Wanamaker’s Revenge

November 27, 2009

My friend Alan Mutter has an annoying habit of actually analyzing data rather than waving his hands at it.  Recently, he did his trick on the latest numbers out of NAA, which remain dismal (16 straight quarters of decline).  The most breathtaking piece is the precipitous disappearance of classified advertising from newspapers:

Among the classified categories, automotive and real estate advertising, two long-time pillars of the newspaper advertising model, each was down by 43% in the third quarter, compounding drastic declines in recent years.

Auto sales, which nearly hit $1 billion in the third quarter two years ago, were $321 million in the same period in 2009. Realty advertising, which topped $1 billion per quarter as recently as two years ago, declined to $358.6 million in the third quarter. It will take a long time for either vertical to return to its former strength, assuming they ever will.

Recruitment advertising, which surpassed $2 billion per quarter at the peak of the Internet bubble in 2000, all but dried up in the third quarter of this year, falling nearly 64.7% to a mere $175 million. Employment advertising is not simply at its lowest point in history, it is all but gone.

For those few of us who obsess on this stuff, the fusillade of ugly stats has taken on the feel of waves of body bags returning from Southeast Asia in the 1970s.  It’s both sickening and desensitizing.   But stepping back, here’s a way of thinking about these numbers in a broad-rushstroke sort of way.

At its peak, the newspaper industry probably had $15-18 billion in operating profits (30% of $55-60 billion in revenue).  The NAA numbers show the likely permanent disappearance  (due to the advent of cheaper substitutes, not merely “the uber-culpable “broader economic conditions” which the NAA is so fond of scapegoating) of about $10 billion in what were essentially pure profit dollars–60% + of peak industry profitability, before one even considers the slides in display and circulation revenues.

It’s oversimplifying the case a little, but it’s close enough:  $10 billion in newspaper classified ads has been replaced by less than $100 million in Craigslist revenue.  Last time I checked, 97 of the top 100 online classified sites belonged to the Craigslist newtwork.

So start with a very capital-intensive industry which is capped at mid teens operating profits percentage, and then consider two macro trends:  (1) for every buck in display advertising that disappears in print, something less than a dime comes back online; and (2) sightings of faithful newspaper readers born after the inauguration of a certain Georgia peanut farmer are about as rare as credible video footage of Sasquatch hitting golf balls in the Big Thicket.

But, I digress.  The classified franchise was  exceedingly valuable to newspapers because classified readers were the portion of the newspaper audience closest to actually transacting.  And especially in an absence of alternatives, the effectiveness of a newspaper want ad was was ultra-measurable:  whether you were advertising a used Toro or the Deputy Assistant Vice Presidency of the Southwest Iowa Region, you knew precisely how many people had responded to your ad.  Unlike legendary retailer John Wanamaker near the turn of the twentieth century, you knew damn good and well whether your advertising dollar was well spent:  it was close to the transaction, and its return was imminently measurable.

Today, we call those lead generation businesses.  And newspapers are simply not well positioned to be in the lead gen business.  If you want to see what well positioned looks like, check out the S-1 on file for Quin Street,  run by my business school classmate Doug Valenti and a competitor to AV-owned All-Star Directories (as always, I must remind that I speak only for myself, and not for AV,ASD, The Texas Tribune, or anybody else).

If mucking around SEC filings isn’t your thing, I’ll let you in on a secret:  Doug is laser-focused on matching big communities of buyers with sophisticated and price-sensitive populations of sellers.  The future of journalism?  Meh.  Not so much.  Ditto the teams at Sawbuck Realty and Responselogix.  Even though both are the beneficiaries of investments from A.H. Belo–and even thought the latter is run by an ex-Knight Ridder exec–neither company could spell journalism if you spotted them the consonants.  It’s simply not their raison d’etre.   They are all about creating liquid markets of buyers and sellers, period.

For a while, I was walking around saying that Wanamaker was right:  half of his ad spend was wasted.  Now, I’ve begun saying that he was wrong:  he was wasting a lot more than that.  And most of it he was spending with newspapers.  So this is what I mean when I say that public service journalism is is a public good.  And as such, it’s too important to be left exclusively to market forces.  Nothing I’ve seen in the data suggests that investment capital will strike a love match with the newspaper industry when investment capital does what it does naturally, which is to seek the highest risk-adjusted returns.     If you believe, as I do, in the importance of public service journalism, you simply have to examine non-market alternatives for producing it.  Call it Wanamaker’s Revenge.


The Chicago News Cooperative

November 23, 2009

Richard Perez Pena writes in the NYT about the new news venture, begun by ex Tribune journalists.    The barely suppressed animus between the Tribune and the CNC staffers is understandable, especially given the long relationships involved, the intractable financial state of the the Tribune Company, and the bare-knuckled history of journalistic (or practically any other kind of) competition in Chicago.

At one level, it’s totally legit that these two teams view the world differently.  One thinks that serious journalism is more likely–over the long term–to find support from market forces than from any other model.    The other believes that market forces are insufficiently reliable to produce enough of the stuff.  But let’s face it:  the Tribune team comes off sounding awfully disingenuous when it claims–or at least implies–that its public service mission hasn’t been compromised by its resource challenges.  Such a position strains credulity in a way and to an extent that no journalist would accept from the subject of one of his or her stories.  It also belies bitch sessions which are taking place nightly (sometimes creeping forward into late afternoons) among long-time newsfolk at saloons nationwide.

If the two teams really wish each other well–and if they both believe, as the leaders of newsrooms often proclaim–that their first obligation is to the public, then they will publish or at least link to one another’s material liberally.  I predict they will find that the sun will continue to rise and the earth will go on spinning.   And who knows:  maybe their public will keep them both in business.

