Update: On July 14, 2011, Journal Register Company announced that it had been purchased by Alden Global Capital for an undisclosed amount. Lauren Kirchner’s article below describes what exactly Alden bought.

“We’re no good at this,” John Paton says, sitting in a midtown Manhattan conference room on a gray, rainy spring day. “We” is the news business, and “this” is designing a viable future for it. “We have to figure it out.” He leans forward in his chair and adjusts his blue Hermès tie. “If this business model’s not fixed, the amount of American daily newspapers that won’t be here in five years will stagger you. They won’t make it.” The reporters and editors at Journal Register Company—a chain of eighteen daily newspapers and 176 non-daily newspapers, magazines, and websites in small markets throughout the Midwest and Northeast—should know. Paton took over as CEO of the company in February 2010 when the previously public company emerged out of bankruptcy as a private one.

Since then, Paton has engineered a radical makeover of JRC’s previous image as an old-fashioned, bottom-of-the-barrel corporate chain. He’s attracted industry attention for hiring digital big-thinkers like Columbia University’s Emily Bell, CUNY’s Jeff Jarvis, and NYU’s Jay Rosen to his advisory board. He’s stressed a culture of transparency, community engagement, slashing costs without any layoffs in editorial or sales, and, above all, an upending of the daily news production process that he says is a byproduct of a print schedule that is irrelevant by now.

“Digital first, print last” is the new JRC motto—that’s the order in which readers want the news, and so that should be the order in which outlets publish it. Paton hopes this culture change won’t just revitalize newspapers’ relationships with their readers; it’s his bet to push digital income high enough to replace the print revenue that he says will inevitably disappear.

The newspaper industry’s print ad revenue reached a peak in 2000, after climbing for most of its history. Weighed down in part by a recession, it has plummeted since 2007. By 2010, print ad revenue was half what it was five years earlier. Digital ad sales, meanwhile, have not filled the gap; industry-wide, digital ads still only account for a mere 15 percent of ad revenue overall, according to the Newspaper Association of America.

In the first quarter of 2011, following a year of dramatic reinvention at JRC, unique visitors were up 58 percent and page views up 31 percent from the first quarter of 2010. Although he will not disclose dollar figures, Paton admits that JRC’s print ad revenue was down 7 percent for that period, but points to a 67 percent increase in digital ad revenue. He also says digital sales accounted for 15 percent of all ad revenue, bringing that ratio up to the industry average. Before Paton’s takeover, ad sales had been only 6 percent digital. Shortly after taking charge, Paton told his staff that he wanted digital ad revenue to account for 25 percent of the company’s cash flow, expressed as EBITDA—an accounting measure of earnings that excludes taxes, interest costs, and other expenses—by 2013. Two years after that, the goal is 50 percent. This June, Paton said it stood at about 10 percent.

Given the rate of plummeting print revenues generally, Paton argues it’s a matter of simple math to predict when any newspaper may have to close its doors if that revenue is not replaced. “Digital First” is Paton’s gamble that his papers will be among the ones that make it. “The sense of urgency at JRC is profound. I might run out of time. I mean, that’s an honest and obvious question,” he admits. But to his colleagues at newspapers who aren’t trying something like “Digital First,” he offers a wager: “I bet you my time is longer than yours.”

A Company Transformed

Paton hardly could have picked a less likely company in which to play out his—or anyone’s—experiments in news innovation. From the beginning, JRC had a reputation in the business for being a penny-pinching corporate chain, headed up by a bunch of bankers who, starting in 1990, bought clusters of family-owned, small-town newspapers and made huge profits by cutting costs. And those cuts tended to come in the newsroom. When print ads took a nosedive in 2007 and 2008, there was nothing left to cut. JRC went into bankruptcy in 2009 with $692 million in debt.

Alan D. Mutter, newspaper consultant and author of the Reflections of a Newsosaur blog, observes that under its previous management, JRC was a company ahead of its time, but for all the wrong reasons. He says of its first CEO, Bob Jelenic: “His approach to the newspaper business of trying to maximize profitability by putting out the minimally good-enough product really foreshadowed what’s happening broadly in the industry today.” Mutter remembers that JRC’s profit margins in the nineties were notably high, even compared to the cash machines that newspaper companies then were. Jelenic was cinching the belt “before it was necessary or fashionable.”

