Is the Washington Post about to spoil the NY Times’ big payday?

Last week Washington Post CEO Donald Graham, addressing a financial analysts conference in New York, said the Post has no current intentions of erecting a paywall to charge for his newspaper’s online content, making it one of the few papers not planning to do so. This comment was only lightly reported in the media, but it is earth shattering in the newspaper industry and especially for the NY Times which had announced it would begin charging for content in 2011.

For the past three years, newspapers have struggled with declining advertising and circulation with ad sales down on the order of 10 to 25% each year. Losses like this render their business model unsustainable. They have rued the day they decided to give away their internet content for free, and yearned to put Humpty Dumpty back together with a fee based system. But it’s not that easy. Should any direct competitor continue to provide free content, the one charging is committing suicide.

In December 2008, shortly after the election, Stanford journalism professor Joel Brinkley got the ball rolling by penning this gem:

Now, here's my idea: The newspaper industry should ask the Justice Department for an antitrust exemption that would allow publishers to collaborate on a decision to begin charging for their Web sites. No paper would have to charge, and each paper could determine its own price. But if most papers in a region - San Francisco, Oakland and San Jose, for example - began charging for Web access at more or less the same time, many readers would likely subscribe.

An unsympathetic Tim Burden on his journalism blog Printed Matters comments on Brinkley’s proposal and puts it more succinctly (emphasis added):

Brinkley implicitly understands that unless all news sources start charging at the same time, everyone will just go to the free sources, killing the paid ones quick-fast. So he proposes a government-sanctioned cartel.

It didn’t take the administration long embrace the concept. In mid-March 2009 Attorney General Eric Holder told Reuters he was willing to consider loosening antitrust enforcement of the newspaper industry. While couched in terms of production and distribution cooperation between newspapers, those familiar with the industry know these are back burner items. The only issue that counts is getting unanimity on the online paid content issue. But coordinating between competitors is an anti-trust violation that can land publishers in jail. Did newspaper publishers take Holder up on his pass? It appears so.

In late May 2009, Atlantic.com’s James Warren broke the story that the NY Times and major newspaper chains were attending a secretive and unannounced meeting, entitled: Shhhh. Newspaper Publishers Are Quietly Holding a Very, Very Important Conclave Today. Will You Soon Be Paying for Online Content?

He goes on: Here's a story the newspaper industry's upper echelon apparently kept from its anxious newsrooms: A discreet Thursday meeting in Chicago about their future."Models to Monetize Content" is the subject of a gathering at a hotel which is actually located in drab and sterile suburban Rosemont, Illinois; slabs of concrete, exhibition halls and mostly chain restaurants, whose prime reason for being is O'Hare International Airport. It's perfect for quickie, in-and-out conclaves.There's no mention on its website but the Newspaper Association of America, the industry trade group, has assembled top executives of the New York Times, Gannett, E. W. Scripps, Advance Publications, McClatchy, Hearst Newspapers, MediaNews Group, the Associated Press, Philadelphia Media Holdings, Lee Enterprises and Freedom Communication Inc., among more than two dozen in all. A longtime industry chum, consultant Barbara Cohen, "will facilitate the meeting."One hopes it displays the same sense of purpose as, say, troubled world leaders did at Yalta in 1945 or, in a rather less respectable sector of the economy, beleaguered mob bosses did at a legendary Apalachin, New York, confab in 1957. Read it all. It will curl your hair.

Enter the Washington Post, which, it appears, was not a participant in the Chicago meeting. It has pretty much avoided the paywall issue in the past other than to say it has no plans for paid online content, similar to last week’s statement. It has become the spoiler, especially for the Times. Both have significant national and international coverage and following. If the Times goes the pay route and the Post doesn’t, online Times readers will gravitate to the Post, jeopardizing the Times’ reputation as the “newspaper of record.”

With the Post a holdout, something concerns me. It is the possiblity the administration is pressuring the Post to conform. The Post owns a substantial interest in Kaplan, a for-profit college operation. It is a highly profitable enterprise that contributes heavily to the Washington Post Co’s bottom line. Since this summer Kaplan and other for-profit colleges have been viciously attacked the in same way as the health insurance companies and bankers. And in at least one case it has led to a downgrading of Post stock. Coincidence? Maybe.

My guess is the Post is not being an opportunist. I think it has more to do with the legal aspects. While Holder may signal an easing of anti-trust enforcement, the law is the law. Another administration might not be so tolerant, and two years is not that far away. And there still remains the potential for civil suits that Justice can’t control.

