1. ‘It Was Written’
Randall Keith and I are talking about the past when his boss, Dave Butler, slides open a glass door, eases his long frame into a chair, plants his feet on the conference room table, and makes clear by his weary affect that the topic does not interest him.
Instead, this is what Butler wants to talk about when he talks about his newspaper, the San Jose Mercury News: all the many readers—2.7 million weekly, in print and online when you factor in the Merc’s smaller sister papers across the Bay Area; the Merc’s new “spiffy” app; its willingness to focus on the “important stuff” rather than compete with “every school board that has a website” and all the many tech bloggers—“I have no idea how many blogs are dedicated to covering Apple”—because, he says, the Merc is “willing to be more interesting.” He wants to talk about making money, too, because the Merc makes some. How much he will not say, except that most of the profits still come from print.
Dave Butler has been a newspaperman since 1972, a self-described journeyman who became the editor of the Mercury News in 2008. The paper had been sold two years earlier by its longtime parent company, Knight Ridder, to the McClatchy Company. McClatchy in turn quickly sold it to MediaNews Group, whose chairman, Dean Singleton, put Butler in charge. Three months into the job, Butler wrote a memo to the staff, outlining a vision that could essentially be boiled down to a simple premise: the past could no longer animate the Mercury News. The days of four hundred people in the newsroom, revenues of $300 million and profit margins north of 30 percent, a bureau in Hanoi, a Pulitzer for foreign news, Spanish and Vietnamese language editions, and a Sunday magazine, were gone. The staff of the Merc, now about half the size it was at its peak in the late 1990s, had no choice but to press on with vigor and a sense of mission: “Let’s carve some new trails in the jungle of journalism!”
Butler has the advantage of having missed his paper’s past, and so is unencumbered by the memory of what the place had been, not so long ago. Randall Keith knew. He had arrived earlier, in 1998, just in time to watch the great tech bubble inflate, carrying the Merc along with it. He had left a job as city editor of the Quincy, Massachusetts, Patriot Ledger to join a paper with a national reputation both for its journalism and its profitability. Time magazine had several years earlier dubbed the Merc the nation’s most tech-savvy newspaper. Its revenues from classified advertising—especially recruitment ads for all those many high-tech companies whose every product rollout and inevitable IPO were covered by the paper’s burgeoning business staff—had fueled ever more revenue, $288 million the year Keith arrived.
The Merc was fat, ambitious, and admired in those days, in particular for the speed with which it had adapted to the great technological changes that were shaking the industry. It seemed destined, in fact, to master those disruptions, fitting for a paper whose widely read day-opening blog was called “Good Morning Silicon Valley.”
The Merc was among the first daily newspapers in the country with an online presence, the first daily to put its entire content on that site, the first to use the site to break news, and among the first to migrate that burgeoning online content to the web. In the early 1990s, the joke among the paper’s small online staff was that, given the still modest returns on its digital investment, the paper could still make a few bucks charging admission to all the visitors from papers across the country (and around the world) who showed up to see how they were doing it.
“It was a big adventure,” Keith says. “It was a lot of fun.”
The Merc is headquartered in a white wedding cake of a building that sits off a highway, and across from a largely deserted mall. There is a red linotype machine in the lobby, and late on a rainy afternoon it seems to be the only splash of animation in a building where voices feel not so much hushed as absent. The conference room looks out onto a dim and quiet newsroom. Many of the people with whom Keith once worked are gone. After one of several rounds of newsroom layoffs, a photographer went through the building taking pictures not of people—the people had left—but of rows of empty cubicles, stacked computer terminals, blank bulletin boards, and vacant corridors.
Keith is managing editor of digital content for the Merc and for the Bay Area Newspaper Group, of which it is a part. He wants to make clear that while the past was a glorious time, he, like Butler, is thinking of the future because, as he puts it, there is always another story to cover.
“Would you like to have more?” Butler asks. “Yes. But you play the cards you got. You can either be a wimp, and bitch and moan. Or you can go after the story.”
For years, I had heard from friends who’d worked at the Merc what a terrific place it was, how the paper, which until the late 1970s had been “profoundly mediocre,” as one longtime editor put it, had twenty years later become so rich and successful that it was setting its sights on becoming nothing less than the “best in the West.” The Merc was one of the jewels of the most respected chain in the business—Knight Ridder, then the owner of thirty-one papers, including Pulitzer machines like The Miami Herald and The Philadelphia Inquirer and the Merc, which had won one in 1986 for its coverage of Ferdinand Marcos’s hidden wealth, and again in 1990 for its coverage of the San Francisco earthquake.
Then, things began slipping.
And when the end came in 2006, when Knight Ridder, under the most extreme pressure from its institutional investors, surrendered and sold itself, the people who had seen the Mercury News not as a stepping stone but as a destination, began trying to sort out who, exactly, was responsible.
They are hardly alone. There is no shortage of reporters of a certain age for whom the past is darkened by memories of the slow erosion of the places where they labored and the work that they did. The story of the Merc’s rise and decline—there is nothing so telling as only four pages of midweek classifieds—mirrors the story of what has occurred at so many once big and proud newspapers across the country that are still trying to make sense of what happened to them over the past decade and what lessons might be drawn from all the cataclysmic change.
But the fall of the San Jose Mercury News was different, because the Merc, Silicon Valley’s paper, had advantages enjoyed by few other dailies—in where it was based, in the affluence of its readers, in its ownership of one of the great transformative stories of the age. The Merc had also been quicker than most to recognize the change that was coming. And from those early glimpses, clues began to emerge about the shape of a news business that, if they were to be heeded and believed, would bear little resemblance to the one that existed in the early 1990s.
The signs of change, and potential ways of adapting to it, were there for anyone to see. Most did not. Not even the forward-looking men and women at the Mercury News and the chain that owned it. So it was that by the time Randall Keith arrived, that early advantage, that initial boldness, had dissipated. The Merc had become yet another newspaper trying to keep up.
Why did the Merc fail to seize the future? Was this the result of greed, stupidity, timidity, and blindness, as so many who worked there would suggest? Or was it the inevitable consequence of disruptive technology, a phenomenon whose most vulnerable targets are often the best-run companies?
I was soon to discover a great, almost visceral desire to assign blame, even now, especially among those who felt betrayed by people in whom they once placed their trust. Among the men and women who made the decisions, however, the tone was different. Perhaps, they suggested again and again, there was nothing anyone could have done to save the Merc, or Knight Ridder.
“Just because you see a locomotive hurtling down the track toward you doesn’t mean you can get out of the way,” says Bob Ryan. He had come to the paper in 1981, just as it was shaking off the torpor of the past. He had been a city editor and business editor, rising to deputy managing editor and then director of electronic publishing before moving to Knight Ridder’s digital division—a progression that had allowed him to both see, and feel, the alternating pulses of excitement and resistance as the newspaper, and later the chain, tried and mostly failed to be a leader in a rapidly changing world. It left him sounding like a fatalist.
“It was written,” he says. “It was going to happen.”
But was it going to happen?
Was it written?
2. The Flawed Prophet
Robert Ingle came to San Jose to run the Mercury, and its smaller afternoon sister, the News, in 1981, with a reputation of being very smart and very much aware of it. He was bearded, stern, and most comfortable in the company of few people, preferably his own. He had come to the Merc from The Miami Herald, which he had joined as a copy editor in 1962, straight out of the University of Iowa. “I was a hot commodity because I said I wanted to do copy editing,” he says. The job, he would soon discover, came with particular advantages for a young man for whom the processes by which things got done held great appeal.
Ingle’s initiation to life at the Herald involved rotating from job to job, and this, he would later say, allowed him to learn every step through which a newspaper was put together. He worked with the engravers and the pressmen and became so skilled at the long-abandoned skill of setting lead type that the pressmen honored him with a typesetting tool—a ground-down putty knife used for wedging pieces of lead into empty spaces. The Herald, like so many other papers, was undergoing a profound shift in technology, from hot type to cold, which would soon result in the end of many of the jobs Ingle had delighted in learning, along with the livelihoods of the men who had done them.
Within a year and a half of his arrival at the Herald, Ingle was promoted to assistant news editor, then news editor and, by the time of his departure, to managing editor. He did a stint as a reporter, too, to learn how the work was done. Then Knight Ridder sent him to the Merc to replace Larry Jinks, who had begun lifting the paper out of its historic mediocrity. Jinks, who moved to the corporate offices, was pleasant and accessible, which made him a difficult man for the diffident Ingle to follow. Still, he set about building on what Jinks had begun, adding sections—the Sunday magazine, and a standalone Monday business section, among them—but doing so with little, if any, consultation with those who worked for him. “Himself,” recalls Bob Ryan. “By himself.”
