What went wrong at Digital First Media — and what’s next?

The announced shutdown of Digital First Media’s national newsroom Wednesday and the probable sale of its 75 daily newspapers later this year is a significant jolt to those who believe a viable business model for rapid transformation of legacy operations is close at hand.

CEO John Paton’s explanation in his blog that the company has decided to dismantle Project Thunderdome “to go in a new direction” barely hints at the converging economic troubles.

Most basically, the very able editor Jim Brady (a Poynter National Advisory Board member) and his lieutenants were like a crack auto racing team trying to succeed in a highly competitive field driving Chevy Cobalts.

The two companies that were merged into Digital First, Journal Register and MediaNews, have both been through bankruptcies, Journal Register twice. Both had been under-invested for years in content management systems and other essential technology.

Steve Buttry, who was just months into “Project Unbolt” to hasten the break from print habits to digital, told me the four pilot papers for that project all had different CMSes, none of them especially good.

It is myth, embraced by digital future-of-news enthusiasts, that Web publishing is close to free. Paton seemed of that view early in his tenure when he asked newsrooms to use mainly free tools to put out their reports for a week.

But in his most recent manifesto/speech to the Online Publishers Association in January, he said he was looking for another $100 million to invest in the company’s digital activities on top of an earlier $100 million.

To weave quality mobile offerings into the often creaky pairing of print and Web content is an order of magnitude more expensive. And new lines of digital business like other startups come with the cost meter running well before the revenue kicks in.

The leading edge of the bad news was the shutdown of the Project Thunderdome news center, along with the departure of Brady and many other editors and reporters, 50-plus in all.

Several aspects of that operation struck me as odd. Digital First has plenty of company — Gannett, Tribune and others — in trying to centralize production and content generation of national news, freeing local staff (and print news hole) for local content.

But could a staff of 50 or so, however digitally adroit, really generate a range of material suitable for papers of very different sizes and aspirations, competitive with The Associated Press and other wire services?

And with cost considerations looming large, why would you put such a news center not just in Manhattan but half a block from Wall Street?

While not terribly detailed, Paton’s blog announcement said the company would be returning to a more decentralized treatment of national and international topics and let its scattered newspaper clusters do more of the picking of which digital initiatives to pursue. As for what’s next, Paton wrote that while the company will continue to invest in digital, “increasingly our focus will be in local where we are the news and information leader in our markets.”

Paton did not say that the company is being put up for sale. A thorough report from the reliable Ken Doctor said it would be coming soon. I did verify from two other informed sources (who declined to be quoted by name) that the properties have informally been shopped around since the start of this year.

That is not to say definitively that a formal sales process is in place. I am also not so sure that a buyer for the whole company or a set of buyers for its component parts will be found.

But the clear signal is that the money guys behind the company — hedge fund Alden Global Capital — are looking for an exit. Paton, as I have noted in earlier posts, spent several years as an investment banker himself. So he was a logical CEO for Alden, but probably under more pressure than he has let on to clear the firm’s financial hurdles in a timely fashion.

Ideally, investors in distressed businesses like Alden (a.k.a vulture funds) are looking to squeeze out costs, restructure strategically and sell at a profit after a few years.

However, if that scenario doesn’t work out, they are ready to bail out sooner and take their licks. Alden has done that once already, selling its controlling interest in Philadelphia newspapers to local investors at a 50 percent loss after just two years.

Opinion on the dramatic news was split. Many (including my colleague Jill Geisler) paid tribute to the innovative drive of the Thunderdome news operation and wished the talented staff well in finding new employment.

Buttry told me in a phone interview, “if you could succeed by newsrooms embracing digital challenges, we would be a success.” But at an earlier Brady-Buttry collaboration, the freestanding digital TBD site in Washington, the money guys lost patience before the original timetable for the experiment was close to completion.

There was a more negative undercurrent in the Twitter stream from some savvy digital operating executives.

Raju Narisetti, the outspoken senior vice president, strategy, for News Corp, wrote that the episode is “a classic case of media critics and Twitterati enamored by ‘digital first’ talk & not looking at economics.”

In subsequent posts, he called Digital First “a house of newspaper cards” and faulted Paton’s note on Thunderdome’s demise as “all PR euphemism.”

Rafat Ali, who founded the Paid Content site (an early venture covering digital businesses) and sold it at a premium price, blistered Paton in a tweet, writing “at some point people have to stop worshiping false prophets.” Ali has moved on to an ambitious new travel information site, Skift.com.

Neither Narisetti nor Ali could be called stick-in-the-mud legacy nostalgists, as Paton has frequently characterized his critics. But they clearly see more pep talk than substance in what he has done at Digital First.

I have e-mailed Paton, who replied that he was willing to talk time permitting. I will add his comments if I get them.

In earlier conversations, before the second Journal Register bankruptcy, Paton was eloquent on the difficulty of shedding legacy costs and the inevitability of continued print advertising losses.

You could blame the failure of Thunderdome and perhaps the rest of the Digital First experiment on those burdens. Or on a bet-the-store reliance on big digital advertising revenue gains that have yet to materialize. Or both.

In any case, the takeaway, is that the Paton way, peppered with encouraging but selective growth statistics, didn’t add up to those who have seen the books in their entirety.

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  • mikal

    Rick, a most insightful column. You are spot on about the CMS systems, and the fact that the Associated Press was far better than any Thunderdome. The emphasis was local, local, local, yet they gutted the newsrooms and hired a whole bunch of executives in New York. The CMS systems were awful and very user unfriendly, with second rate computers to boot. That alone was a deterrent to using Thunderdome product, not to mention content that was usually irrelevant, and of course, space that was so tight, there was nowhere to put it anyway. Well, I tried to get the whole news section out myself each night after JRC decided newsrooms don’t need any people in them. Then they decided they didn’t even need me.

  • http://sfreporter.com Jeff Norris

    My strong feeling is that we are paying attention to all of the wrong things when it comes to the move to digital. It’s the ad reps. They are the problem and they are the solution. Until we address selling digital products at legacy media outlets, we will continue to fail.

  • Kevin Slimp

    Nice piece. You might enjoy my column from last month:

    http://kevinslimp.com/kevin-agrees-with-upton-sinclair-cms-246