The Audit

The other IRS target: the press

The nonprofit news experience undermines the Tea Party targeting outrage

By Ryan Chittum   May 16, 2013 at 06:50 AM

Conservatives are howling about the IRS targeting Tea Party groups applying for nonprofit tax exemptions.

Well, welcome to our world. Nonprofit journalism has been going through the same thing for the last few years, with almost none of the screeching—even though journalism organizations had a much better case for tax exemptions than did the Tea Party groups.

Tell me if this sounds familiar: The IRS targets a particular kind of nonprofit applicant for special scrutiny. Scrutiny comes from the Cincinnati office, works upward to Washington, D.C., and leaves applicants in limbo for years. After years of rubber-stamping approvals, the review comes amid a surge in applications in a murky part of the tax code. Some suggest politics plays a role in favoring some applications. The IRS itself specifically questions applicants about their political activities.

That’s what happened to the nonprofit-news movement for the better part of three years, something I reported on last fall. But there’s been little-to-no uproar over the First Amendment implications of selecting journalism startups for special scrutiny.

San Francisco Public Press, El Paso’s Newspaper Tree, New Orleans’s The Lens, Rhode Island’s Johnston Insider, the Investigative News Network, San Diego News Room, Virginia’s The Arlington Mercury, and the Chicago News Cooperative all had to run the IRS gamut—and those are just the ones we know about. (The right-wing provocateur James O’Keefe III’s Project Veritas, by contrast, breezed through 501(c)(3) approval while legitimate news organizations who had applied earlier waited years, answering repeated (and repetitive) inquiries from IRS agents.)

The INN’s Kevin Davis told me last November that “The IRS has preemptively suggested that we modify our procedures, change our policies, and modify our articles of incorporation to remove the word ‘journalism’ because that is not a charitable cause.” Agents asked the SF Public Press, repeatedly, to sign forms promising not to make political endorsements, according to Steven Waldman’s Council on Foundations report two months ago.

Why did the IRS suddenly start putting nonprofit journalism startups through the wringer, and why did it take so long to finally approve them? The Cincinnati IRS office noticed a surge in activity in the sector a few years ago as for-profit journalism took a beating, and while the IRS had typically put up little resistance to nonprofit news applicants (at least since it threatened Mother Jones’s tax-exempt status in 1981 and was defeated), Congress has never specifically protected journalism in the 501(c)(3) section of the law.

Journalism organizations, including this one, get in under the educational activity exemption, which requires “the instruction of the public on subjects useful to individuals and beneficial to the community.” While the IRS’s fumbled the handling of nonprofit news in the last few years, the need for an updated code specifically exempting journalism is clear.

Why the nonprofit news mess took so long to sort out is less clear, though it’s worth noting, as David Cay Johnston has, that the IRS is seriously understaffed. The Transactional Records Access Clearinghouse at Syracuse University says IRS staffing is down 23 percent in the last two decades, while tax returns are up 27 percent. Do the math.

The Tea Party story is awfully similar. There’s a surge in applications from these groups, except they’re applying under the 501(c)(4) section, which allows groups “operated exclusively to promote social welfare” to operate without taxes. The code specifically prohibits political organizations, but with a loophole big enough to drive an American Crossroads and a Priorities USA through:

The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).

It’s unsurprising that the sudden increase in Tea Party-related 501(c)(4) applicants would raise red flags at the IRS since these groups, by their nature, likely had political objectives. None of their applications ultimately were denied (read an IRS expert, David Cay Johnston, for more on this).

So, for folks like George Will to be conjuring the specter of Richard Nixon and impeachment is a bit much.

For one, there’s zero evidence that there was any White House involvement. For another, the IRS director during the targeting was a George W. Bush appointee. And many liberal 501(c)(4) applicants also got the same IRS questions, though apparently they weren’t flagged by keyword. Will doesn’t bother to mention any of this.

All this is a separate issue from whether IRS officials misled Congress when it asked whether the agency was targeting the Tea Party. That appears to be a bigger problem, and you can be assured it will be fully investigated.

Now, about those secret Obama administration subpoenas of the Associated Press’s phone records, combined with the administration’s past prosecution of leakers.

That’s a scandal.

Audit Notes: Student loan profits, paywall incentives, postal banking

The Huffington Post on a government bonanza

By Ryan Chittum   May 15, 2013 at 06:50 AM

The Huffington Post’s Shahien Nasiripour comes up with a great angle on news that the Education Department expects to make $51 billion in profit this year off student loans:

Exxon Mobil Corp., the nation’s most profitable company, reported $44.9 billion in net income last year. Apple Inc. recorded a $41.7 billion profit in its 2012 fiscal year, which ended in September, while Chevron Corp. reported $26.2 billion in earnings last year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year.

It’s outrageous that student loan interest rates—in a bad economy where recent graduates struggle to find jobs, much less ones that give them raises and the like—are as high as they are when other interest rates are as low as they are, something Senator Elizabeth Warren has spotlighted recently. Nasiripour:

But as the Federal Reserve attempts to lower borrowing costs for everyone from households and small businesses to large corporations and Wall Street banks, student borrowers have not been able to benefit.

Compared to a benchmark interest rate — what the U.S. government pays to borrow for 10 years — student borrowers have never paid more, increasing the burden of their student debt as wage increases and yields on investments and bank accounts fail to keep up with the relative increase in student loan interest payments.

This ought to be a bigger story.

— Former Wall Street Journal digital editor Alan Murray, now president of the Pew Research Center, gives a presentation on digital journalism that’s well worth watching.

He says that paywalls not only can bring in desperately needed revenue, but they focus news organizations on doing journalism that has value, something The Audit’s Dean Starkman has argued.

Watch Murray’s brief speech here:

— David Dayen makes a solid case in Pacific Standard for allowing the US Postal Service to offer simple banking services, both as a way to bring in new revenue and as a competitor to predatory lenders:

According to the FDIC’s 2011 National Survey, over 10 million US households are “unbanked,” with no access to the financial system. Another 24 million households are “underbanked,” meaning they have a bank account but they also rely on providers of “alternative financial services”: remittance or money order shops, payday lenders, check-cashing operations, pawn shops, or associated services. Many of these services are among the most unscrupulous in American society, preying on people with few other options and charging usurious interest rates or carving out large fees. These roughly 68 million unbanked or underbanked Americans represent a huge market for non-bank financial predators.

In other countries, this market is served at the post office. Almost every developed nation in Europe and East Asia operates a postal banking system. A few have been privatized, including what was the world’s largest savings bank, Japan Post. And some operate as a private-public partnership. But countries like Israel, France, Switzerland, Russia, South Korea, South Africa and more all allow their citizens to perform simple banking tasks at the local post office. New Zealand’s Kiwibank, a recent innovation, was established in 2002 specifically to protect citizens from financial predators. It has been wildly successful, according to Ellen Brown of the Public Banking Institute, with one in eight Kiwis moving their services to the postal bank in the first five years…

There’s no question that the commercial banking industry and the fly-by-night non-bank financial predators alike would fight such a proposal in Congress, just as the banks did in 1911 with the original Postal Savings system, in an effort to rid themselves of any competition. And these operators are pretty adept at getting what they want out of Washington. But the Postal Service, which has been around since before we were a country, operates as a Constitutionally mandated public service for all Americans. Extending access to financial services for all Americans—especially those who are woefully underserved in the current market—would fit well with that mandate. And it would help solve the Postal Service’s current crisis as part of the bargain.