Ingle possessed a crystalline vision of the outcomes he desired. He was open to hearing ideas other than his own, but there was little hope of prevailing once he had made up his mind. So too did his staff learn that when he responded to a suggestion with his customary refrain—“That’s the stupidest fucking idea I’ve ever heard”—the rejoinder reflected an opinion, not a feeling. Nothing personal, as Ryan discovered when he asked Ingle if the paper would pay for him to take a community college computing class. “Stupidest fucking idea. . . .,” Ingle replied.
The story suggests that Ingle had little interest in technology, which was not the case. Because more than anyone else, it would be Bob Ingle who would see the need to push his paper, and eventually Knight Ridder, to the forefront of the digital revolution. He had already witnessed how powerfully technology could alter the work newspapers did, and how disruptive it could be if things did not go right.
Not long before Ingle left Miami for San Jose, Knight Ridder had launched an experiment in distributing information without the use of paper. Viewtron, as it was called, used a videotex system both to carry news and, more importantly, to allow its subscribers to send messages, shop, and even bank through telephone lines that ran from terminals connected to television sets, and to a keyboard that everyone hated because it reminded them of an array of Chiclets.
The experiment was confined to the city of Coral Gables, Florida, where Bob Ingle happened to live and where he would later recall watching a prizefight on his television, and between rounds checking the judges’ scoring via his Viewtron terminal. This is not to suggest that that moment represented an epiphany: Viewtron was cumbersome, and it was expensive; the terminals cost $600 and fees were $12 a month, plus an additional $1 an hour. Knight Ridder was pouring millions of dollars into an experiment whose purpose defied simple definition. “People thought videotex was going to be an electronic newspaper,” one of the experiment’s directors told The Wall Street Journal in 1985. “It’s something else, but we’re not exactly sure what yet.”
There was much to be admired in Knight Ridder’s commitment, in time and money, to Viewtron. The experiment, in fact, was part of a larger effort by the chain to diversify, especially in electronic publishing. For years, the operative verbs in stories about Knight Ridder were acquired—especially local cable television systems, and with them their lists of subscribers—and posted, as in ever higher earnings. The boldness, it was said, reflected the sensibilities of the Knights, especially John S. Knight, the guiding force of the chain he inherited from his father (and a Pulitzer Prize winner in his own right). In 1974, Knight had merged his papers—among them the Herald and the Detroit Free Press—with that of the Ridders. The Ridders owned many smaller, less celebrated enterprises, including The Journal of Commerce, which had famously allowed itself to be eclipsed by the upstart Wall Street Journal years earlier. It also owned the San Jose Mercury (and evening News).
Viewtron employed about 200 people tasked with providing its experimental service to a projected five thousand Coral Gables homes, and, if that worked, expanding Viewtron to other cities. But by 1984, with fewer than three thousand subscribers, Viewtron had already cost $35 million, and a fifth of the staff was let go. The problem was that although the technology was innovative, it could not offer subscribers services they could not get more cheaply and conveniently elsewhere—in particular, in a newspaper.
Viewtron, Ingle had seen, presented “frames” of information. But the frames felt like a quarry; there was a disquieting sense of not knowing how far down the bottom lay. A newspaper page was, by contrast, assuringly finite. Users did like the “electronic mail” feature—though there were still few people with whom they could correspond. When the chain at last announced that it was abandoning the project—at a cost of $50 million—the experiment, at least in the view of Knight Ridder’s chairman, James Batten, nonetheless offered an important lesson: “It is now clear that videotex is not likely to be a threat to either newspaper advertising or readership in the foreseeable future.”
That was 1986. Batten, a venerated leader, would not live to see how wrong he was. The failure of Viewtron—or rather, the extent to which Viewtron was ahead of its users, few of whom had home computers with high-speed modems—would haunt Knight Ridder. Experimenting, it was understood, though not explicitly said, was acceptable, so long as the cost of failure was minimal.
Still, experimentation, or at least the talk of experimentation, continued and in late 1989, Knight Ridder assigned Ingle to a task force charged with assessing the chain’s place in the future. Ingle hated it. “It was so frustrating,” he would recall. “People would sit around and try to forecast the price of newsprint in ten years.”
So Ingle did what he had always preferred doing: he set off by himself. Over several days in early January of 1990, he composed a “report” to P. Anthony Ridder, who then headed the chain’s newspaper division, on where his paper might find a niche in the newly evolving world of electronic publishing. Four years had passed since the end of Viewtron, and Ingle quickly confronted what he called “some deep scars” left from an experiment that was, in his view, “premature.”
“It would be nothing short of criminal,” he wrote, “if the company that had the courage to launch Viewtron failed to seize the moment the market had turned.”
Ingle’s 1990 report was both visionary and defensive. He envisioned a world in which the personal computer and modem were ubiquitous, a world of flat panel screens, portable devices, and software that, as he put it, could act as information managers. He also saw a future in which people no longer organized themselves merely by physical proximity, but as virtual “communities of interest” connected electronically. All this and much that could not be predicted, he wrote, would surely happen.
The question was how his newspaper could position itself to be in the center of it all, and not be remanded to the periphery—and the inevitable oblivion—of change. Ingle believed in the newspaper, believed it would continue to matter to readers for years to come. But “to extend the life and preserve the franchise of the newspaper,” he wrote, the Merc would have to absorb the new technologies into its work—not to replace the printed newspaper, but to augment it in a manner that readers could embrace.
The mistake of Viewtron, he wrote, was to impose a single innovation upon users who simply were not ready, or inclined, to adapt to it. Instead, he argued, the Merc and Knight Ridder should launch an altogether different kind of experiment, one that, at minimal cost—crucial after Viewtron—could instead offer readers a range of innovations whose fates they would decide both by the comments they offered, and, in time, by the features and services they selected.
Newspapers, Ingle argued, still enjoyed advantages no other institution could rival. Like newspapers across the country, the Merc dominated both the gathering and dissemination of news, and, crucially, remained the repository of vital information on finding jobs, homes, and cars. Newspaper people may not have wanted to admit it, but while the work they did may have made for an informed and entertained citizenry, it was the classifieds that many readers wanted and needed. Decades before anyone spoke of social media, and when online conversation was still limited to electronic bulletin boards, newspaper classified pages were where people came to communicate with one another about where to work and live.
Still, Ingle did offer a word of caution: newspapers’ advantage would not last. Competition would surely come, although in what form or shape he did not say. So, to be ready, he wanted to create a laboratory that could use the emerging technologies as an “adjunct” to what the paper offered. To succeed, the laboratory would have to be a part of the newsroom, not separate from it. The staff—reporters, editors, sales staff—would all have to join in the experiment. “Structuring the experiment as an enterprise separate from the newspaper would be crippling if not fatal,” he wrote. “It would also be crippled if it were merely a collection of unconnected systems and services.” This meant creating a platform that could offer readers not only more of what could not fit in the paper, but also a place where their voices could be heard. And where the Merc could track their preferences by monitoring traffic and signups.
“I’ve given the proposed project a working name of Mercury Center,” he wrote. “It’s not perfect, but it does convey nicely the concept: that the newspaper is at the center of information and communication in the community. We can happily adopt a better name if one pops up.”
Ingle sent his report to Tony Ridder, who asked him to put together a business plan. It would be a year and a half until Ingle completed the proposal to launch his experiment. He blamed the delay on the demands of putting out a daily newspaper. He would, in time, grow weary of others offering the same excuse.
But at that moment, there seemed to be no great sense of urgency. Ingle’s competition in 1990 consisted of several local weeklies and two mediocre newspapers an hour away in San Francisco. The afternoon San Jose News was gone, folded into the Merc in 1983. Even in Santa Clara County, only 13 percent of the homes had personal computers and modems. The technological innovation most widely used, Ingle noted, was the touch-tone telephone.
He had time; the market had not yet “turned.” A few newsrooms had begun to dabble in the new technologies, but the work was proceeding haltingly. In Denver, the Rocky Mountain News had launched an eight-week videotex experiment. In Albuquerque, the Tribune had started an electronic version for personal computers. The Omaha World-Herald abandoned its videotex service in 1991, announcing that the “public just didn’t buy it.” Prodigy announced its one-millionth subscriber. America Online had not yet gone public with its $62-million IPO.
In 1991, Knight Ridder posted $2.26 billion in revenue, even as the economy was mired in a recession. The downturn cut into the Merc’s vaunted job listings—$84.5 million that year—by 10 percent. This worried the paper’s general manager, Kathy Yates. What would happen, she wondered, if the drop had been steeper? “What if we lose 25 percent?” she asked herself. “It’s a totally different business.”
