Chapter 11
Saving Journalism
How far have we come? The material in this book is based partly on reporting and partly on sitting and thinking. So far, the reporting part has produced evidence for the following things to think about when considering the newspaper business as it operated in the United States at the turn of the twenty-first century.
1. Newspapers that operated in places where they were trusted did better than newspapers in other places. (Chapter 1)
2. Newspapers made money by owning the tollgate along the main path through which information passed between retailers and their customers. Then the Internet began providing cheaper and, in some ways, better paths around that tollgate. (Chapter 2)
3. The advertising market has been aiming at ever narrower audiences. In the new competition, a trusted medium would still have an advantage. (Chapter 3)
4. Influence is hard to measure. Community affiliation and trust were important components. (Chapter 4)
5. Accurate reporting led to more trust. Part of this effect was direct, but most of it was mediated through people with first-hand knowledge of the reported events. (Chapter 5)
6. Newspapers that were easy to read had better home county penetration than newspapers that were hard to read—but it eroded at the same rate. (Chapter 6)
7. Shifting the form and substance of content, within the capacity available to most editors, didn't make much difference. (Chapter 7)
8. The public was very forgiving about errors in spelling and grammar— unless the spelling error was in the name of the person being asked. (Chapter 8)
9. Well-staffed newspapers did better than those that were thinly staffed. (Chapter 9)
10. Wall Street would support quality in journalism where there was competition.
11. But it was slow to recognize new media forms as journalistic competition. (Chapter 10)
All of this is potentially useful information as we try to look beyond newspapers as we have known them and construct a new business model for news. And we do need a new model. Those of us who worked for newspapers in better times often wish we could go back to the golden age of newspapers. But it's over. The world moved on while we were worrying about other things.1
When newspapers performed consistent and visible public service—and many did in the golden age—it was because of the conscious choice of the philosopher-kings of publishing. These men and women had a long-range view toward two goals. The first was to dominate their respective markets. To do that meant providing more quality than their competition. In a fine confirmation of capitalist theory, the good really did drive out the bad and the not-so-good.
How will such natural selection play out in the move to the Internet? By 2009, a variety of adaptations were being tried. Here is a sampling:
The Seattle Post-Intelligencer, the weaker partner in a joint operating agreement with the Seattle Times, went to an all-Internet operation. The news staff was cut from 165 to 20, providing mostly commentary, lots of links to other sites, and some original reporting.
The Christian Science Monitor shut down its daily print edition and went totally online except for a weekly publication in magazine format. Unlike the Seattle experiment, this one kept most of the news staff, dropping from 97 to about 80. “Our plan will, I hope, keep our reporting strong in international, national, and non-local domestic areas so that it can serve as part of the overall news diet,” said editor John Yemma.2
The Detroit Free Press and the Detroit News, operated by a joint agency, ended home delivery on all days except Thursday, Friday, and Sunday. (Papers published on those days accounted for more than 80 percent of their advertising revenue.) On the other four days, readers could get their newspaper online, on the street, or by same-day mail delivery. There were no news-side staff reductions associated with the switch, according to Free Press editor Paul Anger.
The struggle for market domination thus grew complicated as the double-whammy of the Internet and recession hit in the first decade of the twenty-first century. The most interesting competitive situations had been at the margins of major cities where they shared a metropolitan area defined, as the Bureau of the Census does, by strong internal social and economic links around an urban core. Dallas-Fort Worth, Miami-Fort Lauderdale, Raleigh-Durham, and Minneapolis-St. Paul were the old battlegrounds. Newspapers in these pairs had historically maintained an uneasy truce, haunted by the aphorism from Harvard professor Steve Star: “In the long run, it will not pay you to be in a market that you do not dominate.”3 Throughout history, from the medieval bazaar to Main Street to the giant malls, buyers and sellers of goods have found it efficient to converge on a central public sphere to do their trading and their socializing. It minimizes transaction costs. In the twentieth century, the market's dominant newspaper was the glue that held that sphere together. The twenty-first century public sphere is forming online. If online entrepreneurs learn anything from newspaper history, it should be that trust has economic value, and that trust is gained through quality content. If the influence model works, the successful transitions will be by newspapers that use the savings in production and transportation to improve their content.
In the old print battles for market dominance, quality was easy to justify as Rick Edmonds established when he identified the Fort Worth Star-Telegram, then owned by Knight Ridder, as “the best-staffed newspaper in America.” His case study showed how investment in quality held off the raiders from Dallas and paid off at the bottom line (See Chapter 9).4
Al Neuharth has cited another example. In this one, it was his company that lost out to a better quality product. It happened after he retired, but he still took it personally. Gannett went up against the locally owned Democrat in Little Rock, and lost out to the local owner. Gannett closed the Gazette and sold its assets to the Democrat in 1991. The surviving paper was renamed the Democrat-Gazette.
“Walter Hussman beat our tail by putting news in the paper and by having the community and the leaders of the community, including the advertising community, believe in what he was doing,” said Neuharth. “Dillard's department store, headquartered in Little Rock, they believed in his credibility so much they pulled all their ads out of our Gannett newspaper. Big hit, big hit.”
Some time afterward, Neuharth took a bus trip across the country with his four oldest children. They crossed the Arkansas state line.
“I picked up the Democrat-Gazette, the northwest Arkansas edition. I read the goddamned thing for three hours on the bus. We got within a half hour of Little Rock and I called Walter, and I said, ‘Walter, I'm pissed off at you. I spent my whole morning reading your damn newspaper.’ He said, ‘Well, I'm glad to hear that.’ He's such a soft-spoken southern gentleman.
“He's still doing it. He's got a monopoly now.... He puts news in the paper, a lot of it. He puts news that the people of northwestern Arkansas and central Arkansas want in the various editions and he's got a lock on the communities, he's got a lock on the advertisers, and he chased us out of town.”5
One of the strengths that enabled Hussman to chase Gannett out of town was domination of the classified ad market. He did it, years before Gannett entered the scene, with free private-party classified ads. When Hussman's Arkansas Democrat introduced that policy in 1979, the Gazette had 80 percent of the classified ads. Then the free ads drove the public to the Democrat, and the business advertisers followed. By 1984, the Democrat dominated the classified market with revenues going from $796,000 in 1978 to $5 million in 1984.
The Little Rock community's reliance on the newspaper for classified advertising persisted even when Craigslist and other online providers joined the battle. As late as 2008, Hussman's Democrat-Gazette was still getting 40 percent of its ad revenue from classifieds. And it had a strong enough market position to cushion itself from the general circulation decline that hit the industry in the 1990s.6
A Personal Decision
In the old business model, the motivation for quality was less straightforward. Once a newspaper owner gained domination of a market in the twentieth century, he or she could easily have made more money by putting out a cheaper product. But there was another source of motivation in the golden age, and that was personal or family pride. It was not universal. A private owner had enough wealth to engage in personal pleasures, and some found personal pleasure in producing influential newspapers. That idealistic decision on the part of some publishers—those that I call the philosopher-kings of modern media—was the main source of the golden-age legend.