The Bloomberg terminal scandal

Not nearly in the Murdoch hacking league, but it requires a cultural shift

By Ryan Chittum   May 14, 2013 at 06:50 AM

The Bloomberg terminal-snooping story is a serious ethics problem, but I’ve read some awfully hysterical takes on it in the past couple of days. It’s time to get some perspective on what we know happened and just how wrong it was.

Adam Penenberg of Pando Daily wrote a head-scratcher headlined, “How is Bloomberg’s snooping different from News Corp.’s phone hacks?”

Because it’s not illegal? Because reading internal customer-service transcripts is not the same moral and ethical horror as hacking the voicemail of a murdered 13-year-old? Because they didn’t knowingly employ an ax-murder suspect—one convicted of planting cocaine on an innocent woman—to bribe government officials and hack phones? I dunno. Just a few off the top of my head.

The most over-the-top piece comes from Stuart Stevens, the guy who headed Mitt Romney’s presidential campaign, who writes that the Bloomberg affair is worse than the News Corporation hacking scandal. Stevens knows not what he’s talking about.

Stevens writes in The Daily Beast that “Bloomberg Terminal Scandal Makes Bunga-Bunga Parties Seem Quaint,” comparing the political and media power of New York Mayor Michael Bloomberg to that of Silvio Berlusconi, and says that reporters were allowed to “peep and pry into the personal activities of important clients.”

Bloomberg is the nanny-state billionaire mayor of the biggest city in the country and owns a highly lucrative financial-data business that sidelines in news. Berlusconi was the super-corrupt billionaire prime minister of Italy who had a near monopoly on public and private Italian television while in office. The analogy with Bloomberg really isn’t there.

And it’s stretching it to say what Bloomberg News was up to here was spying on the “personal activities” of clients. Reporters could tell when a client had logged on to his or her Bloomberg terminal, could read help-desk chats, and could see what high-level functions they had used—as in Jamie Dimon looked at, say, bond indexes. Matt Winkler, in his apology on Sunday, wrote that “At no time did reporters have access to trading, portfolio, monitor, blotter or other related systems. Nor did they have access to clients’ messages to one another. They couldn’t see the stories that clients were reading or the securities clients might be looking at.”

In other words, the information Bloomberg reporters could get at was quite limited. It’s hardly a huge scandal that Bloomberg reporters could find out how long it had been since someone had logged on to their terminal, which is effectively the most expensive social network in the world, as Heidi N. Moore writes. She also notes this:

It is the height of irony that those financial firms, who make their living by collecting and slicing data on client trades, are complaining that Bloomberg was making use of some data on their traders.

That’s not to minimize the snooping here, it’s just to keep it in perspective. As I said last week, Bloomberg’s journalists should never have had access to this customer-service data in the first place. Executives apparently knew there was a problem with this years ago but did nothing to fix it. There’s always the possibility that there are other shoes yet to drop.

And it’s a bigger problem that reporters could see stats on what functions clients were using. Winkler wrote Sunday that “This is akin to being able to see how many times someone used Microsoft Word vs. Excel,” but it still could have provided leads on a very broad level on what executives and government officials were thinking about. It was just simply unfair and unethical for Bloomberg News to let reporters access that information.

So how did it happen? One of the smartest things I’ve read about this scandal is Zach Seward’s Quartz piece on how the cultural, um, eccentricities of Bloomberg dovetail with what we know about the terminal snooping.

At Bloomberg, omniscience is a feature not a bug.

The company’s New York City skyscraper unfurls around its courtyard like a panopticon. Inside, the decor is punctuated at every turn with fish tanks. No one has an office to hide in, and the meeting rooms are enclosed in clear glass…

Within the company, stalking is simply part of the culture. Employees can look up—using the function on their terminals—the last time anyone scanned into or out of a Bloomberg office, which they use to keep legitimate tabs on coworkers and, more voyeuristically, to track their executives on business trips (“Winkler just badged out of Tokyo!”). Some staff make a habit of looking up the last time Michael Bloomberg—the company’s founder, longtime chief executive, and now mayor of New York—visited his family’s foundation, which uses the same security system.

That’s how this scandal happened. And it’s not enough for Bloomberg to disable a couple of functions on reporters’ terminals. Bloomberg News is a big player now, one of the most important news organizations in the world.

This is a perfect time to rethink its culture.

Audit Notes: Bloomberg apologizes, Snow Fall re-imagined, Carr on Advance

Winkler admits reporters should never have had access to customer data

By Ryan Chittum   May 13, 2013 at 06:50 AM

Bloomberg News has gotten a big black eye for snooping on its customers, and Editor-In-Chief Matt Winkler apologizes in a column headlined “Holding Ourselves Accountable.”

We are defined by our words — and they applied to us when a Bloomberg LP customer expressed concern that Bloomberg News reporters had access to limited client information. Our client is right. Our reporters should not have access to any data considered proprietary. I am sorry they did. The error is inexcusable. Last month, we immediately changed our policy so that reporters now have no greater access to information than our customers have. Removing this access will have no effect on Bloomberg news-gathering.

Now let’s also be clear what our reporters had access to. First, they could see a user’s login history and when a login was created. Second, they could see high-level types of user functions on an aggregated basis, with no ability to look into specific security information. This is akin to being able to see how many times someone used Microsoft Word vs. Excel. And, finally, they could see information about help desk inquiries.

I’ll have more on this story soon.

— Aron Pilhofer of The New York Times shows what the paper’s landmark “Snow Fall” feature would have looked like if it had been slapped into the website’s normal template.

Here’s how the top looks as it actually appeared on nytimes.com:

And here’s Pilhofer’s image of how it would look like if the Times hadn’t gone all in on a new design for the story:

And:

The web is by and large an awful place for reading. But let’s hope we’ve hit a turning point, where squeezing clicks out of your readers comes after giving them a good reading experience.

— David Carr writes about The Advocate’s battle against the Times-Picayune in New Orleans and what it says about the industry as a whole:

The much ballyhooed unmaking of daily newspapering seems to be unmaking itself, and there’s a reason for that. Most newspapers have hung onto the ancient practice of embedding prose on a page and throwing it in people’s yards because that’s where the money and the customers are for the time being.

The industry tried chasing clicks for a while to win back fleeing advertisers, decided it was a fool’s errand and is now turning to customers for revenue. But in order to charge people for news, you have to prosecute journalism.

The belief that historic monopolies will hold together just on the basis of inertia has proved to be wrong. Newspapers that have cut their operations beyond usefulness or quit delivering a daily print presence have suffered. The audience has to be earned every day.

That’s easier said than done, of course. Many newspapers may be too far gone. And even the ones that aren’t will have a hard time finding owners like Aaron Kushner and Eric Spitz, who believe that investing serious new money into newspaper journalism will pay off in the medium to long term.

