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


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.”

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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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Screen Shot 2014-07-02 at 1.21.03 PM

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

Screen Shot 2014-07-02 at 1.22.19 PM

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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nola

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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innovators-delemma copy

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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Bowe Bergdahl

How non-stop Bowe Bergdahl coverage hit its expiration date at CNN

FILE – This undated photo provided by the U.S. Army shows Sgt. Bowe Bergdahl. Bergdahl. His complicated story does not seem to have caught the attention of CNN like the missing Malaysian airliner story. (AP Photo/U.S. Army)

Hard on the heels of its critically slammed, but ratings friendly, wall-to-wall coverage of missing Malaysian Flight 370, CNN appeared last week to have found another big story to play big around the clock: the Bowe Bergdahl rescue.

CNN’s in-house media critic/reporter, Brian Stelter, opened his Reliable Sources show Sunday with a Bergdahl segment, saying that in the news-about-news arena “it is (the) one obvious lead story.”

But a funny thing happened Monday and Tuesday. The political storm over Bergdahl’s release in exchange for five Taliban detainees and questions over whether he deserted his unit suddenly faded to a middle-of-the-hour topic.

The Bergdahl affair did rally Wednesday with live coverage of Defense Secretary Chuck Hagel’s two-hour appearance before a congressional committee.However, it appears, going forward, that CNN’s coverage will be episodic rather than continuous.

Stelter and a CNN spokesperson declined to discuss how the decision to drop focus on Bergdahl down a notch was made or why its run was cut short after 10 days while the missing plane saga dragged on for six weeks.  But the two provide a tidy update on the evolution of CNN’s big story obsession as the three-way rating competition with Fox and MSNBC has intensified.

USA Today media columnist Rem Reider wrote Monday that the Bergdahl story was “not another fleeting flap du jour” and deserved continued intense coverage.  He observed that there were at least five intriguing story lines — legal, strategic and political — each with important open questions. (The Washington Post weighed in Wednesday with a scoop reporting on Bergdahl’s journal and discharge from the Coast Guard for psychiatric reasons).

On closer inspection, though, Bergdahl was not nearly the match to CNN’s competitive strengths the missing plane had been.

My TV-savvy colleague Al Tompkins told me the missing plane search had a flavor of  mystery in which a now-we-find-out resolution seemed to be coming (though it has yet to arrive and may never).  In that way, Tompkins said, it resembled the appeal of live coverage of big trials which are the staple on CNN’s sister HLN network.

The missing plane story also had no political element, unless you happen to care about the competency of the Malaysian government.  So with more reporting resources and a strong international presence, CNN outflanked its right-left competitors at Fox and MSNBC.

The Bergdahl rescue, by contrast, quickly turned to an intensely partisan issue with Fox advancing an assortment of Republican accusations and MSNBC falling into the posture of defending the Obama administration.

Plus it grew complicated, while the main line of the missing plane story stayed simple.  That’s my best guess, anyhow, of why the story faltered on CNN early this week.

CNN is coy about whether there is a centralized decision-making process that elevates a given story to the super-star massive treatment or determines when wall-to-wall coverage has run its course. Perhaps all that is regarded as a trade secret.

Stelter did provide some hints in one of Reliable Sources earlier segments on whether the missing plane coverage was the wretched excess CNN critics claimed.  During his March 30 show, he said:

CNN, as you know at home, is still concentrating very heavily on this story for both editorial reasons as well as business reasons. Every day I get a spreadsheet with the ratings from the day before. It’s circulated widely at CNN.

And every day, I wonder is there going to be a big drop-off in the ratings because, of course, that would mean a decline in the audience’s interest in this mystery. Well, so far the interest is still very high…

Since the plane disappeared, CNN’s demo ratings have just about doubled. Now, television executives should not be blinded by ratings. But they cannot be blind to them either. That’s the reality of the news business.

The stakes are doubly high in the current cable climate where ratings drive not just advertising revenues but the carriage rates the networks can negotiate with cable providers.

