The “small portion of the population reading newspapers” isn’t that small. At the moment, daily paid circulation of American newspapers is about 53 million, down from an historical high of 63 million in 1984. So there’s still substantial money to be made from print tree papers.

(http://naa.org/TrendsandNumbers/Total-Paid-Circulation.aspx)

Right now, the industry is averaging about 17 percent in profit, down from highs in the 20s. So media corporations are making money. (See Picard link in earlier comment.)

The crucial social, political and cultural points resound from this: The QUALITY of the journalism in those 53 million papers has fallen markedly because of the business model discussed here earlier.

The situation will not change as long as larger institutional investors find newspapers the quickest way to extract the largest profit. Only when that equation changes — and institutional investors act on that concern — will a new business model emerge. (I think.)

JS has a better handle on the economics of this — but I’m Jefferson. Give me newspapers, not a nation without them. And make them meaningful adversaries of government.

Actually, with such a small portion of the population reading newspapers and rags these days, I’d say part of the solution is to get a populace that wants to read (news). i.e. you need to have an educated public that cares about the world around them. Given the average American, I’m guessing that isn’t gonna happen any time soon. How do you compete with Fox News and their “infotainment”? I suggest you can’t, not without a real desire by the public to want the truth.. and clearly, the truth is too painful for most Americans. After you get them interested, you have to make sure they have -time- to sit and read.. Another herculean feat that I doubt will happen any time soon given the way we’re being asked to work longer for less pay and benefits. More chaos means less accountability and less time to “look behind the curtain”, as it were.

That’s a lot to respond to. I will try, just as soon as I can get the time to address what you say adequately in a blog entry. It will probably be a few days.

Stay tuned, please.

No doubt, newspaper management screwed up big time by not giving enough thought to how information delivery works and would work in a world in which info would be available with the click of a mouse. I know this is no comfort to you, but I’ve seen this same tendency of management in every industry or company I’ve ever been in that’s doing well at the moment. Perhaps my favorite story is being at a place callled Lotus Development shortly after they created the first killer app called “Lotus 1-2-3.” I asked them to name their competition. They said they didn’t have any. I said, “What about Microsoft?” They laughed. “They’re just an operating system company. No threat at all.”

I think you SHOULD be angry at a management so arrogant that they assumed the reason they were making so much money is because they’re so good (instead of because they were in a business that was a license to print money). I know hearing that stuff angers me. I was at a little place called “Nike” about 15 years ago working with THE most incompetent HR people on the face of the planet, but they were sure they were damn good because Nike is an extraordinary marketing and operations company. Since they worked for Nike, they must be da bomb, right?

Ah, well, it’s a pattern.

The time to invest in more journalists, better news, getting a foot in the door in new media, etc. was back when newspapers were flush with cash. Now that they realize what they need to do, they can’t do it. That’s why they all seem to be going to being the best at local coverage and running AP and Reuters stories for everything else.

To me, the issue is, “What the heck to do now?” I don’t know the answer, but I suspect it lies in being able to turn journalists into revenue producers by changing royalty laws in some way.

One layman’s observation about finances: When we’re young we choose a field that seems interesting. Dealing with money as a banker, investor, or manager does not, except to a very few.

It’s only when people accumulate some money that they realize how easy it is to become utterly absorbed in this pasttime that did not seem so interesting when they didn’t have much. That’s when the addiction kicks in.

I don’t understand this. If the CEO side steps a raise, can’t he put that money into the operating fund of the employees so they get a better raise? How would that make them “more ripe for picking” if their company is giving them -bigger- raises (because the CEO decided he didn’t need another $1.5 mil/yr)?

And, I’ll point out that there is a fundamental flaw in how all of this is being viewed. Everyone brings everything back to “the market” and “stock prices” and cheers them the holy grail of industry. Yet, we don’t need the market for profitable companies to function, nor do we need them for companies to start up. We have a lot of “private companies” out there that DON’T have ties into the market, so it’s clearly not a requirement for existence or prosperity. .. What we’re dealing with here is greed, nothing more. Companies that lay off employees to be “more competitive” when they are already PROFITABLE are actually saying “we want our stocks to go up so we have to give people not related to this business a way to [think they can] make some free money so they give us money [to use to pay the CEOs and Board Members and diffuse the money back to -other- stock holders]“.

I have to say.. it looks to me like so much robbing paul to pay peter, and doing it by crapping on those doing all the real work.

$650,000 for one year? I’d take that job for 1 year, and would be able to live for a DECADE on that. add in the paid travel? No cost for a car? No lodging expenses while in town?.. this guy gets to live like a king for a year and -still- make 10 years worth of normal salary. Plus another $500,000 in stocks (if they don’t completely tank)? This guy is getting at least 15 years of normal wages for one year.. and his job is to find a way to get more people to give free money to a business that could function a lot better if it wasn’t giving lifetime perks (medical for life for the outgoing CEO.. must be nice in a world where insurance is “too expensive” for companies to pay for their employees) out to the leaders? leaders that are killing the company?

