Wednesday, December 03, 2008

CNN & The Associated Press -- Celebrity Death Match?

The announcement that CNN would start selling its own branded news wire service reminded me of the time, about 11 years ago, when I suggested that Tribune Media Services, my employer at the time, start selling the network’s Web content.

It was clear then, as it is now, that CNN had stopped being just a broadcaster. It was also in the print business. And, through its Web site, it demonstrated that it was a viable competitor to The Associated Press, Reuters and other traditional wire services, at least on national and international stories.

As a former Unipresser, (ex-United Press International employee for those of you not familiar with the lingo and the AP’s largest competitor until about twenty years ago), I’m the first to say that the AP is a tough rival. It’ll do whatever is necessary, including price cutting, to keep its clients, called “members” by the AP, in line.

So if CNN’s Jim Walton, president of CNN Worldwide, which will lead this undertaking, is having thoughts that his company will replace the AP, which possesses a near monopoly position with U.S. daily newspapers, his thoughts are delusional. The AP’s value doesn’t come from the stories it files from Washington, top cities around the country or even from various international datelines. It comes from the state reports.

If CNN wants to outright replace the AP, they’ll likely have to do what they thought they’d never do – provide a credible state report in all 50 states. That takes a lot of bodies, a lot of bureaus and, last but not least, a lot of money.

AP state reports are concocted through a combination of the wire service’s own reporters (if they can bother to get off their collective duffs to cover a story) and whatever their “members” contribute to the local, statewide AP report.

That’s right. The newspapers buying the AP service are required, by their contract with the news service, to also provide stories and pictures, produced by their own staff. That’s why the AP calls their clients “members” – not “clients.”

There’s a world of difference in the terms. A “member” is someone who shares an organization’s burden while a “client” is someone who pays for a service and, rightfully so, expects a decent product and decent, if not outstanding, customer service in return. At the AP, both of those things are, like, so yesterday, which is one of the reasons there’s no such thing as a satisfied AP customer or member, if you prefer.

This is one of the reasons that The Times story on Monday focused on The Columbus Dispatch, one of the largest daily newspapers in Ohio. The Dispatch, along with a few other newspapers in the Buckeye State, is working hard to drop the AP. The Dispatch and a few other newspapers regularly share their stories with one another. There’s a chance that The Dispatch and its group of rogue newspapers (as the AP sees them) will be able to provide one another with enough statewide coverage that they’ll able to drop the AP all together; at The Dispatch, this means a tidy annual savings, somewhere in the $800,000 range, according to The Times.

The national and international report that the AP provides can be easily replaced – for a lot less money – by purchasing other supplemental news services, including the Gannett News Service, the McClatchy-Tribune News Service, the Los Angeles Times-Washington Post News Service, The New York Times News Service and, perhaps, even Reuters.

Newspaper editors are frustrated, if not intensely angry, at the AP. The problem is that the AP business model – extortionary pricing for no or damn little customer service in return and a state report that’s as good as what the “members” contribute because the AP can’t be bothered to do much original reporting – is finally obsolete. At least that’s the appearance of the situation right now.

What gives me pause here is that the Dispatch’s attempt to form its own news cooperative is eerily similar to how this problem came about. One hundred and sixty years ago, a group of 10 men representing New York City’s top six newspapers formed a news agency. They named it The Associated Press.

So what The Dispatch and some of its fellow Ohio newspapers are doing is nothing new. The question is can they do a better job of providing what the AP has done for more than a century.

The AP’s problems are larger than Monday’s New York Times story let on. In addition to the new competitive threat from CNN, their tribulations include Tribune Company, owner of the Chicago Tribune, the Los Angeles Times, The Hartford Courant, The Orlando Sentinel and the South Florida Sun-Sentinel, to name a few, which cancelled its AP contract. (It’ll take two years for Tribune to drop the AP service.) Other newspapers, sources tell me, have, in some cases, stopped paying their AP bill.

What’s playing out here involves two issues: 1. The economics of the newspaper industry, which are declining faster than anyone had ever anticipated, and 2) decisions made by both UPI and the newspaper industry about thirty years ago, which only exacerbated the AP’s already over-inflated sense of self worth.

