Thursday, October 30, 2014. Last Update: Thu 6:50 AM EST

The Audit

The news business should refuse Facebook’s deal

The lure of online ad revenue isn’t worth surrendering news judgment to Zuckerberg’s algorithm

Facebook wants publishers to become its junior partners, embedding their news and content into Facebook itself (at least on mobile) and sharing the ad revenue, The New York Times reported earlier this week.

New ad revenue always looks enticing in the digital space, where it’s hard to come by in meaningful chunks. But this is a deal that publishers, who are already too dependent on the social network, should turn down flat.

Here’s David Carr explanation of Facebook’s pitch:

The company has been on something of a listening tour with publishers, discussing better ways to collaborate. The social network has been eager to help publishers do a better job of servicing readers in the News Feed, including improving their approach to mobile in a variety of ways. One possibility it mentioned was for publishers to simply send pages to Facebook that would live inside the social network’s mobile app and be hosted by its servers; that way, they would load quickly with ads that Facebook sells. The revenue would be shared.

First, it’s hard to do a better job of servicing readers when you don’t know how to service them, much less when your readers don’t have control over their experience, or even realize they don’t have that control, as PressThink’s Jay Rosen points out. He notes that, “most users don’t grasp the basic fact that the Facebook algorithm is a filter. They think it’s just an ‘objective window into their social world.’”

A reader who gets his news via Facebook is a passive reader who at best is influencing the algorithm that selects the news he sees by choosing what to “like,” what to comment on, and who he’s friends with. News organizations need to, as best they can, cultivate active readers—ones who seek them out on a regular basis.

What Facebook is proposing is that publishers outsource the publishing to Facebook and become mere suppliers of content, much like Facebook’s billion-plus users. As Carr puts it, publishers would be “serfs in a kingdom that Facebook owns.”

That would just be cementing a partially existing arrangement. As I wrote earlier this year:

The control of distribution that was so profitable IRL hasn’t ended online. It just moved, passing from newspapers, TV stations, and the post office to the companies in (Marc) Andreessen’s portfolio, which happen to have zero cost of content: Google, Facebook, and Twitter (plus the ISPs)… The new digital monopolies all have hundreds of millions of people creating free content for them. That’s where the big profits are.

Facebook’s gross profit margin was 76 percent in 2013.

This might be a deal worth considering, though, if publishers had any formal say in how the news-feed algorithm operates and how it will change in the future. They don’t and they won’t. They would be beholden to Facebook’s secret algorithm, which is subject to the whims of Mark Zuckerberg & Co. alone. That’s extremely dangerous.

Two-and-a-half years ago, for instance, The Washington Post thought it had the social-media thing figured out. Its Facebook app, Social Reader, was sending millions of readers to washingtonpost.com by tricking Facebook users into spamming their friends’ news feeds with WaPo links. This was unethical, first, but it also was bad business, since it was entirely dependent on another company’s policies. When Facebook tweaked its proprietary algorithm, Social Reader’s traffic collapsed, and the Post pulled the app from the site within months.

The SEO wars came before that. Content farms like Demand Media (and to a lesser extent, the former New York Times Company unit About.com) rose to power on their skill (and shamelessness) in gaming Google’s search algorithm. Then Google tweaked its algorithm and sent the industry into free-fall. Here’s Demand’s stock performance since then:

There are other considerations, too. What tends to go big on Facebook is often at least in tension—if not at odds—with what qualifies as good journalism. A news industry formally intertwined with Facebook would be the news on Prozac. Positive stories tend to get shared more while negative or controversial stories get shared less. Nobody wants pictures of a jihadist wielding a knife next to photos of their daughter cutting her wedding cake.

The point is not that news organizations and other publishers can ignore Facebook and Google and the like. The point is that it’s intolerably risky to build their business models around them.

The Times makes an apt analogy, comparing Facebook’s ambitions to Amazon’s stranglehold on the book industry. Book publishers became too dependent on revenue from a single source, and then put the future of their business on Jeff Bezos’ platform, which has given him monopsony power over the book industry. The book business regretted this almost immediately, and went so far as to illegally collude with Apple to claw back some of their pricing power—but it was too late.

The news business, battered as it is, had better learn from these mistakes.

The ethics of The Guardian’s Whisper bombshell

It would have been a journalistic lapse not to have told readers

The Guardian happened upon a huge story while discussing a journalism partnership with Whisper, whose social media app promises anonymity to users, encouraging them to share their secrets.

It turns out Whisper users aren’t so anonymous after all. The company tracks its users’ locations, even when they’ve turned off geolocation, according to The Guardian. It stores their messages—even deleted ones—indefinitely, despite promising to hold them only for “a brief period of time.” And then there’s this:

A team headed by Whisper’s editor-in-chief, Neetzan Zimmerman, is closely monitoring users it believes are potentially newsworthy, delving into the history of their activity on the app and tracking their movements through the mapping tool. Among the many users currently being targeted are military personnel and individuals claiming to work at Yahoo, Disney and on Capitol Hill…

Separately, Whisper has been following a user claiming to be a sex-obsessed lobbyist in Washington DC. The company’s tracking tools allow staff to monitor which areas of the capital the lobbyist visits. “He’s a guy that we’ll track for the rest of his life and he’ll have no idea we’ll be watching him,” the same Whisper executive said.

Where did The Guardian get the scoop? From the company itself, which had invited the paper’s reporters in to discuss how to further an extant editorial partnership.

It lucked into it, basically. I would have guessed anyone in their position would have reported it just as The Guardian did, and with no hesitation. Not quite.

It was bizarre to see a bit of backlash develop against The Guardian this weekend for reporting the story—particularly since much of the questioning came from journalists themselves.

Business Insider Editor and CEO Henry Blodget said this on Twitter:

Wall Street Journal tech columnist Christopher Mims thought this out loud (ADDING: and I should say, later went the other way):

And Fortune senior editor Dan Primack chimed in:

Then there was the Silicon Valley venture capitalist Keith Rabois, who said The Guardian’s reporting was “tantamount to fraud” and called for “subpoenas of email and texts” from its reporters.

(I should note that I prompted several of these responses this weekend by criticizing this line of reasoning on Twitter. You can read the chain here.)

The questions focus on whether The Guardian somehow tricked Whisper into giving it the information or whether it violated an understood compact of business secrecy.

This is absurd. What The Guardian did was entirely ethical. Whisper told its reporters highly newsworthy facts about its own service. The information was all on the record. The Guardian reported it. It would have been a journalistic lapse for the paper not to have told readers what it had learned.

In fact, even had the sessions been off the record, or as Primack asserts, implicitly private, The Guardian would have had to give serious consideration to burning its sources if it couldn’t otherwise confirm the information. I’d argue that the right of the public to know that it is being gravely misled clearly outweighs the agreement by the paper not to publish that information.

Fortunately, we don’t have to worry about that hypothetical in this instance. But it’s troubling that journalists would look askance, even for a little while, at The Guardian’s decision to report what it learned—on the record.

The ethical problems, meanwhile, are entirely in Whisper’s corner, and not just over how it handles its users’ data and how that differs from its promises to them. Whisper editor in chief Neetzan Zimmerman, the former viral wunderkind at Gawker, outright accused Guardian reporters Paul Lewis and Dominic Rushe of high journalistic fraud. Zimmerman said they were “lying” about much of the story’s information, particularly the quote about tracking the “sex-obsessed lobbyist.”

“It is a fabrication because it was never said, and no such person exists,” Zimmerman wrote on Twitter—an astonishingly reckless thing to say about two reporters with notes of a meeting that Zimmerman didn’t even attend.

When Whisper CEO Michael Heyward finally responded to the scandal on Sunday, The Guardian noted, accurately, that, “Unlike other Whisper representatives, who have strongly denied the disclosures, Heyward did not dispute the accuracy of the Guardian’s reporting.”

One fascinating thing about this story is how Whisper’s wounds are almost entirely self-inflicted. It brought in reporters to show what it could do for them, only to find them appalled at what it could do for them. And its top journalist accused two other journalists—falsely by all evidence—of fabricating a source and a quote.

The ethical questions are all on Whisper.

The Washington Post short-sells a reporter’s integrity

Steven Pearlstein smears TheStreet’s Adam Feuerstein for criticizing a biotech firm

In a piece late last month, Washington Post columnist Steven Pearlstein criticized Adam Feuerstein, a reporter at TheStreet, for his negative coverage of a DC-based biotech company called Northwest Biotherapeutics (NWBO).

Feuerstein’s NWBO pieces “have not only been filled with exaggeration, mischaracterization and half-truths but curiously have also coincided with the spikes in short trading,” he wrote, suggesting that Feuerstein was in cahoots with a cabal of market manipulators out to make a buck by tanking a company with cancer vaccines in clinical trials.

TheStreet has demanded a retraction, saying Pearlstein and the Post had defamed Feuerstein. TheStreet’s lawyers are still going back and forth with the Post’s lawyers on that, I’m told. Pearlstein’s column already has required two corrections (ADDING: Which the Post failed to flag online. Here’s the correction.)

For its part, NWBO says what’s happening is obvious. “What we know is our own personal observations,” says Les Goldman, NWBO’s senior vice president for business development. “Which I think can be verified only after one starts watching the pattern by various sources of public information.”

And Citizens for Responsibility and Ethics in Washington, a left-leaning watchdog group, sent an open letter to the SEC in which Executive Director Melanie Sloan accused Feuerstein of corruption. “Publicly available information suggests a concerted effort to manipulate the price of shares of Northwest Biotherapeutics in a way that furthers the interests of short sellers through the blog posts of Adam Feuerstein, who has demonstrated a repeated pattern of using his blog posts to influence the market price of stock in the biotechnology and pharmaceutical industries,” Sloan wrote.

CREW, which Pearlstein relied on heavily for his column, did not return a request for comment. It never contacted TheStreet before sending its letter to the SEC, according to TheStreet.

There’s no doubt that Feuerstein is an aggressive, sometimes brash, reporter, with a deep knowledge of the biotech industry picked up over nearly 14 years of covering it. Generex Biotechnology Corporation brought a $250 million libel suit against Feuerstein and TheStreet in 2010 for writing that its actions were “aimed at misleading investors” and “a ruse to perpetuate a 15-year-long stock promotion scheme.” Generex had to drop its suit a year and a half later. Its shares now trade for 2 cents apiece, down 96 percent from when Feuerstein called out the firm.

But the charge that he’s working with shorts to undermine NWBO falls apart upon inspection.

It’s been clear for years that Pearlstein doesn’t like short sellers. He called for banning the shorting of Wall Street stocks during the financial crisis, and has criticized “the unfairness of short selling.”

In that, he’s hardly alone. People buy stocks because they want them to go up, and financial commentary, reporting, and analysis—both in the press and on Wall Street—tilt heavily toward encouraging investors to buy. In February, for instance, just 25 stocks in the S&P 500 were rated “sell” by analysts.

But markets work best when companies are scrutinized from all sides, allowing investors to weigh all the information. Not every company is worth buying, much less holding, and short sellers look for companies that are overvalued and/or have questionable activities that can signal deeper problems, like mismanagement or outright fraud. They pay (often very high rates) to borrow shares and then they sell them, hoping the shares fall in price by the time they have to replace them. It’s an extremely risky business and requires intensive research. That makes them potentially valuable sources for reporters. It’s also what helps make them a magnet for conspiracy theories, something we know all about here at The Audit, which used to be funded in part by a short seller, Kingsford Capital.