Note: The last two paragraphs have been edited (12/15/2010 3:00pm).

Non-profit status the savior for newspapers? Fat chance!

Maryland Senator Benjamin Cardin has proposed legislation to allow newspapers to be classified as non-profit entities (technically a “Low Profit Limited Liability Corporation” or L3C). Non-profit status for newspapers has been the hot buzz in the trade press for the past several months and is supported by the Newspaper Guild as an alternative ownership model. But it’s hard to see how it could make a significant difference. Taxes, especially property taxes, are significant expenses. But the real killers are newsprint and payroll. The factors that made newspapers so highly profitable in the past, namely high entry cost for presses and production equipment and the huge employee base that restricted competition, are what is dragging the industry down now. Desktop publishing eliminated the need for heavily manned, highly unionized composing rooms (often well over 350 printers in major markets) for new entrants, opening the door to small competitive suburban dailies and shoppers. As metro areas spread out, a declining circulation base became even more diffuse, raising the cost to deliver a paper to a reader. In the 1960s and 70s a carrier would typically deliver to half the households on a block, even in a competitive market. Now fewer than one in five subscribe to a paper. Newspapers are still stuck with big production facilities, too much press capacity and in the case of recently acquired papers, way too much debt. It’s hard to see how non-profit status will alter anything. The money advertisers spend is already a deductible business expense, no change there either. Several papers are already owned by non profit foundations or organizations. The profit making Times Publishing Company which publishes the St. Petersburg Times is owned by the Poynter Institute, a non-profit journalism school. Similar arrangements are in place at the Manchester (NH) Union-Leader, the Tupelo Northeast Mississippi Daily Journal, Anniston (AL) Star and the New London (CT) Day. But in no way does non-profit ownership, or non-profit status, insulate a newspaper from 15-20% year to year advertising revenue decllines. That’s the norm now. It doesn’t bring back readers who are getting their news from the internet. Would the Ford Foundation pick up a non-profit New York Times? Only if they are willing to fork over $100+ million a year for eternity. Update I am reminded that newspaper rank and file have been looking for ways to save their newspapers and their jobs through the same bailouts being handed out to financial institutions and auto companies. With a half a trillion here and a trillion there, what's a couple of billion for newspapers? The problem is how can they remain the government watchdog and feed at the government trough at the same time. By equating newspapers to NPR through the ruse of non-profit status, you open that door. The proponents of this bill would require newspapers to give up political endorsements, and that's about all. Certainly NPR and PBS have found it difficult if not impossible to carry anything positive about conservatives. To say they are non-partisan at election time is more than a stretch. They may not endorse candidates, but they certainly try to sway opinion. At some time in the not too distant future, the forces of fiscal restraint will be heard. A billion or two subsidy for a still biased press can be made a political liability for those who support it. Another thought. How about a Fairness Doctrine for non-profit newpapers?

Credit Rating Service sees “Several Cities” without Daily Newspapers

A Chicago financial rating service is predicting several cities will have no newspapers by 2010. Editor and Publisher reports on a study recently released the Fitch Ratings that newspapers and newspaper groups will default on their debt in 2009 and be liquidated, leaving major cities without a daily newspaper. They cite McClatchy and Tribune in particular as being in serious jeopardy. Fitch rates the debt of two newspaper companies, The McClatchy Co. and Tribune Co. as junk, with serious possibilities of default. It also assigns a negative outlook to both the companies and the newspaper sector, meaning their credit ratings are likely to deteriorate further. A debt rating service recently cut the NY Times’ rating to junk, while another said they would revaluate it in the near future. Aside from the chains, two individual papers appear to be in deep trouble. The Minneapolis Star Tribune and the Philadelphia Inquirer suffer the same problems, both recently purchased in highly leveraged deals by inexperienced publishers. There has been some wishful thinking in the newspaper industry that debt holders wouldn’t press the publishers if they defaulted because newspapers and their assets were unmarketable. Not likely. But the best evaluators of the financial condition of newspapers are the newsprint salesmen. They know to the day when each paper made its latest payment and how much they owe. Most are tight lipped to outsiders, but the newsprint companies compare notes among themselves. And they will be the ones to pull the plug first. In the newspaper business, the second and fourth quarters are the moneymakers, especially the fourth with the heavy Christmas push by the retailers. The first and third are the worst. If things go south, they will probably happen then.

