A Financial Serape for the Gray Lady

The worst US economic crisis in 80 years has collided with a tectonic shift in the newspaper business caused by the Internet, wiping out ad revenues and killing traditional newspapers and broadcasters.


In the past month, The Minneapolis Star Tribune has filed for Chapter 11 bankruptcy protection, the company that owns The Los Angeles Times and Chicago Tribune also filed for bankruptcy, the Seattle Post-Intelligencer has announced it will shut down or go digital-only if it doesn’t find a buyer within 60 days, and the Miami Herald (McClatchy group) also is looking for a buyer (perhaps Mexican or Venezuelan investors?). Hundreds of reporters and editors are being laid off in Washington, DC as newspapers downsize or shut down their news bureaus in America’s capital city.


Now The New York Times Company (NYT) has joined the growing list of major US newspapers desperately seeking buyers or new investors willing to risk hundreds of millions of dollars in “deadwood media” facing a very uncertain future.  The NYT is talking with Mexican billionaire Carlos Slim about buying a larger stake in the company. Slim, who is reportedly the world’s wealthiest person with an estimated fortune of $60 billion, purchased 6.4% of the Times Co’s preferred shares in September 2008. However, Slim wants a substantially larger stake in the Times Co, says the Wall Street Journal.


The Times Co. reported 2007 revenues of $3.2 billion. It owns The New York Times, the International Herald Tribune, The Boston Globe, and 16 other daily newspapers including the Petaluma Argus-Courier and The Press Democrat in California. The other 14 newspaper are located in Alabama, Florida, Louisiana, North Carolina and South Carolina. The Times Co. also owns WQXR-FM and over 50 Web sites including NYTimes.com, Boston.com and About.com.

The Wall Street Journal reports that Slim is in ongoing talks about a large purchase of preferred shares. The preferred shares under discussion would carry no voting rights, but pay a dividend. A deal would need the consent of the Sulzberger family, including publisher Arthur Sulzberger, who control The Times Co. through its ownership of preferred shares.

The NYT is trying to raise cash as a $400 million credit line expires in May. The newspaper’s ad revenues fell 21% in November 2008 and have continued falling as Wall Street’s implosion has worsened. If the NYT can’t raise the cash it very likely will seek bankruptcy protection. As a result, the NYT is attempting to raise $225 million by selling its 58% in the new 52-story Midtown skyscraper and then leasing the office space. It is also trying to sell its 17.5% stake in New England Sports Ventures, which owns the Boston Red Sox, to raise about $150 million.

However, Slim’s money probably won’t save the NYT from a major restructuring and downsizing of its operations worldwide over the coming months. Traditional newspapers and journalists are road kill. It’s not clear what the business will look like when the dust settles in a few years, but it won’t remotely resemble the industry Caracas Gringo has worked in since the mid-1970s – an industry now in its death throes thanks to the Internet, the advent of online advertising and the blogosphere, and the loss of objective news reporting ethics by the overwhelming majority of reporters and editors during the past 30 years.

Is Traditional Media’s Demise is Bad for Democracy?

Ethan Zuckerman (…My heart’s in Accra ) says that if “print advertising costs are fundamentally irrational, then it’s possible that the way we’ve built media in the United States can’t survive a transition to a more rational market. That would be bad. Newspapers aren’t just businesses – they serve a critical function in a democratic society, informing citizens so they can make intelligent voting decisions, lobby their elected representatives on issues of their concern and hold political and business powers accountable.”

“What if the idea that commercial enterprises should carry out the public interest function of journalism is built on a fundamentally broken model? What if advertising worked pretty well as a way of subsidizing public interest journalism only so long as advertisers didn’t understand the effectiveness of their ads? Putting aside all the other reasons why commercial journalism may be flawed – the tendency of newspapers and television channels to seek readers by publishing ‘edutainment’ rather than investigation, the worry that papers will hesitate to publish stories that might embarrass advertisers – what if ad supported journalism is only viable in a world where we radically overvalue the worth of ads?

That would be a bad thing.”


Seth Godin worries “about the quality of a democracy when the state government or the local government can do what it wants without intelligent coverage. I worry about the abuse of power when the only thing a corrupt official needs to worry about is the TV news. I worry about the quality of legislation when there isn’t a passionate, unbiased reporter there to explain it to us.”


Zukerman says “friends who are engaged in online projects to conduct ‘difficult journalism’ – the sort of investigative reporting Godin is talking about, as well as international coverage, are worried about revenue models. We get support from the foundation community, but foundations can’t provide support forever, and all would like to know when we’re going to be able to work without their support.

