Friday, August 22, 2014. Last Update: Fri 2:50 PM EST

The Audit

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.”

Gannett cribs from Advance Publications playbook for struggling newspapers

Staff compete for fewer jobs; ‘readers become the assignment editor’

Gannett’s latest Great Leap Forward will go “digital first,” heavily emphasizing metrics to guide coverage. It will have significantly smaller newsrooms with a few more reporters and a lot fewer editors, in part because it is centralizing production work like copyediting and page design in regional hubs. All newsroom jobs have been redefined and current staff must apply for new jobs. And, of course, there are the buzzwords and the chirpy editors’ notes to readers. Assignment editors become “content coaches.” Managing editors are now “content strategists.” A diminished newsroom is a “bold new structure.”

Sound familiar? It’s essentially the do-more-with-less playbook pioneered by Advance Publications, owners of The Times-Picayune, the Cleveland Plain Dealer, and other regional papers. There’s at least one big difference, though, between Gannett’s move and the Advance model. “We don’t have any plans for reducing print,” says Kate Marymont, Gannett’s vice president for news, in an interview.

Maybe not, but the internet does.

The latest move comes as Gannett prepares to hive off its newspapers into a separate company, isolated from its more profitable broadcast and digital properties. Serious cost-cutting has become an annual exercise for Gannett and other newspaper companies in the last several years, as advertising revenue has plunged. With no end in sight to the ad declines, with circulation revenue stalling after a bump from paywalls and all-access plans, and with chain papers soon to be without the cross-subsidy from their higher-margin corporate cousins, the cutting seems destined to continue.

For Gannett, its latest “newsroom of the future” is being piloted at six papers: the Nashville Tennessean, The Indianapolis Star, the Pensacola News Journal, the Asbury Park Press, the Greenville News in South Carolina, and the Asheville Citizen-Times in North Carolina.

In Nashville, The Tennessean recently hired Stefanie Murray, who served as editor in chief of Advance’s pilot project,, a position it now calls “vice president of content and engagement.” The Tennessean has 89 staff members, who will have to duke it out for 76 new positions. Nevertheless, Murray told readers, “I’m confident you’ll love the end result: we’re promising a stronger, more interesting Tennessean delivered by a highly engaged group of journalists who care about Nashville.”

The number of reporters will increase from 37 to 43, but editors will decline from 17 to 10, and there will be a big emphasis on “scientific principles” to guide coverage. “We’re going to use research as the guide to make decisions and not the journalist’s gut,” Murray told Poynter.

Marymont, Gannett’s VP of news, at least understands that the journalist’s gut is a key part of the equation. “Data is only helpful as to the deeper understanding that you can bring to it,” she says. “We certainly are not looking for clickbait. We’re not trying to drive empty clicks. We’re trying to build loyal returning customers by giving content we know they want by following over period of time.”

But editors are much of the “journalist’s gut” in a newsroom—not to mention the guardians of quality—and editing will be seriously diminished under the new model.

“I think one of the big changes is that as the reporters become more attuned to their metrics and what readers are telling them, and become more expert at analyzing that data,” Marymont says, “the link between reporter and conventional assignment editor isn’t as necessary. Readers become the assignment editor instead of the more conventional assignment editor of the past. We’re converting roles to coaches. They don’t need people looking over their shoulder, they need help growing their storytelling skills. Instead of assignment editors, we’re going to have content coaches.”

What are content coaches, exactly? “In the past, assignment editors had to do lots of things. They had to be writing coach, assigning coach, managing visuals. The coaches then are kind of not assigned to specific reporters. They’re assigned to whatever is their area of expertise. By dividing it this way, we can have specialists who can really, really help improve their game.”

In Indianapolis, the editor is, apparently, still called an “editor,” and he might have benefited from someone looking over his shoulder on his letter to readers. Star boss Jeff Taylor refers to some variation of “expanding” or “increasing” staff 10 times before stuffing this at the bottom:

To accomplish this, we will reduce the number of managers and streamline and reposition some jobs in our production process.

The Star, like The Tennessean, will cut about 15 percent of its newsroom. To learn that, though, we must turn to the Indianapolis Business Journal. The IBJ reports that “the cuts include five of the Star’s 11 photographers and the entire staff of the copy desk.” The 124 staff members will have to reapply for 106 new jobs.

“It’s like we’re getting ready for the Hunger Games,” says one Star staffer. “It’s awful. Worst I can recall.” That’s saying something, since the Star has been through quite a lot. In 2000, it had 275 journalists, a number that will have dropped by 62 percent when the latest layoffs are complete.

“Every job has been redefined,” Marymont says. “That’s why everyone applies for a new job. There are some smaller number of jobs, so not everyone will find a job.”

In Florida, the Pensacola News Journal will have a “patriotism reporter” (salary starting at $25,280), while outsourcing its production to Nashville.

But it’s hard to tell if Gannett papers will have things like city editors and sports editors. “I can’t say every site has a sports editor,” Marymont says. “Some will, some won’t. They have to decide.”

In the Carolinas, Joshua Awtry, who edits one paper in North Carolina and another 62 miles away in South Carolina, was at least admirably forthright in his editor’s letter, putting the layoffs up high. He told CJR’s Corey Hutchins this recently:

To me the future is not about low-hanging fruit and, you know, click-bait’s a trendy word, but click-bait-style headlines … we can do that and we could grow pageviews tomorrow. That’s not what I’m in the game for. I want to make a difference in our community.

Gannett’s papers, of course, have grave problems, like virtually all newspapers. But they’re only going to be exacerbated by yet another round of layoffs. This is a company whose newspapers had $314 million in operating profit last year, a number that will be down significantly this year but will still likely be in the $200 million to $250 million range.

These layoffs will not result in large amounts of savings. The Tennessean, for instance, has 37 reporters right now, who probably cost it about $2 million a year. The entire newsroom payroll will probably be under $5 million, generously assuming average salary and benefits of $65,000.

The new cuts will save the paper a few hundred thousand bucks a year, perhaps. This at a paper that reportedly earns more than $10 million a year.

Plus, Marymont says there will be some hiring at Gannett’s regional production hubs, though she said she didn’t know how much.

In a column a few days ago, the Tennessean’s Murray touted USA Today’s Social Media Tuesdays as an experiment “wherein the staff is able to get information only from social sources.” That would be crazy if it were true. Fortunately, it’s not.

Social Media Tuesdays at USA Today are for acting like readers can only access their stories via Twitter, Facebook, and the like. Reporters are not banned from picking up the phone, getting gum on their shoes, or any of that.

A good copy editor would have caught that one.

First Look runs headlong into journalism’s two big problems

Growing pains at the Omidyar/Greenwald venture

When Pierre Omidyar, the eBay billionaire, announced the creation of a news organization featuring, for starters, investigative heavyweight Glenn Greenwald, media expectations were set soaring—even here—and understandably so.

In a disrupted and desiccated landscape for journalism, The Intercept promised something fresh: an accomplished technologist with deep pockets combined with a new-look journalist, Greenwald, a lawyer-turned-blogger who combines world-beating scoops of global importance, like those from the Snowden files, with iconoclastic views on journalism itself.

But at the end of the month, Omidyar and his nascent umbrella organization, First Look Media, announced a reboot: pulling back on plans to develop an omnibus mass-market product with many different sites, and instead trying to build out just Greenwald’s The Intercept, which has reporting on national security and surveillance issues since February, and another site, to be launched in the fall, covering politics, finance, and culture and headed by former Rolling Stone writer Matt Taibbi.

“Nine months in, First Look is Still Very Much a Startup,” says the post’s candid headline.

As it turns out, First Look is grappling with the same fundamental problems facing other news startups across the spectrum—how to make money and how to be distinctive—and, so far, hasn’t had much progress in finding a solution to either.

And here we should disclose that CJR gets funding from Omidyar via his philanthropic Democracy Fund.

When First Look was announced in January with a sleek animated video, the organization described an expansive operation that would include an omnibus flagship publication that would cover everything from politics to sports to culture, along with a flotilla of magazines led by prominent journalists covering specific subjects. The video promised an extensive support system not unlike those provided by mainstream media in its heyday, along with a separate technology company that would explore ways to turn journalism “innovation into commercial opportunities.”