Jim McClatchy expressed such a personal sense of mission when he said his family's newspapers were pitted against “the exploiters—the financial, political, and business powers whose goal was to deny the ordinary family their dreams and needs in order to divert to themselves a disproportionate share of the productive wealth of the country.”7 John S. Knight showed where his heart was by keeping the title of editor or editor emeritus to the very end of his life. “There is no higher or better title than editor,” he said. This is the publisher who wrote anti-Vietnam War editorials starting in 1954 when the French gave up on Indochina, and he opposed that war until it was over. Katharine Graham's support of her editors and reporters who uncovered the Watergate crimes was not motivated by profit but by her sense of civic duty. But being profitable gave her the luxury of being able to perform that duty, although she was modest about it. “By the time the story had grown to the point where the size of it dawned on us,” she said, “we had already waded deeply into its stream. Once I found myself in the deepest water in the middle of the current, there was no going back.”8
The golden age was different for different organizations, depending on who was in charge, but it generally fell into the period after World War II when the social mood began swinging away from conformity and national unity at all costs and began the long drift toward libertarian individualism.
Quality journalism became easier to support in the 1980s after publishers first started paying serious attention to the decline in readership and decided to invest more. But its real driver was the will of the individuals who wanted more than economic return from their investments. Like the low-paid reporters who worked for them, they were in it for psychic reward, for a sense that they were making the world better.
There were even investors who appreciated the psychic reward. After Watergate, Katharine Graham received a letter from her newest and largest outside investor, the oracle of Omaha, Warren Buffett.
“The stock is dramatically undervalued relative to the intrinsic worth of its constituent properties, although that is true of many securities in today's markets,” he said.
“But, the twin attraction to the undervaluation is an enterprise that has become synonymous for quality in communications. How much more satisfying it is going to be to watch an investment in the Post grow over the years than it would be to own stock in some garden variety company which, though being cheap, had no sense of purpose.”9
It is hard to forget publishing's philosopher-kings. If only the present greedy proprietors would retire from the scene, we are tempted to argue, if they would allow themselves to replaced by more public-spirited individuals, the good times would come back.
That would be like Waiting for Lefty or Waiting for Godot. (Those guys never showed.) Journalism's new saviors will come from somewhere else.
Those who would preserve the best of journalism's traditions should start with the premise that it is a business. The old convention that editors should be protected from all knowledge of the business side is hopelessly out of date. Jim McClatchy, Jack Knight and Kay Graham are proof that the two responsibilities can exist in one person. While the Watergate story was unfolding, Graham was mindful of her responsibility to shareholders and she was “frightened for the future of the Washington Post Company,” but she took the socially responsible action.10
The Community as Market
People of my ilk with a news-editorial background were uncomfortable with the rhetoric of the business side. The folks on that side of the wall called the community a “market,” reminding us of functions we didn't want to know about. But, in fact, the concept of market is inseparable from the concept of community. As the Bureau of the Census realizes when it defines metropolitan statistical areas, both social and economic ties hold it together. The historic importance of newspapers was based on facilitating both kinds of ties to build and maintain a public sphere.11
Too often, editors believed that their ignorance about the business side protected them. From my own years in the ranks, I am convinced that the wall of separation was just as often used to limit the power of editors. Once at The Miami Herald, Al Neuharth demonstrated how an editor could make a hole in that wall to strike a blow for news and community service.
It was the custom, when Al was assistant managing editor in the 1950s, to make room for a major story by adding some open pages to the paper—if the story was big enough and Jim Knight approved. Being a prudent businessman, Jim always asked how much the additional pages would cost.
Neuharth noticed that the business manager based the cost estimate on a year's total production expense divided by the number of pages. That yielded the average cost per page. But that figure was misleading, because the sum included each page's share of the fixed costs—depreciation on the press, taxes, salaries, all the things that don't depend on the number of pages in the paper on a given day. The relevant cost, Neuharth realized, was the incremental cost of the additional pages, i.e. what the Herald would spend if the pages were added minus what it would spend if they were not.
In other words, just the variable costs—newsprint and ink to create the additional pages plus any overtime needed to set the type—should be considered. Al made that case, Jim Knight bought it, and boosting the size of the paper got easier.
The reason newspapers were as good as they were in the golden age was not because of the wall between church and state. It was because the decision-making needed to resolve the conflict between profit and service was made by a public-spirited individual who had control of both sides of the wall and who was rich and confident enough to do what he or she pleased.
In today's world, most leaders of the press do not have that kind of functional autonomy.
We should not over-romanticize the philosopher-kings and think that they never worried about money. Jack and Jim Knight knew how to hold on to a nickel. On my first trip to the men's room at the Herald, July 1, 1958, I washed my hands and was dumfounded to find that there were no paper towels, just a bin with left-over newsprint cut from the ends of the rolls into towel-size portions. I had seen the same trick at Faye Seaton's Manhattan (Kansas) Mercury-Chronicle in 1952 and mistakenly assumed the Knights would be higher class.
So the pressure to downhold expenses (as the wire services said when telegrams were charged by the word) is nothing new. And a few basic laws of money and its management never change. A news organization has to deal with financial constraints at three levels:
Level 1: It is necessary to earn at least as much as you spend. Even the St. Petersburg Times, which is owned by a nonprofit educational institution, has to pay for the ink and newsprint that it consumes, and it must put something aside to buy a new press when the old one becomes obsolete or wears out. To keep from spending beyond its means, any newspaper, no matter how idealistic and public spirited, needs a budget. To budget is to plan.
Level 2: The owner, whether an individual or a shareholder, is perfectly reasonable to expect that the return on investment will be at least as much as whatever the bank on the corner pays for certificates of deposit. In a way, this is a cost, like newsprint. Economists call it “opportunity cost.”
Level 3: Investors in business enterprises are generally risk takers who need more than a steady income as compensation for the risk. They want the value of the investment to grow. This is especially true for shareholders who have many companies in many lines of business from which to choose. Value can be increased in several ways: making the product better and charging more for it; finding new customers; locating undervalued properties and making them more productive.
Going public forced newspaper companies toward level 3 in a hurry, if they weren't already there. The McClatchy newspapers were close to level 1 when the company hired Erwin Potts. Everyone was content to chug comfortably in place so long as the bills and the salaries were being paid. The Knight newspapers were casually managed before Alvah Chapman started walking around with his clipboard.
Public ownership's imperative to grow the business was one of the things that changed newspapers forever, but it was by no means the only thing.
The other factor, and the most compelling reason to stop waiting for the philosopher-kings to come back, is the substitution of disruptive new technology for the printing press.
The philosopher publishers could afford to be public spirited because of their monopoly positions. Like the Savoy family at Chillon, they owned a toll road. Theirs was in the form of a printing press, which is a very large, complicated, and expensive machine that breaks easily. It does not make economic sense to have more than one per market.
This constraint did not exist for any of the new mass communication technologies that followed the printing press.
Let me explain with a more detailed review of the arithmetic of manufacturing that Al Neuharth used on Jim Knight.
When you sell an item, you set its price in the hope of recovering two kinds of cost, fixed and variable.
Variable costs are those that vary in direct proportion to the number of items produced. If you produce 120 newspaper pages, you use twice as much ink and twice as much newsprint than if you produced only 60 pages. So ink and paper are variable costs.
Fixed costs are expressed, not in numbers produced and sold, but in units of time. Depreciation on the plant, taxes, payroll are constant, within limited ranges, over a period of time regardless of the number of units produced. You can make and sell more or less than originally planned, but those costs are sunk and will not change.
The price of what you sell is set in an attempt to capture two elements: recovery of the variable cost plus a contribution to fixed cost and profit. Looking at it another way, contribution is what you have left after variable cost has been backed out of the price:
C = P - V
where C is contribution, P is price per unit and V is variable cost per unit.