The newspaper industry is primarily a print medium. And though revenues to its Web sites are increasing, they still don’t match what they bring in on the print side. In addition, the industry’s audience is fleeing the print product for the free one on the Web. This is because the industry has never figured out how to create value for the fantastic service, in some cases but not all, it provides through its printed editions.

The revenue decrease is forcing industry executives to make difficult calls. They include eliminating jobs, sections, areas where they previously sold copies, and outsourcing certain job functions; editors are dropping features and, as has been seen, seriously considering dropping their largest news content supplier, the AP.

UPI’s problems started back in the 1950s, when its forerunner, the United Press, merged with the Hearst-owned International News Service to form UPI. UP’s owner, the EW Scripps Company, named Scripps-Howard at the time, forced the new organization to give up the United Features Service, (later renamed United Media) which provides comics, columns and puzzles to newspapers. That meant that a large and very significant portion of the UP revenue stream was not transferred to the newly formed UPI. This meant that UPI’s future was based on a general news and picture service for newspapers and a broadcast wire and audio service for broadcasters.

UPI’s primary client base had been afternoon newspapers. As those papers stopped publishing in the 1960s and 1970s, the revenues at UPI declined. Some of the revenue loss was made up by selling the service to morning newspapers as well as to broadcasters, including CNN. Still the revenue slide couldn’t be stopped and the company lost money.

In addition, UPI’s owner couldn’t be bothered to invest in the service. A number of initiatives were brought to the attention of the UPI’s owner, but EW Scripps executives couldn’t be bothered to act on them, or, in some cases, even hear them out.

The last serious push to save UPI was done in the late 1970s, when the company attempted to sell a limited partnership to U.S. newspaper companies. Working against the plan was UPI’s owner, which insisted that it remain the largest shareholder and refused to give any of the limited partners much of say about UPI’s direction.

There was a Canadian newspaper publisher who was more than willing to sign up for the same deal that had been tabled to U.S. daily newspaper executives, but the forward-thinking EW Scripps executives rejected the overture because that would mean foreign ownership of a U.S. news service.

In addition, the level of UPI’s news gathering began to fall and, as a result, a number of editors felt they were better served signing up for the higher priced AP instead of paying for the cheaper service at UPI. A number of UPI sales executives, including yours truly, told newspaper editors they didn’t want to make the AP their only content provider.

Some editors continued with UPI, in spite of their reservations; some dropped UPI because they were tired of dealing with all of UPI’s problems (which were numerous), and others dropped UPI because they had delusions of grandeur, which included becoming part of the AP Board. The end result – AP was sitting in the driver’s seat.

CNN will face some of the same issues that UPI did. CNN is a profit center for a publicly held company, Time Warner, and its actions are dictated by one thing – the Almighty Profit Margin. CNN can afford to launch this service now because it’s flush with revenues; they always surge during national political campaigns – or any news event that gets people to tune in or head to their Web site. CNN, like UPI, will have to provide a strong value proposition for any editor to consider buying the service. CNN will run into all kinds of resistance from newspaper editors, including some who simply cannot imagine life without the AP at their paper.

In addition, the AP is a non-profit. Because it’s under no obligation to make money, the AP will slash and burn their rate card to prevent their membership base from eroding.

One of the questions that newspaper executives will need answered is what the CNN wire will look like during times of relative peace and quiet. While that day might seem hard to imagine right now, it will happen. Will CNN be able to provide the same level of service then that it can provide today, when revenues are healthy?

While a part of me very much likes the idea of CNN fighting the good fight against the AP, another part of me says this is much ado about nothing. The newspaper industry is filled with intransigence, which prevents it from taking the actions it needs to take to remain a healthy, viable industry. Newspaper executives will sing CNN’s praises publicly, but whether they’ll actually sign contracts for the network’s news wire is an entirely different matter.

So Mr. Walton, if I have any advice for you, it’s this: Keep your expectations modest.


Deadline Every Minute: The Story of the United Press, Joe Alex Morris. New York: Doubleday and Company, 1957.

The Associated Press: The Story of News, Oliver Gamling. New York: Farrar and Rinehart, 1940.

United Press International: Covering the 20th Century, Richard M. Harnett and Billy G. Ferguson. Golden, Colorado: Fulcrum Publishing, 2003.

"CNN Pitches Wire Service To Compete With The A.P.," The New York Times, Tim Arango and Richard Perez-Pena, December 1, 2008, pp. B3.

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