Friday, January 29, 2010

‘Supply lines of local news are being cut’

Endless newspaper layoffs have cost readers “tens of thousands of years of community knowledge,” says media sage Ken Doctor in an important new book.

As if the loss of community wisdom and lore were not bad enough, it is unclear where local news will come from in the future, warns Doctor in “Newsonomics,” which is being published next week and can be ordered here.

“For truly local news, our supply lines are being cut,” writes Doctor, a former senior editor at Knight Ridder who is one of the top thinkers (and worriers) about the ever-changing media landscape. He writes the popular Content Bridges blog.

“Profound changes” in publishing economics in the Internet age “have forced a basic redefinition of local news,” says Doctor, noting that the number of journalists in the nation’s newsrooms has fallen by at least 12,900 individuals, or a depressing 22%, since 2001.

Most of the jobless journalists, he adds, were devoted to reporting on local news. And many represented decades of irreplaceable experience.

“Disproportionately, the older, more experienced (and most highly paid) staff is targeted for buyouts and layoffs,” he writes. As a result of the brain drain, he adds, “we can estimate that readers have lost tens of thousands of years of community knowledge.”

But it is not clear whether – or what – will compensate for this loss.

“The biggest local news companies – the newspapers – are downsizing rapidly, and, I believe, permanently,” says Doctor. “The smaller local companies – the start-ups – are finding innovative ways to get bigger. The big question: Will these two trend lines meet, and, if, so, where?”

Thursday, January 28, 2010

Can iPad save media? Skeptics weigh in.

Not everyone is buying into the iPad hoopla. A quick sampling of media thought leaders determined that many are skeptical, at least to some degree, about its potential as a high-tech elixir for all that ails their business. Here are their cautionary comments (edited in some cases for length):

Richard Gingras, CEO of Salon Media, an Apple veteran and an early pioneer in portable computing:

Since the device is effectively a tablet laptop with full support for standard web-browsing, unlike the Kindle, I fail to see how this changes the game for publishers.

I'm sure publishers were hoping for a closed environment that forced the consumer to engage with publishers on their terms. But I don't see how it changes content economics at all. I didn't expect it to and I wasn't disappointed.

The New York Times app for the iPad has some nice enhancements but they all would make just as much sense on my laptop. Either way, these modest experiential changes don’t alter the marketplace economics for current-events info.

Jerry Ceppos, dean of the Reynolds School of Journalism at the University of Nevada at Reno and former corporate vice president for news at Knigh Ridder:

The iPad does nothing to change the basic question: Will consumers pay for news? The answer is the same: Probably not. On the other hand, it’s cool and I want one.

Alan Jacobson, CEO of Brass Tacks Design, who is a former newspaper editor and founder of TweenTribune, a blogging platform for middle-school pupils.

Media company offerings aren’t unique and compelling enough to gain broad and intense use, regardless of platform. Newspapers haven't faced this issue. Once again, it’s the content, stupid, and newspaper content doesn’t cut it.

Users will not pay for content, so there will be no money there. Newspapers could profit from transactions – taking a small piece of the action whenever someone buys something like a concert ticket off a link from a newspaper site. But newspapers don’t understand this kind of commerce, so they won’t do it.

The tablet will not be the wunderkind everyone thinks it will be, because it’s too big to be small and too small to be big.

Rick Edmonds, the media-business analyst at the Poynter Institute, which is the leading think tank for the newspaper industry.

The iPad has excellent potential as an added revenue stream but a lot would need to fall into place for it to be a savior of the industry or the dominant mode for people to get what newspaper organizations have to offer.

The Sports Illustrated demo sold me on the potential for an enhanced magazine experience. An enhanced newspaper-reading experience is possible but less obvious. However, the current and more primitive e-readers have been more popular than I would have thought.

How all this will work for advertisers is a big question not addressed today.

John Arthur, former executive editor of the Los Angeles Times:

Stepping back from the hype, there's no real reason iPad will “save print.” Print has to save print. I can already read tons of stuff on my Blackberry (or another smart phone). Why would I want a bigger, more expensive device?

Peter Zollman, CEO and founder of the Advanced Interactive Media Group and internationally recognized advertising consultant:

It’s not a question of the iPad. It’s a question of whether people will pay to receive valued content on whichever devices they use.

Many people already are paying for some content on mobile devices, and others are paying for specialty online content – whether it’s online greeting cards, unbiased consumer ratings, financial news or pornography.

