The AP Should Be Asking Its US Newspaper Owners Just What Kind Of Services They Want And How Much They’re Willing To Pay

Philip M. Stone October 21, 2008

The screws are being tightened on the Associated Press by its owners, US newspapers, that don’t like the news co-op lifting their stories and rewriting them for nearby competitors, nor the fees the AP now charges let alone the new fee structure to take effect next year. Hardly a week goes by without a newspaper reporting it has sent in its two-year cancellation notice, the most prominent being from Tribune last week for all its newspapers.

What is going on here is a fundamental re-think by US newspapers of what they need and want from the AP and the price they are willing to pay, given current economic conditions which, for newspapers at least, are forecast to get only worse over the next couple of years. The AP may well say publicly the cancellations are just a necessary ploy to start renegotiations but the reality seems to be far darker than that – American newspapers are really beginning to ask themselves if they can spend their money better than on AP services.

As a reminder to regular readers of this column, the writer has spent some 30 years in senior business positions with international news agencies – United Press International when it really was UPI in the 70s and early 80s, and then with Reuters, and given that experience there is sympathy for AP management who seem to be damned when they do and damned when they don’t, and yet at the same time there is that growing feeling that the AP may have lost its way, somewhat.

It basically boils down to priorities, and just what is the AP priority these days? Ask that question a few years back and the answer would be, “Whatever is good for US newspapers.” For the longest time money was lavished on the local state reports because even back then it was local, regional, state, national, and international in that order that newspapers wanted from the AP.  For the longest time the “owners” didn’t want Internet competition and that blocked the AP getting into that new revenue stream in the early days – something that Reuters in North America particularly took advantage of since it had very little US print newspaper business.

Just how important is that local, regional and state news? When E.W. Scripps actually offered money to Reuters to take UPI off its hands in the early 80s Reuters sent teams around the US meeting with UPI personnel to find out what that US business was all about. And what Reuters discovered even then was that in order of importance it was local, local, local – in other words the state wire had supreme importance and everything else paled in significance. And that was why Reuters didn’t buy UPI – as the lead Reuters negotiator told this writer a few years later, “UPI’s US business was almost totally based on parochial news coverage and that, on a cost basis, was something that Reuters was not prepared to get into; it was not part of the company’s culture.”

The fact that E.W. Scripps wanted out of UPI and paid a couple of Nashville businessmen to take it off its hands meant that after a few years UPI was in bankruptcy and even though it was revived a couple of couple of times AP basically had no real competition at the local news level as UPI cut back and back.   The likes of Reuters and AFP were around for those few newspapers that wanted another outlook on national and international affairs, but for local and state news AP was the only game in town, and without that UPI competition AP could charge what it wanted. The demise of the real UPI to this day still affects US newspapers, they decided back then they were unwilling to financially support two full fledged agencies and so the AP found itself in a like-monopoly position – there was no agency competition at the local level – and it wasn’t long before AP made up for all that pricing competitiveness it had to absorb while UPI was alive.

So it is with that background that a quote from Kathleen Carroll, AP executive editor, is all the more worrying when talking about state reporting. “We’re not trying to absolve ourselves from nuts-and-bolts news, but we cannot survive if we are spending our day doing the mark-up of some legislative measure that is of interest to one part of the state but not another.”

That quote really makes one think that perhaps AP editorial management  has lost touch with what owners want. Or put another way, the real priorities seem to have been forgotten.

Read all the stories about cancellations and there are two main issues:  cost and providing nearby competitors with newspaper-produced news copy. When it comes to cost the truth is that for most newspapers what they receive from the AP comes at a far lower cost than if that newspaper had to produce that information itself. But newspapers will say that no matter how favorable AP costs show in such a comparison the fact is the rates are no longer affordable.

But is the AP providing the news reporting newspapers want? If newspapers are shifting continually more and more to local, regional, state emphasis, using just a few briefs mostly for international and national, then the argument can well be made  that the bulk of the AP’s domestic owners really do want that story on state legislation which might be of interest in one part of the state, and who’s to say it is not of interest in the other part?

