survey said they thought readers who objected to paying for content would have a difficult time replacing the information they get from newspaper websites, 52% of polled readers said it would be either “very easy” or “somewhat easy” to do so.

These findings – and the others summarized below – are contained in an exhaustive survey by industry consultants Greg Harmon and Greg Swanson. They were hired by the American Press Institute to conduct the research for an invitation-only meeting of about three dozen industry executives being held today at a hotel in suburban Washington, DC.

The research consisted of two parts. One part was a poll sent to a selection of newspaper publishers, which was completed voluntarily by 118 papers of all sizes in all parts of the country, according to Harmon. The sentiments of more than 4,000 consumers were captured separately in online surveys at several participating papers.

While the success of launching a pay solution would seem to require a fairly broad and concerted approach among not only newspapers but also other news outlets, the survey shows little common ground among even newspapers as to how to proceed.

Although 58% of publishers said they are studying the idea of charging for content, fully 49% of newspapers reported that they have no timetable in mind for when or how they might do it. Only 10% of the respondents said they now charge for any portion of their web content.

Among the papers inclined to charge in the future, their initatives are anything but synchronized. Ten percent of papers said they are charging now, 12% say they plan to do so by the end of the year, 18% say they will do it in the first quarter of 2010, 10% say they will start charging by the end of next June and 2% said they would do something next summer or later.

Potential payment schemes range all over the map. The respondents ranked the strategies most likely to be adopted as follows:

:: 38% predict their papers will tease articles on a free home page but limit access to the full stories to people who buy a monthly subscription.

:: 28% think their papers will offer both monthly subscriptions and paid access to individual articles (the latter being known as micropayments).

:: 15% expect their papers will offer a combination of monthly subscriptions, imcropayments and all-you-can-read day passes.

:: 19% believe general news will be free but that their publications will charge for specially produced premium content.

:: 12% suggest their sites will offer free access to content during a session of limited duration but then require payment from readers when the free session expires.

:: 9% foresee the adoption of a pay-as-you-go system, where the visitor cannot buy a subscription or day pass but must pay for access to each individual story she wants to consume.

A question asking publishers why they might want to charge for content produced the predictable response that 77% are seeking to “capture new revenue opportunities.” Here is the intersting twist:

While 65% of publishers said they hoped content sales would develop a stream of revenues from new products, an even large number – 71% – said their objective is “preserving print circulation.”

In another dimension of the survey, Harmon and Swanson found a sharp disparity between the stated concerns of publishers over content piracy and their lack of attention to the issue.

While 85% of publishers said they are concerned about online publishers who use their copyrighted content without permission, only 25% said they were engaged in some sort of “active tracking” to combat copyright scofflaws.

The gap between aspiration and action may close after the Associated Press launches the new digital content-monitoring system scheduled for release in November.

Friday, September 11, 2009

AP didn’t have to run dying Marine’s photo

While I defend the right of the Associated Press to distribute the controversial picture of a mortally wounded Marine in Afghanistan, I can’t support its decision to do so.

The controversy came to light over the Labor Day weekend when Defense Secretary Robert Gates begged the AP to honor the request of the family of Lance Cpl. Joshua Bernard not to run a photo of the young man taken in the moments after he was shot in combat on Aug. 14.

But the AP ran the photo, anyway. While it was well within its rights to do so, was the need to publish the picture so compelling as to knowingly compound a family’s grief?

I don’t think it was, as I will discuss in a moment. First, the background:

The AP reports that it waited until after Bernard was buried on Aug 24 to show the picture to the Marine’s grieving family members, saying the agency planned to put the photo on the wire along with a story about the ambush in which he died. The family immediately objected to the publication of the picture and asked Gates to urge the AP not to do so.

After some internal soul-searching, the AP decided to publish the photo on Sept. 4 because “we believe this image is part of the history of this war,” said AP senior managing editor John Daniszewski. “The story and photos are in themselves a respectful treatment and recognition of sacrifice."

A respectful treatment? Arguably. A recognition of sacrifice? Perhaps. But historic? No. And that’s why I question the decision to run the photo.

Had the picture not generated this bit of controversy, it would have been little noted and soon forgotten, because its news value was modest. Distressing as the subject is, it unfortunately is just another of thousands of pictures of death and destruction in the long, depressing blur of images produced over eight, long years of war in the Middle East.