The small-cap and penny-stock sectors are particular minefields for investors, who are trying to evaluate companies that are too small to be scrutinized regularly on Wall Street, much less in The Wall Street Journal. Plus, the smaller and less-traded a stock is, the easier it is to manipulate with pump and dumps, bear raids, and the like—both by investors, long and short, and by management. And biotech has been a gold-rush industry in recent years, which means it deserves even more reportorial skepticism and as much publicly available information, positive and negative, as it can get.

Exchanging information with investors, both long and short, is a core part of a market reporter’s job. It’s one of the ways you learn new facts, particularly those that companies don’t want you to know.

But Pearlstein doesn’t think journalists should even be talking to shorts. “When I asked whether Feuerstein had been in contact with the shorts, he would only say that he was in touch with a wide range of investors,” he wrote. “Using thestreet.com’s journalistic standards, the headline on that might be: ‘Biotech reporter concedes he may be exchanging information with shorts.’”

It’s hard to imagine Pearlstein criticizing a reporter for talking to investors who are long on a stock and want it to go up. What’s different about shorts? They’re “Wall Street wise guys [who] use sleazy tactics to manipulate share prices for short-term profit” and have “contributed to turning financial markets into a giant casino which is easily rigged for the benefit of insiders,” he writes.

Certainly there are shady short sellers out there, just like there are shady longs. But there also are shorts that perform a vital service—ferreting out stock frauds and accounting scandals that an understaffed SEC and a press focused primarily on large-cap companies can’t or won’t.

“As I said to Mr. Pearlstein, our reporters don’t discriminate when they talk to investors about whether those investors are long or short,” says Janet Guyon, TheStreet’s editor in chief. “Reporting is the process of finding as many intelligent people as you can to inform your work.”

The key is to understand those agendas, vet the information, and weigh its importance for readers.

I asked Pearlstein if he thought it was wrong for Bethany McLean, for instance, to talk to Jim Chanos, the short seller who helped her uncover the colossal Enron scandal. He declined to comment, and referred me to a Post spokeswoman who said, “We have responded to TheStreet’s concerns and are engaged in an ongoing dialogue with them. We have nothing additional to share at this time.”

The heart of the claims by Pearlstein and CREW is that Feuerstein (who over the last 18 months has been very bearish on NWBO, arguing repeatedly that the company is misleading investors in its statements by overstating its prospects) published negative posts at the same time short-seller interest in NWBO’s stock has spiked.

That’s awfully thin stuff for Pearlstein and CREW to base such serious charges on. Correlation does not equal causation, as Pearlstein should know. The chart accompanying his column points to six Feuerstein pieces that appear to coincide with short spikes. All but one of those reports, however, came in response to NWBO-created news events, many of which sent its shares soaring on ethically questionable, scientifically dubious, and selectively released information. These news events and stock surges are natural times for short-seller interest to spike, and for reporters to weigh in with concerns and questions.

Take the third Feuerstein story Pearlstein points to, which came on May 15, hours after NWBO issued a press release headlined, “NW Bio Announces First Data From Ongoing DCVax-Direct Trial.”

More like “datum.” NWBO’s “case study” reported the progress of a single patient in one of its trials, an ethically dubious practice.

The fifth story Pearlstein singles out is the only one that doesn’t follow NWBO-driven news. That’s because it was enterprise reporting.

Dr. Aman Buzdar, vice president of clinical research at MD Anderson, the renowned Houston medical center NWBO is paying to conduct a clinical trial, told Feuerstein, “I have read the information that the company has put in the public domain. It is extremely unusual and inappropriate.” Buzdar told Feuerstein the company’s behavior was “very concerning” and that, “I’ve never come across a company that has done something like this before.”

Bizarrely, Pearlstein dinged Feuerstein and Buzdar for the story, and CREW insinuated that Buzdar was in the pocket of Big Pharma and that Feuerstein’s decision to quote him was “suspicious.”

But Buzdar was acting as a spokesman for MD Anderson. Feuerstein didn’t select him to be quoted, the hospital did. Within days of Feuerstein’s piece, MD Anderson issued a press release affirming that—a clear rebuke of NWBO’s practices by the hospital.

NWBO and Pearlstein have a point on just one of the stories. TheStreet’s headline on Feuerstein’s post read, “Northwest Bio Warns FDA May Throw Out Phase III Brain Cancer Study,” which, while technically accurate, was sensationalized enough to be misleading. In reality, NWBO had updated its risk-factor boilerplate in its securities filings to say it was possible that the FDA might not approve of its process—standard legal rear-covering by a company. And it wasn’t a “brand new risk nugget,” as Feuerstein asserted. NWBO had updated the language four months earlier. Still, that’s no evidence that Feuerstein was plotting with shorts.

The questionable press releases are hardly the only red flag with the company. NWBO has almost no institutional investors. Its CEO and controlling shareholder, Linda F. Powers, is a former senior vice president of global finance at Enron—Andrew Fastow’s fiefdom. She wasn’t implicated in the Enron scandal, but her years there are not mentioned in her corporate biography. Powers also controls Cognate Bioservices, which does a significant amount of contract work for NWBO. Those are so-called related-party transactions that should be scrutinized closely by any investor or reporter. “Every one of those (related-party deals) is not only subject to review by internal accounting but by a ‘Big Ten’ auditor,” says NWBO’s Goldman. “It could not be more transparent.”

“We’re still a small biotech company,” he adds. “If you’re looking for validations from major institutional investors, they start playing with somebody, if you will, when they approach a billion-dollar market cap.”

But other biotech companies with similar market caps do have multiple institutional investors, including Stemline Therapeutics, Ziopharm Oncology, and BioSpecifics Technologies.

And what Pearlstein didn’t mention in his column is that Feuerstein is hardly alone among journalists in his skepticism of how NWBO does business.

John Carroll, a Pulitzer-Prize winner who is editor in chief of the life-sciences group at DC-based FierceMarkets, wrote this on Twitter, before Feuerstein’s May 15 blog post appeared: “Touting ‘case studies’ about cancer drugs is grossly unethical. Pandering to a market of dying patients. The stuff of snake oil sales.”

“I’d say small-cap biotech is a swamp, within which NWBO is an outlier,” says Jacob Pileth Plieth, a former analyst and Wall Street Journal reporter who covers biotech for London-based EP Vantage. “NWBO has a long track record of dubious market practices and ethically questionable clinical trial behavior.”

“The bottom line,” Pileth Plieth says, “is that journalists should fight together to expose companies like NWBO, not use the WaPo or a Pulitzer as a shield from behind which they can make baseless attacks on each other.”

Pearlstein should take some advice from a column he wrote seven years ago about the short seller David Einhorn’s campaign against Allied Capital. “From the beginning, Allied spent too much time and energy questioning the motives of its critics and too little digging into the substance of Einhorn’s allegations.”

(UPDATE: A commenter reminds me that Pearlstein is a Pulitzer winner, as well.)


Simon & Schuster keeps its fabulist on bookshelves

C. David Heymann’s impact on the historical record

C. David Heymann got his books published by a string of respected publishers, which was quite a feat given his well-documented history of fabrications, falsehoods, plagiarism, and highly questionable reporting dating to 1983.

That’s when a lawsuit led to Heymann’s first major book being pulled from shelves, and David Cay Johnston exposed it as a fraud on the front page of the Los Angeles Times. Random House pulped the book and sold the rights back to Heymann, who rewrote the book and cashed in with a TV movie. He would go on to write several books for respected houses like Penguin and Simon & Schuster. (Media consolidation brings things full circle: Random House, via its merger with Penguin, now again owns the rights to some Heymann books.)

Heymann rehabilitated his reputation with publishers, primarily by selling lots of books, despite continued questions about his integrity. And that allowed his fabrications to spread through the historical record, via other books and media outlets.

Despite Johnston’s recent Newsweek cover story presenting scads of evidence that Heymann flat out made up significant parts of his books, and my report that his former girlfriend and research assistant, along with a dead source’s son, says he fabricated, CBS-owned Simon & Schuster is standing by the late author. It refuses to answer questions about Heymann’s work, much less to recall his books from stores. This isn’t just an issue of Simon & Schuster’s credibility, it’s about how false information spreads because others rely on its credibility.

Even the most rigorous of researchers have been duped, as the investigations by San Diego attorney Donna Morel, who sparked the Newsweek story, have shown.

Take The New Yorker, legendary for its finicky factcheckers. Larissa MacFarquhar wrote a write-around profile of Caroline Kennedy that appeared in 2009, using Heymann’s 2008 book, American Legacy: The Story of John and Caroline Kennedy, as a source at least four times, including for quotes from George Plimpton and a London art dealer Alan Jellinek. The former died in 2003 2005, and Newsweek reported that Heymann’s own archives contain a recording of Plimpton refusing to talk to him. Jellinek, the London art dealer, meanwhile, almost certainly doesn’t exist. There’s no trace of him online or in British records.

Then there’s Andy Warhol, who died in 1987. The New Yorker attributed a Warhol quote to Heymann’s book, which didn’t come out until 20 years after the artist’s death. Morel says Heymann’s files contain no evidence of a Warhol interview. After questions from Morel, The New Yorker last week updated its piece to say that, “C. David Heymann’s ‘American Legacy’ (2007) was the source of this and the subsequent quotes from Alan Jellinek and George Plimpton. Serious questions have been raised about the credibility of this account.”

Former Newsweek editor at large Evan Thomas cited Heymann several times in his well-received Robert Kennedy: His Life, published in 2000 2002. In one passage, Thomas writes that Kennedy friend Lem Billings “took Bobby to lose his virginity at a Harlem whorehouse, the same one, Billings later claimed, where Jack had lost his virginity some years before. Bobby reported to Billings that the experience ‘wasn’t bad, but it wasn’t fabulous either.’ Joe Sr. reimbursed Billings for the cost.” Thomas attributes this in source notes to a Heymann interview with Billings.

There’s little chance that interview happened. Billings died in 1981—17 years before Heymann’s book came out.

“If there are any more editions of my RFK book, I am going to take out some stuff I got from Heymann—a made-up story of RFK riding with NY cops and quotes from Lawford and Billings from bogus interviews,” Thomas says.

Which is ironic, since Thomas’ publisher is Simon & Schuster. Asked whether Heymann’s books should be pulled, he says, “I don’t want to speak for Simon & Schuster.”

Neither does Simon & Schuster. It declined to comment for this story.

In 2007, NPR ran an online excerpt of American Legacy that contained passages almost certainly made up by Heymann. After Morel contacted them last month, NPR issued two editor’s notes pointing to the “serious questions” about Heymann’s work and noting that it could find no evidence of at least one source quoted in the excerpt. It would be better off pulling the whole thing.

MSNBC’s Chris Matthews cited Heymann in his 2011 book, Kennedy & Nixon: The Rivalry That Shaped Postwar America, though he appears to have got off lucky: the cited material is from someone else’s previously reported quote that Heymann used.

In 2002, the leftist historian Howard Zinn called Heymann’s Poor Little Rich Girl, the book that caused Heymann’s first scandal in 1983, “the best source” on the life of Barbara Hutton. University of Virginia political scientist Larry Sabato cited him in a book last year. Other biographers, including Anthony Summers and Ralph G. Martin, have cited Heymann over the years.

Heymann will continue to be sourced and his dubious or false information will continue to spread as long as Simon & Schuster fails to address the fact that one of its authors was a serial fabulist.

Scary numbers in Moody’s public pension report, sans context

Media coverage of ‘$2 trillion’ gap is incomplete at best

A Moody’s report last week warning that top US public pensions are underfunded by $2 trillion got wide coverage in the press.

“How bad is the public pension funding gap? This bad,” CNBC clickbaited.

“Largest Public Pensions Face $2 Trillion Hole, Moody’s Says,” reported Bloomberg.

