Henry Blodget on the New York Times

December 31, 2008

Remember Henry Blodget?  Back in the day, he was one of the chief internet stock pimps for Merrill Lynch.   In what might have been the biggest favor anyone ever did for him, the SEC took a dim view of some of his practices and granted him a non-optional, lifetime furlough from the stock research trade. 

Blodget is now a freelance writer.  The byline of his I read most recently was a terrifically long and shallow analysis (complete with entirely irrelevant biographical insertions) of the Wall Street meltdown in The Atlantic a couple of weeks ago.

Anyhow, Blodget most recently showed up on Silicon Alley Insider, offering sage advice to the NYTimes Co. management that they should cut 40% of their newsroom costs.  No friends, that’s not a misprint.

The problem is, Blodget is likely right–in approximately the way General Gradenko was “right” when he cut off his own arm in the sixth season of 24′”.   (Ironically, the General drowned rather than bleeding to death; the latter presumbably would have taken too long).   The Times has probably already squeezed all it can from its  production and distribution costs, at least all they can without emulating the Detroit Free Press by placing  their print paper in what is effectively orderly liquidation.  No, the  Times newsroom–which has suffered cuts already–is almost certainly due for another round, with or without the advice of Mr. Blodget.

But back to Blodget nonetheless.  If you didn’t like my tv metaphor, how ’bout one from dance?    Blodget is much like a pro bono management consultant who walks into NY City Ballet and says, “you make a lot of money on Swan Lake and The Nutcracker–you should only run those.  I never could follow those Balanchine things anyway–where’s the plot, for chrissake?  There, that was easy; what time is lunch?”   (Stuff like this actually happens in real life; ask any executive director whose board chairman has asked McKinsey to come over and help, “as a favor.”)

An open plea to the Sulzbergers:  although the NYT is an indispensable public institution, it’s a shitty business that will get nothing but shittier.  The fact that it used to be a great business with plenty of shekels left to go around for doing the public good–that, not the destruction of your advertising and subscriber bases by the interent–was a historical anomoly.  As I’ve been whining for some time or, in this space at least,  since this morning,  the NYTimes needs to be a non-profit 501c3, run exclusively for the public good.   And it’s not as far-fetched as it sounds.


Say of the Day: Pimco’s Bill Gross

December 31, 2008

“The only willing risk taker is the government,” said William H. Gross, the chief investment officer of the Pacific Investment Management Company, or Pimco, the giant bond trading firm. Speaking of the epicenter of the financial world, he added: “It is no longer New York, it’s Washington.”

Full NYT article here.

If I Were the God of Newspapers

December 31, 2008

Writing for the Century Foundation, Peter Osnos uses the publication of  The New York Times:  The Complete Front Pages 1951-2008 to do that which has become terribly passe among media critics:  he reminds us both of the importance of the NYT as a cultural institution, and of the fact that most of what it does it does very well:

But the New York Times accomplishes so much, in so many ways, every day, that on scale alone, its role as a chronicler is indispensable. What matters most though is its core values as a gatherer and interpreter of news. In the midst of a crisis in which its very survival is at stake, the Times’ commitment to quality and depth has not wavered. All that is being done to fortify the Times brand—Sulzberger has been talking for almost twenty years about the need to be “platform agnostic” —is about covering the news in all of its dimensions.

Osnos then goes on to suggest–as have many financial analysts–that the NYT Company would be better off divesting itself of the Boston Globe:

What is also true is that the Times’ commitment to protect its primary role does not extend to the Boston Globe (and presumably its smaller newspapers), where cutbacks have been deep and damaging. If ever there were a candidate for a benevolent takeover by community leaders or financiers, the Boston Globe would be it.

While I applaud Osnos’s applause of the Times–what a pity that this is actually an act of editorial bravery–I think his logic as it relates to the ownership structure of newspapers is as wet as was my copy of the Austin American Statesman this morning.

First, the notion of a  “benevolent takeover by community leaders” or financiers both is fantastical and fraught with unintended consequences.  First and most obviously, The Globe has value which NYT shareholders would need to extract before the paper  was “taken over” by anyone.   It is certainly possible that someone with a lot of money, ego, and civic spirit–Jack Welch is often mentioned–could come along and pay $500 million or so for a declining business. 

