Bite the hand that feeds you

In the digital world, companies that own local newspapers face a fundamental product problem. The online newspaper has proven to be a colossal failure – not surprisingly, a 19th century product conception has proven irrelevant in a 21st century marketplace. The only way to solve the problem and develop a new kind of news product that satisfies millennial and gen z audiences is to disconnect the print business from the digital one. Looking for synergies between them has helped cut costs, but it has also encumbered the search for a new, more relevant, more attractive digital product. Unless the digital business is unshackled from print in each market and set free to find its own destiny, there is no hope for a newspaper revival. Managed decline to extinction is the only possible outcome.

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Do you want local news delivered digitally – or an online newspaper? Each is very different. One is born on the web. The other is an electronic update of a print product.

I have a friend. Her name is Anne. She is smart, rich and beautiful. Knows it, too. She comes from New Orleans.

I have another friend. His name is Tim. He’s smart too, made a little money in his time, and he also comes from New Orleans. But you would never call him “beautiful.” Used to work for me. This year he took up a new position as head of NOLA, the media group in New Orleans owned by Advance Publications, an arm of the Newhouse family. It includes the 180-year-old Times-Picayune newspaper.

I caught up with Anne over the weekend. “You have to put me in touch with Tim,” she says. “I want to know what he’s going to do to bring the paper back. I hope he’s going to invest more in the newsroom.”

You have friends like that I’m sure. It’s not just newspaper people that can’t let newspapers go, it’s everybody over the age of 50. They worry that if the ‘free press’ finally goes under there’ll be nobody around to keep local voters informed and local politicians honest. (Keeping politicians honest is a sensitive subject down there in N’awlens).

They think that everyone else is passionate about local news too.

That’s why their answer to the sorry state of newspapers is so simple-minded and reflexive: Stop the newsroom cuts and invest in more newspaper local coverage. Yep, that’ll stop the slide for sure.

They fail to understand that everything about newspapers – not just the business model but everything – is obsolete. They fail to understand that daily newspapers are not suited to the business of providing local news in the digital age. And they fail to understand that making the newspaper available online did not arrest the decline. In fact, it had the opposite effect: It accelerated the fall to extinction. It guaranteed that the core expense of producing a daily newspaper would continue even as print and digital audiences shrank and advertising dried up.

Worst of all, it hobbled the development of genuine new digital products, like a local news product that excites a young audience.

Once the Internet blew up local newspapers’ ancient physical monopoly, their central bundle of national and international news, sports, business, lifestyle and advertising content was eviscerated. No longer was any of it exclusive, for the walls came down and the competition, suddenly, was just one click away. Classified advertising went quickly, its economic value an irresistible target for digital marauders. Pretty soon local news became the only differentiating asset newspapers had left. And not enough people cared enough about local news as produced by local newspapers to make the ongoing heavy spending on newspaper equipment, infrastructure and personnel worthwhile. Spending a buck to make a dime is never a good idea no matter what the business.

But this sad fact of life struck right to the heart of the newspaper belief system.

“What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact.” Warren Buffett

It is still impossible for many newspapers to admit that their famous bundle of content is no longer worth a damn because the New York Times, Bleacher Nation, Bloomberg, the Weather Channel, Facebook and every other source of news, information, advertising  and opinion in the entire world is just one click away. But it’s also impossible for local newspapers to admit that their local news product, the raison d’etre, is not strong enough to prop up the franchise, let alone extend it into new markets. The proof is in the pudding: Some subscribers with the reading habit followed their newspaper online, but in terms of visit frequency and time spent their consumption is just a sliver of what it used to be in the good old days.

As print margins evaporated and digital revenues underperformed, still newspapers couldn’t let the model go. Distribution centers, call centers, layout specialists, composing rooms, photogs, layers of editors, managers and supervisors, you name it, all the fundamental infrastructure designed originally to move pieces of paper around town stayed in place. The endless cutbacks that have gone on ever since have been intended to preserve the newspaper model in amber for as long as possible, when it should have been blown up. Or at least left to quietly wither away while all concerned got on with divining the future.

Just as local television stations run on assumptions and economies that are different from those that underpin local newspapers, so the business formula that underpins print media is irrelevant to digital media. That huge newspaper cost structure has zero to do with delivering on the promise of a local news business in the digital age. As my fellow commentator Ben Thomson wrote recently over on stratechery.com, insisting that a local newspaper is essential for the provision of local journalism is rather like saying a tank should be used to kill a fly. A flyswatter would do the job just fine. Besides, it’s much cheaper. And it would probably be more effective.