“Some alarming numbers on the state of the nation`s public pension funds,” said PBS’s Nightly Business Report. “Pension Funding Gap is Now a $2 Trillion Chasm,” said NBC News.

Two trillion bucks is a big, scary number. But what does it mean, exactly, and how did Moody’s get there? We don’t get much of a clue from the press coverage.

Figuring out the relative well-funded-ness of a pension fund is a complex matter that’s as much art as science, as much opinion as fact. There is no final answer to the question. That’s largely because defined-benefit pensions, in order to account for their assets and liabilities, rely on investment gains and state contributions well into the future to gauge just how prepared they are to pay promised benefits in full.

Those investment returns are, of course, impossible to predict with any certainty, and they’re particularly subject to short-term distortions (the state contributions have a tendency to dry up too in hard times, which is a big problem). The stock market collapse in 2008 and 2009 hammered pensions. The raging bull market since has boosted them.

Last year, Moody’s—which, by the way, was a critical enabler of the financial crisis—rejiggered how it estimated future pension returns, dramatically lowering the return rate used to calculate them. In its story, Bloomberg reports that, “Moody’s announced it would take a more conservative approach to calculating liabilities than states and cities.” But that doesn’t really tell us just how conservative Moody’s is being, or what the implications of its very conservative methods are.

Moody’s is using a rate of return that’s far below normal levels. Where most public pensions assume average annual returns of 7.5 percent or 8 percent over the long term, Moody’s uses one that’s below 5 percent to get its results. That may seem like a small difference, but a couple or three percentage points makes a huge difference in longterm investment gains. While Moody’s estimates the top 25 pensions have $2 trillion in unfunded liabilities, the pensions themselves put the shortfall at $601 billion.

The economist Dean Baker, of the liberal Center for Economic and Policy Research, whose work has opened my eyes over the years to how the pensions issue is reported, wrote last year about the company’s new methods, “Moody’s change in accounting is not just bad politics, it is horrible policy.

If Moody’s methodology is accepted as the basis for accounting by state and local governments then they will suddenly need large amounts of revenue to make their pensions properly funded. This will directly pit public-sector workers, who are counting on the pensions they have earned, against school children, low-income families, and others who count on state supported services.

There’s no correct answer to what rate of return actuaries should use to gauge pension health, but it’s worth pointing out that pensions are better able to absorb short-to-medium-term setbacks than are individual investors. “State and local governments do not have retirement dates where they have to start drawing on stock holdings. They need only concern themselves with long period averages, without worrying about short-term fluctuations,” according to Baker. That justifies using higher return rates, he argues, as do the public pensions.

They’re hardly alone. In a November 2013 report, the big actuarial firm Milliman put the rate at 7.47 percent. It found that the top 100 public pensions (remember, Moody’s surveyed only the top 25) were underfunded by about $1 trillion, writing that, “most plans have set their interest rate assumptions and measured their pension liabilities in a realistic, actuarial manner that is consistent with long-term market return expectations.”

Neither Bloomberg nor Reuters reported that there were other, less alarming estimates on pension funding. Of course, all of this context on how pension funding is calculated is too much to squeeze into your typical 500-word news story. But particularly when there is no final answer on how well or poorly funded pensions are, it’s not ideal to report one estimate without noting how it differs from other estimates and why.

Another problem here is that Moody’s is using numbers that are nearly two years old numbers. That’s because that’s the latest data it had, but it was surely worth pointing out in news coverage that the stock market has jumped about 30 percent since those numbers were current. That will have had a significantly positive impact on pension funding levels.

Finally, there’s the issue of throwing out giant numbers like the $2 trillion in the headline without putting them in context, another issue that bugs Baker.

Over the next 30 years, total US economic activity will be more than $750 trillion, assuming 2.5 percent average annual growth in real GDP. Split it up over 30 years and the alleged shortfall comes to $67 billion a year or about 0.26 percent of GDP.

That’s a big number, all right, but it looks quite a bit more manageable than $2 trillion, particularly when you know that the shortfall is almost certainly not that much.

The upside of yesterday’s New York Times news

Paywall 2.0 flop triggers layoffs, but digital ads and digital circulation surge

The New York Times is cutting 100 jobs from its newsroom, and you’d get the impression from the reaction that it’s about to turn out the lights.

The headline news is not as bad as it seems. For one, the Times had actually added 80 journalists in 2014. The upcoming cuts will put the newsroom down 20 people from the first of the year. That’s a decline of 1.6 percent.

That the NYT is reversing its hiring spree so quickly shows that it seriously overestimated its growth prospects early in the year, banking on a boom in new revenue from its expanded paywall offerings that wasn’t to be. No one succeeds at everything, and it’s good that the NYT launched these experiments, particularly NYT Now. Even if the direct revenue prospects were always hard to imagine, NYT Now makes the paper’s full subscription more valuable and it’s teaching the organization a lot about mobile.

But you have to wonder just what company brass Mark Thompson and Arthur Sulzberger thought the potential market was for NYT Opinion, an app that brings you the likes of Frank Bruni and Maureen Dowd, without all that extraneous news stuff, for $6.50 a month.

Brought you, I should say. The Times is killing its NYT Opinion app after just a few months in operation because “it hasn’t attracted the kind of new audience it would need to be truly scalable,” Sulzberger and Thompson write in a letter to employees that was disclosed in a securities filing.

Here’s hoping the Times has learned its lesson after two opinion-paywall failures. The company dealt a nearly fatal blow to the digital-subscriptions movement in 2005 with TimesSelect, which got things exactly backward, corralling opinion writers behind a paywall while letting the news and analysis run free. That failure set back paywalls by at least half a decade, scaring off other papers and emboldening critics ideologically opposed to paying for stuff online. Recall Jeff Jarvis’s typically prescient announcement in 2007 that “TimesSelect is dead. It was a cynical act doomed from the start. With it goes any hope of charging for content online. Content is now and forever free.”

By the time the NYT got it right, in 2011, and infrastructure like Press+ was in place to enable rapid, industry-wide adoption, most other newspapers were shells of their former selves, having gutted their newsrooms. That has made it more difficult for them to justify charging online.

The Times, by contrast, never took the chainsaw to its newsroom. It’s a real credit to Sulzberger. If the paper had been owned by Tribune Company, say, it would surely look more like the Los Angeles Times, its one-time rival whose newsroom has been cut nearly in half.

In fact, the Times reports that the 2014 hires brought its newsroom to a near-record 1,330. It will drop to around 1,230 after the current round of buyouts and/or layoffs.

NYT Company stock jumped 10 percent on the news, leading lots of people to bemoan Wall Street’s penchant for rewarding of layoffs. And certainly, investors were applauding the company’s cost cutting and re-emphasized focus on profits. There’s more to the stock surge than that, though: There were also some positive signs from the business.

Most important, digital advertising, which has been horrible since the beginning of 2012, jumped 16 percent in the third quarter. That’s a huge number for a paper that until earlier this year had seen two years of declines in digital ad revenue, and even last quarter were up a mere 3 percent.

And, as suspected, the slowdown in digital subscription gains that triggered a big selloff in NYT shares since April proved to be overhyped. The Times says it added about 40,000 new digital subscribers in the third quarter, with most of them paying full price. That’s the biggest gain in seven quarters, and a 20 percent jump from a year ago. The circulation boost will get the Times to zero this quarter on revenues, where it had predicted a decline.

On the ad front, the Times has been pushing into native ads and video ads—two major growth areas for publishers, and those bets appear to be paying off. That 16 percent jump means it added about $5.2 million in digital ads in the quarter. It also added roughly $1.5 million in digital subscriptions (which translates to about $6 million in annual revenue. Was this surge in digital ads a blip or is it the start of something bigger?

Another critical question is this: How much is the NYT spending to generate this new revenue? Video is expensive to produce, as is native advertising. You wouldn’t expect the Times’s revenue from those to exceed costs just yet—they’re both pretty new. But the company has ramped up operating costs significantly this year and it expects its operating profit to be down.

With the layoffs, is the Times moving resources out of text-based journalism and into video? If so, that’s something to watch.

Finally, it’s worth remembering that it was just a year and a week ago that Sulzberger and Thompson reinstated the NYT’s dividend payout to investors after a four-year hiatus, a move that was too much, too soon. The dividend costs the company $24 million a year, money that could be invested in new businesses, expanding existing ones, or simply maintaining them. It’s true that Sulzberger has heirs to feed, never a small consideration in a family dynasty two decades into its fourth generation. The current round of layoffs will save the Times roughly $15 million a year in labor costs.

Put it this way: Those 100 Times journalists have to go so the Sulzberger family can stay. While that’s much better than being sold to some private-equity outfit, it’s still an unfortunate bit of short-term strategy.

Going easy on Eric Holder’s Wall Street inaction

Press coverage falls short on the attorney general’s failure to prosecute fraud

There’s one word missing in too many major press accounts of Eric Holder’s tenure as Obama’s only attorney general: bankers.

It’s a baffling lapse for outlets like the Washington Post, Bloomberg, NPR, the Los Angeles Times, CNN, and ABC News, none of which, in their main stories on the resignation, mentions Holder’s dismal record prosecuting Wall Street fraud in the wake of the biggest financial disaster since the Great Depression. The New York Times drops one line toward the bottom of its front-page story on the news, inaccurately calling it a “liberal” notion that the AG “should have used his power to prosecute those responsible for the financial crisis in 2008.”

Holder leaves office having been far outclassed by the Bush administration even in prosecuting corporate criminals, despite overseeing the aftermath of one of the biggest orgies of financial corruption in history.

In March 2009, a month after Holder was sworn in as attorney general, The New York Times reported that “federal and state investigators are preparing for a surge of prosecutions of financial fraud” and that the DOJ considered it a “a top priority.”

Holder came from the white-shoe DC law firm Covington & Burling, which represented half of the top 10 mortgage servicers, along with MERS, the mortgage records system that played a big role in the foreclosure fraud scandal (the firm and the Justice Department declined to tell Reuters in 2012 whether Holder worked on any of those cases). He brought along his Covington colleague Lanny Breuer as enforcement chief, and Breuer would play a key role in the lack of indictments of major executives.

By the end of 2010, it was clear the financial prosecution surge hadn’t happened, and the media began making noise about it. Holder announced the results of a financial fraud task force, claiming more than 300 scalps.

The press quickly exposed Holder’s campaign as a public relations stunt, reporting that many were cases started years earlier by the Bush administration, other were double-counted, and that almost all of the rest were small fry. Even The New York Times’s Andrew Ross Sorkin, who’s no anti-bank populist, mocked Holder’s financial fraud task force as an exercise in missing the point.

Two years later, Holder did it again, announcing a mortgage fraud sweep had resulted in 530 prosecutions and a billion dollars in fines. Bloomberg immediately noticed that the DOJ had again included Bush-era cases in its tally. Several months later, the administration quietly admitted it had inflated the real numbers, which were 107 prosecutions and $95 million in fines—almost all from small-time criminals.

Then there’s the Holder Doctrine, set forth in a 1999 memo when he was Clinton’s deputy attorney general. It says that prosecutors should take “collateral consequences” into account when “conducting an investigation, determining whether to bring charges, and negotiating plea agreements.”

By 2012, Breuer all but admitted that the administration didn’t criminally charge banks because it worried about the collateral consequences. “In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects,” he said.

“Those are the kinds of considerations in white-collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.”

We know now—too late to do anything about it—that Holder never even really tried to investigate the banks. By early last year, 60 Minutes was confronting Breuer with reporting that sources inside the DOJ’s criminal division who said, “There were no subpoenas, no document reviews, no wiretaps” of Wall Street for the financial crisis. Eventually, after the political pressure grew intolerable, Holder squeezed billions of dollars in civil penalties from Wall Street without forcing a single individual to face trial. Contrast that with the Holder DOJ’s aggressive criminal prosecution of insider trading, which is basically a Wall Street-on-Wall Street crime.

