Hey, Ben Smith: No, it is not time to ‘let newspaper chains die’

A refutation of a flawed argument from The New York Times' media columnist

March 31, 2020

Dear Ben,

I get that your new job for The New York Times is to offer provocative takes on the media. Seven columns in, you are doing just fine with that. But being provocative isn’t a license to be wrong — as you were Sunday.

Newspaper chains should just die and make way for a future that is all digital and mostly nonprofit? Did you think that through?

Let’s take the current crisis — in which the journalists in local newspaper newsrooms are doing what they do best. I can’t think of a local startup that is close to matching the all-hands-on-deck comprehensive coverage of the virus’ impacts and accompanying recession.

Check out the sites of the Miami Herald (McClatchy), Milwaukee Journal Sentinel (Gannett) or The Baltimore Sun (Tribune).

Even the loathed, hedge-fund controlled Media News Group, as I wrote a few weeks ago, frees its depleted newsrooms to pursue stories important to their communities — and they do.

For a piece of persuasive writing, it is unfortunate that you led with a subtle but glaring error. You say that Elizabeth Green, admired by me and many others for what she has done with Chalkbeat and is attempting with the American Journalism Project, was musing that she could buy Gannett for $261 million.

That wouldn’t do it. To buy Gannett you would need to come up with the $261 million, its market capitalization, but also its debt of $2 billion. So that’s a sale price of $2.26 billion (aka “enterprise value”).

You make a nod at that issue, saying that a buyer would need to take on Gannett’s debt. But that is not quite right either. A buyer would need to take out the current lender, then try to find funding of its own.

Look at it this way, If someone with tons of cash (Google, Facebook or Mark Zuckerberg himself) wanted to buy Gannett, it would take $2.26 billion in cash. And probably more for a premium offer like the one Rupert Murdoch came up with when he bought Dow Jones or Sheldon Adelson did acquiring the Las Vegas Review-Journal.

To the merits of the broader case:

I have closely watched and praised the tremendous growth over the last decade in local nonprofit digital news startups. The group is not without financial challenges of its own. Here’s hoping the movement continues to grow or, better yet, draws wider support.

This is not necessarily an either-or choice, though. How about both-and instead?

This line of argument may sound self-serving coming from me. On Monday, Poynter’s Tampa Bay Times again acknowledged financial stress and announced it was suspending print editions except on Sundays and Wednesdays while furloughing at least 50 employees.

Times chairman and CEO Paul Tash (disclosure, he is my boss’s boss) told me in a Q&A that the move entails “a nudge” to loyal print readers, many of them older, to try the website or an e-replica edition as an alternative. That’s the only way they will be able to read the Times’ journalism five days a week.

Now is certainly the time to get going triple fast with shedding the crippling legacy costs of paper, printing and home delivery.

Tash’s capsule conclusion: “These next several weeks will teach us a lot. In some ways, we are field-testing the future.”

I also think that the current debate on how Congress can help journalists in this hour of need will have a both-and answer. I am guessing that a stimulus will be split between payments to local journalists who have been laid off or furloughed and to companies (or digital nonprofits) facing life-threatening challenges.

Granted, we need to avoid sending money to the hedge funds that are likely to let more journalists go and drop savings to the bottom line.

There is a way around that, however, that also addresses the more general First Amendment objections to letting the government anywhere near news funding.

A good model is Steve Waldman and Charles Sennott’s three-year-old Report for America nonprofit. Reporters are placed for a year or two at an outlet (either for profit or nonprofit) for a particular project or beat.

Participating on either side of the deal is competitive and juried. Another nice touch: Receiving organizations must come up with a match, often obtained in practice from community foundations, which are just now beginning to see news as a cause that deserves support.

Report for America itself could be a conduit for an infusion of federal money. (When I spoke to Waldman a month ago, he said maybe — depends on the conditions).

Since the aid is a response to circumstances not expected to last indefinitely in such intense form, we could borrow an idea from the Europeans. Give each household a one-year allowance to subscribe to their local newspaper — or donate the same amount to a local news nonprofit.

That subsidy might be extended if it is working, or we could flip back to survival of the fittest.

If you have read this far, Ben, let me try to end on a note of amity. Your final paragraph begins, “none of this is settled and easy.” The issue merits a lot more study and debate. So let’s.

Best,
Rick

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.

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  • I echo the sentiments of Dr. Claussen, my colleague on the editorial board of the Newspaper Research Journal. (He’s the editor.) I think we must acknowledge a couple of things, however.

    • Ben and his colleague Marc Tracy are “just” journalists who have recently been thrown in at the deep end of a beat it can take years to master. (Mr. Tracy having apparently covered high school sports previously.) I say “just” a journalist as a former long-time journalist who was often similarly assigned to cover subjects I knew little or nothing about. You learn to get up to speed quickly by reading the clippings file and talking to those who can explain things to you.

    • Newspaper economics is a highly counter-intuitive subject. I have been studying it for 20 years and it took a decade and several trips down various rabbit holes before I could wrap my brain around it. By using my innovative research methodology of simply looking at their financial statements, however, I have discovered something that only hedge funds seem to understand. Newspapers are relentlessly profitable. Not as profitable as they once were, but they are inherently profitable as a result of their basic economics.

