Circling the Drain – Part 4

Silicon Alley Insider, a frequent source of morbid news about the plight of the New York Times, has morbid news about the local (Seattle) Times:

In 2004, newspaper broker Dirks, Van Essen & Murray put the value of the company at $900 million. Two years later McClatchy purchased a 49.5% share of the paper from Knight Ridder, which valued the paper at $240 million. McClatchy has regularly written down the value of the company since and in a federal filing dated Nov. 16, it valued its 49.5% stake in the company at $7.9 million.

Seattle Newspaper’s Value Drops 98% In 4 Years

2009 is going to be ugly, ugly, ugly for newspapers.  The fire sale is on — there will be some real deals for newspapers’ non-newspaper assets in the next six months (want to buy part of the Red Sox?)

Circling the Drain – Part 3

Two of the most-widely-read technology journalists/bloggers for the Seattle newspapers have left the building:

The Puget Sound Business Journal got significantly stronger today. Two of Seattle’s best-known technology journalists, John Cook and Todd Bishop, have resigned from the Seattle Post-Intelligencer to take new jobs at the crosstown Business Journal.

In an unbundled world, the vertical specialist should have an advantage.

Circling the Drain – Part 2

Following up on our previous examination of the newspaper business in Seattle, two breaking developments have emerged this weekend.

All The News That Fits in the Pits

A special correspondent sends photographic evidence of a local marketing effort by the New York Times in Seattle:

img010

This is near the hydroplane pits at SeaFair, an annual summer event in Seattle dedicated to drinking beer in the sun under the pretext of watching hydroplanes turn left around Lake Washington and periodically flip over.  I read that there was a thrilling ending this year in which the Beacon Plumbing boat was disqualified for being “off plane”, allowing the Ellstrom E-Lam Plus to win with the O Boy! Oberto taking second.  Think aquatic NASCAR, only louder and more provincial.

It is great to see the Times experimenting creatively and aggressively as they seek to revoke their “death watch” status.  No one can deny it is a bold move to place the Times alongside the  powerhouse plumbing (Beacon Plumbing), machine tools (Ellstrom E-Lam), dried meats (O Boy! Oberto) and replacement window (above) sponsors that dominate the hydroplane circuit today.  Presumably this outreach to new demographics is part of an well-orchestrated plan that extends to the editorial side of the house.  I, for one, would welcome more O Boy! Oberto and less opera in the Times.

While bold, the effort does look like it could use a little refinement, starting with actually having someone in the booth.  And West Coast Vinyl next door still tops them in tech savvy, with a prominent free Wii offer.  But in all, a commendable effort.

All News is Only Fit to Print

Meanwhile, over at the Seattle Times, there is continued focus on the core challenges they see facing the business.  No, not the Internet.  Not even inroads by national newspapers amongst local hydroplane and vinyl window fans.

Evidently the problem really is consolidation of the media by large, publicly-traded conglomerates that have the gall to diversify beyond the newspaper business.  Never mind that those same conglomerates are “getting killed” by the Internet as well, one wouldn’t want to lose focus on your eternal nemeses.  Ryan “The Scion” Blethen, from his fifth-generation, family-owned Seattle Times opinion page pulpit, calls upon journalists to speak up and take a stand against media consolidation.  The editorial itself suggests there isn’t much interest amongst journalists in this topic, but is having journalists “speak up” really the best strategy a publisher can come up with to stop industry consolidation?  A time machine might be a better approach given the consolidation in question happened decades ago.  And if you’re a journalist, do you really want to denounce consolidation that might provide a way for newspapers to continue to exist through subsidies from healthier businesses?

My suggestion: more energy on the web site, less time hoping the FCC will somehow hobble your fellow buggy whip competitors.

Circling the Drain?

The future (or lack thereof) of newspapers discussion is hitting a crescendo this week between Steve Ballmer declaring they’re all toast in ten years and a columnist for the Seattle Post-Intelligencer firing back that we’re more likely to see Microsoft’s obituary printed in his paper.

While the plight of the New York Times, Los Angeles Times and various other papers tend to take center stage, the Seattle market is a great place to watch the wrenching adjustments the newspaper business is undergoing.  Seattle is unique in that it is one of the few two newspaper towns left in the United States.  When I last checked, oh 15 years ago, there were only six major cities left with more than one paper.