Holder and Breuer were part of a pattern within the Obama administration of weak Wall Street enforcement—one that leads right back to the president himself. The tally of top officials who were close to Wall Street and have since left for finance or finance-related jobs includes former Treasury Secretary Tim Geithner, former SEC chairwoman Mary Schapiro, Breuer, former SEC enforcement chief Robert Khuzami, and, soon, you can bet, Eric Holder.

Here’s Holder’s legacy on the financial fraud front, which was one of the biggest issues he faced when taking office:

Simon & Schuster should come clean about discredited Monroe/DiMaggio book

C. David Heymann’s Joe and Marilyn is full of highly dubious information—just like many of his previous books

On Christmas Eve 1983, David Cay Johnston exposed C. David Heymann’s Barbara Hutton biography as a fraud on A1 of the Los Angeles Times. Johnston reported that Poor Little Rich Girl contained numerous fabricated sources and pointed to facts that were either invented or so false that they raised grave additional questions about Heymann’s credibility.

Random House pulped the book, but Heymann rewrote it, sold it to another publisher, got a TV movie deal, and went on to a prolific career as a celebrity biographer.

Three decades after that first investigation, Johnston again exposed Heymann, this time on the cover of Newsweek, reporting that the author’s final effort, a posthumous book about Joe DiMaggio and Marilyn Monroe, Joe and Marilyn: Legends in Love, was also shot through with manufactured information and falsehoods.

Far from pulping it, Simon & Schuster, a division of CBS Corporation, is effectively standing by the book, which its Atria/Emily Bestler imprint published. That raises serious questions about editorial standards at the publisher—ones that it declines to answer. What did it know about Heymann’s questionable practices and when did it know it?

The Joe and Marilyn fiasco comes less than a year after Simon & Schuster published Dylan Davies’ fabricated book about the Benghazi attack, an incident that seriously damaged CBS News and 60 Minutes star Lara Logan, as well. The publisher had to pull that book.

Johnston’s Newsweek piece shows that Heymann’s supposed interviews with conveniently deceased figures like Pierre Salinger almost certainly didn’t happen, according to records in Heymann’s own archives. He raises questions about whether Heymann invented interviews with one of the book’s critical sources, a Holocaust refugee the author claimed, with no supporting evidence, had been Monroe’s therapist. And he raises serious doubts about whether Heymann talked to DiMaggio’s son, who died 15 years ago and was notoriously press-shy. Heymann dedicated Joe and Marilyn to Joe Jr.

Any one of these likely fabrications would necessitate pulling the book. When you add them up, it’s incredible that CBS, Simon & Schuster, and Atria/Emily Bestler continue to sell it, while refusing even to discuss the issues. So I decided to look into it, as well. And it’s clear that Johnston just scratched the surface in his piece.

For instance, Heymann claimed to have talked to Lotte Goslar, Monroe’s mime teacher, for the book. But Goslar died in 1997. Susan Strasberg, another source, died in 1999. Monroe’s makeup artist, Allan “Whitey” Snyder, whom Heymann cites two-dozen times, died in 1994. Yankees legend Bill Dickey died in 1993, and gossip columnist Doris Lilly died in 1991.

And then there’s Truman Capote, whom Heymann claims he interviewed and to whom he attributes many of the most salacious quotes, including one where Monroe allegedly said, “Joe’s biggest bat isn’t the one he used at the plate.” Capote died in 1984.

These supposed interviews fit a pattern, as Johnston noted in Newsweek: Quotes and new information attributed to dead sources who can’t say whether Heymann ever actually talked to them.

In the book, Heymann extensively quotes Robert Solotaire, whose father George was a good friend of Joe DiMaggio’s, discussing DiMaggio’s supposed use of prostitutes and his tiffs with Monroe, among other titillating anecdotes. Robert Solotaire died in 2008. Benjamin Solotaire, Robert’s son, tells me the quotes were made up.

“He would never have shared such intimate details about what Joe said,” Benjamin says. “My father said that George, my grandfather, would look away when having dinner with Joe and Marilyn whenever they were being affectionate. My father continued respecting that privacy. And the quotes just aren’t the way dad spoke. They are too crass and detailed for him.

“It is bothersome to me and my family that these made-up, embarrassing quotes are attributed to my father,” he continued. “George and dad were great friends of Joe and would never have tarnished his or Marilyn’s reputation.”

In one passage, Heymann quotes from a supposed interview with Judd Marmor, the famed Los Angeles psychiatrist (who died in 2003), about Monroe, who was briefly his patient. Heymann quotes Marmor discussing Monroe’s “on-again, off-again, three-year affair” with Elia Kazan and how much therapy she might have had elsewhere.

Val Holley, a Washington, DC-based biographer, actually talked to Marmor before he died for a possible update to his James Dean book. “I wondered if Marmor might say anything about Dean, so I called him,” Holley tells me in an email. “This would have been in 2002 or so. Not unexpectedly, Marmor said … he could not discuss any communications he may have had with James Dean.

“I personally have never relied on anything Heymann has written,” Holley says, noting that he specifically called Heymann’s credibility into question in the author’s note at the beginning of his Dean biography, noting that he had omitted Heymann’s widely circulated account (there’s even a play based on it) of a brief affair between Dean and the heiress Barbara Hutton because he was “unable to verify” it.

The Marmor quote in Joe and Marilyn is followed immediately by nearly an entire chapter of quotes from a psychiatrist named Rose Fromm.

Fromm’s appearance in Chapter 3 allowed Heymann to fill in lurid details about Monroe’s youth, including a supposed sexual incident with “Roxanne Smith,” a “pretty and well developed” sixth-grade classmate, whose existence, “despite the best efforts of the dozens of biographers who have written about Marilyn Monroe over the years,” had never been reported until Heymann came along. These and many other anecdotes and quotes from Monroe’s childhood, including details about her sex life with her first husband, come from Fromm in vivid detail 50 years after the fact (Heymann wrote that Fromm “kept notes on her meeting with MM, and these notes were made available to the author”).

Marilyn Monroe fan sites saw through this right away. The British blogger Tara Hanks wrote this in July, several weeks before the Newsweek piece appeared:

Heymann claimed to have interviewed many people close to Joe and Marilyn, including press agent Rupert Allan; make-up artist Alan ‘Whitey’ Snyder; George Solotaire’s son, Robert; Dom DiMaggio; Joe DiMaggio junior; Marilyn’s mime teacher, Lotte Goslar; and her masseur, Ralph Roberts.

However, many of the quotes attributed to them seem paraphrased from previously published material. And most of these people were known for their discretion, which makes much of what is said therein hard to believe…

Other alleged sources, such as psychiatrist Rose Fromm Kirsten and journalist Kurt Lamprecht, also seem to have appeared from nowhere.

The Fromm quotes have a distinct too-good-to-be-true feel to them that should have set off alarms with any publisher. Johnston, in his Newsweek piece, raises further questions about whether Heymann actually talked to Fromm and whether Monroe ever saw a psychiatrist by that name.

And this is hardly an exhaustive list of all the questionable reporting in Joe and Marilyn, much less the rest of Heymann’s books.

I tracked down one of Heymann’s exes, Gerry Visco, who happens to be an administrator across the quad at Columbia in the Department of Classics. “I lived with David for 6 years and I also worked with him as an assistant and interviewed many of his sources,” she says. “He definitely made stuff up although he was also a very thorough researcher at the same time.”

“He was a horrendous human being in many ways,” says Visco. She began classes here at the Columbia Graduate School of Journalism before breaking up with Heymann. “He did give me a ton of background on non-fiction writing and biography, but he was in many ways totally unethical which was such a contrast to what I was learning at the J-school.”

Johnston tells me he could only fit so much into his magazine piece. “I have enough to have written an entire book of fabrications,” he says. “And the important point is that it is not possible CBS didn’t know.”

Indeed, it’s hard to fathom why Simon & Schuster would publish Heymann in the first place, given his long-established and well-earned reputation as a fabulist. The Washington Post, for instance, led a 2003 story on his Georgetown book with, “There are lies, damn lies and statistics … and autobiographies, biographies and books by C. David Heymann,” noting that his books were “unfettered by live subjects.” The journalist Andrew Goldman wrote stories in 1999 and 2009 all but declaring that Heymann was a fabulist.

You can’t libel the dead, as biographer Kitty Kelley noted in that Post story, and Heymann made a living off of that. But Simon & Schuster looked the other way.

It continues to do so. Johnston says the book’s editor, Emily Bestler, hung up on him when he started asking about Heymann’s fabrications, and that Simon & Schuster declined to talk to him. Bestler did not respond to my requests for comment, and Simon & Schuster and CBS Corporation declined to comment on questions Johnston and I have raised. “Thank you for checking in on this again before you go to press. Once again, we will have no response to Mr. Johnston’s article in Newsweek, nor any comment on your questions,” says Adam Rothberg, Simon & Schuster’s senior vice president of corporate communications.

That doesn’t cut it.

Simon & Schuster and CBS need to answer questions about whether Bestler actually had the book factchecked, and if so, how that process went so wrong. They need to talk about why they haven’t recalled books that have been so thoroughly discredited. They also need to say why they signed someone like Heymann in the first place.

(photo credits: Simon & Schuster)

Audit Interview: Carol J. Loomis

The Fortune legend talks about 60 years in business journalism

Carol J. Loomis, who retired in July after 60 years at Fortune, where she became, indisputably, a giant of business journalism. Along the way, she blazed a trail for women journalists, felled CEOs, and became close friends with a little-known Omaha investor named Buffett. Put it this way: She won a Loeb award for Lifetime Achievement in 1993 and continued working at the highest level for another 21 years. CJR’s Ryan Chittum talked to her about her remarkable career. (This is an extended version of a Q&A in the current print issue of CJR).

The Audit: The obvious first question is: Why now?

Carol Loomis: I really think it’s funny to have to defend retiring at age 85. I mean, really! When you get right down to it, it’s pretty amazing that I worked this long and so, you would think it had to be sometime. And so I think the closest to “why now?” is when you get this age, you realize that traveling has gotten more difficult. And the fact is, a Fortune writer should have the ability to be assigned to a story this afternoon, wherever in the world it is, and get on a plane tomorrow and go there and do sometimes-exhausting work. When you’re age 85 that sounds harder than it used to. So I do think that the “why now?” has a lot to do with realizing that my ability to be a full-fledged, dedicated, capable Fortune writer is probably held back a little by the fact that I’ve gotten this old. So that’s really what it is.

TA: Do you plan to write at all for Fortune or do you plan to write your memoirs or anything like that?

CL: Well, I’m definitely not writing my memoirs. I’ve done that. It was 16 pages in the magazine. I feel like that was pretty much “A” copy. I feel that if I went on and tried to do a book it would be moving into “B”, “C”, and “D” copy, and I’m just not interested in that. The fact is, I have no economic reason to write. And many people who do write books, do have an economic reason to write one. Andy Serwer and I sort of left it up in the air as to whether I would maybe do another something for Fortune. It seems to me that if I got my fingers on a really great story that would be good for Fortune.com, it would take me about five minutes to sit down and report it and write it. A longer story, like a 6,000 word piece, would have to be something that I could do without pressure, setting my own timeframe. And that may be a hard recipe to come up with. So I just don’t know how it’s going to work out, and now there’s a new managing editor. I know Alan Murray only slightly but everything I know about him is very good.