Audit Notes: Bloomberg snoops, Alan Abelson, Niall in denial

And the New York Post scoops

By Ryan Chittum   May 10, 2013 at 06:50 AM

The New York Post reports that Goldman Sachs complained to Bloomberg that its reporters were spying on it via the company’s famous terminal:

In one instance, a Bloomberg reporter asked a Goldman executive if a partner at the bank had recently left the firm — noting casually that he hadn’t logged into his Bloomberg terminal in some time, sources added.

Goldman later learned that Bloomberg staffers could determine not only which of its employees had logged into Bloomberg’s proprietary terminals but how many times they had used particular functions, insiders said…

“You can basically see how many times someone has looked up news stories or if they used their messaging functions,” said one Goldman insider.

“It made us think, ‘Well, what else does [Bloomberg] have access to?,’ ” the insider said.

No kidding. Bloomberg’s instant-message function is one of its killer apps.

Bloomberg has now disabled reporters’ ability to access this information, but they should never have had it in the first place.

— Alan Abelson, a giant of Dow Jones and one of the all-time business-press greats, died yesterday at 87.

Abelson spent 57 years at Barron’s, including a 12-year stint at the helm. He started writing his withering Up and Down Wall Street column in 1966 and continued writing through February of this year.

Ed Finn, who replaced him as editor of Barron’s two decades ago, eulogizes him:

For many readers, there can be no substitute for Alan’s witty, wise, and wonderfully written comments each week in Up and Down Wall Street. But Alan’s contributions to Barron’s, and to financial journalism, go beyond his marvelous column. During his career, Alan trained dozens of journalists to be skeptical, to be exacting, to help average investors, and to be on the lookout for Wall Street’s crooks. About 10 of these fine journalists still work at Barron’s, I’m happy to say. Others have gone on to do groundbreaking work at The New York Times, Bloomberg BusinessWeek, and numerous financial newsletters.

One of the unique things about Alan was that his keen knowledge of Wall Street was matched by his love of artful writing. Before Alan began his newspaper career in 1947, he earned a bachelor’s degree in English and Chemistry from The City College of New York and a master’s degree from the prestigious Writers’ Workshop at the University of Iowa, which counts among its alumni Flannery O’Connor, Jane Smiley, and John Irving. In our view, Alan ranks among them.

Unlike a lot of the business press, Abelson never bought Wall Street’s BS.

— Business Insider’s Joe Weisenthal has a good post running down how wrong Niall Ferguson has been about seemingly everything throughout the crisis:

His most spectacularly incorrect call came in in the Summer of 2009, when he took a victory lap, proclaiming that since interest rates were rising, he was correct that the bond vigilantes were rebelling against the large stimulus and historic deficits.

Treasury rates have plunged again since then. Weisenthal also remembers Ferguson’s kooky claim in Newsweek that we were in double-digit annual inflation, when, in fact, prices were increasing about 1 percent a year on average.

In February 2010 he predicted a Greek crisis was coming to America. Verdict: Wrong.

And in June 2009, he predicted a painful conflict (imminently) between monetary and fiscal policy. Verdict: wrong.

Don’t forget Ferguson’s deceptive and flat-wrong Newsweek article from last summer.

Ferguson is a professor at Harvard.

The WSJ editorial page hits rock bottom

And that’s saying something

By Ryan Chittum   May 9, 2013 at 01:14 PM

I’m still trying to reattach my jaw after reading this op-ed published by The Wall Street Journal today. It’s shameful even by the dismal standards of that page.

In Defense of Carbon Dioxide

The demonized chemical compound is a boon to plant life and has little correlation with global temperature.

Breaking! Plants like CO2.

The numbskullery on display here was actually put best by Republican Congressman John Shimkus a few years ago:

Also, it’s false that CO2 levels have “little correlation with global temperature.”

The op-ed is written by Harrison H. Schmitt and William Happer, who are adjunct professor of engineering and a physics professor, respectively, not climate scientists.

Here are some greatest hits from their column today:

… The cessation of observed global warming for the past decade or so has shown how exaggerated NASA’s and most other computer predictions of human-caused warming have been—and how little correlation warming has with concentrations of atmospheric carbon dioxide…

There isn’t the slightest evidence that more carbon dioxide has caused more extreme weather…

For most plants, and for the animals and humans that use them, more carbon dioxide, far from being a “pollutant” in need of reduction, would be a benefit…

At the current low levels of atmospheric carbon dioxide…

Nowadays, in an age of rising population and scarcities of food and water in some regions, it’s a wonder that humanitarians aren’t clamoring for more atmospheric carbon dioxide.

War is peace and all that.

Just astonishing.

Audit Notes: Farm labor fight, government debt, dumb-question headlines

Americans sue to get farm jobs from Mexican guest workers

By Ryan Chittum   May 9, 2013 at 06:50 AM

The New York Times is good to go page one with a story on a fascinating lawsuit in Georgia that alleges racial discrimination… in favor of Mexican guest workers.

But as Congress weighs immigration legislation expected to expand the guest worker program, another group is increasingly crying foul — Americans, mostly black, who live near the farms and say they want the field work but cannot get it because it is going to Mexicans. They contend that they are illegally discouraged from applying for work and treated shabbily by farmers who prefer the foreigners for their malleability.

“They like the Mexicans because they are scared and will do anything they tell them to,” said Sherry Tomason, who worked for seven years in the fields here, then quit. Last month she and other local residents filed a federal lawsuit against a large grower of onions, Stanley Farms, alleging that it mistreated them and paid them less than it paid the Mexicans.

Wait, but John McCain said Americans wouldn’t pick lettuce for $50 an hour!

This quote, from a manager at Southern Valley farm, is revealing about the power relationship between capital and labor:

“When Jose gets on the bus to come here from Mexico he is committed to the work,” he said. “It’s like going into the military. He leaves his family at home. The work is hard, but he’s ready. A domestic wants to know: What’s the pay? What are the conditions? In these communities, I am sorry to say, there are no fathers at home, no role models for hard work. They want rewards without input.”

That’s why employers like Southern Valley push for loose immigration laws: American workers, even from the underclass, have the gall to ask for a raise or for better working conditions. They’re too difficult and too expensive. It’s much easier to import obedient poverty-stricken foreign workers.

— How many times have we heard politicians, usually unchallenged by the press, trot out the false notion that government finances are like household finances.

Bloomberg View’s Josh Barro calls out Speaker John Boehner for trotting out this old chestnut on Bloomberg TV the other day. Boehner:

We have spent more than what we have brought into this government for 55 of the last 60 years. There’s no business in America that could survive like this. No household in America that could do this. And this government can’t do this.

Barro notes that “It’s hard to think of better evidence for the sustainability of budget deficits than the fact that we have run them for 55 of the last 60 years.”

Of course, budget deficits work because the government is different from a household. A government does not have a life cycle, does not ever expect to stop generating income to support itself, and, therefore, does not ever have to retire its debt. It must keep its debts at a manageable size relative to the economy, which the U.S. has done over that 60 year period. If the economy is growing over the long term, that means the government can run a deficit and grow the debt every year — sustainably.

Just like Walmart, as Barro points out. He shows how the retailer exponentially increased its debt levels over the past quarter century, from almost nothing to more than $46 billion. Thing is, its sales also grew exponentially, so it can afford the debt.

And Walmart can’t even print money.

— The Wall Street Journal’s MarketWatch asks a really dumb question:

Are frequent-flier miles pointless?