In an interview, John Temple, recently hired with the title of president of audience and products of First Look, reporting to Omidyar, says the company has a committee working on a business model but that process is just getting started and isn’t necessarily the first priority.

“The critical measure of our success is whether we’re making a difference; are we having an impact, are we helping our society and holding powerful institutions accountable—that’s a significant and important measure of success,” he says. “The business model is important to us…. [but] it’s just too early.”

Indeed the company is still just getting organized. Far-flung, even for a new media-concern, First Look is building out office space in San Francisco, New York’s Flatiron District, and smaller office in Washington. It’s not based in any particular place. “We don’t need a headquarters quite yet,” says Temple, who works from San Francisco. Greenwald works, famously, from Rio de Janeiro,, Poitras from Berlin, and Omidyar from Honolulu. The bulk of the editorial team will be housed in New York.

The company employs about 45 people, Temple says, including 25 on the editorial side, the latter number expected to double by the end of the year.

A spokeswoman declines to comment on the progress of the technology venture described in the video.

The organization is still amorphous—“we don’t actually use an organizational chart internally; I don’t have a business card,” Temple says—but the editorial hierarchy shapes up this way.

“The Intercept” is edited by former Gawker editor John Cook, who oversees three “founding editors,” Greenwald, Laura Poitras, the documentarian and collaborator with Greenwald on the Snowden stories, and Jeremy Scahill, a national security specialist, formerly with The Nation; as well as the rest of the staff of about 10 others including former Washington Post blogger Dan Froomkin and Peter Maass, a national security specialist and war correspondent.

Cook reports to Eric Bates, a former Rolling Stone editor who holds the title of executive editor of First Look, as will Taibbi, who worked with Bates at Rolling Stone and has begun assembling a staff for his as-yet unnamed publication.

Bates in turn reports to Temple, as does a second executive editor in charge of audience and engagement, Bill Gannon.

A business side staff including a chief revenue officer and business development chief also report to Temple on some issues. For now the structure is made up of interlocking committees studying various issues, including technology, and business models, all of which include Temple.

Temple was brought on as a specialist in startups and in reaching local audiences. A Vancouver, British Columbia, native, he worked his way up the former EW Scripps chain to senior newsroom positions at the now-defunct Albuquerque Tribune, where he was managing editor, and the Rocky Mountain News where he ran the newsroom, started a couple of civic journalism ventures, and was a company vice president with business-side responsibilities. After the paper folded in 2009, Temple was consulting in Las Vegas for Brian Greenspun, of Greenspun Media Group, who pointed him to a blogpost by Omidyar discussing his intention to start local news site in Honolulu. Introduced by Greenspun, who knew Omidyar socially, Temple wrote Omidyar an email with some suggestions for the new site, an exchange that ended ultimately in Omidyar hiring Temple to lead Civil Beat. (The site, which might be seen as a proto-First Look, uses a subscription model, among other things, for revenue. Well regarded journalistically, its financial prospects are unclear. Speaking for Civil Beat, a First Look spokeswoman declines to share subscription figures but says, the operation has “seen growth year over year. They always saw building Civil Beat in stages and viewed this as a long term project.”) After a stint in a managing editor’s job at The Washington Post running digital operations and local news, followed by a fellowship, he joined First Look.

First Look’s early going has been fitful, as Omidyar’s blog post acknowledges. One staffer tells me the organization has indeed been suffering “growing pains,” but says morale is high and credits Temple with “speeding things up, which is great.”

For a half-launched startup, the site has drawn more than the usual amount of criticism, for everything from advancing a neoliberal, privatizing agenda, to potentially pulling its punches, to not publishing enough.

But more generally, there’s a sense that First Look has so far failed to live up to sky-high expectations.

The criticism is somewhat the result of circumstances beyond the editors’ control: Snowden files that needed to be published before the site was fully ready to launch. It’s certainly not a bad problem to have, journalistically, but as a result, the Intercept has published only sporadically, offering a mix of left-of-center commentary on national security and surveillance issues punctuated by a few superb blockbusters from the Snowden files and other sources.

Temple pointed to pieces of such importance that The New York Times and other sources were compelled to follow the site. The most recent, revealing the alarmingly expansive nature the government’s anti-terrorism database, provided so much detail that the story prompted the government to conclude that the Intercept had tapped a second whistleblower to complement Snowden. Indeed the story generated a separate a mini-controversy over whether intelligence PR officials had leaked it to Associated Press first to spoil the Intercept’s scoop.

But periodic blockbusters, while a boon to the public interest, don’t add up to a cohesive editorial offering or provide the basis for a media business.

In part, the letdown is a problem of First Look’s own making, starting with the animated video that laid out sweeping, and laudable, goals while offering the vaguest notions of how they would be accomplished. Nine months in, that hasn’t changed.

And while finding a business model is a distant prospect, First Look is struggling with a more immediate problem: defining how its (occasionally great) journalism differs from that of other (occasionally great) reporting from high-end mainstream outlets like, say, The Washington Post, which shared the 2014 Public Service Pulitzer with the Guardian, Greenwald’s previous outlet, for breaking the Snowden revelations. Indeed, aside from the occasional edginess of word choice, the Intercept’s best work is distinctive mainly for its great reporting and solid writing. Not that there’s anything wrong with that. But the question remains: what innovation does the Intercept represent? And is the concept of journalism innovation overdone in the first place and shouldn’t sustained excellence be enough?

After Omidyar’s recent post pulling back on the project’s ambitions, Jay Rosen, the NYU prof and a consultant to First Look, said in a comment to a post on his blog that Omidyar’s recent pullback shouldn’t be surprising.

“The kind of moves you see in Omidyar’s update are the way it’s going to be for a while as First Look tries to develop a distinctive approach that can work,” wrote Rosen, who declined comment to me. “It’s harder to be distinctive than it looks.”

The great newspaper spinoff

A wave of media deconsolidation sends legacy publishers off on their own

It’s hard to recall a spate of media deconsolidation like the one in recent months, as companies shed their publishing divisions.

Time Warner unloaded its magazine division, Time Inc. Meantime, Tribune spun off its newspapers, as has News Corporation, with EW Scripps, Journal Communications, and now Gannett planning to follow suit soon. The Grahams sold the Washington Post and kept their education and TV businesses. The New York Times Company has done the reverse in recent years, selling and its Red Sox stake to focus on its namesake paper.

There will be no cross-subsidization for these newspapers and magazines, much less synergy. Indeed, some executives couldn’t resist milking their erstwhile cash cows one last time on the way out.

Tribune Media is the worst of the bunch in that respect. It loaded up its struggling newspapers with debt to pay itself a special $325 million dividend, kept their real estate, and then spun them off without their stake in lucrative digital classified businesses. These are moves straight from the private-equity asset-stripping playbook—something akin to kicking grandpa out of the house when he gets sick and then running up his credit cards.

Time Warner sent off Time Inc. with its stable of magazines and an unnecessarily high $1.3 billion in debt, roughly half of which went to a special dividend. Never mind the billions of dollars in cash the magazines had sent to the mothership over the decades.

Gannett’s newspapers will start debt-free, which is the least that company could do after bleeding them dry for decades. But they won’t get the benefit of the digital classified businesses that helped offset the obliteration of a key print revenue source. Those will go into the new broadcast company.

Rupert Murdoch comes off looking like a saint here, of all things. He spun off News Corp.’s publishing arm with no debt and a whopping $2 billion in cash. The new Journal Media Group, formed with Scripps and Journal Communications papers, will have no debt but just $10 million in cash. It’s unclear what cash, if any, Gannett’s papers will get.

In a sense it’s surprising it’s taken this long for newspapers to be tossed overboard. They’ve been irksome to executives who tend to be focused above all else on growing earnings per share and overall revenue. Investors tend to want growth or at least stable, predictable profits—they’re not much interested in declining assets with uncertain futures. Even if papers figure out a digital revenue source that staunches revenue declines, it’s hard to imagine these ever being businesses with serious growth potential. The monopolies are now in Silicon Valley, and journalism doesn’t scale like Facebook.

All of these new companies are still profitable, largely because they’ve cut costs so dramatically. You can’t cut your way to growth, though, and it’s unclear if these companies will have the cash to invest in many new opportunities.