If you are in a business that makes things and sells them, you want to know your break-even point. It is calculated with the following formula:
BE = F/C
where F is fixed cost and C is unit contribution. The formula yields the number of units you need to produce and sell to recover your fixed costs. That's where you break even. Every additional unit will yield profit.
Let's say you are going to build an automated pencil factory. Total cost of materials and shipping—the only variable costs—amounts to three cents a pencil. You plan to sell the pencils to a wholesaler for seven cents, so the contribution to fixed cost and profit is seven minus three or four cents per unit.
Amortizing the plant and equipment plus the salary of the lone operator costs $200,000 a year. So the number of pencils you need to sell, if you are to break even the first year is 200,000 divided by .04 or 5 million pencils.
The traditional newspaper business was more complicated because it sold two things: the newspaper to readers—generally without recovering even the variable cost—and space to advertisers, which provided enough contribution to fixed costs and profit to make it all worthwhile. But the basic distinction between fixed and variable costs was the same.
In the typical end-of-century newspaper described in Chapter 2, the variable costs of newsprint, ink, and distribution were 25 percent of the total cost. A newspaper could not grow without increasing those. A broadcast station, radio or TV, in contrast, could keep pumping out the same signal to more and more people in a growing market without increasing either production or distribution costs. That was an amazingly nice business to be in during the early days when limited space on the airwaves made broadcasting a quasi-monopoly. After cable took the lid off the number of available channels, the business was no longer amazing, but it was still pretty good.
Now, bring on the Internet. Even though its combination of words and pictures looks like print on the screen, even though it can give you a paper product in your hand if you want one, it is more like broadcasting than print. The publisher has, essentially, no variable costs. If the customer wants the information on ink and paper, he or she provides them.
Newspapers stopped growing not just because the public got tired of them and preferred the new electronic substitutes. Newspapers already had natural limits of growth imposed by the structure of high variable costs. The new competition is free of that constraint and has a great deal of financial flexibility as a result. As the new century dawned, it was a sleeping giant poised to take over more and more of the traditional newspaper functions.
So why would anyone invest in a newspaper company today?
The Greater-Fool Theory
Remember the harvesting strategy brought up in Chapter 1. At the turn of the twenty-first century, few newspapers were harvesting in the sense intended by Professor Porter because the industry was not yet in a clear end game. It had a track record of finding ways to cut cost, and investors hoped that the trend would continue. Analyst Bill Drewry made money for his short-term investors by foreseeing that newspapers would fade far less quickly than other analysts expected. This strategy sounds like a variation of the greater-fool theory. (I might be a fool for paying so much for shares in a fading industry, but I do so in the hope of finding an even greater fool who will pay still more for them.)
In this situation, it could be a mistake for newspaper advocates to urge longer-term thinking by analysts and investors. Their gloomy long-term view of the industry would argue against investing at all. Consider this prophetic excerpt from Lauren Rich Fine's May 2003 report:
“Long term, in our view, newspapers are likely to moderate their circulation volume declines but are unlikely to eliminate them altogether due to lifestyle changes and competition. We also continue to project ad market share declines . . . valuations seem to ignore the long-term secular declines, and are instead supported by deregulation speculation and a perceived cyclical recovery.”12
In other words, short-term factors were all that the newspaper industry had going for it. To save the traditions and the public-service aspects of advertiser-supported journalism, it will be necessary to look beyond newspapers. We might have to look to the dot-com world or some hybrid. What could excite investors and be socially responsible, too? Analyst Drewry thought newspaper companies might be the ones to do it. Their essential functions would always find a market, and necessity would make them innovaters.13
It's a tall order. With new products especially, economic decisions can go far astray from real value, a problem observed in 1905 by Thorstein Veblen. Although he is best known for The Theory of the Leisure Class, he also wrote about businessmen who make money without making goods in The Theory of Business Enterprise. He saw how the financial system was creating conflicts for managers between their own short-term advantage and long-term service to society and to their own companies.
Securitized mortgages, the culprits in the 2008 recession, had not been invented yet, but Veblen anticipated the general class of problem. If the managers “are shrewd businessmen, as they commonly are,” he said, “they will aim to manage the affairs of the concern with a view to advantageous purchase and sale of its capital rather than with a view to the future prosperity of the concern or to the continued advantageous sale of the output of goods or services produced by the industrial use of this capital.”14
Veblen was speaking of intangibles purchased only for the purpose of resale as investments, not the sale of products to end users. Advantageous purchase and sale of goods that are headed toward an end user can add efficiency to an economy because each transaction adds value in some way. My grandfather Jacob Meyer was an excellent judge of cattle, and he supplemented his family farm income by spotting promising calves and buying them to be resold after some feeding and maturity made their value apparent to less skilled eyes. Saving them from premature slaughter created value.
But where capital is the good being bought and sold, value is, in Veblen's words, “in great measure a question of folk psychology rather than material fact.” It depends “on the indeterminable, largely instinctive, shifting movements of public sentiment and apprehension.”15 The early twenty-first century buyers of Tribune Co., Knight Ridder, and the St. Louis Post-Dispatch were the victims of this folk psychology. Slate columnist Daniel Gross called it “the dumb money culture—people willing to pay high prices for leveraged assets in the hope and expectation that they'd be able to sell them to other debt-fueled buyers at even higher prices.” But the bursting of the credit bubble sidelined further potential newspaper buyers, and in the case of the Tribune Co., bankruptcy was the outcome.16
We would feel better about newspaper company shares being subjected to such arbitrage if we could see it as a link in a chain of causation leading to better quality. But instead it pushes the other way. Wall Street fell in love with newspaper companies for their ability to cut costs and raise prices, and when all the easy ways to do that were exhausted, and there was not much left to do but cut quality. Jack Knight saw it coming way back in 1978.
“And the rates are higher, all the time, and the type is smaller. So what you're doing is that you're charging the reader more and giving him less. Is that smart merchandising? I don't think so.”17
Investors, as Lauren Rich Fine affirmed in Chapter 10, can see the value of quality when two newspapers are competing. Rupert Murdoch saw his newly purchased Wall Street Journal as being in competition with The New York Times, and he reversed the harvesting strategy of the previous owners by investing to make the paper better. But what about the value of quality when newspapers are competing, not with each other, but with a substitute technology?
Those of us who want to find economic arguments in favor of quality are going to have to face that issue. As the research for this volume has shown, and as a long string of research projects going back to the 1960s confirms, there is a positive correlation between quality and business success in monopoly markets. But there is very little to suggest that quality was the prime cause, rather than an incidental effect of profitability, except where there was competition. Today, of course, thanks to the Internet, there is competition everywhere.
But even before the Internet, quality effects were visible at the extreme low end. The quality of most daily newspapers in the USA varies within a very narrow range. If there were more variance, we could see more dramatic effects.
An Extreme Case
Anecdotal evidence for this proposition can be found in the case of the Thomson newspapers, the subject of a 1998 case study by Stephen Lacy and Hugh J. Martin.
They chose Thomson because of its terrible reputation. C. K. McClatchy, in his 1988 Press-Enterprise lecture in Riverside, Calif., named it as one of three groups that produced “the worst newspapers in America.”
“[G]ood newspapers are almost always run by good newspaper people; they are almost never run by good bankers or good accountants.”18
And one of Thomson's executives had been quoted by a reporter for the group's own Toronto Globe and Mail as admitting that the company's emphasis on profits in the 1980s resulted in “cruddy” newspapers.19
Lacy and Martin tracked the circulation performance of 64 Thomson newspapers and 128 non-Thomson papers of comparable size between 1980 and 1990. The Thomson papers lost seven percentage points of household penetration in that period while those in the comparison group lost only one point.
