Monday, January 23, 2006

Can we save newspapers?

Last November a Washington Post piece by Frank Ahrens made the following point about the newspaper industry as it is currently structured: "To the list of challenges faced by newspapers--declining circulation, rising newsprint costs and increased competition from more up-to-the-minute media--add another: rising pressure from investors to make more money and reverse sliding stock prices."

Ahrens was talking about the latest woes afflicting the troubled Knight Ridder group, owner of the Philadelphia Inquirer, the San Jose Mercury News, and the Miami Herald.

Now Douglas McCollam follows up on this issue in a piece in the January/February edition of Columbia Journalism Review ("A Way Out?"). McCollam again recounts the sorry situation newspaper most newsapaper companies find themeselves in--of sustaining profit margins (around 20%) that would be fantastic in almost any other industry, but which are deemed sub-par by the shareholders who expect even higher profits from their media holdings. The impact of this on the newspapers themselves--and on our notion of a healthy Fourth Estate press functioning in a vibrant democracy--should be of great concern to all.

The November Washington Post article also outlined the scale of the problem. To review:
    Knight Ridder is vulnerable to a sell-off because its stock price has steadily declined, and the same holds true for other major media companies that own newspapers. Gannett Co.'s stock is down 21 percent over the past year, The Washington Post Co.'s is down 19 percent and the New York Times Co.'s is down 30 percent--opening the door to shareholder dissent.

(I had previously noted in a mediaville blog post the particular problems suffered by Tribune Media--owner of the Los Angeles Times and Chicago Tribune--which "recently secured a profit margin of 'only' 17.5 per cent -- high by almost any other industry's measures, but low for the obscenely profitable mainstream media").

CJR's McCollam points out that, by the end of 2005, Tribune's stock was down 29 percent. And the rest of McCollam's figures are even more depressing than those provided by Ahrens. This, then, is a serious problem. But McCollam gives us an insight into just how serious the problem is, pointing out that "In an effort to arrest the slide and appease shareholders, virtually every major newspaper in the country got busy slashing editorial positions and aggressively cutting costs." He goes on:
    In response [to shareholder pressure], many newspapers are desperately trying to convince the market that they, too, are sexy, hi-tech companies. To please the market, companies like Knight Ridder have done almost everything their large shareholders have asked — slashing staff, making stories more “reader friendly,” searching for Internet strategies that might magically transform newspapers from dead-wood deadbeats into new-media darlings. To date, none of it has worked.

So what's the answer? Are newspapers--and the huge reservoir of journalistic expertise and professionalism (yes, really!) they provide--headed for the chopping block in a vain attempt to be "sexy"? Can they be saved before they're destroyed in the race for ever-higher profits? Well, yes they can, argues McCollam: By being taken back into private ownership (i.e., by ceasing to be publically traded companies on the stock exchange).

Ahrens also brought this up in his November Washington Post piece when he pointed out that "Some within the industry think newspapers are better suited to private rather than public ownership," he notes. "Private companies attempt to minimize earnings, which are taxable, and maximize cash flow, which can be used to pay down debts. Public companies, however, are pressured to maximize earnings to appease shareholders." McCollam elaborates on this point in his piece:
    What newspapers really need, above all else, is ownership that values journalism and understands that the work of gathering, writing, and publishing the news is an inherently inefficient business that is in a period of profound transition. The private press baron of the past might have been a blowhard propagandist with the ethics of a wharf rat, but at least he loved the trade. Compared with the lineup of bloodless managers and mandarins currently squeezing the life out of journalism, Charles Foster Kane looks pretty damn good. So while there is no guarantee that the private ownership of today would recognize the value of journalism, it has already been established that Wall Street does not. Maybe it’s time we took our chances.

McCollam writes a well-considered piece that points out the potential pitfalls as well as the potential benefits of privates ownership. But he makes a convincing argument that the private route is better for newspapers--which are qualitatively different from entertainment companies--and ultimately better for a thriving democracy.

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