BuzzMachine

Here’s a Guardian column I wrote that’s a version of the Last Presses post from last week. (Here’s the column without registration.) Note that a lot of the posting today is around this topic: the business of newspapers.

In the panic over the possible sale of Knight Ridder’s papers, some are grasping for new business models that aren’t business models at all: They are suggesting that newspapers should be taken over by charities or — this is new to me — even viewed as public infrastructure. I understand the nervousness and the need to seek alternatives — especially in the face of news that the dreaded Carlyle Group may be a buyer. Welcome to The Philadelphia Daily Fair & Balanced.

The Daily News’ Attytood blog has been lighting candles, crossing fingers, and blogging incantations in hopes that the local Pew Charitable Trust might take over the paper, following the example of the Poynter Institute’s benevolent ownership of the St. Petersburg Times. White Knights, indeed.

If that happened, it would be a fine thing for Philadelphia. But it is by no means the solution for the problems of newspapers today. Indeed, I think it is a dangerous dream, for it continues to separate newspapers from their publics, their markets, their real masters.

: Now see Editor & Publisher, which gives us what I think is a naive view of how to save papers: Turn them into charities, with legislation to give tax breaks, even.

Joe Mathewson, who, amazingly, teaches business journalism, dismisses those of us who argue that the marketplace matters.

But does “healthy” have to mean “profitable”?

Let’s dream for a moment about newspapering freed from the profit motive. Purists may argue that newspapers, like any other enterprise, should have to earn their way in the marketplace, and if they fail the market test, so be it.

But in fact newspapers, as important to the civic health of our society as public transportation, have a claim on public allegiance that goes beyond financial measure.

Newspapers as infrastructure? That’s a new one to me. We’ve seen them portrayed as everything up to religion. But newspapers as roads and buses? Sorry. I don’t buy it. News comes in many forms, in many media, and there is no law of nature or principle of democracy that says a paper is public infrastructure that should have public support. In fact, I’ll argue that is another dangerous dream, for it potentially puts journalism and free speech at the mercy of government support and thus government control, which should be the last thing we’d ever want.

Mathewson wants legislation to make it happen:

There are two tax-favored models before us: public broadcasting and real estate investment trusts. Some rather simple tax legislation would be required, available solely to newspapers, not to broadcasters or to companies that own both — which incidentally would free these papers to cover the federal government without fear of jeopardizing their corporations’ interests at the Federal Communications Commission. Such special legislation wouldn’t be novel, for Congress long ago recognized the importance of healthy newspapers when it authorized joint operating agreements as an exception to the antitrust laws.

A newspaper company, like a public broadcaster, could be organized as a not-for-profit, tax-exempt corporation. It could still sell papers and advertising, it could still develop new Internet revenues, it would still pay market wages and salaries (or maybe better), it could re-invest in improving its own staff and facilities and operations, it just couldn’t make a profit. And it wouldn’t pay taxes or dividends….

But if the owner is an otherwise-profitable company, a deductible gift might do more for the bottom line than a fire sale. Congress could encourage such donations by allowing the company to deduct the full value of the newspaper as a charitable contribution, creating a special exception to the current ceiling on corporate gift deductibility, which is 10% of taxable income.

Another possible transition from for-profit to not-for-profit might be a buyout and donation by civic-minded wealthy individuals or families, the same folks who give millions to build a new library or a new hospital wing…. Facilitating this, too, would require an amendment to the tax law, to waive for this purpose the 50-percent-of-adjusted-income ceiling for personal tax deductions — just as Congress did for 2005 contributions to Katrina relief, and all other 2005 charitable gifts.

Law enforcement might help in this. When Larry Ellison of Oracle was charged by the state of California with a securities-trading violation, he settled by agreeing to donate $100 million to charity. That would have been enough to buy a good-sized newspaper and donate it to a not-for-profit, maybe even endow it.

Mind you, these are still businesses with considerable margins, albeit margins that will be sure to shrink. And there are plenty of other means of providing news: online, radio, TV, magazines.

And I’ll fret again that newspapers are in the pickle they’re in because they have operated as isolated monopolies. Make them isolated charities or publicly supported utilities and you’ll have disasters.

: Note that the Carlyle Group is, at the same time, looking to buy a hunk of Dunkin Donuts. They’re just cash cows.