Jack Shafer: Concerned About My Bank Balance, and Knows My Inner Motivations. Where Have You Been All My Life?

October 1, 2009

The whole spiel really is all a little touching, and quite impressive–especially the psychoanalysis part.  What it isn’t is new.  Or maybe commercial media pundits have been relieved of the burden of editors who say things like, “wait, haven’t I seen that before?  And before.  And before?”  Like about a zillion times since David Swensen touched off this whole debate in January (which frankly seems like it was in the Pleistocene)?

Ok, from the top.  Shafer has two arguments.

The first is that anyone who funds this stuff must want something.  That is true.  I think most of us want quality journalism.  Just like I give money to Ballet Austin because I like to see artistic athleticism and pretty women.  The second is that news publications should attract readers.  Wait, let me get a pen.  Need to ….write….that one….down.

But seriously, where Shafer and I really come apart is here:

But the most successful, most heavily decorated, and longest-lived news outlets in the American journalism have been overtly commercial.

First of all, that’s precisely not true.  Both WaPo and NYT are only sort of overtly commercial, in the sense that in each case a family controls the vote, and so any informed buyer of either stock can see a big, fat, caveat emptor stenciled on the certificate.  And even if it were true, c’mon:  if the past were necessarily prologue, why would all these things be going belly-up? 

There is here an interesting debate about cause and effect.  Shafer seems to be arguing that only enterprises focused on the creation of shareholder wealth can produce good journalism.  My argument is that the forty years between Kennedy and Clinton were an accident of economic and demographic history, resulting in a temporary but highly profitable industry structure for the papers that dominated their markets.  Great journalism thrived in a relatively monopolistic industry structure, because there was plenty to go around for editors and shareholders (God and Mammon, again).   

Newsrooms of  this halcyon era, untroubled by (and sometimes in separate evelvator banks from) the boys from ad sales, actually operated far more like nonprofits than they do today.   But quality journalism remained the tail on the economic dog of monopoly (Philip Meyer’s labored attempts at proving the opposite notwithstanding).   A monopolistic industry structure persisted as long as the cost to replicate a production and distribution infrastructure remained high.   Enter near universal broadband access; marginal distribution costs trend toward zero, and suddently the news industry is super-fragmented, trending toward what economists call “perfect competition.”  Exit monopoly profits, and exit the luxury that was Watergate-era public interest journalism.

But, never mind all that.  I don’t think Jack Shafer is interested in much of a serious debate.  But since he is convinced that my pocket has been picked of my silly money, all the more reason to visit texastribune.org and become a founding member.  Better yet, do it in Jack’s name!

Insomniactive as Media Opthamologist

September 29, 2009

So.  Pretend you’re in commercial media.  Or, suspend your reality suspension and just say you’re simply a fan of Tony Romo or (coming rapidly to a Twin City near you)  Brett Favre.  Better here….or here?

I don’t feel sorry for newspaper publishers who think that putting their sports stuff behind paywalls is a good idea.  I do feel sorry for the poor souls who are actually wasting their time executing said directive.

All Hail NYMag

September 20, 2009

I know next to nothing about entertainment journalism.  I’m not a big consumer, and I don’t know much about the business.  But holy moley, New York’s  9/14 cover package on late-night tv must be the best representative of the genre I’ve ever read.  It’s anchored by a long Peter Kaplan article, but maybe the most fascinating part is the map that traces the evolution of the late-night genre over the past 50 years.  And mercy, just the writing:

These are sunny, long-shadowed days in New York City; September is the deceptively glorious season of loss. The city is reborn but perhaps not quite rejuvenated: Our slightly weary-looking mayor is running for a third term, looking not so much like a raffish billionaire as late-issue Mayor Wagner. Our trademarked paragons of wealth and celebrity—Trumps, Hiltons, Diddys—seem either recession-worn or just a little silly. The valiant New York Times, gallant as a Rudyard Kipling regiment, is fighting for its life, waiting for the bugle calls of reinforcements or mini-payments. Wars grind on, the recession spits few gold coins, the one-woman ambition generator named Hillary R. Clinton is exporting her Lucy Van Pelt–like certitude to other nations, her replacement senator a genial mockery of the system. The Yankees are winning, that’s true, with a brutally efficient iteration of the team, but the long summer and the economy have draped gray through the town and even our lovely new mascot president seems careworn and drained.

Two things related and more fascinating still:  I never would have stumbled across this in a web-only world.   And second, the best bits don’t reproduce at all well electronically.

All hail, NYMag.  Magazines absoutely have a place, but they need to be this good.

On The WP in VF

September 5, 2009

Interesting and sympathetic article about the Grahams and their position with the Washington Post in Vanity Fair.  I love this turn of phrase:

In a sense, the Grahams are managing, and financing, their own transformation into lesserness. They will not be—can’t be—the first family of news in the nation’s capital anymore. That privilege is gone.

They’ll be much less dominant and much less important—along with everybody else in the news business. (Even in an ideal world, where, in the description of former Post editor and MarketWatch founder Larry Kramer, a “billion-dollar news business making $200 million becomes a $200 million business making $75 million,” it’s a smaller, much less impressive pie.)

Come to think of it, sooner or later, don’t we all face the challenge of “managing ourselves to lesserness?”

Depressing Numbers from the Newsosaur

September 3, 2009

Alan Mutter  keeps coming the steady drumbeat of bad news for newspapers:

In round numbers, total newspaper advertising sales are likely to drop by $10 billion in 2009, which would put them roughly one-third lower than they were in the prior disastrous year…

The last time newspaper ad sales were as low as $27 billion was 1986. On an inflation-adjusted basis, the $27 billion in sales achieved back then would be worth $52.3 billion in 2008 dollars.

By that measure, it is fair to say that the industry today is only half the size it was two decades ago. And there are no signs the decline has been arrested.