New management tried to improve the Thomson papers in the 1990s. One innovation anticipated citizen journalism. It was an in-house training program for young people without journalism degrees, or, in a few cases, no college at all. The goal was to produce journalists who could “bring a passion for readers to their work, unencumbered by lofty preconceptions of what journalism is all about,” a Thomson executive explained. Also, by training local people who already had a commitment to their communities, the organization hoped to reduce staff turnover.20
But by 2000, Thomson gave up on the business and announced plans to sell all its newspapers except for the flagship in Toronto, the Globe and Mail.21 In hindsight, what the company had been pursuing was a harvesting strategy, along the lines suggested by Michael Porter (Chapter 1). Lacy and Martin saw the case as a sign that demand for newspapers might be inelastic, as Fine suggested (Chapter 10), but only so long as some minimum level of quality standard was maintained. When quality sank below that critical level, demand became quite elastic.
“This model of news demand,” said Lacy and Martin, “is based on the premise that many readers have a minimum level of acceptable quality that they expect from a newspaper. This minimum is represented by a kink in the newspaper's demand curve. Below the minimum quality level . . . readers will more readily substitute other media as quality continues to decline.”22
While this is a difficult proposition to prove, it is certainly consistent with the existing body of research on newspaper quality and its consequences. Let us revisit the curve shown in Chapter 1 and see how it fits the process suggested by Lacy and Martin. Here is the picture again:
In this model, you will remember from Chapter 1, quality has an increasing effect on profitability, up to a point. Then the effect flattens out and turns negative. This theory is nothing more than an application of the law of diminishing returns. The first dollars for quality are spent on the basics like local coverage, attractive presentation, and a robust news hole. But after a certain point, the additional utility to readers and advertisers is less than the additional cost.
Larry Jinks, former publisher of the San Jose Mercury-News, found this model intuitive. “I think that up to a point, what I would define as quality journalism is good business, even in an atmosphere where there is too much attention paid to short-term rather than long-term values. There comes a point where that's probably not necessarily true. You've got 50 reporters in a small town. If you go to 60, is that bound to improve the bottom line? No, not necessarily. Up to a point, quality certainly pays.”23
The problem for management and investors alike is defining that “up to a point” spot at the top of the hump. In the absence of a very long-term study, it has to be discovered by trial and error. The managers at Thomson Newspapers evidently thought they were on the downhill portion at the right side of the curve where pulling back on quality increases profit. Instead, they were on the uphill side, where diminishing quality hurt both readership and profit. But by the time they figured that out, the damage was done.
It is an understandable mistake. The effects of quality on readership—and, by extension, profit—are not perceived immediately. Aggressive dilution of the quality of their journalism can make managers look like geniuses to their investors for a while. But, in time, the inevitable price is paid.
The Role of Executive Compensation
Corporations, including newspaper companies, have long believed that they will do better if they can make managers think like owners. The obvious way, giving managers equity in the company, is not as easy as it sounds. In 1994, Congress changed the tax law to prevent executive pay in excess of $1 million from being deductible to the corporation unless it was tied to performance. That led to a new wave of bonus and stock option plans.
Performance can be measured at both the input level—what specific things the manager does for the company—or the output level, i.e. what happens to the company as the result of all factors, only some of which management can control.
In my brief time in the executive suite at Knight Ridder, I benefited from both. Knight Ridder was an early adopter of management by objective (MBO), a system that ties some portion of an annual bonus to the performance of specific tasks by the individual manager. I like it for its rationality. Once a year, I sat down with my boss, Jim Batten, to negotiate goals that were clear enough so that a third party could look at the results and know if each goal had been met or not. One of my favorite goals was producing research for the company that was sound enough to be accepted by peer-reviewed academic journals. That met the third-party test, and it contributed to the profession as well as the company.
But the greatest portion of my annual MBO bonus was tied to company, not individual performance. And company performance is generally measured by financial results, such as operating income, revenue growth, or earnings per share. MBO goals tied to social responsibility factors such as community involvement or product excellence were rare, according to Gilbert Cranberg, Randall Bezanson, and John Soloski, who investigated the effects of public ownership on newspaper companies.24
Stock options are the other popular method of tying compensation to performance. An executive is awarded the future right to buy a given number of shares in the company at a stated price, usually the price at the time of the award. It's worth money only if the share price goes up. The problem with this form of compensation is that it can align management interest more with that of short-term traders rather than long-term investors. George Washington University law professor Lawrence E. Mitchell has pointed out that short-term and long-term interests would be the same if markets were perfectly efficient. Everyone would have the information needed to judge a company's long-term prospects, and the share price would be based on the discounted present value of that long-term expectation. But the way stock prices swing from day to day indicates that emotion and incomplete information play a large role. “And so,” said Mitchell, “even to the economically uninitiated, the idea that stock markets approach any meaningful efficiency seems like a fairy tale.”25
Because analysts are preoccupied with quarterly changes in earnings per share, managers tend to focus on that number. In a 2002 speech at Northwestern University, Harvey L. Pitt, then chairman of the Securities Exchange Commission, said corporate officers “should be required to demonstrate sustained, long-term growth and success before they can actually exercise any of their options.” Such a requirement, he said, “would abolish perverse incentives to manage earnings, distort accounting, or emphasize short-term stock performance.”26 Companies eventually get caught when they put out bad information, but it can take some time.
In a reward system that pays off for short-term performance, the temptation to take the risk is great. A manager can make the numbers that boost the value of bonuses and stock options and then get out before the bad stuff takes effect.
Knight Ridder democratized the process somewhat when it granted options to buy one hundred shares at the then-current price of $54.81 to all seventeen thousand of its full-time workers in December 2000. That was not enough to change incentives very much, but it at least made employees interested in the share price. (It rose above $75 in the next three years, making the options worth $2,000 per employee for those prescient or lucky enough to sell at the peak.)27
There is a potential moral issue in granting performance bonuses and stock options to news-editorial workers if it motivates them to cheapen the product by providing less service to the community. The American Society of Newspaper Editors, in its 1975 Statement of Principles, said that journalists “should neither accept anything nor pursue any activity that might compromise or seem to compromise their integrity.” Editors should, of course, want to keep the company solvent, but they probably don't need stock options to give them that desire.
The various compensation models remind us that managing to get the benefits of quality is difficult even in a steady-state universe. But newspapers are not in a steady state. Their market position is steadily being eroded by substitute technology. The quality issue needs to be examined with that reality in mind.
Climbing Outside the Box
The newspaper managers and the analysts who justified investment in quality only in the presence of competition from other newspapers were overlooking the obvious. The greater justification should have been the competition from newer forms of media. But to deal with that issue required thinking in new ways. It meant climbing outside the box of traditional newspaper management. For a business that was so successful for so many decades, new thinking was extremely difficult.