Similar perks now doled out to frequent tweeters

Does MarketWatch troll for clicks with stupid-question headlines?

Seriously, the story is a good personal-finance piece tainted by a clickbait headline. But “Airline miles tougher to redeem”—what the story’s actually about— doesn’t tempt the mouse finger like “Are frequent-flier miles pointless?”

These short-term clicks come at the expense of long-term credibility.

The Advocate raids the Picayune

Major defections from the New Orleans paper intensify a newspaper war

By Ryan Chittum   May 8, 2013 at 04:36 PM

I wrote this last week about the South Louisiana newspaper war: “It will also not have a hard time poaching talent from the Picayune and its layoff pool.”

“It,” being The Advocate, the Baton Rouge-based daily that is walking through the door opened by the Times-Picayune’s retreat in its own hometown.

The exodus has already begun—in a big way.

The Advocate announced today that it has picked up highly regarded Times-Picayune news editor Martha Carr and investigation editor Gordon Russell, who will become New Orleans managing editor and investigations managing editor, respectively. The Advocate also picked up two Picayune reporters.

And Dan Shea, the former Picayune co-managing editor, and the newly hired general manager of The Advocate, tells me more is coming. “If you ask me are we getting an outpouring from the Picayune, I feel like I’m in a lifeboat (pulling up to) the Titanic,” he says. “Our problem now is we have more people trying to climb into the lifeboat than we possibly can accommodate. The calls and the résumés are just unbelievable.”

I don’t doubt it. That matches what I heard about reference requests and résumés when I reported my Battle of New Orleans piece from the March/April issue of CJR.

I talked briefly with Russell via phone as he headed up to Baton Rouge this afternoon. He will oversee investigations for the entire paper but will be based in New Orleans. “I don’t agree with the direction that the Picayune’s going in,” he says. “There’s an increasing emphasis on quantity over quality and speed and breaking news—but small news. I love breaking news as much as the next guy but it feels a little like being on a hamster wheel.”

“I love the Picayune. I’ve worked there almost 15 years. I feel like it’s in my blood and my DNA. There are a lot of terrific people who work there—terrific people and terrific journalists. That makes this a little bittersweet.”

The defections are another major blow to a Times-Picayune already reeling from a series of self-inflicted wounds over the past year.

Last May, Shea and co-managing editor Peter Kovacs were for weeks—very visibly—excluded from a series of top-secret meetings on Advance’s plan for the future of the paper. They were summarily let go in June, along with nearly half the Picayune’s journalists, some of whom were asked to reapply for new digitally-focused jobs at the new NOLA Media Group (the paper eventually ended up with a newsroom about 25 percent smaller after rehires and hires from outside the paper).

Advance and new publisher Ricky Mathews killed daily publication of the Picayune, an excellent paper with the highest penetration in the country in a tradition-loving city, and decided to stuff seven days of news into Wednesday, Friday, and Sunday editions (plus a Monday sports tabloid after Saints games launched after fans revolted). The company focused its “digital-first” newsroom on a clicks strategy for the paper’s website Nola.com, widely regarded as substandard, and shifted diminished newsroom resources away from hard news and toward sports and entertainment. The paper’s longtime absentee owners, the Newhouse family, turned a deaf ear to demands from New Orleanians to at least consider local offers to buy the paper, telling The New York Times that “”We have no intention of selling no matter how much noise there is out there.”

I’ve argued that the Advance plan was effectively a liquidation of the paper that could make more money riding down declining revenues than through a sale.

The plan had a serious flaw, though. It didn’t take into account the possibility that someone else would come into New Orleans and compete—in print. But that’s exactly what happened. Baton Rouge’s David Manship, publisher of the state capital’s Advocate, sensed opportunity and launched a skeleton-staffed edition of the paper in New Orleans in September, days before the Picayune went to three days a week. The Advocate became the city’s only daily newspaper and picked up nearly 24,000 sales a day in three months despite the paper’s scrappy but barebones New Orleans coverage.

But to truly take on the Picayune, The Advocate needed far more resources than it could get from the Manships. Enter John Georges, the New Orleans businessman and former political candidate who was one of those who expressed interest in buying the Picayune last year.

The wealthy Georges has now instead bought The Advocate. He promptly hired Shea and Kovacs to run the paper and is pouring resources into New Orleans while promising to not subtract from Baton Rouge.

The Times-Picayune, preparing for battle, tried to step on The Advocate’s news by announcing it would return to quasi-daily publication with a newsstand-only tabloid called, unfortunately, TPStreet.

That’s not going to cut it now. It’s very clear from the caliber of his early hires that that Georges is investing serious resources into the New Orleans market.

Mark it down: The Newhouses will have to return the Picayune to daily delivery of a real newspaper if they want to head off Georges and The Advocate.

In an interview with me, Shea turned aside the idea that the turn of events felt like vindication after his treatment by the Picayune last year. “I truly believe what the Picayune did hurt the city of New Orleans and the surrounding area,” he says.” We are trying to fill that void because that’s what the people want there.”

Business Insider goes native

All but erasing the line between editorial and marketing

By Ryan Chittum   May 7, 2013 at 06:50 AM

Here’s a Business Insider vertical called the “Future of Business.” Let’s hope it’s not the future of news.

The problems start with the banner across the top of the page:

If “Within every industry, transformational change is coming. Embrace it” reads like vacuous ad copy, well, the BI section is sponsored by SAP, and the actual blog posts aren’t much better.

Take the top story in Future of Business right now, headlined, “Hacking Happiness: How Big Data Can Make The World More Joyful.” Now, there’s a lot of dumb shit on Business Insider, but we don’t normally get suspicious about why it’s dumb, since its business model is essentially churning out mass quantities of clickbait.

But this post looks less like hamster wheel sensationalism than it does corporate propaganda:

At first glance it appears to be poorly produced native content by SAP, which happens to sell Big Data services. But it’s a BI staff-produced blog post, all right—one that’s even more gushing than this Big Data native ad at Forbes.com posted by “Saswato Das, Head of Thought Leadership Content, SAP.” BI:

Sure, big data technology can read every tweet ever tweeted. It can search and organize boundless volumes of books. It can even help keep track of sports statistics that were previously unrecordable.

But now it can make the world a happier place.

No need to worry about the dehumanizing impact of giant, unregulated corporations mining your personal data to better manipulate you, it’s all Zip-A-Dee-Frickin’-Doo-Dah in Big Data Land. This new breakthrough in Big Data that “can make the world a happier place,” according to Business Insider? Some social media guy’s app, “which is currently in development.”

The post just below “Hacking Happiness” is a BI-produced slideshow called “Everything You Need To Know About The New Internet—The ‘Internet Of Things.’” SAP will sell you on an Internet of Things solution, too, if you’re in the market. BI stuffs the “to be sure,” such that it is, in the very last slide:

Issues such as privacy, reliability, and control of data still have to be worked out.

But even so, there’s no stopping the Internet of Things now.

Nor, apparently, native ads and sponsored content.

Here are some more Future of Business headlines:

— How Big Data Technology Is Making Your Favorite Sport Even Better

— From X-Ray Glasses To Smart Pills, Here’s How Technology Can Keep You Healthy

— Consumers Have Never, Ever Had It This Good

— 7 Cities Using Smart Technology In Unusual Ways

And no, I’m not cherry-picking. Those are in chronological order.