Okay, let’s go down that road.  First of all, Welch is not nearly wealthy enough to do the whole deal himself, so let’s assume that he rounds up a team of Brahmins–John Henry, Leo Hindrey, etc.–to throw in with him.  Then there’s a bank–you don’t think these guys, however benevolent–would actually do this entirely with their own money, do you?  Even though every leveraged newspaper deal in the last 3 years is deeply underwater, let’s assume that a bank steps up to provide, say $100 million of the purchase price.

Something tells me that at the first board meeting of the now independent Globe, benevolence would not likely the most abundant commodity in the room.    The unions are yelling at the new owners.  The economy remains in the toilet, decimating the rate cards for both print and–yikes!  on-line–with CPMs going into a tailspin as new competition for local advertising and the volume of remnant advertising inventory both go the other directoin.  Says someone:  “wait, how benevolent did we say we were going to be?” (It might be wise to have the phone number for the Minneapolis Star Tribune handy in that regard).  Says the bank representative:  “well, I’ll tell you exactly how benevolent you’re not going to be; we already agreed on it. ”  Somebody should also have handy the phone number for the lawyer who served the Bancroft family, just in case.

You get the picture.

I suppose it’s more likely–because of the smaller check sizes–that truly community spirited individuals could buy some of the Times’s smaller properties, and run them with the attitude of a vanity restaurant owner–“if we make money it’s an accident.”

But here’s what I find so upside-down about all of this.  First of all, small, local papers are probably the best situated to be run like real businesses.  They have the most defensible franchises , the fewest union problems, the lowest overhead, and there’s not much confusion about what their customers want and need from them:  coverage of local government, education, sports, weather, and entertainment.  There’s actually not that much distance between “civic mission” and “for-profit strategy.”  Playing Newspaper God, let’s leave them to be run like real businesses by the Times Company.

Back to the Globe.  Papers in markets the size of Boston are in the most difficult spot.  They are confused about what their readers really want, have serious union problems and very high fixed cost structures.  As Osnos points out, papers like the Globe don’t serve anything like the “paper of record” function  that the Times does.  Ultimately The Globe probably has more in common with its small town neighbors than it does with the Times.  Globe management should go to the Times Co. board and say, “look, we need to be almost completely on-line with a narrowed range of coverage within a year and a half.  That will probalby cream the stock price, but it’s the only sensible strategic move.”  So as newspaper God, I say,  “let the Globe take the tough medicine but let the Times shareholders pay for it.”  This is as it should be.  And besides, I am Newspaper God.

Which leaves us with the Gray Lady herself.   The logical inconsistency I find in Osnos’s assessment is that because the Times so important to the country, it should be the remaining asset in the New York Times Co.  My inner Newspaper God suggests just the opposite:  Let the Times Co. continue to run the slimmed down Globe and the local dailies with their eye 100% on the bottom line, as should be in the case when you’ve taken on these pesky critters called “shareholders.”

Don’t sell the Globe; sell the Times.  Sell it for something like $1b to a group of shareholders to run it literally as a public trust.  That is, as a non-profit, 501c3, the sole objective of which is to provide a maximum of high-quality, innovative journalism in the public interest.  It takes donations just like public radio; it continues to accept advertising or corporate sponsorships.  And importantly, the buyers agree to raise an endowment the size of a mid-sized, “Little Ivy” university.  An endowment the size of Smith College’s–$3b–would endow in perpetuity the vast majority of the Times’s newsroom expenses.

Phone numbers to have handy:  Gates, Buffet, Omidyar…

You get the picture.

Austin City Council Plans to Plan; Statesman Stenographizes

December 30, 2008

The oldest joke in the sales business goes something as follows:

Customer:  Ok, you’ve convinced me.  I want to buy your opto-broadband peanut butter emulsifier.  How much is it?

Salesman:  What’s your budget for the project for your  digital lunchbox project?

Customer:  Eleventeen thousand shekels.

Salesman:  Well, well!  Do I have a remarkable coincidence to report…

As silly as that seems exchange seems, something remarkably similar seems about to go down between the Austin City Council and the sixteen consulting firms who think the $1.5 million the Council proposes to spend on  focus groups, surveys, and general facilitation would be pretty good work if they could get it.