The iPad presumably will make it easier for people to buy specific tidbits or feeds of information they want, and will lead to another generation of users who may be able to overcome the “information has to be free” mindset. We’ll see.

John Temple, the former editor of the Rocky Mountain News and the newly appointed editor of Peer News, a for-profit, Honolulu-based online news start-up.

I do think it can live up to its hype. I can see it doing well in the education market and with current Kindle users. But the question will be whether a big enough group of people is ready to pay for a third device, after their iPhone and their laptop.

Howard Owens, the founder and publisher of The Batavian, a local online news site and former digital media chief at GateHouse Media.

I’m more excited about the iPad as a journalism tool than a publishing platform. Reporters should drool over what seems to be a bit a Swiss army knife of digital-reporting tools.

The idea that publishers can profitably charge for content on a device connected to the open network is a lost cause. The best hope for paid content in the digital world is a closed device, and I just don’t see consumers going for a device that is connected to the network. The network provides a world of infinite choices, which makes charging for content exceptionally challenging.

It’s unlikely that any one device is going achieve a high enough market penetration to put publishers back in the mass-market game. Short of mass market, profitable paid content will be hard to achieve.

On the other hand, for publishers who keep development costs down for content-related apps, there may be some level of supplemental income from these apps. The more devices — iPad, iPod, Droid-powered devices — that support apps, the more opportunities to sell such apps. Paid-content over time may evolve into something more substantial, but I’d warn publishers against wishing for a quick fix.

Tim McGuire, professor of media economics at Arizona State University, fellow journalism blogger, and former editor of the Minneapolis Star Tribune:

Just from reading the early dispatches, it strikes me that iPad has it right. They are combining information capabilities with entertainment capabilities. That strikes me as the ticket. I had been holding off purchasing a Kindle type instrument. This may be what entices me to try such a device. That said, seldom do first-generation products live up to this kind of hype and this has been some kind of hype!

James Gold, the COO of Leap Media Partners and former chief marketing officer of the New York Times Regional Media Group:

The new Apple tablet makes it possible for digital media to present advertising as rich as the best of print and broadcast but combined in a single medium. But it is the consumer information, such as location, demographics and life-stage details – combined with rich video and text/graphics based messages – that offers the most potential for a new digital business model. Together, the tablet can offer precise targeting and compelling, one-to-one marketing.

Media companies that embrace both these capabilities on behalf of advertisers will gain competitive advantage that may drive growth. Traditional print and broadcast media have been slow to take advantage of basic CRM [customer relations management] principles and value creation based on customer asset management.

If all they do is transfer what they already offer (nice print ads, great commercials) to the new platform, they will still struggle for a means to monetize the new technology. The unlocked potential is unleashed when you integrate deep consumer insight and the ability to establish and manage relationships for advertisers in a medium that is compelling for consumers.

Wednesday, January 27, 2010

How media can profit from new iPad

While it may be difficult for Apple’s new iPad to live up to the hype that accompanied its release today, there can be no doubt that this slick new device has raised the bar for interactive content delivery.

Unfortunately, as discussed previously here, most media companies already are late in developing editorial and advertising strategies to meet this new challenge.

Significantly, publishers and broadcasters should be single-mindedly focused on finding ways to charge (checklist at left) for all the exciting new content, services and advertising opportunities that will be enabled by the ’Pad and the imitators that follow.

As media companies scramble to catch up, here are seven “ates” to help them gear up for the formidable task of tablet-izing themselves:

Invigorate – Cross-media content has to take full advantage of the bigger screen and richer multimedia capabilities of this highly portable new platform. This not only means that static words and pictures must be augmented by audio and video but also that the active media must be fully and seamlessly integrated into storytelling. Even data can be marshaled graphically to tell a story or a map to tell a compelling story. Sticking a video next to several gray columns of type won’t cut it. Here’s something that’s on the right track.

Ingratiate – Like it or not, consumers are likely to be tightly tethered to these highly portable, always-on devices. They will use them not only to soak up startlingly increasing amounts of news and entertainment but also for work, play, shopping and socializing. To remain relevant and top of mind amid the ever-proliferating array of offerings, next-generation media applications will have to make themselves indispensable by providing calendars, shopping guides, social applications and similar consumer tools. If you have never seen the “Scope” feature in the Urban Spoon app for the iPhone, check it out now. You’ll never dine in a dive again.