With solemn respect to the tragic sacrifice of this young American, this wasn’t a dramatic news photo like Jack Ruby shooting Lee Harvey Oswald, a game-changing image like the pictures from Abu Gharib prison or an instant icon on the order of the naked girl running down a road after a napalm attack in Vietnam.

The Bernard photo was another picture of another senseless death in a string of thousands of senseless deaths. It was not particularly newsworthy, because it neither altered the well-established narrative of the conflict nor added anything appreciably new to its bloody history.

While it would it would be fully appropriate to publish the picture as breaking news or in the absence of an objection from the family, there is not sufficient journalistic value in this image to justify the pain its publication evidently has caused.

Knowing well in advance of publication of the family’s objections to the picture, the AP would have been within the bounds of responsible and, yes, compassionate journalism to not publish it.

The AP acted sensibly and sensitively when it informed the family about the picture and the story well before they were scheduled to be published. The otherwise commendable process broke down when the AP disregarded the family’s objections. It didn’t have to end that way.

Plenty of stories, pictures, sound bites and video don’t make the news every day, because editors find them to be disruptive, distasteful or otherwise offensive to common decency. Unnecessaily adding to the grief of a military family suffering a fresh loss is an offense against common sense, if not common decency.

Publishing this photo was a judgment call – the kind of decision that reporters, photographers and editors make every minute of every day. And judgment means weighing not only the quality of a story or an image but also its impact.

Although I cherish the principle of an unfettered press that can publish freely without fear or favor, there was nothing in the public interest that demanded the publication of this picture.

Thursday, September 10, 2009

Sun-Times can be saved, says CEO

The money-losing Sun-Times Media Group can be turned into a modestly profitable business by the end of 2011, says the chief executive who took the company into bankruptcy court and plans to stick around to lead it back into the black.

“The days of a newspaper company running 20% to 35% margins are over and they will not return,” said Chairman Jeremy Halbreich, who joined the Sun-Times Group early this year, promptly filed for Chapter 11 bankruptcy protection and then launched the search for a buyer with the guts and financial firepower to try to save the scrappy Chicago tabloid.

Having found a purchaser in the form of financier James C. Tyree and a group of still-unidentified private Chicago-area investors, Halbreich believes the Sun-Times Group has the capability by the end of 2011 to generate the 5% to 7% operating margins associated with a “typical industrial and manufacturing business,” he said in a telephone interview.

Although Halbreich declined to spell out the financial projections underlying his optimism, he said he expects the company will stop burning cash by the end of this year, thanks to past and future operating efficiencies that he already has identified. “Most of 2010 will be flat to down,” he said, adding that the company will not experience anything “along the lines” of the enormous operating losses it has suffered in recent years.

The Sun-Times Group, whose shares trade for less than a penny apiece on the Pink Sheets and whose market capitalization dropped 20% to $671.585 Wednesday on news of the pending sale, stopped reporting its financial performance to the Securities and Exchange Commission as of Dec. 31, 2008. But its sales at the end of 2008 had fallen to $323.8 million from $418.7 million as recently as 2006. Worse, the company’s pre-tax loss of $381.3 million in 2008 surpassed its revenue.

The company had a mere $19.3 million in the bank at the end of July after losing $3.8 million in the month. With the pending sale of the company requiring bankruptcy court approval, it may not be until the end of this month before the new owners take control, leaving the company close to running out of working cash.

But Halbreich, who expects to remain as the chief executive of the company for the new owners, says Tyree’s group has committed to making an eight-figure investment in the company to cover near-term operating losses and to fund a number of initiatives to bring new efficiencies to the business.

“As arguably brilliant as the powers here were 8 to 10 years ago when they put together the collection of our dozens of suburban newspapers, they literally did not do the job of consolidating the properties and taking advantages of the obvious synergies,” said Halbreich.

“To this day, we still handle payroll off five or six separate systems leading to lots of duplicated overhead,” he continued. “We sell ads in multiple titles to the same individual advertiser and the advertiser then receives a separate bill from each publication. We have no ability to send out a single bill.”

Until the company this year took steps to consolidate most printing operations at a single plant south of the city’s Loop, the company divided production for its 58 suburban papers among a several separate plants. “Although we just announced the closing of the Northfield printing plant (in the city’s North Shore suburbs), we will not start getting the benefit of those savings for three months,” said Halbreich.