The Statesman dutifully explains the Council’s logic:

The Austin Tomorrow plan was adopted in 1979. Numerous smaller-scale efforts dealing with issues such as neighborhood preservation, transportation and water quality have taken place in the intervening decades.

The new comprehensive plan won’t replace those detailed documents.

Instead, the goal is to document a community-wide consensus on how Austin should deal with its expansion.

“It’s an opportunity to have us all take a breath and say, ‘What is our overall vision of growth in the city?’ said Jim Walker, chairman of the regional planning group Envision Central Texas.

“It’s important because it will allow us as a community to define what our goals and visions are for the coming decades and then really plot out how we go about achieving that from a lot of different perspectives, such as land use, transportation, parks and public safety,” said Council Member Laura Morrison, who made the need for a new plan a campaign issue.

Austin’s leaders and citizens deliberated for nearly a decade before the city adopted the 176-page Austin Tomorrow Plan, but current city officials want to complete the upcoming process in just two years.

“We looked at comprehensive plans in other big cities, and it’s almost universal that the plans that took a long time were less successful,” said Garner Stoll, assistant director of neighborhood planning and zoning. “The plans that try to do too much got bogged down. It’s really to engage the whole community in establishing the broad policy directions.”

The planning process will include public participation through workshops, focus groups and online opinion surveys.

Am I missing something, or is this just irredeemably strange, from the standpoints of both process and content?

First, process.  It seems odd to broadcast the City’s budget for the project before anyone bids.  Maybe this always happens–I’m certainly not immersed in the protocol of such things.  But in the private sector, an RFP would outline what we’re interested in doing, not how much we’re willing to spend.  Then, we’d choose a vendor based on a combination of price and other criteria.  What seems to be happening here is the reverse:  “we’ve budgeted $1.5 million; what can you do for us?” 

Next, content.  Take a $1.5m budget and carve it up into people-hours, at a very generous rate of $200 per average consultant, fully burdened (that’s $400k per year, more than we pay almost any of the CEOs in our portfolio).   That works out to 7,500 person/days.  Ummm…doesn’t that seem like a lot?  And as for pricing, I needn’t point out that this  is likely the slowest professional services environment since the Depression, and we’re shopping for what appear to be relatively commodity services.    The fact that 16 bidders showed up might give some clue that that the City has room to negotiate; it’s hard to believe that a lot of municipalities are clamoring for long-term consulting services in this economic climate.

We have some really smart people on the City Council.  Is this all as bass-ackwards as it seems?   And if I’m even anywhere near the mark, why doesn’t the Statesman ask these questions?  Even if they’re only published on-line, where there are no space constraints?  And if the paper is not going to ask such questions, why write a story at all?  That’s what I mean by stenographic journalism.


Sam Zell, the F-Word, and Microeconomics 101

December 30, 2008

At Fitz & Jenn, here’s some bracingly profane footage of Sam Zell bemoaning the fact that in Tribune, he bought what he thought was a business.  Apparently, nobody dared to tell him that a lot of his new employees held dear the romantic notion that they were performing a public service.  You can understand the confusion.   Add a heaping helping of leverage, a wickedly bitter ecnomic environment,  and stir—yuck.  What a mess.

The most basic of microeconomics seems to be at play here.  The newspaper industry developed its principles and business practices amidst an industry structure which was monopolistic for about a century, then oligopolistic for about a half century.  With the maturation of the commercial internet, wewspapers now face a market which more resembles “perfect competition,” where all competitors are “price takers,” and none has very much market power. 

Journalists, being trained skeptics, (and publishers, many of whom are self-trained apologists) immediately begin to tear the above statement apart.  Newspapers were never a “perfect” monopoly, they cry,  nor are the products of newspapers today completely without differentiation.   But there is a fine line between dutiful skepticism and self-defeating literalism.    Even if they don’t know they are doing it, both editorial and business types are invoking Philip Meyer, who argued four years ago in The Vanishing American Newspaper that there is an inherent correlation between journalistic quality and newspaper profts.  To read Meyer’s book in 2004 had to be painful enough; he clearly had a conclusion in mind that he positively tortures the data to support.  Given the reality that has descended four years later,  it’s clear that he missed the big picture–the structural change of the industry–almost entirely.