Sandwiched in there is a native ad by SAP headlined “Some Businesses Totally Miss The Future Of Sustainability.”

And this is where the lines really blur. The post is a Q&A with SAP’s chief sustainability officer conducted by a Business Insider staffer with questions ranging from “What does sustainability mean to you?” to “What steps has SAP taken to become more sustainable itself?” The best thing to say about it is that it’s so boring that few will read it.

Business Insider is also looking to expand along these lines and explains what it’s looking for in this want ad:

At Business Insider, we produce sponsor posts and dedicated emails that we edit or create in our own voice and style. We also write and produce original content that aligns with the advertiser’s marketing goals and themes.

We’re looking to hire a strong, versatile writer/editor with web experience who can tackle all sorts of subjects and has a talent for making any kind of writing fun and accessible. This person will collaborate on creative ideas and work with clients, freelancers, and staff to create great content that resonates with the Business Insider readership and beyond.

And so the news agenda is shaped ever more directly by corporate sponsors and Business Insider jeopardizes whatever credibility it had. It may seem old-fashioned, but the old Chinese wall, porous as it may have been at times, was there for a good reason.

“Within every industry, transformational change is coming. Embrace it,” Business Insider urges.

No thanks. Not here.

(home page photo by Paul Zimmerman/Getty Images for TechCrunch/AOL)

— Further reading:

Business Insider and Financial Press Sensationalism. Henry Blodget & Co. stroke the id of the Internet

Business Insider’s Barcelona Junket

Business Insider and Over-Aggregation

Sourcing Trayvon Martin “Photos” From Stormfront. Not a good idea, Business Insider

Blodget Asks a Taboo Question on Wages and Profits

The corrupt City culture behind the Libor scandal

The Wall Street Journal’s excellent investigation digs up the dirt

By Ryan Chittum   May 3, 2013 at 06:50 AM

In the real word, big conspiracies are hard to maintain. People talk. Disagreements develop. Word tends to get out.

But sometimes widespread conspiracies really do develop and go on for years. How do those get started and how do they go undetected for so long?

Take a look at the mind-bogglingly enormous Libor scandal. How did as many as 16 banks get together to manipulate the interest rate that underpins trillions of dollars of loans and derivatives?

We know the big reason was the almost complete absence of regulation of Libor, which was measured using an honor system where banks submitted their costs of funds. Bankers, an honor system, virtually no oversight, and trillions of dollars in financial instruments. Got it. Fraud.

That’s the structural problem. But the fact that competitors came together to manipulate the critical measure underpinning the financial system points to a big cultural problem too.

And that’s what the The Wall Street Journal’s David Enrich and Jean Eaglesham demonstrate in an excellent investigation that lays bare the City mores and coziness that fostered the scandal. The expense-account cocaine, strip clubs, and hookers are 1980s, er, or 2000s, Wall Street déjà vu. Chiseling pensioners (and many others) out of tens of billions of dollars so you can meet your revenue targets? That wasn’t the exception. It was the rule.

The Journal reports on what can only be described as widespread bribery enabled by City rules that are far weaker than Wall Street’s:

Brokers and traders interviewed by The Wall Street Journal said brokers routinely reward valued traders by returning a percentage of their commissions in the form of entertainment. Brokers have paid for traders to spend weekends in the Alps and Saint-Tropez, and on occasion, have even bought them cocaine or prostitutes, according to people who witnessed such activity.

A few years ago, U.S. and British regulators allege, some brokers were so eager to please bank traders that they helped with an illegal Libor-rigging scheme.

There’s much more here. Limos and helicopters to the Royal Ascot, ski weekends at Chamonix, and in what I’m pretty sure is a first-time entry in the WSJ morgue, “erotic love swing” and “orgasmic time” at the Lady Marmalade brothel.

Some brokers appear to see entertainment as part of explicit favors-for-business exchanges. An electronic-chat transcript unearthed during the Libor investigation showed a broker dangling lunch for an entire trading desk as an incentive for a trader to participate in transactions. In a separate incident, after one broker took a trader to Las Vegas, the trader sent a batch of orders to a rival brokerage, prompting the broker to send an angry missive to the trader demanding to know why, according to a person who read the note.

One former ICAP derivatives broker says the morning after treating a trader to a night out, “there would be a line of trades for me. I didn’t even have to ask.”

It’s worth remembering that it was the Journal, which (with help from the Financial Times) cracked open the scandal in the beginning months of the financial crisis, has a superb investigation that provides another angle to the primary one: Libor’s near-complete lack of regulation.

It’s great to see the WSJ still plugging away on this five years later.

The systemic plight of labor

A revealing Thomas Friedman column on 401(k)s

By Felix Salmon   May 2, 2013 at 11:59 AM

It’s May Day, and Henry Blodget is celebrating — if that’s the right word — with three charts, of which the most germane is the one above. It shows total US wages as a proportion of total US GDP — a number which continues to hit all-time lows. Blodget also puts up the converse chart — corporate profits as a percentage of GDP. That line, you won’t be surprised to hear, is hitting new all-time highs. He’s clear about how destructive these trends are:

Low employee wages are one reason the economy is so weak: Those “wages” are represent spending power for consumers. And consumer spending is “revenue” for other companies. So the short-term corporate profit obsession is actually starving the rest of the economy of revenue growth.

In other words, we’re in a vicious cycle, where low incomes create low demand which in turn means that there’s no appetite to hire workers, who in turn become discouraged and drop out of the labor force. Blodget’s third chart is one we’re all familiar with: the employment-to-population ratio, which fell off a cliff during the Great Recession and which will probably never recover. The current “recovery” is not actually a recovery for the bottom 99%, for real people who need to live on paychecks. And today is exactly the right day to point that out.

Conversely, today is exactly the wrong day to declare that these broad and inexorable trends are not really big top-down trends at all, and in fact merely reflect the inability of individual workers to “access learning, retrain, engage in commerce, seek or advertise a job, invent, invest and crowd source”. And yet that’s Tom Friedman’s column this May Day:

If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing. That is what I mean when I say “it is a 401(k) world.”

This manages to be both incomprehensible and incredibly offensive at the same time. I have no idea what Friedman thinks he’s talking about when he blathers on about disappearing protective floors; I can only hope that he isn’t making a super-tasteless reference to the recent disaster in Bangladesh. But it’s simply wrong that today’s world is “tailored” for anybody who happens to be “self-motivated”. Both the self and the motivation are components of labor, not capital, and as such they’re on the losing side of the global economy, not the winning side.

Friedman is a billionaire (by marriage) who — like all billionaires these days — is convinced that he achieved his current prominent position by merit alone, rather than through luck and through the diligent application of cultural and financial capital. His paean to self-motivation recalls nothing so much as Margaret Thatcher’s “there is no such thing as society” quote: “parenting, teaching or leadership that ‘inspires’ individuals to act on their own will be the most valued of all,” he writes, bizarrely choosing to wrap his scare quotes around the word “inspires” rather than around the word “leadership”, where they belong.

True leadership, in a society where the workers are failing to be paid even half the fruits of their labor, would involve attempting to turn the red line in Blodget’s chart around, and to spread the nation’s prosperity among all its citizens. Rather than telling everybody that they’re “on their own” and that if they’re not a success then hey, they’re probably just not “self-motivated” enough.

