Rick Edmonds

Researcher and writer for Poynter Institute on business and journalism issues. Co author, State of the News Media 2006. ExSP Times and Phil Inquirer


Newspaper vendor

Death of newspapers announced prematurely (yet again)

I woke up thinking today was much like any other on the news-about-news beat, that is until I learned from David Carr and the New York Times that “Print is Down, and Now Out.”

Really? Let me beg to differ.

For starters, Carr is, as the country song goes, looking for love in all the wrong places if he wants validation from Wall Street. The financial prospects of newspaper organizations are not comparable right now to those of local broadcast or growing digital classified brands.

So investors are performing their role and corporate execs responding logically with the wave of spinoffs completed last week with Gannett’s announcement it will split its community newspaper division and USA Today into a new company early next year. We shouldn’t look to the money guys for a ringing vote of confidence in the public service mission and democratic role of print journalism.

Carr equates the spinoff to being “kicked to the curb.” Kindred spirits like Michael Wolff are also pretty sure life as an independent company is a way station to print’s doom — and sooner rather than later.

Sure, the cushion of fat television profits will be missed.  Maybe that does make the uncertain future of newspaper organizations that much scarier.

Related: Splitsville: Why newspapers and TV are going their separate ways corporately

I am waiting to be fully persuaded that greater management focus and capital allocation will get the industry to turn the corner. But limited experience to date provides some encouragement.

A.H Belo was split from its broadcast division (since sold to Gannett) in February 2008. It (like the New York Times Company) unloaded other assets to concentrate on its core property, the Dallas Morning News, selling papers in Riverside, California, and Providence, Rhode Island.

Last quarter A.H. Belo achieved a landmark of sorts. It was able to offset continuing print ad revenue losses with revenue growth in its digital marketing and contract printing activity.  That is a key first step in any industry turnaround, and credit “orphan” A.H. Belo for being one of the first to get there.

By the way, if Wall Street seems not to be giving the industry much love, it has at least been rewarding the changes at A.H. Belo (and Gannett too) with a lot of likes.  The company’s shares are up 40 percent in the last six months to $11.23, have more than doubled in value over the last two years and show even more dramatic appreciation from a 2009 low of $0.71 a share.

CEO and Dallas Morning News publisher Jim Moroney does not profess to be a miracle worker.  The company has bumbled paywalls, for instance, while well outperforming the pack in the lucrative digital marketing services business. Launched debt-free, it has used the proceeds from the asset sales to put substantial bets on a variety of experiments. The results amount to steady progress.

“We’re not declaring victory,” Moroney told me in a phone interview, “but six years later we are doing just fine, thank you, financially and otherwise.”

A spinoff, he said, “compels the company to be focused on the very different path forward newspapers need to pursue.  Otherwise it can be tempting not to take the hard steps you need to take … When you stand alone you have nothing to camouflage (bad results like those of 2008 and 2009) and make things look better.”

While I don’t think the sky above the newspaper business is falling, Carr’s column raises a bunch of valid and serious concerns. A.H. Belo excepted, the industry has generally not reached a turning point where growing circulation revenues and other ventures cover for print ad losses. The second quarter was especially bad, though it is not clear whether the rest of 2014 will be the same or a little better.

I very much share Carr’s worry that the volume and quality of news — in print or on newspaper websites — could fall at a number of properties to a near vanishing point after more rounds of cuts.

Related: If Gannett is a bellwether, 2014 will be another tough year for newspaper advertising

My mood, like his, was not improved by the announced changes last week at Gannett’s Tennessean in Nashville, a shakeup veiled in a thick shroud of buzzwords and corporate speak.

On the other hand, Executive Editor Stefanie Murray, who is in her early 30s, comes with a mix of print and digital experience. I wondered almost a year ago whether an industry serious about transformation needs to walk the walk by giving top editor jobs to those with a strong digital background. Gannett and Advance have started to do so.

Murray (who, coincidentally, wrote the obit for the print Ann Arbor News as a reporter) deserves a little window to carry out her reorganization. For that matter, I can’t see the case for calling the Gannett, Tribune and Scripps spinoffs failed experiments before they have really started. Read more

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Splitsville: Why newspapers and TV are going their separate ways corporately

Like the sale of the Washington Post this time last year, the merger of E.W. Scripps and Journal Communications, announced last night, and their reorganization into separate print and broadcast companies came as a jaw-dropping surprise.

But the morning after, the complicated transaction makes perfect sense.

  • Local broadcasting is seeing a wave of consolidations. The business is healthy, and getting bigger provides station groups more leverage negotiating retransmission fees with cable providers. That has become a significant new source of revenue growth as political and automotive advertising remain strong.
  • Financially squeezed newspapers drag down the share price of companies with prospering TV, cable and digital divisions. The spinoff of Tribune Publishing scheduled next week and the division of News Corp a year ago give the remaining parent television and entertainment companies investment wind at their back.
  • At the same time, newspaper groups theoretically do better with management whose exclusive focus is on the particular challenges of that industry. Otherwise, they can end up a neglected problem child, getting less capital allocation and management attention, in a company with several financially stronger divisions.

My colleague Al Tompkins has separately rounded up a list of broadcast mergers and print spinoffs, and he also documents the stock price kick broadcast/digital companies have experienced. (Scripps stock is up smartly today  – more than 10 percent by early afternoon.).

For the newspaper industry, the de-consolidation trend has been building steam for seven years now, since the business took a deep dip during the recession of 2006-2009, Scripps did a version in 2007. leaving legacy broadcast and newspapers in one company while putting Food Network and other cable stations in another.

