JR: That would be the argument. And so one of the things that I think you do if you’re The Providence Journal is get into the debate that’s is going on now, which is I think is fascinating one, about the removal of the cross-media ownership laws.
One of the things you could do to make a very powerful model is create an organization in a city that really does integrate across radio, TV, and newspaper newsgathering and reporting. Because the ability to run a news organization that would be able to have those three broadcast outlets, plus possibly a twenty-four-hour news cable news channel, which I’d argue you could make work off the economics of the other three. So now you have the sort of unparalleled reporting organization in the market the size of The Providence Journal.

TA: And these would be sort of quasi-monopolistic models?

JR: [Yes, but] the fundamental difference between the role of the monopolistic organization forty or fifty years ago when people were writing these rules on cross ownership, and today, is that if you’re an important part of the Providence, Rhode Island government, or you’re somebody who is working somewhere in Providence, that has a, sees a set of misdeeds that are governmental, or whatever of nature, that some formal big government, big corporate entity would want to quash, the reality is it’s pretty easy to get the story out there today. And it wasn’t forty years ago. And if you did get it out there now, it would get picked up by national papers which would make the monopolistic non-responsive large news organization Providence Journal in Providence part of the story in and of itself.

TA: So The New York Times would be a foreign policy/national politics and government specialist, and whatever else they want to do—arts, say?

JR: And then you can start saying, “Wait a second, if that’s what we are should we actually have other publications and do other things under that brand around that? Should there be a monthly magazine? Should there be a series of TV programs?”

TA: You realize that if we print this they’ll be setting fire to my office [laughter]. I mean,
giving up local coverage?

JR: I think there’s tremendous value in local reporting and I don’t think local newspapers themselves are going away in any way, shape or form. I do think the issue is it’s an economic value issue for owners more than it is anything else. Meaning there is more than enough margin in the news paper business to run newspapers for another 20 years and this notion that newspapers are going out of business is nuts.

TA: Is that true?

JR: Absolutely. The problem is actually a more subtle one. The problem is most newspapers exist at a market value. They are run by individuals whose primary goal and mission is to return shareholder value to investors, and the trends we’re talking about are happening on the margin slowly, not quickly—gradually declining revenues and slow, routine cost increases that will drive down profit margins, but over many years.
What you have is a gradual compression of margin. I want to be clear. It’s gradual, that’s why I think newspapers should be around forever. But there’s this gradual shrinking of profit margins driven on one hand by some fall off in readership, although not huge; some migration of newspapers advertising spending to other places, but not huge; and some slight increase in costs because basic costs will rise over time.

TA: Where’s all the panic coming from?

JR: The panic is coming in terms of market value. Most newspaper organization four years ago, were saying to the public markets that they were five percent per year, cash growth flow companies. If you take a business that’s projected to grow at five percent compounded cash flow growth, free cash flow growth, to now flat to minus one-two percent cash-flow growth, what ends up happening is you can lose thirty, forty, fifty percent of the underlying enterprise value of the business.
There’s a capital crisis in the newspaper industry that is not an operating crisis, and that would arguably be the entire story.

TA: Right. There were no losses we’re talking about.

JR: They were the opposite of losses. We’re talking about twenty-thirty percent margin businesses with tremendous cash flow characteristics. So we’re not talking about Jaguar which was reported to be sold recently to Tata, and it looks like they lost $10 billion. Ford lost $10 billion on Jaguar after its purchase. We’re talking about highly strong, good margin cash flow businesses. They’re operating very far away from the edge.

TA: Oh.

JR: But they have market values that require that growth increase. And by the way, it’s not just about the management teams who are running them and whether that’s right or wrong. It’s about all of the people in the broader population whose pensions and everything else are actually invested in the equity that is the newspaper. So it’s a complicated systemic problem that has to do with a re-correction that’s occurring in value. And that’s why everyone’s running around, cutting costs.

TA: They’re trying to prop up the value?

JR: Yeah. So if you can run a well-run newspaper in a market profitably, you’ll still run it forever. I’m sure that there’s some time at which some things happen that are really bad but they’re not the next ten to twenty years.

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