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Newspapers as Philanthropic Enterprises

by BECKY O'MALLEY

Dear Jeff,

By now you must have heard that old joke at least 20 times:

Mr. Bones: “Do you know how you can make a small fortune in the newspaper business?”

Eager Buyer: “No, Mr. Bones, how can I make a small fortune in the newspaper business?”

Mr. Bones: “Why, start with a large fortune, of course!”

Luckily for you, you seem to be starting with a large enough fortune that you might be able to afford to run the Washington Post. And you seem to be smart enough to realize that this venture will not be a sure-fire money-maker like your current business, Amazon Inc.

Like you, we bought a failing newspaper once upon a time. We also used earnings from a previous successful business to do so, though on a much different scale: several orders of magnitude, perhaps several dozen orders of magnitude less than the one you’re operating in.

You’re reported to have paid $270 million dollars for a paper estimated by Brad DeLong, a Berkeley economist neighbor of ours, to be worth just $100 million.

We paid only $15,000 for the Berkeley Daily Planet, for which we got a bunch of obsolete Macs, some ugly furniture and the tail end of a commercial lease in the bargain, plus whatever rights the founders had to the Daily Planet name. And that was more that it was worth. Like you, we overpaid in our enthusiasm for becoming newspaper owners.

Both your paper and ours had a consistent recent record of losing money. Though we did not expect that publishing was going to be as profitable as software development had been, we naively believed that with good management and quality improvement we’d eventually be able break even.

Didn’t happen. In fact, over eight years we lost a considerable percentage of what we’d made in our previous high tech enterprise, hoping for much too long that things would turn around.

So, what advice can we give you?

Well, the first thing you need to know is that it’s not about distribution. Your signature venture is all about optimizing distribution—the product sold by Amazon Inc. is created by someone else. But now, like it or don’t, you’ve entered the production end of the news business.

And that doesn’t mean printing newspapers. We optimized printing and delivering papers to a fare-thee-well: cheap paper stock, boxes where readers could pick up their own copies so we didn’t need delivery, all that stuff. But it’s been decades since selling printed copies of newspapers has been a way to make money.

Then, advertising, the way newspapers had supported themselves for close to a century, collapsed out from under us and many other publications. Rightly or wrongly, retail merchants everywhere no longer believe that advertising in a news publication is the way to increase their sales.

You know something about how that happened, don’t you? For the whole eight years we were supporting the Planet, the big local-but-world-famous Berkeley bookstore, Cody’s, consistently refused to advertise with us. By the time we threw in the towel, Cody’s had gone under. Some blamed the vagrants who sat on the sidewalk in front of the store on Telegraph Avenue, some blamed the last owner who’d acquired it from the founding Cody family, but most people, probably including the last proprietor, blamed—you—or at least Amazon Inc.

And in truth no one, even us, really thought advertising in the Planet or any other publication would have helped book sales much. The same kind of thing has happened with other local retailers, once the main support of newspapers. Classified ads experienced a similar downward trajectory, accelerated by Craig’s List online.

So you won’t be able to make money by selling ads in the Washington Post.

Your product these days is not copies of newspapers or subscriptions or ads—it’s information. This week Paul Krugman (the main reason we still read the New York Times at our house, on paper or online) summed it up nicely:

“It’s true that information technology makes it increasingly easy to carve out your own brand; I’ve done some of that myself. But it also makes monetizing information harder; I believe that Arcade Fire makes a lot of its money from live performances rather than record sales, and in any case they have not become wealthy. This is OK for music — great music can be made without super-profitable record companies — but not so OK for journalism, which relies on a substantial infrastructure of non-superstar reporters.

…[T]he Times, or any news organization, depends on the services of many reporters, staff, etc. who actually have to live on their salaries.”

”Somehow the economics of this new world have to be worked out; but they are definitely problematic. Someone like Nate [Silver] can become a celebrity and cut free of the middleman; but the people reporting on City Hall can’t, and we need those people too.”

There’s the rub. News doesn’t just happen—someone actually has to turn events into stories. And that certain someone needs to be paid to create the product which the publisher sells.

When we were publishing the printed Planet, because of the Berkeley cachet we were able to attract excellent reporters like Richard Brenneman while paying very modest salaries, yet we still lost money hand over fist. That’s the problem, Jeff: You’ll continue to incur the cost of reporting without the advertising revenue which paid for it in the old days.

And as for monetizing (don’t you love that word!) news by selling online ads or putting up pay walls—well, good luck. No one’s been able to succeed at either one of those so far.

It’s tempting to think that running a lot of opinions might be an inexpensive way of creating marketable content. We tried that at the Planet. Our open-to-all commentary section was probably the best-read part of the paper, but eventually some op-ed writers ran afoul of a powerful interest group.

We printed some pieces from readers who were supportive of Palestine and critical of Israel at a time when other publications considered Israel to be journalism’s third rail, never to be touched. This caused a very small but energetic minority of wacko Israel supporters to launch a campaign to persuade our advertisers to boycott us. Sinister visitors dropped in at local places of business and loudly denounced the Planet as anti-Semitic, sometimes in front of customers.

Despite affirmations of support from many members of the Jewish community, a substantial number of advertisers (including even our own insurance company) were scared into dropping their ads. And we were already way short of ad revenue….

After we gave up on newsprint, we tried for a while to publish online with a print-on-demand option in conjunction with a copy shop, but their upper management was scared off by more threats from the usual suspects.

These days there’s much more open discussion of Israel/Palestine in the press, but you can be sure that some other third rail issue will bite you if the Post runs controversial opinion content.

Already, my leftist pals are on the warpath because Amazon’s cloud computing capacity has been offered to U.S. intelligence people—even though I realize the WaPo is your personal investment, not Amazon’s. On the other hand, your support of liberal/libertarian social policy on gay marriage can be expected to incur the wrath of the other team. You can be sure that some group will organize a boycott for some reason before you’re through.

We’ve ended up these days at the bloggish end of the spectrum, relying most of the time on pro bono pieces written by members of Berkeley’s extensive literati who are willing to work without pay. We’ve learned, sadly but not surprisingly, that many such people eventually get bored and wander off, no matter how good their intentions, though some have persisted, which we appreciate. It’s nice enough, but it’s not really a newspaper.

My conclusion, Jeff, which I’m happy to pass along to you pro bono with no consulting fee, is that running a newspaper isn’t a business any more, but a philanthropic enterprise. Your role model should be Andrew Carnegie, who made his fortune in the steel industry and then put his profits into the wildly successful project of setting up free public libraries across the country and founded organizations devoted to world peace, racial justice and other worthwhile causes.

As long as you’ve given up the idea of making money from owning the Washington Post, you’ve embarked on a worthy task. You’ve made your mark in business, and now you can secure your place in history if you do it sensitively.

And while you’re at it, by the way, you should enjoy it too. Now that you’re really rich, you should be able to have a bit of fun for a while. At least, I’m here to tell you, it won’t be boring.

Best of luck,

Becky

Becky O’Malley is Editor of the Berkeley Daily Planet.

Becky O’Malley is Editor of the Berkeley Daily Planet.

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