Other elements of Halbreich’s turnaround plan include the increase earlier this year of the price of a single copy of the Sun-Times to 75 cents, a plan to permanently implement the “temporary” 15% pay cut that union employees accepted during the hunt for a new buyer, a plan to save newsprint costs by slimming down the size of newspaper pages and a plan to modernize the company’s outmoded editorial-production systems.

On the revenue side, Halbreich said he and his management avoided making “sanguine” assumptions about future growth. “Ours is not a situation where revenues turn up with new ownership,” he said, adding that several prospective purchasers complimented him on the conservatism of his revenue forecast.

“We will have to restructure the business to match the reality of today’s revenue picture,” he continued. “We will have an easier task than most metro papers for a couple of reasons. First, none of the available operating synergies has yet been undertaken. Second, the Sun-Times has fewer layers of the management, bureaucracy and embedded systems than exist at most other metros.”

Halbreich took exception to my assertion in prior posts that the flagship Sun-Times probably was losing advertising market share as the result of the weak economy. Although the No. 2 newspaper in a city typically loses more ad share than the dominant paper in a down economy, Halbreich that has not been the case at the Sun-Times.

On the contrary, he stated, the Sun-Times in five of the last six quarters has gained ad share over the Chicago Tribune and the Daily Herald, an independently owned group of suburban newspapers. Halbreich said a confidentiality agreement with the competing publishers prevented him from providing the data to back up his assertion. (Note: This paragraph has been corrected, because in the original post, I said last five to six months, not quarters.)

One measure of Halbreich’s confidence in his turnaround plan is that he said he will be shopping for a permanent residence in Chicago if the company successfully exits bankruptcy and is taken over by the Tyree group. A former top executive of the Dallas Morning News, he has been commuting from Texas and living in a Chicago hotel since being appointed interim CEO of the company in February.

When he is not busy touring condos, though, Halbreich vows to “look under every rock and stone” to find what it takes to make the Sun-Times succeed.

Wednesday, September 09, 2009

Can latest savior save the Sun-Times?

More cuts, more drama and more trauma almost certainly lie ahead for the Sun-Times Media Group now that a civic-minded businessman has stepped forward to buy a company that probably could not otherwise have lasted out the year.

In the latest twist in 25 years of always colorful and often dysfunctional ownership, a group of private investors led by Chicago financier James C. Tyree disclosed an offer on Tuesday to purchase the media company out of Chapter 11 bankruptcy for $5 million in cash and the assumption of some $20 million in unspecified liabilities.

By the time the deal makes its way through the auction mandated by the bankruptcy process – the law requires alternative bids to be invited – the actual purchase price probably will be little more than a token sum.

Assuming no other bidders materialize, the $5 million offered by Tyree will be reduced by adjustments necessary to keep the company’s working cash at the level it was when the deal was struck.

The company lost $3.8 million in July to end the month with a mere $19.3 million in the bank. Given that the auction will take at least the better part of this month, it is likely the company will have scarcely more than $10 million in its coffers by the time Tyree and his partners take control of the business with their newly created STMG Holdings LLC.

Tyree told the Sun-Times that he and his yet-to-be-identified fellow investors plan to pump “tens of millions of dollars” into the company to revitalize the business. They had better be ready with plenty of additional cash, if they have any hope of turning around the heavily overmatched No. 2 newspaper in what increasingly appears to be a 1½ newspaper town.

As detailed previously here, the Chicago Tribune has done a superb job of pressing its advantage as the dominant metro in the market during an economic downturn when cost-conscious advertisers took more dollars out of the budgets allocated to the Sun-Times than to those destined for the Tribune.

To further consolidate its strength, Tribune Co., despite its own Chapter 11 bankruptcy, has leveraged the power of its popular WGN television and radio units, plus a series of publications that complement the flagship paper – not the least of which is the jazzy, free RedEye tabloid that has blown a major hole in the single-copy sales on which the Sun-Times desperately depends.

Tyree, who heads Chicago-based Mesirow Financial Holdings and also chairs the Chicagoland Chamber of Commerce, appears to be motivated in part by the chance to buy a distressed asset on the cheap but probably even more by the desire to rescue an endangered, much-beloved civic institution.

