Is A Newspaper An “Essential Service?”

Philip M. Stone February 20, 2007

News is important to our daily lives. But does it really matter where we get that news – radio, television, the Internet, or even a newspaper? A Wall Street Journal op-ed piece suggested that government-raised funds might be made available for serious journalism or should it be, as Slate slated that article, “If dailies can’t make it on their own, they deserve death.”

Newspapers are an essential service to many communities. The financial situation with many newspapers is not that business is so bad that they are going out of business and they need government handouts, but rather their owners, and their investors, have grown greedy over the years, used to doing little to earn 20% plus margins, and they are now fighting tooth and nail against all the evidence out there that those huge margin days are over.

They don’t need any government handout. What many publishers need, as they say in soccer, is to be shown the yellow and red foul cards.

The real problem with newspapers today is what publishers are doing in order to try and maintain those margins of yester-year. Yes, they are investing in digital platforms which is good to make their products multi-platform, but they are taking the shearing scissors to their print operations with editorial feeling the brunt since to many publishers the newsroom is little more than a cost center, certainly not a profit center. For the most part they have not bought into the philosophy that the better the editorial product the better they will do financially.

And the profession as a whole tends to glare evil eyes at Wall Street for it is the investors in newspaper shares who are continually demanding ever better performance and whatever news organizations are doing to try and meet that demand does not include bettering the editorial product. Rearranging it, maybe, sending the younger readers to the Internet while making the print product more enticing to the older generations, publishing some material just on the Internet, cutting page width, cutting news holes, but bettering it? No.

So with that all in mind it is particularly interesting to note a speech given last week in Cleveland by Lauren Rich Fine, Merrill Lynch’s top newspaper industry analyst who is very respected and recognized as the expert in her field. 

She told the City Club of Cleveland, as reported by the Plain Dealer,  “Interest in news is greater today than it’s ever been.” But for newspapers, “There’s no way to go back to where the industry has come from.” So, if the leading newspaper industry Wall Street analyst understands that the 20%+ margin glory days are over then why doesn’t the industry just plain accept that instead of killing their product in order to save it?

Margins fell to 19% on average in 2005, and 17% in 2006. There are plenty of businesses out there that would kill for that type of margin.

She correctly says the problem is not with the likes of the New York Times or the Washington Post that will survive by continuing their great tradition of original journalism, and the problem is not with those very local community-based newspapers because they have that original local coverage every community craves; no, the problem is with the larger metropolitan newspapers – The Los Angeles Times, The Chicago Tribune and the like that fall right in the middle – neither this or that – and editorially they are failing to make their mark with their readership.

And so many of those metropolitan newspapers are rushing into new editorial policies that at their heart say that they will break their news on the Internet and that print will be used for less time sensitive material. What they seem to fail to understand is that it’s not where or how they are going to break their news that is the problem, but rather what news is it that they are going to break? And there is enough evidence out there to suggest that it is the local community news people crave and the further you report from their front doors, the more removed you are from their lives.

That a pop singer shaves her hair or a former Playboy model dies suddenly is news, but to the homeowner what is more important is the decision of the zoning commission whether they have approved constructing a huge office tower on the vacant lot right in the middle of their housing sub-division. It’s all about news priorities and many metropolitan newspapers have simply lost their way. And decimating the newsrooms so there are not enough reporters to go cover what is really important to readers is just cutting your own nose off to spite yourself.

Less than a year ago, also in Cleveland, Fine spoke during a convention of the American Copy Editors Society, and some of what she said then should not be lost on the industry today.

Editorially, she said newspapers have gone astray by using the front page for stories that readers don’t really want there – they’ve seen or heard most of that breaking news elsewhere.  What readers expect from their newspapers is context, analysis and stories they just won’t find anywhere else.

She believes newspapers are making a big mistake by trying to become more youth friendly to recapture those readers.  “Here’s a news flash,” she said, “You don’t want to change your newspaper to be a youth rag because they will never read it.”

And so her recommendations for the industry:

• Accept that circulation is in decline. Raising circulation rates isn’t going to be the solution. It’s a minority revenue stream, anyway at 15%-20%.
• Put up the “work in progress” sign and don’t pay attention to Wall Street or anyone else. Figure out what’s wrong, take the time and money to fix it, even if it takes five years
• Keep the shareholders happy by returning some of that cash flow in the form of share repurchases or higher dividends, but don’t worry about the share price. Let it drop. It will buy you time to try things out.
• Try many things but if you see they don’t work then cut to the next new thing. Don’t burn up precious cash.

To all of that this writer would add one more – don’t make executive bonuses reliant on the company’s share price. Executives will do whatever they have to get that yearly bonus chasing that share price and that is not the right priority. The priority is to get the right fixes in place for the newspaper as a whole and the deciding factor of what is right or wrong should not be determined by the share price.  If the right things are done, performance will improve, the share price will go up. 

And the worst thing newspapers should be doing? Announcing round after round of layoffs, “It’s going to guarantee your own demise,” she said. The public sees when journalists are fired and the public understands that means quality goes down – it’s a perception very difficult to fight. Maybe the industry does need to work with fewer people, but figure out how to maintain the quality. Idle words that editorial won’t suffer when so many are fired is not pulling the wool over any reader’s eyes.

If that’s the way Wall Street’s media guru sees it, why, oh why, can’t newspaper publishers?

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