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Nov. 6, 2018, 10:43 a.m.
Business Models

Newsonomics: Newspapers are shells of their former selves. So who’s going to build what comes next in local?

There seems to be some momentum among those with deep pockets to address the local news crisis. But if that money appears, where should it be directed?

Neil Chase knows the painful realities of managing and motivating a daily newsroom in 2018.

“You can’t ask dedicated, veteran career journalists to completely change the way they work without explaining why,” the Mercury News executive editor said at a panel discussion I moderated at Stanford two weeks ago. (The panel’s fitting title? “The Last Stand for Local News.”)

“So I shared some very simple charts with the newsroom, showing the decline in our circulation and staffing over the past decade, and how that trajectory would put us out of business in the mid-2020s if we don’t make some drastic changes. We then started talking about reorienting the newsroom to serve a digital subscription audience, and we’ve made major progress since.”

Chase knows that his staff can still churn out great work, as do many of the 23,000 or so remaining journalists in U.S. daily newsrooms. But that doesn’t change the numbers.

Out of business. In seven years. That’s not hyperbole. It may be optimistic.

Over the past 30 months, The Mercury News has lost 34 percent of its daily print subscribers. It’s lost 19 percent of its Sunday ones, dropping to 118,000 copies. Last week, I reported on several Gannett papers that had seem recent declines of a similar scale.

This is the state of the local daily newspaper business today: Simple survival is the question. Which prompts another question: Are we moving into the NINO age? As in, newspapers in name only, to borrow from the RINO slang of pre-Trump Republicanism.

2018 may prove to be a turning point. The year has already been marked by an unforeseen acceleration of decline in the core local daily newspaper business, both in advertising and in circulation. At the same time, the hushed whispers of a local news emergency have grown louder. There’s talk — both public and private — of the need to raise huge amounts of money in order to address a crisis a decade in the marking.

Is this then a reckoning — the year when a green wave of cash began to find (and fund) a future for local news? Or is it just a minor swell, soon to be swept aside just as others have before it?

Today, there are more than 1,200 dailies extant in the United States. A good 98 percent of them are likely profitable — but the understanding that daily print may be on its last legs is near-universal within the industry. Their prospects are growing as thin as the print newspapers themselves.

The industry’s third-quarter financial results, rolling out this week and next, will confirm that anxious reality; one publisher called it “death rattle” in a call this week. The financials will parallel the way-down second quarter.

GateHouse has begun to close down newspapers that it just can’t make work, albeit in small places like Arkadelphia, Arkansas (pop. 10,650). Shuttered newspapers figure to increase in number and in market size in the next few years. A third or more of print dailies’ readership is now 70 or older — a waning market the redefines the word “mature.”

More anecdotally, I saw an unexpected firestorm via social media as I reported last week Gannett’s decision not to publish midterm election results in Wednesday’s print editions. The tweets and comments I saw got to the very existential questions of the local press and its place in the lives of readers.

The print product itself — in most, but not all, cities and towns — continues to shrink, a “news” paper in name only. Too little news, too little understanding of the community, too distant from readers’ concerns of today. Newspapers in name only.

As the reports of the country’s local news demise have piled up, one standout has been Penny Abernathy’s latest census of loss, its documenting of “ghost newspapers” haunting “news deserts.” (What’s next, American Horror Story: Deadline?) As one headline put it, “About 1,300 U.S. communities have totally lost news coverage.” As regrettable as that it, the harder-to-quantify loss of coverage in all the communities that still have a paper is likely even larger.

It’s not just the words on pulp that matter here, of course. But local papers’ ho-hum digital products can only show the journalism their disappearing newsrooms can provide.

It’s the basic stuff of community news and information that’s going, going, and gone. Did you try finding relevant news, information, analysis, or endorsement as you filled out your midterm ballot?

The Mercury News’ Neil Chase painted a picture of civic loss at the Stanford session.

“In the past, with a larger staff, we would cover local government meetings and activities in many of the 101 cities in our nine-county Bay Area,” he said. “Today we don’t have the people to sustain that operation. It’s not just about writing up what happened at the meeting; we guessed before and we know now, from online stats, that many of those stories didn’t draw tremendous attention. But if you don’t have reporters in city hall listening to the meetings, looking for themes, meeting people who attend and pursuing bigger stories, you don’t have the accountability that local journalism should provide.”

One hundred and one cities in the epicenter of Silicon Valley, the world’s economic engine, are now covered by (or “covered by”) a newsroom that has lost nearly 90 percent of what was once a 425-person operation 15 years ago.

None of this is news, you might say. These trends at least a decade old. (A decade ago was the last time the industry actually grew in revenue year over year.)