Tribune Publishing, for instance, earned $94 million on $1.8 billion in revenue last year, a profit margin of just 5 percent that nevertheless was its highest in at least four years. The stock market is valuing it at a price-to-earnings ratio of just 6.3 (the market median P/E is above 20), which essentially means investors expect profits to continue to decline, which would be a good bet. Put another way, the price tag of Tribune’s papers is now $533 million. That’s for the Los Angeles Times, Chicago Tribune, Baltimore Sun, Orlando Sentinel, and four other major dailies.

On Wall Street, there’s been a big move away from conglomerates in the last couple of decades, the idea being that there are people who want to invest in Cheez Whiz, for instance, but who don’t want to invest in Chesterfields. Apparently, there’s a hardy band of investors out there who will plunk their money into legacy publishing stocks but who don’t want more stable broadcast assets.

Call them value investors or call them crazy, only time will tell.

Guardian reporter battles the British power elite

One of the biggest media stories in history was right in front of Nick Davies, and he almost missed it

Hack Attack: How the Truth Caught Up with Rupert Murdoch
By Nick Davies
Chatto & Windus
448 pages
Hardcover, £20

In 2008, Nick Davies put out a book arguing that the British press had become passive conduits of propaganda and public relations. It was the serious newspapers and broadcasters that concerned him then. “Nobody needs a book to tell them that tabloids are an unreliable source of information about the world,” he wrote, relegating to an afterthought his reporting that tabloids were hiring snoops who broke the law to get information. One of the biggest media stories in history was right in front of him, and Davies almost missed it.

Hack Attack is Davies’s account of how he finally nailed it, following the story all the way inside Scotland Yard, News Corporation, and 10 Downing Street.

This book is a major achievement: A master class in investigative journalism made all the more fascinating by the wealth of color that’s like something from another era. One reporter snorts coke with high-end prostitutes to build up sources and expenses it, at his editors’ urging. Another gets the nickname Onan the Barbarian after trying to con nudists into performing sex acts and is videotaped in his own. Charlie the Sniffer Dog, whom the Sun uses to find drugs on celebrities, causes a panic when someone lets him into the paper’s own newsroom. We learn of a one-armed blagger (someone who gets someone’s private information by pretending to be that person) called Mickey the Mouse, a corrupt cop named “Drunken” Duncan Hanrahan, and a feline-obsessed phone tapper who changed his name to Phil Catt.

Then there are the details we already knew about (thanks mostly to Davies’s reporting in The Guardian) but which still have the power to shock: The private eye and axe-murder suspect rehired by News of the World after leaving prison for planting cocaine on a woman, and the paper’s subsequent interference with cops investigating him for his partner’s axe murder. The hacking and blagging of the royal family, the prime minister, and national security officials. The blatant destruction of evidence, with News Corp. executives ordering the deletion of hundreds of millions of old emails, as Davies and lawyers representing hacking victims close in. The overt payoffs to key witnesses, and the lucrative columns given to top Scotland Yard officials responsible for the pitiful initial investigation. The 2007 hiring of Andy Coulson, shortly after he resigned in disgrace as editor of News of the World, as spokesman for the Tories, and his ascent to 10 Downing Street three years later. And, of course, there is Milly Dowler. The murdered 13 year old’s phone messages were hacked by the News of the World, which withheld potentially critical information from the police while it chased the story.

The stories that prompted this systematic lawbreaking weren’t exactly Watergate material, either: “Bonking headmaster … Dirty vicar … Miss World bonks sailor … Witchdoctor … TV love child … Junkie flunkie,” read the slugs in one hacker’s files.

It was a sociopathic culture. “You are going to do things that no sane man would do,” one tabloid journalist told Davies. “You’re in a machine. Everyone was drinking everyone’s blood.”

What Davies did not yet know when he wrote Flat Earth News was that the criminal activity on Fleet Street, and the failure of authorities to fully confront it, revealed a rottenness at the core of Britain’s most powerful institutions, caused largely by fear of a foreigner who controlled 40 percent of the country’s newspaper circulation and its largest pay TV network.

“The mogul, for the most part, does not have to make threats or issue instructions… If there’s a bull in the field, everybody steps carefully,” Davies writes. “The fear gives him access; the access, gives him influence. Real power is passive.” There was never a better argument against media consolidation.

It was in promoting Flat Earth News that Davies got tuned in to the hacking scandal. In early 2008, he went head to head on the BBC’s “Today” program with News of the World managing editor Stuart Kuttner, who insisted that an earlier episode in which his employees had hacked the royal family and gone to jail, had been a one-off incident. That was false, and it angered a listener who knew better. That source phoned up Davies, met him in a London hotel room, and told him that not only was it not true but that Scotland Yard had failed miserably to investigate the extent of the hacking. Davies, now had a tabloid story worth pursuing.

It wasn’t until more than a year later that Davies nailed down enough information to publish his first piece, “Murdoch papers paid £1 million to gag phone-hacking victims.” The pushback was immediate and fierce. Scotland Yard claimed the report was false and would go on covering up the truth for years. Rebekah Brooks warned darkly about Guardian Editor Alan Rusbridger’s (nonexistent) “love child”, and The Times of London, Murdoch’s respectable paper, threatened to run a story accusing Rusbridger of paying for hacking. The rest of the press largely ignored the news or jumped on Scotland Yard’s denial. Davies and Rusbridger were hauled before Parliament for a grilling.

Stonewalled by the police and by News Corp. and helped none at all by the rest of the press, Davies became an activist for his story, passing burner phones to skittish sources, urging hacking victims to sue and others not to settle (News Corp. offered big money to pay off anyone who got close to disclosing key documents in court), sharing information with The New York Times and others to get them to do stories, and plotting with members of parliament and plaintiff’s attorneys to force documents into the open. He eventually found someone who offered to bankroll the legal efforts of several victims: Max Mosley, the Formula One chief who held a grudge against Murdoch and the News of the World for reporting on his cavorting with prostitutes.

Much of this would be verboten by American newspaper standards, of course, which generally forbid reporters from becoming active participants in a story, but it’s unclear if Davies would have been able to get the story otherwise. Regardless, the import of the story and the extent of the coverup clearly justified extraordinary measures.

In the end, it was the Dowler story that blew the scandal wide open. Murdoch shut down the News of the World and lost a multibillion-dollar bid to increase his stranglehold over British media. News Corp. paid out hundreds of millions of dollars in settlements to its victims, and several of its journalists are now convicts. Politicians were finally freed to condemn Murdoch, and for a time it seemed as if the spell had been broken.

But Murdoch still exercises inordinate clout, as evidenced by the overwhelming legal firepower he deployed to get Rebekah Brooks, who oversaw two newsrooms roiling with crime and then covered it up, acquitted of all charges. His son, James Murdoch, has not been charged in the coverup. As with many corporate scandals, the people at the top are insulated from prosecution by plausible deniability. Andy Coulson falls, but Rupert Murdoch is richer than ever and bidding to become even more powerful.

You can’t blame Davies for that. He’s done as much as one journalist can possibly do.

The backstory on native advertising

Why the ad technology revolution that was supposed to help publishers actually devastated so many of them

Back in antiquity (five years ago), when I ran a popular Web 1.0 content site called Beliefnet, we used to cockily predict to investors that our advertising rates were going to rise every year. We knew this because the prestigious market researchers told us so. And their logic seemed flawless: More and more ad dollars were going to shift online, and improved ad targeting technology would improve CPMs.

We all know why the first trend didn’t lead to a windfall for publishers (the money did move online, but most of it went to Google, Facebook, and Yahoo). But why haven’t ad tech improvements provide a windfall for most content publishers?

The answer is a revolution in how advertisers view the importance of what content is surrounding their ads. Many advertisers now care more about who sees their ads than where they appear. Context no longer matters so much.

That poses huge problems for publishers who invest in costly forms of content creation (sometimes known as “reporting”)—and it partly explains the escalating acceptance of native advertising. Debates have intensified about the pros and cons of native—a study this month showed that native risks harming publishers’ brands—but it’s worth understanding how publishers got into this position.

For most of modern media history, advertisers spent with a media outlet for two reasons: to reach a certain type of person and to have their brand rub up against the publication’s brand.