: Note also that Knight Ridder’s paper in Akron is running out of pencils. Maybe they should find a few and try selling them on streetcorners. New revenue streams.

I believe that newspapers are and should be businesses, that market pressure is not only good but necessary, for newspapers are all about serving the public and if the public doesn’t want them, well, does that tell you something? The problem is that newspapers became monopolies, which made them fat, sassy, snotty, and lazy. See this very good post by a technologist turned VC who worked at the embattled Knight Ridder about newspapers as mainframes:

The short-form story in the modern history of computing is the deconstruction of the mainframe. Nothing in computing exists today that did not exist in some precursor form back in the original mainframes. The evolution of computing is the continuous unbundling of each of the components, cost reduction and miniaturization, and subsequent empowerment of the user at the point of delivery. Newspapers are Mainframes. The transformational power of the Internet lies in its incessant pressure to unbundle….

The business model of the newspaper is based on two principles – network effects and bundling.

The network effect is the classifieds business. The reason there is only one major newspaper per city, nearly everywhere, is that the classifieds business is a winner-take-all business. This made newspapers ‘natural monopolies.’ The net effect of the natural monopoly was that the competitive pressure for innovation disappeared. How many industries can you name where the product form, features, and delivery has not changed in 75 years? The marketing gene was largely bred out of the industry by becoming local monopolies. Monopolies fail catastrophically because of their inability to respond when the competitive landscape changes dramatically. This is the incumbent’s disadvantage. The very immunity to competition that made newspapers such great businesses also created resistance to market forces.

The bundling is the aggregation of all the varied content to attract and retain the audience. The core premise is you’ll read some content regularly, not necessarily all content….

But the Internet is that ruthless and incessant force for unbundling. Everything is a click away. Search costs are crushed.

Newspapers are Internet victims, but they are far from being the only industry under siege. Newspapers are especially impacted because two of the three main components of their cost structure are obsoleted. Advertising sales moves from traditional ‘push’ to advertiser self-service. All the physical assets of printing and delivery are obsoleted by the shared infrastructure of the Internet. If most of the cost structure goes to zero value, what’s left are news gathering and editing organizations and IT.

I like that: A newspaper is an IBM 360. A blog is an Apple 2. Go read the rest. Then see the post above about people trying to see newspapers as something other than businesses.

Rebecca MacKinnon says that journalism schools need to teach students to be more entrepreneurial. I agree that that’s why I added an entrepreneurial course that I will teach to the curriculum of CUNY’s Graduate School of Journalism (you won’t find it online; it’s new).

The idea is that students need to create a new journalistic product. These could be businesses the students start when they graduate (and because they may have the next Google in mind, this will be the one course I won’t webcast) or a product they could start in an existing media company (because they are all woefully short on R&D) or even a charitable endeavor (but even in this case, they need to show why people would give money to make it work).

Says Rebecca:

American journalism is in crisis. What a wonderful opportunity we now have to rethink the whole industry. The question is: Even if journalism schools do train the future’s journalists to innovate and think outside the box, will today’s news organizations be prepared or willing to take advantage of their fresh ideas?

I find it pleasantly ironic that while some in journalism wish it weren’t a business, others want to train journalists to be better at business. Count me in the second camp and see my other posts on the topic today.

Brian Horey, general partner of Aurelian Partners, does a good job defending Knight Ridder’s investors in emails to Dan Gillmor.

Susan Crawford, bearer of one of the most dazzling brains online, has perfect advice for the old-media people who think search is an enemy. European publishers complained about Google making money off “their content” when the truth is that Google is sending prospective members to “their” communities if only they were ready to welcome them. Susan says:

What Google does is respond to search queries by providing snippets — thumbnail pictures and a line of text here, a line from a page there, a headline — and helping people get to where those things were posted. That’s pointing, not copying, and it’s a key element of Web 2.0.

The publishers, and the news agencies, are having trouble with this evolution — heck, they had enough trouble with Web 1.0, much less the groupness we’re seeing now– and are relying on incumbent laws (like copyright law) to protect their ability to charge for content.

But there’s a great opportunity here that shouldn’t be missed: news companies can become not only providers of great stories (well-researched, well-written, unlike blog posts) but also sources of order. There is so much information now — we need help! We need priority, and sense of impact, and sense of global connections. We need visualizations, and links, and commentary. All of these things are valuable. We’ll pay — with our attention, our loyalty to the brand, and maybe even with money if the reporters’ own personalities are allowed out to play.