One sign of new thinking has been the move of large newspaper companies into side lines of niche publications. Direct mail, free distribution, and web products aimed at specialized audiences were being rolled out or studied.28 A team led by Harvard professor Clayton Christensen and operating under the name “Newspaper Next” was funded by the American Press Institute. It developed a procedure for spotting undeveloped advertising niches, urging publishers to seek “small and medium enterprises that rarely advertise in newspapers, and larger businesses that have advertising objectives a newspaper can't meet very well. There's a lot of money in those two zones for newspaper companies that figure out how to meet these needs.”29
One such product was the Baskersfield Californian's parent-oriented web site “Raising Bakersfield.” It was pitched as “an online community for Bakersfield parents to connect, share, learn, shop & play.” There were advertisers who wanted to target that audience, and most of the editorial content, about family-oriented events and child-raising tips, was reader supplied.30
Dealing with substitute technology by entering the substitute business is hard to do if the capabilities and opportunities provided by the new technology are still being discovered. The Internet can do many wondrous things, but learning how to make its wonders profitable requires a long series of trial-and-error experiments, performed by organizations with a high tolerance for failure. Newspaper companies seldom fit this description. An example of what a more creative culture can do is the stunning success of Google in finding new ways to target and charge for advertising. Google AdWords uses searching behavior to identify interests of users and offering related advertising. And the advertisers paid only when users thus identified actually clicked on the ad.
While newspapers have been quick to create online versions of themselves, they can't afford to stop there. They need to think of new applications, things that use the technology to add value. Developing an organizational structure to maximize innovation was a serious issue for legacy media. It was not at all clear how online operations could best be integrated with the print version of a newspaper or if they should be integrated at all.
Many of the early efforts were done by subsidiary companies with a firewall between themselves and their print siblings. In some cases, this step was taken not to stimulate creativity, but as an accounting strategy. A separate company could be spun off and sold to a public eager to invest in Internet startups. Or it could be structured with a tracking stock that would have the same effect with closer control by the parent corporation.
The real benefit had nothing to do with accounting. Protected by the fire-wall, the online version could be run by people who were free to think anew without being boxed in by newspaper customs and standards. But the cost of such separation was a lack of communication between print and Internet newsrooms and some unhealthy sibling rivalry.
Clayton Christensen and Michael E. Raynor, drawing on the work of Clark Gilbert of Brigham Young University, have proposed a generic solution to the problem of integrating new technology with the old. First, frame the new technology as a threat, and get a frightened top management to commit the dollars needed to create a response. But, once the resources are in hand, get the project out of the building. Shift it to an autonomous organization that will see, not a threat, but an opportunity. That opens up the creative flow.31
This issue was discussed in 2001 when the Nieman Foundation held a conference at Harvard's Barker Center on the topic “Paying for the Next News.” Clark Gilbert was there, and he described his Harvard dissertation study of the top one hundred newspapers (by circulation) and their web operations. He found that web sites that were separate from the newsroom had double the innovation and much higher market penetration.32
This result does not mean that print and web journalists should never interact. Harvard's Rosabeth Moss Kanter suggested that a newspaper's web site could integrate its activities with those of the traditional newsroom without being embedded in that newsroom and its culture.
“Integration actually is a very positive model,” she said. “Integration doesn't necessarily mean ownership, it doesn't mean control. It means you know how to coordinate and connect activities.”33
The underlying principle for the old business trying to adapt, she said, is, “You dream your worst nightmare and then invest in it. Figure out what could hurt you and then figure out how to bring that inside.”
That step is obvious enough. Her second recommendation is not so obvious. Business people like to plan and script all their moves in advance before rolling out a new product. But in a world that changes so rapidly, it's better to work without a script. “This is improvisational theater rather than traditional theater,” she said. “You experiment. These are all small-scale experiments, and you need a variety of them, a lot of them, because you don't know which will work.”34
The trouble with experimenting is that it costs money. Knight Ridder spent $40 to $50 million on its ill-fated Viewtron experiment before giving up. When a new generation of managers set up Knight Ridder New Media in 1996, the company again gambled on one large-scale experiment. The prototype for an embedded newspaper online operation was built in San Jose, under the direction of former Mercury editor Bob Ingle, and then rolled out to other newspapers in the group. But it wasn't the right model. “I don't think we made mistakes fast enough,” Ingle later told Clark Gilbert, who wrote a Harvard case study on the attempt, “and we didn't learn from them often enough.”35
Newspaper companies going into the Internet as a defensive move, according to Gilbert and his former professor Joseph L. Bower, tended to make the same mistake. They “simply reproduced the printed newspaper in electronic form.”36 But new technology usually gets its foothold by serving markets that had not been served before. Personal computers eventually disrupted the market for mainframes, but not until they had filled a previously unmet need, providing cheap word processing and spreadsheet functions for nonexpert users. Their initial competition was not mainframes at all but rather non-consumption.
The pattern repeats itself across a variety of businesses. New technology creates new customers that the established business, focused on defending its market, tends to overlook. Building on these new customers, the new business eventually goes after the established ones.37
It's the same with newspapers. Part of the good news about the Internet is that the people that newspapers are reaching through it are mostly new customers. Here's what Clark Gilbert found:
“Four out of 10 newspaper Web site readers read the traditional print product; two out of 10 actually subscribe. The overwhelming growth is Web readership. More importantly, even where it overlaps, people use the online product much differently than they use print.
“They use the online product as a utility, as a way to get quick access to information that's useful to their lives. The overwhelming net use of all these sites, even the most local, small market ones, is that they create net readership.”38
And, of course, this net readership comes disproportionately from the younger age groups that are the source of the long-term loss of traditional newspaper readership. Those of us who wish to preserve the social responsibility function of the press by improving its quality need to stop nagging long enough to start looking at the integrated product and not just the portion that is manufactured from paper and ink.
The influence model can help us with this wider perspective. If a newspaper company's main product is influence, it is important to know how its web presence contributes to that influence.
It is equally important to extend the influence created by the newspaper's brand name to the web product—or even to radio and television in those cases where so-called convergence strategies have put newspaper reporters on the air. And to track the value of that influence to investors, we need to develop a broad measure that can assess the trust associated with the brand, regardless of platform.
Such a measure is probably not going to be based on variation in content decisions made within the limited ranges that were available to newspaper editors even in the good years. The research examined in this book is fairly strong evidence that for content to make a difference, newspaper companies would have to break out of the narrow range—defined by the industry norm of 10 to 15 percent of revenue plowed back into news-editorial costs— in which it was accustomed to operating.
Leo Bogart found pretty much the same thing with his Newspaper Readership Project (1977–83), even though that didn't stop newspaper consultants from finding work doing endless surveys to find “what readers want.” Editors tweaked their content, never found the silver bullet, and readership kept falling. Early in the twenty-first century, there was a new wave of interest in readership with the same aim of finding low-cost adjustments to content to improve readership. The Gannett Company announced a program called “Real Life, Real News: Connecting with Readers' Lives” to emphasize local news, particularly events and trends that affect how readers live.39
Like other periodic fashions in the news business, the idea has a good history. Curtis MacDougall noted the importance of “proximity” and “consequence” as news values in the first edition of his textbook Interpretative Reporting in 1938.40 Such a return-to-basics strategy couldn't hurt, but it would need a major boost in newsroom resources to represent a serious effort to reverse the long-term drift away from newspapers.
To justify a quantum jump in news-editorial resources requires a broader strategy than just slowing the readership decline. If the industry were to embrace the influence model and use it as justification for preserving its social responsibility functions in whatever new media combinations emerge from the great technological disruption, then it might make a difference.
If newspapers did adopt such a strategy, how would they know it was working? A credibility measure that is multidimensional like the 1985 effort of McGrath and Gaziano is clearly the way to go. As we saw in Chapter 5, accuracy, especially as perceived by news sources (who tend to be community leaders), is a major predictor of credibility which, in turn, leads to robustness in newspaper sales.