And though classified revenue dropped by $2 million in 1992, it rebounded by $5.5 million the following year, and as it did Yates’s concern seemed academic.
When the Mercury Center finally launched in 1993, only about a dozen newspapers had begun online versions. Ingle was still ahead of the pack. And, most importantly, his newspaper was, for all appearances, safe.
3. Bob Ingle’s New Train Set
It would be nice to think that, at least early on, the story of the Mercury News’s embrace of the technologies that would transform the newspaper industry could reflect just that—an embrace, an eagerness shared by the newsroom, the business side, and the sales and marketing staffs to join together in the great experiment.
In the spring of 1992, Bob Ingle began hiring a small staff to launch Mercury Center. He did not turn to technology people who for years had been flooding Silicon Valley, straight from Carnegie Mellon, MIT, Caltech, and, especially, Stanford. Stanford’s wide footprint in Palo Alto and its growing list of tech-world alumni all-stars had helped make Santa Clara County one of the wealthiest and fastest growing regions in the country—the destination for every young man (and the rare young woman) who dreamed that the new application developed, apocryphally or not in a garage, would add their names to the burgeoning list of the suddenly vastly wealthy. Yahoo, whose co-founder, Jerry Yang, still came to work in jeans and T-shirts, had modeled a conference room after a garage, a bow to the not-so-distant past.
Ingle turned instead to newspaper people. There was a modest but growing coterie of journalists who, perhaps because technology was giving them a chance to soar, had staked out positions as their paper’s tech person, whatever that meant. Bill Mitchell was one of them. He had returned to Knight Ridder’s Detroit Free Press—after a tour at the chain’s Washington bureau, an overseas post in Vienna, and a turn on the Knight Ridder team covering the first Gulf War—looking for something more than a new story. He was running the paper’s fledgling audio-text and fax delivery systems when Ingle hired him to become the Mercury Center’s director of electronic publishing, a job so novel it sounded exotic.
Ingle also needed someone who could write code, and one of the few to be found in a newsroom was Chris Jennewein, who was director of information services at The Atlanta Journal-Constitution, where he had been working for thirteen years and where, he told Ingle the first time he asked, he was happy to stay. Ingle took a clever tack the second time, inviting Jennewein to visit. If Jennewein wasn’t completely sold as he drove along US 101, past all those billboards for the high-tech companies he’d read about in the kinds of trade magazines to which few journalists then subscribed, then it was at lunch at the Silicon Valley Club when the deal was closed. “I want to hear from somebody who believes in the technology that things will change in journalism,” Jennewein would recall saying, “that there’s a future out there.”
There was no shortage of tasks to be done to launch Mercury Center, tasks that bore little resemblance to the work of putting out a newspaper. The first was deciding who would host the site. Those few newspapers dabbling with electronic versions had used bulletin board software, or had thrown in with CompuServe and Prodigy, the largest of the Internet providers. But on a visit to Prodigy’s offices in White Plains, New York, Ingle, whose penchant for candor was abrupt to the point of rudeness, told his hosts that their screens looked like “ransom notes.” Instead, Ingle wanted to go with the smaller AOL, even though, he says, he did not much care for the company’s president, Steve Case.
Still to be determined, however, was what, exactly, subscribers would get for their monthly $9.95 fee (with additional hourly usage fees) aside from services AOL already provided. AOL’s proprietary language, Rainman, did not have much capacity for photographs or graphics. Navigation in 1992 was relatively slow—and connecting to the net glacial—which made reading the paper a far easier way to sort through the news.
But Mercury Center could do things the paper could not. It could carry legal documents, press conference transcripts, wire service stories not deemed sufficiently interesting to merit more than a brief in print. Not sufficiently interesting, that is, to a general audience. But perhaps they would be for the various niches among the Merc’s 269,000 daily and 332,000 Sunday print readers, who might want to know more about a particular story than their neighbors—“communities of interest,” as Ingle had called them. The site could, of course, include the content of the day’s print paper, but that seemed secondary. The emphasis would be on more—more stories, listings, and advertising, too. And for those potential subscribers without home computers and modems, the Mercury Center would offer telephone and fax services for $2.95 a month.
In the meantime, Mitchell had hired a marketing director and a sales representative, because despite Ingle’s call for integrating the site into the life of the paper, the Merc’s unionized sales staff saw the project as an intrusion on their time, or, for some, a threat to the way they did their business. The reaction was much the same in the newsroom, where Ingle had wedged his experiment into a corner near the features desk. One day, Chris Jennewein was carrying a boxed computer into the office when he heard someone say, “Look, there’s Bob Ingle’s new train set.”
In reality, the imposition on the news side was minimal. No reporters were dedicated to the project. Two Merc copy editors joined Mercury Center as online editors, with the idea of rotating desk people through every six months. But the new frontiers were exciting, and the editors remained. One of them was Donna Lovell, who had come to the paper in 1989 and who was eager to stay on and, as she later put it, be “a part of the next big thing.”
The next big thing, she began to see, resembled, at least in its organization, the analog world that preceded it. This made sense in that readers, long used to the way a newspaper presented things, might well balk at being asked to find what they wanted in unfamiliar ways. There would be boxes, just as there were print sections, for news, sports, entertainment, and ads. But there would be an altogether new feature, too, to be found in a box dubbed “communication.” Readers would be able to use the electronic mail feature to send notes to writers, and even to offer their comments.
In late April 1993, the Mercury News began running small promotional ads, heralding the coming of its new electronic feature. Subscribers were directed to the paper’s circulation department, which would mail them discs to be inserted in their home computers. The software would deliver them to a pale green page topped by the words, Welcome to Mercury Center.
By the time William Glaberson of the New York Times came to visit in early 1994, some five thousand new AOL subscribers had signed up to receive Mercury Center. The number, Glaberson noted, represented less than 20 percent of AOL’s subscribers in the Bay Area and less than 2 percent of the Merc’s readers. But Glaberson’s report in the Times was all that Ingle, Mitchell, and their staff could have asked for. Even with new sites at the Chicago Tribune, Gannett’s Florida Today, and a handful of other papers, it had taken less than a year for Mercury Center to emerge as arguably the most ambitious experiment in how to weave the new technologies into an existing news operation.
It was not only the volume of services that set it apart, but the extent to which the electronic services so dramatically expanded the definition of what it meant to be in the news business. Mercury Center, Glaberson noted, had carried an online chat with San Jose’s mayor, offered its telephone-only subscribers recordings of Martin Luther King Jr.’s speeches, posted press releases (much to the newsroom’s consternation), and had also made available archives of all stories that had appeared in the newspaper since 1985. The archives, which came with an additional fee, had proven to be particularly popular. Ingle had thought their greatest appeal would be to schoolchildren working on reports. But the traffic was heaviest during the day, suggesting that the biggest users were business people eager for information about their industries and competitors.
Ingle told Glaberson that he was envisioning a new breed of journalist, dispatched with the sort of equipment that would allow filing in all sorts of ways, not merely for print. He called them “multimedia reporters.” Still, for the print side, the connection between the newspaper and Mercury Center involved little more than the addition of codes at the bottom of printed stories, so that readers could log on, or call in, for more. Some reporters had begun online conversations with their readers (everyone was asked to respond to reader e-mails). Others told Glaberson they saw the back and forth as peripheral to their work.
Ingle insisted that online conversation could transform the paper’s connection with its readers, and prove an antidote to decades of slowly declining readership. “Our communication historically has been, ‘we print it, you read it,’ ” he told Glaberson. “This changes everything.”
Everything but the sensibilities of the people who worked for him. His diffidence aside, Ingle believed himself an adept salesman; as a young man in Iowa he had sold sweet corn door to door. But unlike the housewives who could discern the quality of corn by flicking off a kernel with a fingernail, his reporters and editors were proving a slower sell. Ingle could be a terror of a boss, quick to sever a head or two; he prided himself on having never lost a dismissal arbitration. Yet now he struggled to rally his newsroom. Time and again, requests to post an online item were met with reminders that there was a newspaper to put out.
Among those who did not see the potential of Mercury Center, at least at first, was not a subordinate but a peer, Kathy Yates, the paper’s general manager. Yates was that rare Stanford Business School graduate who chose a career in newspapers. She believed they performed such a vital service, even if under editors like Ingle they were not always good with money.