That same year Belo broke its newspaper and television businesses in two. The A.H. Belo newspaper group has since sold papers in Riverside and Providence leaving just the Dallas Morning News and nearby Denton. The Belo television stations have been bought by Gannett’s broadcast group.

Media General was flirting with insolvency in early 2012 when it sold its newspaper group to Warren Buffett’s BH Media (and the Tampa Tribune to another buyer). Media General has bought additional stations since.

While focus in the Post deal was in Jeff Bezos’s purchase of the venerable newspaper, it also left highly profitable local broadcast and cable divisions in the surviving Graham Holdings.

Finally, last year Rupert Murdoch split his international newspaper and entertainment/cable ventures into two companies. And Tribune, emerging from bankruptcy, decided to remake itself as a television and digital company with the Los Angeles Times, Chicago Tribune and six other dailies spun off into Tribune Publishing.

That leaves Gannett. And the Scripps-Journal transaction will heighten existing Wall Street pressure on the company to sell or spin off its 81 community newspapers and USA Today.

CEO Gracia Martore was asked about that possibility in a second quarter earnings conference call with analysts 10 days ago, though the questioner said “I know you won’t answer this.”

In fact, she did answer, albeit in ambiguous fashion. Both a USA Today reporter and I heard Martore say some newspaper organizations are for sale at the right price. But a Gannett spokesman walked that back the next day with a “clarification” that she was referring to newspapers owned by other companies.

Nonetheless, my fellow industry analyst, Ken Doctor has written that, in corporate-speak, Martore was opening the door to sale or spinoff at least a crack. And that was before the Scripps/Journal deal.

Journal Media Group will begin life, when the transaction is completed early next year, debt-free and with $10 million in cash. The company will be based in Milwaukee, though its CEO will be Tim Stautberg, who has headed Scripps newspaper division. The Journal Sentinel is at least twice as big in circulation as any of Scripps’s 12 papers and will be the flagship of the new company. The Journal Sentinel has strengths as a business too — typically among the top papers in household penetration.

All that augers well for editorial quality and financial prospects for the Journal Sentinel and its new mates. (Disclosure: I know and respect top business and news executives at both companies).

However, while Scripps is the acquiring company, Journal Publications will not give members of the Scripps family a special class of stock and voting control. So it will lack the buffer of family control and tradition that has kept McClatchy and the Sulzbergers’ New York Times Co. independent in these tough times. Journal Media Group could itself become a takeover candidate in the near future.

I am sure Journal Sentinel staff and perhaps readers too are wondering whether the paper will continue its investment in outstanding investigative projects, which have garnered three Pulitzers and many other award over the last six years, Scripps ownership certainly offers brighter prospect for that than a takeover by a turnaround hedge fund.

I sample, rather than read regularly, the work of metro newspaper organizations. But I would put the Journal Sentinel in the top rank, together with Poynter’s Tampa Bay Times, the Boston Globe, Seattle Times, Dallas Morning New and Star-Tribune of Minneapolis.

Curiously, all six of those are essentially single-paper operations — or at least they were until this morning. Joining a chain, and a publicly-traded one, is sure to up the pressure for financial performance on the Journal Sentinel, so I would not be astonished to see newsroom cuts down the road. Read more

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New York Times Sales

NYT’s new digital apps and subscriptions are off to a bumpy start

On the surface, the New York Times Co. had a very positive headline number as part of its second quarter earnings report today — a 32,000 digital circulation increase, driven by three newly introduced digital services.

But in a subsequent conference call with analysts, executives were quick to concede that the launch of NYT Now, NYT Opinion and Times Premier has been anything but smooth.

Several months in, the Times is still trying to get offers, terms and audience targeting right, especially with the NYT Now app aimed at smartphone users, said Denise Warren, who directs digital products for the company. As result, the company fell short of its initial goals for new subscribers and revenues. NYT Opinion is also a smartphone app with a separate subscription tier.

Times Premier offers extra helpings of content, seemingly aimed at upselling to existing subscribers. It includes several features — including Times Insider reports on stories behind the journalism — that have been marketing separately. And a cooking app is coming soon.

CEO Mark Thompson acknowledged these multiple options have “left some customers confused.” NYT Now is meant to reach younger non-subscribers and has, Thompson said, but there also has been some cannibalization of more expensive full digital and print subscriptions.

RELATED: Are you paying too much for the NYT?

Near the end of the call, Thompson declined to directly answer an analyst’s question, “what’s a good time period to (expect you) to get the kinks out?” But he did offer a contrast to the Times’s highly successful rollout of the its digital paywall and subscription plan in spring 2011.

There the object was to convert existing customers who had been reading the Times online free to paying status, he said. Expanding to new offerings and targeting new customers is much tougher, he continued. “We’re on our own, doing things no one else in our industry has tried.”

The rollout difficulties were not the only bad news for the quarter, Thompson and Warren said.

  • Print circulation was off markedly, down 5.5 percent daily and 3.7 percent Sunday compared to the same period a year ago.
  • Digital ad revenues grew but not nearly enough to offset a nearly 7 percent decline in print advertising.  Print ads, which had performed strongly for the Times in the first quarter, also look soft for the balance of the year.
  • Core digital circulation growth slowed, falling below target.
  • The simultaneous introduction of the new products also caused expenses to rise, though the company expects to keep them flat in the third and fourth quarters.

The sum of these problems was a worse-than expected 21 percent dip in profits compared to the second period of 2013. As a result, New York Times Co. stock was down more than 8 percent when the markets closed at 4.

None of this, Thompson said in the earnings press release, causes the Times to question that “long-term digital revenue growth” is essential to the company’s future and that new products along with international expansion is the way to get there.