So if there’s still a local newspaper company out there that is serious about charting a new digital course – rather than just talking about it either to appease the Wall Street herd or to buy time until every last nickel is extracted – it had better get into position to find a genuinely new kind of local news product, one that satisfies a young local audience in ways the old print bundle, even when rendered online, cannot.

Advance, the company my pal Tim now works for, is that rare beast, an intellectually honest media company. And it has tried hard to get into just that position. About five years ago the company stopped publishing its daily newspapers seven days a week.  The Times-Picayune ends daily publication They were lambasted from all quarters. It wasn’t just journalists who went nuts. Otherwise quite reasonable people, some of them experienced business people, accused Advance of failing in its “civic duty.” “Is it about the money and that’s all?” they asked. Really?

It reminds me of the time my pal David Hiller, when publisher of the L.A. Times, tried to get his editors to allow advertising on the front page of the paper. This heretical initiative precipitated an emergency meeting in the boardroom of the paper where leading denizens of L.A. society who had been enlisted by the paper’s editor, including George Schultz and Casper Weinberger and Shirley Black, gathered to vent that “their” paper simply must not be prostituted in this way. Republicans all, too. So much for conservative business principle.

In fact, by falling back to three days a week the hard-headed Advance was not simply acting out of its best short-term business interest – after all, newspapers make 75% of their money from weekend editions. More importantly, it was also looking to manage expenses in order to prolong the slide down, so it could buy time for a digital transition. But in the end their honesty didn’t matter. Still they find themselves trapped in the newspaper product metaphor and functionally incapable of evolving out of it. You can’t manage your way out of a mental trap like that. You have to force it, abruptly, harshly, categorically.

The Wall Street herd might have its head up its collective ass. That doesn’t mean you have to put yours up there too, not unless I’ve misjudged you and you really do want to live forever like the miserable people who run once-great local newspaper franchises like the McClatchy Company: McClatchy revenue woes All they have to live on now are the last, remaining vestiges of a brand attachment that is dissipating, drip by drip, every single day. Their readers are fading away, and no new audience is replacing them.

The idea that there may yet be a new kind of local news product optimized for the digital marketplace may simply confirm your prior suspicion that I am either a lunatic or an ignorant loudmouth. I’ve been called both. No worries. But if I’m right, and there is, then beginning now, today, the people who run newspaper companies must mount a frontal attack on the newspaper magisterium, on that sense of noble superiority that has crippled their competitive response to the challenge of the digital age. What does that mean?

It means first and foremost that the print business must be entirely separated from any attempt to build a new local news digital franchise. Look, don’t tell me about the wonderful synergies that exist between the newspaper and its online companion. Sure, there are cost savings, but only if you want to take a 19th century product to market. If you want to try your hand at something more relevant than that, the synergistic value of the newspaper is, well, pretty much irrelevant. Actually, it’s counter-productive. I’ve written about just that before: Own your own destruction 

It doesn’t matter how big or small the market, the newspaper must not be permitted to encumber the new digital business in any way – not financially, not operationally, not in sales, not in product and above all else, not culturally. The newspaper can keep on doing whatever it wants and can afford to do, including offering its online newspaper, but it hitherto will exercise no influence at all on the company’s new digital efforts. The reporting line for the digital venture does not go up to the editor or publisher – it goes up to the CEO of the company that owns both. That’s how they do it at NOLA down in New Orleans, by the way. The reporting lines from both run up into Tim.

The new venture does not need free newspaper promotion, print or digital, because newspapers specialize in providing access to an older audience, not the new, younger audiences the new venture needs to chase. Besides, the authenticity of any new product will be severely compromised by an explicit association with the paper.

The only leverage point left is a local news content feed from the newspaper, but that feed can be used – or not – and adapted and presented just as the new venture sees fit. It must also go and get its own contributors and alternative news suppliers. Newspaper journalists are not blessed with privileged insight and anointed judgement, though they sure act like they have a lock on all that. Nor can they produce content with the voice and tone and social appeal of the digital age. It is foolish – and unfair – to expect that they can. They couldn’t host a television news show either.

The new digital business must have full running room in the same marketplace as the newspaper, with no restrictions, no advertising side deals, no special carve-outs, no editorial “advice.” Why? Because it must think like the newspaper’s competitor. It must focus on killing the newspaper and replacing it with something else, a brand-new digital media product that makes local news an indispensable ingredient in the self-curated media feed of any young consumer. 