The problem is that credibility ebbs and flows with things going on in the news. An investor who based an evaluation of a news medium on its credibility would need the patience to look at long-term measures that smooth out the ups and downs brought on by turbulence in the news. Nevertheless, the potential value of being the most trusted source of news and information in a community makes that information worth tracking. It will be especially important as new hybrid media start to compete with traditional newspapers for the role of most-trusted. If an Internet-based service can capture the trust of an audience whose geographic boundaries also define a retail market, it can set up a competitive battle between new and old media that will benefit readers and advertisers alike. Such a medium would have the tremendous advantage of low entry cost, not available to potential print competitors. And the influence model could motivate it to provide the social responsibility functions that have been traditional for newspapers. The last newspaper reader would have a socially useful alternative.
We should also face another possibility. If newspapers abandon their service ethic in order to harvest their market positions, and if the new multimedia competition is slow to pick up that ethic, who or what might become new providers of socially responsible content?
Alternative Journalism
Charitable foundations are already moving in to fill gaps left by shortsighted application of the profit motive. Training of newspaper personnel to enable them to serve society with greater skill is largely paid for by federally recognized charitable organizations like the American Press Institute, the Poynter Institute, and the National Institute for Computer-Assisted Reporting. The John S. and James L. Knight Foundation has made training for journalists a major initiative.
There's more. Charities have begun direct efforts to pay for news. They either want news media to experiment with unconventional approaches to news coverage or to provide the means for investigative work not covered in the newsroom budget.
The earliest of these efforts came from the Pew Charitable Trusts based in Philadelphia and the Henry J. Kaiser Family Foundation of Menlo Park, Calif. Pew supported experiments in civic journalism for ten years and then moved on to other media projects, including the Pew Center for the States, which generated stories and reference material to assist reporters covering statehouses.
Some newspaper editors have been eager to get this kind of help, and others, worried about their ability to discern the motives behind the foundation money, have been critical. The foundations are “tucking some new vegetables into your media stew,” warned Rick Edmonds in a report for the Poynter Institute. The wariness of journalists has valid historical basis. Paper and ink are powerful tools. News people develop aversive reflexes to fend off efforts of the better-paid people in the public relations industry who want to manipulate them in order to get some of that power.
But the temptation to accept foundation support is very great when the social purpose is clear and the publisher won't come up with the money. The phenomenon is not new, nor do I come to this argument with clean hands. My own career as a journalist included many examples of foundation support at critical times. My education in social science research methods was provided by the Nieman Foundation when it invited me to Harvard for the 1966– 67 academic year. The following summer, I accepted detached duty with the Detroit Free Press to cover the July race riot and its aftermath. As the riot ended, I proposed an expensive survey to learn the causes, using the methods I had learned at Harvard. There were costs. The project required academic consultants, mainframe computer time, and a corps of interviewers. To get it done, Frank Angelo, the managing editor, had to go outside his budget. Whether he asked the Knights for the money (the company was still private then), I do not know. But Angelo found it from outside sources, using his local connections to score a grant from a non-profit, the Detroit Urban League.41
The following year, Martin Luther King was assassinated. At that very moment, I was analyzing the results of a survey on attitudes and grievances among black citizens of Miami. This baseline data gave us the opportunity to go back into the field, talk to the same persons, and assess the effect of King's death on the civil rights movement. But, of course, we had not anticipated the need for a second survey, and there was no money in the newsroom budget to do that.
One of my Washington beats at that time was the Office of Economic Opportunity. I mentioned the problem to a source there who talked with his boss, Robert A. Levine, the assistant director for planning and research. The outcome was a federal grant to The Miami Herald for the field costs of the second survey. It was as flagrant a conflict of interest as you could ever find, but nobody cared. Everybody wanted that survey. After writing the story for the Herald and the wire, I did a formal report, in the sociological jargon I'd learned at Harvard, for OEO. Then, on a whim, I sent it to a scholarly journal. It became the lead article in Public Opinion Quarterly the following year.42 Nobody's reputation, neither mine nor the Herald's, was permanently damaged.
National Public Radio is a model often cited as evidence that nonprofit journalism works. While subscriber support is an important component, more than 40 percent comes from foundation and corporate sponsors, according to Rick Edmonds. NPR keeps a policy manual that spells out the limits of permissible relationships with funders. Grants narrowly restricted to coincide with a donor's economic or advocacy interest are not allowed. However, funders can suggest broad themes, and the news director puts out a wish list of projects that NPR would like to do if funders find them worthy.43
That separation between funders and journalists works at least as well as the wall between the news and advertising departments at the newspapers most Americans read. In my study of newspaper practices in the 1980s, editors representing 79 percent of daily newspaper circulation reported sometimes getting pressure from advertisers—serious enough that a newsroom conversation was required to resolve the issue. One in four said it happened at least once a month. A substantial minority admitted that their readers were sometimes exposed to advertiser influence that was formalized with news copy slugged “BOM” or some other equivalent of “business office must,” indicating that it should go into the paper unaltered because it was part of an advertising contract.44
So let us be blunt. Allowing charitable foundations to pay for the news might be risky, but it can't be any worse than letting advertisers pay for it.
Yet another nonprofit model exists in the form of organizations formed for the purpose of doing investigative reporting. The availability of the Web greatly facilitates this kind of work. Journalists who would refuse, on moral and professional grounds, to rely solely on press releases, are often comfortable taking information off the Web without independent investigation, perhaps because it makes them work a little harder than when the handouts are delivered right to their desks.
In 1990, Charles Lewis dropped out of broadcast journalism and opened the Center for Public Integrity in Washington, D.C., as an independent source of investigative reporting. Its work is produced as books, monographs, and online reports. Some of it has won reporting awards from organizations controlled by more traditional journalists, including the 2000 IRE award for outstanding investigative reporting in the online category. The funders included such well known names as the Ford Foundation plus some foundations that were built on old newspaper money including Times Mirror, Park, and Knight.
Lewis's scope was national, and he started and inspired other ventures. In 2008, he organized the Investigative Reporting Workshop in the School of Journalism at American University. Also in 2008, Herbert and Marion Sandler, through their family foundation, launched ProPublica, a well-staffed investigative reporting unit that published on its own web site and in cooperation with selected print media, including USA TODAY and Business Week. The mission was couched in language to gladden any newsperson's heart: “We strive to foster change through exposing exploitation of the weak by the strong and the failures of those with power to vindicate the trust placed in them.” ProPublica was based in Manhattan, and its first editor was Paul Stieger, former managing editor of The Wall Street Journal. Other foundations contributed support.45
Some nonprofit news operations have a more local orientation. Often, they hire former newspaper reporters. There is, in short, more than one way to pay for the next news. The fact that newspapers are not doing so well these days should not blind us to the possibility that the influence model could reappear in unexpected form. Remember its elements. Advertising gains value, not through interference with the news product, which undermines the long-range interest of everyone, including advertisers, but by appearing in a medium with a reputation for integrity.
How would we create such a medium using the tools and economics of new technology?
A Community-Based Business Model
First, it would have to be community based. The influence model needs a public sphere defined by both economic and social ties. When my home state of Kansas was surveyed, and the horse was the chief mode of transportation, counties were designed to be just large enough to enable every resident to travel to the county seat, conduct business, and return home on the same day. Today's technology greatly enlarges the potential public sphere, but it does not free it entirely from the constraints of geography. Too much social and economic interaction requires face-to-face contact. Most of us are social creatures who would still rather go to the ballpark once in a while than watch every game on television.
