David Westphal reports an important and historic crossing of the Rubicon for a major newspaper, recounting a discussion with LA Times editor Russ Stanton at USC: "Stanton said the Times' Web site revenue now exceeds its editorial payroll costs."
I've long been asked by newspaper people - as a challenge - when the web will cover the costs of the newsroom as it exists. I've said it won't, that the scale of the business is just different.
But if what Westphal reports is true - and I confirmed via email that I was reading him correctly (and it does make sense since both edit costs and web revenue run at about 10-15% of newspaper budgets) - then it means the Times could support its newsroom as it stands - after cutbacks aplenty - from the web. That's momentous.
So why not go ahead and turn off the presses and the trucks and turn the Times into a pure news enterprise, disaggregated from its production and distribution businesses?
Now factor into the post-paper newsroom budget the elimination of many tasks - print production, design, editing. Step back from that knife, Mr. Zell. Rather than eliminating those positions, they must be converted to enabling local networks of partners - freelancers, bloggers, citizens - to expand the journalistic reach of the paper into the community.
And now add in the rumor that the LA Times might get rid of its national - that is, Washington - and international coverage and hand it - or its readers - over to the Washington Post. I've been arguing for some time that the national papers - especially the Post but also the NY Times, the Wall Street Journal, and perhaps USA Today - could become the Washington bureau to the nation's papers, saving them all money, giving them all the flexibility to redirect staff (reporters and editors) to local coverage, and giving their readers the best coverage. It's reverse syndication.
The LA Times could play this same role with other papers if it provided the very best coverage of Hollywood and entertainment to them, in return for links and new audience and traffic. News becomes a network of links made by those who do what they do best and link to the rest.
Clearly, by getting rid of print production and distribution, the LA Times not only gets rid of huge costs - which usually amount to at least half a newspaper's budget - it also loses both circulation revenue and advertising revenue, which is much higher than digital revenue. As Westphal pointed out in our email exchange, some digital advertising is tied in bundles to print advertising and so the risk is that getting rid of print would hurt digital. But I suspect the opposite would happen: Some of that print advertising will now be forced online. Indeed, I've long argued that newspapers should force both readers and advertisers to online - to the future - and turning off the presses would do that.
There's no question that the scale of the business would be smaller, much smaller. But with only edit and advertising sales costs (I'd market only during the transition) it could be a profitable business - a profitable digital journalistic business. That is the promised land. Welcome to the future.
Note well that bankruptcy makes it easier for a paper the size of the LA Times to consider such a radical move because it resets labor and vendor contracts and relationships with creditors. That size has become a disadvantage for legacy players (and it is why I've thought that new players will enter and start to take over these markets). But what if, once past bankruptcy and the cost of shutting down print operations, the LA Times as a news service could be profitable and grow? Yes, grow. News is a growth industry today; newspapers aren't. But they could be again.
If they do it right, the papers shifts from relentless shrinkage back to practically limitless growth. If they create good hyperlocal networks, they can offer new content at much lower cost and risk (that is, through partnership rather than staffing) and attract new readers at a very local level (while also attracting new readers internationally with that Hollywood coverage). They can create new means to serve an entirely new and very large population of smaller local advertisers who could never afford to use the LA Times before. They could create new services and platforms and find new lines of business.
It almost makes me wonder whether bankruptcy was always part of Sam Zell's strategy (but I never assume any company or mogul thinks that far ahead). He might lose his investment but if he comes away with the ability to shed huge cost and emerge with profitable, growing enterprises, he could well more that make up for that with future value and even take Tribune Company public again.
All this is why I got a grant from the McCormick Foundation to create a New Business Models for News Project as part of the Center for Journalistic Innovation at CUNY. I plan to work with business students (volunteers?) to play out this model among many others. The time for speculation is over. The time for rebuilding is here.