Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

February 1, 2009
David Warsh, Proprietor


| contents |

Newspapers at the Crossroads

Doubts about the future of newspapers are thick in the air. All around the country, big city dailies are caught in a great downdraft of technological change, losing many of their readers and much of their help-wanted and classified advertising to the World Wide Web. Unable to bring costs in line sufficiently quickly, most are losing money. Some have crashed.

 

Meanwhile, The New York Times, foremost of the national dailies, is selling its headquarters in Times Square (and leasing it back); borrowing $250 million from a Mexican oligarch (and granting him an option to increase his holdings to as much as 18 percent of the company’s non-voting shares); and selling its minority position in the Boston Red Sox.

 

On the Times op-ed page last week, Yale University’s money manager, David Swenson, plumped for a novel solution to the problems of newspapers: turn them into endowed, nonprofit institutions, like colleges and universities.

 

Yet the other leading national newspapers are not in deep trouble.  The Washington Post, The Wall Street Journal, the Financial Times, USA Today are shrinking somewhat, but they are not in financial distress. Why the Times?

 

The simple answer: one lurch after another over the last fifteen years in search of a miracle diversification.  No doubt the Times will survive its current embarrassment. And an opportunity may be at hand to arrest the fall. But will the paper grasp it?

 

To gain perspective on the company’s current straits, start with The Trust: The Private and Powerful Family behind the New York Times, by former Times reporter Alex Jones and his wife, former Fortune writer Susan Tifft. It may very well be the best newspaper biography ever written.

 

Not only does it tell the story of a hundred years of Ochs and Sulzberger family ownership, honestly and completely – for the most part, it is veritable plumb-bob of a book, a weight with a pointed tip, suspended from a string, a vertical reference line with which to check the uprightness of things. But it also exemplifies the highest ideals of the newspaper itself, aspirations as admirable as they are elusive. (N.B.:  Probably the book could only have been written at a time when both Arthur Ochs (Punch) Sulzberger, the paper’s long-time publisher, and the authors were on the verge of retirement from their day jobs; witness the fact that the perpendicularity of its account wilts somewhat after Punch leaves the scene. The Trust appeared in 1999.)

 

Exhibit A is its treatment of the current publisher, Arthur Ochs (Pinch) Sulzberger Jr., a fourth-generation family member (b. 1951) who began to replace his father a few years before the book appeared. Because of his parents’ divorce, Arthur Jr. grew up outside the family circle and suffered privations as a child.  Unpopular among many of his aunts, he was nonetheless eager to claim what he regarded as his rightful position: his father’s heir.

 

Jones and Tifft meticulously discover and record the complicated dynamics of succession in a family firm. Especially vivid is this scene from 1992, in which today’s CEO first began to take the helm:

Just as Punch introduced [his son] as the man “who today is going to be named publisher of The New York Times,” one of the bottom windows farthest from Arthur Jr. suddenly shot upward with a loud bang. A rush of winter wind sent the curtains flying into the room, hurtling a framed photograph of the late Shah of Iran from its place on a side table to the floor. Arthur Jr. paled. “The spirit of Adolph Ochs,” one board member gasped, glancing up at the Lásló portrait [of the dynasty’s founder]. “No, no, it’s the winds of change,” nervously joked another. As Times executives raced to the window and tried to close it, Arthur Jr. tried to regain his composure and make light of what several witnesses considered an “omen” and “an absolutely eerie thing”: “I hope that’s not an evaluation of my fitness to be publisher,” he remarked with as much savoir faire as he could muster.  Had the superstitious Adolph been alive, he no doubt would have read auguries into the unlikely event.  The window was so heavy that it took two hands to lift it; how could a mere gust of wind, however strong, have caused it to fly open?  “It was frightening,” said [Times attorney] Mike Ryan, who had a good view from his seat by the wall. “I’ve been in that boardroom for thirty-five years and never seen anything like that.  (Stranger still was what happened to the clock that hung on the outside of the Times building, just below the fourth floor.  Adolph had installed the original in 1931. After a fire in 1962, it had been replaced by a clock nearly seven feet tall and seven-and-a-half feet wide that spelled out Times in gothic lettering, and the hour and the minutes in incandescent bulbs. The day that Arthur Jr. was made publisher, the bulbs blew out and the clock went dark.

Seventeen years later, the clock is gone – and so, to another owner, is the old Times headquarters on West 43rd Street. Today the paper operates out of a sleek new building around the corner and down the block – expensively constructed with a developer partner – and now about to be sold (the Times’s portion, that is) to a real estate management firm.  The new building, designed by celebrated architect Renzo Piano, is among the projects undertaken by Arthur Jr. after his father ran off a disrespectful outsider among his executives, Lance Primis, who had aspired to the chief executive’s job.