Saving history

As I watch the troubled newspaper world, I find myself with mixed emotions. I take a bit of pleasure watching those papers that have taken such a partisan tone on their news pages pay the price in lost circulation and revenue shortfalls. But in other areas I am concerned. It saddened me to read this “Letter from the Editor” of the NY Sun that ran September 4. In part it reads: Dear Readers of the Sun: This morning I write to you about the future of The New York Sun, which is in circumstances that may require us to cease publication at the end of September unless we succeed in our efforts to find additional financial backing. The managing editor, Ira Stoll, who is one of the founding partners in the paper, and I have shared this news with our colleagues, and we would like our readers as well to be aware of the situation. There are no white knights out there and it appears the worst will happen. The most tragic consequence of a newspaper dying is the loss of its historical articles. Yes there are microfilm copies of my old paper, the Washington Star, but you have to go to the Library of Congress to find them. Today’s researchers don’t have enough time to do that. Even in the digital age when a paper closes, their archives may be lost unless someone comes along to manage them. Google is working on a massive project to digitize all back issues of newspapers in their Digital Archive Project. This will allow researchers to access online previously irretrievable information. Many newspapers have given up maintaining their archives for non employees and gone to outside services on a pay for play basis. Gannett’s is the worst and totally unusable unless you don’t mind going through 13,000 articles to find the result of a three word search. In anticipation of the worst, I have been searching and copying articles from the Sun that may be of historical interest. Four years ago they were the only newspaper to do an in depth analysis of John Kerry’s military status and discharge. This is an outstanding article and you can find it here. I have saved it (I had to copy the text into MS Word). You may want to do the same.

Bad times for newspapers

McClatchy To Trim 10% of Workforce -- August Revenue Down 17% 'Star-Ledger' Publisher Threatens January 2009 Shutdown Gannett Reports Ad Revenue Off 16.8% for August Fort Worth Daily Selling Its Historic Headquarters 'Rushville Republican' Drops a Day's Edition 'OC Register' for Sale? 'Sac Bee' Buyouts Cut Staff 7% -- Second Reduction Since June Three Montana Papers Announce New Round of Layoffs 'Novato Advance' to Fold This Month 'Star-Ledger' Newsroom Buyout Count Low -- As Deadline Nears N.J.'s Largest Paper Goes Without AP For a Day -- Protest or Test? Gannett to Re-Org, Cut 100 Management Positions Nevada 'Daily' Will Drop Three Days 'Orange County Register' Studying Switch to Tabloid Washington 'Olympian' Faces More Cuts, Just as Exec. Editor Retires The above are headlines of major trade news stories for the past 7 days (9/9-16) in Editor & Publisher. It is a sign of the malaise the industry is going through. The Gannett and McClatchy ad revenue drops are devastating. They are the country's two largest newspaper chains. Three months ago, monthly year to year figures were in the minus 10 to 13% range. Now it's 17. The downward trend is accelerating. Most significant of these stories is the one about the threatened closure of the Newark Star-Ledger if all unions don’t reach agreement on a designated number of buyouts. The Drivers are balking. The publisher has said the next step will be to sell the paper and barring that, to close it. There simply aren’t any buyers for newspapers now, so this isn’t an idle threat. AP isn’t exempt from problems either. Their member papers have been chafing under the burden of high rates. About a year ago, the AP revised its rate structure to help the smaller papers and allow the larger ones to buy certain services on an a la carte basis. Still many are thinking of withdrawing and some already have given notice. In recent months, several newspapers have announced plans to drop the news service, with at least one -- The Spokesman-Review of Spokane, Wash. -- challenging AP's two-year notice requirement. Other dailies that have already given notice to AP are The Bakersfield Californian, The Star Tribune of Minneapolis, The Post Register of Idaho Falls, and The Yakima Herald-Republic and Wenatchee World, both of Washington. Yet throughout this doom and gloom, E & P parrots the same liberal line as most newpapers, totally oblivious to the damage such partisanship is doing to their industry. Here are E & P's stories on the election. Pretty one-sided. Economists Favor Obama in Massive Survey Conducted by 'Dilbert' Cartoonist McCain Tells AP and Newspaper Editors: OK, Obama Did NOT Call Palin a 'Pig' Media Confirms: Palin Exaggerated Trip to Iraq LexisNexis Study Finds No Media Bias Against Palin, GOP -- So Far Will Public Believe McCain 'Doublespeak' -- Or the Press? AP Hits Palin for Not Taking Questions I keep wondering how liberal editorial minds work. All I can surmise is these stories are their psychological release, their only joyful moments, before the inevitable doomsday. Sick.