But we only read occasional reporting of the deepening decline. Denver attracted big, but brief, national attention as Digital First Media, owner of both The Denver Post and The Mercury News, slashed a third of the staff there. Even the most earnest of the chains, McClatchy, has seen revenue declines force it to cut 15 percent of its newsroom jobs in one of its regions, just this year.

Shrunken by 60 percent in newsroom staffing and in total revenue, and by more than that in profit, the old question — Will there ever be a time without daily papers? — seems downright quaint. It’s as if we’re waiting for a telegram telling us to turn off the lights. Things are getting dim enough that that final flip of the lightswitch seems increasingly beside the point.

“Moving the needle”

Into this situation walks John Thornton. He made his money as a venture capitalist. Unlike most in the news business, he starts with the capital problem.

“When capital markets say ‘shrink,’ that’s what you do,” says the cofounder of The Texas Tribune, the nine-year-old outlet that stands as the most successful local digital nonprofit news site in the country. “When capital formation is the industry’s biggest problem, the second one doesn’t matter.”

It’s a laugh line, but one with a bite.

Money. Talent. Excellence. Growth. Thornton talks a different game than most in the journalism business — with money first in line. Money, we forget, enables journalism, and Thornton can talk as easily in billions as in millions.

Take this aphorism: “It’s expensive to grow too slowly.” That comes from Thornton’s years as a Texas Ventures partner, but he also applies to his vision of how to rebuild a once vital industry. Small-scale incrementalism won’t do it, he says.

Thornton and his co-conspirator in reviving local journalism, Chalkbeat’s Elizabeth Green, have set out on a grand adventure, with a grand name befitting the times. Their American Journalism Project went public this fall, with both the Knight Foundation and the Democracy Fund providing initial support.

The VC Thornton now evangelizes VP — venture philanthropy.

So how does he connect venture philanthropy to capital formation? He applies (and adapts) the Texas Tribune model, one of the past decade’s best journalism success stories. He’s been asked a million times: “Why aren’t there more Evan Smiths?” — the Tribune’s founding editor and CEO. AJP intends “to go where the great people are.”

In his model, AJP will fund the hiring of top talent in the areas in which most journalism startups are deficient: revenue creation and state-of-the-art technology. If a first round of funding is raised, some 25 to 35 journalism organizations will receive $1 million to $2 million each to make top hires and more to “move the needle.”

In other words: Jumpstart journalism; don’t try to grow too slowly.

The AJP dream: Prove out new sustainable, fundable models of local journalism and “catalyze” $1 billion in funding for a next wave of journalism.

Thornton is just one of many now talking about big numbers in new funding.

This fall, both the Knight Foundation — long the lead sled dog in digital journalism funding — and the Lenfest Institute redoubled their efforts. Together, they announced another $20 million, in joint funding, for local news. More may be on the way.

Google and Facebook see the pockmarked landscape as well. Google’s new Google News Initiative, announced in March, aims to provide $300 million of value to U.S. news organizations over three years, though that’s largely through tech assistance. Facebook, at an earlier stage of publisher cooperation, has launched a variety of projects. There’s Civil, in the process of retooling its ambitions after an unsuccessful token sale.

That’s just the public talk about assembling some of the millions a new journalism may require. From coast to coast, people increasingly anxious about the interwoven failings of our local press and local democracies are quietly laying out plans.

Meanwhile, others are building from the ground up, brick by brick.

Serial news entrepreneur Steve Waldman’s grand plan calls for the funding of as many as 1,000 new local journalism jobs by 2022. With his Report for America cofounder Charles Sennott, Waldman has lined up national and local philanthropy to fund new reporting positions at all kinds of local media. RFA is funding 13 positions this year, a number it hopes to keep growing, especially in ways that can be funded for the longer term by local interests.

At the same time, there are some green shoots of journalism peppering those news deserts. The Institute for Nonprofit News now counts more than 190 nonprofit member sites, according to executive director Sue Cross, employing more than 2,200 journalists. About half of those sites focus on local news.

The collective work of those 2,200, and hundreds of others in LION Publishers — the local independent online news publishers group, which overlaps to some degree with INN — grows more impressive year by year. They could, individually or collectively, be the foundation of something big and new. Or they might not be. They fill gaps in many communities — but like water poured into a hole at the beach, they’re facing a coverage problem that only gets deeper.

Public radio, well positioned to address local news woes, has rolled out its own new programs. “We believe we are in a unique spots with our national/local combination,” says Bruce Auster, NPR’s senior director for its Collaborative Journalism Network. “The difference for us is that we have the local infrastructure.” Translation: radio towers and local audiences. Many smaller public radio stations serve mainly to pass on national programming. This initiative is bringing more of them in the news loop, both around regional reporting and through topical teams that slice from national to local and back up. NPR’s partnership with Kaiser Heath News is indicative, with 27 stations so far partnered on a health policy reporting team.