 

The new building is the least of it.  There has been a whole series of unprofitable investments, beginning with the elder Sulzberger’s purchase of the Boston Globe in 1993 – profitable enough until the son fired its long-time managers in 1999. Times Co. then blundered into cable television on the theory that it would be the Next Big Thing, losing something like $1.5 billion after buying into the Discovery Channel (not all of its owner, Discovery Communications, correction added), failing to turn its programming (“Discovery Times”) into a money-maker, and bailing out. It forced long-time partner Washington Post Co. out of a joint venture at the International Herald Tribune, spending $35 million on a project that has produced little more than ill-will. It bought a series of Internet start-ups that failed to catch fire, culminating in $410 million for About.com, an online guidebook that has yet to pay off.  (The good news is that the Internet investing has produced a outstanding New York Times website, the industry’s best, eleventh busiest after giants such as Google, Microsoft, AOL, Yahoo, and News Corp.)

 

All the while, the company continued to buy back its stock in an effort to bolster shareholder value; some $3 billion vanished into thin air as the share price declined from nearly $50 in 2004 to less than $5 on Friday.

 

The result has been that two hedge funds challenged Sulzberger’s leadership, one after another, but to no very conclusive effect – at least, not yet. The company’s two classes of shares, only one of them with voting rights, assures family control. Fifteen or so cousins, who have pooled their shares in a single trust, have set an example practically unprecedented in the recent annals of American business, accepting dividend cuts amounting to 75 percent, tightening their own belts while requiring few significant cuts in the newspaper’s budget — a unilateral self-discipline that cannot continue indefinitely.  These members of the fourth and fifth generation of the Ochs/Sulzberger clan probably can’t throw their cousin overboard, but they apparently have taken a much livelier interest in the way he conducts the family business.

 

So what’s the solution?

 

That’s where Exhibit B of The Trust comes in. Twice before in its history, the Times business model has been seriously tested.  Each time its publisher has responded by investing more resources in the newspaper.

 

In 1898, barely two years after he bought the paper, Adolph Ochs found himself under siege. William Randolph Hearst’s New York Journal and Joseph Pulitzer’s World, were pummeling the Times with their coverage of the Spanish American War.  A renegade bookkeeper was impugning Ochs’ claims to a circulation of 25,000 (“You have been fleeced by the Times long enough!”) When they learned the paper was selling only 10,000 copies, Bloomingdale’s and Best & Co. cancelled their advertising contracts.  Ochs responded by slashing the price of his paper from three cents to a penny, undercutting the other quality papers, the Herald and “Tribune, boldly bluffing the others, setting the Times on the road to its present-day dominance.

 

In the late 1960s, the Times once again found itself under increasing financial strain. Costs were rising; circulation was stagnant; advertisers were unexcited by the staid old “Gray Lady.”  The publisher, Punch Sulzberger, commissioned a committee of editors to consider whether the paper should go to a four-section format – an appeal to new forms of “soft news” that many old newsmen firmly opposed. Then came the recession of 1975, in which help wanted advertising declined by half. Sulzberger ordered the redesign to commence, with a new section, “Weekend,” that appeared amid great trepidation in 1976. It proved to be a hit with readers and advertisers alike. The new format “would prove to be every bit as revolutionary as the changes Adolph Ochs had instituted soon after acquiring the paper in 1896,” write Jones and Tifft.

 

Arthur Sulzberger Jr. has done a good job creating the Times presence on the Web, but it is not nearly enough. What he needs to do now is conspicuously rededicate the paper’s commitment to newsprint and ink, even if it requires a significant downsizing of its 1,200 person staff to bring costs into line. The top of the news chain will continue to belong to those who can put out a daily paper and place it, not necessarily in every house and on every street corner, but in every coffee shop and library where the reading public expects to find it, and on the desk of every citizen who aspires to a certain kind of power – a much smaller number than before, but a blue-chip audience, one which advertisers will wish to reach.

 

Owing to its history and its place in the nation’s cultural, fashion, and financial capital of the nation, the Times has an insuperable advantage in some venues.  The Washington Post, taking advantage of an impregnable position stemming from the tight geographic concentration of its readers, announced last week that it would cease publishing a paper version of its book review.  The Times should respond by ostentatiously adding more pages to its Sunday Book Review.

 

The one thing the Times should not even consider is neglecting the ink-on-paper product. Without its broadsheet, the newsgathering enterprise gradually would shrivel up and become, at best, a news service – an ornament to the print editions of sturdier firms that recognized that presses and delivery systems, far from being simply burdensome costs, are in fact the ultimate symbols of opinion-making authority, and powerful barriers to entry by would-be competitors to boot.

Times Co. management needs to get ahold of itself.  Maybe it already has.  The rough handling of the last few years perhaps has been enough to concentrate its attention on the task at hand. And if the Times succeeds in braking its fall,, some of the other great old metropolitan papers may re-establish themselves in their markets. For all its imperfections, The New York Times is still the best we have. All those who care about the Fourth Estate should wish it well.

| contents |


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.