A search engine, alone, can’t provide this kind of judgment. Not even Google can say which story is likely to have an important impact on our collective future. There is a Web 2.0 model for publishers, and they can only get there by letting go.

I think it’s about order and also about relationships, about connecting people to information and each other.

Well, just as I write that American publishers aren’t facing the reality of life after presses, Donald Graham of the Washington Post starts to sing a new tune:

Washington Post chairman Don Graham said publicly for the first time this week that the future of news is on the Internet, not in print newspapers like the Washington Post.

“The Web site simply has to come through, ours and that of other newspapers, for us to be successful,” Graham told investment analysts Wednesday in New York.

Graham delivered the keynote address for UBS Bank’s annual Global Media Conference. His speech focused on how the Internet is dramatically changing the way he runs his company.

“Our Web competitors, Google in particular, are coming up with clever new products which are designed to make our life harder,” Graham said. “Young readers are less inclined to read us than I would have guessed.”

After detailing the strengths that print journalism still holds—chief among them the effectiveness of print advertising—Graham acknowledged that the Internet can do some things better.

“The business is changing faster than I expected,” Graham said. As an example, he offered the Post’s coverage of Samuel Alito’s nomination to the Supreme Court.

[Hat tip: Jay]

My Media Guardian column Monday will be a version of the Last Presses post; I’ll link to that when it’s up.

Business Week is abandoning print for its international editions to emphasize online instead:

BusinessWeek announced today that it will reposition its approach to global markets. A greater emphasis will be placed on providing online news, analysis and information and on developing local language publications while maintaining a single flagship print product.

“We have decided to create robust, customized Asian and European versions of our popular BusinessWeek Online Web site, while delivering a single global edition of BusinessWeek magazine instead of providing separate regional versions,” said Stephen J. Adler, Editor-in-Chief of BusinessWeek. “We are taking this action to harness the growing power of the Web globally and to serve readers and advertisers in a more timely, efficient, and targeted way.”

I have no idea how the international print editions were doing and whether this is more of a retreat from international or a push into online; obviously, it’s positioned as the latter.

I’m now working on a Media Guardian column loosely based on my post below, The last presses. Please do continue commenting there; the discussion is quite helpful.

Last month, I went to Europe for a session at the Guardian’s management offsite. They were just about finished converting the Guardian and the Observer print editions to the Berliner format (halfway between a broadsheet and a tabloid) at great effort and expense and at no small risk. It has been a success so far, but this meeting was not a celebration. Instead, wisely, they came together to start figuring out what their products and businesses would have to become next, now that we have crossed over into the digital age. I won’t recount what happened; this was their meeting. I’ll just say that they had me in — as a few other media companies and organizations have done lately — as the scary guy: Blogboy does his bugga-bugga about the distributed, post-scarcity, small-is-the-new-big, paperless, unplatform era of citizen control of media. I apparently have found my proper role in life: frightening people. But in this case, I was the one who was intimidated, because the Guardian is the most forward-thinking print organization I know and I was all the more impressed after watching their culture in action. And I was all the more cowed when, over drinks the night before meeting, Guardian Editor Alan Rusbridger went years past where I planned to time-travel the next day. Talking about the presses they’d just spent tens of millions of pounds buying, he shrugged and said:

“They may be the last presses we ever own.”

Presses are good for only a few decades.

That same day, I picked up the International Herald Tribune and read Thomas Crampton’s interview with another forward-thinking publisher, Germany’s Hubert Burda, who created one of my favorite print properties, the newsmagazine Focus. Crampton (of Joi.Ito.com fame) wrote:

…Burda has spent the past few years zealously pushing his media company into everything digital, even insisting that he will never open a printing plant again….

The grease and machinery of the printing press have almost become a sideline to the tool that Burda sees as central to the next generation of publication: social software. This encompasses everything from Web logs to community-building Web sites that let readers create their own content through reviews and comments.

“Printing will not go away, but I do not plan to open a single new printing plant,” Burda said. “We now concentrate on using social software to build closer relations with the communities of readers around our magazines.”

On the way home, I picked up Business Week and read about Random House, owned by another German media company, Bertelsmann, under the headline, “Digital Is Our Destiny.”

