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As newspaper owners like Newhouse-owned Advance Publications try to stem the cash flowing out of their businesses by shutting down the presses, there are a number of ways to look at their decision. On the one hand, it can be seen as an attempt to manage the much-needed transition from a print-based business to a fully digital one. Media analyst Jack Shafer, however, sees it another way: he suspects that many newspaper companies are in the liquidation business — in other words, they are simply squeezing as much value as they possibly can out of their properties before they discard them. As sensible as this may seem from a financial point of view, however, it misses the larger opportunity that the web represents.
Shafer’s liquidation idea is based in part on a theory advanced by author Philip Meyer, in a 2004 book called “The Vanishing Newspaper: Saving Journalism in the Information Age.” Meyer described what he called the “squeeze scenario” a newspaper owner might use if they wanted to get out of the business but didn’t want to sell — either because they couldn’t find a buyer or didn’t want to accept a low price. In a nutshell, that owner would jack up the price of his product (as many newspapers have been doing) while at the same time cutting back on the content and the quality of the product by laying off staff, shutting down expensive features like investigative reporting, etc.
Unless you are reinvesting, you are in liquidation
While this has the short-term effect of improving profit margins for the publisher, Meyer argued that over the longer term this would amount to liquidating the main asset of a newspaper: namely, the goodwill associated with the brand. According to Meyer’s analysis, this goodwill makes up about 80 percent of a newspaper’s overall value — and particularly the value that allows newspapers to attract orders of magnitude more advertising than would normally be dictated by the amount of time that consumers spend reading them, something that was made obvious by a chart that former internet analyst Mary Meeker used in a recent presentation about media advertising.
In his post on the liquidation theory, Shafer notes that newspaper owners who are executing this strategy likely won’t describe themselves as doing this — for obvious reasons, since it would make them look cruel — and may in fact protest that they are doing the opposite, or that they have no choice. But as he puts it:
Sellers of newspaper goodwill might protest that the financial losses they’re absorbing constitute a serious investment in the newspaper’s future, that they’re harvesting nothing. But don’t be fooled. If you’re winding your company down with no strategy to wind it up, you’re burning goodwill even if you don’t acknowledge it.
Liquidating a company in this fashion is something that professional “vulture fund” investors often do in damaged industries (such as the railway business, the traditional telecom industry, and so on). That is, they acquire assets cheaply and then squeeze as much value out of them as possible until they are virtually worthless. In fact, it’s the kind of thing that investors like Berkshire Hathaway billionaire Warren Buffett are very good at — which raises questions about what Buffett’s long-term strategy is in buying newspapers. He claims that he is committed to the industry for the long haul, but what exactly does he mean by that?
Without a strategy for adapting to digital, newspapers are lost
One of the things that makes it hard to cheer for Buffett, or for Advance Publications — unless you are a die-hard devotee of print for print’s sake, of course — is that neither has advanced a plausible strategy for making the transition from print to digital. Buffett has said that he doesn’t see the point in shutting down the printing presses a few days a week, as both Advance and Canada’s Postmedia are doing, and in fact he sees this is a step backward. So then what is his strategy for moving his community newspapers online as print declines?
Advance, meanwhile, has said that it plans to invest more in digital as it cuts back on staff and stops printing every day. But those promises have been noticeably vague, and the evidence from places like Ann Arbor and Seattle — both of which lost their daily newspaper in recent years — doesn’t exactly fill anyone with confidence. One of the prominent themes in criticisms of Advance from people like actor and New Orleans resident Harry Shearer is that Nola.com, the company’s online portal, is lackluster at best and embarrassing at worst when it comes to doing actual journalism.
In order to avoid the accusation that they are just liquidating the goodwill of a generation of readers (and advertisers), newspaper owners need to at least have a plan for reinvesting some of those proceeds in the digital end of their business. The best-case scenario is that they re-engineer their papers the way John Paton has at Digital First Media, by putting the web first and print second — and by hiring or promoting people from within who understand the challenges and opportunities of an online media business. In my view, they also need to think less about how to erect a paywall and more about how to benefit from what Guardian editor Alan Rusbridger calls “open journalism.”
But the bottom line is that without some kind of strategy, as I tried to point out in a recent post, an online newspaper becomes simply another voice among thousands of other digital information sources — and that too will result in the eventual liquidation of goodwill, whether its owner wants to admit it or not.