The chief threat to newspapers in the twenty-first century will be from entrepreneurs who figure out how to use the more favorable cost structure of Internet-based media to provide better services to the same kinds of communities that newspapers have served so well. Some of these entrepreneurs might be newspaper companies, but don't bet your career on that. As newspapers harvest their good will to maintain their historic profitability, they are creating opportunities for entrepreneurs who are willing to try new things and be satisfied with smaller returns. By 2009, there were good examples in Minneapolis, Chicago, St. Louis, and San Diego. They supported themselves with donations from citizens, foundation grants, and some advertising. And some of them had influence. Richard Pérez Peña wrote in The New York Times about the nonprofit site VoiceofSanDiego.org.
“Over the last two years,” he said, “some of this city's darkest secrets have been dragged into the light—city officials with conflicts of interest and hidden pay raises, affordable housing that was not affordable, misleading crime statistics. Investigations ensued. The chiefs of two redevelopment agencies were forced out. One faces criminal charges....
“Yet the main revelations came not from any of San Diego's television and radio stations or its dominant newspaper, The San Diego Union-Tribune, but from a handful of young journalists at a nonprofit Web site run out of a converted military base far from downtown's glass towers.”
The business model, he suggested, is more like National Public Radio than any existing newspaper example.46
That is one way of saving journalism. Here is another. The online startups were encouraging, but there can still be a place for print if newspapers do not yield their territory too easily. As their owners slash and burn to cut costs, they ought to keep in mind a goal for the end game. What kind of product will be left when the cutting is done?
Thinking back on the empirical findings listed at the start of this chapter and putting them in the historical context described in Chapter 1, a logical strategy seems fairly obvious: specialize.47
When Gutenberg's invention of movable type disrupted the business model of the town criers, the journalists of the fifteenth century, the result was greater standardization of information products as well as larger audiences.
The town crier's audience was limited to the number of people who could be assembled within the range of an unamplified human voice. Printing changed everything. It made the size of the audience theoretically limitless, and, by the creation of multiple records, enabled more reliable preservation of knowledge.48
As the product of an industrial process, the newspaper needed to be a mass medium with something for everybody. The cost advantages of newer printing technology and, later, the Internet, made it feasible to base a business on highly specialized information. Cheaper printing, direct mail, and a proliferation of broadcast media enabled distribution of content tailored to specific kinds of audiences.
Post-war newspapers met the specialization challenge fairly well for a while. A metropolitan newspaper became a mosaic of narrowly targeted content items. Few read the entire paper, but many read the parts that appealed to their specialized interests. I still remember a fellow Navy trainee in 1953, when the Korean War was on. He religiously bought the newspaper every day. Instead of looking for the war news, he worked the crossword puzzle and threw the rest of the paper away. “Crossword puzzles,” he said. “That's all newspapers are good for.” Newspaper marketing since then stressed ways to optimize the selection of pieces for that mosaic of such highly specific interests.
Sending everything to everybody was a response to the industrial revolution, which rewarded economies of scale. The model became less and less efficient as printing technology improved and made more specialized publications feasible. At the same time, retailing became more specialized with boutiques squeezing out the big department stores. Specialized advertisers discovered that they could get mailing lists to target their most likely customers with tailored appeals and high-quality printing. Newspapers matched their printing quality with slick-paper inserts, but that did not solve the targeting problem.
Robert Picard, a media economist who looks at newspapers from an international perspective, also believes that newspapers try to do too much. He expressed this view in June 2008 at the Carnegie-Knight Conference on the Future of Journalism at Harvard University. Newspapers “keep offering an all-you-can-eat buffet of content, and keep diminishing the quality of that content because their budgets are continually thinner. This is an absurd choice,” he said, “because the audience least interested in news has already abandoned the newspaper.”
If they should peel back to some core specialty, newspapers would still have to worry about the Internet and its unbeatable capacity for narrowcasting. In theory, a market segment consisting of one person is possible. Those newspapers that survive will probably take advantage of that capacity with some kind of hybrid content: analysis, interpretation, and investigative reporting in a print product that appears less than daily combined with constant updating and reader interaction on the web.
But the time for launching this strategy is growing short if it has not already passed. The most powerful feature of the Internet is that it encourages low-cost innovation, and anyone can play. The significance of Craigslist is not just that it uses the Internet but that it empowers public-spirited motivation. New-mark is what business school people call a “bad competitor” because he is more interested in serving society than making money.
The lesson to take away from Craigslist is that we should be prepared to be surprised yet again. There are other Craig Newmarks, out there, waiting for their hour. Some will be on the news-editorial side, figuring out new, better, and cheaper ways to do what newspapers have traditionally done. Newspapers can try to beat them to the good ideas, but, as Harvard's Christensen has noted, it is very difficult for an industry to disrupt itself. Successful disruption requires risk taking and fresh thinking.
On the other hand, it is possible to envision a scenario in which newspapers trim down to a specialized product and survive by serving a narrow market well. They are already trimming down. But what are they shrinking to? Have they thought about an end product for all the shrinkage?
One of the rules of thumb for coping with substitute technology is to narrow your focus to the area that is the least vulnerable to substitution. Michael Porter included it in his list of six strategies in his 1998 book Competitive Advantage (see Chapter 1). The railroads survived the threat from trucks on Interstate highways and airlines by focusing on the one thing that they could still do better: moving bulk cargo across long distances.
What service supplied by newspapers is the least vulnerable?
I still believe, as I argued before, that a newspaper's most important product, the product least vulnerable to substitution, is community influence. It gains this influence by being the trusted source for locally produced news, analysis and investigative reporting about public affairs. This influence makes it more attractive to advertisers.
By news, I don't mean stenographic coverage of public meetings, channeling press releases, or listing unanalyzed collections of facts. The old hunter-gatherer model of journalism is no longer sufficient. Now that information is so plentiful, we don't need new information so much as help in processing what's already available. Just as the development of modern agriculture led to a demand for varieties of processed food, the information age has created a demand for processed information. We need someone to put it into context, give it theoretical framing, and suggest ways to act on it.
The raw material for this processing is evidence-based journalism, something that bloggers are not good at originating. Not all readers demand such quality, but the educated, opinion-leading, news-junkie core of the audience always will. They will demand it as a defense against “persuasive communication,” the euphemism for advertising, public relations, and spin that exploits the confusion of information overload. Readers need and want to be equipped with truth-based defenses.
Newspapers might have a chance if they can meet that need by holding on to the kind of content that gives them their natural community influence. To keep the resources for doing that, they will have to jettison the frivolous items in the content buffet.
The best publishers have always known that trust has economic value. In Chapter 3, I reported that advertising rates increased by $3.50 per Standard Advertising Unit (SAU) for each one percentage point increase in the persons who said they believed what they read in the paper. And papers with higher trust were more successful in resisting the long-term decline in household penetration.
Won't democracy be endangered if the newspaper audience shrinks down to this hard core? Not at all. As far as we can tell, the Paul Lazarsfeld two-step flow effect (Chapter 5) can only be enhanced by the Internet. It is being converted to a many-step flow. The problem is not distributing the information. The problem is maintaining a strong and trusted agency to originate it. Newspapers have that position of trust in the minds of the public. That trust—or influence—is their core product.
If the product is directed at the hard-core news junkies and opinion leaders in the community, circulation will shrink, and that's not a bad thing. It means that advertising will yield more revenue per dollar spent on newsprint, because those readers are the most valuable—not just for their consuming habits but for their influence on others.