But that path does involve trading the higher ad and circulation revenues of print for less lucrative digital equivalents. Difficult quarters like this one probably come with the territory. Read more

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Newspaper industry lost another 1,300 full-time editorial professionals in 2013

The American Society of News Editors annual newsroom census, released today, found a net loss of another 1,300 full-time professionals last year.

That was better than the 2,600 net job loss in 2012 but brings total newsroom employment at newspaper organizations to roughly 36,700, a decline of 3.2 percent from the 38,000 counted in last year’s census.

Newsroom employment has fallen 33 percent from a pre-recession peak of 55,000 in 2006 and is down 35 percent from its all-time high of 56,900 in 1989.

Asked for reaction to the 2013 census total, ASNE president David Boardman, dean of the Temple University School of Media and Communications,  told me by phone, “Well, here we go again….Obviously we should all continue to be concerned about the losses.”

The census has been conducted since 1978 to measure progress in newsroom diversity.  On that front, the news was better, with a small gain of 200 minority employees last year. (See separate story by my colleague Andrew Beaujon).

The simple explanation for the decline is that newspaper revenues were down again in 2013 with continued sharp losses in print advertising only partly offset by gains in digital advertising and circulation revenues.

The overall revenue figure, as measured by the Newspaper Association of America, was down 2.6 percent in 2013, close to an even match with the percentage of news job cuts for the year. It appears 2014 will be another year of revenue declines, so more newsroom attrition is virtually certain.

The losses varied widely by the circulation size of newspapers.  The largest papers, with circulation of more than 500,000, recorded a gain of 5.85 percent year to-year. The smallest papers, under 10,000 circulation, were up 2.78 percent.

Losses were heavily concentrated at metros and other papers in the 100,000-500,000 circulation range where year-to-year declines were roughly 16 percent.

(These figures are broadly accurate in tracking where change is occurring but less exact than those for the census as a whole because of shifts in how circulation is now being measured and movement of some papers from one band to another).

This year 965 of 1373 daily newspapers surveyed completed the census.   Projections are used for the non-participants to arrive at a total industry estimate.

ASNE also makes some changes year to year in how it does the count.  For instance the 2013 census, for the first time, included results from 17 corporate news production hubs, which have absorbed desk work that used to be done at individual newspapers.

For a third year, the census was funded by the Robert R. McCormick Foundation and done by the Donald W. Reynolds Institute at the University of Missouri.  The Reynolds unit that did the work is being dissolved, so ASNE will need to find a new partner to do the surveys and statistical analysis.

It is important to ask each year how many lost positions may be made up by growth in the digital news sector, “and the tricky part is to try to get a handle on those numbers,” Boardman said.

A Pew Research Center study in March estimated a total of 5,000 full-time journalists working for such sites.

But ASNE’s own effort to enlist digital sites as participants in the survey and as members has been only a limited success to date.  Organizations with a traditional news and investigative bent have joined, and editors at ProPublica and Texas Tribune are on ASNE’s board. But most of the largest digital news ventures like Huffington Post and Yahoo have not joined.

Boardman said that he is encouraged that the digital sector has participated in ASNE events like a recent “hackathon” in Austin or the upcoming joint convention with the Associated Press Managing Editors in Chicago this September.

My own take is that the continuing editorial job losses steadily erode the coverage of communities newspapers once provided.  Boardman made the point that at the Seattle Times, where he was executive editor until last year, and at many other papers, great effort has been made to conserve front-line reporting and editing jobs with copy editing and layout jobs taking a bigger proportion of the hits.

And editors will concede privately that cost control pressures made them reorganize functions that could be done more efficiently and move out some less productive employees whose jobs were secure in flush times.

It is still an open question, however, whether the mix of jobs at digital-only sites makes up for what has been lost as newspapers (and magazines as well) get smaller.

Traditionalists will contend that trading an experienced government accountability reporter for, say, a listicle producer, is a net loss to the news media’s civic function.  Digital enthusiasts might counter that the infusion of programmers and other technologists into the news industry is doing more to expand volume of coverage and its reach than the duplicative news production teams at individual newspapers ever did.

I’ll agree with Boardman that the next few years ought to be a time for better estimates of the total number of news professionals at work, how many are “feet on the street” and how the focus of the content they produce is changing.

  Read more

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Gannett

If Gannett is a bellwether, 2014 will be another tough year for newspaper advertising

the sign for Gannett headquarters is displayed in McLean, Va. (AP Photo/Jacquelyn Martin, file)

the sign for Gannett headquarters is displayed in McLean, Va. (AP Photo/Jacquelyn Martin, file)

Since the Newspaper Association of America stopped reporting quarterly revenue results last year, I have looked at Gannett’s numbers as a reasonable proxy for the industry. Here are three takeaways from yesterday’s second quarter earnings report and conference call with analysts.

  • National advertising was terrible in the second quarter (down 16.3 percent compared to the same period in 2013) for Gannett’s publishing division. Despite a small gain in digital advertising and marketing services, overall advertising was down 6 percent.CEO Gracia Martore told analysts she had heard of similar weak national results from friends in the industry, as have I.  One explanation, on top of the stop-and-go economic recovery — the World Cup was an attractive advertising opportunity for big companies, and they pulled from print budgets to go heavy in social media.

    The third quarter is looking somewhat better, she said.

  • Gannett’s results show just how unequal the local broadcast and local newspaper businesses have become.  Through the first six months of 2014 publishing had $1,709,000,000 in revenues, 2.2 times as much as broadcast’s $781,000,000.  However broadcast’s operating income was $326,000,000, 3.4 times as much as print’s $96,000,000.