CNN’s editorial and business obsession with big story, 24-7 blowouts dates to its earliest days.  The network’s breakthrough to prominence in the early 1990s was attributed to its coverage of the first Gulf War.  But even earlier it carried the only live network coverage of the Challenger’s 1986 blowup on launch and a continuous broadcast of Baby Jessica’s 1987 rescue after she fell into a well in Midland, Texas..

Ken Auletta wrote in a 1993 New Yorker article about the ratings/big news correlation for CNN.  And during Tom Johnson’s decade-plus run as CEO, CNN offices prominently displayed a longitudinal chart showing ratings spikes and the events that drove them.

Final ratings for Bergdahl week are not in, though Fox may have had a higher volume of coverage (and ratings bump) than CNN.  During the prime of the missing plane story, Fox gained a little additional audience and CNN took some share from MSNBC.  But the driver of its 94 percent audience increase in the first three weeks of the story was viewers shifting to CNN from entertainment options.

Which is to say that jumping hard on the right big story, while complicated by competitive factors with the two partisan cable news channels, remains a compelling business strategy for CNN.  Watch for the network to continue to ride such coverage hard so long as an increased audience rides along. Read more

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Pierre Moscovici

Digital disruption is now in full bloom at European, Australian newspapers

Traveling periodically to Europe and Latin America in the 2000s to speak at news business events, I got a consistent impression: international newspapers were better off than ours, but executives could see U.S.-style decline on the horizon within a few years.

Statistics released yesterday by the World Association of Newspapers and News Publishers (WAN-IFRA) suggest that digital disruption is now in full bloom in Europe and Australia. Latin American newspapers are still showing moderate circulation and advertising growth. The picture is mixed in Asia and Africa.

The summary picture now matches the United States fairly exactly:  some growth in combined digital and print audience, digital ad revenues not keeping pace and both print circulation and print advertising declining sharply.

And Larry Kilman, secretary general of the association, sees a familiar implication.  “Unless we crack the revenue issue,” he wrote in a release summarizing the findings,  “and provide sufficient funds so that newspapers can fulfill their societal role, democracy will inevitably be weakened.”

Former French Finance Minister Pierre Moscovici reads a newspaper during the EU Finance Ministers meeting, at the European Council building in Brussels in 2013. (AP Photo/Yves Logghe)

The report’s release coincides with the association’s annual World Congress conference, being held in Turin today through Wednesday.

The WAN-IFRA statistics show print circulation declining 5.29 percent in 2013, comparing with losses of 5.20 percent in Europe and 9.94 percent in Australia and Oceania during 2013.

A five-year comparison showed those regions faring even worse: while print circulation was down 10.25 percent in North America, it declined 23.02 percent in Europe and 19.59 percent in Australia and Oceania.

Print advertising losses for the year were comparable in North America (-8.7 percent) and Europe (-8.2 percent).  Australia and Oceania are not broken out separately for this measure.

As in the United States, paid digital circulation was up sharply worldwide, 60 percent for the year, and digital advertising continued to grow by 11 percent in 2013.

But the report adds important qualifiers. Newspaper organizations get only a modest share of overall digital advertising growth where Google and other big non-news companies dominate. And despite the digital revenue gains, globally 93 percent of newspaper revenues still come from print.

The report also takes a sideways swipe at the industry’s reliance on unique visits and page views as indicators or digital health.  More important, it says, is building the level of engagement:

While 46 per cent of the digital population visits newspaper websites, newspapers are a small part of total internet consumption, representing only 6 per cent of total visits, 0.8 per cent of pages viewed and 1.1 per cent of total time spent on digital platforms.

As in the United States, comparatively few international newspaper organizations have gone out of business (FT Deutschland is an exception).  But waves of sharp newsroom staff reductions and other expense cuts are common in both Europe and Australia.

European governments have been much more aggressive than ours in attempting to regulate Google or force subsidies to news organizations suffering financially.  France persuaded Google to donate $80 million, mostly in-kind services, to news organizations there in exchange for freedom to link to content.

The WAN-IFRA program reflects a roster of potential transformation strategies:  faster innovation, attracting capital, data as an asset both for news and business, video and reports tailored to mobile devices.

