BUSINESS

WHAT'S BLACK AND WHITE AND IN THE RED?

At North America’s iconic media brands, change is the enemy

STEVE MAICH May 21 2007
BUSINESS

WHAT'S BLACK AND WHITE AND IN THE RED?

At North America’s iconic media brands, change is the enemy

STEVE MAICH May 21 2007

WHAT'S BLACK AND WHITE AND IN THE RED?

BUSINESS

At North America’s iconic media brands, change is the enemy

STEVE MAICH

When Rupert Murdoch unveiled his US$5-billion bid for Dow Jones & Co. last week, a wave of terror rumbled through the newsroom of the Wall Street Journal, Dow’s marquee publication. Nothing captured the sense of fear and loathing quite like a quote from an unnamed staffer that appeared in the Los Angeles Times. “The New York Post and Fox News are grotesque, fearsome mutants of what newsrooms should be,” the person said, referring to Murdoch’s two best-known American outlets. “The newsroom is aghast at the idea.”

Happily for those trembling reporters,

Dow’s controlling Bancroft family sniffed at Murdoch’s US$5-billion overture almost immediately. And so, an offer 65 per cent higher than Dow’s recent share price was rejected without so much as a meeting to examine it. And that tells you a great deal about the entrenched powers standing behind the Journal and most other grand old media institutions in the North American media business: nobody can make them change if they don’t want to.

The Bancroft clan controls the company through a bloc of super-voting shares that affords them an effective veto over pretty much everything. These are public companies in name only—and shareholders are silent partners. The same is true of the New York Times, that other revered symbol of American journalistic excellence. Super-voting

shares have allowed chairman Arthur Sulzberger Jr., scion of the Times’ controlling family, to withstand a campaign by disgruntled investors to force management change. Led by an outspoken fund manager named Hassan Elmasry, the critics complain that management has spent money foolishly and collected lavish compensation while the stock price has declined by more than half in the past five years. At the company’s annual meeting last month, Sulzberger explained that the dual-class share structure was essential to maintaining “stability” and “quality” at the Times. His grandfather, Arthur Hays Sulzberger, created the structure “to get us through times like these,” he said. So far, Elmasry has been able to inflict nothing but embarrassment, convincing a majority of common shareholders to withhold their votes from the board of directors at the annual meeting. It was a symbolic protest, but after the disgrace of the Jayson Blair scandal, the Judith Miller weapons of mass destruction fiasco, and the shame of the paper’s coverage of last year’s Duke University rape allegations, Sulzberger doesn’t get embarrassed too easily anymore.

At first glance, it seems frightened journalists, intransigent executives and angry shareholders are at war. In fact, they have a lot in common. They share the same fundamental, impossible desire: to turn back the clock and live as if the golden age of newspapers was still a reality, that it didn’t really end more than a decade ago.

Their nostalgia is understandable. That was truly a golden age, back when hundreds of papers employed huge staffs of unionized reporters and editors, with upper-middleclass salaries, benefits and job security. Executives and family owners were local royaltyrich and wildly influential—following a simple formula, selling massive readership to willing advertisers. Investors collected fat dividends based on consistent profit margins of 25 per cent or more. “North America is a free-ride society, we always want somebody else to pay for it,” explains Miles Groves, a former economist with the Newspaper Association of America, who now works as a media consultant based in Washington. “Advertisers paid for everything. That’s the model that created the media in this country. But that advertising and distribution model is going away.”

Since 1970, total circulation for U.S. newspapers has declined by more than 10 million. In the first quarter of this year, daily circulation of the top 25 newspapers in the U.S. slipped by another two per cent year-overyear. Advertisers are now fleeing as well; after a 1.7 per cent decline in newspaper ad revenue in 2006, sales slipped another 4-5 per

cent in the first three months of this year. In Canada, StatsCan figures show revenues are virtually flat, and are not keeping pace with rising operating costs.

