Friday, November 04, 2005

Why I won't cry if K-R goes

Nothing against Knight-Ridder. I like the company and think it's one of the best in journalism. But I won't shed more than a single tear if it's sold or broken up.

This was the week the other shoe dropped in the newspaper industry when K-R's largest shareholder basically said sell or restructure the company because your stock price is doing nothing. That shareholder quickly picked up other allies. The hand-wringing was immediate and predictable -- as was the increase in the stock price (which K-R prominently displays on its homepage) as questions rose about what the media company might be worth in whole or in parts (a thigh to Gannett, a wing to McClatchy?). Maybe the predictable increase in the stock price was what the majority shareholder wanted so it could dump its stake at a reasonable face-saving price? Who knows; we'll have to see. K-R hired the obligatory team of investment banker, legal firm and P-R consultant.

The first shoe -- that keeps dropping and dropping -- is the continued news of declining circulation, especially among metro dailies.

This latest one, however, should finally make journalists realize that they have little clue about what their product is worth. In fact, if you read the tens of thousands of words that have spouted forth about K-R's prospects, at least half of them suggest no one would want to buy the company, or at least its crown jewels, its major metro dailies. In other words, to use the vernacular, when looked at from the financial community's perspective, your work ain't worth squat.

That's not true, of course. But until we figure out what our work is worth, we will be at the mercy of third parties like this to determine our worth for us. That was part of the thrust of my Florida Press Club speech a few weeks ago:

So if you don't innovate and find new products – or new ways of doing things – you basically must cut and cut to make margin. Finally, the market decides you've cut too much and you're no longer worth the price. It's called: "dead money."
Eventually, your stock value falls enough that you can afford to buy back the shares and go private, or you become cheap enough that a takeover company dismembers you.
That does allow some new players – some who might care deeply about the journalism – into the game. But it's gut wrenching, and there's no guarantee you won't be bought up by a financial blood-sucker. This is business survival of the fittest. Be ready for it.
So when I talk about the possibility of "financial blood-suckers," why am I not shedding tears at the possibility that fine, even noble parts of K-R, could end up in those hands?

Because I am hoping this gets many, many more journalists, too many of whom are in a woe-is-me, I-cant-do-anything-about-it, this-industry-is-going-to-hell, if-it-weren't-for-the-suits mode, to start using the creativity god gave them to actually try to shape the future of this profession.

Let's pause for a moment and consider the difference between a "media company" and a "news company."

Most journalists, I would venture to say without hesitation, would prefer to work -- and may think they work -- for a "news company," one whose primary stock in trade is uncovering, processing, explaining and contextualizing the events of the day. They recoil a bit at the idea of "media company," for that conjures up visions of infotainment and all sorts of unsavory things, like reader-driven news.

Here's the rub: A "news" company, as we currently practice the idea, will never have anything but squat value in the financial markets, while a "media company" will be valued. The media company creates while the news company largely processes. Colleagues may vehemently disagree with that assessment, but most of what now passes for "news" is processing -- processing to one varied degree or another, but still largely processing. That creates little new value, ergo little intrinsic value in the financial markets.

Why do companies like GE or Merck or Intel thrive in the financial markets? Because they create. They take raw materials, physical or mental, and create new products with new potential increasing value. Which is also why "media" companies are more likely to thrive in this environment. Entertainment, like it or not, is the process of creating new things with new potential and increasing value.

Hard as they try, K-R and its ilk are "news" companies. They have been largely unsuccessful in becoming "media" companies (just because you are in different media does not make you a media company). This, actually, is a badge of honor. But it's also become a target.

About a year ago I wrote about the barriers to innovation in the newspaper industry. It still applies. The business, like utilities, is so weighted down with "embedded costs," both physical and intellectual/emotional, that it struggles to break free.

So why don't I shed a tear over K-R? Because this may well be the beginning of a series of events that frees some of that human and financial capital to create media companies, but with the core value of the news company instead of the core value (oxymoron?) of Hollywood.

Make no mistake, were K-R or any other major newspaper company to be broken up, a fair number of titles are likely to end up in the hands of bloodsuckers (there are more than a few Hollingers in the world). It would be terribly wrenching for employees and their families. It would do a disservice to their communities.

