This article is part of TPM Cafe, TPM’s home for opinion and news analysis.
I forget the exact date, but sometime during my time as a student at Ohio University, I stumbled across this 2008 blog post listing gross profit margins of Gannett-owned newspapers and lost my mind.
It was 2011 and most of my journalism-major peers were filled with dread over job prospects. Newspapers were shedding staff at a rapid clip and nobody was quite sure what to make of newer digital media outlets like Politico, Talking Points Memo, and the Huffington Post. So when I came across this blog post, I was shocked.
The blog post listed double-digit profit margins for Gannett-owned newspapers large and small across America. This kind of profit margin is rare in most industries — and journalism isn’t known as one in which owners rake in the big bucks.
In the years after those profits were posted, newsroom jobs continued to fall. Recent numbers out from the Pew Research Center found that the number of newsroom employees at newspapers in the U.S. halved between 2008 and 2018, from 71,000 to 38,000.
— Pew Research Center (@pewresearch) November 26, 2019
Given those huge profits in 2008, how in the course of a few years did an entire industry collapse?
You’re likely familiar with the excuses that media executives have provided, generally blaming the decline of print advertising. Over the years Google, Facebook, and Craig Newmark, who founded Craigslist, have all served as scapegoats.
Advertising rates did decline, this is not a lie. But it’s also not the whole truth. The people who own and operate journalistic outlets could have done something to at least mitigate the devastation that came with those falling ad rates.
But, generally speaking, saving journalism was not the goal. Profit was and is the goal.
Even as falling advertising revenues offered a warning of hard times ahead — a canary in the coal mine — owners generally focused on profitability, not sustainability of journalism. The relentless search for profit in the news business continues today, leading to beloved news outlets collapsing left and right.
I firmly believe that until journalists are in some form and fashion in control of the organizations they work for, the cycle will not end. Sure, there are non-profits but, as Nathan J. Robinson explains well here, it’s not just profit that is the problem. It’s ownership.
I’ve long thought it peculiar that news outlets had executives who were not journalists themselves. Journalism is a trade. When I look around at the carpenters or stone workers or lawyers I knew growing up, the tradesmen ran their own companies. They didn’t hire MBAs to come in and run their plumbing operation. I could understand how newspapers and other media had become so large it would require specially trained journalists to manage operations and finance and those sorts of things. But there is really nothing about running a media company that is brain surgery. (I know this from running a media company and also having had brain surgery.) That’s not to say it’s not challenging — it is, but to the degree it is difficult, there is nobody better suited to solve the problems than journalists themselves. As Megan Greenwell wrote at the now sadly defunct Deadspin, “The tragedy of digital media isn’t that it’s run by ruthless, profiteering guys in ill-fitting suits; it’s that the people posing as the experts know less about how to make money than their employees, to whom they won’t listen.”
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The business challenge that faces journalism is not one of technology or “scale,” as we so often hear from media executives. The problem is that journalism is an essential public good that is expensive to produce.
On one hand, we need as much information freely available to the public as possible, but on the other hand, we need to pay for the people and platforms necessary to make it public. Ordinarily, an industry that was critical to the public but was not economically sustainable would be the province of state intervention, like a utility. But of course, the very nature of journalism — which is often adversarial to any institution with power — makes basing the entire infrastructure on government support impractical.
Yet relying on the free market has not worked out well for journalism this decade either. Too often, Jacob Weindling points out in a recent essay on the decline of Deadspin for Paste, we assume the free market will save us. “We have been sold a lie in America, and the lie is that all we need to do is throw more capitalism on a problem and it will solve itself,” he writes.
To believe the free market will save journalism or could save journalism is to fundamentally misunderstand the intent of the free markets as currently constituted. These phrases like “capitalism” and “free markets” are a kind of shorthand to say, “The best products and services will win out. The competition will surely create some winners and losers, but the customers will be the real winners.”
But this is of course complete nonsense.
Let’s start with the basic premise that serving customers is the point. This is not necessarily the case. For decades, it’s been taken for granted that American corporations’ primary responsibility is to the owners, the shareholders — not the customers, not the employees. This widely accepted theory is often called the Friedman Theory, named after economist Milton Friedman, who introduced it in an essay for the New York Times, laconically titled The Social Responsibility of Business is to Increase its Profits. He did not beat around the bush. The idea is that the executive of a given company is acting as an agent for the investors, and therefore the ultimate responsibility is to increase returns for said investors.