The ultimate Friedman kick in the balls, however, doesn’t come from his lazily meritocratic priors. Rather, it comes from his overarching metaphor: the idea that if you have a 401(k) plan, then you’re somehow in charge of your own destiny. Friedman might be right that we’re living in a 401(k) world, but if he is then he’s right for the wrong reason. In Friedman’s mind, a 401(k) plan is an icon of self-determination: you get out what you put in. “Your specific contribution,” he writes, italics and all, “will define your specific benefits.”

In reality, however, a 401(k) plan is an icon of futility and the way in which the owners of capital extract rents from the owners of labor. Yves Smith is good on this, as is Matt Yglesias, although the real expert is Helaine Olen: the 401(k) is a way for both your government and your employer to disown you, and to leave your life savings to be raided by the financial-services industry and its plethora of hidden and invidious fees. The well-kept secret about old-fashioned pension funds is that, for the most part, they’re actually very good at generating decent returns for their beneficiaries. They tend to have extremely long time horizons, and are run by professionals who know what they’re doing and who have a fair amount of negotiating leverage when they deal with Wall Street. Savers are always strengthened by being united: disaggregating them and forcing them to take matters into their own hands is tantamount to feeding them directly to the Wall Street sharks.

Yglesias says that in a 401(k) world, “you’ve got to save a lot of money for retirement. More than you think.” This is true for five big reasons. Firstly, because wages are shrinking, any given level of savings will constitute a steadily-increasing proportion of any given worker’s GDP-adjusted paycheck. Secondly, because the employment-to-population ratio is shrinking, all workers need to save to support not only themselves in retirement, but also a number of dependents which is also growing over time. Thirdly, because 401(k) plans have lower returns than traditional pension plans, you need to save more in order to make up the difference. Fourthly, life happens: while the money in your 401(k) is nominally there for your retirement, in practice there’s a good chance that you’re going to tap it, at some point, to pay some kind of large and unexpected bill, whether that comes from unemployment or divorce or ill health. And finally, 401(k) plans don’t have the clever cross-subsidy that traditional pension plans have, where people who die early cross-subsidize people who live for a long time. With a pension plan, you get income when you need it — when you’re alive — and you don’t get money when you’re dead, and don’t need it any more. With a 401(k), by contrast, you have to save more than you really need, because there’s always a chance that you’re going to live to 102.

Add them all together, and to a first approximation you arrive at our current world, where pretty much no one relying on their 401(k) is actually saving enough for retirement. If you’re rich today, you’ll probably be fine when you retire. But if you’re someone who (in contrast to Tom Friedman) actually lives on your paycheck, then there’s almost no chance that your retirement savings will be enough, when the time comes. That’s not your fault: the reasons are deeply systemic. And as a result, the solutions cannot possibly be the kind of bottom-up schemes that Friedman is extolling. They have to come from the top: from real leaders, rather than jumped-up “thought leaders”.

Covering somebody who’s suing you

The WSJ sticks it to Sheldon Adelson by keeping a reporter on the beat

By Ryan Chittum   May 2, 2013 at 11:22 AM

Francine McKenna asked a good question on Twitter the other day about Wall Street Journal coverage of Sheldon Adelson’s Las Vegas Sands: Is it okay for the reporter Kate O’Keeffe to cover Adelson while he’s suing her for libel?

The short answer is yes, and it’s worth unpacking why.

Back in December, the Journal published a story about a lawsuit exposing corporate infighting between Adelson and his senior executive in China. Adelson is steamed that the paper called him “a scrappy, foul-mouthed billionaire from working-class Dorchester, Mass.”

Seriously. That’s what he’s suing O’Keeffe over.

We trust the Journal got it correct when it reported that Adelson has a foul mouth (which doesn’t exactly seem like a stretch, now does it?), and will until shown otherwise.

But even if the paper got it wrong, suing somebody who calls you “foul-mouthed” for libel is pretty frivolous. You’d think becoming a billionaire 27 times over—in the casino business, no less—would buy you a thick skin. Apparently not.

Despite the fact that Alexandra Berzon shared the byline, Adelson is only suing O’Keeffe. He’s not even suing the WSJ or News Corporation.

So what’s going on here?

Adelson has a history of suing the press, as John L. Smith noted in The Daily Beast a few months ago. Adelson sued Smith into bankruptcy in 2007 over a passage in a book he wrote. A judge later ordered Adelson to pay Smith’s attorney’s court costs and Adelson later dropped the case.

Smith also reports that Adelson has also sued the Daily Mail and the late Las Vegas reporter Jeff Simpson (twice).

The WSJ and O’Keeffe have had some good scoops on the serious federal corruption investigations into Las Vegas Sands—reporting Adelson presumably didn’t like.

By keeping O’Keeffe on the beat, the Journal is telling Adelson (and future lawsuit-happy folks) that it won’t be bullied into soft-pedaling coverage and that it won’t let him control who covers him and his company. Reassigning O’Keeffe would have effectively let him do that.

The Journal and O’Keeffe get the benefit of the doubt on their objectivity regarding Adelson and his casino company. She’s a pro, and everything has to go through editors anyway.

The WSJ is doing exactly the right thing here.

(home page photo via bectrigger)

Those immobile newspaper companies

Only 22 percent of a big sample even offer mobile products

By Dean Starkman   May 2, 2013 at 11:00 AM

One of the truisms of digital journalism, and one that happens to be true, is that mobile is a big part of the future of news, if it isn’t the future.

The latest Pew “State of the Media” report goes on at length about the migration of news to mobile in a section titled, aptly, “Digital: As Mobile Grows Rapidly, the Pressures on News Intensify.”

Here are the numbers, according to Pew:

Thirty-one percent of adults now own a tablet, roughly triple May 2011 levels; 45 percent of adults own a smartphone, up 10 percentage points from May 2011; Apple sold 65.7 million iPads worldwide last year, around 62 percent of the tablet market, with plenty of competitors accounting for the rest.

Pew says that’s a good thing for news:

That growth appears to be a boon for news since accessing news is one of the most popular uses for the devices, enabling Americans to get news whenever they want and wherever they might be.

Fully 64% of tablet owners say they get news on their devices weekly and 37% report they do so daily, according to a survey conducted by the Pew Research Center and the Economist Group. The trend is nearly identical for smartphone owners - 62% get news on their device weekly and 36% do so daily.

And here’s a graphic showing digital’s climb as a source: mobile falls under “any digital.”

So far, so good.

Indeed, Pew quotes Raju Narisetti, then the head of The Wall Street Journal’s Digital Network, at a February 2012 presentation at the Digital Media Strategies conference in London: “Last month, 32 percent of my traffic came from mobile. A year ago it was 20 percent and a year from now it will be 50 percent.”

So readers are ready for mobile news. Fine. But are newspaper companies ready to deliver it? For the large majority of them, the answer is no.

