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Aug. 29, 2018, 11:08 a.m.
Business Models

Why do billionaires decide to buy newspapers (and why should we be happy when they do)?

“If the Post is like Amazon, happy to sell individual slices of its vertically integrated whole, the Times is perhaps more like Apple, bringing its ethos and voice to a more diverse array of products.”

Editor’s note: The following is adapted from part of a larger report, “The Narrow Path for Local News,”, written by Austin Smith for the Lenfest Institute for Journalism. The report focuses on how different media sectors can navigate between legacy ad-supported models and digital models.

In the post-disaggregation era of local news, several individual newspapers have been purchased by very wealthy men, including the Minneapolis Star Tribune, The Boston Globe, the Los Angeles Times, the Las Vegas Review-Journal, and The Washington Post. Save for Las Vegas’ Sheldon Adelson, these billionaires purchased newspapers less because they view them as profitable economic investments than out of the same sense of civic mindedness that leads them to prop up ballets, symphonies, and art museums.

Jeff Bezos, disruptor of countless industries, called The Washington Post an “important institution” in a speech to the newsroom after he bought it, adding that it would be crazy to wish for the soul of the Post to change. Whether they have souls or not, newspapers are not art museums. Nearly every newspaper in the United States remains a for-profit corporation, including those purchased by billionaires. Despite the inherent complications it can create for the news organization, a billionaire owner can provide the runway to make progress down the path without the pressures of public markets.

Of these new owners, Jeff Bezos is the wealthiest — in fact, as of early 2018, he’s the wealthiest individual ever. The Washington Post is also the largest paper that has recently changed hands, and the impact Bezos has had post-acquisition has been greater than that of any other billionaire paper-buyer. Fortune reported that Jeff Bezos moved quickly once he decided to buy: “I did no due diligence, and I did not negotiate with Don [Graham]. I just accepted the number he proposed.” Given the purchase price for the paper and its associated publications — $250 million, Bezos’s largest personal acquisition to date — this suggests a level of faith in the prospects of the paper, confidence in his ability to lead the paper through its continued digital transformation, and belief in its continued ability to hold the government accountable.

Since the acquisition, Bezos has invested heavily in the newsroom and in technology, building out a content-management product, Arc Publishing, that numerous other newspapers have since licensed. This “side-effect business model” is what sets Bezos apart from fellow internet-age scions — Bezos builds tight, vertically integrated businesses, then rents out capacity in every part of his stack. Not only has Amazon spun out numerous business-to-business services through its Amazon Web Services (AWS) computing platform, it has also come to treat its core marketplace business as a platform for other merchants, allowing them to use Amazon warehouses and fulfillment services to sell products to consumers.

Whether Arc’s relationship to the Post is truly designed to mirror AWS’s relationship to Amazon, Arc’s resemblance to AWS is a clear signal of business priorities at the Post. The Post will not outcompete other news products simply because its technology is superior or because its reporters are better. It will outcompete other news products because its integration is tighter — and many of its competitors will subsidize its operating costs by leasing its technology. For example, Netflix and Amazon Prime Video compete for consumers of entertainment and for deals with movie studios to product original programming — but Netflix is a large-scale user of Amazon Web Services. Arguably, their services are complementary, and certainly many consumers subscribe to both platforms.

Likewise, The New York Times and The Washington Post could be complementary, too. In assessing the two papers, Ken Doctor concluded in February that “the impact of these two great journalistic institutions — institutions willing to stand up to state power — has been proven anew” and that readers should “subscribe to both.” The Times would be an unlikely Arc customer, as it has its own sophisticated technology infrastructure, but unlike the Post, it has signaled no ambitions to license its efforts to other news organizations.

The Times and the Post are, however, alike in one crucial way that disinvites comparison to other local news products, which is that their importance hinges on their coverage of national, not local, news. Both papers use their city as a lens on the world, and much of their respective coverage reflects the view through that lens. As a result, both have become indispensable in their coverage of U.S. politics, trade, and the economy. The only other paper that can reasonably claim this local-out perspective in 2018 is The Wall Street Journal.

Whereas other news products compete locally, the Times and the Post compete nationally and enjoy large markets of voracious news consumers around the world. Doctor estimated in February that the Post earns around $100 million annually from digital subscriptions, at approximately $100 per reader and 1 million readers, a number CNN the Post passed a year ago. Weekday circulation of the Post peaked in 1993 at 832,332; Sunday circulation peaked at 1,152,272. With just its digital product, the Post has surpassed its peak paying weekday audience and is approaching — or has perhaps already surpassed — its peak paying Sunday audience.