Triangulate – Tablets make it possible for publishers to know not only where a consumer is, but also where she has been and – very likely – where she is going. This not only makes it possible to customize content delivery based on a customer’s location and interests but it also will be a bonanza for advertisers, who can intercept prospects at or near the point of purchase with exquisitely targeted offers. Geo-adverts are about to start at the Metro newspapers in Canada.

Curate – There never again will be a respite in the 24/7 news cycle. The good news for media companies is that the relentless flow of information is absolutely overwhelming consumers with information. That means they will need more help than ever to find what’s important to them. Media companies can make themselves indispensible – and charge handsome monthly fees for their services – by creating tools to organize, prioritize and customize the tsunami of in-bound info. A number of earnest science-fair projects (example) are under way to curate the news algorithmically and – who knows? – some of them eventually may succeed. Meantime, I have heard that certain human beings called “editors” are known to have this capability.

Propagate – The reason we call the interactive media “interactive” is because it is possible for users to interact with them. This distinguishes the modern media from such lean-back formats as television, radio, newspapers, magazines, books and skywriting. Tablets, like the web and smart phones before them, will turn these two-way, information-consuming devices into increasingly vital platforms for personal expression and social interaction. New applications make it possible for users not only to take active control of their experiences but also to provide ample incentives to share them with others. It was one small step for mankind when newspapers made it possible a dozen years ago for readers to email day-old articles to their friends. Now, we need some giant leaps.

Integrate – For most users, the right commercial message in the right place at the right time is as welcome as any other type of content. Journalists should not fear – or at this point, anyway, cannot afford to fear – tighter integration of editorial and commercial content. Most consumers are smart enough to grasp the distinction between news and advertising; subtle but explicit labeling can clue in the rest. For one example of how artfully advertising can be integrated into an interactive editorial package, click here. Note that this particular representation cleverly sells iTunes along with shampoo.

Celebrate – This stuff is cool. Let’s have some fun with it.

Monday, January 25, 2010

Next for MediaNews: Rolling up ailing dailies

Ailing newspapers in Detroit, Minneapolis-St. Paul and San Francisco eventually could shrink or shut down after MediaNews Group emerges from bankruptcy.

The prospect of future seismic shifts in the newspaper industry from Salt Lake City to York, PA, were signaled last week when Affiliated Media, the parent of MediaNews, filed for bankruptcy to eliminate all but $165 million of its $930 million in debt.

In the last line of the lengthy and complicated press release that originally announced the filing, the company said the post-Chapter 11 structure of MediaNews will create “a platform from which to develop, grow and participate in the consolidation and re-invention of the newspaper industry.”

Translated into plain English, this means William Dean Singleton, the ever-resilient chief executive of MediaNews, will use his newly streamlined balance sheet to pursue his long-time passion for extracting profits from struggling newspapers.

In even plainer English, this means merging profit-challenged properties in multi-newspaper markets and consolidating their operations at every level – in the newsroom, in the ad department and throughout the production chain – to wring fatter profits from what remains.

In the plainest English, this likely means more lost jobs.

After MediaNews emerges from a bankruptcy whose terms were said to approved in advance by lenders who are taking a $750 million haircut, Singleton’s next steps like those he took to build his company into the second largest newspaper publisher in the nation, will involve many moving parts. And many partners, including Gannett, Stephens Media and, potentially, even Hearst, who will lose $317 million in equity in the bankruptcy.

The other publishers like working with Singleton, because he is not afraid of doing the dirty work – and taking the heat – associated with shaping up troubled properties, which at the moment happen to bee abundant in the newspaper industry.

So, the “consolidation and re-invention” of the industry he mentions is likely to take two tracks:

:: Terminating joint-operating agreements by eliminating the secondary papers in places as diverse as Detroit, Salt Lake City and York, PA.

:: Putting independently owned papers in competitive markets onto common ad sales, production and circulation platforms. This could take place soonest in cities like Minneapolis-St. Paul and San Francisco.

Here’s how each of the two distinct strategies might play out:

The JOA strategy

Singleton celebrated the value of nuking the No. 2 paper in a JOA in the press release announcing the planned bankruptcy filing.

“Circulation of the company’s newspapers grew for the September Audit Bureau of Circulations six-month reporting period, while industry circulation dropped,” said the handout. “The growth included gains by the Denver Post after its primary competitor ceased publication.”