Here’s some recent research from Press Plus, the digital-subscription services company founded by Steven Brill and Gordon Crovitz that has more than 420 customers, 380 of them newspaper companies, about a third of the 1,300 or so newspaper companies. Brill says the company has more than 95 percent of the market of companies with metered subscription models. Most of the customers are local papers or chains of local papers. Some of the bigger papers—The New York Times,, The Wall Street Journal, the Financial Times—have their own systems. But the Press Plus client list—which includes the McClatchy and Tribune chains—is a reasonable sample of the newspaper business.

So we learn that only 22 percent of Press Plus clients, the vast majority of which are newspaper companies, are even able to offer their content on tablets, which are owned, we learned above, by about a third of their customers. Even fewer can deliver to a smart phone, a technology now owned by half the country.

And what’s that large bar called “eEdition,” which half the clients are able to provide? That’s the digital edition, often PDFs, formatted to look like the printed version that newspapers rolled out in the early days of the media transformation—in other words, legacy technology.

The headline on the graph, by the way, which I chopped off to avoid confusion, says: “And Publishers are Responding to the Demand.” Actually, not very quickly.

In an email, Brill notes that newspapers are moving in the right direction: “A year ago that number was probably 1 to 2 percent. Next year 50-75 percent.”

Well, one hopes.

He also says publishers’s slowness in setting up mobile capability is a function of the fact that they’ve only recently begun to charge for content. And since browsers are by far their biggest market, that’s where they started. “That they are just now moving on from there to address the smaller but soon-to-be large mobile audience is hardly surprising and hardly something to be critical about.”

Sure. But the issue is adapting to reader tastes, whatever the model, free or subscription. Both need as many readers are possible. And browsers will naturally dominate until mobile capacity is developed.

Look, there’s been some reasonably good news for newspaper companies lately, at least on the circulation side. They are indeed turning to paywalls in ever-greater numbers, and we think that’s a good thing, and that the arguments against them are mostly faith-based.

Digital subscription rates are rising, as Press Plus has documented among its clients:

But that doesn’t help much if companies can’t offer their product on devices that readers are turning to.

The fact is, mobile is the opportunity that papers have been waiting for. The PC—the bolt-upright, lean-forward experience—was never a good technology for journalism and was always going to be transitional. And laptops are only slightly better. The industry has waited a long time for something better to come along.

Now it has. Time to get cracking.

It’s true that newspaper companies have a much bigger job than startups—to transform what are essentially industrial operations into technology companies. And it’s easy to pick on them.

On the other hand, they have zero choice in the matter.

An ink-stained stretch

Can Aaron Kushner save the Orange County Register—and the newspaper industry?

By Ryan Chittum   May 1, 2013 at 12:00 AM

Betting man Kushner bought the Register cheap and is investing in it heavily, including one of the biggest hiring sprees in newspaper history. Will it pay off? (Jeb Harris / Orange County Register)

Rob Curley, one of the more prominent digital journalists of the last decade, had just about had it with newspapers. Tired of laying people off and trading print dollars for digital dimes, he quit his job as chief content officer of the Las Vegas Sun last summer to take an executive job at a real-estate company.

But then a relatively unknown investor named Aaron Kushner called. Kushner and his partner, Eric Spitz, had just bought the Orange County Register and had an improbable (some would say impossible) plan to resurrect the gutted paper: Invest heavily in journalism—and in print. “I had no interest in coming to the Register,” says Curley, “but I sat down and talked to him and said, ‘Shoot, I’m coming.’”

Kushner, a 40-year-old former greeting-card executive with zero experience in newspapers, is running the most interesting—and important—experiment in journalism right now. His thesis is simple, but highly contrarian: Newspapers are dying in large part from self-inflicted wounds, and there’s money to be made in print, particularly from subscribers.

The first part of the thesis rests on the fact that publishers, faced with fierce competition from Craigslist and Google, not to mention a severe recession, reacted by slashing their newsrooms and putting out papers so thin, you could read them in minutes. In attempting to maintain double-digit profit margins in the face of an ad market that has changed forever, newspapers undermined—perhaps fatally—their long-term health.

The second part of Kushner’s thesis suggests that publishers listened too long to the siren song of the digital gurus, who told newspapers that they shouldn’t—and couldn’t—charge online, and that print journalism was hopelessly outdated. Plunging circulation stunned publishers, even as they charged hundreds of dollars a year for much weaker papers while giving away their content free online for 15 years.

For Kushner, the answer is to bet on readers. Give them really good journalism—lots of it—and charge them for it. “If we are, every day, giving our subscribers more value, that creates more value for our advertisers, and for the community as a whole, then over the long term we can grow revenue,” he says.

It’s an audacious and expensive bet, and its outcome may reveal whether American newspapers can survive, much less flourish. Is Kushner—whose first entrepreneurial hit, by the way, was a dot-com—squandering his money on a hopelessly outdated business model? Or is he onto something?

“If it were just great journalism, I’d be as skeptical as anybody else,” says Ken Brusic, who’s been the Register’s editor since 2002. “These guys, being from outside the industry, have looked at the business model and really turned it upside down.”

A fresh pair of eyes hasn’t always been a boon to the newspaper industry. Real-estate billionaire Sam Zell was a catastrophe for Tribune Company, and megaflack Brian Tierney flopped in Philadelphia. Avista Capital Partners and its lenders lost half a billion dollars on the Minneapolis StarTribune, and Alden Global Capital couldn’t keep the Journal Register Company from sliding into bankruptcy (again).

All those bankruptcies, save the JRC’s, had something in common: Loads of debt used to fund purchase prices that reflected pre-2008 valuations, and severe cost cuts meant to prop up declining profit margins. Kushner had the benefit of buying Register parent Freedom Communications out of bankruptcy—after newspaper valuations had already fallen 90 percent in some cases. The Register’s newsroom and newshole had been chopped in half over the previous eight years, and its circulation was down 47 percent.

The changes were almost immediate. A recent run-of-the-mill Monday edition had 72 pages and eight standalone sections. The Los Angeles Times—once the Register’s hated rival in Orange County and a paper with nearly three times its print circulation—published 38 pages the same day. (The Washington Post printed 44, while The New York Times ran 48.) The Register has grown so fat that its Monday paper—typically the smallest edition of the week—approaches the size of Sunday papers in bigger markets. That week, the Sunday Seattle Times, a paper with comparable circulation, had just 94 pages. The Register’s Sunday paper had 242.

And it’s not stuffed with wire copy, either. The Monday edition had roughly 50 Register-only bylined stories and columns, 85 staff or contributed photographs (most in color), and three major infographics. Over one week in late March and early April, CJR counted 167 ad pages, roughly 30 percent of the total pages printed.

While the ad-edit ratio can’t match historic levels, the size of the paper is reminiscent of the Register at its peak. For much of its 108-year history, the Register was a cash machine controlled by the Hoiles family, whose rabid libertarianism helped form the politics of fast-growing Orange County.

Decades of the kind of family feuding that has upended many a newspaper empire presaged a 2003 leveraged buyout of some family members’ stakes, which left Freedom Communications with too much debt when newspaper ads fell off the cliff. Its 2009 bankruptcy ended nearly 75 years of Hoiles family control, and private-equity investors took charge the next year as Freedom emerged from bankruptcy. Kushner’s 2100 Trust bought Freedom last summer for an undisclosed sum.