Then I landed back home in the U.S., where too many of the newspaper editors and publishers I know of still hold dear to their identities as publishers — proprietors of presses, printers on paper, owners of content, controllers of distribution, beneficiaries of monopolies. Publishers, damnit. Newspaper publishers.

The contrast struck me as deadly.

Today, the news about newspapers in America is not good: more layoffs (despite MoveOn’s whining), more competition, more fear, less revenue, lower stocks. The time that many hoped was a long way off may be upon us already. Newspapers are going to start to die.

Look at Knight Ridder: There’s talk that there may be buyers for the old gray gals — namely, private equity firms. David Sanderson of Bain said at the Reuters media summit that buyers could finance the purchases on cash flow … and then hope they will get the same multiples in five years. Yeah, sure. What’s unsaid is that these cash cows will have been milked dry and that there is no growth left in them. That makes me wonder whether these buyout firms will really want to buy papers now, knowing that they will have to put in tremendous strategic work to utterly change the nature of the companies. So what if no one will buy them?

Well, some papers will die sooner or later. Papers like the Philadelphia Daily News may die sooner. There are efforts to save that paper and I’m really looking forward to discussions scheduled to begin early next year in Philadelphia about the right strategy to do that … if the paper survives that long. But I have to ask whether that is the right crusade at all. Save the paper? No, it’s not about saving paper. Sorry, but it’s not even about saving jobs.

It’s not about saving anything. Instead, this is about seizing the opportunity of the internet and whatever that brings.

The people here who are trying to save papers are concentrating on the wrong assets. Listen to Dr. Burda again: He’s not saving paper and presses or even content and creators. He’s growing in new spheres:

We now concentrate on using social software to build closer relations with the communities of readers around our magazines.

I’ll say it again: Distribution is not king. Content is not king. Conversation is the kingdom. It’s about relationships. Burda gets it. That’s what my conversations in Europe were about.

Rupert Murdoch gets it, too. Note well that he did not buy a content company or a distribution company with producers or presses when he acquired MySpace. He bought a relationships company.

This means changing the very essence of what a newspaper is. It’s not about scarcity. It’s not even about news as mere news. Dr. Burda again (echoing VC Vinod Khosla at Web 2.0):

News has now become a commodity, thanks to the Internet, so we must differentiate ourselves in other ways. Content alone can no longer win. You must build and interact with audiences.

It’s also not about power anymore. After Murdoch gave a rare interview Murdoch gave to the UK Press Gazette, Emily Bell, editor of Guardian Unlimited (note well the name of that site; it’s about the Guardian no longer being limited), noted that one man, Murdoch, is no longer in the position to singlehandedly change the industry of news and media in Great Britain. That power is now distributed, just like content. Bell writes:

But what we once took from Murdoch, as an industry and as media journalists, was his ability to provide a shockingly radical lead: he was the disruptive technology which now is itself being disrupted. [Bill] Gates, who is arguably Murdoch’s only peer in terms of original insight and business success, has, it seems, stepped away from his business too, accepting that the next wave of thinking will inevitably come from elsewhere….

As a media journalist it is impossible to study the evolution of News Corp and not admire the sheer brilliance of vision and the perfection of execution….

A lengthy interview with Rupert Murdoch feels like an obituary for an era - the sound of a nail being put into a coffin. And just as Murdoch symbolised the mainstream media industry at the peak of its power and used its influence so deftly, so his decline in relevance is a sharp reminder that the media establishment is all in the same boat. The only difference being that Murdoch’s boat is considerably bigger.

I think Murdoch would agree. Listen to him from that interview:

Does he feel now that his internet strategy is fully formed? “It’ll never be fully formed. The internet is changing, very disruptive technology and there are new inventions coming along every month. One has to stay awake and race to stay up with it, or if you get enough brilliant people around maybe you can get ahead of it.”

“The point is the ease of entry. If someone has a good idea on the net the cost of entry is zero. We’re going to have many, many more voices….”

There’s vision left in the old guy yet.

Now hear Murdoch on the state of journalism and newspapers… in America:

Given all this activity, how fearful does he think traditional journalists have to be for their futures?

“Not at all,” he says. “Just become better journalists. Great journalism will always be needed, but the product of their work may not always be on paper - it may ultimately just be electronically transmitted. But for many, many, many years to come it will be disseminated on both.

“There will always be room for good journalism and good reporting. And a need for it, to get the truth out.”