    By my math that makes broadcasting 7.5 times more profitable.

    No wonder Gannett has bought two station groups in the last year and is on the prowl for more.  Martore also said she would consider buying more TV stations or digital properties but was not interested in acquiring more papers.  She added that the chain’s 81 local papers are not for sale. I also don’t think a spinoff of the whole division like the one Tribune is doing in early August is in the cards.

  • Circulation is a relative bright spot, though overall it was down slightly year-to-year in the second quarter (by 0.6 percent).  Martore and other executives continue to be pleased with a program putting a section of USA Today news in its 35 largest local papers.  That helps justify higher rates, strengthens subscriber retention and has supported gains in home-delivery numbers and revenue.  (USA Today is taking deep cuts in single-copy sales as part of its current strategy, depressing the total result.)Martore said that the company will roll out a smaller USA Today section in 13 more of its local titles later this year and may sell the supplement to others.  With the Washington Post now offering a free digital subscription to digital subscribers at a number of regional newspapers, these extra helpings of national news may be a mini-trend.

The Gannett results include its substantial holding of newspapers in Great Britain, which are having a reasonably good year. So the numbers might have been a little worse otherwise.  I look for similar trends as the New York Times Co., McClatchy  E.W. Scripps and other publicly traded newspaper companies report second quarter earnings in coming weeks.

(Clarification: An earlier version of this story said that Martore would consider selling some Gannett papers.   In fact, she said that some papers of other companies are on the market. but Gannett will not be a buyer.) Read more

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AP F IL USA EARNS TRIBUNE

Eighteen months after dropping AP, Tribune happy with Reuters

When newspaper ad revenues were in free fall in 2008, there was much angry complaining among editors about the high cost and inflexibility of the Associated Press service. At a gripe session in Washington, one editor compared the cooperative to the USSR’s politburo.  Threats to quit were common.

In the end though, AP cut its rates, offered several levels of service and has retained the great majority of its newspaper members (who also own the cooperative and hold most its board seats).

But there was an exception.

Starting in 2009, Chicago Tribune editor Gerould Kern quietly began working with Reuters to build an acceptable substitute service.  Kern told me the Chicago Tribune ran its last AP material in March 2012.  With six other Tribune papers (but not the Los Angeles Times), it dropped AP entirely at the start of 2013.

Kern said in a phone interview that he cannot recall a single reader complaint about inferior wire coverage.  At “a price that has saved us significant amount of money,” Kern said, the Tribune and others are getting “more than adequate” content from Reuters and can devote more resources to local investigations, arts and sports.

“We are not anti-AP,” Kern told me several times, “but we believe in competition and choice in the market place.  That makes everyone better.”

Reuters is pushing hard to recruit other converts but so far with only moderate success.  “We’ve been around for 160 years,” Steven Schwartz, global managing director of the Reuters news agency, said in an interview, “but we needed to create a (national) service from the ground up.  We have been encouraged by the uptake to date, but it’s a long road.”

For Reuters, the sales pitch is all about price, “a fraction of the cost (of AP),” Schwartz said.  Neither he nor Kern would be more specific, but I would guess that Reuters charges half or less of AP’s rates, themselves reduced by 30 to 40 percent since 2008.

Schwartz had no criticisms of AP’s quality, but when I suggested that some papers may be sticking with AP because of loyalty and the ownership connection, he flashed a competitive side:

Ours is an industry steeped in tradition and that’s both good and bad.  Gerry’s leadership (in making the switch ) has been unusual….I would say if a paper is continuing out of a sense of commitment to AP, that’s probably a breach of fiduciary duty.

AP too has some fighting words apropos the competition.  In a speech at the newspaper Association of America convention in Denver in March, CEO Gary Pruitt said of newspapers considering dropping membership:

If you walk away from AP, you walk away from your ownership stake in the most important news organization in the world. Good luck with that.

(The Associated Press is a non-profit cooperative owned by its newspaper members. “Profits” are held and reinvested in the company. Newspaper members get special input on news or business matters only in the sense that newspaper executives have a large majority of seats on the board. However, broadcast and international are now bigger business segments for AP.)

Pruitt promised improvements in state coverage, more video  and further pricing options.  But with industry advertising revenues sinking again this year, I don’t see much likelihood that the issue of settling for a “good enough” wire alternative will go away.

Kern and Schwartz concede that even getting to good enough took some doing.  Reuters is part of Thomson Reuters, an internationally oriented company whose main business is specialized financial information.

So for a start Reuters needed to hire correspondents in cities like Denver and Dallas to provide its own coverage of the biggest breaking national news in the U.S.

“We didn’t want a fire hose,” Kern said.  “We have a news service of our own (McClatchy/Tribune) that is the largest supplemental wire.  With that and some other contributors, we already had a rich vein of national content.”

“Sports was a crucial issue to resolve,” Kern continued.  Reuters needed to build out with affiliations to many single-subject digital sites and piece together sports agate.  That was the last content category to be finished before Tribune was ready to go without AP.

AP also prides itself on deep election night coverage and an ability to call races accurately.  Reuters began testing a new system in the March 2012 presidential primaries with IPSOS market research doing the polling and forecasting.  It has performed well, Kern said, and will be expanded by this November’s general election.

On the other hand, Reuters has made no attempt to build state-by-state bureaus with legislative coverage like AP’s.  Kern said that content-sharing arrangements among previously competing papers and other sources serve that need adequately.