TA: I know you’ve been opposed to Time being part of a media conlogmerate. And now with the spinoff, will that affect the culture at all? They have editors reporting to the business side now—things that hadn’t been done before. Are you worried about that?

CL: Well, I think “worry” would be too strong a word. I certainly recognize that it’s a different reporting structure, and I think the old one, where the managing editor reported to an editor-in-chief is to be preferred over this one. But times are very different today, as far as print’s concerned and so I can’t say just absolutely that it shouldn’t be this way. I don’t know. It’s just—everything’s very different.

TA: How about how they spun the company off? Rupert Murdoch when he spun off News Corp., he gave it a big pile of cash and no debt, and they didn’t do that here.

CL: Well, first of all. I think it’s good, as you say. I’ve expressed my feelings about print organizations being owned by conglomerates, so I think it’s better that we’re off on our own. First of all, I just haven’t studied as much as I probably should have the financial characteristics here, so I don’t have a strong opinion as to whether the amount of debt we got was burdensome. You know we’ve been sending an awful lot of money up to Time Warner, and we’re keeping our own cashflow now. That’s certainly to the good. But I don’t have a strong feeling as to whether the company is financially set up the way it should be or not.

TA: What do you think about the news industry these days? A big part of my job is writing about the business of news, and it’s a gruesome scene, a lot of it. Do you have any thoughts on where the business is now and what it could be doing?

CL: I don’t have views that I could support with a lot of knowledge. I think it’s a tough spot, and I’m glad to see the improvisation that’s out there as people attempt to solve their problems. I’m a huge admirer of The New York Times and The Wall Street Journal. I read them both religiously every day and am very thankful that I can still get the print copy delivered to my front door at about 5:15 in the morning. I think it’s tough for everybody going through these years, and we don’t know how it will shake out and I just hope it’s in a way that supports the newsgathering forces, which we need so much.

TA: What else do you read to keep on top of the news?

CL: Of course you have to recognize that there’s a difference in what I was doing a month ago and what I’m doing now, because I’m retired. I don’t need to worry about keeping up with everything as much as I did.

TA: How about what did you read, I should say?

CL: I didn’t see the Financial Times every day, but every day that I saw it, I was sorry that I didn’t see it everyday. And other than that, I read things like The New Yorker, which I still read. I go to Marketwatch.com to read what’s going on there and to look at a stock portfolio. And I sometimes saw the Washington Post, and I was always glad when I saw the Washington Post. It was the Times and the Journal that I considered indispensable every day, including on the weekends.

TA: Your whole career has been about doing longform journalism. These days, we often hear that to emphasize the 5,000-word piece is just “journalists writing for journalists.”

CL: First of all, I think the old Fortune, one of its quirks was that just about every story was the same length: long. The editors would talk from time to time… every managing editor would say we ought to have variance in the length of the stories. They all don’t deserve a full 6,000 words. Some of them should be 3,000 words, and everybody would give lip service to this but then it wouldn’t happen. So when we went to biweekly, I think that that was one of the things that we began to do better was that we did recognize that some stories deserved very long treatment and that others didn’t deserve as much. And so I think that was all to the good, and I believe that managing editors have gotten better and better at that, as they’ve gone along, in recognizing the number of words that a subject deserves. I can’t imagine the world without longform journalism. I simply don’t think it’s simply just journalists writing for journalists. There are some subjects that just can’t be covered without a lot of words. I think back on some of my stories where I just could not have done the subject the justice it deserves. Something like derivatives, for example.

TA: That’s the one I was thinking of.

CL: There were actually two of them. One in 1994 and one in 1995, both of them cover stories, and there’s no way of writing in a short fashion about derivatives. Particularly not when they’re brand new and people are trying to understand them for the first time, and you must have a generous supply of words to deal with that. You need room to handle the bigness of the subject.

TA: What impressed me about those stories was how prescient they were 13 or 14 years before the financial crisis. And that’s true for a lot of your stories going back as long as you’ve been writing.

CL: Some of it is luck. I remember on the first derivatives story, one of our editors Julie Connelly, said, “Carol, you ought to write about derivatives,” and I remember shrinking in horror. The Fortune way was that the great stories come out of a good subject and a writer who enthusiastically wants to cover that subject. And so, almost never, are you told you must do a story at Fortune. Almost never.

This editor and my managing editor at the time, who was Marshall Loeb, convinced me that (derivatives) was a subject that I should take on. And one of my failings is that I tend to get very interested in subjects if I go into them. That accounts for the messiness of my office, because I never forget my interest in those subjects. I got into derivatives and as I began to understand them I found them fascinating. I began to develop sort of a concept of how to write about them.

And I’ve always had the ability—and this is very important—to call up the smartest investor, definitely, and probably the smartest guy in the country, Warren Buffett, and say, “Guess what I’m going to do derivatives. You have any thoughts on this?” And I have benefited greatly from having Warren suggest a few things to me over the years.

TA: How much of that was him informed by you, and how much was you informed by him?

CL: As I said, I benefited from being able to ask his opinion about things. And so that’s been very important that I could check in on someone like Warren and get his views. And I could do that early and I could do it later, and in the meantime I could get informed myself totally about a subject. To the extent that there’s been any informing, I’m afraid that I haven’t informed him very much (laughs). He’s informed me more than the other thing. I wouldn’t be presumptuous.

TA: Being a woman who started in the Fifties at Fortune magazine to a lot of people it’s really surprising that that happened back then. At the same time, you have some of the greatest journalists have been women—Ida Tarbell, for instance…

CL: Of course. Good name to pull from the ancient times. Absolutely.

TA: Did you learn from them or did you sort of make your own way? How did you become a writer at Fortune back when women didn’t get those jobs?

CL: Well, I got invited to do it. First of all, it was not something that I was even the smallest amount of pushy about. I liked my job. I was a researcher, which was what they would call a reporter today, who worked with the writers, all of whom were men. And then we started this new investment column and my managing editor called me in and said that we need two writers on the column and one of them was going to be Tom Wise and the other one he hoped would be me. And I sort of did what women are not supposed to do. I said, “Are you sure? Women don’t write!” (laughs). And he said yes, he was sure. As I think the memoir said, I had two things I had to learn all at once. I had to learn about writing for Fortune and I had to learn about investments, which I didn’t know enough about. And the editor of the investment column was a guy named Dan Seligman and he more than any other person was responsible for teaching me how to write for Fortune. He probably didn’t know anything more about investment than I did, but both of us kind of learned together. So I owe a lot to Dan Seligman for teaching me, and the managing editors were always good about chiming in—maybe they didn’t even chime in often enough. I remember that there was, many years later, it was a story about utilities I did. And I turned in my first draft and my editor, who was Dan Seligman still then. Bob Lubar was the managing editor and Bob Lubar sent Dan Seligman a note and said—I can still remember it—“One of Carol’s virtues is that she leads the reader around so carefully. But she sometimes gets quite wordy in doing that.” Well, it was a revelation to me. Nobody—I’d been writing for 12 years or something like that—nobody had ever said that I sometimes got wordy. And the minute they did, I stopped it (laughs). Oh, if they’d only told me that five or six years ago, it would have been so much better. I think sometimes we didn’t get as much guidance as we should have, but eventually we did.

TA: Did you have problems when you were trying to talk to executives in a male-dominated culture—being taken seriously or getting interviews?

CL: After my first story, which wasn’t very good, I got absolutely rabid about collecting every fact I could before I ever interviewed anybody. I believed that if you’ve done your homework, then about one minute into the interview they don’t even notice whether you’re a man or a woman. They realize that they are talking to someone who paid them the compliment of studying up for the interview.

Sometimes I think that just doesn’t happen as much as it should, so that’s still one of the great things that I think journalists can do is try to just become as informed as they can before they ever make a telephone call.

TA: How has reporting changed over your career? Have the PR operations gotten savvier? Is it harder to get to the key people?

CL: I think that there are some companies that are pretty notorious for not welcoming journalists at all, and it’s hard to talk to Apple. We have a guy in California who can talk to Apple. But when I did a story last year on Apple, and I tried to talk to them, I couldn’t even get close to Tim Cook. Fortunately, it was the kind of story where I didn’t have to.

If you can’t get into these companies, you have to come to grips with the question of is this story worth a write-around, which is a term I never had heard for a long time. Sometimes you just have to prove to a company that you can do a good write-around to make them think that maybe they didn’t make the right decision originally. So I think that companies have gotten tighter to get into. It’s harder. I think that public relations men were sitting in on interviews very early in my reporting career, so I’ve always been used to that. A story I just did on BlackRock, they did not want me to do a story at the time I asked to do it. I just persisted and ended up writing Larry Fink a letter making the argument why I should do the story. And for whatever reason, he decided to say yes. So it just varies.

TA: It’s not like you have a beat where you’re covering these companies and know them, day in day out for ten years or something. When you get an assignment or story idea, how do you go about digging into the company?

CL: Well, it’s A) to do a lot of homework and study before I ever get a first interview, and then it’s to interview quite a few people. Talking to the CEO alone is not a good idea. You can certainly do a story if you talk only to the CEO but you’re so much better off if you can talk to the CFO and the head of marketing, head of engineering (I’m sort of making it up, because it would vary a lot with the company it was). Gradually, and I always asked to talk to the CEO when I was beginning and then at the end of the process, because by that time you’re so much smarter, you really know what the questions are. And of course all of this takes a lot of time and some publications aren’t willing to devote that much time to it, and Fortune has always been, so that’s one of the great things about working here.

TA: When you say homework, are you talking about reading clips and going into securities filings and court documents?

CL: I’m unusually fond of reading 10-Ks (laughs). I like to read 10-Ks. And now, one of the things you’ve got that you didn’t have, is you’ve got transcripts of earnings calls. So on the story I did about Apple where I said I could get no cooperation at all, I read seven years of earnings calls and took notes as I read them so that I could remind myself what was important in each one of them. And the earnings calls turned out to be—on the subject I was writing on, which was Apple’s cash—really, really important. Because I could find out what Steve Jobs said about cash. I could find out whether their story changed at all about cash over the years as it was building up. So thank heavens in that case for earnings calls.

TA: One of the things we’ve criticized at CJR is the speeding up of the reporting and writing process. That people have to churn out more content—more stories, videos, tweets, livechats and things like that. Do you notice that?

CL: I think an awful lot of what appears online is useless. It’s not well prepared, there are often important inaccuracies in something. And I think the form suffers because too little time goes into it and it’s very derivative. Everybody’s reading what everybody else has written about it, and I think a lot of it just doesn’t make the grade of good journalism.

TA: My boss, Dean Starkman, wrote a book about the financial crisis and how the press covered it in the runup to it, and he was critical about that. In 2004 to 2007, particularly the banks and mortgage lenders. While there was a lot of talk about a housing bubble, in his view, there was less of a direct take on the institutions that would lead to the financial crisis. What do you think about that and how the financial press…

CL: I haven’t read the book, but I have read some of what he said, and I thought there was a lot of merit in what he said. Our housing writer here was actually very good on the subject…

TA: Shawn Tully

CL: Shawn Tully, yeah you’re right. I was writing earlier about accounting scams, but I was not writing very much about that. Maybe I should have been during that period. Well, I take it back, I was writing a lot about Citigroup and toward the end under Chuck Prince, I was very critical of what was going on at the company. But I didn’t do anything on JP (Morgan) or Morgan Stanley. I did something earlier on Morgan Stanley.

TA: You’re one person, though, and I think you did plenty, but it’s the institutions. The Journal, where I was at at that point, or Fortune as a whole or Forbes or BusinessWeek. Any idea why we missed it or didn’t do a good enough job?