With all the newspaper revenue in the market flowing to a single title with enriched circulation, its stands to reason that the sole surviving daily in Denver is a far more profitable business today than before the rival Rocky Mountain News succumbed. A similar burst in circulation and profitability benefitted the Seattle Times last year, when its JOA terminated after the shutdown of the print incarnation of the Post-Intelligencer.

JOAs are antitrust exemptions that were expressly tailored by Congress to save newspapers by permitting publishers to make more money by combining ad sales, production and delivery in a single business. The U.S. Justice Department would have to bless the unwinding of any JOA, but approval may not be difficult to get, given the ills of the industry in general and the fact that the company is toiling to recover from bankruptcy.

The bankruptcy filing may give Singleton the argument he needs to persuade the Justice Department that his distressed business has to exit the various JOAs, so as to be able to scale back to a single paper in order to remain viable. This argument likely will be the centerpiece of his efforts to gain Justice approval of all the consolidations he may seek to undertake.

If Justice balks at the outright shutdown of a paper, MediaNews could give a few pages each day in the surviving paper to the one he wants to shut down. That’s what happened to the losing partners in joint agreements in Las Vegas and Madison, WI.

Here’s what might happen at the JOAs in which MediaNews is involved:


The newspaper business has been so dismal in Detroit that the dailies there abandoned home delivery for all but three days a week. With MediaNews stripped of debt, it would be in the position to acquire the dominant Detroit Free Press from Gannett, its JOA partner, so that its own struggling Detroit News could be shut down.

Alternatively, it is possible that Gannett could elect to buy out MediaNews. But it is far more likely that Gannett, a publicly held company, would like to unload the risk and distraction associated with owning a metro in the staggering Motown economy.

In buying Detroit, Singleton not only would get the opportunity to work his cost-cutting magic but he also would be doing a favor for Gannett, which is an investor in the MediaNews partnership that owns 15 dailies and a batch of weeklies in Southern California.

Salt Lake City and York, PA

While prospects in Salt Lake City and York may not be as bleak as they appear to be in Detroit, the day seems to have passed when there is enough business in most cities to provide two newspapers with the handsome profitability to which publishers historically were accustomed. So, the days may be numbered for the weaker paper in each of these cities.

In an unusual twist, Singleton already owns both papers in York, which he agreed operate as a JOA to get clearance to continue running the York Dispatch when he bought the competing York Daily Record.

In another unusual relationship, Singleton is partnered in the JOA in Salt Lake City with a for-profit arm of the Church of Jesus Christ of the Latter Day Saints. The Mormon unit owns the Deseret News and Singleton runs the Salt Lake Tribune and the JOA serving both papers.

Charleston, WV

In a third unusual arrangement – notice the theme? – Media News participates in a JOA in Charleston, WV, where the dominant Charleston Gazette owns the entire operation but Singleton runs the newsroom of the sagging Daily Mail.

The essentially uncompetitive nature of the relationship attracted the attention of the Justice Department, which took action against the publishers in 2007 and finally secured a settlement Friday from both publishers to engage in more competitive behavior. The enhanced competition, if you want to call it that, will include adding MediaNews representatives to the Gazette board and selling the 20,000-circulation paper for less than the 44,000-circulation Gazette.

The newly inked agreement requires both papers to continue to be published unless one “is determined to be a ‘failing firm’ under U.S. antitrust law and the Justice Department gives written approval” for a shutdown, said an article on the settlement in the Gazette. The default of MediaNews on $930 million in debt certainly suggests evidence of a “failing firm.”

The roll-up strategy

As Singleton seeks to move to solo papers in the JOA markets, he may pursue different paths to consolidating operations in places like San Francisco and the Twin Cities. Regardless of the approach in each market, the initiatives would involve aggressive cost cutting, which historically has translated into hefty headcount reductions.

San Francisco

The most likely path in San Francisco would be to add the San Francisco Chronicle, where Hearst has sunk more than a $1 billion since 2000 without seeing much profit, to the chain of newspapers Singleton operates in the Bay Area.

The long-running losses at the Chronicle, plus the MediaNews bankruptcy, may be sufficient to persuade regulators that an antitrust waiver is necessary to sustain journalism in northern California. As an added argument in support of a waiver, Hearst could threaten – as it did early in 2009 – to shut the Chronicle, which would make San Francisco the largest American city without a daily newspaper.

Adding the Chronicle to his Bay Area juggernaut would enable Singleton to eliminate most ad sales, administrative and back-office positions. At the same time, a consolidation would provide ample opportunities to streamlining production and circulation.