JRC employees say that Jelenic’s ruthlessness took its toll on both their morale and their product. There are stories of him summoning under-performing managers to the local airport, where he would fire them from the tarmac without stepping out of the corporate jet. When cancer killed Jelenic in 2008, his former employees used a Yahoo message board to express their lack of sympathy. The board has since been taken down, but a Gawker piece at the time—“Employees Spit On Newspaper CEO’s Grave”—captured a taste of the vitriol. “Ding-dong, the witch is dead” was a characteristic comment, though there were much worse.

Employees also recall how Jelenic, convinced that putting content online would threaten sales of the print paper, put a strict limit on how many stories went up on the websites each day. According to Glenn Gilbert, executive editor of Michigan’s Oakland Press, who has been with the company for nineteen years, “There was probably no newspaper company more backward in its approach to digital media. Our websites were a complete afterthought.” Not that the staff would have had the tools to keep up with the digital revolution even if they had been allowed to do so. Another editor says that, until last year, he had been working on a 1994 Mac with a floppy drive; he could barely visit his own newspaper’s website.

JRC finally filed for Chapter 11 protection in February 2009, emerging that August as a private company. Following the bankruptcy process, its equity holders included lenders like GE Capital, JPMorgan, and Bank of America. Paton, who had first been brought on as a director to help create a plan of action, was then hired in January 2010 as CEO. (He also got a stake in the company, though he won’t say how large.)

The challenges for Paton were clear. JRC came out of bankruptcy with $225 million of debt, with infrastructure and technology that were appallingly out of date, and with a skeleton staff that was used to keeping quiet and not taking risks. JRC was so stripped down that it had nowhere to go but up. It was a blank slate for a new plan. Paton had one.

Stacking Dimes, Pinching Pennies

At a conference JRC held in Philadelphia shortly after Paton took over, the new CEO delivered a PowerPoint presentation to the company’s editors and management describing his business plan—a presentation that he also put up as the first post on his new company blog. To those who complained that digital ad prices were so low compared to print ads that it was like “trading dollars for dimes,” he retorted with his catchphrase, “Start stacking dimes.”

Those “dimes,” he told them, would come from new sources of online revenue that JRC had never produced or sold before. Meanwhile, Paton told his audience, he would slash infrastructure costs. He would soon shut down most of the papers’ printing presses, mailrooms, and circulation departments, either outsourcing these operations or consolidating them to one paper in each geographic area. And staff members who were particularly adept in digital content or digital sales would be promoted.

“I went in knowing what I wanted to do,” Paton says, explaining that in his thirty-five years in the news business, he’s seen print people in charge, print and digital operations segregated, and print and digital integrated. “The only thing I know that works is to put digital people in charge of all of the efforts to understand how news today is created and consumed.”

Paton remembers finishing his presentation and being met with silence. Several hundred employees in the audience stared at him—a slightly short, stout man with a short-trimmed white beard and blue eyes that are both friendly and intensely focused. He says, “They were like, ‘Who’s the fat guy in the front telling us that we’re broken? Who the fuck is he?’”

Paton, fifty-four, admits he has been called “arrogant,” his tone “dismissive.” But he attributes that to a conviction that comes from having seen the industry from every angle. Before joining JRC, he was the co-founder and CEO of ImpreMedia llc, a chain of Spanish-language newspapers and websites. Before that, he worked his way up through the Canadian media, from a copy boy job at the Toronto Sun as a teenager, to publisher of Sun Media, with a dozen reporting and editing jobs in between.

