Audit Interview: Alan D. Mutter

"We have an enormous number of reporters today, especially at newspapers, who are reporting on the obvious."

Alan D. Mutter is a veteran of the ink-stained days who in the two decades since he left as No. 2 editor of the then-mighty San Francisco Chronicle has helped create a large cable-TV company and several start-up tech firms. He is now a managing partner at Tapit Partners, which advises startups, and writes a blog called Reflections of a Newsosaur, which is widely read in journalism circles.

So Mutter brings to his writing the perspective of someone who’s run businesses and run newsrooms. He does his own original reporting and digs into the numbers to ferret out trends and ideas on the business and what to do about its ongoing collapse.

The Audit talked to him this week about the dismal outlook for this year and what comes next.

The Audit: So is there any good news out there?

Alan Mutter: If good is talking about things that will preserve the old way of doing things, then I guess the answer is no. But I think a time of ferment and great change is at once challenging and disorienting and downright scary but it also affords the opportunity of doing new things in new ways and everybody growing as a result of this.

If you’re all about preserving the old way of doing things, then this is a very difficult time. And of course one of the problems of change is that while new opportunities arise, certain opportunities go away and that’s why you’re seeing so many people losing their jobs. So I’m not going to minimize the stress and inconvenience and sheer economic terror that a lot of individuals are feeling, but I have to say there are a lot of opportunities out there, some of which haven’t been ascertained, but there are a lot.

TA: Clarify what you mean when you talking about preserving the past. Are you talking about the print product with its 25% profit margins? What I care about is that the reporting gets done—that somebody (in whatever format) is able to cover things as well as they should be covered.

AM: It may be that a lot of the reporters that we had were doing the wrong kinds of stories. It strikes me that even today the press, broadly speaking, is still sort of following the agenda set by the Business Wire or by the ups and downs of the Dow Jones Average. The press is not really striking out on its own to dig up the stories that aren’t self-evident. If you’re interested in the DuPont Company you can get stock quotations anywhere. If you’re interested in news in the company, it’s press releases and SEC filings and it’s all beautifully displayed and aggregated by any number of websites and mobile applications.

We have an enormous number of reporters today, especially at newspapers, who are reporting on the obvious. You have to say, do I really need five guys in the business section rewriting press releases that come in or “putting our own stamp” on the latest number from the Bureau of Labor Statistics? Why don’t we instead stipulate that a lot of this stuff is in the ether. Let’s take the resources we have and create the stories that aren’t being looked into, that aren’t being told.

TA: They were putting out this kind of news because they had ads to sell. Now there are not, so that’s supporting fewer journalists, but at the same time it’s harder to do those enterprising stories. Those things take weeks or sometimes months.

AM: That’s right. But instead of being strategic in the coverage and picking shots, saying “We’re going to be a newspaper that provides superior personal finance coverage or report the bejeebers out of what’s happening in Silicon Valley,” papers try to act like they’re going to filter everything through their own people and be broad generalists, you know the old expression “5,000 miles wide and a half an inch deep.” That’s the old model of classic traditional newspaper coverage. When I was a guy running a newspaper back in the day, that’s what I did. That was about ten years before the Web.

Newspapers keep trying to apply an old, pre-interactive era model to their coverage.

The great success of the Newsosaur blog is I don’t rewrite press releases. I’d like to tell you it’s because I’m a busy guy, but it’s not true. I’m just old, and I take a lot naps. Why am I going to cut into my valuable nap time to rewrite a Gannett press release about their earnings? I’m going to read their 10-Q, and if I think there’s something new or important to say I’m going to say it.

TA: I live in D.C. and yesterday (Inauguration Day) was like “Newsies” back in the day, you know “Extra! Extra!” People were hawking the newspapers and the Post actually charged readers two bucks a copy.

AM: You know I think that’s not wrong. I think newspapers should be charging more for their product because it doesn’t come even close to paying for itself and it’s a great service. It’s delivered to your house, packaged in a plastic bag, not in the bushes, on time. People used to have milkmen and guys who’d come and sharpen knives, all that’s gone. The only people who still have on your doorstep customer service day in and day out are newspapers.

Hey, if people can spend two bucks to have somebody squirt some hot water and foam in a cup, they can pay two bucks to have a newspaper delivered on their porch every morning. I think newspapers should be raising their prices through the roof. And you know what? If that cuts into circulation, fine. Let’s separate the men from the boys and you can go to the advertisers with a straight face and say “These are core readers who are serious about our newspaper.”

TA: Where do you come down on the question of should papers charge on the Web or not?

AM: My view is they should find products they can charge for on the Web, however, it’s too late to charge for generic coverage. The New York Times went through this whole thing of selling TimesSelect, which was an idea, although I’m not sure that was the right thing to sell…

TA: They should have sold news instead of opinion. They went ass backward on it.

AM: I actually think you’re right. The way The Wall Street Journal does it is make the first couple of paragraphs freely available and hope that you just keeping stumbling into those things so many times that, by golly, you’ll have to subscribe. I think that’s the right thing to do.

The other thing newspapers can do is create subscription content that’s unique to the Web. There are all kinds of newsletters out there that people pay a lot of money for.