For the first goal, it was an inexact science. If your pimple cream wanted to reach, say, 17-year-old teenage girls, you’d advertise in Mademoiselle. If your local hardware store wanted to reach middle-age guys in town, you advertised in the newspaper. Truth is, it was pretty inefficient for advertisers, since they were also paying for the many other readers of the newspapers who didn’t care much about lawn care. But it was the only option advertisers had.

The publications could tell themselves that the advertisers wanted to be alongside the great content, but really advertisers were mostly viewing context as a proxy for reach.

Of course the internet blew up that formula: Advertisers can target their ads to particular demographics with precision.

At first, it seemed this targeting might be fine for publishers. For instance, in the early days of Beliefnet, we could charge pharmaceutical advertisers more for the health section than the religion section of the site on the assumption that the readers of health content were more sickly. And we could target health-content readers even as they went to other parts of the site. Sure, it created perverse incentives for us to produce twice as much health content as religion content, which was awkward since we were, well, a religion website. But it worked for a while.

Then technology evolved further in a way that proved harmful to publishers.

Google got better and better at providing advertisers the audience they wanted based on search results, obviating the need for many advertisers to place banners on websites. Facebook did the same.

Then came the birth of programmatic ad buying, which meant that advertisers could reach their precise target audience with little regard to where the ads appeared. Using a variety of technology, programmatic buying enables advertisers to find the cheapest, most cost-effective inventory, including with “real-time bidding.” Now, an advertiser goes to an agency and says, I’d like the best possible rate for reaching 25-year-old single men, and the agency will provide them with inventory throughout the entire internet. The key is getting the best possible rate. They can basically scour the Web—where volume continues to grow rapidly—for the cheapest way to reach that type of person.

That’s not to say that advertisers don’t want to reach certain types of readers. But a marketer can now reach “New York Times readers” without ever actually advertising in The New York Times, and for less money than sending a check to the Gray Lady.

The result is that all this great new targeting technology has put downward pressure on ad rates for publishers.

This is all a bit strange for anyone who experienced the old ad system in which advertisers were hyper sensitive about what content was going to be adjacent to their ad. Newsmagazines had to be careful not to put upbeat ads next to disaster coverage. At Beliefnet, we had Christian advertisers request that their ads not appear in the Wiccan section. (We used to joke that we should charge them more to appear in non-Christian areas since they might rack up some religious conversions over there).

Now, all sorts of well-preserved brands have their ads appearing in all sorts of second-rate places. And they don’t seem to care! Many advertisers don’t know where their ads appear.

The main response from publishers has been native advertising. In effect, native ads can be seen as a last-ditch effort on the part of publishers to make context relevant again. Advertorials, after all, have to be alongside other pieces of content to work well.

Tragically, too many publishers have deployed native to make it seem that the ads are editorial content, not merely physical companions. In dropping standards so rapidly, publishers have ended up trading the one thing they had left—their credibility with readers—for a few scraps of CPM.

Is it hopeless? To be sure, there are some publishers who still manage to pull off the traditional pitch about the value of being next to good content. Being in Vanity Fair still rubs your brand with both panache and scratch-and-sniff fragrance. And publishers are valiantly trying to convince advertisers that their ads will really, truly be more effective if they’re on high quality sites. Some big media companies are trying fight fire with fire by creating “premium programmatic exchanges,” which might prop up rates for a bit.

There is also, believe it or not, a public policy remedy. The programmatic buying relies on the ability of ad tech firms to freely cookie users without them knowing how their information is being used. If content creators had united politically, they could have pushed the Federal Trade Commission to impose proper right-to-know disclosure rules that would have benefited consumers and, as a side effect, helped content publishers.

Some companies have gotten so good at generating pageviews cost-effectively—using social media, user generated content, aggregation, photo galleries, etc.—that they outrun the declining ad rates by increasing their ad volume. Alas, that doesn’t work so well for companies that are trying to invest in, say, local reporting or other types of labor- intensive techniques.

Perhaps some new technology will develop to shift power back to publishers. But mostly it means that media businesses that want to invest some money in high quality original content are going to need to develop other revenue streams in addition to or instead of advertising.

The digital revolution has made it possible for advertisers to become more efficient in how to spend their money. Damn.

The NYT’s new paywall products flounder

Early problems for the paper’s new apps

The New York Times’ expanded paywall offerings are off to a poor start, and its three-year run of higher circulation revenue may be at an end.

The Times’ digital-subscription strategy has been a huge success since it launched in March 2011, tallying 799,000 subscribers by the end of last month. But the high growth rates for the $195-a-year product, which have saved the paper’s bacon, were leveling off, while print circulation continued to dwindle and digital ads went backward. The Times needed a new source of growth.

So the paper launched NYT Now and NYT Opinion last quarter to try to goose digital subscriptions with cheaper offerings, and it debuted Times Premier to get more revenue from some existing subscribers. It didn’t really work.

The Times added just 32,000 subscribers in the second quarter and increased paywall revenue by $1.4 million, or 4 percent. Its costs, meanwhile, increased by $18 million, driven by investment in its digital products, including the new apps.

Here’s Times CEO Mark Thompson’s statement on the results:

But, while we expected the portfolio to take time to build, we want to accelerate the rate of growth in subscription sales, so over the coming months, we will refine some of the offers and the way we market the portfolio to accomplish this.

That’s executive-speak for “it was a bust.”

It’s true that its gain was better than it would have been without the expanded offerings, which the Times says accounted for most of the 32,000 new subscriptions.

And some of this is seasonal. The second quarter has historically been the Times’ weakest period for digital-subscription growth, as this chart shows:

But the Times is projecting flat circulation revenue for the third quarter, despite a hike in print delivery prices. That signals that the paper has raised print prices as far as they can go, at least for now. The revenue gains from those price increases aren’t overcoming the circulation declines, and digital gains aren’t enough to make up for it.

The Times’ digital-subscription growth looks particularly weak coming days after the Financial Times reported enormous digital-subscriber gains, and paid digital circulation now more than doubles its print circulation. The FT, whose pioneering meter (which lets readers see several stories a month for free before erecting the paywall) is nearly seven years old, saw its digital subscriptions jump 33 percent to 455,000. The NYT’s digital-subscriber count was up 19 percent from a year ago, despite the addition of low-cost products.

Here’s managing director Rob Grimshaw talking to The Audit’s Dean Starkman last month:

The gain on subscription side has been enormous, because what we found was, as soon as we pushed hard on this, and we turned the dials on the model to the point where many people were coming up to barriers, a lot of people went through, and more than that, they were happy to come through at price points that were far above what any of us had anticipated.

The NYT may well be able to tweak its model and increase subscribers more substantially. But these products aren’t likely to be major sources of growth. A better bet, and one the Times still hasn’t taken for some reason, is to experiment with pricing its core subscriptions. It needs to raise the cost of digital subscriptions, at least to cover inflation.

The good news for the Times is that digital ads are heading in the right direction again. They were up 3 percent last quarter. That’s not enough, but it continues the turnaround that started last quarter after two years of declines.

Bloomberg struggles to break out of the box

Justin Smith’s ambitious digital transformation hits some bumps

When Justin Smith arrived from The Atlantic to last fall to take over the sprawling media group at Bloomberg LP, the move was greeted by hosannas in the media and journalism circles.

Here was the young, digitally savvy executive credited with playing a crucial role in pulling a 156-year-old monthly from the brink of extinction coming to an immensely profitable company bristling with technological knowhow but struggling to break out of its narrow financial niche and into the media mainstream. Soon after arriving, Smith issued a memo announcing a “hundred day strategy process,” toward a new plan that would raise Bloomberg’s visibility beyond financial circles and, perhaps, help transform the media industry itself.

That was 200 days ago. Since then, the launch of a key product has been delayed, an important designer has bolted, and some Bloomberg editorial staffers are expressing frustration about the pace of decision-making and confusion over the project’s aims.

“It’s still not clear what we’re trying to do,” said one Bloomberg Media executive who is familiar with the planning. “What do we want to be when we grow up?”