With his message delivered, his “Ben Franklin Project” was the first major move to demonstrate how drastically he could cut production costs. The company-wide experiment required each JRC daily newspaper to put out one day’s issue—print and online—using only free online tools. Some of the tools were probably familiar (Google Docs, YouTube, CoverItLive), but others weren’t (the photo-editing tool gimp, the page-layout design program Scribus). Paton says he planned it for July 4th so JRC could “declare independence” from expensive proprietary software. When Paton first took over as CEO, he had estimated that he would need to spend $25 million of the company’s cash to upgrade its technology over the ensuing eighteen months—just to keep JRC functioning. He says that after “Ben Franklin,” the company was able to cut and re-negotiate vendor contracts, which played a large part in the reduction of that capital expenditure bill down to $12 million.

But “Ben Franklin” wasn’t just about software. Newsrooms were also encouraged to get costs down for that issue by soliciting as much user-generated content as they could, using social media and “town hall”-type events to invite readers into the information-gathering process. Many editors said that giving the project a company-wide deadline made the difference between talking about innovation and mandating it. “The result turned out to be marvelously profitable in the end for us…but the most important thing we got out of it was culture change,” says Paton. “My guys are afraid of nothing.”

Another ongoing JRC experiment is the centralization of production of non-local pages among the chain’s daily papers, so that each paper’s editor won’t have to select which AP wire stories will go on the “nation” page—one editor per state, or several states, can do it. The idea is to free up newsroom staff to focus on producing more local content—which in turn will attract more online traffic—without hiring more reporters. Content consolidation also includes partnerships with outside companies. JRC teamed up with The Street, a finance website, to share content and ad revenue, for instance: JRC provides local business stories to The Street, and The Street gives national ones to JRC.

A renewed emphasis on cheap, simple videos was the next step in Paton’s plan. In a much publicized blitz, Paton handed out a thousand Flip cameras, encouraging JRC reporters to post videos for every story they wrote and encouraging the sales staff to monetize them. (That investment also required the purchase of hundreds of new computers, as most of JRC’s old ones lacked the memory, or even the USB ports, to accommodate the cameras.) JRC is producing a thousand videos a week, and it has plans to launch a “JRC TV” site to stream videos from across the chain later this year. Paton attributes 10 percent of JRC’s digital revenue growth to online video advertising.

These videos are unlikely to win awards—they might just be ten seconds of a wobbly view of cops standing around a car accident, or a nonsensical clip of a high school track practice. But editors say they are first trying to incorporate video into the daily routine; the quality, they hope, will follow. Emily Donohue, online editor at The Saratogian in upstate New York, says that she’s gotten positive feedback; her readers enjoy seeing themselves, their kids, and their town reflected in the videos. “We’re a community newspaper,” she says, “so that’s kind of our bread and butter.”

Paton encouraged his publishers, editors, and reporters to experiment with whatever might get readers clicking, watching, and engaged online. As an added incentive, Paton had his reporters and editors apply to be a part of the ideaLab, a small group chosen to get extra pay, equipment, and a few hours a week away from their daily responsibilities to play around with new web tools and methods for their newsrooms.

One ideaLab participant, Ivan Lajara of Kingston, New York’s Daily Freeman, says that sometimes his paper’s experiments are successful and sometimes they aren’t. In April, Lajara used CoverItLive to capture reporter Patricia Doxsey’s live tweets from a murder trial, and hundreds of readers participated in the discussion online. In addition to attracting traffic, the readers, in turn, helped Doxsey shape her coverage, as she learned what her readers found most interesting. Another experiment, the scannable quick response (QR) codes Lajara printed in the Freeman that would call up videos on readers’ smartphones, proved less successful; with only a handful of hits, he decided it wasn’t worth the effort. But he says he’s excited by this new freedom to try things “without having to go through twenty layers of bureaucracy.”

Such projects all had the goal of getting JRC papers in the habit of doing more with less, of drastically increasing the amount of content on their websites without increasing newsroom staff. That surge in content had the goal of bringing a larger audience to each site. And the growth of the audience, in turn, has the much more pressing goal: attracting advertisers.

The Next Newsroom?

If Paton’s staff stared blankly at him when he made his JRC debut, to a person they express enthusiasm about the direction the company is heading in. Mark Ranzenberger, online editor at The Morning Sun in central Michigan, says that the past year at JRC has shown him something he hadn’t experienced in the previous two decades. “It is the excitement of trying something new,” he says. “It is the challenge of a boss giving you permission to try stuff—and that has not been part of the culture of newspapers that I have seen.”

