The Washington Post & Jeff Bezos

Before predicting what Amazon.com founder Jeff Bezos will do or

should do with The Washington Post, let’s salute the Graham family.

Donald and his niece, Post Publisher Katharine Weymouth, as well

as the board of directors, took a hard look at the newspaper and realized

they had neither the management expertise nor the bench strength to

pull the paper out of its current quandaries, which are similar to the ones

affecting every newspaper in the United States – print advertising

revenues are down as is the paper’s overall print circulation.

So they did something few, if any, families could do with such long

ties to a business:  They fired themselves by selling the paper. 

I’m sure this was an emotional ordeal, especially for Donald Graham,

who’s worked at The Post for more than 40 years and been around it

since the day he was conceived. 

It’s not unlike selling the house you grew up in:  It’s not just a structure,

it’s where you learned how to walk and talk, played with your parents

and friends, celebrated birthdays and holidays and learned about life

from the people who cared for you the most.

Another reason to salute the Graham family is the manner in which

they sold the paper.  It was done quietly and respectfully.  The price

they received -- $250 million -- appears to be close to the paper’s annual

print revenues.

That’s far better than what a New York newspaper family recently did

with The Boston Globe, which sources say is doing more in annual

revenue than is reflected in the recent sale price of $70 million.

The only thing that could make this sale complete is Weymouth turning

in her resignation.  She needs to do the honorable thing and leave so

Bezos can appoint his own CEO.

Questions

While there’s much to celebrate in a rich man like Bezos owning the

Post – it’ll no longer be hostage to quarterly earnings reports

– Amazon.com shareholders should be asking him a number of

questions:  How does he plan to lead two companies, that are in

different industries, as well as on opposite sides of the country, 

simultaneously?  Can he be effective at both? 

Sure you can hold conference calls and trade emails with your

executives on the scene, but there’s nothing like being there.  So if

Bezos is under the impression that running the Post can be easily

done from his perch in Seattle, he’s in for a rude awakening.

He needs to gain the kind of understanding on the Post that he has

of Amazon by calling on the paper’s leading advertisers and meeting

the leaders of the community it serves, both in and out of the District.

Print’s Future

I’m sure there are many suggesting Bezos’ purchase signals the death

of print.  But I think there’s a very good chance he’ll learn the many

benefits of print, some that are unique compared to digital media.

Sure, he can borrow from the wire service/digital world and create

emails, if they’re not happening already, telling people what’s

happening in the world, and locally, for Post subscribers.

But he might also look at ways to redesign and reformat the print

product.  Instead of a front page that tells readers what happened

yesterday, perhaps he considers a magazine approach to the print

product, one that analyses and speculates on what happens next

and provides a broader and deeper understanding of events.

Whatever happens, let’s hope Bezos relishes his newfound

challenges and makes The Post an even better newspaper.

Arthur Sulzberger, Jr. & the rejection of Jack Welch

The question any New York Times shareholder should ask

today is, if in spurning Jack Welch’s generous offer of $500

million for The Boston Globe and the Worcester Telegram

& Gazette, did Arthur Sulzberger, Jr., fail to live up to his

fiduciary responsibility.

The answer appears to be yes because as 2006 turned into

2007, and the subsequent years followed, Sulzberger must

have realized he’d never see such a generous offer again.

Did he really think he was going to recover what the company

paid for The Globe -- $1.1 billion in 1993 – by refusing to sell

to the former CEO of General Electric?  Was that a credible

point of view in 2006?

To put Sulzberger’s rejection of Welch’s offer in perspective,

it’s important to realize that in 2006, Sacramento, Calif.-based

McClatchy purchased Knight-Ridder’s 32 newspapers, which

included The Philadelphia Inquirer, San Jose Mercury News,

The Miami Herald and The Charlotte Observer, for $6.5 billion.

That’s about $200 million for each newspaper, if you calculate

the valuation by dividing the purchase price by 32.  Admittedly, 

it's simple.

But compare it to Welch’s offer – about $250 million per

newspaper if you divide his offer by two – and you seriously

have to wonder what Sulzberger was thinking.

Instead of maximizing the value of a distressed business – the

clarion call of any chairman of a publicly owned company – by

picking up nearly half the purchase price for The Globe and the

Telegram & Gazette in Welch’s offer, Sulzberger, seven years

later, settles for less than 7 percent from the owner of the Boston

Red Sox, John Henry.

It almost makes you wonder if he’s a closeted Rex Sox fan

or just incompetent.

It doesn’t take a genius to look at revenue trends and determine

that your business is sooner headed down the toilet than it is

the top shelf of media properties.  Once you know this, you

either invest heavily to turn it around or you sell the business

as quickly as possible.

You certainly don’t hold onto it and do nothing, which is

what Sulzberger did.

If ever there should have been a Tiffany business – one with

the crème de la crème of readers, highly educated with high

household incomes and wealth – it is The Boston Globe.

Instead of being that business, it was eking out – based on

the offers The New York Times Company received – about $8

million in cash flow, which means Henry likely overpaid;

newspaper multiples – or valuations – were once seven times

cash flow, meaning the price should have been closer to $56 million,

not $70 million.

