It’s tough being the boss

Any leader with an eye to the future must first build a culture that welcomes it.

Within months or maybe even weeks, after a long, steady decline, the second and third largest newspaper companies in the country will be re-structured for what may be the last time. Digital First Media will go first. Having endured years of cutting by Alden Global Capital, DFM is in talks with yet another hedge fund – Apollo Global Management. A switch from one corporate hospice to another is not likely to solve the essential problem of digital failure. McClatchy, according to one prominent insider, is getting close to announcing that it, too, is re-thinking its corporate destiny. Some of the McClatchy properties might also go to private equity, others will move to Sunday-only print publication, some may even be shuttered. A few might find a local patsy, er, buyer.

The names McClatchy and Digital First may not mean that much to you. But if you live in a town where one of them owns the local paper, such as Kansas City, Denver, Charlotte, Miami, Sacramento, Boise or Fort Worth – and if you’re of a certain age – it will probably mean a great deal. If you’re out in Silicon Valley, you may have noticed the headquarters of the Mercury News in downtown San Jose. That building was once the headquarters of Knight-Ridder, a major newspaper company in its day.

Don’t worry though, their chief executives have been taking care of business. Their business. John Paton, the chief executive of DFM, is rumored to have lined up his next move already. He serves on several newspaper company boards, including that of La Prisa in Madrid, owner of Spain’s largest paper El Pais, and I’m told by insiders there that he will move to an executive position at El Pais, with a particular focus on the company’s digital endeavors. Beautiful. Patrick Talamantes, chief executive of McClatchy, recently had his base pay increased by $20,000 to $841,500. His total comp last year was $1.295 million. McClatchy stock price over the last year has fallen from $6.16 to today’s $1.98. That’s down from $70 a share 10 years ago.

Nice work if you can get it.

To be fair, they were dealt a very bad hand. But the way they played it made their position worse. The bluff only works once, twice at most.

The death of newspapers was never inevitable. The Internet offered a real chance of resuscitation and renewal. They blew it, and fundamentally, that’s as much about the human failings of leaders in challenging times as it is about the newspaper business itself. Where did they go wrong?

First, digital is a new medium for a new audience, a younger audience to boot. Digital products can’t be programmed out of newspaper newsrooms. Forget the myth of synergy, success in new product development requires structural separation – and new blood. If somebody with a new idea ever invaded a newspaper, institutional antibodies quickly swarmed to protect the status quo. It would be interesting to see the ratio of long term employees to new employees inside DFM and McClatchy. Average age indices would offer a useful insight into culture, too, I’m betting.

Second, digital is direct marketing on steroids. That means the most important technology investment to be made in any Internet endeavor is investment in the user database, and its application. Newspapers still think products should be based upon the instinctive judgment of an editor. But successful consumer products are based on marketing, that is, on a disciplined process for listening to a market and iterating a product to serve it. That’s what makes the database so important, and that’s why many small-scale experiments and a high tolerance of failure are a more effective prescription for digital change than the heavy-handed, company-wide “transformation” that both Paton and Talamantes have proclaimed for what feels like years on their quarterly analyst calls.

Third, a new business should never be constrained by the interest of the parent. The competition wants to kill the parent and so should the new business. If it can’t, fine. If it can, fine. Sometimes the new business will weaken the old, parent business because it attracts new competition or leads to a replacement business that delivers lower margin. But if you don’t disrupt yourself, somebody else will do it to you. It is impossible to manage market forces and if you try, you’ll get stuck: The old business will decline, the new business will never reach its full potential. Devotion to the dividend means newspapers sacrificed their future for this quarter. They couldn’t let go of print, they certainly couldn’t attack it with a digital alternative.That’s not creating shareholder value. It’s undermining shareholder value. Actually, it’s looting.

There’s a whole lot more than can be learned from newspaper extinction about management, leadership and business culture in a time of secular change, but that will do for now…and if you’re working away in a newspaper somewhere owned by DFM or McClatchy, I wish you all the very best in the painful months ahead.