Perhaps none of JRC’s experiments has gotten as much industry attention as The Register Citizen’s “Open Newsroom Project.” Situated in Torrington, a small, ex-manufacturing town in northwest Connecticut with a population of about thirty-six thousand, the six-thousand circulation daily is what Paton says is the model—both business and architectural—for all of JRC’s newsrooms in the future.

Torrington’s newsroom resembles a public library or community center as much as a newsroom: it has free-access “blogging stations,” microfilm machines with the paper’s archives hooked up to a printer (also free) for genealogical and historical research, and local art on exhibit. Its conference rooms are available for local organizations to hold meetings, and reporters and editors teach classes all week on topics like online publishing, social media, and video.

Most striking in its dedication to openness and transparency to its readers, however, is the fact that The Register Citizen opens its daily editorial meeting to the public, and live-streams it as well. Online viewers often send feedback through Twitter or a chatroom. And readers are encouraged to respond to stories published online, with corrections or additional context, via a new fact-check box below each post.

The staff of The Register Citizen is young, as it is in many small-market newspapers. Most of its reporters are in their twenties and half have been there for less than a year. One editor at JRC described her paper as a “teaching newspaper”—offering jobs with relatively low pay in smaller markets—that attracts college graduates but doesn’t necessarily keep them long. And for all the investment the new management has put into JRC, these have not necessarily included additional newsroom hires or pay raises.

“I’m pretty honest about our faults here with the community,” says Matt DiRienzo DeRienzo, The Register Citizen’s publisher. “Because why try to ignore it? They can read the papers and see the one-source story, or the misspelled name or whatever. We have the same problems all small papers have.” So the open-newsroom initiative is undertaken in the spirit of increasing the paper’s credibility with its readers—to demonstrate that the staff will take responsibility for its shortcomings and do the best job it can with admittedly limited resources.

Improving The Register Citizen’s relationship with its community through its open newsroom project is not just an act of altruism; it’s a business decision. If the paper can attract new bloggers with its computer workstations and free classes, it can help expand the website’s coverage for no extra cost. Readers who visit editorial meetings often offer story ideas. Online editors constantly solicit readers’ photos and contributions to stories and graphics like “What’s the town’s most dangerous intersection?” JRC reporters, after all, can’t be everywhere.

Today and Tomorrow

For all the talk of growing online content and ads at JRC, the truth remains that 85 percent of all of the company’s ad revenue still comes from print—as is true for the industry average. Paton says he is confident that ratio will shift, but in the meantime, it’s a delicate balance that JRC has to maintain: putting its staff’s energy into the digital side of operations without neglecting the print side, where the bulk of the money is still made. So at the end of a long digital day, publishing news as it happens, in the new JRC model, short to long, fast to slow—SMS alert, tweet, web post, web feature, photos, and videos—what does the print product actually look like?

“Most of our editors are veteran print people, and we’re learning as we go along,” says Daily Freeman publisher Ira Fusfeld, who has worked at the paper since 1970. “It’s a lot of fun, but it’s posed challenges to us. What can we put in print that’s different from the web, with a staff that’s no greater than it was before we had a website?” Not to mention the fact that having the Freeman’s print operations moved offsite means that their daily print deadline is three hours earlier than it once was.

JRC editors say that if a story has been online all day and it’s about to go into the next day’s newspaper, ideally it will be filled out with more context and additional sources. “When I started at the paper I never thought I’d work on a story today and it would be old today,” says New Haven Register city reporter Angela Carter. “We have a product that comes out ‘tomorrow.’ And so I’m thinking now about how to keep things fresh, and how not to have my stories look like yesterday’s website.”

They also say cross-promotion between print and online is key. Just as print stories feature icons indicating that they have accompanying videos online, which drive readers to the website, websites also promote special print sections—a full-color pull-out Phillies schedule at the start of the baseball season, for instance, to encourage single-copy sales of the Delaware County, Pennsylvania Daily Times.