Back to Microeconomics 101.  The nearer the newspaper industry was to a pure monopoly market structure, the more it tended to produce the positive externality which was high-quality, public-service journalism.   There is far too much dog/tail confusion in the unusually economically juvenile discussion of the future of civic journalism.  It shouldn’t be that confusing.  Undercompetitive markets begat high quantities of civic journalism, whether because of the proprietors’ sense of duty or because of their desire to pre-emptively protect their franchise from those who might question their public spiritedness.    Barriers to entry such as printing presses and and distribution networks–not rock star journalism– made newspapers obscenely profitable for decades.  Public service journalism was the tail, not the dog.   And unfortunately, this particular pooch is now too old, tired, and sick to do much wagging.

The Vegas Numbers

December 30, 2008

Time  article  serves up absolutely gruesome stats for Vegas:  construction in October down 92% year-over-year; unemployment up from 0.4% to 8.0% (I’ve never seen a jump that big).  In a society caught between needing to save for the long term and needing to pull the ox out of the ditch more immediately, there’s at least a silver lining for long-term thinkers.  Although visitor traffic is down only 3%, revenue is down a staggering 24.3%, which would seem to mean that people actually do have significant self control–even in Sin City.

Peter Orszag and Health Care Reform

December 30, 2008

Back in early August, I copped to a mild man-crush on Peter Orszag, the director of the Congressional Budget Office, for his directness in Congressional testimony:

Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy.   The bulk of the projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging population.

To my delight, Orszag will stay on the scene as Obama’s director of Office of Management and Budget.

If, like me, your vision of the OMB head is still the uber-partisan David Stockman being run over by a bicycle messenger; and if, like me, you couldn’t explain the difference between OMB and the Congressional Budget Office if a table at Rao’s hung in the balance, to our rescue now comes Ezra Klein writing in The American Prospect:

The OMB assesses the cost of all those items, giving each its Number, and makes recommendations to the president on which to choose. In that, it differs sharply from the CBO. The CBO’s influence on policy is indirect, as members of Congress work to understand its guessing formula and construct their bills accordingly. But the CBO never makes recommendations among competing options. A chairman cannot ask the director to identify the best path forward. Conversely, the OMB, and its director, offer explicit advice to the president. If the CBO is like using the software Quicken to better understand and manage your finances, the OMB is like a financial adviser who simply tells you what to do with your money. “Some OMB budget directors might meet every morning with the president,” says Reid Cramer, a former OMB analyst. “It’s a very inner-circle position.”

Which brings us back to the now very-inner circle Peter Orszag.  What was fascinating about Orszag’s testimony last summer was not only the directness with which he tied the ability to shrink deficits almost exclusively to success on  health care reform.  Also, he could not have been more clear that without breaking the uniquely American addiction to adopting new medical technologies without regard to their efficacy, there would be no meaningful health care reform.  Citing data from multiple studies between 1940 and 1990, Orszag estimated that the introduction of new technology accounted for 38-65%  percent of the rise in health care costs for that 50-year period (See Table 4).  This, in the office which supposedly playsa purely staff, “honest broker” role for Congress.

Klein asserts–with a lot to back him up–that Orszag will be Obama’s “secret weapon” in assuring the passage of real health care reform.  To do so, Orszag will need to ally himself with newly appointed Health  Care Czar Tom Daschle, who favors a Federal Reserve Board type structure for health care administration.  And from what I’ve read, their perspectives seem conjunctive and their egos compatible.  The tricky thing about a Orszag/Daschle axis, is that their worldview will require more short term spending–and probably a lot more–to erect the infrastructure necessary to collect outcomes data.   That won’t excite members of either Congressional delegation who will be looking for a quick fix and howling about the loss of Congressional power Daschle is likely to propose.  Any real proof of the efficacy of this approach won’t be available until well into Obama’s second term, at earliest.   Let’s hope that this Administration–with Orszag and Daschle at the forefront–has both the will and political capital to turn this ballsy and necessary approach into policy.