This also would result in potentially the deepest cuts yet in the Chronicle newsroom. The Chronicle editorial staff, which has been halved over the years to a couple of hundred traumatized souls, could be thinned yet again to perhaps a couple of dozen individuals. Further insight into Singleton’s operating approach in the Bay Area is offered here.

Minneapolis-St. Paul

In the Twin Cities, Singleton may attempt to create a joint operating platform to handle ad sales, production and circulation for both his St. Paul Pioneer Press and the Minneapolis Star Tribune, which just exited bankruptcy after shedding 75% of its debt.

Although the Strib arguably has been restored to financial health after shedding $380 million in debt, it was revealed last week that the Pioneer Press is the only one of the 54 dailies owned by MediaNews that is losing money.

The back-to-back bankruptcies of the newspapers might convince the Justice Department that the publishers need an antitrust waiver to keep the presses rolling in the Twin Cities.

New acquisitions

While the above activities are likely to keep Singleton busy for quite a while, his prior behavior suggests that he is a fan of buying fixer-upper newspapers at bargain prices – of which, unfortunately, there may be an abundant supply.

The crummy economy and Singleton’s heavy debt load prevented him from acting on his acquisitive impulses in the last few years. Now that his balance sheet is about to become nearly debt free, he evidently will have the ability to borrow more money to start bulking up his empire.

So, you never know where he might turn up next.

Friday, January 22, 2010

Why Singleton will stay after bankruptcy

William Dean Singleton, the Evel Knievel of newspaper publishers, amazingly will remain at the helm of MediaNews Group in spite of a bankruptcy that will cost his lenders $750 million.

In the latest act of a long and resilient career, Singleton is scheduled to continue as the chief executive of the company after it is reorganized under a prepackaged bankruptcy filed today.

How does he get to keep his job after losing all that money? The same way the real Evel Knievel got to keep his.

No matter how badly the late daredevil was mangled in numerous wrecks – he is said to have established a world record for breaking the most bones in one incident (35) – Knievel always got back on his motorcycle as soon as he could, eagerly embracing the danger of jumping over alligator pits and yawning canyons.

Risking life and limb was just another day at the office for Knievel, who succumbed rather prosaically to a host of medical problems at the age of 69 in 2007.

The 58-year-old Singleton has pretty much emulated Evel’s derring-do since he used someone else’s money to buy his first paper in Texas at the age of 21. (He has been using other people’s money ever after, too, which is why he isn’t losing a nickel of his own cash in the upcoming bankruptcy.)

Sometimes, Singleton’s bravado achieved great success, as he did in purchasing the Denver Post from Times Mirror at a distressed price in 1987. The paper today dominates the market after the shutdown of the Rocky Mountain News, its partner in a joint-operating agreement. He also deserves credit for rescuing the struggling Oakland (CA) Tribune from what almost certainly would have been an ignominious fate.

But other Singleton acquisitions, like the Houston Post and Fort Worth Press, ended in write-offs, as will be the case in the bankruptcy filed today.

In the planned reorganization of Affiliated Media under Chapter 11, lenders will lose three-quarters of a billion dollars and the Hearst Corp. will lose $317 million in equity it had invested with Singleton. While the prepackaged bankruptcy plan calls for lenders to own 80% of the going-forward concern, Singleton and other key managers will own a 20% stake in the business.

Why would the creditors keep the guy who lost all that money?

Because he is the best chance they have of extricating any value from the business.

Here’s why:

The lenders understand that the newspaper industry is in a period of irreversible contraction, as consumers and advertisers alike increasingly migrate to the digital media.

But the lenders also know newspapers are major and valuable brands, attracting the largest proportions of advertising dollars spent in each of the communities they serve. That is to say: Even though they used to be bigger, newspapers remain big businesses.

The trick in wresting future value from the MediaNews properties (and all other newspapers, for that matter) is to find a new, sustainable business model to ensure their long-term viability and profitability.

Singleton not only knows and loves newspapers, but he also is uniquely un-squeamish among publishers in doing whatever it takes to make a publication profitable.

In his pursuit of finding sustainability for newspapers, nothing is sacred to Singleton. If he can merge production or circulation operations, he will. If he can consolidate newsrooms or ad sales, he will. If it is cheaper to outsource customer service or ad make-up, he will.

He has done it before and, if the opportunity presents itself, he will do it again.