Yates did not much care for Ingle, whom she found difficult. Mercury Center had struck her as an unwise investment, one that she saw producing little revenue. Ad sales at Mercury Center, in fact, were minimal—Ingle and his people were frustrated with a sales staff that seemed to him unwilling or incapable of convincing their clients to enhance their print ads with a cheap online edition. What little revenue Mercury Center brought in came through subscriptions (with aol taking its cut) and corporate sponsorships of such new, online products as the “mortgage hot line,” which updated mortgage rates periodically over the day. Ingle reminded Yates that Mercury Center was adding subscribers. Yates remained unimpressed.
Revenue was so modest, in fact, that Mercury Center’s marketing director, Barry Parr, later said that selling subscriptions felt like little more than “selling AOL for AOL.” But Ingle, Parr, and their staff were already seeing a way to break out on their own.
In the fall of 1994, Mosaic Communications, a startup in nearby Mountain View, had introduced software that could shift users away from the narrow confines of their online providers and begin navigating their way through a source of information and communication that had previously been accessible only to a handful of university-based technologists: the World Wide Web. They named the browser Netscape. When Barry Parr showed Kathy Yates how it worked, her doubts about the potential of the digital world evaporated. No longer would Mercury Center be limited by its partnership with AOL. Instead, the Merc could become a portal to a world with seemingly limitless possibilities.
“This,” she would recall thinking, “has just changed my career.”
How it would change, she could not know. But even as Yates began to envision great possibilities for the Mercury News through the web, one of Knight Ridder’s newest marketing people was forming a less sanguine view of the company’s future.
Like Yates, Charlene Li had chosen newspapers as a career, one of only two graduates from the Harvard Business School class of 1993 to do so. She had joined the company that August, and was assigned to develop new products, and with them, new sources of revenue. Li began working with the Mercury Center’s Barry Parr and helped develop an idea for an event that might better position the online service—an electronics fair. The event took place at the San Jose Convention Center and featured products by many of the area’s high-tech firms.
The fair broke even, and while in other circumstances this might have represented success—it is not uncommon for such events to lose money for the first two years—Knight Ridder abandoned the project. By the time she left in 1995, Li had learned two important lessons about innovation at the company: all new ideas had to go through an innovation committee (“an oxymoron,” she would later say) and had to produce revenue within six months.
Li spent her days with newspaper people and her evenings with technology people. The newspaper people, she saw, were still burdened by the failure of Viewtron. But the technology people regarded failure differently; it was a part of their world, because they lived in a world of risk. The people with whom she spent her days were, by the nature of their success, cautious, protective, defensive, and as a result, fearful. Not so the people with whom she hung out at night.
“This is a company,” she would recall thinking, “that’s gonna get eaten alive.”
4. The Heir
James Batten died of a malignant brain tumor in June 1995. He was fifty-nine years old and in the years after his death, the great regard with which he was already held only grew deeper. Batten was, above all, a newspaperman and in a chain that placed great value on its journalism, Batten, who had covered the civil rights movement and, from Washington, southern politics, had proven himself a worthy leader. That he had died relatively young only enhanced the belief that had he lived, Knight Ridder’s fate might have been different. The sentiment said as much about Batten as it did about his successor, Tony Ridder.
Ridder was fifty-five, blond, handsome, athletic, and pleasant, the sort of man who appeared careful not to give offense, but who, in the view of his detractors, did so just the same. The problem was not merely that he was a Ridder in a company that had been dominated by the Knights and their spiritual heirs, like Batten. Tony Ridder, it was often said, acted like a Ridder, which was to say that his primary interest, his critics never tired of insisting, lay not with the state of the company’s journalism but in the value of its stock. He did himself no favors when, soon after replacing Batten as chairman, he was asked at a meeting of Knight Ridder editors what kept him up at night. At a moment ripe for a public embrace of the company’s journalistic legacy, Ridder instead offered a candid, if unwise, reply: “electronic classified.”
His critics aside, Ridder had a point—not a romantic one, but an important point just the same. Tony Ridder, who did not respond to requests to speak with me for this story, may have displayed the sensibilities of an accountant. But he knew a nightmare when he saw one coming.
At that moment, however, his unsettled view was not widely shared. Batten had bequeathed him a prosperous company that was only getting richer. Knight Ridder posted $2.8 billion in revenue in 1995, a $100 million increase over 1994, which, in turn, reflected an increase of $200 million over 1993. Advertising, which generally accounted for three-quarters of newspaper revenues, was propelling the growth. And while retail advertising produced more dollars, classifieds, which took fewer people to produce, were more profitable. In fact, classified revenue had grown by 13 percent in 1995, largely fueled by a 36 percent jump in employment listings at the the Mercury News, where Ridder had worked from 1964 to 1986, serving as business manager, then general manager, and finally as publisher. The Merc alone accounted for fully half the company’s increase in classified revenue that year; for over twenty years it ranked among the top five papers in the country in total full-run ad linage. This was not surprising, given the rapid growth of Silicon Valley and the Merc’s position there as the only game in town.
The Mercury News, like newspapers across the country, operated, for all practical purposes, as a monopoly, if not in disseminating the news (there was still peripheral competition) than in being the only meaningful destination for every home buyer and seller, every employer and applicant. With the conversion from hot type to cold, it took fewer people less time to put out a newspaper. And with the death of so many afternoon papers, the survivors grew richer. And as they grew richer, they became more attractive to investors seeking a reliably rising quarterly return. Newspaper companies, eager for that infusion of cash, began going public.
But that seemingly enviable absence of competition would come at a profound, if still unseen, cost: newspapers, which once fought for every story and ad, now had no one to push against and so grew complacent. Nowhere was the growing arrogance more apparent, in fact, than in the classified departments, where people did not even talk about selling classified ads, as they might when they spoke of retail. Instead, the sales staff sat at telephones and took classifieds.
“It was a passive thing,” says Peter M. Zollman, a founder of AIM Group, a consultant on classified advertising. “Nobody had to do anything other than publish the paper.” Exacerbating this sense of financial entitlement was the knowledge that newspapers could charge as much as they liked, knowing advertisers both big and small could do nothing about it. “They were,” Zollman says, “rapacious.”
Such was the state of the newspaper business when Tony Ridder became the first Ridder to run a company in which his family had always been perceived as the junior partner. His concern about electronic classifieds appeared premature—the numbers offered nothing but assurance. All the numbers, save one. In 1995, Knight Ridder’s newspaper profit margin fell by 4 percent, to a still enviable 12.5 percent. The drop was attributed to the losses sustained by the Detroit Free Press, which was in the midst of a protracted strike.
Still, that number was unsettling for anyone worried about upsetting shareholders. Disappointment could turn to anger, which, in turn, could fuel a hostile takeover, to which Knight Ridder, with its single-tier stock structure, was particularly vulnerable. Ridder was determined to protect his company in the way he knew best: by increasing revenues and doubling the value of the stock. His employees may not have thought of him as a newspaperman, certainly not one like Jim Batten. But in that regard they were wrong.
Ridder was about to double down on his family’s business.
Meanwhile, at the Mercury News, Bob Ryan was undergoing an immersion course in the digital world for which his junior college code-writing course had not prepared him. So much had changed since his semester at Foothill Junior College, which he had paid for on his own after his employer would not. Ryan, who had been running the Merc’s foreign and national reports, was experiencing life on the other side of the digital divide, which meant he was now the editor whom the print-side reporters told to get lost.
In January 1995, Mercury Center became the first news site in the nation to migrate to the web. The move liberated the site from the digital limitations and financial burdens of AOL. Access was initially free; but within several months the Merc began charging subscribers $4.95 a month—a dollar if they took the print paper. This decision troubled Barry Parr. One advertiser had suggested to him that the Merc make its website free to everyone because the prospect of all those readers would lure advertisers. Parr ran the suggestion up the chain of command, and it was not well received: the Merc averaged a quarter of a billion dollars in annual revenues, and to the paper’s leaders, giving away all that content would turn the Merc into a $25 million business. Parr, who had already worked on digital startups, could offer no rebuttal, given that he was making the case for projected earnings, not the actual money flowing from all those readers (and advertisers) paying for the printed paper. He left soon after, for yet another startup, CNET, whose detailed technology coverage would, in time, come at the Merc’s expense.
No longer bound by the limits of AOL’s Rainman software, Mercury Center now opened to a home page filled not with boxes but with headlines that, with a click, opened to stories. There were the now-familiar features: NewsHound, a digital “clipping service” in which readers could personalize the sorts of stories they wanted delivered to their electronic inboxes; data search capacity; and Talent Scout, electronic want ads that featured résumé posting. The site updated news throughout the day and offered links to other web destinations, both local and national. And it had classified job ads through a searchable database called Career Mosaic. Advertisers signed on—IBM, Netcom, Coldwell Banker, and Del Monte, whose ad offered a hypertext cookbook.