Now, of course, when you’re talking about the news business, one could argue that the best way in the long-term to increase returns for investors is to do really good journalism that people want to support and pay to access. But you have to remember that investors can invest in any public company they want. If you, Media Executive, want to keep their capital in your business, you need to make them happy, and keeping investors happy, the current thinking goes, mostly boils down to one number: Earnings Per Share. This simple number is profit divided by the number of outstanding shares. Investors want to see EPS, as it’s called, going up. The continuing growth of earnings and the beating of expectations is what keeps investors’ money in the company coffers.
Executives go to great lengths to increase EPS, including just flat out lying, like CEO Jeffrey Skillings did at Enron. As the Economist reported in a 2001 profile of the company:
It now seems clear that growth in EPS became ever harder for Enron to deliver. So its laser focus switched to looking for accounting fiddles that would make it look as if EPS was going up, and also hive debt off its books. To that end, several off-balance-sheet entities were set up. These were not wholly independent of Enron, but were judged sufficiently separate that their profit or loss did not have to be consolidated into the company’s results. Assets, or portfolios of assets, were then “sold” to these entities.
Again, the point is RETURNS! Capitalism is about returns. It’s not about making the best journalism. It’s not about making the best phone. It’s not about making the best anything. To the extent good products come from capitalism, the goodness of those products is secondary to the pursuit of profit.
Journalism isn’t inherently lucrative. For years now, it hasn’t been terribly lucrative at all. The centrality of pressure to perpetually increase profits is at odds with the purpose of the craft.
When profit and revenue decline in this environment, the next move is often to make cuts to preserve those earnings. You don’t necessarily need more revenue for more profit, you can cut expenses, i.e. people’s salaries or the number of people getting paid salaries. But anyone in journalism knows that when you start to cut the number of journalists, you’re on a slippery slope to oblivion. Over the last 15 years or so, we’ve lost about 2,100 newspapers, and 171 counties in the U.S. don’t even have a paper, according to research by Penny Abernathy, the Knight Chair in Journalism and Digital Media Economics at the University of North Carolina at Chapel Hill School of Media and Journalism.
The cuts are not stopping. Most of what I’ve written about applies to publicly traded companies. But private equity firms that own journalistic outlets are even more focused on profit. Journalist Ken Doctor has doggedly chronicled the greed and loathing coming from the sector. Alden Capital, the majority owner of the odious Digital First Media, has become a poster child for the destruction. The firm owns daily and weekly newspapers across the U.S., including the Boston Herald, the Denver Post, the Detroit News, the San Jose Mercury News and the St. Paul Pioneer Press.
As Ken Doctor wrote in May of 2018:
Today we can reveal some key financial numbers from the very private company that shows just how successful Alden and DFM have been at milking profit out of the newspapers it is slashing to the bone. DFM reported a 17 percent operating margin — well above those of its peers — in its 2017 fiscal year, along with profits of almost $160 million. That’s the fruit of the repeated cutbacks that have left its own shrinking newsrooms in a state of rebellion.
Again, similar to Enron, as the chase for profit intensifies, the shenanigans get wilder. As reported by the Washington Post in April:
Alden Global Capital, a prominent hedge fund that controls more than 100 local newspapers, moved nearly $250 million of employee pension savings into its own accounts in recent years, an unusual move that is triggering federal scrutiny.
The hedge fund, which is the controlling owner of such newspapers as the Denver Post and Boston Herald under the brand MediaNews Group, in some cases moved 90 percent of retirees’ savings into two funds it controlled, according to public records filed with the Labor Department. Most of the money has now been moved back out of the hedge funds.
I mentioned above that in theory it’s all about investors. But when private equity gets involved, even investors stand to lose. But don’t take my word for it. Read what Leon Cooperman, famed billionaire capitalist extraordinaire who as recently as last week took issue with Elizabeth Warren being too mean to billionaires, had to say about another private equity firm that was tied to GateHouse Media, a company that owns hundreds of publications in 38 states:
I know we’re happy to get rid of Fortress, but I got to tell you, and I probably shouldn’t say this but I will say it, because that’s my nature of speaking what’s on my mind.