In Britain he thinks journalism is in as healthy a state as it has ever been. “Maybe better, there’s some great writing taking place, certainly in our newspapers - Times, Sun, Sunday Times - and we don’t have a monopoly on it. There is good writing all over the place….

“And it doesn’t matter because there are so many to choose from. I think the people of Britain are uniquely lucky to have such a great choice of newspapers and news, whereas in America you don’t.

“Outside New York, it’s all monopoly newspapers.

“Some have good work in them, but it tends to be overwritten, boring and elitist, not a reflection of the general mood in the public. And I think you’re going to find their circulations falling more than they already have. With their business models, because they’ve already stripped all the costs out, now they have to depend on advertising. And that is certainly under threat.”

I doubt he’ll be buying Knight Ridder. Too bad. He might be the one guy who’d know how to save the Philly Daily News as a tab, as a paper. But I don’t want to fall back into that trap again: the trap of thinking that our task is to save something from the past, to look back when we should be looking forward.

Our task is to stop seeing old failings everywhere and start seeing all the new opportunities before us, to exploit the future and expand news — to exhibit a passion about the possibilities, as Rafat Ali told the Online News Association. And we must accept the reality of the marketplace and stop wishing it wouldn’t change.

To summarize some of my own pontification on the topic from this blog…

From an editorial perspective, this means we can’t start with a goal of saving the newsrooms we now have. We have to find new efficiencies (how much do we spend on commodity news?) and new ways to help the public gather and share news (see hyperlocal citizens media) and concentrate on our real value: reporting. We need to think in terms of relationships, sharing training, information, promotion, and trust. How can we use online and the join with our public to grow bigger and share more information more quickly? That must be our goal.

From a business perspective, we need to stop whining about readers moving online. If that’s what they want to do, then go with them, damnit! The biggest challenge is to train advertisers that online is more valuable than print because more people are there and they are more engaged in getting what they want, and so advertising there is more efficient and should be worth more. The Online Publishers Association is taking steps to do that nationally; local sites need help, too (oh, for NCN). The next challenge is to find new ways to serve new advertisers, and maybe that’s not on content we own but on much larger and more targeted networks of citizens’ media. I believe we will, sooner than we know, start seeing print as an added cost burden maintained primarily becuase advertisers value it more than readers . I also believe that print will shift to become value added to online. It only stands to reason: If the people are online, that is where the advertisers will be. The publisher with balls will drive toward that inevitability, killing stock tables and even whole sections to encourage readers to go online. As for arguments that newspapers have high profit margins today: Well, yes. But once again, they’re not going to grow as papers. And once again, beware the cash cow in the coal mine that can blind you to your strategic imperitive to change.

The first step is to change the way we think. We have to stop thinking of ourselves on paper. Stop thinking one-way and start thinking two-way. Stop thinking centralized and start thinking distributed. Stop thinking about holding trust and power and start thinking about earning and sharing both. Stop thinking we make money by creating friction and owning scarcity and start thinking about how we can make and share money by enabling people to do what they want to do. Stop thinking of what we produce as paper. We need to stop thinking of newspapers as things.

So how do we think? This weekend, I quoted a blogger about owning media and came away thinking that life and the internet are about verbs and so should media be: What do people want to do?

I also love quoting Hugh MacLeod, who told me to share this wisdom with the Online News Association two years ago: Hugh said that rather than thinking of a newspaper as a thing, we should start thinking of it as a place, “a point on the map where wonderful people cluster together to do wonderful things.” Whatever we do, we have to break out of our old assumptions and old ways of looking at newspapers and journalism.

And that is what struck me so much about the contrast I saw between Europe and America. Here, we are talking about saving newspapers and hanging onto the past for dear life. There, they are talking about what comes next and they’re in a mad dash to get there.

The idea that the presses we own may be our last is not cause for mourning but for invention and investment. We have no choice.

: Here are a few ways to break out of the old ways of thinking. Robin Miller has a great piece on lessons for newspapers he has gained from working at Slashdot’s parent company. Here is Dave Winer’s prescription.

: Full disclosures: I write a column for Media Guardian. They paid my way to the meeting but not a fee (who flunked that business test?). I agreed that the meeting was off-the-record but I did ask Rusbridger whether I could blog his quote. And I want to disclose that I’m sorry for writing such a long post.