Pruitt hinted at a counter-offensive in his March speech to NAA, and that is now rolling out.  AP has assigned a senior executive to oversee the state reports and hired additional journalists.  The service also has started producing national packages on issues like flood insurance and ethanol that can easily be localized by a member paper with a little additional reporting.

Kate Butler, vice president/ membership and local markets, told me that a new mid-tier level of service will be offered soon and begin operation in January 2015. At the same time, she said, the AP will expand its cafeteria-style add-on content packages on topics like the arts and sports from 5 to 10.

Its current limited basic member service costs roughly 50 percent of what a paper would pay for the full basic package, Butler said.  The new mid-tier will be about 75 percent with extra slices of content 5 to 10 percent.

Traditionally Associated Press required member papers to provide two years’ notice to cancel. That’s now been reduced to one year for those who pay a small premium.  That window allows AP to adjust rates and address individual complaints, though for fairness’s sake it offers comparable pricing for papers of similar size.

Butler said that at least two other chains looked at the Reuters alternative but have decided to stick with AP.

Even after the rate adjustments, full AP service costs a typical metro over $1 million a year and a bigger metro like the Chicago Tribune considerably more than that.  Even a mid-sized paper can rack up a bill well into six figures.

Reuters offers typically include extended free trials and a willingness to tailor the package individually to what a paper feels it needs but cannot produce itself.

In a dozen of my own searches of Tribune’s content, I found few if any obvious gaps in wire coverage of major stories.  For certain story types — breaking news obituaries, for example — the Reuters’ versions were not as complete or well-crafted as AP’s.  But I doubt the typical reader would notice a difference.

Tribune and other defectors would also lack access to AP enterprise stories, its deep foreign reach and top-of-the-line photography and video.  But from the readers’ perspective, they may literally not know what they are missing.

Some of AP’s past programs at the newspaper publishers convention included live hook-ups to world trouble spots and in one instance, a presentation  by a photographer/reporter who had talked her way into a Middle Eastern opium den and came out with riveting video. This year, the content portion of Pruitt’s talk, emphasized First Amendment initiatives and a practical effort to get better access for White House photographers.

Over the next several years, I think AP clients and the service itself, will be asking just how much excellence they can afford.  The good old days of monopoly-pricing power are gone.

Even with a focus on keeping expenses lower, AP’s Butler said, “I know (the service) is a substantial cost, but we think it also delivers a substantial value.”  As for Reuters, she added, “It is good to have competition and choice. We wish them well but not too well.”

  Read more

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Rupert Murdoch

News Corp. rumored to be putting together a new bid for Tribune newspapers

Rumor has it that News Corp — with a $2.5 billion cash kitty for acquisitions — may be mounting a new bid for the Los Angeles Times, the Chicago Tribune and the six other Tribune newspapers.

Rupert Murdoch and his company were first reported interested in the acquisition (in a story in the L.A. Times and elsewhere) when the papers were being shopped in late 2012 and early 2013.

No deal was struck, and last July Tribune announced that it would instead spin off the papers into a new publicly-traded company, Tribune Publishing. Tribune Publishing has recently hired a CEO and other staff, and the split is now scheduled to happen as soon as Aug. 4, but at least within the next several months.

I would not typically report a publishing rumor. This one could prove dead wrong. But a confidential tip that started this inquiry was more substantive than gossip on the street. Various circumstances would make such a deal logical for both buyer and seller.

Robert Willens, a New York-based corporate tax analyst who has previously commented on the spinoff plans, said in a phone interviews that a sale to News Corp would be plausible — but much more likely after the spinoff had been completed. In other words over the next year or two rather than in the next weeks or months.

Spokespersons for both Tribune and News Corp. declined to comment, citing corporate policies not to respond to sale rumors and speculation.  Gary Weitman of Tribune said the company is committed to completing the spinoff (effectively ruling out a sale before).

So why is there reason to think such a deal might happen, later if not sooner?

  • News Corp. is itself a spinoff publishing company, separated from its parent, now renamed 21st Century Fox, in June 2013.  It owns Dow Jones and The Wall Street Journal as well Murdoch papers in Great Britain and Australia and the book publisher HarperCollins.
  • The new News Corp. came with a generous cash allocation of roughly $3 billion.  A company that size with that much free cash in hand is under investor pressure to make strategic acquisitions. News Corp. management has indicated it will. So far purchases include social media agency Storyful (in December 2013) and romance novel publisher Harlequin (announced in May), reducing available cash to about $2.5 billion.
  • Questioned by Capital New York in a brief interview at a social event in April, Murdoch said:

    News Corp. is in the first, sort of, transformational year….There’ll be some interesting deals.

    Potential acquisition targets, he added, would likely include both “print and web.”

  • Murdoch is a longtime reader of the Los Angeles Times and, according to a New York Times report, covets owing it.  A purchase, along with the Chicago Tribune, would give News Corp, leading print assets in the three biggest metro markets in the U.S.While the other six papers — The Baltimore Sun, the South Florida Sun-Sentinel, the Orlando Sentinel, The Hartford Courant, The (Allentown, Pennsylvania) Morning Call and the (Newport News, Virginia) Daily Press — would hold less interest, News Corp. could operate them for a time then sell, as Murdoch did with a group of mid-sized dailies that came with the Dow Jones deal.
  • Recall that Murdoch is willing to pay top dollar for what he wants most.  In his successful 2007 bid for the Journal, he offered the Bancroft family, which controlled the majority of voting shares in Dow Jones, a price roughly 65 percent higher than the stock’s trading value.
  • Tribune Publishing has been valued at $623 million in a 2012 bankruptcy filing.  So it is not too big financially for News Corp. to swallow.
  • Unlike News Corp.with all its cash, Tribune Publishing is being spun off on less than generous terms.  The papers operate profitably but will be assuming $350 million in debt and required to pay rent for its offices to Tribune Company.  And the parent is keeping all the proceeds of the sale of a profitable digital ad site with a second up for sale.