No other senior newspaper executive is as daring and seemingly impervious to pain as Dean Singleton.

That’s why he’ll climb out of this wreck, saddle up and start all over again.

Thursday, January 21, 2010

Pay meter works at FT, but can it help NYT?

The metered pay system planned for the New York Times website is modeled on an approach pioneered by the Financial Times that appears to be generating some $26 million a year in web-subscription fees.

If the pay plan were to be as successful at NYTimes.Com as it has been at FT.Com, the Times theoretically could sell close to $60 million in online subscriptions. But that doesn’t mean metered access – which the Times won’t launch until next year – will work as well on this side of the pond as it does in the United Kingdom.

Of all the pay schemes considered by American publishers, the NYT approach appears to be as thoughtful and cautious as they come. Further, it can be readily throttled back or abandoned if visitors decline to pay, leading to an unacceptable drop in page views and advertising revenues.

While the NYT plan is a bold and worthwhile experiment, there are notable reasons why this great leap into the unknown may not work as well in the Times as it does for the FT. The good news, remember, is that it is reversible if everything goes catawampus.

Now, here are some of the ways it could go wrong:

:: The coverage provided at the British financial news site is more unique and specialized than the high-quality – but often available elsewhere for free – content published at NYTimes.Com.

:: People who subscribe to business-oriented sites often send their bosses the bill. This tends not to be the case with ordinary newspaper sites, where consumers have to pay by themselves.

:: For both of the above reasons, the aggressive subscription price charged at FT.Com may not be sustainable at the NYTimes.Com.

The NYTimes.Com pay plan “will offer users free access to a set number of articles per month and then charge users once they exceed that number,” said a memo circulated yesterday to the newspaper’s staff. The Times said it will take until 2011 for its website to be re-engineered to support the planned system.

The most prominent implementation to date of a metered pay site is the one introduced about a year ago at FT.Com. Here’s how it works:

The FT allows online visitors to view up to 10 articles of their choice for free in a month. When the visitor clicks on the eleventh article, she is urged to subscribe to the site. Visitors who decline to subscribe at a rate equal to $18.15 per month are blocked from the site for the balance of the month.

Using this method over the last year, the FT.Com sold subscriptions to 121,200 individuals, a number equal to an impressive 29% of the number of people who subscribe to the print edition of the paper, according to a recent survey conducted by ITZ/Belden Interactive for the American Press Institute.

By contrast, the survey found that a scant 2.4% of print subscribers is the average number of people paying for online content at the three dozen daily newspapers in the United States that have been bold enough to erect pay walls.

Assuming every subscriber to the FT site continued paying faithfully for a year, the site would generate approximately $26 million in annual revenues.

If the metered plan contemplated at NYTimes.Com performed as well as the one at the FT.Com, the Times, which has more than twice the traffic, could see close to $60 million in subscription sales. But that is a highly theoretical – and probably unrealizable – number, for the following reasons:

Prior experience at the Times suggests the newspaper cannot charge nearly as much for its online content as the FT.

The Times Select program abandoned for lack of consumer interest in 2007 required site visitors to pay $7.95 a month, or $49.95 a year, to view the work of columnists and certain other features. Most of the rest of the coverage on the site was free.

Although Times Select generated $10 million in revenues from some 200,000 subscribers, the paper killed it to appease its under-exposed columnists and in hopes of capitalizing on what then was robust demand for online advertising. Since then, online ad demand has dropped sharply, zapping rates by 50% or more in the ensuing period.

Any gain in subscription revenues at NYTimes.Com would be would be offset to some degree by a decline in ad sales, because page views would drop in relation to the number of visitors who abandoned the site instead of paying for access to it.

The trick for the NYT will be finding the right balance between subscription and advertising revenues. And the FT experience suggests it will be a very tricky trick, indeed.

Traffic at FT.Com at the end of 2009 was half the level reported when the metering system was launched at the start of the year, according to data published at Compete.Com.

While there is no way of predicting whether the ad slide at the Times will be better or worse than what took place at the FT, the API study confirms that traffic drops significantly when a publisher starts charging for formerly free news. The magnitude of the drop depends on the type of pay plan, but none of those included in the study implemented a metering scheme.

Last but not least to consider is that there are big differences between a financial news site – whose contents are must-read for investors, traders and businessmen – and one that provides the sort of important, but largely generic, national and international reporting that is available from a wide number of alternatives to the New York Times.