    • I think that Ben and Marc can be excused to a certain extent not just because they are novice media experts (now there’s an oxymoron!) but because even veteran media critics have long swallowed whole the myth of the death of newspapers. It has been promoted for decades by publishers who have used their power over public perceptions to regulatory advantage, as the late Ben Bagdikian pointed out in his classic 1983 book The Media Monopoly.

    What gets my goat is that none of the instant-expert journalists ever bother to approach actual experts like Dr. Claussen or myself. Sometimes Iris Chyi at Texas gets a call, and sometimes she passes them on to me, but it’s rarely the MSM calling, much less the NYT. As Iris and others have discovered, the NYT was largely responsible for promoting the newspaper death myth during the last financial crisis. It is indeed ironic that the NYT has now discovered the magic bullet which I believe will save the industry – the metered paywall. Much of what follows is taken from a couple of emails I sent to Ben yesterday. To his credit, he replied to the first one. He may still be digesting the second. I gave him quite a bit of reading to do.

    The simplest statement I can make of my fact-based argument that newspapers are not dying was my introduction to a panel last summer on which Dr. Claussen and Dr. Chyi also participated. It was recently reprinted in the NRJ’s 40th anniversary issue, along with the papers presented by other panelists.

    http://greatlyexagerrated.blogspot.com/2019/08/why-are-newspapers-still-here.html

    Those who want the data can read my 2014 NRJ article which found that no publicly-traded newspaper company in Canada or the U.S. lost money on an operating basis from 2006-13 despite an historic decline in ad revenue. Most made double-digit profit margins. Some approached 20 percent.

    http://www.marcedge.com/NRJEdge.pdf

    I turned that into a book titled Greatly Exaggerated: The Myth of the Death Of Newspapers. You can read the reviews here.

    http://www.marcedge.com/greatreviews.htm

    You can download the full PDF here.

    http://marcedge.com/Greatly_Exaggerated_5e.pdf

    Since moving to Europe a few years ago, I have been researching the UK newspaper industry, with similar but more varied results. Most interesting are the finances of the Times, which turned to profit recently after years of losses by introducing a paywall. I am currently writing a book on UK newspapers.

    http://marcedge.com/jombs.pdf

    While the pandemic has certainly thrown newspapers for a loop, it has done so for all businesses. I expect newspapers to survive, along with the rest of the economy. They are still attractive to advertisers for some purposes, while digital news media remain inherently unprofitable due to their basic economics. It is certainly true that newspaper revenues are in steep decline. In the U.S. they fell from $60 billion at their height in 2006 to $25 billion in 2018, according to Pew’s annual State of the Media report.

    https://www.journalism.org/fact-sheet/newspapers/

    Some claim that the business model for newspapers is “broken.” I would argue that if you are still making money after your revenues have fallen by more than half, your business model is robust indeed. My main point is that newspapers are highly scalable and can thus be made larger or smaller almost in lockstep with their revenues. They got bigger for decades. Now they’re getting smaller. As long as they can keep their expenses below their revenues, they will remain profitable and thus stay in business. I predict this should continue indefinitely. Most newspapers began as one-man operations centuries ago. They are at worst on track back toward that status. With desktop publishing, how many people do you need to put out a newspaper these days? It can be done with a handful.

    The irony is that in the age of the Internet, newspapers have more readers than ever. Most, however, are doing so for free online. Research that went into the metered paywall found that a percentage of regular readers would pay. Letting most others through for free kept ad rates up. Recent studies have found that ad rates have now benefitted from the higher online engagement levels that paywalls have brought. I summarize them in this paper I presented to the Future of Journalism conference last September in Wales.

    http://www.marcedge.com/whatif.pdf

    The great advantage newspapers have is four revenue streams. It was always a bit of a chess game playing off circulation prices against ad rates. Now it’s like three-dimensional chess with digital ads and readers. Most people think newspapers are dying because their circulation is going down. Because every print copy is (or was) sold at a loss, however, they are actually saving money by cutting their circulation footprint. Now they are also charging more for each hard copy, as Dr. Chyi recently documented. That Pew fact sheet will show you that circulation of U.S. newspapers fell every year between 2011 and 2017, by more than 30 percent in total. As a result of price increases, however, circulation revenue rose every year during the same period, by 12 percent in total. By 2017, circulation revenue at U.S. newspapers was back near its all-time high set in 2003. Newspapers benefit from something economists call elasticity of demand, which means you can raise your price without hurting your sales too badly. Plus their core readership is of greater interest to advertisers because of its demographics – higher education and income.

    Newspaper economics is a complex subject not fully understood by many. But as with anything, journalists just have to ask an expert to explain it. Unless, of course, they are actively promoting a myth for some reason. If so, we would be the last people to whom they would want to give a voice.

  • Look at the bright side. Ben Smith may know more about newspapers than his colleague Marc Tracy, who throws around statistics about the newspaper industry without bothering to distinguish which ones are for the entire industry (such as numbers of titles shut down, overwhelmingly weeklies) and which ones are for dailies only (such as ad dollars, total circulation, total employment–no one tracks those for nondailies.)