We’re all looking at models that include some advertising support. What if the model that brought us Upton Sinclair and Woodward and Bernstein – impression advertising – can’t bring us into the future because it’s based on uneven distribution of information and bad math?”


[However, Zuckerman and Godin overlook, or perhaps deliberately dismiss, how the majority of editors and reporters have lost all objectivity over the past 30 years or so in terms of deciding who and what is newsworthy, and ‘reporting’ the news to their readers or viewers. This was particularly evident during last year’s US presidential campaign in which the establishment media emerged as the biggest cheerleader and voluntary censor for Barack Obama. Polls consistently showed over 90% of editors and reports in Washington, D.C. described themselves as Liberals. This journalistic Liberal bias also has been very obvious among the majority of international (US, European) journalists writing about Venezuela during the ten years President Hugo Chavez has been in power.]


Traditional Media Censors Open Discourse


Jay Rosen at Press Think (Audience Atomization Overcome: Why the Internet Weakens the Authority of the Press) argues that traditional journalism in the U.S. has failed to promote open social discourse by determining editorially whose voices and opinions would be disseminated.


Rosen, a veteran reporter and editor who now teaches in New York, says, “In the age of mass media, the press was able to define the sphere of legitimate debate with relative ease because the people on the receiving end were atomized – connected ‘up’ to Big Media but not across to each other. And now that authority is eroding. I will try to explain why.”


“It’s easily the most useful diagram I’ve found for understanding the practice of journalism in the United States, and the hidden politics of that practice. Take a sheet of paper and make a big circle in the middle. In the center of that circle draw a smaller one to create a doughnut shape. Label the doughnut hole ‘sphere of consensus.’ Call the middle region ‘sphere of legitimate debate,’ and the outer region ‘sphere of deviance.’ That’s the entire model. Now you have a way to understand why it’s so unproductive to argue with journalists about the deep politics of their work. They don’t know about this freakin’ diagram!”


“The sphere of legitimate debate is the one which journalists recognize as real, normal, everyday terrain,” says Rosen. “They think of their work as taking place almost exclusively within this space. (It doesn’t, but they think so.) This is the region of electoral contests and legislative debates, of issues recognized as such by the major established actors of the American political process. Here the two-party system reigns, and the news agenda is what the people in power are likely to have on their agenda.”


“The sphere of consensus is the ‘motherhood and apple pie’ of politics, the things on which everyone is thought to agree. Propositions that are seen as uncontroversial to the point of boring, true to the point of being self-evident, or so widely held that they’re almost universal, lie within this sphere. Here journalists do not feel compelled either to present opposing views or to remain disinterested observers. This means that anyone whose basic views lie outside the sphere of consensus will experience the press not just as biased but savagely so. Whereas journalists equate ideology with the clash of programs and parties in the debate sphere, academics know that the consensus or background sphere is almost pure ideology: the American creed.”


In the sphere of deviance we find ‘political actors and views which journalists and the political mainstream of society reject as unworthy of being heard.’ As in the sphere of consensus, neutrality isn’t the watchword here; journalists maintain order by either keeping the deviant out of the news entirely or identifying it within the news frame as unacceptable, radical, or just plain impossible. The press plays the role of exposing, condemning, or excluding from the public agenda”the deviant view. It marks out and defends the limits of acceptable political conduct.”


“Anyone whose views lie within the sphere of deviance—as defined by journalists—will experience the press as an opponent in the struggle for recognition. The chances are you will never find your views reflected in the news. It’s not that there’s a one-sided debate; there’s no debate.”


Rosen notes that the three spheres “are not really separate; they create one another, like the public and private do. The boundaries between regions are semi-porous and impermanent. Things can move out of one sphere and into another—that’s what political and cultural change is, if you think about it—but when they do shift there is often no announcement. This can be confusing. This gap between what journalists actually do as they arrange the scene of politics, and the portion they can explain or defend publicly—the difference between making news and making sense—is responsible for a lot of the anger and bad feeling projected at the political press by various constituencies that notice these moves and question them.”


“Within the sphere of legitimate debate there is some variance. Journalists behave differently if the issue is closer to the doughnut hole than they do when it is nearer the edge. The closer they think they are to the unquestioned core of consensus, the more plausible it is to present a single view as the only view.”


“That  journalists affirm and enforce the sphere of consensus, consign ideas and actors to the sphere of deviance, and decide when the shift is made from one to another— none of this is in their official job description. You won’t find it taught in J-school, either. It’s an intrinsic part of what they do, but not a natural part of how they think or talk about their job. Which means they often do it badly. Their ‘sphere placement’ decisions can be arbitrary, automatic, inflected with fear, or excessively narrow-minded. Worse than that, these decisions are often invisible to the people making them, and so we cannot argue with those people. It’s like trying to complain to your kid’s teacher about the values the child is learning in school when the teacher insists that the school does not teach values.”