Mercury Center was attracting users. The numbers, however, were modest—2,700 new web subscribers by late May 1995—as was revenue: $120,000 that month, with $19,000 from electronic classifieds.
By 1995, Ryan was beginning to see much the same pattern on the web that Bill Mitchell had seen with AOL: it was not the site’s basic services (the content of the newspaper, and expanded listings) that excited readers enough to be willing to pay. Rather, it was the “premium” services, like the archives and the News Hound aggregator. Readers, it was becoming clearer, wanted quick access to particular sorts of information, and they did not want to labor to find it. Money was not the issue: a year earlier, Mitchell had reported that users regarded premium content—useful information unavailable elsewhere—as a bargain, a gift that came at relatively little cost.
Meanwhile, the site’s staff was expanding, even as the newsroom was growing more crowded; in those days it felt, as one longtime editor put it, as if the paper was adding a section a week. So in December 1996, Mercury Center, which Bob Ingle had insisted be at the core of the newsroom, moved to new offices in downtown San Jose.
Ingle, too, was gone, promoted in January 1995 to corporate vice president for new media. The man who had been unable to rally his own newsroom around his electronic experiment was going to be the point man on Knight Ridder’s digital expansion. The staff’s resistance to Mercury Center aside, Ingle had for fourteen years run his territory in a manner of his choosing. He was about to discover how profoundly that was going to change, even with his lofty title.
His successor as the Merc’s editor, Jerry Ceppos, was a gentler soul who, as Ingle’s longtime deputy, had watched the Mercury News boom as the paper’s core story—Silicon Valley—drew advertisers, subscribers, and, inevitably, competitors. Much to his chagrin, the national press had discovered Silicon Valley, albeit slowly—The New York Times first mentioned the World Wide Web in February 1993. And while the Merc was still cited as the source for many technology stories, Ceppos didn’t like watching the big players cutting in on his paper’s turf. Finally, in February 1996, when Time ran a cover story featuring Netscape—“The Golden Geeks”—Ceppos stood before his growing newsroom—which would soon expand to 350, sixty on the business desk alone—and announced, in a rare poetic flourish, that the story of Silicon Valley was nothing less than Florence in the time of the Medicis.
Santa Clara County was being transformed, he said, and while other, bigger newspapers and magazines could dip in and out, no news organization but the Merc—and the Mercury Center—had the money, the staff, and the access to cover all the many ripples unleashed by the digital revolution. He was not speaking just of companies giving away Porsches at auctions. Rather it was the story of schools, immigrants—everyone whose lives were being shaped by all that wealth. It was a dizzying time to work at the Mercury News.
Bob Ryan, meanwhile, was experiencing life at Mercury Center, now that it had moved out of the newsroom, as a remote “skunk works” operation. “Most of our work was invisible to the newsroom and the newsroom didn’t care about it,” he says. That isolation was made clear in April 1995 when Timothy McVeigh bombed the Alfred P. Murrah Federal Building in Oklahoma City, killing 168 people, nineteen of them children, one of whom was photographed in the arms of a firefighter. Donna Lovell, who had stayed on at Mercury Center, posted the photograph immediately to the website. The Merc’s photo editor, however, wanted it removed, claiming the photograph for the next morning’s paper. Ceppos sided with Lovell.
Ryan understood the resistance; he, too, had long operated on a newspaper’s daily clock. But as he spent his days before a computer terminal on his web browser, he began measuring time on a far faster scale. He sensed that his readers, too, were growing impatient with waiting for news and information. “They expected things immediately,” he says. So did he.
But the web’s growing power was not limited to speed. Mercury Center’s audience grew, though how much it was hard to say: the company claimed in its 1995 annual report that traffic had doubled, but did not provide numbers; it was not until 1997 that it would report 1.2 million monthly visitors for Mercury Center. And Ryan had come to understand that numbers, both in traffic and in revenue, were flexible; it was not difficult, say, to claim a percentage of ad revenue for online “upsells.”
Mercury Center’s reputation was growing. In 1996, Editor & Publisher named Mercury Center the nation’s best newspaper on the web. Ryan, and the entire news organization, would soon learn just how powerful a tool they had—for better or worse.
In August 1996, The Mercury News published the first of three stories on an alleged connection between the US-backed Nicaraguan contras and the devastation wrought by the crack trade on the inner city. Gary Webb’s series, “Dark Alliance,” charged that drug money was funding the insurgency. Much as Bob Ingle had envisioned in 1990, the publication of the series was a joint effort by the print and digital sides—Mercury Center posted documents, as well as audio recordings from wiretaps and hearings. The response was electric; the story became the subject of talk radio, and of every conspiracy theorist who believed that the government was secretly behind the crack trade. “You don’t have to be The New York Times or The Washington Post to bust a national story anymore,” Webb said. Traffic boomed—Ryan estimated a 15 percent boost in readership. There were days when over a million people visited the site. “For us, it has certainly answered the question: Is there anyone out there?”
But the early excitement soon gave way to growing suspicions about the story, not necessarily the facts but the extent to which Webb had extrapolated upon what he had learned. The same national press whose ranks the Merc believed it had joined began running stories rebutting Webb’s charges, and suggesting, none too kindly, that the upstart Merc had overreached. At the paper, there was growing anger—not necessarily at Webb, but at the editors who had run a story whose core premise, on a closer reading, felt vastly oversold. Webb was reassigned; Ceppos, who’d been on medical leave, was compelled to address his restive staff and later write an explanatory public letter, backing away from the series.
Lost in the fallout and recriminations was how widely and quickly Mercury Center had spread the story. The experiment dismissed as “Bob Ingle’s train set” had displayed a power unlike anyone at the paper had ever seen. No one was then using the word “viral” because it had never happened before.
In 1995 and 1996, Knight Ridder began to jettison properties, among them its remaining cable television systems, as well as its Information Design Laboratory in Boulder, Colorado, a $900,000 annual investment that in 1992 began developing an early version of a tablet newspaper. The laboratory, in the view of its director, Roger Fidler, had been a Jim Batten project, an enthusiasm that Tony Ridder—and Bob Ingle—did not share. Far larger, and noticeable to investors, was the decision to sell Knight Ridder Financial, the business news service that was fighting with Reuters, Dow Jones, and, more recently, Bloomberg LP, to retain its share of the market. The service, which employed about 1,100 people, averaged about $200 million in annual revenues. But its profits, Ridder told the Times, were modest. Wall Street greeted the news by boosting the value of Knight Ridder stock by $3.38 a share. Ridder announced that the proceeds would go toward paying down debt, as well as further boosting the value of the stock with a buy-back program. The company would also buy more newspapers.
In 1988, Forbes had scolded Knight Ridder for relying too heavily on its core newspaper business. And in the years that followed the company had diversified. But with its purchases in 1997 of The Kansas City Star, the Fort Worth Star-Telegram, and dailies in Wilkes-Barre, Pennsylvania, and Belleville, Illinois, Knight Ridder was positioning itself as a “pure play” newspaper company, albeit one with a growing online presence. It sold its stake in Netscape, which was under assault by Microsoft.
And it was wary of proposals for new ventures not perceived as central to the business. In 1996, for instance, Jeff Skoll, who had briefly worked for Knight Ridder, approached Ingle about buying a stake in a startup for which he had become only the second employee. It was called eBay. Skoll had also taken the proposal to Times Mirror and, according to Adam Cohen’s account in The Perfect Store, Skoll wanted to enhance his leverage. Ingle told me that he wanted Knight Ridder to buy a controlling stake in eBay, but that Ridder, not seeing how the online auction trade fit in the business of classified advertising, declined.
Mary Jean Connors, who, as vice president for human resources, was close to Ridder, does not dispute that decision. Knight Ridder, she told me, was often approached with investment opportunities, but lacked a venture capital firm’s expertise in assessing such proposals—a quality it shared with so many news organizations that, in the years to come, would look back and cringe at acquisitions they made, and others they missed.
“There was no one who stood up and said if we invest in eBay life will be grand,” she says. “We looked at a million things. And no one could say this is going to be the one. And we just couldn’t spread ourselves. Could we have won at the roulette table that night? Maybe. But we didn’t. You don’t go back and say, if only. . . .”
The decision, she went on, reflected a broader sense of how the company regarded itself. “We had the impediment of who we were. We had our kind of talent and our kind of investors,” she said. “We weren’t hiring the best engineers. We were hiring people who could do great work in journalism and great sales people. You can’t change who you are.”
Kathy Yates, whose early discomfort with Bob Ingle had evolved into friendship, joined him at Knight Ridder’s digital division, and it was there, in 1997, that she first heard of a new book by a Harvard Business School professor that presented a sober and troubling assessment of the fate that awaited companies under assault from what he called “disruptive technology.”