Sitting here I don’t know what that product looks like in your market, but I do know how to go about discovering it. I laid out that prescription in an earlier post: Local news, rising from the ashes However, the critical first step is separating the digital venture from the newspaper – if you don’t that, the prescription I laid out is of little value. It uses perspectives and language few newspaper people could ever understand – or even accept. But, and I mean no disrespect, you don’t need newspaper people. You need different people.

It’s counter-intuitive of course, to own your own destruction and cannibalism is not for the faint of heart, the internal political and cultural challenges are enormous. But this is the very formula we used at Cox when Chip Perry and Scott Whiteside launched AutoTrader.com. The idea of building a market by enabling local car dealers to automatically post every car they had for sale in a market – for free – spelled death in that category for newspapers. Dealers saw the value straight away. Instead of living with the practical and economic limitations of print, which by its very nature forced a dealer to highlight only a small percentage of the inventory available, now every vehicle on the lot could be promoted. Once our newspapers stopped laughing at the preposterous notion of their own vulnerability and saw the danger, they realized they were stuck. The only defensive option was to replicate what we were doing – but that would mean dinging income from their largest classified franchise for as long as it took to run us out of town. So they came looking for a deal. “Do it to other newspapers, but not to us,” was the essence of their argument. But Cox, as it had done in the past with radio, then television then cable, held the line.

“If we don’t do it to ourselves, someone else will do it to us…’Synergy’ is a great word, I’ve just never seen it happen.” Jim Kennedy, chairman and chief executive, Cox Enterprises

That belief is buried deep in the company’s collective synapse. Cox’s newspapers tried to cripple the company’s early radio adventuring in the 30s. They were turned back. Then, in the 50s, the company’s radio stations fought hard against the diversion of their hard-earned cash to support the fledgling broadcast television group. No joy. In turn the television group wanted to control the expansion of the cable group in the 80s. Cox held the line again.

It should not come as a surprise to anybody that traditional media outfits want to keep their hoary old hands on any Internet endeavors. Inside every newspaper company in the country newsroom chiefs fought with mindless self-righteousness for ownership of any and all Internet ventures. They’re still fighting for that territory, it’s astonishing, despite the evident and catastrophic failure of their efforts to date.

The willingness to cannibalize today’s business for tomorrow’s vision has proven to be a wildly successful business strategy for Cox.

AutoTrader.com now has about 20 million unique visitors a month and some 20,000 dealer clients. Last year Cox Automotive, which in addition to AutoTrader.com includes such category brands as Manheim, Kelley Blue Book, vAuto and NextGear Capital, did more than $7 billion in revenue.

The company crossed the $20 billion mark last year. It has continued to grow steadily, through the Great Recession and through the boom, bust and settlement of the Internet age.

When I joined Cox in 1993, annual revenues were $2.7 billion – returns from the company’s newspapers, and television and radio stations, drove 75% of that. Now those media properties have been re-structured into just one media group that contributed only 9% of the company’s revenues – or $1.8 billion – in 2017. Did I just say “only?” $1.8 billion is more than four times the revenue of The New York Times in 2017.

It’s quite a story, the Cox story, and an instructive one. The lesson of decoupling the new from the old can be applied by any traditional business, private or public,  irrespective of the sector, and including local newspapers. But by ceding responsibility for new digital products to their newsrooms, newspaper companies were the architects of their own demise. Again, it’s not a surprising development for unlike Cox, their history with new media in the past is spotty – many of them missed radio or television or cable or direct or, like The New York Times, every single one of them. So today we see the same historical cycle, repeating itself yet again, just as Ray Dalio asserts in his great new book, “Principles.” (By the way, if you haven’t read it yet, go get it and read it over the holidays: Amazon.com – Principles You’ll be glad you did)

Is it too late? Is it worth the effort? Will companies do a final gut-check, and ask themselves if they’re ready to build genuinely new digital news products for new, younger audiences in markets in which their local newspapers currently operate?  That, my friends, doesn’t come down to capital position or profitability models or even risk tolerance. It comes down to leadership.

To the victim, you see, disruption need not necessarily mean destruction. It also holds the promise of regeneration. When disruption comes knocking at the door, there is a hard choice to be made between resignation or counteraction. How any enterprise makes that choice is entirely dependent upon the imagination and conviction of its leadership. Trouble is, it is a rare leader who is willing to apply the very same tools of disruption against his or her own company

In the end, Anne down in New Orleans will continue to be quite happy with her online version of the Times-Picayune, especially if she can convince Tim to put more money into the newsroom budget. But he would be making a huge mistake if he acquiesced. If you ask me, his job is not to spend money propping up the print-online franchise, doing his best imitation of that Dutch kid with his finger in the dyke. He should be worrying instead about the local news product that will delight her  grandchildren. Right?