Smith arrived last fall to take charge of—and expand upon—a jumble of media assets that include a sprawling TV operation said to post losses of around $100 million a year (an improvement from a few years ago, when losses exceeded $300 million); Businessweek, which posts losses of some $30 million annually; a large radio operation; digital video; Bloomberg Markets, a financial monthly; Bloomberg Pursuits, a luxury magazine; and, which publishes selections from the thousands of stories generated by Bloomberg News, a massive newsroom of 2,400 journalists primarily producing for Bloomberg’s famous financial-data terminals.

Smith has described his plans in internal memos and public pronouncements that, amid rather thick digital/managerial rhetoric (“Our strategy calls for building out a portfolio of new digital assets that better align our content offerings to global business audience segments”), spell out broad goals, including “broaden our audience,” spearheading digital “innovation,” and “grow global business TV.”

But the broad goals still don’t add up to a rationale for the enterprise. Bloomberg LP is already immensely profitable by selling a single product, its famous—and costly—terminals, rendering normal financial targets, and the value of casual Web traffic and TV viewers, moot. Bloomberg executives say increasing “impact” is an important objective, leaving open the question of what that means, and the main one: impact to what end?

In March, Smith made a long-anticipated presentation of his strategic vision (missing the 100-day target by a couple of months), including a lengthy Power Point presentation, to members of Bloomberg’s management committee, which includes, among others, the ex-mayor; Bloomberg CEO Dan Doctoroff; Matt Winkler, top editor of Bloomberg News; and Tom Secunda, who runs the company’s massive terminal operation, which generates 85 percent of Bloomberg LP’s revenue.

The detailed strategy presentation was not widely shared internally, though some elements have leaked. According to people with knowledge of the strategy, it has three main elements: 1. Fix the sprawling and money-losing television operation; 2. Ramp up Bloomberg’s conferencing business; 3. The centerpiece, separating Bloomberg content into five editorial “verticals” across a range of digital platforms (Web, mobile, etc.): a general business site, Bloomberg Business, that will replace; technology; a luxury site drawing on the company’s Pursuits magazine; and Bloomberg Markets, which would draw on mostly financial coverage produced by the vast Bloomberg News operation. Last, a Bloomberg Politics site has already been announced, to much fanfare, featuring the high-profile Washington journalists Mark Halperin and John Heilemann, authors of Game Change. Halperin and Heilemann are expected to anchor a daily politics show after the close of markets.

The first setback surfaced when designer Richard Turley, the creative force behind buzz-creating covers at Bloomberg Businessweek, abruptly decamped last April to take a job at MTV. His departure was accompanied by a torrent of regret and praise from the media press, which ran greatest-hits tributes to his most “awesome” covers. Turley didn’t respond to telephone calls seeking comment.

Then the launch of the business vertical, Bloomberg Business, which had initially been targeted for September, was pushed back to the end of the year.

But the biggest problem, some inside the company say, is that basic goals of the project remain opaque. “There’s a leadership vacuum,” says the executive.

In an interview, Smith said he has been quite clear about the aims of the enterprise, which he described as three-fold: influence (which includes growing the digital audience), innovation, and “commercial success,” in that order. [innovation, growing the digital audience, and broadly achieving “commercial success.” UPDATE: the sentence was changed to clarify Smith’s comments from a lengthy interview.]

Smith says signs of restlessness are natural given the scale of the effort and the change it represents. “We’re creating numerous startups within the company,” he says. “It takes a couple of months to get stuff done, especially when you’re doing things a bit differently than you have in the past. Not everyone is going to be thrilled with the pace. But the real proof in the pudding is when we launch these new properties…We’re trying our best to communicate as actively as possible.”

He says that while Turley’s loss was a blow—“we absolutely love Richard”—the magazine’s new creative team headed by Rob Vargas has “stepped into his shoes with intelligence, wit, and grace.” Citing well-received covers after Turley’s departure, he says, “Rob and the team have proven all the critics wrong.”

As for the delay of the business vertical, Smith says that was merely a function of a decision to speed up the launch of a different vertical, Bloomberg Politics, to October.

“There’s a lot going on, and we’re in the top of the first inning of implementing it,” he says.

To be sure, Smith retains supporters among Bloomberg staffers who sympathize with the difficulty of trying to shift a famously closed, insular, and rigid corporate culture to the more open and free-flowing sensibility of the Web.

“It’s not really a super-fast moving organization,” a sympathetic staffer says. “It’s still a work in progress but he’s a pragmatic guy … they’re shifting more toward being a much more Web-friendly organization.”

Smith’s arrival generated great hope among staffers frustrated by Bloomberg’s near invisibility on the mainstream media stage, and yet any attempt to expand the company’s reach beyond the business news terminals will be fighting both the company’s history and its culture.

Former New York mayor Michael Bloomberg founded the company in 1981 with a laser-like focus: to provide financial data, analytical tools, and an early messaging system to Wall Streeters via a single product, its famous two-screened terminal, “the Bloomberg,” aka, “the box.” Launched long before the mainstreaming of the internet, the Bloomberg was—and is—in fact an intranet, a closed system, with its own keyboard, language, and command system, available only, at considerable cost, to a limited audience of well-heeled subscribers. The box is a world unto itself. It is precisely not a mass-market product, and it remains the soul of the company, presided over by Secunda, a minority owner and early Bloomberg partner who has direct access to the mayor, and actually, as he told Fortune earlier this year (($$)), doesn’t agree that the company needs to diversify at all.

Even after Bloomberg added a news operation in 1990 with the hiring of editor Matthew Winkler, then a Wall Street Journal bond reporter, the organization grew up in something of its own media orbit, with its own peculiar stylebook, The Bloomberg Way, a dry, just-the-facts writing style (that occasionally produces famously puzzling headlines), and a narrow mission: to churn out thousands of stories a day to serve terminal subscribers, mostly traders and other financial professionals.

The latest effort to bolster Bloomberg’s media brand, has been preceded by several others. Indeed, for the last decade or so, Bloomberg has been embarked on an ambitious, and expensive, campaign to extend its journalistic reach into culture, arts, politics, even sports—so far with little to show for it. A parade of high-profile media talent has entered Bloomberg’s news operation from The Wall Street Journal and elsewhere and effectively disappeared from view. The organization has won a string of journalism awards, but has not broken through with the Pulitzer Prize it covets. The company hired media maven Norman Pearlstine to great fanfare in 2008; he quietly left this year. Andrew Lack was hired from NBC News that year to boost Bloomberg’s huge TV operation; on Smith’s hiring, he was later bumped up in the hierarchy, but the network’s ratings remain too small to measure. The Bloomberg Way has not translated well to the Web, and the influence of the newsroom on the public discourse remains limited. When Winkler wanted to call attention to Bloomberg News’ freedom-of-information campaign against the Federal Reserve, he published his op-eds in The Wall Street Journal.

If the media operation has a bright spot, it is Businessweek, bought for a nominal sum in 2009, where star editor Josh Tyrangiel has generated buzz with provocative covers, albeit with the occasional dud. Still, that has yet to translate into financial success and the loss of Turley affects the magazine most directly.

Smith’s successes at the Atlantic’s parent, Atlantic Media, have not been questioned but with the Atlantic’s revenue in the $40-million range, its budget represents a rounding error for Bloomberg—a money machine— which churned out 2013 revenue of $8.3 billion and staggering profit margins of more than 30 percent. And when it comes to the news economics of the internet, the question isn’t so much whether digital operations can be profitable—they can—but the degree to which they can scale.

One question going forward is who will staff the five verticals, and who will control their content. The giant Bloomberg News staff, for instance, has as its primary audience Bloomberg’s 318,000 terminal subscribers and is under the iron-fisted control of Winkler, while the new financial vertical, Bloomberg Markets, under Smith’s terrain. Tyrangiel has been promoted, and after taking a break from Businessweek, is now formally in charge of Bloomberg TV, the magazine, and the verticals.

Another challenge will be navigating Bloomberg’s famously byzantine internal politics, which have become even more so now that the ex-mayor has returned to the company after a dozen years occupied elsewhere. His role so far is undefined, fuzziness that has already led to erroneous reports about what he is actually doing at the company. A Bloomberg spokesperson says merely that he is “the owner.” And while Doctoroff has made it clear that a primary goal was to make Bloomberg’s non-terminal businesses, including the media arm, pay for themselves, the ex-mayor is said to be concerned more about having impact on the public discourse.