In The Innovator’s Dilemma, Clayton Christensen wrote of two technological forces, the more gentle of which “sustained” well-run companies. Ingle, in fact, had witnessed the power of “sustaining technology” as a young man at The Miami Herald, where the conversion from hot to cold type made producing a newspaper quicker and cheaper. The Herald, like newspapers across the country, absorbed that innovation in a way that streamlined the operation of a well-run company in a chain of successful newspapers.
But “disruptive technology” possessed an altogether different power, one that could unmoor the best-run companies. Disruptive technology was difficult to confront because it functioned in a profoundly counterintuitive way. Unlike cold type, for instance, it did not enhance a product whose market—advertisers and readers—was established, familiar, and reliably profitable. Instead, it created new products that initially held little appeal to that existing market, either because the market was already happy with what it had, or because it was not ready for that innovation. In the 1980s, those newspaper companies that had experimented with electronic publishing discovered that their audiences still regarded the printed paper as the most efficient way to read and advertise.
It was a mistake, Christensen argued, to find fault with established companies not drawn to small, unprofitable corners of the market. Those companies had succeeded because they had developed their own “laws of nature”—an almost intuitive sense of how to make decisions, spend money, and, most important, maintain a good and reliable relationship with their customers. But these were the very qualities, he argued, that rendered them so vulnerable to disruptive technology.
Christensen, a devout Mormon, was staking out a position that bordered on business heresy. In the face of disruptive technology, he wrote, the wise course was not to react to the demands of existing customers. It was imperative to lower revenue expectations for the products spun off by those new technologies. And it was essential to accept the inevitability of failure. If sustaining technology brought reassurance, disruptive technology sowed doubt.
Yates had been with Knight Ridder long enough to recognize how much Christensen’s case mirrored what had taken place at her company. Knight Ridder, under Jim Batten, had ended the Viewtron experiment because the market was judged too small and the cost too high. But now Christensen was presenting an argument suggesting that, in essence, the company had had it all wrong—that because it had lost so much money it could not appreciate that Viewtron did, in fact, serve a market, albeit a small one that could, over time, develop into a far larger one, once the technology became cheaper, accessible, and efficient. Once the personal computer with a high-speed modem became a household fixture, the newspaper would cease being the best way to read, and more importantly, to search for jobs, employees, cars, and homes. That was the moment of disruption. And when it occurred, the companies that had been cultivating their shares of the emerging markets found themselves no longer at the periphery, but, like eBay, in a position to dominate a market that, not so long before, did not appear to exist.
As if by chance, Ingle had in 1990 come upon the very corrective in Mercury Center that Christensen would prescribe seven years later—a small, inexpensive laboratory for trying out those disruptive technologies, a place where modest successes could be celebrated and built upon, a “skunk works” operation that the company could keep running as it waited to see whether the new markets might emerge, or existing ones catch up.
But as it was with Charlene Li’s technology fair, and with Roger Fidler’s innovation lab, Knight Ridder had shown itself to be uncomfortable with failure—failure as defined by little money to show for the effort. After she left Knight Ridder, Li, who believed the company would one day be “eaten alive,” eventually founded her own firm, consulting companies on adapting to disruptive technology.
In the summer of 1997, Bob Ingle had assumed the role of the news business’s Jeremiah. At the Newspaper Association of America’s new-media conference in San Francisco, he rose to offer his dark prediction of the fate that awaited all those unwilling to change.
“We think we’re an institution—the last bastion against greed and corruption and government inefficiency,” he thundered. “We are our own worst enemies. We have forgotten how to compete, and we better learn damn fast because we’re on Internet time.”
Newspapers were hesitating to adapt, convinced that somehow they could survive by doing things as they always had, he continued. But that meant a slow death, because soon enough the monopoly on classified advertising was going to end, and when it did the money that paid for all the journalism that made publishers and editors so proud was going to evaporate.
For all his worry about the next threat, Ingle believed he had identified his enemy, and it was not a startup, even though small firms were freer to throw their modest resources behind an innovation, if only because they had so much less to lose. The threat he saw was not the free electronic classified listings that Craig Newmark started running, part time, from his San Francisco apartment in 1995. Nor was it BackRub, a search engine being developed by two Stanford graduate students, Larry Page and Sergey Brin, who in 1997 would rename it Google.
The threat was not from below, as Ingle saw it, but from above, from the biggest player in the digital game, Microsoft. In 1996, Microsoft had launched Sidewalk, a network of city guides that, Ingle told the naa gathering, would eat into markets that newspaper websites had made their own.
He was not alone in that fear. In 1995, Knight Ridder had joined with the leading news organizations in the country—The New York Times Company, Tribune Company, and The Washington Post Company among them—in an alliance against the online threat called New Century Network. By 1997, however, the group was falling apart, riven by conflicting agendas. Ingle remained convinced that Microsoft had to be stopped, or at least stalled. If New Century Network could not find a way to work together, he reasoned, Knight Ridder would go it alone.
As it happened, Kathy Yates had come up with a plan to leverage the chain’s reach into a potential market for national advertising. The project would involve all of Knight Ridder’s papers. Microsoft may have had the national reach. But each Knight Ridder paper, the thinking went, knew—and, in effect, owned—its town.
“Our mission was to try to create a defensive property to help protect the core of the newspapers,” Yates would later say. “Real Cities was about a way to standardize what we were doing on the web.”
The Real Cities network would be Knight Ridder’s attempt to push back in a broad and ambitious way against the forces of disruption—forces that, as Ingle and Yates would soon discover, could turn smart and devoted people against each other.
David Demilo arrived at Knight Ridder Digital in 1997, recruited by Chris Jennewein to build something altogether alien at the company—a technological development unit that would operate not in the chaotic “daily miracle” of a newsroom, but in accordance with the strict rules of order that, the jeans-and-sneakers dress code aside, prevailed in the digital world.
Jennewein, who had helped build the early version of Mercury Center, had been dispatched by Ingle to those Knight Ridder newspapers that still needed to build websites—the first step in creating the new Real Cities network. DeMilo, who had worked on his college paper at Harvard and who had interned at the Herald when Ingle was still there—and who remembered what terrific holiday parties he threw—had been at Primedia, where he helped build booksonline.com, the firm’s first e-commerce site.
He was an outlier among his new colleagues. DeMilo liked newspapers, but had been away from them long enough to recognize that the qualities that made newspaper people most proud were regarded as secondary in the digital world. Chief among them was content. Newspaper people, he heard time and again, insisted that content was king. But in DeMilo’s world, content was not king. The platform was king. It was king because the platform reflected not the sensibilities of the people who created the content, but rather the people who used it. If it worked for them, they would use it.
Knight Ridder’s technology staff was a collection of consultants, many still in their twenties. DeMilo’s job was to create an organization that could standardize all the company’s websites so that information could be streamed into databases in a way that made them searchable; no national advertiser, the reasoning went, would be interested in a network in which each ad had to be formatted to fit an array of sites. This meant imposing clear and immutable lines from inception to launch but which, in the eyes of DeMilo’s new colleagues, sapped the creative process of its spontaneity. But last-minute changes of mind and direction were difficult to accomplish in the intricate, numerical language in which DeMilo worked: code.
Being accused of stubbornness, however, was nothing compared to the resistance that Ingle and Yates had been encountering almost from the moment they announced their plan. Because by launching Real Cities they had committed the sin second only to compromising Knight Ridder’s stock value: they had angered the publishers.
Knight Ridder was a federation in which each of its newspapers operated as its publisher saw fit, so long as the paper met the company’s revenue goals. The publishers of the largest papers—in Philadelphia, Miami, and San Jose—wielded considerable power, and had come to take themselves, and their perquisites, seriously. “They were our clients and they wanted their independence, and we wanted to take that away from them,” says Mark Weinberg, an editor who worked on Real Cities. “You could have predicted the corporate resistance from the get-go.”
Perhaps, he reasoned, seduction might help. Weinberg organized “Fellows Tours,” which brought the publishers and their top executives to Silicon Valley to behold a digital future that, Weinberg believed, “was not real to them.”
He prepared briefing books that he suspected the “fellows” did not read. No matter. The key was the site visits to, among others, 3Com, Excite, and Netscape, which had been so instrumental in Mercury Center’s migration from AOL to the web. There they heard the story of Netscape’s rapid rise from start-up to multimillion-dollar IPO. Weinberg would later recall one publisher, known for still dictating his e-mails, coming away saying, “I’ve been somewhere. I can’t tell you exactly what I’ve seen, but I can tell you it’s going to change our future.”
