Applaud the Grahams, but acknowledge their failures

The praise gets a bit out of hand

The hosannas for Donald Graham got a bit out of hand in the wake of his sale of the Washington Post to Jeff Bezos.

I’m thinking specifically of this open letter in the Post itself, from the guy who wrote Graham’s advance obit.

Henry Blodget is on to something here in writing about an investor (whom Valleywag writes is “probably” Marc Andreessen, who’s on the Facebook board with Graham) who’s also rolling his eyes:

I can’t take it anymore. All of this high-minded windiness on the Post, the Grahams, journalism, democracy, etc.

I took a screenshot of the Post home page the day of the big story itself [see below].

Note the big ad in the upper right of the home page.

The CPM [price per thousand views] on that was, what, 5 cents?…

What we have here is not a story of the decline of newspapers in America blah blah blah. What we have here is a story of basic business incompetence.

Actually it’s a lot of the former and a good amount of the latter, but point taken.

Blodget has a more moderate take:

(The Grahams) bought an education company that quickly became larger and more profitable than their newspaper. That education company, and some other assets (TV), will remain in the family portfolio now that the Washington Post has been jettisoned.

Interestingly, what the Grahams did not do was invest the quite-considerable profits from their other businesses in the future of the Post—a fact that should probably be noted in some of the Graham hagiographies. Instead, they dumped the paper the moment it stopped making them money.

It’s easy to “steward” a business when it’s also making you rich. It’s more difficult when the going gets tough.

True, but it’s worth noting that the Grahams, as well as the Sulzbergers and Bancrofts, never pulled as much money out of their newspapers as they could have back in the good old days. Back in 2006, for instance, the Post newspaper division’s operating margin was just 6.5 percent. That’s one of the primary reasons the Washington Post, New York Times, and Wall Street Journal will survive and possibly even flourish fifty years from now when Gannett’s newspapers, say, are long forgotten. They weren’t run primarily as cash cows for short-sighted owners, though the Bancrofts’ dividends seriously weakened the Journal and Dow Jones.

While the Grahams slashed the Post’s newsroom and overall budget in response to its collapsing revenue, a less news-loving family would have cut even more. The company’s newspaper division has posted operating losses for five consecutive years as budget cuts have failed to keep up with revenue losses (to be sure, a good chunk of those roughly $460 million in operating losses came from severance costs).

But it’s true that the Post has been seriously mismanaged. Its decision to focus on DC rather than to go national now looks like a serious mistake. The Times, which the Post once rivaled in stature, and whose chairman gets far worse press than Graham, is in a far better position having gone that route.

And the company has disgorged the cash to shareholders while slashing its newsroom. The PostCo has upped its generous dividend throughout the crisis, pausing only in 2009, and has spent more than a billion dollars on share buybacks. The buybacks look much better than they did in May 2012 when I found that the company had paper losses of $87 on each bought-back share. Now they’re at paper profits of roughly $160 a share. But those gains have gone to shareholders rather than into business investments like the Post.

The paper’s anti-paywall stance kept the Post from adopting a no-brainer business policy when it was desperately needed. The Times’s instantly successful digital meter had been up for 27 months by the time the Post’s (not well implemented) paywall finally launched in June. By then the Grahams already had one foot out the door, and the NYT had built a new $150 million a year business with very high margins.

It’s unclear how much success the Post will have with its paywall, since unlike the Times, its product has been severely weakened. And Bezos may dispense with it anyway when he takes over.

The bottom line is: The Grahams deserve lots of credit for how well they treated the Post. But they deserve a fair amount of blame for what went wrong, as well.

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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. Tags: , , , ,