Want to save local newspapers? Then break the chains that hold them back

The economies of scale that once helped place the journalism business among the economy’s most profitable now threaten to help sink the industry. America’s newspaper chains missed their moment of opportunity to use their scale to dominate the information business online. Now, it’s time for those chains to break up, in a last-ditch effort to save many of their newspaper titles.

The principle of “economies of scale” says that, in certain cases, businesses can work more efficiently by getting bigger. For newspapers, big chains can spread of the cost of creating and obtaining out-of-market content across dozens of papers. It can run single, shared bureaus in state, national and international capitals. It can employ a single national sales force to sell ads across the entire chain. It can centralize IT, HR, and purchasing operations. It can standardize design and obtain better deals on syndicated content than individual papers could do on their own.

The chain also needs to employ additional layers of management, at the national and sometimes regional level, to oversee that centralized work. But the cost savings of eliminating all that duplicative work at the local level more than covers the cost of that additional management – and provides bigger profits for the chain’s investors.

At least, they used to.

When the Internet destroyed local newspapers’ control of the flow of out-of-market news information in their communities, it eliminated many of the economies of scale that justified local newspapers being bought up into large, national chains. What good is a deal on wire service content when your readers can get that same information for free elsewhere on the Web? (And you can just link to it from your website.) When journalists can use consumer-grade technology to produce their publications, what’s the advantage of maintaing a large, slow-moving, change-resistant, central IT department? What’s the sense in paying for a large national sales force when the unique, defining characteristic of your audiences is that they are local?

It didn’t have to be this way. Newspapers had a moment when they could have created (and thus, controlled) the social media and publishing tools that the public eventually used to destroy local newspapers’ information-access monopolies. What if Gannett had used its 1990s-era profit to create or buy something like Blogger, instead of leaving that to Google? Or Scripps had built YouTube? What if the late Knight-Ridder had used its Silicon Valley contacts to build something like Facebook?

What if the newspaper industry had used its smarts to build a better search engine before Google did?

If the newspaper industry had recognized in the 1990s that it was in the information access business – instead of the news reporting and ad sales business – it could have invested in new tools that would have allowed it to maintain its dominant market position in information access, instead of settling for the cheapest possible ways to shovel print stories onto static websites while not dipping into the industry’s double-digit profit margins.

Blame for this failure must fall on the leaders of the newspaper chains in the 1990s, because plenty of individuals within their companies were screaming at them then to make these types of moves. (Here’s a shout out to my over-40 readers who are glumly nodding their heads in solidarity right now.) Instead, when the threat of the Internet became obvious, news managers chose to throw money at creating classified vertical products that Craigslist already had rendered irrelevant – again demonstrating industry leaders’ belief that they were in the ad sales business instead of the far more lucrative information-access business.

Now, those opportunities are past. Google, Blogger, YouTube and Facebook exist – and the newspaper industry doesn’t own them, nor does it demonstrate the technical and social aptitude to displace them. So now news companies are left in the smaller, less lucrative information production business – the business that they mistakenly thought they were in all along. And in that business, local newspapers simply can’t afford to support their corporate parents any longer.

What’s the business case – today – for aggregating local news publications into national chains? The investors who keep shooting down pitches from content-driven Web start-ups are right: Local content doesn’t scale. It doesn’t scale for start-ups and it doesn’t for legacy chains, either.

Content production tools scale. Social media tools scale. Topical communities can scale (depending on the topic). Local news does not scale.

So the expense of paying for regional and national management is an expense that legacy newspapers carry that their local-owned and operated independent start-ups do not. That places those chain-owned newspaper companies are a permanent cost disadvantage to their start-ups – even if those newspapers could reinvent their operations to match the start-ups cost efficiencies in every other area. (And good luck with that, with all those national managers and corporate departments wanting to be “kept in the loop” on every decision.)

If local newspapers are going to have a chance to succeed in today’s information market, they’ve got to shed excess cost. And corporate overhead must be included on the list of those costs. Locally-focused news publications must become truly local, with local information, produced by local reporters with local ties, sold to local advertisers by a local sales staff who work for a local owner.

Break up the chains. It’s the news industry’s best hope. And I’m not writing this purely as an exercise in idealism. If newspaper chain investors are to retain any of their investment over the long-term, national managers ought to be devoting all of their time to recruiting and selling potential local buyers of each of their remaining publications. The value of local newspapers, saddled with corporate overhead costs, is only going to decline over the long term, given the continuing development of efficient online competition. The time to get out, for corporate stockholders, is now. So the best way to maximize the short-term value of those chain shares is to find and develop local buyers for individual publications who are willing to pay the highest obtainable price for them.

As any smart salesperson knows, you don’t get the highest price in a fire sale. You get it by developing relationships with potential buyers, qualifying those candidates and making a case for the high value (or at least potential value) of what you’re selling. If news chain managers really want to serve their investors, they’ll spend their remaining time pursing those buyers, before their chains lose whatever value they have left.

Lies, liars, lying – just three of the delightfully negative words journalists shouldn't be afraid to use

If by any chance you’re feeling good about the state of journalism today, allow Mr.-Gloom-and-Doom Me to wipe that away with a single link.