Meanwhile, Kathy Yates was working on a different level of persuasion—less the glamour and more the looming threat: she invited a business school professor to present a case study on the power of disruptive technology. The case involved Encyclopedia Britannica, which had for decades been the repository, it seemed, of all known fact. That is, until Microsoft began bundling Encarta into its office suite programs. In the course of six years, Britannica went from record earnings to bankruptcy.
But if the publishers were dazzled by what they had seen on their high tech tours, they did not, in Yates’s view, appreciate the lessons of what befell Britannica. The encyclopedia, they told her, was a part of the book business. They published newspapers.
“I got to the point where I could imagine a world without newspapers,” she later said. “And they could not.”
The one publisher who needed no crash course on the growing force of the digital revolution was Jay Harris. He had been publisher of the Mercury News since 1994, and, in the best Knight Ridder tradition of selecting executives with newsroom credentials, had been a national correspondent for Gannett and editor of the Philadelphia Daily News. In 1998, the Merc posted revenues of $288 million. Mercury Center, which had dropped its access fees that May, was attracting 1.2 million monthly unique visitors and was working to make itself more attractive to advertisers with a database of registered users, expanded online classifieds, and plans for a separate tech site, siliconvalley.com. The paper was also preparing to add a Vietnamese-language edition to go along with the Spanish-language edition it had launched two years earlier. Harris recognized that while the revenues from the new venture would be modest, the edition could establish the Merc as the paper of choice for a growing segment of what remained a booming and ever wealthier population in Santa Clara County.
The prospect of great and sudden wealth was being felt ever more in his newsroom, where editors were finding it difficult to keep people from leaving for new ventures that promised terrific salaries and stock options, too. Donna Lovell, who had been among the pioneers on the Mercury Center staff, left for AltaVista. “We were all going to get rich,” she says. In 1998, Ridder moved the chain’s corporate headquarters from Miami to San Jose, an acknowledgment of where Knight Ridder had staked its future.
Yet Harris was beginning to see that all that money did not necessarily translate into more business for his newspaper. “We were doing well and the rocket was going further and further up,” he says. “In the good years our operating profit was in the low 30 percent. In the bad years it was 23 percent. It was good but it was less good.”
But now when Harris called on his biggest advertisers, he was hearing a troubling message: “You don’t deliver as effectively and productively as you once did.” Harris had competitors. One, Monster.com, an online job listing launched in 1994 from an office over a Chinese restaurant in Framingham, Massachusetts, had become, in the eyes of some of Harris’s most reliable clients, an attractive alternative. “Places like Netscape or Cisco were beginning to doubt the value and the effectiveness of print advertising as compared to what they could do on the web and through the occasional job fair,” he says. “As I made these visits, I knew things were changing. At first I didn’t see it.”
Yet, the corporation’s solutions—Real Cities, as well as newly formed joint classified ventures with other newspaper companies—held no appeal for the powerful Knight Ridder publishers long accustomed to presiding over their own domains. “Corporate would want the Mercury News to take group sales people to meet with Mercury News clients. And there was resistance to that,” Harris says. “ ‘Tell me again why I’m supposed to do that?’ Our job was to work at those companies, the newspapers, to make them strong. Jay Harris ran San Jose. And among the big papers there was sort of this distance.”
He was not alone among his peers in feeling the unwanted pressure of conforming to corporate wishes. “The big publishers got together, not because we were in revolt. But our interests were different than those in Macon, Georgia,” Harris says. They gathered in Charlotte to talk about strategies, about their needs, their plans. “None of us felt we needed to get anybody’s permission to talk about what worked best for large newspapers.”
Their boss was not pleased.
“There was a sense that we had a secret meeting,” Harris says, “but that wasn’t true. Tony called me one day and he was really pissed. From his perspective we were doing something clandestine.”
But from Harris’s perspective, the publishers’ job was to run their individual newspapers. Bob Ingle was asking them to join together in an enterprise whose payoff seemed questionable.
By 1999, nine years had elapsed since Ingle had written his “report,” which set in motion his newspaper’s answer to the “failure” of Viewtron. He had been confident that he had identified his enemy in Microsoft. But now he was not so sure; Microsoft sold the Sidewalks project to CitySearch in 1999. Meanwhile, companies that few had heard of two years earlier were eating into his business. Ingle, never one to consult, did what he had always done: he withdrew into himself. “He stopped listening,” Yates recalls, “to concentrate on where the next threat’s coming from.”
Meanwhile, DeMilo and his team were writing the code for the verticals that would support Real Cities. Ken Doctor and others on the editorial side of the project were working to devise content that would mesh with those ads, only to be told that it was a business-side decision, and new hires in some areas would have to be authorized by Tony Ridder.
Beleaguered as he was, Ingle could appreciate the bind in which Ridder found himself. His company was enjoying a prosperous 1999: revenue was over $3 billion, and the profit margin stood at 19 percent, three percent higher than in 1998. But advertising revenue had dipped; a sustained falloff could have serious implications. Ridder had thrown in with Ingle and Yates; digital revenues, though up 75 percent, were still a relatively modest $31 million. Yet although he may have been angry with the publishers about the Charlotte meeting, Ingle sensed that Ridder was reluctant to battle them on his behalf. “As long as they were delivering the bottom line, that’s what mattered,” Ingle said.
“The person in charge of policing this was Tony Ridder and he just wouldn’t do it. He’d say, ‘You just tell them what you want and I’ll see they do it.’ But that didn’t happen.”
That left Ingle and Yates to push the publishers on their own, and though the Real Cities project was moving ahead, the resistance to it had not abated. In fact, it had only grown more personal. “We were all strong-willed people,” Harris says. “No one was going to get rolled.”
It was as if the men and women who ran Knight Ridder had been handed a script from The Innovator’s Dilemma and asked to play the roles of well-intentioned executives trying to find their way in the face of a disruption they were only beginning to understand. The publishers in late 1998 were looking for someone to blame for the unhappy position in which they found themselves, being pushed to surrender their autonomy to support a group project with which they did not necessarily agree. The choice was logical and apparent. Kathy Yates would later recall the meeting with the publishers when one rose and, reflecting the resentment simmering over Ingle’s manner, said, “Bob never returns my phone calls.”
He did not leave it there. “Raise your hands,” he went on, “if Bob doesn’t return your phone calls.”
Ingle tried to assure them that he was not unresponsive. But he had lost them.
It took Tony Ridder a bit longer to decide that Ingle had outlived his usefulness. It came on the eve of a meeting of the corporate board. Ingle had just begun his slideshow presentation when members of the corporate staff began peppering him with questions and criticism. The following morning Yates ran into Ridder in a coffee shop. “You,” he said. “I want to see you in my office in ten minutes.”
The day before, Yates had left the briefing convinced that she and Ingle had lost the chairman’s confidence. She was half right. Now, Ridder told her, Ingle was out as head of Knight Ridder Digital. She was in charge. Real Cities relaunched the next September. But by then she too would be gone.
“We were all being human,” says Jay Harris. “There was insecurity. There was defensiveness. As things went along people started to look over each other’s shoulders.
“We were starting to wear jeans and open collar shirts on Fridays,” he adds, as if conforming to the Silicon Valley dress code somehow made them part of the forces of disruption. “That’s the part we understood.”
In the early winter of 2000, Dan Finnigan, whom Tony Ridder had hired to replace Kathy Yates, was listening as representatives of Goldman Sachs discussed plans for splitting Knight Ridder’s digital division into a separate company and taking it public. Finnigan, who had worked on business development at the Los Angeles Times and then at Smartpages.com, had been hired for this moment. At his interview, Ridder had asked him for his thoughts about an ipo of the digital operation. “That was his vision,” Finnigan would later say. “That was his goal.”
He, too, had encountered the same sort of resistance from the publishers that had doomed Bob Ingle, especially on the question of joining with the Tribune Company in a recruitment site called CareerBuilder.com. The publishers argued that the site would eat into their local listings. Finnigan explained that either they were going to cannibalize their own businesses or someone else would. The publishers were not pleased. But by 2000, CareerBuilder had been launched and the ipo had already gone public, and now Finnigan listened as the bankers from Goldman offered their assessment of the new company’s value.
When he heard the number—$547 million—Finnigan snickered. “That,” he recalls thinking, “is so overvalued.” In fact, in 2000 Knight Ridder would report losses of $46 million from its digital operations—$22 million more than it had lost in 1999. No matter that monthly page views had increased to 154 million, from 104 million. Though revenues were up, they were being eclipsed by rising operating costs. The new company was not even operational and yet, like so many other Silicon Valley ventures, the mere suggestion of a startup was enough to create value where nothing yet existed. “Everybody around sensed this bubble is getting out of hand.”