” . . . we are all selling those skills to the highest bidder, and the bidders won’t go any higher than what they feel those skills are worth” .. well, since employee “worth” isn’t actually tied to anything in reason, and since the “market” they are being compared to included people from overseas willing to work for pennies on the dollar, that leave us “screwed”. There’s nothing rational about it, from a “worker” standpoint. The companies pushed for open trade around the world so they could pay less, that lessor pay wasn’t needed to be viable, it was needed to get more contractual perks into the hands of the execs. The stock market combined with letting corporations dictate their policies is being used to fleece the country. Any discussion about such activities that doesn’t include the intended abuse of the population isn’t rational. Trying to say that companies some how are “fair” by nature, or pay “what you are perceived to be worth” without specifically acknowledging that it’s a rigged game being played by the ruling elite is what ends up being irrational.

I can do the job of a CEO, and probably do it better than most CEOs. The problem is, I’d be doing my job for the employees, not share holders. If I can make profits and pay a good portion of that to those doing the work, that’s all I’d strive for. Of course, that’s why I’ll never be a CEO.. I care about the wrong people.. I’m not all about enriching my friends at the expense of the masses.

The news industry’s execs clearly have a long-term strategic plan here: ride the gravy train until the horses die.

They’ll get theirs. Fuck everybody else.

Your logic is impeccable, but the management news biz is decidedly irrational. It had sufficient opportunities to act much sooner, but believed that the Internet had no promise. Even when the early signs of the demise of classifieds appeared, it had opportunities (because of economies of scale and familiarity) to develop much better online advertising programs before eBay, Craig’s List, et al. expanded as they have today.

Perhaps the biggest blunderer has been Gannett. I had not realized this until recently, but in the ’70s and ’80s, Gannett acquired so many papers (think print sites for USA Today) that it promoted people rapidly to executive positions (top editor, publisher, etc.) but failed to fully train them as executives. Too many, too high, too fast. They become beholden to HQ rather than independent thinkers and analysts of developments affecting their industry.

Even though your economic analysis is spot on, I remain angry at the arrogance of newspaper corporate management over the past three decades. For an industry supposedly adept at spotting patterns and trends that others don’t, its blindness to a developing online advertising model has literally doomed it to the situation it now finds itself it.

Like Sam, and now you, I have been yelling for a new business model for years. But no one wants to shake the gravy train — even though much less gravy is forthcoming.

Phil Meyer warned the news industry of all this in 1995:

http://www.unc.edu/~pmeyer/ajrprofits/profits1.html

Bob Picard’s 2006 Neiman Report explains how institutional investors have further handicapped the news biz:

http://www.nieman.harvard.edu/reports/06-4NRwinter/p10-0604-picard.html

As to what that new model ought to be, I’m relatively clueless. I don’t have the skill set of analysis that others do.

But I do remember independent newspapers. So I would first argue: Break up the chains! Remember, that’s already happened to Knight-Ridder.

Thanks again, JS. I’m a-learnin’.

I gave this some thought last night, and it seems to me that one way to turn this around is to find a way to get paid more for uncovering and disseminating information. This may involve changes in copyright law, small royalties to the organization that initially breaks a story, etc. That way, journalists would be direct revenue producers instead of “cost of doing business” as so many newspapers believe them to be.

As I thought through it, I realized that it’s a can of worms when you get to the details, but it might be worth pursuing, anyway.

Yep. It’s a death spiral. Whether local newspapers (or more than one) could have outguessed Craig’s list, monster.com, and others, I don’t know. Those things are national, and I doubt more than one far-sighted newspaper could have taken that place. Which still would have left all the other newspapers at sea.

Have newspaper execs been slow to respond to the realities of the new marketplace? Probably. Are they now re-fighting the battle of Thermopylae? I hope not.

At this point, I don’t see any saving option except non-profit and/or community ownership.

Your financial analysis is dead on, but you’re leaving out a lot of important realities about the newspaper industry. A lot of the financial slippage you describe happened as a result of sloth and ignorance on the part of the industry. Craig’s List stole classifieds – which is massive money – because news execs were ridiculously slow to realize the Net’s potential. They failed – and are still failing – to invest in NEWS, which is the thing that lets them differentiate. Instead of investing in the newsroom they’re slashing and burning, laying off even more people every quarter. Which leaves fewer people, which means more and more wire content, which means why should I buy a newspaper when they have nothing to offer that I didn’t already get for free yesterday.

The industry is in trouble because it’s in the hands of some of the dumbest, most hidebound execs in all of the business world.

Good analysis…you know your stuff.

Jeff

Like you, I mourn the demise of newspapers. Really, really mourn. But how else could it have gone?