Take a look at Barry Ritholtz’ Yeah! The Housing Bottom Is Here! It catalogues six years of compliant reporters dutifully shoveling up quotes from real estate industry sources proclaiming a bottom to the housing market, implicitly urging readers to get out there and buy some real estate right now.

Each article follows the rules of good journalism. They include stories from many of the nation’s leading news organizations. Many articles offers multiple sources, in well-edited narrative. There’s no indication in any of the stories that their reporters misquoted anyone, or misrepresented what their sources were trying to say.

Yet, every article on that page is spectacularly, dangerously, and offensively wrong.

And that illustrates the gravest problem facing journalism today. It’s not competition from the Internet, or even the loss of local advertising monopolies. If journalism as an industry were producing consistently accurate, forward-looking, and unique reports that helped people live better lives, without ending up underwater on a crappy mortgage, competition from inferior news sources – even cheaper or free sources – wouldn’t threaten the industry’s survival.

The gravest problem facing journalism today is its continued adherence to a stenographic model of reporting, one that accepts accurate recitation of quotes and data as truthful reporting, overlooking the very inconvenient fact that people very often lie to reporters.

J-school cliche says “if your mother says she loves you, check it out.” But far too often in news reporting, “checking it out” means simply calling up another source, and presenting their confirmation or denial of mommy’s alleged love in the next grafs of the story.

Ideally, a reporter would check claims by sources not just with other sources but his or her own investigation of relevant, accurate data and other eyewitnesses. Of course, to do that, a reporter needs time (often in short supply in understaffed newsrooms) and expertise. A reporter needs training and experience in the beat he or she is covering so that he or she can select and perform the appropriate analysis for the issue at hand. Not only that, the reporter must be able and willing to perform an accurate analysis that checks regular sources’ accuracy over time, to determine whether a source is trustworthy.

To that end, in 2012, it should be obvious to anyone working in financial journalism that the National Association of Realtors is the “Baghdad Bob” of the business beat. (Heck, that should have been obvious years ago.) If you’re quoting an NAR spokesperson, or NAR-affiliated analyst, in a real estate story, you might as well just label your piece “advertising” and ask the NAR to cut you a check for it. Because it’s likely of no service to your readers, given how often NAR sources have been wrong over the past six years.

Unfortunately, too few reporters do any sophisticated, data-driven source analysis – as evidenced in part by the long list of stories linked above. I suspect that, while lack of time and expertise contribute to that failure, fear of being labeled as biased or partisan drives much of our industry’s reticence in challenging certain financially or politically powerful sources.

As I’ve written before, partisanship and ideology only creates a problem for reporters if it influences their reporting, driving them to ignore or suppress information that contradicts their political beliefs. If accurate reporting leads a journalist to a partisan conclusion, the only problem for journalism is to ignore that conclusion or soften that reporting because you don’t want to look partisan.

Yet we live in an era when just about every issue’s been politicized – from housing prices to birth control to student test scores. Even the weather. Heck, it’s hard to find a beat outside sports and movie reviews where reporters aren’t afraid to take a stand.

We’ve got to change. If traditional news organizations are to survive in the Internet era, they’ve got to make changes that keep them from consistently barfing out stories that mislead their audience and fail to stand the test of time. The ultimate test for journalism doesn’t lie in how a story was reported or presented. It lies in whether the information the story presents is true.

Let’s stop being naive. Accusations of partisanship and bias are being used by people on the wrong side of the facts to bully us into not pointing that out. Let’s quit accommodating them by dumbing down journalism to stenography.

We need to do better. If we’re to win over more readers (which makes our publications more attractive to advertisers) or even to convince some of those readers to pay us for our reporting, we have to be find a away to be right more often. And that means calling out the liars and fools among our sources.

Paying for information versus *access* to information: A key distinction for news publishers

You can’t find the right answer if you’re asking the wrong question. If you (or your bosses) aren’t finding a solution for making money from news online, maybe you need to ask yourself some fresh questions about the real nature of your business.

Start by reading a post Dave Winer put up last month called Paywalls are backward-looking. In the piece, Winer focuses on the heart of the news business model over the past century, and shows why traditional thinking about the news business won’t help it survive in the Internet era.

“Before the Internet, news orgs had a natural paywall, the distribution system. If you wanted to read the paper you had to buy the paper. And the ink, and the gasoline it took to get it to where you are. In fact, everything that determined the structure of the news activity, that made it a business, was organized around the distribution system.

“But that’s been over now for quite some time. And paywalls express a desperate wish to go back to a time when there was a reason to pay. Now news, if it wants to continue, must find a new reason.”

Let me back up a moment before advancing Winer’s point. Many beginning news publishers cripple their business by failing to recognize who their customers are. A customer is whoever writes you a check (or gives you a credit card number). Too many publishers naively believe that their customers are their readers, when the customers actually are the advertisers or foundations that are paying the bills to keep the publication running.