CL: I think it took a high degree of intelligence to see it. And we know how many businessmen—businesspeople, I should be saying—were completely fooled. Maybe we should have stepped out and realized how bad things had gotten. But I don’t think we were any smarter than the business populace that was largely fooled by the buildup and the bubble.

TA: Let’s see. I could ask you questions all day.

CL: Don’t do that (laughs). I can always call you back. I might be off playing bridge and might be unavailable for three hours or so, but do call because I’ve never done a story where I succeeded in asking every question that I wished I would have asked without having to call back.

Paywall pioneer Press+ merges with Piano Media

A European investment fund purchases the company for an undisclosed sum

European investment fund 3TS Capital Partners is buying American paywall pioneer Press+ for an undisclosed sum and will merge it with its European paywall company, Piano Media.

The deal creates a global digital-subscription services company that aims to expand rapidly in Europe and elsewhere across the globe, and, importantly, will have more data on what works in digital subscriptions across a diverse set of companies and countries than anyone else.

The combined companies will be led by Kelly Leach, a Dow Jones veteran who resigned as publisher of The Wall Street Journal Europe last month to take the CEO post at Piano, which operates primarily in Central and Eastern Europe.

Journalism industry veterans Gordon KCrovitz and Steven Brill founded Press+ in 2009 when virtually all news organizations had free websites. Before Press+, publishers would have had to spend serious money developing their own pay technology and figuring out what worked and what didn’t. Press+ built technology around the metered-paywall model pioneered by the Financial Times. By allowing publishers to outsource the tech operations and startup costs (Press+ takes a cut of sales) and to set their own price points and page limits, Press+ was the key driver of the paywall movement of the last few years. (CJR is one of the company’s clients.) The company now has revenue in the low tens of millions of dollars.

In 2011, when RR Donnelly purchased it for between $20 million and $35 million, Press+ had fewer than two dozen publishers.

“Before we even started it I went to Arthur Sulzberger and begged him—I wasn’t looking for a job, I wasn’t looking to start a business—to do a metered wall at the NYT because he was ruining it for all the journalists in the world,” Brill says. “He thought I was crazy. That’s (how) Gordon and I decided to start the company.”

Sulzberger would change his mind by 2011, another key moment in the mass move to paywalls, as The New York Times’ meter succeeded beyond the most optimistic projections.

Press+ now has 560 customers, mostly in North America. “It’s become the exception that a North American newspaper still has a free model,” KCrovitz says. The combined company will have nearly 700 publisher customers.

Unfortunately, the NYT, along with The Wall Street Journal (where KCrovitz formerly was publisher) and Financial Times, are the exceptions in gathering a critical mass of digital subscribers in the US.

For most newspapers, the primary benefit to the meter model has been pushing price increases for all-access subscriptions to print and digital. That led to a much-needed boost of circulation revenue across the industry that totaled hundreds of millions of dollars. But it hasn’t put a floor under the American newspaper industry, where the bump in circulation revenue may have been a one-time deal—one largely dependent on print. Few American newspapers, many of which are shadows of their former selves, have proven that they can sell enough digital-only subscriptions to support robust newsgathering operations once the print profits run dry.

Piano Media launched as a sort of national paywall in Slovakia three years ago. It got most of the major publishers in the country on board for a countrywide paywall and has expanded from there. It now offers a metered product for individual publishers.

Leach is optimistic that digital growth rates can be boosted. “When you initially put up a paywall, there’s an influx of subscribers. After that there’s going to have to be other tactics and thinking about pricing and promotion.”

Asked if most newspapers still have the resources to generate the kind of content people will pay for, something we’ve wondered for years as publishers gutted their newsrooms, Leach sighs and says, “I hope so. I hope so. It certainly varies.”

The Financial Times, for one, has such resources. It launched its metered paywall seven years ago and has shown recently that even a mature digital-subscription product can post high growth rates, though financial news has some significant advantages of over non-financial news in attracting paying customers. It now has twice as many digital subscribers as it does print subscribers.

A big part of the FT’s success has been using data to become a better marketer of its subscriptions. Press+ uses data on what’s worked for some publishers to help other publishers improve their results. They’ve been able to tell publishers that they can price their subscriptions much higher than they initially expected and show them that reducing the number of free pageviews per month increases subscriptions for each pageview reduced. They know renewal rates for print subscribers who actively use a paper’s website exceed 95 percent.

While digital subscriptions can be very profitable for Press+ and Piano Media, which have no cost of content and whose cost for installing each new meter is relatively low, they have to be profitable enough to help prop up the publishers too. In other words, their future growth depends on the ability of publishers to produce stuff worth paying for.

“For such a long time, publishers have been concerned about pageviews because they’ve been relying on digital ad revenue,” Leach says. “How do we make sure as publishers that we’re generating content that’s high enough value that there are consumers that will pay to have access to it?”

How not to report on inflation

Cognitive biases on prices obscure the big picture on food costs

“Food Prices Are Soaring and Washington Doesn’t Care,” screeches conservative site The Federalist. The New York Post blares, “Meat, poultry, and fish prices spike to all-time high.” CNNMoney declares, “Soaring prices make it hard to be a foodie.” Even anti-vax quack site Natural News joined in with “Ground beef prices hit all-time high in US.”

Then there’s The Wall Street Journal, ever looking out for the well-to-do, with “High Food Prices Lead to Trade-offs Even in Upper-Income Households,” which relates the story of a dog-spa owner who’s substituting heirloom tomatoes and fresh mozzarella for shrimp at her annual feast for 200 this year. And there was the spate of “BBQ Indexes” around the Fourth of July that said food prices were “exploding.”

You might get the impression from this cacophony of coverage that inflation is going crazy. But it’s not. When you look at the numbers and not the headlines, you learn that inflation is actually at very low levels, up 2 percent in the last year.

Food inflation, like overall inflation, is low, up 2.5 percent in the past year. But most of us have no idea that’s the case:

Food prices are volatile, which means the press can get lots of easy stories about “soaring” prices when they’re on the uptick (falling prices don’t command as much attention). But they tend revert to overall price trends, context that is almost always left out of these pieces.

People are notoriously bad at knowing what prices are doing. In 2001, the Cleveland Federal Reserve found that respondents thought prices had gone up 6 percent a year in recent years, when they were actually up less than half that. All demographics significantly overestimated inflation, but the most striking disparity in misjudgments was by income group. The poorer you were, the more you overestimated inflation.

That happens to be politically convenient for the very wealthy, who own the vast majority of the assets in the economy. Every asset is a debt debt is an asset on the other side of the balance sheet, and those debts are disproportionately held by the poor and middle classes. Policies that lead to somewhat higher inflation levels make debt easier to pay off (reducing the holding value of assets). Very low inflation or outright deflation makes it harder. In the aftermath of a crisis caused by the inability to service massive amounts of debt, low inflation is a very bad thing for the economy as a whole. See the Eurozone, which is very close to tipping into deflation.

Much inflation overestimation is due to cognitive biases that have nothing to do with the press. Price increases make more of an impression on us than price decreases do, something known as loss aversion. We also pay more attention to price increases in cheap stuff like food that we buy all the time than on more expensive things like clothes or computers that we buy less often. Research in the European Economic Review found that “perceived inflation tends to be higher during periods in which prices of frequently purchased goods (e.g. basic food products like milk and vegetables) experienced larger increases” and that “perceptions are in general not rational, average perceptions of inflation are too high.”

Media coverage exacerbates the problem, in part because, well, journalists are people too—and ones that aren’t necessarily any better with numbers—but also because of the natural journalistic tendency to search for the exception, to play up a “record” this or a “for the first time” that. This CNNMoney segment is a particularly cringeworthy example of that:

A key point to remember when covering prices is that the inflation rate is an average of the retail price changes of many, many different items. No kidding, you say. But this is an important point. It’s the difference between anecdotal evidence and statistical evidence, and lots of people who ought to know better don’t.

All you have to do to get a “prices soaring” story is to select certain items that are up big (there’s always something up big: food prices are volatile) and have them represent “food prices” as a whole. Hamburger meat is up 10 percent from last year, but bread, for instance, is down 0.3 percent. Coffee is off 1.5 percent and vegetables are 0.5 percent cheaper.

Ben Domenech, the conservative author (one hopes!) who wrote the Federalist post above, gives us a classic example of this misdirection with “Food Prices Are Soaring and Washington Doesn’t Care.” Here’s his misleading chart:

And here’s what his chart looks like when you compare wage growth with actual overall food prices:

This cherry-picking isn’t limited to bloggers. Here’s Stephen Moore, formerly of the Wall Street Journal editorial board:

Nobody believes the statistics out of Washington and often for good reasons. A 2% inflation rate. Ha. Most Americans see the rate of price increases for the things they have to buy - milk, bread, vegetables, medicines, health insurance premiums, college tuitions, gas at the pump - rising at sometimes two to three times faster than the official CPI.

Moore is chief economist at the Heritage Foundation.

The issues with news coverage are typically less glaring, but are still problematic. The New York Post and CNSNews.com both say that hamburger meat prices are at a record high. That’s just not true. In 1980, for instance, a pound of ground chuck cost $1.86 in real terms. It costs $3.92 today. A pound of choice round steak cost $8.12 back then in real terms. It’s $5.58 today.

Then there’s this Wall Street Journal story, “High Food Prices Lead to Trade-offs Even in Upper-Income Households.” The WSJ reports, “Rising prices have been battering the budgets of low-income consumers in recent years. Now, researchers say more high-income households, defined as those earning more than $100,000 a year, report feeling pressure, too.”

But the WSJ is confusing the cost of living with the standard of living. The cost of living has been rising at rates well below historical levels in recent years.

The standard of living is what the WSJ should be concerned about. Wage gains at the bottom and in the middle have been so low that they’re not keeping up with very low price increases.

But food expenditures now account for less than 7 percent of consumer spending, half the level of 40 years ago.

This misreporting matters more than you might think. The inflation question isn’t just a simple matter of whether prices are rising. It goes to core arguments about the economy, who holds power, and where policy should go.


Goodbye and good luck to all of us

On leaving CJR

Bob Kerr, a wry, witty writer with a mordant worldview that grows from an intimate connection to the working-class life of Southeastern New England, has been the metro columnist for the Providence Journal for about 20 years, part of a 43-year career at the paper that began not long after he got out of Marine Corps service in the Vietnam War.

But he’s more than an indispensable community voice. A cubicle-mate of mine a long time ago, Kerr was also a kindly and patient presence for some of us hotheads screaming into the phone or ranting about one thing or another. Every newsroom needs an anchor. Bob was that.

The other day, Kerr got a call from the human relations people at the paper. An HR person told him and a handful of colleagues that they were being laid off as part of a wider series of cost cuts imposed by the paper’s new buyer, an outfit called New Media Investment Group, an arm of private equity giant Fortress Investment Group. Kerr was told of his severance benefits, such as they were, and after about 10 minutes, the meeting, and his career, were over. Another 21 union staffers were let go the same day, in the same manner.

I’ve been at the Columbia Journalism Review for the last seven very, very interesting years. Today, I’m stepping aside, lucky enough to be moving to a new job (TBA). As a media reporter and critic, and through the writing of a book on the media and the financial crisis, I’ve had chance to give considerable thought to the disruption, transformation—or whatever you want to call it —that began to hit home just as I was coming on board here in the spring of 2007. Along the way, I’ve come to some rather firm (some would say blunt) opinions on discrete media issues, like, for instance, the false promise of free news and the cost of amped-up newsroom productivity requirements, among other things.