This particularly would be the case if quality alternative content were available for free from such competitors as, say, the Washington Post, whose general manager recently declared that she had no plans to charge for content.

“There are not enough people willing to pay" for online content to make it a viable business, said Goli Sheikholeslami, the general manager of the Post site, in an appearance at a journalism conference in October at Harvard University.

Unless there’s a change of sentiment at the Post, its site could become a magnet for the millions of serious news junkies who may be too cheap to pay to read NYTimes.Com.

Wednesday, January 20, 2010

MediaNews bankruptcy hit Hearst hardest

After plowing well over $1 billion into a decade-long effort to salvage its ill-starred purchase of the San Francisco Chronicle, the Hearst Corp. now stands to lose another $317 million in the upcoming bankruptcy of MediaNews Group.

Hearst improbably put money into MediaNews, its direct competitor in northern California, in the hopes of reversing the almost continuous loses it has suffered since stepping up to buy the Chronicle in 2000. Instead of fixing the long-festering problem, Hearst became not just the biggest loser among the equity investors in MediaNews. It will be the only one.

Neither MediaNews chief Dean Singleton nor his long-time business partner Richard B. Scudder will lose a nickel in the bankruptcy, because neither ever put any of his own money into the company, said a MediaNews spokesman. But they aren't unscathed. Each of the MediaNews founders will suffer the complete loss of paper gains that at one point theoretically were worth as much as $500 million per man.

Although Singleton built MediaNews over the years by partnering with such big-name media companies as Gannett, Stephens Media and E.W. Scripps, only Hearst will lose hard dollars in the upcoming bankrupcty of Affiliated Media, the parent of MediaNews.

Affiliated Media is expected to file for Chapter 11
this week because it has been overwhelmed by $930 million in debt. In announcing the planned bankruptcy on Friday night, MediaNews tried to distance itself from the news by saying the filing by Affiliated Media would not affect the operation of its newspapers. However, Affiliated Media and MediaNews appear to be essentially one and the same entity.

MediaNews Group is the name of the company that originally borrowed the debt occasioning the bankruptcy. And it also is the name of the company that reported its finances to the Securities and Exchange Commission until 2008, when its bankers said the privately held firm no longer had to do so.

For the sake of clarity, it makes sense to call the company MediaNews. So, that’s what I will do.

The terms of the reorganization proposed by MediaNews would give bondholders 80% ownership of the going-forward company, with Singleton and key managers sharing the other 20%.

MediaNews would emerge from bankruptcy owing a comparatively modest $165 million in debt. This would chop its indebtedness by 82% and presumably give it the power to borrow more money to – as the press release said – “give us a platform from which to develop, grow and participate in the consolidation and re-invention of the newspaper industry.”

The rise, pending reorganization and hoped-for future expansion of MediaNews are consistent with Singleton’s uncanny ability over the years to use other people’s money to build what has become the second largest chain of newspapers in the nation.

Scudder, who now is in his mid-90s and serves as chairman of the MediaNews board of directors, gave Singleton the money in 1983 to buy the first newspaper in what would become the expansive MediaNews Group. Today, Singleton runs 54 daily papers and more than 100 non-daily publications, which were accumulated through an intricate series partnerships with not only Hearst but also Gannett, Stephens Media and E.W. Scripps.

Of all the publishing partners involved in the MediaNews juggernaut, however, the only one who will lose money in the upcoming bankruptcy is the Hearst Corp., said the company’s spokesman.

Hearst’s likely loss is a direct result of its hapless, and so far hopeless, effort to make good on the ill-fated acquisition of the San Francisco Chronicle.

After sinking the better part of $700 million into buying the San Francisco daily in a lengthy, painful and costly legal process that began in 2000, Hearst has been forced since then to underwrite ongoing losses ranging as high as $1 million a week.

Thanks to a series of draconian staff cuts and a decision to rent spare office space in its now sparsely occupied building, the newspaper was said to be breaking even at the end of 2009. If so, that would be the first time in the history of Hearst’s ownership of the newspaper.

In addition to the estimated $1.2 billion Hearst has spent to date on buying and running the newspaper, it now faces the loss of the $317 million that it invested in MediaNews in a complicated – but subsequently scuttled – effort to partner with MediaNews to rescue its investment in the Chronicle.