For years, the Register had followed the best practices of the digital-first evangelists, focusing on luring pageviews to its free website at the expense of the quaint print journalism that still brought in almost all the money. Reporters had blogging and Web-traffic quotas, and a clicks scoreboard filled TV screens in the newsroom, touting the hottest posts. That led to slideshows like “Sexy cafés are Little Saigon’s twist on Hooters,” and pieces like “Man’s penis saved after getting stuck in dumbbell ring”—three paragraphs aggregated from the Newport Beach Daily Pilot, which became the Register’s fifth-most-clicked article of 2009. “You had to make the numbers,” says Jonathan Lansner, a longtime Register business columnist and real-estate blogger, “so things got a little cheesy or stupid.”

But it was all for naught. Staggering under the heavy debt load, along with the evaporation of print ads and the failure of digital-ad revenue to materialize in meaningful amounts, executives slashed the newsroom to 180 journalists by last summer, down from 380 a decade earlier. “The depth of the report on any given day was suspect,” Lansner says. “How could it be any good when it was that small?”

Kushner shut down most of the Register’s blogs and re-focused reporters on “more quality, informative content.” He expanded the page count by 50 percent, significantly increased the number of color pages, launched several new standalone sections, and even—get this—upgraded the quality of the paper stock.

Most important, he’s gone on what must be one of the biggest hiring sprees in newspaper history, boosting the editorial staff by two thirds in less than a year. The Register has added investigative reporters, enlarged its graphics team, re-opened its DC bureau, and doubled staff at its 22 community weeklies. It has hired a James Beard Award-winning food critic and veterans of The New York Times, Time, and the Los Angeles Times, adding more than 140 journalists so far (plus about 100 in sales).

For a newsroom beaten down by years of diminishing resources, the changes are astonishing. “It is like living in a parallel universe,” Brusic says. “You see the rest of the world, and you’re doing something that’s completely different.”

Kushner’s outsider perspective has resulted in some missteps. This spring, the Register launched weekly sections about three local universities that agreed to buy $275,000 worth of ads for the year. The Los Angeles Times reported in March that the Register’s pitch to the University of California-Irvine promised that its section would “focus on achievement and success” and “reflect the excellence of UCI.” And indeed, the university sections so far have been awfully soft, though Register management says it maintains editorial control.

Kushner also caused a stir when he told his newsroom that it’s not its job to “afflict the comfortable and comfort the afflicted.” He responded to his critics, noting that he has recently hired more accountability reporters than all the other US papers put together.

Seven years ago, newspapers got between $4 and $5 in ads for every dollar of circulation revenue, a ratio that has dropped to two-to-one today on a 55-percent decline in ad revenue. In the meantime, circulation revenue remained roughly unchanged. Some papers, most notably The New York Times and the Financial Times, now get more money from subscribers, both print and online, than they do from advertisers—an historic shift.

The Register doesn’t have the benefit of an international audience or a financial-industry focus. Brusic calls the Register the country’s largest community newspaper, and that’s where Kushner has deployed much of his effort and resources. He hired Curley, a veteran of the hyperlocal-journalism movement, to head the local news group, which publishes weekly papers in Orange County’s towns and cities. “I grew up in a small town where the local paper had half a page of who’s visiting who in the nursing home,” says Curley. The redone weeklies are “really old-school. It’s your grandmother’s newspaper, designed by the Design Institute.”

The Register heavily covers high-school sports and publishes two pages of color photographs of the games in each weekly edition. It also started a weekly section called OC Varsity Arts that spotlights the non-jocks. Kushner is enamored with the idea of readers cutting out pictures from the paper and sticking them on the fridge. “You can’t put an iPad on the refrigerator,” he says. “You can’t put it in a scrapbook. You can’t tape it to your locker.”

That Kushner thinks he can get smartphone-obsessed teenagers to pick up an old-fashioned newspaper—even if their friends are in it—signals that parts of his plan are a stretch. Because Freedom is privately held, it’s unclear how much money Kushner and his partners are investing. The media analyst Ken Doctor estimated earlier this year that the annual tab for the newsroom hires and new print costs was roughly $10 million, and that revenue gained from increased subscription prices could offset that. The Register has since hired another 50 journalists, adding perhaps $4 million to $5 million to that stunning number.

The big question is where the growth needed to counterbalance the ad decline will come from. The Register raised its print subscription rate to a dollar a day and installed a hard paywall, which has been unsuccessful most places it’s been tried. The price for digital access? A dollar a day. “Our content’s incredibly valuable, and our focus is on subscribers,” Kushner says. “For the people who were in essence cannibalizing our business, they can make the decision: Either our content is valuable enough that they want to pay a dollar a day, or they don’t, and we haven’t done our job to convince them.”

The New York Times and others have showed how a metered paywall model can work, preserving digital ad dollars while adding a new stream of subscription revenue and at the same time discouraging print readers from dropping the paper. The Register has gone another way. Its managers say they’re charging for the content, not the medium, but it’s clear that this is a big bet on print. Yet the most conceivable future for newspapers, 10 or 20 years hence, is one in which they have converted print and hybrid subscribers to digital-only subscribers, shedding much of the cost of production and distribution. The Register will pick up few digital-only subscribers at $30 a month, particularly when its website and tablet apps are so weak. If the bet is truly on content and not the medium, digital will require serious investment, too.

Kushner is also banking on the idea that advertisers have been fleeing print in part because readers have been fleeing it. Win them back and advertisers—not all, but some—will return. But will they? There are many other factors. “I suspect that a lot of what’s happened in the last 20 years is that the journalism has suffered,” says John Morton, a veteran industry analyst. “But how much of the decline in newspaper circulation can be attributed to that, and how much can be attributed to the Internet—who knows?”

Still, much of Kushner’s model does make sense. American newspaper operations are still quite profitable, with operating margins that average between 8 percent and 10 percent, according to Morton. The rash of bankruptcies in the last three years was primarily due to debt loads tacked on by Wall Street mergers and acquisitions. Those bankrupt newspaper companies still posted significant operating profits, which exclude debt-service costs.

The profit margins are constantly pressured, though, by declining ad revenue. What’s changed in the last two years is that many papers are offsetting most or all of those ad declines with money from subscribers.

Freedom Communications President Eric Spitz told Mathew Ingram in April that the Register was making its aggressive print revenue targets for the first two months of the year. The paper’s next circulation report—due by the time you read this, at the end of April—will give an early indicator of the plan’s potential. A relatively flat report would be good news. A sharp decline would not.

Kushner has already rolled out creative new ways to add value for readers and advertisers. The Register gave each subscriber a $100 voucher to give ad space to their favorite charity, for example. The paper also signed a deal with the Los Angeles Angels to give subscribers unsold tickets to games, nudging the Register toward a membership model.

While it’s far too early to tell whether Kushner’s plan will work, it’s fair to say that the odds are against it. Print advertising is—barring a miracle—in an inexorable tailspin. Readers have more sources for news and entertainment than ever, and print-loving stalwarts are aging rapidly. Print isn’t picking up readers under 30, and it’s unclear how successful charging them full freight online will be.

But if Kushner fails, he will have gone down investing in journalism. And he says he’s in it for the long haul. “I don’t think that our model is for everybody,” Kushner says. “It takes a really long-term commitment. We have no institutional investors. We have no plans for an exit. We bought this basically to own it indefinitely.”