But maybe Henry figured he needed to offer a premium for

both papers – all of $14 million.

New York Times shareholders should demand Sulzberger’s

resignation before he inflicts even more damage to the firm.

To avoid ending with whimper, publishers must tout printed product

Nobel Prize winner T. S. Eliot likely hadn’t a clue as to the versatility of the last verse of “The Hollow Men.” Not only is it a possible description for the world’s end but it also illustrates the potential closing stages of the daily newspaper industry:

“This is the way the world ends,
not with a bang but a whimper.”

Consider: On any given day there’s a publisher ordering his paper’s management team to cut back further on the printed edition because, as the annual and quarterly reports say, print revenues are down, online revenues are up. While that strategy, if you can call it that, might improve profits in the short run, this pathological behavior only diminishes the paper’s revenues, competitive stand¬ing and its future.

This self-destructive practice won’t kill the newspaper business next year or even in 10 years. If it continues, based on current run rates of circulation and advertising losses, it could take decades before the daily newspaper industry col¬lapses, echoing Eliot’s last stanza.

The Newspaper Association of America reports trends that everyone in the daily newspaper industry knows: Over the last 23 years, newspapers’ daily circ has fallen by more than 11 million; the last time the daily newspaper industry experienced a circulation increase was in 1987, when it sold 300,000 more cop¬ies than it did in 1986.

Daily newspapers peaked in 1973, when there were 1,773 titles; more than 300 newspapers have since stopped pub¬lishing. Newsprint consumption is half of what it was in 2003, meaning newspa¬pers are sizably smaller today.

Same story

Advertising revenues tell the same story: Print advertising revenues peaked in 2005 at $47 billion; since then, reve¬nues have dropped by more than $5 bil¬lion and even when online advertising revenues are added in, the newspaper industry’s ad revenue is down by more than $4 billion from 2005.

Tribune, the latest company to an¬nounce cutbacks, will soon sell news¬papers that offer more maps, graphics, lists, ranking and statistics.

Tribune owner Sam Zell and Randy Michaels, the chief operating officer, announced that they are planning to produce newspapers with a 50-50 ratio between ads and editorial content and reduce the news content, across all of the company’s newspapers, by as much as 500 pages a week.

Finding efficiencies and creating a newspaper that readers and advertisers will buy makes perfect business sense.

But while it is too early to tell if Tri¬bune’s latest initiative will lead to growth in revenues and profits, it appears as if this move is more of the same — simply cutbacks — and it can’t help but make one wonder what Tribune’s stable of dai¬lies will look like if this venture fails.

The answer

Is there any way up?

Yes. A newspaper is both a consumer product and an advertising vehicle. The latter’s success hinges on the former. So if publishers want better results, they had better find a solution to the one part of their business that no other media wishes to duplicate — the daily printed newspaper.

This requires a print strategy. This is, presumably, what Messrs. Zell and Michaels have crafted. Because if Tribune and its fellow companies fail to formulate a plan to own the one thing that no other media outlet, including the “demonic” Craigslist, is interested in producing or duplicating — a daily printed newspaper — publishers face a grim future indeed.

The results of the daily newspaper industry’s two practices — publishing a newspaper that it struggles to sell, more often than not, in a monopoly market, and updating its Web site, which is freely accessible and appears to be easier to sell to advertisers than the printed edition — has made many publishers mis¬takenly believe that the online edition doesn’t require the sales support of the printed edition.

Carries the day

But the printed product still carries the day in terms of revenue and profits and it remains a highly effective promotion vehicle for the newspaper’s Web site.

About two years ago, Netcraft, an Internet monitoring company, announced that there are 100 million Web sites, a number that’s no doubt higher today. If you‘re a newspaper publisher, take note: If you’re struggling to sell ads in a monopoly market, how are you going to effectively compete against 99.9 million other Web sites?

Here is how Harvard Business School Prof. Michael E. Porter views the competitive landscape. In his book, “Competitive Advantage: Creating and Sus¬taining Superior Performance”, Porter wrote: “A firm that engages in each generic strategy (cost leadership, differ¬entiation, cost focus or differentiation focus) but fails to achieve any of them is stuck in the middle.

“It possesses no competitive advantage. This strategic position is usually a recipe for below-average performance.”

The daily newspaper industry can differentiate and stand out from all other media by creating a printed product that people want to read and advertisers find attractive.

Consumers are overwhelmed with media choices and their time is short, so publishers need to overcome resistance to their product. One solution? Give away the paper free to consumers and adopt a print format that readers find easily ac¬cessible: the tabloid. This might better be called the Examiner model as produced in Washington, D.C., Baltimore and San Francisco.

Ultimately, the daily newspaper industry is responsible for its own health. Either it demonstrates to advertisers and readers its strength as a printed product or it lives out T. S. Eliot’s last verse.

Correspondent's note: This article orginally appeared, by the same author as this blog, in the July 2008 edition of Newspapers & Technology magazine.