As for Smith’s operation, it is not entirely clear the degree to which profitability, or even loss amelioration, is a goal. Smith declined to specify revenue targets or to define “commercial success” beyond the profitability of the entire company, which is already extremely profitable. At any rate, Smith says the profitability is not the only metric, and that traffic, TV ratings, audience engagement, and the like are central to judging the operation.

“Our goal,” he says, “is to lead the industry.”

How Forbes got to $475 million

That’s what a Hong Kong investor has agreed to pay for a firm that two years ago had trouble paying its rent

Integrated Whale Media Investments of Hong Kong is now the majority owner of Forbes Media, valuing the company at a whopping $475 million.

What the buyers get is a dwindling print magazine, digital growth, and the Forbes brand, which has been seriously diluted in the last four years. It’s hard to imagine an American investor paying half the price.

Fortunately for the Forbes family (and for Bono), the brand apparently still has outsized allure for rich people in Asia. The $475 million valuation, if it’s accurate, is an enormous number for a company that projected late last year that it would take in $21 million in earnings before interest, taxes, depreciation, and amortization in 2013, according to a pitchbook obtained by Ken Doctor. Ebitda doesn’t include the cost of servicing debt, and Forbes’ is large enough that it went into technical default in 2011. It also had trouble paying its rent in 2012.

Its business fortunes have turned since then, but that has come at the expense of Forbes’ journalistic credibility.

It may be hard to recall now, but Forbes was a journalistic force not so long ago. Now it has a boss who says things like “content marketing just might be the full employment act for journalists.”

Four years ago, Forbes acqui-hired Lewis DVorkin and installed him as chief product officer. DVorkin implemented the model he had pioneered at True/Slant, where writers get paid by the traffic they bring, particularly repeat visitors.

This model allows Forbes to have a far larger stable of writers than it could ever employ under more traditional models of work that are subject to things like minimum wage laws. It’s sharecropper journalism. Writers effectively are tenants on, and Forbes gets a big cut of what they bring in. Or it gets everything: The median Forbes writer gets zip.

Forbes has just 40 staff reporters, but it churns out 400 pieces of content a day thanks to its 1,200 contributors. Four hundred of those are “paid freelance contributors,” who must write at least five times a month and interact with commenters. Sixty of them make more than $45,000 a year from Forbes, which means 85 percent of them make less than that. Throw in the unpaid contributors and that moves to 95 percent.

Effectively, Forbes has been paying people with its brand equity. But when you do too much of that, you dilute the brand.

Forbes has blurred the lines more than any other mainstream publisher between journalistic content and marketing/PR. Flacky garbage written by marketing executives and consultants is barely distinguishable at first glance from reported stories written by staff writers. This effect reached its nadir in this exchange reported by Pando Daily’s Erin Griffith:

A curious “interview request” arrived in my inbox today: A Forbes contributor would like to include my opinions in his post about equity crowdfunding. I was flattered for a minute, but then I realized what was really happening here: An executive who has been given a journalist’s platform is now asking — through a publicist — for a journalist to do his work.

I love the irony. Forbes has outsourced the production of content to non-journalists, who are now turning to actual journalists for content. And the topic? Crowdfunding. It’s a snake eating its own tail.

The pay for traffic system incentivizes writers to put out irresponsible clickbait like “Is The CDC Hiding Data About Mercury, Vaccines, And Autism?” (UPDATE: Emily Willingham takes issue with my criticism. See her comments below and my responses). It also results in most-read lists that look like this:

These kinds of things may increase your engagement and clicks, but they’re nothing but bad for a high-end brand like Forbes:

Even Jeff Jarvis doesn’t like it:

Now, when I see a link to Forbes on Twitter, I don’t know whether it is going to take me to (1) the good work of a Forbes journalists, (2) the good work of a Forbes contributor, (3) the bad work of one of many Forbes contributors, or (4) the paid and wordy shilling of a Forbes advertiser…

Thus, I hesitate three beats before clicking on a Forbes link. That is the definition of a devalued media brand

But while the strategy has been terrible for its journalism, it’s been decent for the bottom line. traffic has boomed under the strategy, with unique visitors nearly tripling and the company’s overall ad revenue up about $13 million since 2010. Ken Doctor reported earlier this year that’s ad revenue in 2012 was $42 million, and the company projected that to rise to $86 million by 2018. It estimated overall revenue last year at $144.6 million, with ebitda of $20.8 million. That would be a 14.4 percent ebitda margin, or about what The New York Times Company has.

Though it’s surely higher now, that $42 million in digital revenue is surprisingly small for a business site with hundreds of millions of pageviews a month. It implies an average CPM in the high single or low double digits. And that’s despite its aggressively annoying practices that goose ad revenue by auto-rolling video ads and showing interstitial ads every time you visit the site:

Put another way, back in 2009, David Carr reported in The New York Times that brought in an estimated $70 million to $80 million a year. In 2010, Dennis Kneale wrote that when he was Forbes’ managing editor, the site took in $75 million in 2005. Ad Age reported in 2009 an outlandish estimate that revenues were $288 million, which it at least prefaced with the line that “Internet revenue is even tougher for outside observers to estimate than web traffic.” The Forbes brothers themselves were projecting that the site’s revenue would surpass the magazine’s by 2007 to 2009 (while online ads recently surpassed print ads, overall revenue is still lower online).

In other words, in the ever-optimistic projections of Forbes, its online revenue might reach 2005 levels in 2017 or so.

Perhaps it will. Forbes has taken the path of least resistance in the internet media economy, where most of the risk is shifted away from the corporation: The workers are entrepreneurs, (almost) nobody has a job, and the owners make a mint collecting rents on their platform.

That’s not good for journalism or for the public, but it’s not a bad business model.

Murdoch moves on Time Warner

As pipes companies merge, another round of media consolidation

Seven years ago, when Rupert Murdoch stunned the media world by bidding for The Wall Street Journal, its parent company turned him down flat. Investors didn’t buy the rejection, and Dow Jones stocks jumped immediately to just under Murdoch’s unsolicited $60-a-share bid. Three months later, the Bancroft family signed over the company, and the rest is history.

Now Murdoch is after much bigger prey: Time Warner. Andrew Ross Sorkin reported in The New York Times this morning that Time Warner’s board rejected an unsolicited $85-a-share bid last week from Murdoch’s 21st Century Fox.

The arbs pouring into Time Warner shares today (70 million shares changed hands, 14 times the volume on a normal day) are betting that somebody will buy Time Warner, and that’s all but an inevitability now, as Murdoch knows. Time Warner shares closed yesterday at $83.13, up 17 percent on the day. They’re at $86 today, which means investors think Murdoch will be forced to raise his bid, either by an outside bidder or by Time Warner’s board.

If Murdoch wins, the media consolidation would be unprecedented. His combined company would be a $150-billion media colossus, with HBO, Fox, Fox News, Fox Sports, TNT, TBS, CW, Cartoon Network, Headline News, FX, 20th Century Fox, Warner Brothers, New Line Cinemas, DC Comics, Castle Rock Entertainment, Fox Searchlight, 28 local TV stations, and much more. Not to mention Murdoch’s WSJ, the New York Post, Harper Collins, and his overseas assets. Fox has signaled that it would sell CNN to avoid antitrust issues.

Murdoch’s deal doesn’t make much sense from an immediate business perspective. He claims the combined companies would save $1 billion in “synergies,” but news of the bid has knocked about $4 billion off the market value of 21st Century Fox.

And the deal would have a knock-on effect, driving other media companies to consolidate, as well. Consolidation begets consolidation, and Wall Street is already salivating over that prospect.

Murdoch’s bid itself is largely to defend against consolidation in the industry that controls how all that media content is piped into people’s homes. In recent months, Comcast and Time Warner Cable have agreed to merge, as have AT&T and DirecTV. If they succeed (both are being scrutinized by regulators), the two resulting firms would control more than half of the cable and internet market in the US. That will give them significantly more leverage in their battles with content companies over carriage fees, not to mention in how they price their services for customers.