Other parts of the newspaper can also be unbundled and sold separately. A sports only paper for the most dedicated fans should be sustainable. And a local business publication could stand alone—as some do in many markets. The Miami Herald's “Business Monday,” a weekly tabloid insert, was successful for three decades and could stand alone.
Another piece of the end game should be bolstering whatever community papers are part of a newspaper company's strategy. A community paper benefits from a very important kind of specialization. Sadly, I didn't see that happening at the community newspapers owned by public corporations. They were getting slashed as much as the bigger outfits. Locally owned and operated community papers were doing much better.
The mass audience is drifting away, and resources should be focused on the leadership audience. If existing newspapers don't do it, new competitors will enter their markets and do it for them. The new competitors will most likely be online entrepreneurs with a wide array of business models from charitable support to crowd funding.
Those rough beasts waiting to be born could surprise all of us. Meanwhile, we who wish to preserve the social responsibility functions of the press might do well to turn our attention to the people on the front lines who do the daily work of the profession. Whatever form the new journalism takes, it will need a plentiful supply of moral and capable journalists. That need will never change. The next and final chapter explores ways to meet it.
1. “The world moved on.” Stephen King fans will recognize this phrase as the fate motif from his Dark Tower series. I like it for its dour sense of inevitability.
2. John Yemma, email, March 27, 2009.
3. Steve Star was a Harvard Business School professor who ran a series of marketing seminars for newspaper executives in the 1970s.
4. Rick Edmonds, “The Best-Staffed Newspaper in America,” Poynteronline, www.poynter.org (posted Dec. 6, 2002, retrieved Oct. 23, 2003).
5. Al Neuharth, interview with Philip Meyer and Jane Cote, Miami, Fla., Aug. 7, 2002.
6. Walter Hussman, telephone interview, Dec. 10, 2008. Total circulation of daily newspapers in the USA peaked in 1989 at 62.6 million.
7. Quoted by Susan Paterno, “Is McClatchy Different?” American Journalism Review 25:6 (August/September 2003): 28.
8. Katharine Graham, Personal History (New York: Vintage Books, 1998), 505.
9. Warren Buffet, quoted in Katharine Graham, Personal History, 512.
10. Graham, Personal History, 507.
11. I use the term more loosely and less critically than Jurgen Habermas when he said, “The world fashioned by mass media is a public sphere in name only.” See Habermas, The Structural Transformation of the Public Sphere, trans. by Thomas Burger, (Cambridge: MIT Press, 1991), 171.
12. Lauren Rich Fine, “The Newspaper Industry: Circulation Stalling But Efforts Continue to Improve Readership,” In-Depth Report, Merrill Lynch Global Securities Research & Economics Group, May 29, 2003.
13. William Drewry, telephone conversation, Dec. 18, 2003.
14. Thorstein Veblen, The Theory of Business Enterprise (New York: Charles Scribner's Sons, 1904, reprinted 1923), 157.
15. Ibid., 149.
16. Daniel Gross, “The Road to Zell: How the Tribune Deal Went So Bad, So Fast,” Slate, Dec. 9, 2008.
17. John S. Knight, interview with Dan Neuharth, October 1978. From the transcript published as a memorial supplement by the Akron Beacon Journal, June 1981.
18. Quoted in M. L. Stein, “Publisher Pans Peers,” Editor & Publisher Feb. 6, 1988, 9. The other two newspaper groups named by McClatchy were Donrey Media and Lesher Newspapers.
19. Cited in Editor & Publisher, May 29, 1993, 14. Two Thomson executives declined to be interviewed for this report.
20. Martha L. Stone, “Thomson Creates Its Own J-School,” Editor & Publisher, March 20, 1999, 41.
21. “Thomson Corp. to Sell Newspapers,” Editor and Publisher, Feb. 15, 2000.
22. Lacy and Martin, “Profits Up, Circulation Down for Thomson Papers in 80s,” Newspaper Research Journal 19:3 (Summer 1998): 63.
23. Larry Jinks, interview with Jane Cote, San Jose, Calif., Oct. 25, 2002.
24. Cranberg, Bezanson, and Soloski, Taking Stock: Journalism and the Publicly Traded Newspaper Company (Ames: Iowa State University Press, 2001), 49.
25. Lawrence E. Mitchell, Corporate Irresponsibility: America's Newest Export (New Haven: Yale University Press, 2001), 113–14.
26. Floyd Norris, “Pitt's View: Stock Options Can Be Perverse,” The New York Times, April 5, 2002, 1C.
27. “Knight Ridder Gives Employees One-Time Stock Options,” PRNewswire, Dec. 21, 2000.
28. Lucia Moses, “Industry Looks for New Niche in 2004,” Editor & Publisher, Dec. 15, 2003.
29. Newspaper Next 2.0, retrieved at http://www.newspapernext.org/ Nov. 12, 2008.
30. http://www.raisingbakersfield.com/ I invite readers to go to this web address and see whether the experiment stood the test of time.
31. Clayton M. Christensen and Michael E. Raynor, The Innovator's Solution: Creating and Sustaining Successful Growth (Boston: Harvard Business School Press, 2003), 113.
32. Gilbert, “Newspapers and the Internet,” Nieman Reports 56:2 (Summer 2002). See also his unpublished dissertation, “A Dilemma in Response: Examining the Newspaper Industry's Response to the Internet (2001).
33. Kanter and others, “Experiences with Internet Journalism,” Nieman Reports 56:2 (Summer 2002), 36.
34. Ibid., 31.
35. Gilbert, “Mercury Rising: Knight Ridder's Digital Venture,” (Cambridge: Harvard Business School, 2003) 8.
36. Clark Gilbert and Joseph L. Bower, “Disruptive Change: When Trying Harder Is Part of the Problem,” Harvard Business Review (May 2002): 98.
37. Sean Silverthorne, interview with Clark Gilbert, “Read All About It: Newspapers Lose Web War,” HBS Working Knowledge, Jan. 28, 2002. Available at http://hbsworkingknowledge.hbs.edu/item.jhtml?id=2738&t=strategy
38. Gilbert, “Newspapers and the Internet” Nieman Reports 56:2 (Summer 2002), 37.
39. Lucia Moses, “Gannett Papers Will Get ‘Real,’” Editor & Pubisher, Oct. 6, 2003, 4.
40. MacDougall, Interpretative Reporting (New York: The MacMillan Company, 1938), 102.
41. Much later, Lee Hills told me that his sources on the Pulitzer committee said the survey was a factor in awarding the 1968 prize for local general reporting to the staff of the Free Press.
42. Meyer, “Aftermath of Martyrdom: Negro Militancy and Martin Luther King,” Public Opinion Quarterly 33:2 (Summer 1969): 160–73.
43. Edmonds, “NPR: A Firewall, Almost,” in Behind the Scenes: How Foundations Have Quietly Seized a Role in Journalism, Commissioning Content, Poynter Report, special issue, Spring 2001.
44. Philip Meyer, Ethical Journalism (White Plains, New York: Longman, 1987), 40, 205, 236.
45. http://www.propublica.org/
46. Richard Pérez Peña, “Web Sites That Dig for News Rise as Watchdogs,” New York Times, Nov. 18, 2008, p. A1.
47. The closing argument that follows originally appeared in American Journalism Review, November–December 2008.
48. Roger Burlingame, March of the Iron Men: A Social History of Union Through Invention (New York: The Universal Library, Grosset & Dunlap, 1938), 9.