Digital versus print and apple and oranges analysis

David Carr at the the New York Times has written a story that must cheer the hearts of newspaper owners as they struggle to find a way to go back to the days of fat returns. Under the headline “Newspaper Shuns Web, and Thrives“, he speaks with a small community newspaper publisher who is enjoying 10% growth by almost choosing to “aggressively” ignore the web.

Ryan Sholin said on Twitter:

Yo, David Carr, apples & oranges is a pretty fricking basic concept, isn’t it? You’re comparing them.

I’d agree. Carr’s analysis is simplistic and just plain wrong. Carr says:

A few caveats before we turn back the clock on publishing history. TriCityNews employs 3.5 people (the half-time employee handles circulation), has a print run of 10,000, and has a top line that can be written in six figures.

A caveat is an outlying piece of data that can be ignored and not threaten the main thrust of the analysis. This is just one piece of data that destroys the analysis that it is the choice of the publisher to ignore the web that has made his business successful. The publisher also has negotiated long term deals with advertisers so that he doesn’t have sales staff, and he has six part-time columnists. I could make a very successful digital or analogue news business on that cost basis.

This isn’t about digital versus print. This is difference between having zero legacy costs, a small building and I’m guessing no print plant. This is a minuscule cost basis versus the high legacy costs of existing newspapers in terms of staff, paper and distribution. As any one knows, US newspapers still make piles of money, just not enough money to cover their costs.

And it’s not just the buildings, printing presses and distribution costs that the newspaper companies are groaning under. It’s the mountains of debt that they accumulated through aggressive, highly leveraged acquisition strategies. McClatchy took on debt to acquire Knight-Ridder. In September, they had to renegotiate a $1.175 bn debt deal to account for their declining revenue. Gatehouse is drowning in debt to the tune of $1.2 bn with a preciptious drop in their stock value, and we know the result of Sam Zell’s highly leveraged buy-out of the Tribune Corporation. To compare a 10,000 circulation start-up print news operation with a media conglomerate like Tribune Corp with $7.6 bn of assets and $12.9bn in debt is ridiculous. It’s about as ridiculous as comparing Digg with a newspaper. They just aren’t comparable creatures in economic scale, business model or editorial mission.

I would argue that the more accurate analysis is that Dan Jacobson, the publisher of the TriCityNews of Monmouth New Jersey has an incredibly lean news organisations with no legacy costs. It has more in common with Nick Denton’s Gawker than the Tribune Corporation. This is not an issue of digital versus analogue but rather the result of Jacobson’s focus on exclusive local content, a recession-proofed revenue strategy and aggressive cost containment.

Newspapers used to be the most efficient way to advertise. Now they aren’t. In the first half of 2007, Google pulled in 39.8% of all online ad revenue in the US. In 2007, Google was 241 in the Fortune 500. In 2008, it leapt to 150. No, Google’s business is not to create journalistic content, but it is competing with newspapers for advertising dollars.

Digital could support a news organisation on its own, if they were willing to radically reduce costs, and I don’t mean simply cutting staff. First, let’s look at the revenue side. There are still too many people running and working for newspapers that believe the 1990s chestnut: The web is great but how do you make money with it? The LA Times web revenue now exceeds its editorial payroll costs. As commenters on Jeff Jarvis’ Buzzmachine point out, that’s not the only cost a newspaper has, but it definitely challenges the view that the web is simply a money pit. The problem isn’t that the web isn’t making money, but that it’s not making enough money at most newspapers to compensate for the decline in the print business, which is still the primary revenue generator for most big city newspapers. (Jeff just got an update from LATimes Editor Russ Stanton on their web success.)

But we also need to look at cost containment. Newspapers can still radically reshape their businesses to take advantage of digital efficiencies. I often talk about when I worked for the BBC in Washington. About 8 years ago, the bureau set up its first digital editing suite with a blue-and-white Power Mac and Avid video processing, storage and software. The total cost was around $80,000. In 2005, they replaced the system with a PowerBook, Final Cut Pro and a portable RAID array for roughly $12,000. Faster, better, cheaper and portable. Expensive equipment and production doesn’t necessarily mean better quality, and a good professional can produce 80-90% of the quality at a fraction of the cost. This may sound odd to people who know me, but invest in the people, not the kit. I’d rather have a job than a shiny new computer any day.

For many large chains neither the web, print nor anything short of selling porn would dig them out from underneath the mountain of debt they have accumulated. Highly leveraged consolidation is the problem and will be the death of some of these chains. This isn’t an issue of digital versus print. Now that the credit bubble has bust, leaner and more efficient will always win the day over highly leveraged and highly costly.

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