Of course, with Murdoch, the bid isn’t just defensive. It’s also a power play. But it’s worth noting that he doesn’t always get his way. Four years ago, Murdoch went after the 61 percent of BSkyB, the European pay-TV company, that News Corp. didn’t already own, in a $12.5-billion bid. One year later, the hacking scandal forced him to withdraw in disgrace.

Now the scandal-tainted part of his empire has been spun off into a separate company that Murdoch still controls. But the scandal could flare up again, ruining Murdoch’s latest bid for world domination. As we learned last month, he’s a suspect now in the sprawling investigations into criminal corruption at his British tabloids.

A $52 million loss, but a good year for The Guardian

Digital revenue booms while print stabilizes and its trust fund surges

It’s quite something to note that a company that lost $52 million last year had a very good year.

But so it is with The Guardian, which is unique among major news organizations because it’s effectively a trust-fund paper—owned by a company whose sole objective is not to make shareholders happy but to make sure The Guardian operates in perpetuity.

To that end, the company sold off assets last year at sky-high prices, tripling its nest egg to more than $1.4 billion, and it still has a few hundred million dollars worth of assets to sell. That alone would allow The Guardian to run $50 million deficits until at least 2045—even if its assets earned no interest.

It’s an enviable position to be in, and it has allowed the paper to experiment and invest aggressively in digital expansion across the globe.

The Guardian will always run at some sort of a loss because it has the rich endowment to fund it. As CEO Andrew Miller says, measly 5 percent returns on its cash and investments would kick off more than $70 million a year—plenty to fund big Guardian losses while reinvesting to keep the nest egg ahead of inflation.

But if it can grow its revenue substantially, it could fund that much more journalism.

And that’s what it did last year, impressively. The Guardian’s total revenue jumped 7 percent, which is what counts as a giant gain these days in the newspaper industry. Its digital revenue soared 24 percent to $119 million. Critically, its print revenue, which is still two-thirds of all sales, stopped declining last year, remaining flat at just more than $240 million.

The question, as we noted in March, is how much The Guardian is spending to get that revenue.

While it lost $52 million, that’s down from a $58 million loss the year before. Meantime, its revenue was up about $23 million.That’s not a bad return, particularly for the early stages of an investment. But it’s unclear if the digital investment itself paid off or if losses were papered over, so to speak, by a blip in print fortunes.

The Guardian, using its preferred accounting measure, says its underlying losses were $33 million last year, a $12 million decline.

Regardless, with the paper’s enormous trust fund, fast-growing digital revenue, stabilized print paper, and its world-shaking journalism, The Guardian is in very, very good shape.

A Fourth of July inflation bugaboo

The press fixates on the “exploding” price of a barbecue

The press loves itself a good story about rising prices, particularly if it’s about the cost of food going up.

We see this just about every year with the flurry of stories based on an annual farm bureau press release that tallies up the cost of Thanksgiving dinner. When it’s up big, it’s evidence of impending hyperinflation to The Wall Street Journal editorial page. When it’s up slightly or down, it still gets hyped and twisted.

Now we’ve got the Fourth of July to keep an eye on, and the media is very worried that the cost of the classic 4th of July cookout has gone way up.

Bloomberg compiles the Bloomberg Barbecue Index, which it says shows the cost of a July 4th grill gala at a record. Ground beef prices are up 10 percent from a year ago, while hot dogs are up 5 percent, it says. “Veggies—this one really hurts—up half a percent. The reason why is ‘cause I love corn and butter, which I slather on my corn,” says Alix Steel.

Fortune has its own BBQ index, which it says shows the cost of an Independence Day cookout “skyrocketing” 28 percent in the last decade. An amateurish video accompanying the post extends the metaphor by deeming them “exploding prices.”

If none of these “indices” work for you, there’s the inaugural Rabobank BBQ Index, which got some play in the Los Angeles Times.

Problem is, all of these stories are at best incomplete and at worst misleading. Food prices are volatile, and cherry-picking a handful of food products as a symbol for the overall change in food costs is more likely to fool readers than to tell them what’s really happening.

And that’s true here. While the BBQ indices say the Fourth feast costs are up more than 5 percent this year, Bureau of Labor Statistics data show that overall food prices are up just 2.1 percent. The cost of a 4th of July cookout, up 28 percent over the last decade, is actually up a bit less than overall food prices, which have risen 30 percent.

But the bigger problem with all these reports is that they present these cherry-picked costs in isolation from the rest of the economy. It’s true that the price of hamburgers and chips went up 28 percent in a decade, but that’s in line with overall price increases, which are up 26 percent. In real terms, in other words, the Fourth of July price increases are basically a wash.

Meantime, median household income rose 20 percent over the same time and GDP per capita was up 34 percent. To put it another way, food costs have risen faster than paychecks for the average American over the last decade, but that’s primarily because the distribution of gross domestic product has continued to skew in favor of the very highest earners.

And anyway, these are not big jumps in the price of food over 10 years. From 1994 to 2004, food prices rose 28 percent, for instance. From 1984 to 1994, they rose 41 percent, and the decade before that they jumped 90 percent.

But it’s true prices have increased a bit more rapidly in the last year. The main contributor to that is the rise in the cost of beef. Cattle stocks have declined sharply since the late 1970s as Americans eat less beef. But supply and demand are out of whack now because of the devastating drought that’s hit cattle-heavy areas like Texas and Oklahoma and feed-growing areas in the Midwest. It will take a couple years for that to balance out. You won’t read about that in any of these stories, though.

Some of the weak coverage is simple angle inflation: Reporters get better play for their stories if they can play up some record price. Some of it is innumeracy: Fortune, for instance, calculates that its homemade quarter-pound burgers would cost $3.02 each, when they would cost half as much.

The American Farm Bureau Federation, the same group that puts out the Thanksgiving release, has its own 4th of July index, and it reports that the cost will run to about $5.87 a person for a feast that includes fully dressed cheeseburgers, hot dogs, pork ribs, chips, baked beans, potato salad, watermelon, lemonade, and chocolate milk.

“Feast costs less than 6 bucks a head” doesn’t grab readers like “Fourth of July barbecue costs sizzle after food prices rocket does, apparently.

The Loomis era

A note on the retirement of a business-press legend

Carol Loomis’ extraordinary career is being celebrated around the media world on word of her retirement after 60 (that’s six-oh) years at Fortune. As many, including the magazine’s managing editor, Andrew Serwer, have noted, people just don’t work at the same place for that long, or even a sixth that long, very much anymore.

Her career, starting in 1954 as a reporter researcher (then a women’s role; Fortune writers and editors at the time were virtually all men) and ending in 2014, spans almost the entirety of the postwar heyday of industrial-era journalism.

But Loomis’ place in journalism history is assured much less for her longevity than for her acuity, her fluency in translating business complexity for a mass audience, the obvious sense of decency and fair play that comes through in her work, and for her well-known tough-mindedness. She made into something of a specialty the art of calling powerful CEOs on the carpet, with, as I noted in my business-press-financial crisis book, a subspecialty of calling out earnings manipulation and other accounting shenanigans (e.g.: “ITT’s Disaster in Hartford,” May 1975; “Behind the Profits Glow at Aetna, November 1982). Her takedown of Carly Fiorina’s disastrous stewardship of Hewlett-Packard (February 2004) is the stuff of business-press legend.

A fine memoir piece the next year, “My 51 years (and counting) at Fortune,” is a well worth reading today. She recalls, for instance, how American Express chief James Robinson, the archetype of 1980s imperial CEO, once tried to pressure her to soften her findings, insisting she didn’t understand business or finance. The tactic didn’t work. “The problem was that I did understand how American business was being conducted,” she wrote, “and I didn’t like it.”

The Journal’s BNP Paribas ‘blunder’

Anonymous bank sources assure the paper they knew nothing about its crimes

Was BNP Paribas’s $8.9 billion settlement with the Justice Department caused by a long-running criminal conspiracy or was it just a boo-boo?

The Wall Street Journal implies it was the latter in a confusing page-one story headlined “Big Bank’s $9 Billion Blunder.”

From 2002 to 2012, the French banking giant laundered hundreds of billions of dollars for Iran, Sudan, and Cuba, running roughshod over US law. The WSJ’s headline feeds the notion—which has become standard operating procedure in the wake of the financial crisis—that BNP’s crimes were somehow not intentionally orchestrated by actual bankers. The DOJ, despite extracting a guilty plea and nearly $9 billion, didn’t charge any individuals.