In a similar way, many news publishers – rookie and veteran – mistake the benefits that they provide these customers in exchange for that financial support. This is the brilliance of Winer’s post. It illustrates the real value, the real benefit, that news publishers once provided to the market: the ability for information to flow more easily. Customers paid for access to that information distribution system – readers paid for home delivery or newsstand access to the information included in the day’s paper, and advertisers paid for access to those readers.

The Internet, of course, allows information to flow even more efficiently than even newspapers ever could. Which is why the Internet – once widely adopted – meant the inevitable doom for the newspaper business model. Newspapers, with printing presses to pay off and circulations departments to pay, never could hope to deliver information as inexpensively as could publishers on the Internet.

Have you ever heard newspaper publishers lament their failure to install paywalls in the early days of the World Wide Web? “If only we’d started charging upfront,” they say, “our information wouldn’t have been devalued and we wouldn’t be in this financial mess.”

It’s like listening to a four-year-old talk about the Easter Bunny. It’s so naive I actually find it kind of cute, in a completely nihilistic way.

It’s naive because comments such as that betray a belief that what newspapers grew rich selling in the 20th Century was information itself instead of the access to information, as Winer describes. The information that the newspapers were providing (and continue to provide) access to is almost never unique to the news organization reporting it. It’s commodity information – available to anyone on the scene or with access to the source reporting it.

The market opportunity for news publishers was the fact that the average reader isn’t on the scene or doesn’t have access to those sources. So getting access to that information becomes valuable to that reader. That is what the reader was paying for when he or she bought a newspaper – the access to that information.

By making access to the world of information ubiquitous with direct connection to sources, eyewitness accounts, and publishers with cheaper overhead, the Internet has forced news publishers into the marketplace that so many publishers naively believed that they were in before. Now, news publishers really are selling just information, instead of the access to it. And they’re running into trouble because the market’s telling them just how worthless much of that commodity information is to them.

But there is a way out for newspapers – and that’s to embrace the change the Internet has forced and move into the segment of the information business that books – and to a lesser extent, magazines – long have occupied. Newspapers should reinvest in producing and selling information that is unique to their publication, and not readily available to anyone who was on the scene where news occurred.

So what unique information can a news publication provide? Investigations. Perspective. Analysis. And don’t overlook the uniqueness of a specific community of engaged readers, contributing to the publication’s information with their own unique perspectives, reports, and analysis. When well-cultivated by engaged leadership, that community itself can become a publication’s greatest unique asset.

But to produce that information at a low enough cost to compete with the uncounted number of competitors and potential competitors online, a news publication has to eliminate everything else it pays for that doesn’t advance the cause of creating unique information assets. That means ditching everything in the organization that obtains or reproduces commodity content – the stuff people can get elsewhere online. Drop the wire services, the syndicated features, and all the editors and designers who work on them. Eliminate the division between “news” and opinion, and demand reporters who have the expertise to draw informed conclusions from the evidence they report. (And the experience to know – and then report – when they can’t.)

Drop the division between newsroom and online production, and charge your reporters with the responsibility for cultivating a community of readers talking about that beat. Don’t leave investigations for a dedicated team of newsroom hotshots. Make investigation every reporter’s responsibility, and then reach out to other organizations – J-schools, nonprofits, readers and even competitors – who can help you uncover fresh, unique information that your readers will want.

Yeah, it’s a lot of work, but the best independent publishers out there are doing that work, under very low overhead, and if you can’t compete with them, you’ll soon be done in this business.

Then don’t forget that building an audience is only part of building and maintaing a business. You need those customers, too.

Let’s step back and remember why advertisers have been supporting news publishers in the past. Without in-media advertising, business owners had very limited media through which they could deliver information to potential customers. A storekeeper could put up signs around town or hire people to go up and down the street passing out flyers. But media advertising allowed business owners to reach people inside their homes, by interjecting the businesses’ messages into a newspaper, television show, or radio broadcast to which the consumer already had chosen to pay attention. And that’s what advertisers were paying for – access to that information flow.

Again, the Internet tore down barriers separating advertisers from consumers. With email lists, Facebook pages, and Twitter feeds, the Internet allows businesses more media through which to connect directly with their customers. Business owners don’t need advertising as much any more. Yet I believe that some demand for advertising will remain, as businesses look to connect with and acquire new potential customers. But news media hoping to attract that advertising income will have to be able to offer those advertisers sharply defined audiences who are well-qualified as potential customers for that business.

It’s the era of the niche – whether topical or geographic. And if your reporters aren’t producing that targeted, informed, uniquely valuable niche information, you’re not building an audience that any advertiser will pay to reach.

Think non-profit is your salvation? Think again. As we’ve written before, non-profit isn’t a business plan. It’s a tax status. And the foundations that support non-profit journalism are looking to reach desired audiences just as much as advertisers are. Again, if you’re working in the non-profit world, you still have to be delivering unique information to a targeted audience. Otherwise, you’re just not delivering the value your foundation customers demand.

If you’re going to be a success in business, you must at least be able to recognize just what business you’re in. Winer has told us the way toward building a viable news business online. The challenges for news publishers are to put aside their assumptions and to hear him.