“Deciding what does and does not legitimately belong within the national debate is—no way around it—a political act. And yet a pervasive belief within the press is that journalists do not engage in such action, for to do so would be against their principles. As Len Downie, former editor of the Washington Post once said about why things make the front page, ‘We think it’s important informationally. We are not allowing ourselves to think politically.’ I think he’s right. The press does not permit itself to think politically. But it does engage in political acts. Ergo, it is an unthinking actor, which is not good. When it is criticized for this it will reject the criticism out of hand, which is also not good.”


Buggy Whips and Model-T’s


Charles Hugh Smith, who posts extraordinary insights and analysis at Of Two Minds, says “The World Wide Web and peer-to-peer networking have effectively dismantled the business models of Old Media: newspapers, magazines, publishing, music, network TV and Hollywood. As all media becomes either free, shared or low-cost, there is no way high fixed-cost Old Media can survive.”


“Newspaper circulations are plummeting; few citizens under the age of 40 subscribe to a ‘dead tree’ newspaper,” Smith writes. “Why pay $250+ a year for a subscription when all the valuable content is on the paper’s website for free? (The San Francisco Chronicle’s standard offer for home delivery: 8 weeks for $46 or $299/year.) Magazine circulations are falling, as are ad pages and the sums advertisers are willing to pay for an advert. The news is old and the pundits often less insightful than those found for free in the blogosphere. (Most magazine content can be found on their websites for free as well.) Network television continues to lose market share to the cable channels and TV as a whole is losing ‘mindshare’ to the Web. The much-anticipated ‘convergence’ is indeed occurring: everything is converging for free on the Web.”


“In the music industry, CDs which would have sold hundreds of thousands of units are now selling in the tens of thousands. The reason is painfully obvious: why pay $16 for a CD with one decent song and 12 mediocre tunes when you can buy the one good song for 99 cents on iTunes or download all the songs for free? The same mechanisms are at play in the film industry. Why pay $10 to watch multiple ads in a theater when you can buy the pirated DVD for a few bucks from a street vendor anywhere in the world, or rent it from Netflix (and make a copy for friends) for $2, or download the film for free off peer-to-peer networks based in non-U.S. locales? We’re not building any infrastructure. We’re just throwing crap against the wall. And now our cupboards are bare. The audience has moved on. They’d rather buy Wiis. They deliver more entertainment value.”


“I take no joy in addressing the demise of industries, be it the auto industry or the newspaper industry. The jobs lost mean real pain and suffering. I have earned a bit of money off the print media (newspaper and magazine) from 1988 to the present as a free-lancer. The pay was almost always abysmal because there is always a fresh horde of newly minted English grads/writers/artists etc. who will work for near-free for the byline or credit to ‘build their career.’ Um, what career? When everything is free, how do you make money? Well, the standard answer is you sell ads, and a few sites and blogs actually make a decent living off adverts – those with 1,000,000 visits a month or more. (Alas, not this site (Of Two Minds), which receives 120,000-150,000 visits a month.)”


Newspapers and magazines also derive ad revenues from their sites, but it’s on the order of 20% of their print ad revenues–not anywhere enough to fund their high fixed-cost business model. Now comes the really bad news: standard advertising/marketing no longer works very well. The two basic reasons are: 1. People with little disposable income can no longer respond to print/broadcast adverts; 2. The entire reductionist edifice of Standard Model of Marketing (SMOM) has run its course. The new model is to sell 10,000 copies (of anything) at 99 cents rather than 400 copies at $25. If the cost is below the threshold of ‘impulse buy’ then consumers will purchase the digital item without making a complex internal assessment as to the value. The ‘impulse buy’ threshold is somewhere in the neighborhood of $ .99 to $1.29.


“There will continue to be markets for books, films, music and even newspapers. But the days of people paying $300/year for a newspaper subscription, $25 for a hardbound novel that offers two hours of distraction, $15 for mostly mediocre music on a CD or $16 for a film DVD are passing. To bemoan the emergence of this ‘impulse buy/small rental fee’ market as a replacement of existing costly media is to miss three paradigmatic realities: 1. Everything is free on the Web (other than the cost of the electricity and Web access); 2. The Web is a giant copying machine; 3. The market for books, CDs, DVDs, newspapers, TV networks, etc. will still exist, but only as a ‘value assessment market’ (VAM) in which consumers will carefully weigh the value of the purchase against its free competitors and other sources of the same information/entertainment. No one knows exactly how the digital/web revolution will play out, but who’s holding the buggy whips and who’s producing the Model T’s is already painfully visible.”



About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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