But I don’t pretend to know what’s going to work for the future of news. And after a recent tour of efforts to figure it out at places as different as Bloomberg, First Look, and Al Jazeera America, it is clear enough that they don’t know either. In fact, I don’t know if anybody knows. If someone tells you they do know, they’re probably a consultant.

But one thing I feel safe in saying is that the way to create value toward a sustainable future for the long term is probably not to treat the talent like a used Dunkin Donuts wrapper. Nor, it should go without saying, is the way forward to continue to cut a newsroom that has already been cut beyond recognition, to the point that serious readers can readily see the erosion in the breadth and depth of the daily report.

Indeed, as if on cue, Kerr’s departure prompted a by-now familiar spasm of encomiums and laments from readers and former colleagues, but this isn’t about the future of Bob Kerr, who, I am confident, will be just fine, but the future of news.

I don’t consider myself a glass-half-empty kind of person (though some would!), but that’s where I find myself now. I’m impressed with the rise of BuzzFeed, with its highly credentialed investigative team amid an editorial staff of 170, according to a Pew report in March. Gawker has 132 editorial staffers; Politico, 170. Huffington Post has 575, for Pete’s sake, not so many fewer than the legacy news organization that I’ll be joining soon. In all, Pew (an invaluable resource that we take for granted but shouldn’t) found upwards of 468 new digital news outlets employing upwards of 5,000 journalists.

But on one level, it’s a numbers game. The same Pew report, basically optimistic in tone, also was careful not to neglect the inescapable fact that the number of editorial jobs lost in the newspaper industry alone totaled 16,000 in the decade ending in 2012.

And, obviously, the losses have kept on coming. Gannett just did yet another round of layoffs. On August 15, after a bad second quarter that included disappointing new-product launches, The New York Times Company’s chairman and publisher, Arthur Sulzberger, and its CEO, Mark Thomson, issued a memo that promised both “significant investment and significant cost savings,” leaving the staff bracing for a new round of job cuts. A Times spokeswoman says the memo was part of continuing efforts to inform the staff about the company’s finances, and that its substance was in keeping with past statements; she declined to comment on job-cut rumors. Meanwhile some significant fraction of the 32,000 jobs lost in the magazine business has been in the news business, according to Pew.

It’s worth remembering that despite the digital growth and legacy deterioration, all the new digital jobs put together still amount to a single-digit percentage of the nation’s editorial infrastructure; newspapers alone still employ 38,000 and local TV, which remains persistently profitable, around 27,000.

One can point to ProPublica and other new outlets producing dozens, or even hundreds of longform narratives and investigations. But I would respond with numbers showing a drop-off in the publication of longform at the top four dailies over the past decade alone amounting to thousands of stories a year. Even if old media wasn’t your cup of tea in the first place, a net reduction of thousands of news gatherers, photographers, and editors can only be seen as what it is: a net reduction in public knowledge.

Almost as important, it’s where the jobs are distributed. Where they aren’t is the statehouse, city hall, the Washington bureaus of regional and local papers that used to cover local Congressional delegations, school boards, police departments, and so on. Pew, relying partly on our own invaluable Guide to Online News Startups, does note that the 438 smaller outlets include many outlets covering local communities, including the 117 members of the Local Independent News Association. Still, it’s partly a numbers game, and the total editorial staffers among them amount to 1,900, or 4.4 per outlet. Back in the day, the Projo had about double that number in the Pawtucket bureau. Further, it is a mistake to assume that even the current local outlets are growing or are even here to stay; many of them are financially fragile.

Jay Rosen, with whom I’ve agreed and disagreed in about equal measure over the years, has long decried the pack thinking in mainstream journalism that results in, say, 5,000 journalists covering the @$#%^ Super Bowl, while issues of great public importance, the ones everyone says they care about, go uncovered.

But while many have noted that the economics of the internet have not been kind to the news business, at least to its fact-gathering function, one could also argue that it has had a distorting affect on how existing resources are allocated, exacerbating the duplication problem Rosen identifies. Before, newspapers had only a vague idea of what was popular. The very precision of digital metrics, which document popularity to the last keystroke, has had almost a gravitational pull on journalistic resources. As John Herrman brilliantly describes (followed wonderfully by Alex Pareene and others), even prestigious media outlets find themselves required to come up with something, anything, about something everyone is already writing about (e.g. nude celebrity photos). This media clustering around things that are already popular is not a moral failing. It is a structural problem.

For the same reason, we will never lack for coverage of popular niche areas: technology, food, sports, and the like. Bleacher Report, for instance, has a staff of 140. Google “technology news sites” or “sports news sites” and get page after page of outlets, many producing original material about basically the same thing. And I’m not even going to talk about entertainment coverage.

One could argue that coverage of niche areas—food, real estate, macroeconomics, law—is better than in the previous era, and I would agree. But niche areas are by definition not the broader public interest, just as adding all the niche audiences together doesn’t equal the public itself.

Obviously, we need to make do with the system we’ve got—a few successful startups, the odd billionaire stepping in, remorseless financial players like Gatehouse/Fortress, and legacy companies staggering around like Wile E. Coyote after he hit the ground.

But no one should kid themselves that we’re anywhere near where we need to be. Just sayin’.

See you on the other side.

Facebook’s war on clickbait unlikely to do much good

Publishers who cheer the move should know that Zuckerberg & Co. can turn off the traffic spigot whenever it suits them

In May, Mike Hudack posted a self-described rant on Facebook about the dismal state of the media, focused as it is so often these days on lowest-common-denominator clickbait.

[W]e turn to the Internet for our salvation. We could have gotten it in The Huffington Post but we didn’t. We could have gotten it in BuzzFeed, but it turns out that BuzzFeed’s homepage is like CNN’s but only more so. Listicles of the “28 young couples you know” replace the kidnapped white girl. Same thing, different demographics…

(Vox.com) writes stupid stories about how you should wash your jeans instead of freezing them. To be fair their top headline right now is “How a bill made it through the worst Congress ever.” Which is better than “you can’t clean your jeans by freezing them.” The jeans story is their most read story today. Followed by “What microsoft doesn’t get about tablets” and “Is ‘17 People’ really the best West Wing episode?”

“Someone should fix this shit,” he concluded.

Problem is, Mike Hudack is director of product at Facebook Inc., which as seemingly every journalist on the internet rushed to point out, is as responsible for these problems as anyone. It showed a startling lack of self-awareness of Facebook’s outsized role in the media ecosystem.

Now, three months later, Facebook has taken a step toward curbing clickbait by tweaking its newsfeed algorithm. And while that’s a positive step, it’s unlikely to do much about Hudack’s plaint.

For one, Facebook has a somewhat narrow definition of clickbait:

“Click-baiting” is when a publisher posts a link with a headline that encourages people to click to see more, without telling them much information about what they will see. Posts like these tend to get a lot of clicks, which means that these posts get shown to more people, and get shown higher up in News Feed

Which means HuffPost Spoilers could have less material, an unfortunate side effect:

But the change is hardly going to spark a race to the top among content creators. Facebook is mostly a shiny, happy place. Dropping hard news or a serious think piece between baby pictures and vacation updates is more likely to draw crickets than likes. Which is why the ice-bucket challenge was all over your Facebook feed, but Ferguson and ISIS were not.

But it’s more than that. The core economic incentives of the advertising-based internet put the pursuit of pageviews above all else.

That model struggles (at best) to support serious journalism. “Bryan City Council passes first vote on $6.2M incentive for hotel developer” isn’t going to get many clicks, for instance, but “The Best City Council Ad In Existence” might. And the former, which required someone to go out and do time-consuming reporting, is far more expensive than the latter, which did not.

Which is why it pays to be in the platform business, where you let other people make the content for you. Facebook’s revenue per user was a measly $5.79 in the US and Canada last quarter, less than the cost of one newsstand copy of the Sunday New York Times in most of the country.

But Facebook had more than 200 million users, and the cost of its content was effectively zero. Its operating-profit margin was a whopping 48 percent.

For publishers that depend on Facebook to funnel them pageviews, existence is precarious. Facebook can turn off the traffic spigot at any time. The Washington Post crowed about its ethically challenged Social Reader app, but then Facebook tweaked its algorithm, and the traffic evaporated overnight.

The peril of platform dependency is hardly limited to those focused on Facebook, though. In the SEO heyday, there was the rise of Demand Media (remember them?), which gamed Google’s search results with low-quality posts well enough that within a few weeks of going public in 2011, it was worth $1.8 billion. Soon after, Google changed its algorithm, burying posts from content farms down low in search results. Demand shares have crashed 92 percent since then.

So scrupulous news publishers can’t really cheer Facebook’s decision to kneecap some of their more manipulative competitors. Zuckerberg & Co. can and will do the same to them someday, as soon as it serves Facebook’s interests.

The New York Times’ paywall has plenty of room to grow

Prediction to the contrary from Re/code misses several key factors

A year and a half ago, Quartz wrote that “The New York Times paywall has hit a growth wall.” Since then, it’s grown 23 percent.

Now, Re/code writes that “New York Times’s Digital Subscription Growth Story May Be Ending.” It’s true that the Times’ paywall growth is slowing considerably after three and a half excellent years, but it’s not ending just yet.

Re/code’s Edmund Lee reports that a McKinsey study the NYT commissioned before the paywall launch predicted that, in the most optimistic scenario, the Times would top out between 800,000 and 900,000 digital subscribers.

The problem is, the Times already hit the low end of that projection in June with 831,000 paying online readers. And the number of new customers it added in the three months leading up to that point, about 32,000, were mostly for the new NYT Now app, a slimmed-down version of the Times that costs $8 a month. It looks like the McKinsey study got it right.

A four-year-old McKinsey prediction, though, isn’t reason enough to think that the Times will plateau at 900,000 or below. For one, its market is huge and worldwide.

For another, the paywall is still growing at a healthy clip. While its new paywall offerings, NYT Now, NYT Opinion, and NYT Premiere, flopped in the second quarter, the Times’ digital subs were still up 4 percent from the first quarter, while paywall revenue was up 3.5 percent. On a year-over-year basis, digital subs were up 19 percent in the second quarter and paywall revenue was up 13.5 percent. That’s hardly hitting a wall.

Plus, there’s some reason to think there’s seasonality to paywall growth, though it’s too early to tell for sure. The second quarter was the worst quarter of the year in 2012 and 2013:

And the Financial Times is showing that it’s possible to turbocharge subscription growth even with a mature paywall.

At its current pace, the Times is still adding about $20 million a year in digital subscription revenue. It will approach $170 million for all of 2014, and will hit $200 million by 2016, if it can muster 8.5 percent annual growth, which is hardly unrealistic (particularly if it would go ahead and raise prices a quarter a week).

Online revenue alone would not sustain the New York Times as it exists today. If the Times were to become a digital-only newsroom, it’d be a $312 million business, including the $162.9 million in online ads it generated last year. But that’s only 20 percent of its current sales. In other words, a digital-only Times could just support a fifth of its current newsroom, or around 200 journalists.

Lee is right that the Times can’t abandon print yet. But he’s wrong that its digital revenue could only support a newsroom of 200. It costs a lot less to put out a website than it does to print and distribute a print paper to hundreds of thousands of people in dozens of cities. The Times spends several hundred million dollars a year—at least a third of its operating expenses—doing so.

And a digital-only Times would have more than $312 million in revenue. This year it will bring in more than $330 million in digital ads and subscriptions. But it will also have about $90 million from conferences, its news service, and rights fees. Most of that would presumably survive the demise of a print NYT, giving the paper more than $400 million in revenue. That wouldn’t support the Times’ newsroom at its (roughly $200 million) current size, but it would likely support one two-thirds as large.