For a while it was hoped that media companies would make up for lost revenues in their print editions with rapid growth of their online editions and other new media ventures. But last month, the Times, Tribune Co. and Gannett all reported that online revenue growth was slowing fast, and could no longer be counted upon to make up for lost sales in print. Layoff notices from major media organizations are now a weekly event—100 jobs targeted for cutting at the L.A. Times; up to 50 more to be axed from the Chicago Tribune; same for the Baltimore Sun, and that’s just in the past few weeks. Layoffs keep profits up near their fat, historical levels and help calm jittery investors, but they come at unknown cost to the long-term health of these once-powerful brands.

On Wall Street, conventional wisdom holds that newspapers are a dying breed, and stock prices have plunged accordingly. But lately some have begun to worry that the industry’s malaise is even deeper: that news itself is endangered by the public’s taste for celebrity websites, and narrow political blogs.

Purists maintain that the problem rests with stock marketers and their obsession with perpetual growth, entire commercial model of the industry must be blown up, they say. If quality journalism is to survive, big media companies must be sold to munificent billionaires, committed to public service.

Steven Rattner, a reporter-turned-millionaire-investor, recently floated an even more audacious plan. He essentially concedes that journalism is failing as a business model, and suggests that the way to preserve it is to convert major news organizations to non-profit trusts, funded through a combination of public licensing fees and philanthropic gifts. Rattner concedes this is a tad far-fetched, but he still figures it’s a good idea.

The trouble with both solutions is that they are really just elaborate ways to avoid the kind of change that would upset the comfortable status quo within newsrooms and executive suites across the continent. Those who advocate private buyers are really hoping for billionaire fairy godmothers who will protect them from the harsh realities of the media marketplace, dominated by ruthless capitalists like Rupert Murdoch. Those who call for non-profit status are even more explicit about their goals. They see their work as a sacred calling, and the public’s waning interest in their work is irrelevant.

This week two revered former editors of the Journal came out against Murdoch’s bid

for Dow Jones, saying his ownership was a threat to the “integrity” of the paper. It was a strong echo of Sulzberger’s defence of the Times. Their words—quality, stability, integrity, independence—resonate within the newsrooms, telling the staff just what they want to hear. But out in the real world, they sound like euphemisms to conceal a deep hostility toward change, excuses to defend the status quo, and a nostalgia for an industry that no longer exists.

Alan Mutter a former editor with the San Francisco Chronicle who now runs a Silicon Valley consulting firm, says a combination of arrogance and fear caused most major media companies to completely miss the opportunities of the Internet. Now that their audiences and revenues are diminishing, entrenched managers and fearful staff run the risk of letting their powerful brands fade into oblivion. “They need to understand that they can’t just tinker with the old model and ‘fix’ it and go merrily on their way,” he says. “They have to make profound changes.”

Those who are making profound changes— paying attention to what people want to read, and what they’re willing to pay for— are reaping rewards. In less than 30 years Bloomberg

‘PEOPLE ARE SO TERRIFIED THAT THEY CAN’T THINK STRAIGHT’

has grown into a business valued at close to US$20 billion, providing data and information electronically to subscribers willing to pay huge fees for fast access to reliable and exclusive analysis of financial markets. A similar strategy is behind Thomson Corp.’s

recent attempt to buy Reuters Group.

As Murdoch himself said last week, “the beauty of high-quality journalism is that you can charge for it.” If anybody should know that, it’s the people at the Journal, where their website—generally considered one of the best in the business—has more than 700,000 paying subscribers. Around the world forwardlooking media companies—the BBC, Financial Times, even Canada’s Globe and Mail—are pouring money and expertise into making themselves players in the world of electronic news and information.

But the industry’s old guard isn’t ready to hear that change can be good. “People are terrified to the point that they can’t think straight,” says Mutter. “They’ve gone from denial to panic in 30 seconds, and neither of those are good frames of mind to be innovative and get over the hurdles they’re facing.”

Every once in awhile, that sense of terrified panic comes through, as in that anonymous quote from the “aghast"Journal staffer. The thought that Rupert Murdoch, that purveyor of cheap tattle and right-wing dogma, might come in and force them to change? Well, it’s just too awful to consider.

The good news is that powerful, profitable brands like the New York Times and Wall Street Journal have everything it takes to survive and thrive in the new media business. Contrary to the prevailing pessimism, there seems to be plenty of demand for quality reporting and intelligent commentary on things that matter. But those who continue to believe that change is the enemy have already lost. M