Likewise, The New York Times has expanded its digital audience; it counts 2.9 million digital subscribers, a figure that also includes subscribers to its crosswords and cooking products. That bundle of products makes a direct comparison to the Post’s totals more challenging, but the Times’ diversity of digital products — including Wirecutter, a popular digital-only consumer review site — is its signature. If the Post is like Amazon, happy to sell individual slices of its vertically integrated whole, the Times is perhaps more like Apple, bringing its ethos and voice to a more diverse array of products.

The Times and the Post are the rare breed of newspapers able to use digital disruption to their own advantage. While in one sense, the internet has taken a great deal from newspapers — it has terrorized print circulation and most kinds of advertising — it has also given new strength to those news organizations that do have a truly national platform. But where does that leave regional dailies like those recently acquired by billionaires in Minneapolis, Los Angeles, Las Vegas, and Boston? Certainly less sure of their foothold and envious of the fortunes of the likes of the Times and the Post.

One path could lie in the towering map of New England that greets those entering the headquarters of The Boston Globe — if a newspaper could leverage its digital reach to better serve an entire region, it could potentially turn the threat of the internet into a strength, albeit on a scale smaller than The New York Times or The Washington Post. With its regional importance, the Los Angeles Times has had success building its digital subscription base, reaching 105,000 digital subscribers as of September 2017, though its accomplishments pale in comparison to those of The New York Times and The Washington Post. And these gains came amid a terrible pattern of turmoil for the L.A. Times that seems perhaps to have concluded this summer with the purchase of the paper by Patrick Soon-Shiong. The largest of the regional papers in the United States, the L.A. Times has at points set its sights on instead being the smallest of the national papers.

While the D.C. bureaus of local newspapers as a group have shrunk or vanished in the past decade, the L.A. Times and Boston Globe have continued to cover national politics and economic issues. The L.A. Times lists 23 editors and reporters on its international and national desks, 16 in its D.C. bureau, and 14 on its politics desk. At face value, more reporters covering those in power seems like a net asset to society. Los Angeles certainly needs an editorial team to hold its elected officials accountable to their constituents. Still, those responsible for the L.A. Times news product must carefully navigate the tension in allocating resources between national news — some of which will certainly be covered elsewhere but which could bring a national scale of pageviews — and local news that may otherwise go unreported but that would naturally attract a narrower audience.

It was against the backdrop of Lewis D’Vorkin’s chaotic tenure that the newsroom voted to unionize, publisher Ross Levinsohn was placed on leave during an investigation of his workplace behavior at prior employers, and Tronc reached an agreement to sell the paper and its recently adopted sibling, the San Diego Union-Tribune. Still, the staff of the LA Times might not take a deep breath just yet. After making a $70.5 million investment in Tronc, Soon-Shiong told Bloomberg in 2016 that he hoped to bring “machine vision” to the L.A. Times: “For example, a reader could pan a camera across a physical newspaper and the photos could be turned into video. Focus the camera on a photo of basketball star Kevin Durant or Donald Trump and ‘you’d hear him speaking or Kevin Durant would be dunking,’ he said.” If D’Vorkin sought to marry Instagram to Forbes at the LA Times, Soon-Shiong seems eager to breathe new life into the CueCat, the barcode-scanning device publishers gave for free to their readers in the hope of boosting engagement and bringing e-commerce revenue to print media.

In fairness, Soon-Shiong’s concept does away with the inelegance of the printed barcode and the computer-connected barcode scanner, replacing them with printed images and the reader’s smartphone, placing such an experiment closer to the trendy realm of augmented reality than to the retrospective uselessness of the CueCat. Yet the user’s action is essentially the same: find something interesting in print; learn more on the web. In further fairness to the machine-vision idea, most newspapers are brainstorming ways to bridge the gap between print and digital, not ways to make the print product more valuable and more connected. But the newspapers that are flirting with augmented reality are still only flirting — The New York Times’s occasional technology experiments, like its 2018 Winter Olympics feature, feel high-touch and expensive, and do not appear to feature into the print edition.

Assuming Soon-Shiong takes a more moderate approach to leading the evolution of the news products at the L.A. Times, it could come to resemble John Henry’s Boston Globe in some ways. Among regional papers, with nearly 100,000 digital subscriptions, the Globe only narrowly trails the L.A. Times. The Boston metro area, however, has only barely a third of the population of the Los Angeles metro area, with 4.5 million and 12.8 million residents, respectively, in 2016. And while New England as a whole is home to about 14.44 million people, California is home to 37.2 million by itself. The cultural demographics of California versus New England could yield further opportunities for the L.A. Times, which also produces Hoy, a daily Spanish-language newspaper.