There’s no reason the Times shouldn’t be able to get at least 5 percent annual growth out of its paywall going forward, through a combination of subscriber growth and price increases. But there’s no way for the NYT to make its numbers work in the medium-to-long-term unless it can post consistent digital ad growth. Digital ads have finally begun to turn around this year, but it needs much faster growth. Easier said than done.

Al Jazeera America struggles to get off the margins

A quality-first strategy faces huge hurdles

When Al Jazeera, the Qatar-based cable news giant rolled out its massive new American affiliate one year ago, creating a full-force 24-hour cable news channel—800 journalists, several studios, support staff, the works— in a move that drew cheers, skepticism, but mostly puzzlement: why?

Another cable news channel? Aren’t there too many already?

Al Jazeera America’s CEO, Ehab Al Shihabi, an Al Jazeera veteran, has a ready answer. The network would distinguish itself through one thing: its reporting. Let Fox, MSNBC and other wannabes have their opinions. Al Jazeera America would stick to the journalism, the real stuff.

“We have more live news; we are long format; we have a heavy investigative arm,” he said in an interview. “We have more news gathering in under-reported areas… It is one of our competitive advantages, the opportunity that exists. It’s not about having an agenda. It’s not about infotainment. It’s about raising the bar for the quality of journalism.”

The sentiment, heartfelt, and forcefully expressed, is the network’s reason for being, the foundation of its business plan, and the heart of its marketing campaign: “More reporting,” says a typical promo. “More bureaus. More stories. Real reporting from around the world. This is what we do.”

It’s hard to argue with the sentiment. Despite a polarized, often toxic cable landscape drenched in opinion, you’d like to think there is room for boots-on-the-ground, fact-based news gathering—original reporting, what used to be called, “the news.” For a journalist, it’s like arguing against apple pie.

But if there is indeed a market void, Al Jazeera America, or AJAM as it’s known internally, has made little headway in filling it. Its ratings have been tiny to the point of immaterial;—17,000 viewers in primetime this year, jumping to 23,000 during the early days of the Gaza war, compared to an average of 453,000 for CNN and 1.87 million for Fox News. (The figures require a few caveats, which we’ll get to.)

The network laid off more than 60 people in April, puncturing morale and creating a climate of uncertainty, according to current and former staffers. Recently, rumors swirled around the prospect of another round of layoffs, which Al Shihabi says he addressed in a recent staff-wide conference call/meeting, saying layoffs, if any, would amount to no more than 20 people.

Current and former staffers say they find the organization’s commitment to old-school, high-quality journalism inspiring, but that they’re frustrated by the ratings, the absence of a clear digital strategy and the disconnect between the TV product and the Web operation. Right now the two are separate operations—an anomaly among news organizations, which have been strenuously integrating digital with other platforms for years.

“They’re focused on substances,” says a former news employee. “They are committed to covering issues that matter. I was proud to work there. “But, this person says, the operation was designed for a pre-digital era, is not especially innovative, and hasn’t managed to adapt to new ways of getting the word out. “You can’t just say, ‘if we build it they will come….’”

Adding to the murkiness is the fact that the ultimate financial authority for the operation is a faceless group in Doha, the Budget Committee charged with allocating resources at Al Jazeera America’s parent, Al Jazeera Media Network. The whole sprawling organization is underwritten by the government of Qatar.

Even granted that the network is still young—CNN didn’t break through until the first Gulf War, a decade after its launch—a key question is whether AJAM’s visibility problems can be traced to the handicaps the network faces in getting distributed across the country, which are formidable, or whether the journalism itself plays a part.

Al Shihabi insists the problem is the former, and even those critical of the network agree.

“Al Jazeera doesn’t have a content problem,” says the former employee. “It has a distribution problem.”

David Marash, a former producer correspondent for ABC’s Nightline and anchor for Al Jazeera English, an AJAM predecessor, says that while the new network doesn’t have what he saw as the intellectual ambition of Al Jazeera English, it has handily outperformed its cable news competitors from a journalistic standpoint, particularly in the category of longform and magazine-length documentaries.

“I do think it’s distinguishable from CNN and the totally faux news channels Fox and MSNBC,” says Marash, now the host of a forthcoming interview show on KSFR, a community station in Santa Fe, NM, and the news director there. “There’s an absence of gossip journalism. There’s a higher percentage of news coverage. They do more half-hour documentaries in a month than all their competitors do in a year. The quality of the longform is outstanding, and they’ve got the awards to show for it.”

A couple of days’ spent watching the channel last week bears this out, to some degree, but also highlights some of what might hold them back. The daytime schedule offers what appears to be a fairly standard lineup of news and talk shows, with US-produced shows anchored by US network and cable news veterans Tony Harris, John Seigenthaler, and Joie Chen. It takes a while to realize this is an American production, especially given that shows are sandwiched between Al Jazeera’s main English-language, international show, broadcast from Doha several times a day. The talk shows offer sober fare and steer clear of opinionated rants—Ray Suarez’s Inside Story hosted a discussion on teacher tenure in California; Antonio Mora’s Consider This had experts talking about Gaza, Ukraine, and the like. The Stream, a social-media driven show, tiptoed toward edgy with a segment on homophobia in the NFL, but the discussion, featuring Chris Kluwe, the former punter who just settled a discrimination suit against the Vikings, was substantive and interesting. This week, as if to make up for it, The Stream is taking on poultry inspection.

Still, producing “serious” programming is harder to pull off than rants, and even the best shows didn’t differ too much from something one would see on the PBS News Hour. Not that there’s anything wrong with that, but there’s nothing especially original either. And while screaming TV fights are obnoxious, three people sitting around agreeing with each other about climate change;—as they did on the Inside Story talk show on Thursday—is emphatically bland.

The qualitative difference is more apparent in primetime, most obviously with Fault Lines, an investigative half-hour that, when I watched, showed a compelling segment on the bail bonds industry. While the piece broke little new ground, it was riveting TV and was a welcome addition to coverage of the troubled criminal-justice system, which is usually ignored.

The fact that AJAM fields a full-time investigative unit helped the network distinguish itself last week—Fault Lines had already aired a piece about the militarization of local police departments when the Ferguson story exploded from Missouri. Reporter Sebastian Walker’s segment, which focused on a bloody SWAT-type raid gone wrong in LA County, was well done and all-too-relevant.

Ferguson dominated the news the day I watched the most, Thursday (the day Obama spoke about it and the state police were brought in), but even here AJAM’s effort was notable. Its crew was in the thick of things to the point that Ash-har Quraishi, a Chicago-based reporter (the network boasts a dozen US bureaus), and his colleagues were teargassed. Joie Chen flew in from Washington to anchor the network’s flagship program, America Tonight, from Ferguson. But what was most notable was that the network stayed with the story, hour after hour, with standups well past 11pm, while competitors returned to regularly scheduled programming. That said, there was little new to report each hour.

Current and former employees say resources are stretched thin and the latest layoffs didn’t help. One senses that the goal of maintaining a qualitative edge—one that is readily visible to a casual viewer—requires even more resources than are currently available. It’s expensive.

But the biggest threats to the station’s viability are clearly on the business side, with the distribution issues a particular sore point. Al Jazeera Media Network’s decision to enter the US cable market, via the $500 million deal for Al Gore’s Current TV network, saddled AJAM with severe limitations: the network is still only available in about 60 percent of American homes (competitors like CNN are in virtually all of them), often only in premium packages and at unadvantageous positions on the dial (e.g., channels 114 and 614 in Princeton, NJ). Philip Seib, a journalism professor at the University of Southern California and author of The Al Jazeera Effect, says he can’t watch AJAM because Charter Communications, his local cable operator in Pasadena, doesn’t offer it.

Indeed, the Current deal continued to haunt the network last week when Gore himself sued AJAM’s parent for allegedly withholding “tens of millions of dollars” held in escrow.

The network is not widely available in high definition, giving the programming a murky, unpolished veneer compared to competitors (an AJAM spokeswoman says that’s not unusual with cable launches and the problem is being fixed). And just as crucially, its deals with cable operators include onerous restrictions on the amount of free video it can offer online, making impossible the kind of livestreaming that allowed its predecessor, Al Jazeera English, to established a beachhead in the US, particularly among younger viewers. The AJE live stream is no longer available in the US.

The restrictions also make it difficult to imitate the buzz-creating digitally centered distribution strategy deployed by Vice News, whose parent received an investment from Rupert Murdoch’s 21st Century Fox that valued the company at $1.4 billion. Al Jazeera Media Network’s effort to reach younger, digitally minded viewers, AJ+ has yet to catch on.

Al Shihabi, 43, a native of Amman, Jordan, who studied at Georgetown, is candid in discussing the challenges the network faces but adamant that they can be overcome. He acknowledges that the website and TV operations have operated as “silos,” with the digital side providing little marketing oomph for the network. “We are working on this one,” he says. He’s out making the case to cable operators to ease restrictions on video streaming online and to expand into markets where AJAM is not available.

The goal is for the network ultimately to be self-sustaining. And while he doesn’t say how it would happen, he did suggest a timeframe. “I need four years, five years” to build brand awareness to rival that of competitors that have been around—and marketing themselves—for decades (Fox and MSNBC were both launched in 1996; CNN in 1980).

He argues that ratings are misleading given that AJAM is shut out of a large percentage of homes and because the station is so new. Even still, he says there’s progress in this area: AJAM had more than 1.4 million prime viewers over two weeks (100,000 per night) during the Gaza conflict.

Al Shihabi says that while ratings and financial concerns are important, success will also be measured through other metrics, including impact on the public discourse as reflected in social media and elsewhere, and, most crucially, the quality of the journalism.

“We are not about chasing the audience and missing our core values,” he says. “We will stick with our core values. We will stick with the quality. I’m not going to change our core values to chase an audience. No. It’s the other way around. I believe the audience is smart enough to come around.”

The ethics of The Guardian’s Whisper bombshell - It would have been a journalistic lapse not to have told readers

Gawker: The internet bully - Nick Denton’s media empire is an intellectual online fraternity that invites people to their parties only to make them buy the booze

The Washington Post short-sells a reporter’s integrity - Steven Pearlstein smears TheStreet’s Adam Feuerstein for criticizing a biotech firm

Former Sun-Times staffers react to top reporter’s resignation - “Whereas we don’t have all the answers, we have way too many questions about what happened here”

Stop trolling your readers - We know you’re only doing it for clicks


‘My Captivity’ (NYT Mag)

An American journalist on his two-year kidnapping in Syria

FBI faked an AP story, in Seattle Times style, to catch a suspect (Seattle Times)

“‘We are outraged that the FBI, with the apparent assistance of the US Attorney’s Office, misappropriated the name of The Seattle Times to secretly install spyware on the computer of a crime suspect,’ said Seattle Times Editor Kathy Best”

How one reporter copes inside the ‘Ebola bubble’ (BuzzFeed)

“Bring gloves to give nurses you meet at clinics, even if you’re there for a story. Get small change to give to the kids who have been out of school for months and are selling ground nuts for pitiful sums on the side of road. Hell, give them candy. Violate all the principles of ostensibly good aid stewardship, because the good stewardship of the developed world didn’t get help here in time, and now everyone is dying around you.”

Fake news sites using Facebook to spread Ebola panic (The Verge)

“These sites claim to be satirical but lack even incompetent attempts at anything resembling humor”

Bloggingheads

Greg Marx discusses democracy and news with Tom Rosenstiel of the American Press Institute

  • If you like the magazine, get the rest of the year for just $19.95 (6 issues in all).
  • If not, simply write cancel on the bill and return it. You will owe nothing.

Who Owns What

The Business of Digital Journalism

A report from the Columbia University Graduate School of Journalism

Study Guides

Questions and exercises for journalism students.