The Sun-Times, where I was city editor in the early 1980s and a consultant in 2007, remains a surprisingly nimble and feisty competitor despite years of sometimes criminal mismanagement and recent rounds of relentless budget cuts.

While Tyree has not commented on his motivations since he surfaced as a potential bidder in the spring, he was quoted in May by the Chicago Tribune as saying he thought he could make a successful business out of whatever revenue the Sun-Times and its 58 suburban titles are able to generate. The business model “has to be a conservative one,” he said, adding: “You just have to be innovative, not tied to the past.”

Based on those statements, it seems fair to suspect that Tyree will do whatever it takes to cut the burn rate at the Sun-Times Group as rapidly as he can so he can begin generating the positive cash flow necessary to undertake whatever print or interactive “innovations” he has in mind to put the foundering business on a solid footing.

The Sun-Times Media Group, whose shares trade for 1 cent apiece on the Pink Sheets and has a market capitalization of $839,820, stopped reporting its financial performance to the Securities and Exchange Commission as of Dec. 31, 2008. But its distress is beyond question. Sales at the end of 2008 had fallen to $323.8 million from $418.7 million as recently as 2006. Worse, the company’s pre-tax loss of $381.3 million in 2008 surpassed its revenue.

The quickest and surest way to cut expenses to boost profitability are the usual ones: Closing marginally profitable titles, consolidating production facilities, reducing staff, shrinking benefits, squeezing newshole, trimming the circulation footprint and outsourcing a variety of activities.

The problem is this: Even though all of these tactics have been employed repeatedly over the years by the Sun-Times and its sister publications, revenues have continued to contract, losses have not been staunched and the hoped-for profits have not materialized.

Can Tyree & Co. succeed where investors like those who bought the Tribune Co., the Philadelphia newspapers and the Minneapolis Star-Tribune soon landed in bankruptcy court?

Tyree and his partners have a major edge over the other recent newspaper buyers because they are not overpaying for the Sun-Times Group or borrowing hundreds of millions of dollars to finance the purchase.

But Tyree and his partners will be challenged in a way that none of the other would-be publishers were.

While every newspaper in the land is struggling to navigate fierce secular declines in readership and advertising in the wost recssion in modern history, all the prior deals involved properties that, though burdened with too much debt, were reasonably successful businesses at the time they were bought.

Although the over-leveraged publications fell short of the exuberant hopes their buyers and bankers had for them, they will exit bankruptcy cleansed of excessive debt and with plausible chances of carrying on as viable companies, assuming any metro newspaper can.

But the story is different at the Sun-Times Group and at the flagship newspaper in particular. By any measure, the Sun-Times Group is not a going concern.

The reason almost certainly is that the Sun-Times itself, the largest revenue generator of the group, may well not be capable of turning a profit under any conceivable circumstances. It has all the overhead of a comparable metro paper without the sort of sales or market position that most of the rest of them enjoy.

While Tyree’s first impulse almost certainly will be to try to save the Sun-Times, he may come to realize that the most “innovative” thing he can do would be to make radical changes in the Sun-Times itself. Those might range from turning the Sun-Times into a free paper, to reducing its publication from seven days a week, to – most radical of all — turning it into an interactive-only enterprise.

If Tyree can stop the bleeding at the Sun-Times and cut the substantial corporate overhead that heavily burdens the business, he could turn his attention to optimizing the operation of the company’s well-positioned suburban properties to make the investment a success.

Ironically, however, he may come to discover that he has to sacrifice the Sun-Times to save the struggling business he set out to rescue.

Tuesday, September 08, 2009

Yelp: Don’t leave home without it

I just got back from my first fully Yelp-enabled vacation and it was the best ever. As the late, great Karl Malden said in his American Express pitch: Don’t leave home without it.

Although tens of millions of savvy Internet consumers know about Yelp, I find that an amazing number of broadcast and publishing pooh-bahs still haven’t heard of it. That’s too bad, because it means they not only are fated to eat an unnecessary number of bad meals but also because they can’t fully appreciate how modern consumers use the interactive media.

If you work in the media and haven’t taken the trouble at this late date to learn how the Internet functions as a complex social ecosystem (having a Facebook page and Twitter account are not enough), then a case could be made that this short dissertation won’t do much good. But everyone’s got to start somewhere and this is as good a place as any. So here’s my advice:

If you are now drawing or ever hope to draw a paycheck from a media company, then check out Yelp.Com so you can see a perfect example of the social behavior of the web in action.