Congressman Henry Waxman, who represents a Los Angeles district, has claimed that the deal terms are setting the newspapers for failure. A well-capitalized buyer could be an attractive alternative.

Tribune’s own announcement and commentary on the deal have highlighted that the publishing assets can be transferred to the new company tax-free.  By contrast, direct sales of all or some of the papers out of the existing Tribune Company would come with a tax liability of hundreds of millions of dollars.

Besides the financial implications, tax consequences are a particularly sensitive consideration at Tribune, which is still sorting out a $200-million plus claim by the IRS related to its sale of Newsday in 2008.

If News Corp were to mount a bid after the spinoff, how soon could that happen? My sense is that a public company cannot be flipped like a real estate asset. Tax analyst Willens told me there is no statutory requirement to wait for a given period, but “if a plan had been agreed to or substantially negotiated” before completion of the spinoff, he said, “that could render it taxable.”

In the earlier attempt to acquire some or all of the Tribune papers, Murdoch faced a deal-killing regulatory barrier.  Under Federal Communications Commission rules, his company could not acquire a paper in Los Angeles or other markets where his Fox News owned local stations.

While Murdoch and other publishers have long tried to get a waiver or repeal of the rule, he told a reporter at the 2013 Golden Globes awards, “it won’t get through with the Democratic administration in place.”

But that was before News Corp’s own corporate split.  Now with newspaper holdings in the publishing spinoff and the local television stations part of 21st Century Fox, it could be argued that the joint ownership rule no longer applies (though Murdoch remains as executive chairman of News Corp. and chairman and CEO of 21st Century Fox).

Another open question is whether News Corp., given industry reverses, would make a big investment now in owning more American newspapers.  Asked in a recent conference call with analysts what kind of acquisitions the company was seeking, CEO Robert Thomson replied:

I think it’s fair to say that the two guiding trends of our strategy generally are globalization and digitization. You’ve seen that with the first acquisition, Storyful, which has been very well received, both from an editorial perspective, but not just for our newspapers, from our digital sides particularly, but also from a commercial perspective because Storyful will be able to create content communities around products and companies. And I think you’ll see some of that in coming months. So (as) we said during the Investor Day, globalization and digitization, and that’s very much what the team is doing.

Tribune Publishing does not seem a fit with those goals, and perhaps Murdoch has less latitude to push his personal enthusiasm for print newspapers than he did when News Corp. made its premium bid for Dow Jones seven years ago.

Still the record shows the 83-year-old Murdoch to be persistent in stalking the trophy properties he wants, sometimes over decades. If the L.A. Times and the Chicago Tribune are still on his list, I wouldn’t bet against his mounting another bid. Read more

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As mobile ad revenue continues to soar, newspapers still struggle to catch the wave

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There was a double dose of good news in eMarketer’s mid-year ad forecast released today. Ad spending will grow more than 5 percent in 2014 for the first time in 10 years. And the mobile ad boom shows no sign of plateauing with 83 percent growth over 2013 expected.

Digital giants like Facebook and Google continue to dominate the category (together more than 50 percent), while newspapers and magazine struggle to offer competitive ad buys on their mobile products.

The Newspaper Association of America’s revenue report for 2013, released in April, found that mobile advertising had grown 77 percent for the year but still accounted for less than 1 percent of total revenue.  By contrast, as Facebook reported its first quarter earnings the same month, it said mobile had grown to 59 percent of its total ad revenue.

A newspaper publisher friend summarized the state of play in his industry this way — “2013 will be remembered as the year when mobile went from infinitesimal to insignificant.”

Doing better in 2014 remains a high priority for many newspapers, but more bumps in an already bumpy road are foreseeable.

The American Press Institute held a summit on mobile this spring and found that detailed personalized data is the key to sales.  That is a great strength of Google and Facebook as the digital giants continue to invest heavily to stay ahead of competitors

The creative side of effective mobile advertising is a work in progress for marketers.  The consensus seems to be that banners do not work well on smart phones and tablets and that video, GIFs and other entertainment along with location-specific messages are the better match to how customers use the devices.

The right sort of sponsored content/native advertising also fits with mobile, especially if it is the sort of thing users will share on social media.

In short, these are characteristics of the new generation of content sites like BuzzFeed (which does not take banners) but relatively unfamiliar to legacy operations which do.

Mobile news content is also in early stages of development except at the largest organizations like the Wall Street Journal, New York Times, Washington Post and Boston Globe. They have put money into iterative improvement of apps that both display well on the smaller smartphone screen and are tailored to quick, on-the-move consumption.

My own hunch is that getting video right and getting stronger mobile ad performance will go hand in hand for news sites — challenging and frustratingly slow work but hardly impossible.

If the eMarketer forecast is correct, the imperative will only intensify. The research firm sees mobile advertising revenues passing the total ad revenues for newspapers this year and more than tripling them by 2018. Read more

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Advance digital makeover of its newspapers — five years in and no turning back

It seems like only yesterday, but we are closing in on five years since Advance Publications shook up the newspaper business by stopping daily publication of the Ann Arbor News, dissolving the company and reincorporating as a web-dominant enterprise.

I was reminded to take a look back at the relentless, if controversial, strategy when Advance Local president Randy Siegel released one of his regular six-month progress reports to senior executives Friday and e-mailed me a copy.  (The full text follows at the end of this post).

