Thanks to Clay Shirky for responding to my piece on the financialization of the Washington Post Company, which during the financial crisis has handed more than a billion dollars back to shareholders via dividends and share buybacks while its newspaper crumbles. Iâve got a couple of thoughts in response.
First, itâs seriously good news to see an Internet thinker like Shirky endorse a paywall, which in its current formulation brings in subscription money from core readers while allowing occasional visitors to read without charge. He writes that the Post âshould turn to their most loyal readers for income, via a digital subscription service of the sort the Times has implemented.â
The significance of a longtime pay skeptic of Shirkyâs prominence crossing over shouldnât be underestimated. Removing the intellectual justifications for not charging makes it that much more difficult for executives at the Post and, say, The Guardianâmuch less management-consultant types like Jeff Jarvisâto hold out.
Unfortunately, the industryâs move toward charging online comes at least a decade too late. Newspapers have foregone billions of dollars in subscription revenue buying into the false hope that Web ads would someday pay the bills. And they did so in large part because the industry didnât innovate quickly enough. Before The Wall Street Journal started letting news leak out from its subscription site half a decade ago, a paywall was an all-or-nothing proposition. The WSJ showed you could hold onto your subscribers while getting links from Digg and Drudge and, later, Google. The Financial Timesâs meter model improved on the WSJâs innovation, and the NYT has since improved on the FTâs.
Digital subscription revenue is no panacea for newspapers, though. Itâs something of a parachute slowing their fall: It wonât return newspapers to their peak form, but it could help them land safely. At some point relatively soon, ads will have fallen so far that they have no farther to go and the print paper will disappear . Digital subscriptions will be a second major revenue streamâone that could rival what digital ads bring in.
Shirkyâs main contention with my piece is that I donât acknowledge that profits and great journalism are basically becoming mutually exclusive:
If, as a citizen, he wants investment in journalism, then he doesnât want more capitalism from owners, especially not the swashbuckling kind. If, as a shareholder, he wants more profit, then the last thing he wants the Washington Post Company to do is spend more on the newsroom. Chittum comes so close to arriving at the obvious conclusionâin its current configuration, the Post is basically screwedâthen doesnât follow his own logic all the way through. If he did, the animating theme of his pieceâblame managementâwould be harder to support.
But I have long come to that conclusion, at least as far as the industry is currently configured, and I wasnât minimizing the deep structural problems facing nearly all newspapers. Thatâs implicit in my discussion of the Postâs dismal performanceâthe âlosses in thirteen of the last fifteen quartersâ and the âtrail of red ink that has led to cumulative losses of $412 million over the period,â to quote from my fifth paragraph.
Maybe I should have made it explicit. So here goes: As is, the Post is screwed. It will need to make radical changes to get to 2022 as anything worth caring about.
Those changes will include stopping the printing presses, perhaps except on Sunday, and transitioning to an all-digital platform that relies on subscriptions for a significant portion of its revenues. It will also require the Post Company to stop forking out hundreds of millions of dollars a year to shareholders and to invest at least some of that money in its news operations.
That brings me to where where we fundamentally differ: I donât accept the premiseânot yetâthat great journalism and profits are now all but incompatible. I donât believe that âinvesting in the Post would be money down a rathole,â as Shirky says I do. I believe it could be, but thatâs a critical distinction. I also believe investing money in, say, Facebook could be sinking money down a rathole. But you know what? I donât own the thing. If I owned a company, much less a critical institution like the Post, I would invest in it or sell it to someone who would. No single investment is a sure thing and newspaper investments these days are riskier than most. The truth is, we just donât know what the Post Company could have done by investing part of the $1.1 billion itâs handed shareholders in the last four years. But we do know where it is now.
The New York Times, whose market position is unique but not radically different from the Washington Postâs, has not gutted its newsroom, and it is doing much better as a business. Thatâs no accident. Had the NYT halved its newsroom like the Post has, it would be doing far worse and it would be having a much more difficult time snaring lucrative digital subscribers. As David Carr writes on Twitter, Shirky âgives WashPo management a pass, failing to point out (dimunition) of asset sped downfall.â The fatalism that thereâs nothing to be done, that chainsaws must be taken to the newsroom, that hamster wheels must be spun, that itâs okay to be sad that newspapers are dying but not to the point of actually doing even the minimum about it, like cutting the dividend, is harmful.
Actually, that doesnât quite accurately characterize Shirkyâs position, which calls for the Post Company to stop disgorging the cash to shareholders. Itâs unclear to what purpose it should stop propping up shares, though, if thereâs no place to invest that money. I suppose the Post could pay down its debt, but thatâs an investment of its own sort.
Shirky looks at the admirable work of a DC website called Homicide Watch as an example of how the Post should transform itself. Homicide Watch covers every murder in the District with a staff of two, providing far more coverage of the issue than the Post does with its newsroom of 500-something.
But this is exactly kind of thing Iâm talking about. Rather than handing its shareholders a couple hundred million dollars a year, the Post Company could have taken a couple hundred thousand dollars and offered to buy Homicide Watch or partner with it, or it could have built a similar site from scratch for the Post. That kind of investment would have helped increase the Postâs value to readers. Instead, the company has made its paper less valuable to readers and seriously harmed its long-term value.
DC Porcupine puts it this way:
Shirky is working from a pretty tortured false dichotomy here. The Post shouldnât invest in its business because itâs screwed, he says, but it should create new models for business, which he seems to think wouldnât be helped with investment moneyâŠ
Homicide Watch and the Amicos do great work, and the Post should always be trying new stuff, but itâs not clear why Shirky thinks that whole innovative process wouldnât be helped with some cash that the Post is otherwise throwing away.
Journalism will never again be (and should never have been in the first place) a 30 percent profit-margin business, and those Gannett papers didnât produce much greatness anyhow. But can good newspaper organizations be at least slightly profitable in the medium to long term? I think so, and largely because digital subscriptions offer the first real possible path for a significant newsroom to a post-print future.
I calculate that the NYTâs paywall has pushed that paper past a critical milestone: Its total digital revenue more than covers the cost of its entire newsroom. Thatâs not good enough, obviously. News organizations have significant overhead costs like real estate, travel, and ad sales. But the paperâs 800,000 or so print subscribers paying $800 a year for the paper are a rich future source of digital subscriptions, and a good portion of its print advertisers would presumably make the transition with readers to an all-digital platform. Papers need new revenue streams to supplement ads and circulation, and they need investment to find them.
I totally agree that the WaPo must transform to survive. The question, of course, is how should it transform? More precisely: How can it do so while preserving what has made it great?
These are extremely difficult questions, but theyâre made that much more so by the Postâs myopic insistence on handing more than a billion dollars to shareholders at a time of crisis.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJRâs business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.