The Globe, of course, has had recent and well-documented struggles with its printed product. When it changed printing plants in summer 2017, problems with the transition left many subscribers without their newspapers. And as of March 2018, the Globe’s annual seven-day subscription cost appeared set to climb to levels that would make it the most expensive newspaper in the United States — though not far from the price of a midrange gym, and on a daily basis, still cheaper than most drinks at Starbucks. Perhaps, as Dan Kennedy says, print is destined not to be a mass-market product — “print is becoming a niche product for people willing to pay for it.”

In Minneapolis, Glen Taylor’s Star Tribune has managed to collect about 50,000 digital subscriptions, roughly as many as the Chicago Tribune, and avoid the level of scrutiny or intrigue that coastal papers now owned by billionaires have faced. Taylor purchased the Star Tribune in 2014, five years after it emerged from bankruptcy, a victim of the steep decline in value of newspapers since the 1990s and the great recession. His purchase of the paper was praised by R.T. Rybak, then the mayor of Minneapolis, and welcomed by the NewsGuild, which represents the Star Tribune’s reporters. The Star Tribune has since become a strong example of funnel-driven consumer marketing, which treats the subscription process like a conventional e-commerce experience, and has invested in data tools and technology to identify the readers most likely to pay for subscriptions.

Conversely, casino magnate Sheldon Adelson bought the Las Vegas Review-Journal in 2015 in secret. His purchase of the paper was revealed by its own reporters. The $140 million sticker price outstripped Taylor’s $100 million price tag for the Star Tribune and doubled John Henry’s $70 million for The Boston Globe, which led to speculation that his motives were to use the newspaper to promote his own political agenda. That theory was borne out by his request, as negotiations to purchase the paper were coming to a close, that Review-Journal reporters monitor three judges in the city, one of whom was overseeing a lawsuit that imperiled Adelson’s casinos. The New York Times called this an “ominous coincidence.” By early 2016, newsroom anxiety had given way to firings and resignations; a new publisher and editor were appointed; and stories involving Adelson were routinely killed. The market size, about 1.9 million people, of the Las Vegas metro area pales in comparison to Minneapolis–St. Paul, with its 3.3 million. This underscores the odd nature of Adelson’s purchase. Adelson’s net worth, as reported by Forbes, was $31.8 billion in 2016, far higher than Taylor’s $1.9 billion, making his purchase of the Review-Journal a far smaller fraction of his net worth than Taylor’s. Adelson has the means and the motive to take a major metropolitan newspaper and turn it into a puppet.

Why does a billionaire decide to buy a newspaper? Of the five considered here, four purchased papers in their hometowns or adopted hometowns. Bezos grew up in Miami and built Amazon in Seattle; his purchase of The Washington Post underscores the national importance of that paper rather than show a billionaire committing an act of civic charity. Each of the five men in question exhibited some combination of civic-mindedness, profit motive, and raw self-interest in using the power of the news organization for their own purposes, though those purposes range from holding the government accountable to suppressing negative coverage of related business ventures. Thus far only Gerry Lenfest, the owner of the Philadelphia Media Network who donated the Inquirer and Daily News to the Lenfest Institute before passing away this month, officially abandoned profit motive as his rationale for owning a newspaper. In contrast, many newspaper owners emphasize their view that newspapers should be profitable and link their profit potential to their sense of civic pride: If our readers truly care about their community, we can have a profitable newspaper.

The motivations of billionaires hearken back to a core question of whether our society needs newspapers — or just news. Why not apply one’s civic pride, resources, and business acumen to a new way of distributing news, one not so decimated by declining print revenues and advertising? There’s also a sense of inequality in the fate of newspapers: Will cities with struggling local media and no interested saviors simply become local news deserts? How does that impact the accountability of state and local governments? Still, newspapers that have had the advantage of such a patron — especially the Globe and the Star Tribune — have much more experience growing reader support of their digital products than most other papers. As such, they are the furthest down the path between reliance on advertising and reliance on reader support. Those that trail might look to them as examples to follow.

Photo of “Game of Rich Uncle” by Mike Mozart used under a Creative Commons license.

POSTED     Aug. 29, 2018, 11:08 a.m.
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