But maybe it has to happen so that others who are ready to innovate, to rethink completely the way we do things, to go out and investigate to find those critical stories so far untold, have more of an opportunity to play as well. In any sale or breakup, parts will be shed at "affordable" prices for those with such ideas. Not that they're at a loss for a playground now; Internet costs are low enough so as not to be a barrier to entry. But that's still just one medium.

And so some will wither so that others may flourish. It is the cycle of nature -- and of business and financial markets. Journalists need to realize that and be ready to deal with it.

Gloria Pan writes an intriguing scenario in Morph, the blog of the MediaCenter at the American Press Institute.

In essence, she suggests a future where more journalists strike out on their own to develop their speciality and depth, a break from mere processing and one that allows creation of value. News organizations, realizing the financial or institutional barriers to doing this all in-house, start contracting with these techno-savvy specialists.

One critical commenter suggests this is unlikely because editors -- and media lawyers -- are all about control. That, however, is a perspective anchored in today and with today's corporate structure. Would that have to be true for a new purchaser of one of K-R's parts, for instance? Not necessarily. For instance, Bluffton Today, a part of one of those old-line chains, Morris, certainly is showing it's possible to cede some control, in this case incorporating work from its community journalism site into its print product.

I can envision a day where the "newspaper" has a core staff, but one that is smaller and more attuned both to the depth of a story and the breadth of presenting it across media. Computer programs automatically reprocess news releases into standard, formulaic journalistic copy to be reviewed by an editor because, we have asked, why waste reporters' time on such things? (Of course, significant releases that are the tip of important stories still would be forwarded to the reporter.) Specialized staff are contracted as needed -- be it a video producer, a specialized reporter or a copy editor specializing in narrative. In some ways, this is the current magazine model; the trick is how to pull it off daily, or even hourly.

It is not even too far-fetched to suggest a new kind of journalist-aggregator relationship: Small, specialized journalistic operations under contract to and aggregated by an organization -- OK, let's call it a newspaper -- that itself specializes in culling the best material and presenting it in in ways that allow its users/readers many-faceted access. (I do not think most consumers are going to click all day looking for tidbits, and I thnk the automated or semiautomated aggregation models have limited usefulness.)

Keep in mind this date -- 2009, the year TV stations have agreed to go all-digital. That will free up not only significant bandwidth on the current analog channels but significant data sidebands on the new digital signals (few TV stations will "waste" a full digital channel just to bring you a pretty picture). In short, that TV tower just became one big mother Wi-Fi antenna. Couple this with continued progress on thin-screen digital media. If you think K-R was the other shoe dropping, this will be the whole shoestore.


At 11/4/05, 5:30 PM, Anonymous Anonymous said...

Interesting post.

I would say journalists create when circumstances and events previously unknown are brought to light.

The Kevin Sites experiment over at Yahoo shows a very small journalistic operation. He garnishes and creates his own content and beams it to producers in the U.S.

The future will be interesting.

At 11/4/05, 5:56 PM, Blogger Doug said...

Yes, and that's exactly my point. Too much of today's "news" is follow and process, not uncover and create.

At 11/8/05, 3:21 PM, Blogger Peter Fisk said...

Doug, that's an insightful and well-stated analysis of newspapers' condition. Thanks for writing and posting it.

My 2 cents:

In discussing the economic plight of newspapers, we also should bear institutional factors in mind. I think most of us would agree that in recent decades, profit-hungry investors have diminished the social-good component from the general perception of newspapers’ value. A newspaper is just another business with just another profit target, and the negative effects on the quality of journalism have been obvious.

But it doesn’t end there. Traditionally, the best and brightest remain in journalism despite the knowledge that they could make a lot more money elsewhere. They stay because they like the work and because they feel they are doing something of social value. The additional salary that they forgo by staying in journalism is a premium they willingly pay for the utility they receive from the work. Now, as newspapers are transformed more and more into just another bottom-line industry, I see increasing incentive for the best and brightest to allow themselves to be transformed into bottom-line workers, demanding higher salaries or leaving the field entirely.

But of course, most of the people who own newspapers aren’t looking far enough beyond the next quarter to be concerned about such things.


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