Altogether, 1,800 journalists work for local public radio stations, though most of them are attached to larger metro operations. The big and evolving idea: connect and grow those 1,800, combined with the strength of NPR’s own 400 journalists, to improve local coverage. In the run-up to today’s election, NPR’s network used its network of political reporters and editors to cover all 36 gubernatorial races in 2018.

NPR has just hired Nancy Barnes, the highly regarded top editor at the Houston Chronicle (and the Star Tribune before that) as its new top chief news executive. Barnes, who starts after Thanksgiving, has the experience and vision to build on the current initiative.

Where do you aim the money?

This new funding mojo is eye-catching, but is only begins to answer all the question of local news in the 2020s. Money is good, but by itself it won’t re-invent local news.

If tens of millions really can be raised, where should that money be directed?

We can all agree that reporting — actually finding out stuff and letting the citizens know and understand it — is what’s needed. But how does such reporting get first funded and then sustained? Does it make sense to build something completely new? Something in tight connection to the existing legacy news brands? Something in between?

Here, funders like Knight and Lenfest have straddled that question. Their support of Table Stakes speaks to sparking change at the dailies. Meanwhile, their technology initiatives intend to both encourage innovation among independents and create regional news alliances.

There are those brave civic-minded souls who have bought dailies, from all the billionaires we’ve covered to the new owners of the Berkshire Eagle, who bought it from Digital First Media. The Eagle, just named “newspaper of the year” by the New England Newspaper & Press Association, serves as a prime example. The challenges — financial, technological and cultural — can be overcome, with enough money and vision. But it’s not for the faint of heart.

The financial analysis itself can be mind-bending. It’s a question McClatchy faces in seeking to merge with Tribune Publishing: How can any potential buyer of a single paper accurately value that property?

As Tribune (R.I.P. Tronc) now concludes its torturous, nearly year-long auction process, we can see the financial-engineering rationales — the ones I’ve argued are now driving industry decision-making — come to the fore.

Acquisition valuation has traditionally been about the “multiple”: How many times a company’s annual earnings will a buyer pay? Ask any non-buying industry observer about that math, and they’ll chuckle: “You tell me what the earnings will be in 2019 and 2020.” In other words, if the only way to maintain steady profits in an industry in steep financial decline is to cut those creating the product — how reliable can a projection of future earnings really be?

Consider the big picture of the U.S. daily newspaper industry. At its height, it pulled in about $55 billion in annual revenue. No organization has conducted an annual count of that revenue in half a decade.

In talks with industry experts and by extrapolation, I can now estimate current annual revenue at somewhere between $18 billion and 20 billion. Annual EBITDA runs about 10 percent on average, say the experts. Operating margin? Maybe 8 percent. So in total, the newspaper industry generates somewhere around $1.5 billion in profits today. That’s everyone, including the nationals (The New York Times, The Wall Street Journal, and The Washington Post), which are now functionally in a different business than their former peers in the local press.

(By mind-bending comparison, Google alone takes in about $37 billion a year in EBITDA.)

If that math seems too daunting, investors — philanthropic and otherwise — can focus on the new. What will it take to actually build new, sustainable, and growing local journalism operations?

Hiring reporters works — in the short term. What about top digital strategists? Those who can bring in and build new and sustainable revenue? Product builders able to wield the smartphone for the benefit, not detriment, of local news companies? Staff who know how to connect with audiences, socially — and in the community. Difference makers? How do you hire those, who in John Thornton’s words, “move the needle?”

There’s far from a consensus on how money — even if raised in unprecedented amounts — should be spent.

One movement sure to grow focuses on the statehouses across the 50 states, as dailies have cleared out their reporters, leaving lonely AP staffers to the job. We’ve seen a rush of Texas Tribune–like troops to fill the gaps — in some states. CALmatters, VTDigger, The Connecticut Mirror, The Nevada Independent, and Mississippi Today are among those populating that terrain.

That’s a clear and useful model — but it doesn’t solve the need of readers for local news from their cities and towns. And local news is where the core problem is. As The New York Times redefines success in the digital age — growing revenue again, thanks to nearly 4 million total subscribers, we can see an approaching digital crossover in the national news business. But in our lives, in our politics, and in our elections, it’s the news where we live — local — that requires revival.

In 1961, the playwright Arthur Miller said that “a good newspaper, I suppose, is a nation talking to itself.” We need local news that feels, authentically, like communities talking to themselves.

Illustration based on work by Nathan Hackett used under a Creative Commons license.

POSTED     Nov. 6, 2018, 10:43 a.m.
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