That April tech stocks cratered, and with that, the value of Knight Ridder Digital’s IPO plummeted. Still, Finnigan says, Tony Ridder held fast to the idea of spinning off the new company. Finnigan left in 2002 for Yahoo, leaving Ridder and his still restive publishers to sort out their future.
In the years to come, faced with declining revenues, especially in classifieds—which would fall across the industry by 71 percent between 2000 and 2010, almost twice as much as the rates for retail and national advertising—Tony Ridder found himself ever more under fire from his employees, as he ordered round after round of cost cutting. Harris quit in March 2001, rather than make the cuts Ridder demanded. The Wall Street Journal reported that Knight Ridder publishers were being offered handsome bonuses for cost cutting, a charge the company denied. Ridder’s employees began calling him Darth Ridder.
Yet Harris, of all people, felt a certain sympathy for his former boss. He recognized that Ridder had grown up in a culture that followed a simple business formula: “Take care of the top line and the bottom line will take care of itself.” The top line meant overhead, which meant employees’ salaries and benefits. Absent a source of revenue to make up for that dwindling share of the classified ads, Ridder was left with no choice but to cut, or risk alienating the shareholders who owned so much of his company.
By 2005, however, all the cost cutting was still not enough to satisfy the largest stakeholder, Bruce Sherman. Together with other top institutional investors, Sherman demanded changes in the way the company was run. Sherman, it soon became clear, was positioning himself to gain control of the board and with it, force a sale.
In March 2006, McClatchy bought Knight Ridder for $4.5 billion. Five months later the new owners divested themselves of several large properties, among them the Mercury News, which it sold to Dean Singleton’s MediaNews Group, along with the St. Paul Pioneer Press and two smaller California papers, for $1 billion.
The Mercury News’s profit margin had by then fallen to nine percent. Sunday circulation, which stood at 327,000 in 2000, had fallen by 15 percent. Revenue had dropped from $341 million in 2000 to an estimated $235 million, with $22 million in profits, a spiral exacerbated by the precipitous drop in classified advertising that had so worried Kathy Yates twelve years earlier. Job listings, which had helped pay for all the ambitious journalism and experimentation the Merc could afford to do, had suffered the most significant drop—from $118 million in 2000 to $18 million. Four months after the sale to Singleton, the Mercury News announced it was laying off another 101 people, forty of them from the newsroom.
The San Jose Mercury News is now a solid, if thin, newspaper with a website filled with all sorts of features and stories from its Bay Area sister papers. It does not hurt for content. But there is no mistaking the Merc now for what it was at the top of its game. Its display pages are filled with fine and sometimes lively original content. But inside, wire copy fills a good deal of space, the tell-tale sign of a shrunken operation.
I found reading the Merc a haunting experience: I could not see it as it is now without recalling what it was like when it was admired and prosperous. I had come to San Jose to make sense of what happened to this paper, and through it, what happened to so many other newspapers whose fortunes had been undone in the face of the great technological disruption. In time I grew ever more dissatisfied with hearing of the inevitability of that swift and troubling decline. Much as I admired Bob Ryan’s biblical poetry, I still wondered whether, in fact, all this had been “written.” The Mercury News and Knight Ridder had been on the vanguard of adapting to change. And in the end, their efforts did them no good.
If the demise of the chain and the decline of the paper were not the results of too little effort, did that mean no effort could have succeeded?
Or had all that effort been misguided?
As he was cleaning out his office, Bill Mitchell, who has since moved to the Poynter Institute, happened upon some old memos and files from the early days at Mercury Center. He had not seen them in years, and wondered if I might want to take a look.
They were a revelation. The documents, intended as presentations to Knight Ridder executives, described a period when the Mercury Center experiment drew minimal interest and earnings. Readers and advertisers, they reported, seemed curious about online content, but were not really sure of how it might work for them. The monthly signups were still being measured in the hundreds.
But the pattern that had begun to emerge in 1994, and continued into 1995 and beyond, provided tantalizing clues that went unheeded: here was data suggesting, strongly, that the site’s basic content—the full text of the day’s paper, the 200 or so extra stories that had not made it into print, the online versions of print ads, even the billboard chats—did not excite users nearly as much as the “premium content,” which came at an additional cost: the archives, and the NewsHound clipping service, which scanned for content beyond the Merc by subject. Left unanswered was how to make basic services feel like the premium services, for which users had shown a willingness to pay.
Ingle had devised Mercury Center as a laboratory. And here was data pointing to a daring hypotheses: if we stop thinking of a newspaper—and a website as the extension of the newspaper—solely as a repository of information that can appeal to everyone, then we are no longer restricted to a business model that relies overwhelmingly on a single source of revenue (advertising) predicated on appealing to the largest number of people. What if, in addition to a product for everyone, we charged for, say, specific categories of information? What if we did not try to replicate online the business that existed in print? What if we stopped thinking like newspaper people—dedicated to preserving a business whose core is an advertising-dominated paper? What if we adapted to the growing disruption by slicing off parts of what we make available, at no cost to everybody, and instead enhance and sell it? What if we began thinking of our business, our relationship with our customers, the allocation of resources in an altogether new way and, like startups, we began developing new markets, rather than try to patch together a semblance of the big market the technology was undoing?
The early results from the Mercury Center suggested that users so valued those premium features that they were willing to pay. So why stop there?
Bear in mind that charging for access was already the precedent: users had paid $9.95 a month for access via AOL and then $4.95 a month for web access. The Merc dropped the fees in the hope of generating more traffic, and with it, more advertising, even though the revenues from those online ads were a seventh of their print counterparts. The decision not to charge for content reflected an electronic version of the business model built on amassing the largest possible audience, not on cultivating niches.
And yet, the niches were there for all to see. By the late 1990s, Chris Jennewein told me, the Mercury News was finding audiences well beyond its circulation area—online readers as far away as India eager for the Merc’s tech news. And while Knight Ridder began trying to build audiences for its NASCAR coverage in Charlotte and the auto industry in Detroit, it was reluctant to dedicate the people necessary to create the content for those niche markets. “Our newspaper roots,” he wrote to me, “held us back.”
The Wall Street Journal, the reasoning across the business went, may have decided to charge for content. But the Journal was regarded as a niche publication with a targeted audience and so bore no resemblance to the general interest newspaper. That was true. But what, other than habit and tradition, was stopping the omnibus newspaper from abandoning its traditional view of itself and becoming something new: a print and online publication that combined content for everyone—thereby meeting its public service and advertising imperatives—and that also provided “premium” content for those new markets that valued it.
The prospect of altering the nature of the work brought to mind the great hue and cry of the 1970s when The New York Times, beset by profound money woes, introduced its Home, Living, and Weekend sections. Critics dismissed the “having” sections as a diminution of the Times’s brand and legacy. The sections were editorial vehicles against which targeted ads could be sold. They helped save the paper. So why not augment the sales potential by selling some of the content, too, to niche markets?
In his “skunk works” operation in Silicon Valley, Bob Ingle and his small team had stumbled upon something intriguing.
And then they stopped. Or rather, they tacked away from small and, as newspapers have always done, went for the big. Real Cities did not doom Knight Ridder. But the thinking behind it—an operation with the reach and scale to defend the core business from the onslaught of a single great and powerful enemy—reflected not the best discoveries made at Mercury Center, but the sensibilities of an industry that could not quite abandon the belief that the path to salvation lay in replacing that core revenue stream with one that looked remarkably similar to what was being lost.
The problem with Real Cities was not that it was radical. Mercury Center was the radical move. It was not built to make money in a hurry. It was created to try things out, to see what might one day make money, and what would fail. Archives and NewsHound were just a beginning. Not of inevitable success, but of an ongoing experiment.
Disruptive technology is only half the story of what happened to newspapers. There is also the response. The disruption opened the path to change, and not just for small companies unburdened by legacies of success. The change could also come for those older newspaper companies willing to accept that what was happening was not so much an existential crisis in journalism as it was a catastrophic assault on the most prosaic aspect of the newspaper business: the classifieds. Tough to do in any circumstances. Even tougher at a time when things feel as if they are going better than ever.
There was no better time to produce journalism and make a profit for newspapers than in the period journalists like to think of as the post-Vietnam, post-Watergate era, and which their colleagues on the business side might prefer thinking of as the Era of the One-Newspaper Town.
Mary Jean Connors of Knight Ridder, reflecting the sensibilities of so many people who insisted that, in the end, they were newspaper people, had told me, “You cannot change who you are.”
It is a noble sentiment, reflecting the diminished glory of a noble enterprise.
But it is not written.