Friday, October 26, 2007

Could the new wave at AP ...

... be a wave of layoffs? (Or at least attrition.)

Perhaps. And more on that in a moment.

But first, let's contemplate these three words that appeared out of AP yesterday: a la carte.

AP breached that wall as it announced a new pricing structure that has members buying a core package of breaking news and then adding to it as they want. You won't find the actual pricing details in AP's release or its story, but it's reasonable to assume that core is priced according to circulation or some proxy for that. AP VP Tom Brettingen figures it means $6 million or $7 million less this year, but he thinks that can be made up in other areas, such as video. (And layoffs? Stay tuned for details ...)

Quoting from AP's release:

With Member Choice, members will pay a basic assessment that gives them access to all AP state, national and international breaking news. Using the Web-based AP Exchange delivery platform, newspapers can search this broader pool of content to find the stories that are most locally meaningful to their readers.

For additional fees, members will be able to buy premium services featuring in-depth content in news analysis, business, sports, entertainment and lifestyles. In addition, for the first time, members will be able to buy these stories on an a la carte basis. Members who choose not to buy the premium sports package, for example, will be able to view that content using AP Exchange and purchase individual stories.
Yep, there they are, those words that for years struck fear into the hearts of wire service execs everywhere. But this new structure can make sense for AP. What it has to do, of course, is find that sweet spot where it's giving up just enough in the basic package so that the customers (members) feel they're getting value for it and are willing to buy more of those premium goodies. It might be tempting to put some rock-bottom pricing on that base package as a way to entice more premium buys with the extra cash. But that's tricky because, no matter how you slice it, it takes a pretty good chunk of fixed costs to produce that baseline report. You want to cover as much of your fixed costs with that core revenue as possible.

But you can't price it too high because that cuts the purchases of your high-margin premium stories.

On the margin is where this plan is potentially brilliant for AP, if it can find that sweet spot. For their base price, members essentially are getting the stuff AP has to do anyhow to maintain any kind of credibility as a wire service. Those costs are going to be there just by the nature of covering news. To use that utility model I've found so useful, that's the "base load."

AP's problem has been that with the current model, where it sells each member a "stream" of content, there's a lot of high-value stuff mixed in. Because the pricing on such streams has to be an averaging of what you think the members in that economic segment will pay, much of that high-value material doesn't get the top dollar. Further, AP's system made it geographically constrained; if someone in Indiana wanted to buy several days' worth of coverage of a Hoosier on trial in South Carolina for murder, let's say, it was not the easiest to do. Stories had to be relayed bureau to bureau, which meant extra cost, and no system was set up to really price such piecework.

But if this new system works, AP should be able to better match its marginal costs to marginal revenue. You want coverage of that trial out of state? Sure, we can do that. Just put a quarter into your APExchange account here and out pops the story there. Get a few members together who want that story, and AP perhaps can afford a stringer to cover it. Back to the utility model again, matching peak load to peak demand, only the potential difference is that AP doesn't have to keep its generating capacity idle in a closet somewhere.

If it does this right -- and that means some serious talks with the News Media Guild -- I predict AP will very soon be adjusting its staffing, and what you're going to see is a demand that it be given a lot more flexibility to hire part-timers, freelancers, stringers and the like, pretty much on as-needed basis. It will have to if it is to a) pare its fixed costs as much as possible to fall within the umbra of this new "Member choice" core and then to b) match its variable costs to whatever it can generate on the margin from its members and others buying from the higher-margin goodie bag.

We may be getting a glimpse of the future here in the South.

Major doings have been afoot this week in the Atlanta office, where the regional braintrust had a round of meetings. As I understand it, Michael Giarrusso, former news editor in Atlanta who a few years ago was bumped up to a regional news director position, has been told by New York to come up with some ways to get costs in line.

According to my contacts, the current plan, after three or four iterations, appears to be consolidating all the desk supervision and broadcast writing in Atlanta.

As you can imagine, that's brought up the usual issues of quality, local knowledge and the like, the same things that sent copy editors into a tizzy recently when Media News' president said that company had to cut fixed costs and wondered aloud why there had to be all these copy editors at every paper.

We've seen this plan before: It was called UPI in the late 1980s, as I remember, and helped hasten the pretty much inevitable decline of that worthy competitor. UPI did it for broadcast, and the broadcast wires became such a mess, the work had to be farmed back out to the bureaus.

What's that saying about being doomed to repeat history? Or about doing the same thing and expecting different results?

It will be interesting to see if the AP comes up with a new wrinkle. Of course, the dirty secret is that, on broadcast at least, AP's been doing this for some time now. In the Carolinas, for instance, staffing has become so thin that the morning broadcast editor in Columbia writes for both the North Carolina and South Carolina offices, while the Raleigh broadcast editor assumes that duty in the evenings. For a week or so, the Tennessee broadcast desk has been filing Kentucky's wire while Kentucky's broadcast editor was laid up. Did anyone in Kentucky really notice?

So my predictions:
  • AP staffers should keep their eyes here on the South to see what might develop.
  • There will be a lot of disrupted lives and false starts -- and a lot of good career people leaving the AP, either voluntarily or otherwise.
  • Things between the Guild and the AP are going to get very, very interesting.
Stay tuned.

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