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Pssst investors! There's no business like news business

What CEO Tony Ridder should have told bidders for America’s second-largest newspaper company

The Wall Street Journal reported last week that executives at Knight Ridder Inc. have laid before potential purchasers a rosy scenario for boosting profits another 20% by cutting more journalists and news pages. Here's the talk Tony Ridder should have given his fellow moguls:

Toasting newspaper profits: Investor Bruce Sherman, whose firm controls 19% of Knight Ridder stock, called for the sale of the company in November in order to boost share price. In this 2003 Naples News Press photo, he partied at the Naples Winter Wine Festival. This winter he offered $520,000 in a charity auction for "a Mediterranean cruise for five couples on a 171-foot yacht," according to the St. Petersburg Times.

Now that I'm 65, I've come to believe that there's more to life than earning more money than you can possibly spend. (My neighbor, Larry Ellison, may disagree.)

So I'm going to level with you.

You're familiar with the trends in newspapers -- falling circulation and ad revenue, increasing paper and fuel costs. But you may not be familiar with just how different a business news is from anything else you've run.

If your goal is to make as much money as you possibly can, take a pass on news.

Morgan Stanley estimates that Knight Ridder newspapers spend $350 million a year they don't have to. But the consultants don't understand journalism.

That "surplus" spending is what it takes to produce the kind of journalism that has made America strong, and rich. It's the reason Knight Ridder has won 84 Pulitzers over the years and Gannet -- which cuts $350 million worth of corners -- has won 45.

Here's what separates news from other businesses you've run. In every business but journalism, the customer is always right. The firm that best satisfies the customer wins the day.

But journalism's codes of ethics require news media to disappoint their most important customers -- advertisers. You all know that advertisers provide more than 80% of our revenues. You may not know that most retailers want the news tailored to the ad -- to create interest in what's for sale. But news media that take the advertiser's point of view and not the public's violate ethical standards. If you uphold those standards, I guarantee that will lose you some advertising dollars.

Not only that, advertisers seek readers with good customer potential. They'll pay more for young people who are establishing homes and buying lots of stuff than for older folks at the end of their buying years.

If you want as many ad dollars as possible, you'll ignore the less affluent and older people in the community. But journalism has an obligation to serve everyone, not just the upscale.

Knight Ridder CEO Tony Ridder didn't write this speech, but he should have.

Journalists are also required sometimes to disappoint their other essential customers -- readers. We've pledged in our codes of ethics to tell people what they need to know in order to be effective citizens. Yet on any given day, we could attract a larger audience with stories that merely amuse our readers.

Hell, we'll even disappoint your investors: Often, what readers need to know is hidden by the powerful. Exposing corruption costs much more -- in staff size, expertise and time -- than rewriting press releases and the police blotter.

I don't know if you read any newspapers other than the Wall Street Journal. But last week our San Jose Mercury News provided a terrific example of why journalism isn't a great business.

We assigned one of our best-paid reporters, Fredric Tulsky, to do almost nothing else for three years but study the criminal court system in Santa Clara County. Mr. Tulsky tells me his series cost the paper $400,000.

It was the least cost-effective thing we could have done. Yet those stories may free a man improperly convicted and showed flaws in our criminal justice system that affect thousands of local people.

Another example. To save money we could close our bureaus in Washington and elsewhere. Why not rely on the Associated Press, or the New York Times?

Here's why not. The vaunted New York Times got one of the most important stories of our time wrong. They lost their skepticism and helped sell the Bush administration's casus belli -- that Iraq had weapons of mass destruction.

John McManus

Our bureau got it right, reporting that the U.S. intelligence community had strong doubts about the administration's view.

In most businesses duplicated effort is waste. In journalism it can be the difference between truth and falsity, or war and peace.

What's that? You say the public won't know the difference if journalism's ideals are violated? People just want to be entertained?

With all due respect, sir, think how venal you'd sound if you were addressing another profession. Would you suggest that standards don't matter in medicine, engineering or law?

Let me answer your question two ways:

A business answer first: The more you entertain rather than inform the public, the more you enter a marketplace crowded with every form of diversion from soap operas, sports, recreation, movies, prime-time television, video games, MySpace and other Web delights. Do you really want to abandon the market niche we dominate -- local news -- for a more competitive one?

Second, I'll confess that news has become more confused with entertainment. God knows, I've fostered some of that myself! And maybe most people haven't caught on to it -- that we're displacing the costly news they need with the inexpensive news they want.

But as sure as a hangover follows a binge, reality will crash the party. It always does.

Eventually people will recognize when political leaders have led them astray and squandered their human and monetary resources and their government's moral authority. As that day dawns, they will turn on those news media who played them for suckers.

So my friends, you may succeed in cashing out the Knight Ridder brand. But not for long.

Let me leave you with a warning: If you do "harvest" the qualities we've worked so hard to cultivate at Knight Ridder, be sure you make enough money to isolate yourself and your children in private schools and gated communities. The loss of social cohesion when news is treated like any other business won't be pretty.

In a global economy America can survive the decline of almost any business. But take a lesson from James Madison: America will not survive broad public ignorance.

Good night and good luck!

What do you think? Discuss it in The Coffeehouse.

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A project of the School of Journalism and Mass Communications at San Jose State University, Grade the News is affiliated with the Graduate Program in Journalism at Stanford University and KTEH, public television in Silicon Valley.

Monitoring the Bay Area's most popular news media:

Contra Costa Times

Knight Ridder

San Francisco Chronicle

Hearst

San Jose Mercury News

Knight Ridder

KTVU, Oakland (FOX)

KTVU, Oakland (FOX)

KRON, San Francisco

KRON, San Francisco

KPIX, San Francisco (CBS)

KPIX, San Francisco (CBS)

KGO, San Francisco (ABC)

KGO, San Francisco (ABC)

KNTV, San Jose (NBC)

KNTV, San Jose (NBC)

 

Bay Area media advocates:

Media Alliance
Center for the Integration and Improvement of Journalism at SFSU
Maynard Institute
Youth Media Council
Project Censored
New California Media
Society of Professional Journalists, Northern California chapter
National Writers Union Bay Area chapter

Site highlights

THE GROWTH OF FREE NEWSPAPERS

The three-part series follows the rise of three Bay Area handouts:
• Part 1: At free dailies, advertisers sometimes call the shots
• Part 2: Free daily papers: more local but often superficial
• Part 3: Free papers' growth threatens traditional news
• See also: SF Examiner and Independent agree to end payola restaurant reviews
• And: The free tabloid that wasn't: East Bay's aborted Daily Flash

FATE OF KNIGHT RIDDER NEWSPAPERS

Lou Alexander started a firestorm with his original guest commentary predicting the company would be sold. Several other experts on newspapers have weighed in:
Newspapers can't cut their way back into Wall Street investors' hearts, by Stephen R. Lacy; Alexander responds
Humbler profits won't encourage buyouts, by John Morton; Alexander responds
Newspapers can't maintain monopoly profits because they've lost their monopolies, by Philip Meyer
Knight Ridder in grave jeopardy, by Lou Alexander...

KQED-FM AUDIO PERSPECTIVES BY JOHN MCMANUS

Leakers and plumbers: There's no difference between a good leak and a bad leak? Journalists need a shield law. 11/22/05
Unintended consequences: How Craigslist and similar services are sucking revenue from faltering newspapers. 9/13/05
Is CPB irrelevant? As Congress moves to cut public broadcasting funds, has CPB become obsolete in the modern marketplace. 6/26/05
The paradox of news: There's more news available and its cheaper than ever before, but fewer young people are interested. 5/12/05

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