But those are all prospects for a stronger growth story rather than widely achieved successes with easily replicable models. Kilman’s commentary concludes:

If newspaper companies cannot produce sufficient revenues from digital, if they cannot produce exciting, engaging offerings for both readers and advertisers, they are destined to offer mediocre products with nothing to differentiate them from the mass of faux news.

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Expansionary Halifax Media looks beyond its Southeast base for next buy

The Worcester (Mass.) Telegram & Gazette, long up for sale, reported Thursday that an executive team from Halifax Media Group had been in the building for several days of talks with management — a signal that the company is a likely buyer.

Halifax who? The Florida-based company, barely four years old, now has 35 dailies. With a billionaire backer, Warren Stephens of Arkansas, Halifax is pushing to the front of the line as mid-sized and smaller papers come up for sale. It bought the 16-paper New York Times Regional group for $143 million in December 2011 and 19 Florida and North Carolina dailies and weeklies from Freedom Communications six months later.

Halifax is little-known by design. Except for the occasional letter to readers, CEO Michael Redding typically does not do interviews (and I got no response to an email request that he discuss the company’s growth). But Halifax is exemplary of an acquisition boom in recent years. While billionaire hometown buyers like The Boston Globe’s John Henry or the Star Tribune’s Glen Turner get the ink, the consolidators are scooping up smaller papers by the dozen.

A landmark event for the sector occurred last September. GateHouse Media simultaneously went through a prearranged Chapter 11 bankruptcy, purchased the Dow Jones local media group (formerly the Ottaway chain) and re-emerged as publicly-traded New Media Investment Group. The reorganized company, backed by Fortress Investment Group, has indicated it has enough capital to make further acquisitions and will.

Sellers who want out and the prevailing bargain-level prices are driving this opportunistic group of buyers. Halifax was formed in 2010 to buy the Daytona Beach News-Journal from court receivership for just $20 million. The paper had been the subject of a long court battle between minority shareholder Cox Enterprises and the Davidson family owners, losing most of its value as the suits dragged on.

The Worcester paper, for that matter, was purchased by The New York Times for $296 million in 2000 but was assigned a value of only $7 million as part of the sale of The Boston Globe to Henry last August.

Halifax’s way of operating remains mysterious but appears typically to involve newsroom layoffs and a booster-ish editorial tone. Shortly after the purchase, Redding announced the pro-business stance in an open letter to Daytona Beach readers, breaking with the liberal-leaning former owners.

Kevin Drake, newly installed as publisher of the Lakeland Ledger, struck a similar note in another Open Letter to Readers 10 days ago:

Our editorials will advocate for our community and the potential we have here. We will support free enterprise and the benefits that come with a stronger economy. A thriving business environment elevates a community. We will point out positive opportunities for our city, county and state.

The Sarasota Herald Tribune — the largest in the Halifax group — was a Pulitzer finalist in 2010 and a winner in investigative reporting in 2011. Though publisher Diane McFarlin and editor Mike Connelly have left for other jobs, I am told the Herald Tribune retains at least some of its enterprise reporting bite.

Several other of the acquiring firms like GateHouse and Warren Buffett’s BH Media Group also have tended to be aggressive in downsizing newsrooms and consolidating editing and layout functions at centralized hubs.

Those two, along with Digital First Media and long-established CNHI (Community Newspaper Holdings), have a national footprint. Until now, Halifax has operated only in Florida and four other Southeastern states. It sold the Santa Rosa Democrat in California wine country, which had come as part of The New York Times group deal.

Acquiring Worcester would move Halifax further afield into New England, once a center of thriving, editorially ambitious smaller newspapers, but for the last decade a center of ownership changes, consolidation and downsizing.

It is noteworthy that Stephens, the lead among the three private investment firms that control Hallifax, has a media group of 11 Western dailies of its own, with the Las Vegas News-Review its flagship. It is possible the two groups could be combined at a future date.

Warren Stephens, nearly as sparing as Redding with public comment, did discuss acquiring The New York Times group, as part of a long interview with Steve Forbes in 2012. Echoing Warren Buffett’s comments on the durability of local franchises, he said:

I don’t think the news gathering aspects of magazines or newspapers are going to go away. I think at some point in time there’s going to be a realization that the professionalism of the reporters, the editors, the people that determine what’s going to make it into a publication and what’s not going to make it into a publication is actually worth something.