And that might not be the end of it. With Hearst already looking at a $1.5 billion crater at the Chronicle, things could get worse – maybe as much as $1 billion worse – if it tries to sell or shut the newspaper. Here’s why:

To save an estimated $25 million a year on production expenses, Hearst contracted with a Canadian company to print the Chronicle at a new $230 million, state-of-the-art plant whose construction was fronted by the printer. The deal with Transcontinental Printing Co. calls for Hearst to pay the printer more than $1 billion for its services over the life of the 15-year deal.

To guarantee those payments, Transcontinental said the contract “provides for indemnification from Hearst Corp. should the San Francisco Chronicle cease publication or be sold,” according to a filing to the Canadian equivalent of the Securities and Exchange Commission. The details of the filing first were reported in September in the Dead Tree Edition blog.

Hearst’s problems at the Chronicle began immediately after it announced an agreement in 2000 to buy the paper for $600 million from the descendants of the founding de Young family. Hearst and the de Young family were equal partners in a joint-operating agreement that published the Chronicle and the San Francisco Examiner, which then was owned by Hearst.

The sale drew an immediate legal challenge from Clint Reilly, a San Francisco investor and civic gadfly, who was concerned that the Examiner would go out of business – leaving the city with only a single editorial voice – if no one responded to what he feared would be a perfunctory effort to find a buyer for the ailing afternoon newspaper.

After months of litigation, Reilly forced Hearst to give the Examiner – plus $66 million to run it – to a family publishing a local Asian newspaper. Reilly’s lawyer got $2.8 million in compensation from Hearst, but Reilly says he got nothing for himself. (The Examiner now is owned and operated as a free tabloid by billionaire Phillip Anschutz.)

By the time Hearst finished tussling with Reilly and closed the deal on the Chronicle, the economy in Northern California had collapsed as a result of the tech bust and the 9/11 terror attacks. The paper suffered a vertiginous drop in advertising sales, particularly in the highly profitable employment category. Further, the paper was burdened by the cost of sustaining not only the original Chronicle editorial staff but also by its decision to bring the entire Examiner staff to the Chronicle, too.

Luckily for the Chronicle, the New York-based company could support it with the ample profits produced by its other, more successful media and real estate holdings.

While Hearst subsidized years of losses in the hopes that business would turn around, Singleton was busily acquiring and consolidating newspapers all over northern California, encircling the Chronicle at almost every turn. In his trademark approach to operating newspapers, Singleton squeezed fresh profits out of every acquisition by eliminating redundancies and cutting headcount to reduce costs.

When investors forced the sale of Knight Ridder in 2006, Hearst saw a chance to get healthy on the Chronicle deal by, ironically, helping Singleton buy the only two dailies he needed to complete the collection of properties he had arrayed around the Chronicle: the San Jose Mercury-News and the Contra Costa Times. (The papers were put up for sale by McClatchy, which decided to keep only two-thirds of the former Knight Ridder chain.)

Because Singleton himself lacked the financial wherewithal to buy the dailies he long had coveted, Hearst kindly helped MediaNews assemble $1 billion to buy the two publications plus the Monterey (CA) Herald and the St. Paul Pioneer Press. In return, Hearst got a share of equity in MediaNews.

The amount of cash Hearst put up in the deal was $317 million. And that’s the money Hearst stands to lose in the upcoming MediaNews bankruptcy.

Why, you might wonder, did Hearst do this?

Hearst came of the aid of its seeming competitor in the hopes that they together could enter into some sort of operating partnership to staunch the losses Hearst was continuing to fund at the Chronicle.

But the nascent partnership was thwarted by a successful new legal challenge from Clint Reilly, the long-time nemesis who dragged Hearst into court when it originally sought to buy the Chronicle.

Reilly won the second time, too. As part of an undisclosed multimillion-dollar settlement, Reilly gained not only the right to inspect certain communications between MediaNews and Hearst but also the right to publish a weekly column in several MediaNews papers.

Assuming Hearst and MediaNews still are on talking terms after the bankruptcy, the most logical thing for them to do would be try again to find a way to combine the Chronicle with the sprawling Bay Area News Group operated by MediaNews. BANG, as it is known, sells 2½ times more newspapers each weekday than the 251,782 sold by the Chronicle.

While any deal almost certainly would require an antitrust waiver from the U.S. Justice Department, the parties would seem to have a pretty strong case, given the MediaNews bankruptcy, the long-running unprofitability of the Chronicle and the general alarm over the deteriorating state of the newspaper industry.

The biggest obstacle, however, could be Clint Reilly, who might try to extend his unblemished record of tweaking the media titans.