For the uninitiated, Yelp is a website where visitors get and give information about restaurants, merchants and, increasingly, services ranging from physicians to dishwasher repairmen. Visitors are encouraged to write reviews for every establishment they visit and rate them with one to five stars. Yelp keeps a running average of stars and even conveniently tracks the star trend over the prior six months.

Founded in 2004 and now covering 28 locations, Yelp had some 28 million visitors in the last 30 days, according to Compete.Com. A start-up founded by two former PayPal executives, Yelp has been backed to date by at least $31 million in angel and venture funding.

The business model of the 200-employee company is to sell ads to restaurants and other merchants. Because the company is private, its financial performance is not disclosed. TechCrunch estimated in 2008 that Yelp generated less than $1 million in monthly sales. If so, the company would be quite a way from being profitable.

Yelp says it has published more than 7 million reviews from inception, each of them generated by individual users because there is no staff to write them. Thus, Yelp actually is attracting a vast amount of the sort of inexpensive and compelling user-generated content that many media companies have spent tons of money to try to acquire – but typically with scant success.

Apart from seeing some frighteningly atrocious spelling, I have been struck time and again over the years by the wit, thoroughness and fairness that most Yelpers put into their reviews. With good reason, too, because each author is identified by first name and last initial and a link back to all of her previous reviews.

Thus, each Yelper becomes a mini-brand with a reputation to uphold in the community. Because no one wants to look bad on Yelp, people for the most part seem to put considerable care into their contributions.

The high visibility accorded individual Yelpers not only encourages people to write more reviews but also is valuable for users trying to determine how much to credit a particular contributor’s opinion of a restaurant. You can look at the other places she has reviewed to see if you have eaten there and agree with her findings. If you find someone whose opinions you like, you might go so far as to visit some of the other places she has recommended.

There is, of course, a simple alterative to parsing the evaluations of individual reviewers: Especially when at least a couple dozen reviewers have visited a place before you, the star system is a pretty reliable guide. Thanks to a respectable volume of continuously updated data for most establishments, Yelp proves the value – and the rather amazing reliability – of crowdsourcing.

While Yelp demonstrates lots of best practices in leveraging the social behavior of the web, the best thing about it is that it sends you to terrific places you never would have known about.

On my recent trip to Maui, I didn’t make a move without checking Yelp. I used Yelp to select the complex where I rented our condo in Wailea, to book our Molokini snorkel cruise, to shop for the best fresh fish and to choose every restaurant we patronized.

Without Yelp, I would not have dared walk into Taqueria Cruz or the Koiso Sushi Bar, two superb dining spots in one of the funky malls that serve as hubs of commerce in the no shirt, no shoes, no problem beach town of Kihei.

Now that I am back in San Francisco, Yelp has eased my post-Maui stress syndrome by introducing me to Humphry Slocombe, an innovative ice cream place where the house specialty is Secret Breakfast, an addictive concoction featuring bourbon and corn flakes.

When I first heard about Secret Breakfast, it sounded weird to me, too. But I put my trust in my fellow Yelpers and they didn’t steer me wrong.

Friday, September 04, 2009

Zell straps on his dancing shoes again

Sam Zell may (or may not) be headed for the exit as head of the Tribune Co., where he personally lost $325 million as the result of his recklessly financed acquisition of the company. But it looks like he is going to be all right.

The man who proudly characterizes himself as a “grave dancer” specializing in the acquisition and turnaround of troubled businesses is organizing a $625 million fund to invest in distressed commercial real estate, according to Bloomberg News.

If there is a growth field anywhere in this wobbly economy, it has to be commercial real estate, where untold billions of over-leveraged deals are about to crater amid plunging real estate values and soaring vacancy rates.

Zell built his fortune over the years on trafficking in just these sorts of properties, so this is a natural fit for his skill set. In addition to this prior experience, Zell will bring to his new venture the additional insight gained in creating a significant distressed asset of his own.

That, of course, would be the Tribune Co., which Zell saddled with some $12 billion in debt in a failed employee stock ownership plan that landed in bankruptcy court before the deal was a year old.

Though Zell may come out unscathed, you can’t say the same for some 20,000 current and involuntarily former fellow owners at Tribune. They would up being dragged to a dance where no one had a ball.