The opportunity of bankruptcy

Posted on 19. Nov, 2009 by in New News Organization

Tweet: How bankruptcy can help a newspaper get theah from heah. Don’t squander it. **

I fear that Tribune Company – and other newspaper companies – will come out of bankruptcy having squandered the opportunity it presents to rebuild from the ground up.

At the New Business Models for (Local) News Summit at CUNY last week, my friend and mentor Jim Willse, late of the Star-Ledger in New Jersey, asked us to create a model for an existing news organization to morph into what we proposed as the new structure. That’d be painful and thus controversial, I said, to which Willse – never one to mince words – responded, “No shit.”

Can they get theah from heah? I’m not sure. A company that employed more than a thousand workers may end up employing just a hundred as it gets rid of printing and distribution infrastructure – the barrier to entry that became a barrier to change. Those shut-down costs are tremendous (that’s where bankruptcy helps, though). The cultural shift for people who remain is huge (I have spoken with many newspaper and magazine folks lately who – like me – held out hope that it was possible … until they gave up and quit). The need to reinvent business methods and models is urgent. And in the end, if it all works, the new company will be much smaller, a fraction of its former size, which is hard for executives, analysts, and shareholders to swallow – but it’s profitable and thus sustainable and that has to be the ultimate goal.

To make this volcanic transformation, I say a newspaper must start by getting out of the printing business (as Dave Morgan argued at our CUNY conference last year). Oh, it may still print a product as long as enough advertisers and readers stick with it to make it profitable and as long as it is valuable to promote the the digital brand of the future. But print can no longer drive the business; it’s just not sustainable.

When the Ann Arbor News folded this summer and was replaced by its owners with an online, community-based site, they chose to continue publishing twice a week to continue distributing coupons, circulars, and ads; it is printed by another paper in the company. [Disclosure: I consulted on the project.] Similarly, in the UK, the Birmingham Post went online and went weekly in print. My reputation aside, I’m not religiously opposed to paper. But maintaining a printing business is no longer an advantage; it’s a burden. So I say get out of the business and outsource whatever printing you do.

What about distribution? Well, as the circulation of the paper dwindles to naught, its value as a delivery platform also falls – to the point that coupon companies and stores like Best Buy will have to find alternative means of distribution. I think there’s a nice, if transitional business there for someone. Should it still be the newspaper company? Well, I’d give the same advice that is given to every startup: concentrate on one thing and do it well, get rid of the rest. So I’d say the paper should – as many pretty much do today – outsource its distribution.

Ad sales? That’s perhaps the toughest transition. Classifieds aside (they’re permanently lost anyway), newspapers are built to sell mass metro audiences to large advertisers. Sales staffs don’t drum up new business so much as they manage existing lists. Those folks aren’t likely to be able to sell entirely new kinds of advertising highly targeted marketing help for whole new populations of smaller merchants who couldn’t afford the newspaper before. Beside, such a staff doesn’t scale when you have to sell to so many new customers in networks. Build-it-and-they-will-come automated platforms don’t work; advertising still must be sold. This is why, in our models, we projected new sales forces – citizen sales – arising to sell at a local level. So for our transforming paper, I’d build networks of local sites and local sales and keep just enough of the old people to sell the big, old accounts that remain – if they can be re-educated.

Marketing is all but gone. If this newly constituted service isn’t sold by its public – if that public doesn’t collaborate with it and feel an ownership stake – then it will fail.

Now for editorial: I’ve written often about the new roles journalists will take on. As the marginal cost of information in a community falls to zero – as the internet and its tool enable communities to share much or most of what they know and need to know – then the question for journalists is how they add value and fill in gaps with reporting at the core as well as curation, community organization, and training. In our models, we forecast almost as many journalists as worked in the old paper newsroom, but they work for – and often own – more than a hundred companies. The core of journalists working at the new news organization is smaller.

Bankruptcy enables a newspaper company to shed its past. It can get out of contracts and leases for paper, printing plants, delivery, trucks. It can also get out of labor contracts, reducing severance costs. That is terribly painful but I fear it is as inevitable as the end of the ITU (the typesetters’ union). It offers a one-time chance to rethink, reinvent, and rebuild the company for the future. Is it better to stretch out the pain and never get anywhere? And if tough decisions and actions are not made, the likelihood that the company will die and all will be lost only increases.

The Minneapolis Star-Tribune has already come out of bankruptcy but without such a radical transformation. It, like other news companies, is taking out bricks a few at a time rather than building a new kind of company. That’s the opportunity I fear other bankrupt newspapers – Tribune Company, the Philadelphia Inquirer, the Chicago Sun-Times – are squandering. The same can be said of other industries.

To take advantage of bankruptcy, a company has to have courage and bold visions of the future. Do newspaper companies? So far, we haven’t seen evidence of it. But it is possible.

** At Craig Newmark’s good suggestion, I am going to try to summarize posts – longer ones, at least – at the top. Old fart that I was, I at first thought of this as a UK-style subhed. But then I realize that the appropriate model is to put it in a tweet. So I’ll try that.

(Our work is funded by the Knight Foundation, the MacArthur Foundation, and the McCormick Foundation.)

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