I checked as part of the initial research in the early 1990s that led to MSN Sidewalk.  The analysis didn’t consist of much more than “Wow, you make 40% of your revenues and over 60% of your profits from classified ads?  Boy, that would be easy to do in software.”  Now Microsoft has long since sold off Sidewalk, because it turned out there was a political dimension to the news business as well, which the company was characteristically naive about.  In the middle of the DoJ hullabaloo Microsoft didn’t need any more bad press from newspapers who saw the company through a competitive lens.  The lesson is you don’t pick fights with people who buy ink by the barrel unless you’re prepared to finish them.  And the company wasn’t.

The Seattle Times is family-owned (complete with scion who bangs the drum for local ownership of media and more regulatory restraints on his competitors) and the Post-Intelligencer is owned by the Hearst Corporation.  The Times doesn’t have significant diversified holdings (unlike say the New York Times or Washington Post) to mask or subsidize the core newspaper business, so it is a pure-play tell on industry fortunes.  Hearst Corporation is more opaque as a privately held conglomerate but the fact the P-I is the weaker paper in town means they can’t ignore the underlying economics too much.

The papers have a Joint Operating Agreement, which is a government-sanctioned antitrust exemption allowing the Seattle Times, the larger of the two papers in circulation, to provide advertising sales, production, marketing, circulation and even web operations for both papers.  The Times gets paid its expenses and they split what is left over, with the P-I getting 40%.  The news and editorial operations are separate.  They even share a Sunday edition, to which the P-I contributes a few flimsy pages of mostly syndicated content.

Despite this cushy arrangement, the two have been at odds, spending five years battling over the terms of the JOA.  Both papers have gone to great lengths to keep the terms of the JOA secret (transparency is kind of like anytime, anywhere communications — it is great other people are always reachable, but we’re not so sure we want it ourselves…).  The area of greatest competition between the two papers in recent years has been around who claimed to be losing the most money, which was at least in part jockeying for negotiating leverage.  Amidst these negotiations, the Times, historically the afternoon paper while the P-I was the morning paper, moved to the morning in what could only be characterized as a go-for-the-jugular move.

So while the Times and the P-I have made their peace around the JOA after five years of bickering, with the Times making a $24 million payment to Hearst, both papers continue to face the reality of the Internet disaggregating and sucking the life out of the traditional newspaper business model.

If they understand the secular forces they are facing, it is not clear from recent statements by the publisher of the Seattle Times:

Publisher predicts ad-revenue drop

Combined advertising revenue for Seattle’s two daily newspapers is forecast to drop to $195 million this year, with an expected $41 million of that for the hard-hit classified-advertising category, Seattle Times Publisher Frank Blethen said in an e-mail to employees Tuesday.

The revenue figure would represent a 29 percent drop since 2000, a year that also saw classified ads total $125 million, nearly half the two papers’ total ad revenue.

In his e-mail, Blethen said the revenue problems plaguing the Seattle papers and the entire industry probably “will continue until the recession ends, which could be several more quarters.”

Blethen said The Times has lost a total of $49 million this decade. Earlier this month the newspaper reduced its staff by about 7 percent through layoffs and buyouts.

Does he really believe the sun will come out in “several more quarters” and double digit revenue declines and recurring layoffs will be a thing of the past?

We’ll continue to monitor the situation.

Whither the New York Times?

Marc Andreessen just initiated a deathwatch on the New York Times and it is unfortunately hard to disagree.

As much as I enjoy the New York Times, on the web, through the very cool Times Reader and in finger-smudging print, the last time I dug into the numbers for the flagship New York Times newspaper (inside the broader New York Times Company), it was an exercise in turning a billion dollar print business into a tens of million dollar on-line business.  The print business is declining faster than the online business can fill the breach, which eventually has to get ugly.  The NYT Digital group has done some great work, but they’re bailing out the Titanic with a teaspoon.

There is another point worth adding to Marc’s list of issues fit to print: Rupert Murdoch.  He smells blood in the water and is deploying his new Wall Street Journal accordingly.  You could even argue one of the more compelling reasons to make an acquisition in the troubled newspaper business is if you thought you could pretty much take out your primary national competitor.  When asked if he intended to kill the New York Times, Murdoch merely replied: “That would be nice.”