TA: This is probably a dumb question—I don’t know anything about the ad side—but if demand for my product is decreasing, I have to moderate my price increases or put it on sale. So if demand for advertising in newspapers has decreased so much, why not reduce rates until you have enough critical mass to make it go?

AM: Oh, that’s a really good question. The fact is that newspapers have extraordinarily expensive infrastructures. The presses, the building, the really large staffs. That investment was made on the presumption that they could generate certain revenue levels.

Newspapers, now more than ever, do a ferocious amount of discounting. What you’re saying is let’s keep dropping the price of advertising until most people are wanting to advertise. But the market point for the case of most want-ads in almost every market in the country on Craigslist is zero. The market point for a real estate ad on Zillow is just about zero. Selling a car? Craigslist, zero., $26 or something.

TA: But you have to assume that classified advertising is just about gone.

AM: That’s fine, but if you looked at the classic newspaper model five years ago, say, 40 percent of newspaper advertising was from the classifieds. [The] industry had record high revenues in all categories in 2005 with $49.5 billion. By the end of this year, we will be down about 22 to 25 percent. I can show you where it went, it was mostly classifieds.

Now wait, it gets worse, because now the retail industry has completely collapsed. What happened last Friday? Circuit City went out of business. Linens-N-Things is out of business. Mervyn’s went out of business. Multi-store retailers like crazy are just vanishing from the scene. If the last two or three years were the years of want-ads going up in smoke, this is the year of retail ads going up in smoke.

Newspapers because of their high infrastructure costs can never drop their rates low enough to match the rate of the competing media like Craigslist at free or Google at five bucks a click. Newspapers have to have a different reason for people to buy than price. Has to be the quality of the audience that we attract.

TA: Basically you have this cyclical decline on top of this secular (structural) decline…

AM: The problem is the cyclical decline in this case, given the negative momentum we had going into it, may be so severe that some newspapers don’t come out the other side.

TA: With lots of newspapers probably going to go bankrupt this year, any idea how the restructuring process will work? Is there still a viable business model where they can come out of bankruptcy still putting out papers or at least stuff on the Web? You wrote about Lee for instance still having operating margins of 20 percent.

AM: If you’ve got a business that’s got a certain intrinsic value, lenders might be more willing to say let’s just liquidate the business and sell it and not restructure it. But the problem is, all these newspapers, there’s no end for them. If somebody doesn’t buy them, then you’re left trying to peddle a bunch of old presses and these crappy trucks and desks that reporters spit on and everything. There’s nothing there. This is a bad thing and it’s a good thing for newspapers. It’s a bad thing that newspapers don’t have that much intrinsic value. The good thing is the creditors really have to forebear much more. If there was really good stuff there, they could just go sell to some other guy.

TA: So they’ll have to write off more.

AM: What they’d rather do than take the writeoff is just kick the can down the road and hope everything comes out jelly-side up again. I’m not sure that many newspaper companies or individual newspapers will go out of business. The problem is when the newspaper can’t be cashflow positive in the moment.

So far as I know the Star Tribune (which is in bankruptcy protection), for instance, is actually making money on a day-to-day basis. The problem is they borrowed a lot of money in the expectation that sales would go higher and you could use those excess profits to pay down the debt. But the numbers are going the other way. If they didn’t have this debt, they’d be fine, and the same is the case for Lee.

What’s going to happen? The question is can the Star Tribune stay in the black on an operating basis? If they can, they can sort of dance through this until some better day comes. The minute, though, that they fail to be able to operate in the black and they need to ask for new money to make ends meet, I believe any creditor is going to say “No more money. You’re done.”

TA: What does the news landscape look like five years from now in 2014? Want to take a stab at that?

AM: It will be changed immeasurably from what we’re accustomed to. The traditional institutions supporting professional journalism—many, many of those will either be extinct or transformed beyond recognition from those we know today. Many new sources and types of information will emerge and much of this information will be generated by individuals as opposed to people within organizations. Much of it will be unvetted, sort of the mystery meat of information, and there will be this incredible burden on consumers of news information to figure out what to believe, what’s the truth and who said so. It’s going to be awful.

But I think that the reaction to this info Tower of Babel, the reaction will be the rise of people who become information sherpas, who aren’t necessarily doing much original reporting and writing but who help people sort fact from fiction and slant from reality. There probably will be enormous opportunities in those areas both for humans as for algorithms that can do that. Today we have these really, really crude proxies like Digg.

If you accept that we are in the soup, then this is positively the best of times to be a journalist.
The big media companies have a profound and distinct unfair advantage as we enter this age of change. And yet they keep turning their advantages into disadvantages. Any newspaper has more reporters, more feet on the street than anybody else in town. They have more advertising sales people. They have all this power and they have brands to die for. And yet, the industry as a whole has done almost nothing right about taking advantages of its strengths, the ubiquity, ability to put out this unique product on people’s doorsteps, and the original sin of giving away the content for free.

And I’ll tell you something, there have been (thousands of) people in the newspaper industry who have lost their jobs in the last twelve months, there have been zero newspaper CEO’s who have lost their jobs in the last twelve months.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.