Basically, I was in the hedge fund business for 26 years. I only got paid when I made money for investors.
The kind of money that Fortress is walking away here with, and I know it’s not your doing. They brought this public in 2014 at $16 a share. The stock is $8.50, and they’re going to walk away with hundreds of millions of dollars. It’s just morally wrong, and they shouldn’t even take the money, given what they’ve done here.
And here is the real problem: Most of these executives don’t know what they are doing. They don’t know how to operate companies. They don’t know how to make products or services. They don’t know what good journalism is, they don’t care why it’s important. This is why they speak in banal, empty phrases like “we want to make and distribute content that people love” or “we want to make better experiences for our users.” They know how to financially engineer profits through mergers, acquisitions, and laying people off.
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I used to wonder why these people who just want to make money choose an industry that isn’t about making money — that is a public service that often can barely cover its own costs. I think there are a couple reasons.
First, there was a period of about a hundred years that NYU Journalism professor and media critic Jay Rosen has called the “Golden Parentheses.” During that time, the news business was booming. This is largely attributable to regional monopolies established by newspapers. Putting an ad in such a publication was the only way for advertisers to reach an audience. This built on the model of the “Penny Press” established by Benjamin Day.
This era led into the venture capital boom days of recent past where it seemed like with enough capital, and some social media sleuthing, you could create a massive media company built on digital advertising. It was an era that gave rise to many of the news websites that have gone under, such as Mic, PandoDaily, and countless others. Obviously, this is fraught with risks from Facebook algorithm changes to realizing that media companies could be more profitable with evergreen, non-news “content.”
Take for example the famed pivot to video that many venture-backed organizations undertook. This was a grasp at salvation based entirely on advertisers’ love of video advertising. There was never any evidence that consumers wanted more video news. They might want video content. But not news.
Mashable laid off its news staff to pivot to video. Vice laid off at least 60 people as it expanded to video. Fox Sports, which I have a hard time believing is short on cash, laid off 20 to expand into video.
The reason why the pivot to video is so important historically — and is now a media business punchline — is because it so clearly illustrated the divergence between doing journalism and driving profit. It also showed how so many of the executives running VC-backed media companies were just chasing the shiny new thing in any attempt to generate the returns necessary to please investors.
But now, we’re getting back to how journalism worked for most of its existence. It’s expensive and it’s a labor of love. If we continue to allow people who do not care about journalism to run our companies, we’re in a lot of trouble.
I don’t have all the answers, I might not even have any. But I’m encouraged by the solutions many have either found or are looking into. The Salt Lake City Tribune recently was approved for non-profit status. Ken Doctor, the journalist who doggedly tracked Alden Global Capital, is starting a new company focused on local journalism, and the corporate structure will be a for-profit public benefit corporation, which means legally, profit is not the only consideration for management to consider. And there are a spate of publications such as my own employer TPM that are owned and operated by journalists.
Journalists need to work together to come up with these models. The future of journalism is challenging and difficult but it doesn’t need to be bleak. Competition and scoops are part of journalism, but we need not let the excessive, cartoonish devotion to competing hold us back. Journalism is at its best when it’s collaborative. Those of us who are fortunate enough to work on the publishing side of the industry should help educate and support journalists who want to make their own publications. We should drop the stupid idea of “entrepreneurial journalism” that implies it’s some kind of capitalist endeavor and simply begin training and teaching journalists about how publications operate, how the finances work, etc.
We got the news this month that GateHouse and Gannett, one of the largest newspaper chains in the country, are joining forces. This is huge news for reporters across the U.S., and their readers too. I’m sure they’ll try some snazzy PR blitz about how they love journalism and Nelly Bly is their hero and they miss Ida Tarbell but don’t let them fool you. From the New York Times article announcing the merger:
Douglas Arthur, an analyst at Huber Research Partners, questioned Gannett’s approach, noting that New Media Investment Group and Gannett had missed revenue projections in the most recent quarter. “The only way they can support it,” Mr. Arthur said, speaking of the newspaper industry in general, “is to cut costs. And it feeds on itself: Subscribers go down, advertisers pay less.”
It feeds on itself. It’s been feeding on itself for more than a decade.
Joe Ragazzo is TPM’s executive publisher.