In the state of Indiana, for instance, where this writer was UPI’s number one national salesman for two years (shouldn’t gloat but this brings back fond memories) if something happened in Evansville, in the south, is it a given that is not of interest in La Porte in the north? Time and time again this writer and the UPI state editor would look at our client newspapers (part of the service subscription was that we were subscribers) and time and time again we were amazed how news from one end of the state would end up in the newspaper in the other side of the state. What we might have thought was one-point news actually got used everywhere.

And whenever this salesman went out to renew contracts, the number one concern from subscribers, “You’re not going to do anything to lessen  the state report, are you?”

When three newspapers in southern Florida start pooling their editorial content as they did a few weeks back, the AP should be concerned and find out what’s really behind it; when newspapers in Ohio start their own state news exchange, the AP should be concerned and find out what’s really going on there. There are warning signs that this is not just about cost, it is about content of the most importance to the US owners, and how AP picks up their stories and provides that information to others (isn’t that what a co-op should do – share?)

Part of the equation is the realization that revenues coming in from the US newspaper ownership, while important, is declining – now down to around 25% of AP’s total income. The rest comes from broadcasters, international, the Web and various projects. So perhaps the AP has already asked itself internally just how important is its parochial coverage, how much effort and expense should go into it, and Ms. Carroll’s quote is a sign that the AP believes coverage needs have changed away from local. Have they really?

A senior AP editor told this writer a couple of years back that about 90% of AP’s material now is original with very little pickup from its members. He saw the scepticism at such a statement and he repeated it, 90%. That certainly is a far cry from the way things used to be – surely more expensive to have original reporting than pickups?

The truth is in this new financial world that no matter how good a financial deal the AP may be, newspapers are no longer licenses to print money. The 20-30% annual profit margins are gone, indeed double digit is under threat, and as the recent figures from Newsday showed, there are big losses actually going on out there. So good deal or not, it may well be that newspapers are saying quite legitimately they can no longer afford the AP.

And since local news is what they really want, and with the Internet such a communications tool,  is there really a need for the AP on the local level if newspapers make deals with one another to have the right to lift local news and sports off one another’s Web site. Maybe it doesn’t even need the rewrite the AP might have given it!

As for national and international news, syndicates like the New York Times will make that information available at a very low cost – for that matter so would AFP and Reuters because they are not constrained with the costs of local parochial news gathering.  

So, there are different ways of getting in the local and non-local coverage that newspapers want, and probably at a much lower cost than the AP is charging. But newspapers won’t be able to take advantage of any of that unless they can actually get out of their AP contract, and they can’t do for two years after they write their letter of cancellation.

Cancellations are powerful -- the last thing the AP wants. In drawing up budgets for 2010 and beyond AP needs to know how much revenue is coming in, and if a sizable proportion of that revenue in the US is under cancellation then that is going to cause great havoc to planners. And yet, it is only with that cancellation that AP clients really get the attention of AP bosses.

No doubt the AP hopes this is all just about using some muscle to negotiate a lower rate, but these cancellations seem more pronounced. The runaway freight train has left the siding. The AP has less than two years to really start listening to what editorial copy its owners really want and how much they are willing to pay, and the AP needs to come up with a pricing formula that works for the owners and for the agency. What has been proposed for next year apparently doesn’t do it!

AP has some really hard decisions it needs to make.  Is it going to do what is in the best interests of its owners who now provide only 25% of total income and that will go down even more, or does the AP continue with a more national and international outlook for what it is and what it does, and those newspapers who say they can’t afford the current cost structure, well they just get left behind?

If it was just the small fry the AP wouldn’t have to worry too much, but when the likes of Tribune say they are looking at all cost options – it has two years to make various decisions but it is already known Tribune is going to use less material if for no other reason than their newspapers are thinner than ever – then losing the likes of the Chicago Tribune, Baltimore Sun, Los Angeles Times really does mean something.

Just because the AP added Sam Zell to its board of directors this year doesn’t mean the AP has him in their pocket, as the Tribune cancellation shows. Probably quite the opposite. Zell has managed to turn the newspaper industry upside down with all of the changes his new management team have instituted; maybe his next target should be the AP – he has the economic muscle to do it.