When asked about “Digital First,” Marshall Genger, one of Paton’s business partners from ImpreMedia, characterizes it as a useful catchphrase for an industry mired in tradition, but not as a literal business model—because you have to protect the bottom line, print. “Where ‘Digital First’ really takes traction is, in the newsroom, people need to be thinking differently,” says Genger. “And the only way you will get folks who never thought about anything other than the print side of the business, to get them to even recognize that the digital world exists, is to say, ‘you gotta think about this first.’ Only so that they can really think about it at all.”

How Much Time?

Paton is being invited to a lot of conferences these days. This spring, he spoke at the Newspaper Association of America’s “mediaXchange” conference in Dallas and the paidContent conference in New York. He gave the keynote at last year’s Editor & Publisher Interactive Media conference in Las Vegas, and at this year’s World Association of Newspapers and News Publishers International Newsroom Summit in Zurich. The leaders of the news industry are eager to hear whether his “Digital First” plan of action is turning ideas into dollars.

Because JRC is now a private company, access to its finances are limited. This March, Paton reported a $41 million yearly “profit” in 2010—for which he awarded his employees a bonus of an extra week’s pay—but that figure only accounts for the company’s EBITDA, which is operating cashflow, not profit, and doesn’t include its hefty debt payments, taxes, and other key expenses. The most recent figures JRC released compare the first quarter of 2011 to the first quarter of 2010; they show that JRC is selling ten times the number of digital ads per month that it was the previous year, and that the number of digital revenue streams has increased from around thirteen to about sixty. Most importantly, he says, more than two-thirds of that revenue is purely digital—rather than being part of a print-online sales bundle.

All of that growth adds up to a 67 percent increase in total digital revenue in a year. How much money does all of that actually add up to, and will it be able to make up for the loss in print ad revenue, which decreased by 7 percent in the same time period? JRC won’t release the hard numbers for the ad revenue overall, so it is hard to know. The relative change over the last year, at least, compares favorably to the industry overall. According to the NAA, the industry’s print revenue decreased by 9.5 percent from Q1 2010 to Q1 2011, but digital ad revenue only increased by 10.6 percent. And a calculation off those exact sales figures shows that, if the industry had increased digital and decreased print by the same percentages as JRC did, it would have successfully made up for the decline in print with its digital growth.

When NAA released those figures, Paton wrote in an e-mail: “An industry growing digital ads at about 10 percent is going to die. A company like ours growing digital ads at about 70 percent is going to make it.” He added that JRC was on track to be within a couple percentage points of replacing lost print ad revenue with its increased digital ad revenue this year.

But would it be possible for the rest of the industry to make such dramatic gains, when most companies are not starting from rock-bottom, as JRC was? And, assuming print revenue continues to slide, is it possible for JRC to continue to increase digital sales by such a large percentage for more than a few years? JRC has shown impressive revenue growth since Paton took over, but it’s much easier to grow quickly from a low base than it is to maintain that rate of growth.

Paton is as straightforward with his audiences, and with the press, as he is with his employees. He can’t predict the future, he says. “People forget that ‘Digital First’ isn’t a strategy for the future, it’s a transition strategy. It takes you from here to here, but it doesn’t tell you what ‘here’ looks like,” he says, tapping the table, indicating different points in time. “If we have one gift at all at JRC, it is that we’re flexible. We’re not trying to figure out every piece of this. And we’re not stymied into inaction, or forced into inaction, because we can’t figure out every piece of it.”

This attitude—Paton’s kind of enthusiastic, shrugging optimism for the future—has trickled down to his employees. “Now, your guess is as good as mine as to whether he’s got it right, whether anybody’s got it right…. If somebody had gotten it right, everybody would have replicated it,” says Daily Freeman managing editor Tony Adamis. “Do I know whether it will work or not? I have no idea. But you know what? I’m happy to come to work every day, knowing that this is the path that we’re taking, and we’ll see.”

Correction: This piece originally misspelled the last name of The Register Citizen’s publisher. He is Matt DeRienzo, not DiRienzo. CJR regrets the error.

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Lauren Kirchner is a freelance writer covering digital security for CJR. Find her on Twitter at @lkirchner