I’m going to go over stuff you already know, but I need to do that to make my case, OK?

Imagine that the average price to earning ratio on a newspaper stock is 20/1. That would be high, but newspapers have, historically, had very high margin.

If a newspaper has 1 million shares of stock outstanding, has revenues of $2 million and makes a profit of $1 million, that’s a dollar per share, so the stock price is $20. It’s an extremely profitable organization, because it has a 50% profit margin.

Eureka!

Now, let’s say that it maintains its 50% profit margin, but revenues decline to $1 million. That $500,000 in profit, which is only $.50 per share, so the stock drops to $10. Or does it? No, it probably drops a lot harder because, without the growth potential, the price to earning ratio drops. So maybe the stock drops to $4 or something.

The whole issue here that’s driving every damn thing at newspapers is revenue, revenue, revenue. The ads are going away. People are less willing to pay for newspapers. And even IF you could get more people to buy them, it’s not going to bring back the classified ads, because there are better forums for those, now.

The newspapers are not going to increase stock price by hiring file clerks at $200,000 a pop because … well … just because. It’s barely possible that they will increase stock price by hiring more jounalists and covering the news better, because that MIGHT increase readership. Or, it might not. But increased readership is not going to bring back the classified ads. Most of them are gone forever.

Newspapers simply HAVE to find a new business model to increase revs. I really think that’s the entire issue. To me, complaining about executive compensation at a newspaper is like complaining about the pilot’s salary on the Hindenburg. If he brings the thing home safely, he’s earned his pay.

In the news biz, I’ve seen too many “irrational decisions” regarding compensation and desired skill sets.

For example, from the late ’60s to the mid-’80s, newspapers enjoyed a reputation as “cash cows” with profitability hitting 30 to 40 percent. It would have been an ideal time to adjust compensation schemes. It did not.

Wall Street discovered newspapers. The emphasis shifted to “maximize shareholder value.” Executives were hired with that emphasis rather than the “public interest” (with a decent profit) of earlier generations of executives (mostly from controlling family ownership).

Newspapers have diminished in value as provide of news, a bearer of ill tidings, a record of government proceedings and increased their value as shills for celebrities, corporate favorites and political entities.

Obviously, I digress. But larding up at the top and devaluing the bottom ain’t gonna save newspapers. Their ability to fulfill their centuries-old tradition of holding government accountable has faltered because of investment (payoff?) at the top and cuts at the bottom.

Too much “irrational” thinking rules media corporation boardrooms and executives suites. That’s my focus group response.

Dr. Denny: I, too, have seen the demoralizing aspects of high executive pay in a large number of companies (focus groups and/or surveys), not just the newspapers for whom I’ve done work in the past. I have been in meetings with execs (many of whom hired me) in which they showed me nothing but raw greed, usually trying to get me to do proxy analysis for high-paying companies who really aren’t their competitors for talent. I have also been in meetings (rarer ones) where the CEO complained about the idea of taking a raise, but was forced to by the simple fact that, if he didn’t take a raise, he was compressing all the salaries below him and making it easy for competitors to cherry pick company talent.

Like many, I have a healthy skepticism about the “value added” the highest-paid executives bring to the table. Unlike many, I have actually been in the trenches on this stuff, and I understand too well that the market pressures are what they are. I can wish they didn’t exist, but they do. Any company that substantially underpays its executives is begging them to leave for greener pastures. And a lot of these people really are quite talented, and can usually not be adequately replaced by paying below-market total comp for a position.

It is what it is.

General: Over the years, I have done … oh … maybe 700 – 900 focus groups and maybe 40-50 quantitative surveys on employee opinions about pay. Not surprisingly, almost everyone always wants more and thinks they should be paid better than other employees with similar job responsibilities. File clerks will tell me that their jobs are more important than the CEO’s job (really, I’m not making that up). I’ve had people tell me they should be paid more money because of their years of service, because of how many children they have, or just because they somehow “deserve” it.

In the end, the only rational way to determine ranges of pay is what particular, demonstrated skills bring to an organization. In essence, we are all selling those skills to the highest bidder, and the bidders won’t go any higher than what they feel those skills are worth. I’ve seen markets for particular skills soar and I’ve seen them nosedive.

I agree with your analysis. We part company somewhere between your and Martin’s position. (Frankly, I may just be envious. I’d love a job with all those perks.)

But Perry’s on the mark, too. I’ve spent too much time in and studying the news biz to see demoralizing impact of top executive pay packages on the folks that do the journalism, seek the ads, print the paper and deliver it.

I’ve put this date in my tickle file for a year from now. I’ll check the stock price, the number of papers JRC continues to own, their circulation, increase in online ad revenue vs. all ad revenue, number of layoffs or buyouts … and see if he’s earned his compensation.

But I’ll take bets he doesn’t.

Thanks to all for their comments.

http://jrcbites.blogspot.com