In the manner of such communiques at Advance and other newspaper chains, the report was upbeat, noting big increases in web traffic and digital ad sales, spiced with mentions of journalism of note and editorial prizes.

As measured by comScore, Advance’s 31 properties were up 43 percent in visits year-to-year in April and 37 percent in May, Siegel wrote, and collectively comScore ranks the sites ninth among general news sites nationally.

“All of our local markets are generating significant year-over-year growth in digital revenues,” Siegel added, led by a 66 percent increase at its Pennsylvania properties.

This prompted me to ask (and not for the first time) how Advance’s digital revenue gains compared to continuing print advertising losses.

Advance, like most private companies, does not release revenue or profit numbers, but Siegel did reply:

Our goal from the beginning has been to offset our secular print revenue declines with digital revenue growth and lower overall expenses. We have made promising steps toward that goal, but we have more work to do, which is why we are so focused on building our digital audience and digital ad revenues.

He also confirmed that with the addition of Portland and Cleveland papers and the company’s New Jersey Group, all now have made the transition to a digital first emphasis.  The New Jersey papers and hometown Staten Island Advance did not reduce print frequency or home delivery as all the rest did.

So take that as evidence that whatever critics may say about the strategy, Advance and its Newhouse family owners are sticking with it.

Back in 2009, the changes in Ann Arbor (and parallel action at Advance’s other Michigan holdings) seemingly came from the blue and were jaw-dropping.  A highly literate university town the first to lose its only daily newspaper?  But Advance explained that the paper and its website had begun losing money, and that it saw no realistic way to reverse that without changing the publishing pattern.

Advance brought the same approach to New Orleans in 2012, reducing the Times Picayune to a three-day-a week schedule and touting its NOLA.com site as the substitute go-to place for a daily report. Laid-off legacy staffers — joined by some loyal print readers and local politicians — howled in outrage. Advance stuck with the plan, though, and said it would not entertain local offers to buy the paper.

The Baton Rouge Advocate began circulating in the city and later launched a New Orleans edition, prompting the Times-Picayune to restore print on some days of the week that had been eliminated.

My fellow media business analyst Ken Doctor and I expressed similar reservations about the New Orleans strategy at the time it was announced.  With digital ad sales disappointing and rates falling, the commitment to building that as a primary revenue source seemed quixotic.  And by keeping all its sites free, Advance also has been sitting out the bump in circulation revenue the majority of newspaper companies have achieved with paywalls and higher priced print + digital access subscription plans.

Very few have followed Advance’s lead. To me that does not necessarily mean that Advance’s long-term view of the industry and the need to pivot to digital is wrong so much as it is premature.  A pullback to Sunday print (and maybe one or two other days) is likely in the future, but most companies think print, accounting for about 85 percent of revenue at most papers, still pays the bills and needs to be kept as strong as possible.

In other ways, though, the last five years have been kind to Advance’s assumptions.  Print advertising has not stabilized as many had hoped.  I am hearing that this year, especially in the second quarter and especially with national advertising in metros, is nearly as bad as the last two, with print ad ad revenue declines approaching 10 percent in both 2012 and 2013.

Also we are are inundated with reports (recently the New York Times in-house innovation study) on how hard it is to break the habits of daily print culture — even when that is what top management aims to do.

So Advance just may be vindicated over time in thinking that the sooner you start on radical culture change, the sooner you get there.  But the transformation is costing some serious money (and upset in Advance communities) in the meantime.

The full text of Siegel’s June 19 memo follows:

Advance Local mid-year update

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Naysayers are swarming on Clayton Christensen and his “gospel of innovation”

Clayton Christensen

Updated 6-24.

If business school professors were pop stars, Clayton Christensen would be Beyonce. His 1997 book, The Innovator’s Dilemma, is wildly influential — in particular, it has been both the theoretical underpinning and rallying banner for would-be digital disruptors of legacy media.

Most recently, Christensen’s thinking is central (and repeatedly cited) in the leaked 2014 Innovation Report young digital staffers of the New York Times produced this spring.  They argue that the print newspaper on which the company built its reputation needs to be de-emphasized and that, borrowing from upstarts like BuzzFeed, the Times should embrace a newsroom culture of aggressive digital development.

This month, however, Christensen has begun to gather some formidable detractors as well as acolytes.  The lead critic is fellow Harvard professor Jill Lepore who unloads a long debunking article in the current issue of The New Yorker.

The core of Christensen’s view is that big and established companies often go wrong trying to improve their dominant premium-priced product as nimble challengers whittle away at market share with much cheaper alternatives. Lepore concedes that this “dilemma” — the frequent futility of sustaining improvements — explains some business failures.  But that’s all she concedes.

Otherwise she finds Christensen building a broad general theory on the back of a few  handpicked case studies, many of which are factually and logically flawed. Thus the disruption framework is not a reliable predictor for success and failure, either for incumbent companies trying to survive and prosper or for hot new ventures crashing into a market.

Turning to the example of the Times’ Innovation Report, she writes:

It includes graphs inspired by Christensen’s “Innovator’s Dilemma,” along with a lengthy, glowing summary of the book’s key arguments. The report explains, “Disruption is a predictable pattern across many industries in which fledgling companies use new technology to offer cheaper and inferior alternatives to products sold by established players (think Toyota taking on Detroit decades ago). Today, a pack of news startups are hoping to ‘disrupt’ our industry by attacking the strongest incumbent—The New York Times.”

