Interview: AP Execs Explain Strategic Change — And What It Might Cost The Co-Op And Its Members

imageimageSoon after the Associated Press announced its plans to reverse course on newspaper rate increases and to review its structure, I spoke separately with AP execs Tom Brettingen, the chief revenue officer, and Sue Cross, SVP-global new media and U.S. print/broadcast markets. What follows is a kind of FAQ put together from those two interviews.

Did the notices that members might cancel force this shift?: Brettingen: “The notices, per se, didn’t. With or without notices, the situation was deteriorating.” On top of the challenges already facing newspapers, “the economy went to hell.” As for the notices, “putting in a cancellation notice to give the paper a chance to leave has always been a way to get our attention.” But he said AP has been in constant conversations and didn’t need notices to know that papers were concerned; the swift changes in the economy increased the pressure. Cross: “What we increasingly heard was, ‘We’re not sure of the outlook, we need more flexibility.'” (They also point out that the rules like the cancellation notice are set by members, not staff.)

Will the cancellation notices stop?: Brettingen doesn’t expect them to since the two-year notice rule remains in effect and papers want the flexibility to make these decisions. “It’s not going to necessarily stop notices. If papers were thinking yesterday, I may need to give notice, they will still need one tomorrow.” But the lower costs and the access for all papers to AP Complete may change some minds — and putting everything in play may result in solutions that make it possible or desirable for others to stay. Brettingen: “Some were happy already. With the changes as of today, a certain percentage are going to be happy or happier. … It’s not a coincidence that the relief for 2009 was packaged with a complete review of how we do business with our members.”

Lots more after the jump

Changing the model: I wrote earlier that AP is constrained by its need to deal with members equally. Brettingen: “For a long time, it was a strength. Maybe in difficult times, it’s not a strength. There are no better deals.” One solution being raised is the possibility of creating more member classes, allowing for greater differentiation. Each class would still need to be treated alike but more classes, more options. Cross hears two major threads: members who don’t want to have to make choices and members who want a minimal amount at a lower rate. But, she says, “Keep in mind the philosophy: [Members] all share equally in the costs of the reporting regardless of how much you use.” One of the questions that will have to be considered in the review: Does AP still function like a cooperative?

How is AP reducing costs by another $9 million?: It’s the amount AP won’t be getting next year as it forgoes planned revenue. The moratorium on rate hikes for the small number of papers in that situation saves about $1.8 million. The rest — $7.2 million — is the amount AP expected to receive from members who had already signed up for AP Complete and those “very likely” to take it. AP already had announced some $20 million in cost savings for members next year — which means AP now is working with about $30 million less.

How will AP cover the loss in expected income: Brettingen: “We have a lot to make up. We’ve been working on the revenue side; this undoubtedly is going to require some work on the cost side. For a company where the costs are primarily its people, it’s going to mean having to look at some positions.” AP already has a hiring freeze; now it’s looking at staff cuts. “It’s too early to be specific. It is a peculiar situation where we reduce the costs to the newspapers, which means we may be more than likely to make cost reductions. It will affect the news report as little as we can possibly make it.” Cross: “Of course, it affects news gathering. How it will, I don

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