In newspapers’ particular case, I just don’t think there’s any way you’re ever going to get local news, sports, politics from any other source but your local newspaper. The purchase of the New York Times group – most of those papers are pretty small newspapers by most standards. We’re very optimistic that we can improve their operations, but also that in the long run those are going to be great, long-term assets for us.

It remains an open question whether firms like Halifax will be the wave of the future, dominating the management of small and mid-sized papers. No dispute though, they are a huge ownership force right now. Read more

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Newspaper industry narrowed revenue loss in 2013 as paywall plans increased

The newspaper industry narrowed its total revenue loss in 2013 to 2.6 percent, the best performance since 2006, according to figures released today by the Newspaper Association of America.

As suggested by earlier year-end reports from public companies, daily and Sunday print advertising revenues were down 8.6 percent and total advertising revenues down 6.5 percent.

However, circulation revenues grew for the second consecutive year, up 3.7 percent in 2013 compared to a 5 percent increase in 2012. That was driven by continued adoption of paywall plans, now at more than 500 of the roughly 1,400 dailies.

Revenue from digital-only subscriptions was up 47 percent, and print + digital bundled subscription revenue grew 108 percent. With many newspapers now offering all print subscribers a free digital access bundle, revenue from print-only subs and single-copy sales was down 20 percent.

Besides the circulation gain, the industry had 2.4 percent growth in digital marketing services offered to local businesses and showed some growth in newer activities like events and conferences.

Total revenue for the industry stands at $37.59 billion compared to $38.60 billion in 2012. Of that, $10.87 billion comes from circulation.

The NAA calculates digital advertising revenue rose 1.5 percent for the year and now accounts for 19 percent of ad revenues. Mobile ad revenue, though still very small, increased 77 percent in 2013.

The NAA has made several changes in how it computes and releases these figures in recent years. In 2013, it stopped releasing quarterly reports, which CEO Caroline Little said usually resulted in negative coverage and thus fueled a “newspapers are dead” narrative.

Starting with last year’s report for 2012, the NAA began trying to include more different sources of revenue in the computation. That resulted in the discovery of about $5.5 billion in revenue in such activities as contract printing and weekly and niche publications owned by dailies that had not been previously counted.

Because of those changes total industry revenue figures for the last two years cannot meaningfully be compared to those for earlier years.

The NAA estimates are based on a survey of both public and private companies along with projections for those papers not reporting.

Today’s report does not include updated estimates for daily and Sunday circulation, the number of daily papers and industry digital traffic. Metrics and sources for these numbers are in transition.

The results underscore the thesis of former NAA Chairman Jim Moroney, publisher of The Dallas Morning News, and others that new revenue streams apart from traditional advertising and circulation are becoming a key element of financial  improvement.

Though digital ad revenue gains again failed to make up for print revenue losses, there was mildly encouraging news on that front. Despite continued downward pressure on prices and tough competition from digital giants with virtually no news operations, the industry eked out a gain.

The NAA also calculated that “pure play” digital ads — that is ones not sold in a combination with print schedules — now account for nearly a quarter of the digital ad total.

The figures also bear on the continuing debate on paywalls.

Companies that continue to offer all digital content for free like many Digital First papers and all of Advance’s are sitting out the main source of revenue growth over the last several years. They are growing digital traffic much more quickly than most, but it is unclear how their digital ad revenue growth compares with potential circulation revenue left on the table.

Paywall critics like Digital First CEO John Paton have suggested that the gains amount to a one-time price increase and may be hard to sustain or even maintain after the first year or two. Part of the 2013 growth doubtless comes from new digital and bundled pay plans.

But The New York Times has introduced both higher and lower priced versions of its initial pay plan this spring, and others are expected to follow suit. So that could be a basis for continued circulation revenue growth on top of the first surge.

Public companies have not yet reported their first quarter 2014 results, but the trend of print and total revenue loss continues. That is resulting in current or prospective cuts to newsrooms and business operations at many companies.

Clarification: A previous version of this story reported the narrower revenue loss in 2013 was the best performance since the mid-2000s. For clarity, it is since 2006. Read more

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