A pack of attacking startups sounds something like a pack of ravenous hyenas, but, generally, the rhetoric of disruption—a language of panic, fear, asymmetry, and disorder—calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up. Don’t think of Toyota taking on Detroit. Startups are ruthless and leaderless and unrestrained, and they seem so tiny and powerless, until you realize, but only after it’s too late, that they’re devastatingly dangerous: Bang! Ka-boom! Think of it this way: the Times is a nation-state; BuzzFeed is stateless. Disruptive innovation is competitive strategy for an age seized by terror.

The New Yorker piece is getting broad pickup (“The emperor of ‘disruptive theory’ is wearing no clothes,” headlines Salon).

The New York Times led its business section June 1 with an article on the Harvard Business School’s forays into online instruction.  How best to do that is cast as a strategy battle between Christensen and Michael Porter, another faculty star, who thinks a best-of-the-best company “must stay the course.” For the business school that would mean offering limited high-end online courses — a pattern the school is so far following.

Christensen, predictably, thinks the long-established on-campus instruction model is expensive and dated, so he would prefer the b-school wholeheartedly “disrupt itself,”  specifically offering free MOOCs (massive open online courses).  “Do it cheap and simple,” the Times quotes Christensen as saying. “Get it out there.”

Concurrently with Lepore’s article, the business blog Statechery (hat tip to Millie Tran of the American Press Institute) offered a similar rebuttal.  Author Ben Thompson dwells particularly on the number of times Christensen has been wrong in predicting that Apple and its high-end, elegant digital devices are heading for a fall.

Christensen, to my knowledge has not yet replied to the critics, and I doubt he will.  As the week goes on, however, writers for Vox and Slate have weighed in critiquing Lepore’s critique.

For his part Christensen steams along with his work, which in recent years has been done with co-authors and applies the disruption theory analysis to broad fields.  That began when Christensen, who has had a number of serious illnesses, spent his considerable time in hospitals on a theory for fixing the health care business.

In the most recent issue of the Harvard Business Review, he and a co-author take on capitalism itself.  They say that the world is suffering a glut of capital and that, especially in large corporations, investments are much more likely to go to money-saving process improvements rather than bold new product development  (“trying to cut your way to prosperity” as we often say in the news business).

In an admiring profile in Harvard Magazine (“Disruptive Genius”), Christensen even stands his ground on Apple.  Less expensive Android-based systems are now slowing the sales growth  iPhones and iPads and “killing Apple,” he claims.  “So I got it wrong; then I got it right,” he tells his interviewer.

My own take (regular readers won’t be stunned) is a sort of middle ground.  Big thinkers, even if they may be over-generalizing, are valuable in shaking up assumptions  — in Christensen’s case, the conviction that top companies with smart managers will stay strong and crush competitors.

Newspapers and, to a lesser extent, magazines had that sort of market dominance in the golden years of the 20th century.  Now both are fighting for their lives in the digital era, lest they become as Richard Nixon put it in the context of the wind-down of the Vietnam War “a pitiful, helpless giant.”

But I will applaud Lepore too, on the grounds that big thinkers and their big ideas need to be challenged and debated.  Christensen has mostly been lionized, leave it at that.

His skills as a writer help explain that level of acceptance.  While dealing in difficult concepts and occasionally slipping into business theory jargon, his writing is typically confident, clear and accessible.  That can sweep a reader along without a lot of pauses to  reflect on what Christensen may be leaving out.

Slowing down to analyze his paper applying disruption theory to the news business, for instance, I thought Christensen made the common mistake of an exclusive focus on holding and building audience with only passing attention to the importance of finding new ways to serve advertisers well.

At a Nieman seminar in 2013, Christensen said that he had been thinking about just what journalism and news does for its consumers.  He came up with three benefits: (1) find out what is true among competing claims. (2) help busy people unwind at the end of the day and, especially with ethnic publications, (3) generate pride, recognition and respect for a community.

The list is good but narrow.  It doesn’t really hit on the powerful appeal to users of being “in the know” (an old marketing slogan for my hometown Tampa Bay Times) whether for water cooler conversation or one’s own satisfaction.

I think Lepore misportrays Christensen as a dogmatist.  His less noticed follow-up book, “The Innovator’s Solution,” explores an obvious question left dangllng from The Innovator’s Dilemma.  How exactly do you makes an established organization good at innovation? Christensen explicates essential best practices like leadership from the top or heterogeneous project teams.

Also Christensen has started to consider instances in which disruptive theory may not be relevant. Hotels, for example, he told Harvard magazine, are not vulnerable to technological challenges and may occupy a particular spot in the basic-to-luxury spectrum indefinitely if management is attentive to sustaining improvements.

As for newspapers and the future of journalism debate, Christensen remains a justly  influential figure. His consulting firm, Innosight, worked on the American Press Institute’s 2005 Newspaper Next report – a disrupt-yourself wakeup call touting new business models that got a respectful hearing but not much action at the time.

The report has aged well, and a decade later the need for rapid digital transformation has become more orthodoxy than heresy. Though foot-dragging remains an issue.  Just this week, my favorite media analyst, Frederic Filloux, slammed French news organizations for half-hearted stabs at digital, and a lingering view that because their work is important, print newspapers will endure as businesses indefinitely.

The demography, technology and business pressures driving massive change in journalism (and journalism education too) are not going away.  Figuring how to put Christensen’s theory to practice will remain essential, though I will grant Lepore that his big idea is better treated critically than as gospel.

Update:  Christensen did reply in an interview with Bloomberg/Business week, published June 21.  Also Clark Gilbert, CEO of Deseret Digital Media and a former colleague of Christensen’s, critiqued Lepore’s article in a post on Forbes.com.

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