A big part of the WSJ’s problem comes from its reliance on anonymous BNP sources:

U.S. authorities, acting on a tip from an informant, began their probe of BNP Paribas in 2009. Senior executives, who realized the bank would have to comb through trillions of dollars worth of transactions, believed it would turn out to be a misunderstanding, people familiar with the matter said.

In other words, senior executives tell the WSJ on background that they had no idea their bank was doing anything wrong. That dubious assertion comes immediately after this paragraph:

BNP Paribas executives came to the conclusion the bank could ill-afford to alienate U.S. authorities and jeopardize its American businesses, people familiar with the matter said. In June 2007, BNP Paribas’s chief executive at the time, Baudouin Prot, gave instructions to stop all transactions involving Sudan, one person said. Similar orders followed for Iran in September, the person said, and Cuba in December.

So the CEO knew enough in 2007 to order a stop to all transactions with Sudan, Iran, and Cuba, but two years later he thought it was all just a “misunderstanding”? The statement of facts in the case, which came out the day of this story and was signed by both the DOJ and BNP, suggests otherwise. It says the reason Prot issued the Sudanese stop in June 2007 was because the Office of Foreign Assets Control at the Treasury Department met with the bank a month earlier to ask for an internal investigation of the transactions, which BNP bankers processed with what they actually called “cover payments.”

It just doesn’t make sense that top executives didn’t understand what was happening. Particularly because so many in the bank knew what was going on, as the statement of facts makes clear.

“Concerning Cuba — It is true that we are not completely in line with the text of the U.S. regulations,” reads one message sent to senior bank officials in 2006. That came after an opinion from an outside law firm that said BNP was violating the law—an opinion which prompted email deletions and an order by a senior BNP attorney to “suspend any further work on this file.”

Even more damning, a compliance offer wrote in a 2005 email about one laundering method that “This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan.” Compliance officers then met with “the highest levels of the bank” to question the practices. What happened then? (emphasis mine):

At the meeting, a senior BNPP executive dismissed the concerns of the compliance officials and requested that no minutes of the meeting be taken.

Contrast that to the WSJ’s “Senior executives…believed it would turn out to be a misunderstanding, people familiar with the matter said.”

It wasn’t exactly a secret that BNP and other European banks were doing this. Even some in the press knew what was happening at the time. The Economist’s Intelligence Unit wrote this in November 2007:

As the US has continued to seek to eliminate loopholes, the banking sector as a whole is having increasing difficulty managing US dollar transactions. Formerly, much of this market went to a French bank, BNP Paribas, but that institution has now closed its accounts and is moving out.

The Journal itself reported in 2006 that BNP Paribas was under investigation for violating US sanctions against Iran.

And all this followed a Federal Reserve settlement with BNP in 2004 over its faulty money-laundering controls. Here’s the consent order signed by the New York State Department of Financial Services and BNP as part of this week’s settlement:

During that same 2004 period, internal documents obtained from the Bank demonstrate that BNPP’s most senior operations, compliance and legal staff knew of the Bank’s serous illegal conduct in violation of laws and regulations, and, rather than report the conduct to the Bank’s regulators, actively supported it.

So the Journal’s recitation of anonymous BNP executives’ assurances doesn’t hold water. And while its quote of a former board director saying, “They claim they knew nothing but then, who was running the bank?” helps, it doesn’t make up for it.

If BNP Paribas “blundered” here, it was in being far too forthright about its conspiracy in its almost comically forthright internal emails and memos.

Rupert Murdoch and News Corp.’s woes will continue

Rebekah Brooks’s acquittal is big, but there’s much more to come

Rupert Murdoch has known since sometime last year that he is a suspect in the investigations probing the systemic corruption at his British tabloids.

Which is why the $18 million he paid Rebekah Brooks when she resigned in disgrace from News Corp. and the tens of millions of dollars more he poured into her legal defense may be the best money he’s ever spent.

While one of Murdoch’s former top editors, Andy Coulson, will go to jail, Brooks had much more potential to bring the Dirty Digger himself down. She, like Coulson, was one of Murdoch’s top news executives while systematic hacking and bribery was filling her pages with salacious scoops. But she was later CEO of News International when the coverups of those crimes were ongoing and by all accounts a close confidant of the tycoon.

Brooks knew, despite her denials and her acquittal, what her newsroom was up to, at least on the more serious issue of bribing public officials. We know this from her own testimony:

That smoking gun, from a 2003 parliamentary inquiry into the press, wasn’t admissible in Brooks’s trial “because of rules around parliamentary privilege,” writes Nick Davies in an essential read on why she skated (Brooks later explained, improbably, that she had been speaking generally about the newspaper industry rather than her own paper).

Her acquittal makes it more difficult to connect any crimes or coverup to Murdoch himself.

Difficult, but not impossible. Because Murdoch has his own smoking gun to worry about: a recording of him admitting to his Sun journalists that he knew about payments to public officials by his papers:

We’re talking about payments for news tips from cops: that’s been going on a hundred years, absolutely. You didn’t instigate it….

I remember when I first bought the News of the World, the first day I went to the office… and there was a big wall-safe… And I said, “What’s that for?”

And they said, “We keep some cash in there.”

And I said, “What for?”

They said, “Well, sometimes the editor needs some on a Saturday night for powerful friends. And sometimes the chairman [the late Sir William Carr] is doing badly at the tables, (laughter) and he helps himself…”

That one presumably isn’t protected by some arcane privilege.

Nor are charges against Murdoch himself essential to damage him personally. News Corp. is essentially an extension of Murdoch’s ego whose “entire reason for being is to reflect, imitate, and amplify Murdoch himself,” as I wrote in 2011. And it is being investigated at the corporate level not only in the UK, but also here in the US, by both the Department of Justice, and by Congress. The Foreign Corrupt Practices Act prohibits American companies from paying bribes to government officials overseas, and News Corp. has admitted it did so.

The Daily Beast reports that the FBI “has copies of at least 80,000 emails taken from the servers at News Corp in New York,” implying prosecutors didn’t see them (something backed up by a thinly sourced Mirror article, though News Corp. told Reuters “we understand that material was fully available to the authorities in the UK.”

Beyond the corporate investigations, there are another dozen trials of News Corp. journalists on the way, with much more information to come (much of it the press knows but can’t report yet because of British law). And then there are the hundreds of civil lawsuits from hacking victims.

While this incredible story is far from over, it has always been and will continue to be a slog to challenge Murdoch’s resources.

Davies, The Guardian reporter who all-but-single-handedly broke the hacking scandal, writes that Murdoch’s legal team overwhelmed the underfunded crown prosecutors:

But when it came to handling the police evidence in court, Brooks and Coulson had squads of senior partners, junior solicitors and paralegals, as well as a highly efficient team monitoring all news and social media. The cost to Murdoch ran into millions. Against that, the Crown Prosecution Service had only one full-time solicitor attached to the trial and one admin assistant.

They’re going to need much more than that if they ever manage to get Rupert in the dock.

Why Obama’s statement on reporters’ arrests in Ferguson is hypocritical - The president defends reporters in Ferguson, but demands compliance from James Risen

Apple can’t hide from a 20-year-old reporter - The University of Michigan student gets behind the tech titan’s newest products

Finding James Foley - This 2013 story takes a look at GlobalPost’s search for the photojournalist

Gannett cribs from Advance Publications playbook for struggling newspapers - Staff compete for fewer jobs; ‘readers become the assignment editor’

First Look runs headlong into journalism’s two big problems - Growing pains at the Omidyar/Greenwald venture

The McDonald’s in Ferguson (LAT)

“Lately, the restaurant has taken on the appearance of a battered frontier outpost”

Tour guide wars at a Paris cemetery (WSJ)

“Because dead men tell no tales, visitors to Père Lachaise cemetery lend their ears to Bertrand Beyern”

Last call (Medium)

“The death of newspapers is sad, but the threatened loss of journalistic talent is catastrophic. If that’s you, it’s time to learn something outside the production routine of your current job.”

Maureen Dowd on James Risen (NYT)

“Risen may be trapped in Ibsen, but Obama is channeling Orwell”


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

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