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Breaking the News

It's not the Internet that's killing newspapers. It's the equity-chasing investors and their friends at the FCC who have put outsize profits before a free press.

this is exactly the kind of imbalance the fcc had sought to prevent when it passed the 1975 newspaper-broadcast cross-ownership ban, and it's why Tribune Co. has long sought to roll back the rule. The company spent billions acquiring properties that are only temporarily exempt from being found in violation of the ban—unless the fcc changes the rules first. Between 1998 and 2005, it spent $1.1 million on lobbying and more than $380,000 on political contributions, trying to convince lawmakers that its business model proved the rule unnecessary.

This strategy seemed brilliant when President Bush put Michael Powell in charge of the FCC in 2001, giving him a mandate to clear away the agency's regulatory underbrush. Powell, after all, had famously quipped that he did not know what "the public interest" meant. "The night after I was sworn in, I waited for a visit from the angel of the public interest," he told a crowd of executives in 1998, after President Clinton appointed him to the commission. "I waited all night, but she did not come. And, in fact, five months into this job, I still have had no divine awakening and no one has issued me my public interest crystal ball."

Breaking with precedent, Powell announced that the burden of proof no longer rested on the opponents of ownership limits, suggesting that most regulations were unnecessary unless it was otherwise demonstrated. In June 2003, he led a 3-2 party-line vote to relax cross-ownership restrictions. (The commission also voted to significantly loosen television ownership caps.) The decision was made in spite of the 3 million public comments that had flooded into the fcc, the overwhelming majority of them opposing deregulation. "Seldom have I seen a regulatory agency cave in so completely to the big economic interests," said Senator Byron Dorgan (D-N.D.). Trent Lott, his Republican colleague from Mississippi, stated simply, "This is a mistake."

Powell may have been deaf to the public interest, but the courts were not. A year later, the 3rd U.S. Circuit Court of Appeals blocked his order, finding that although the fcc had the right to ease cross-ownership laws, it had not shown sufficient justification to do so. It was a stunning blow to Powell, who announced his resignation nine months later, walking through the revolving door into a job at a media and telecommunications investment firm.

But repealing the ban still remains a holy grail for media companies, and the newspaper industry's bumpy entrance into the digital age has provided them with a new rationale. Consolidation, they claim, is necessary to save newspapers, which otherwise can't compete in the new economy.

In fact, falling circulation numbers and sinking stock prices notwithstanding, corporate executives' cries of impending poverty are exaggerated. Newspaper chains routinely generate profit levels that most companies would kill for. ExxonMobil topped the Fortune 500 list for 2005, reporting 11 percent profit margins, while the average profit for the entire list was 5.9 percent. That year, the top 13 publicly traded newspaper companies enjoyed average profit margins of 20 percent; the 3 most financially successful chains, Gannett, McClatchy, and E.W. Scripps, earned around 25 percent margins. The Tribune Co.'s newspaper division earned 20 percent, as did the beleaguered Los Angeles Times. And this during a year that analysts lamented as "the industry's worst" since the 2001 recession.

What newspaper executives do not exaggerate is the pressure they get from investment analysts and large shareholders, who demand extraordinary, constantly growing profit margins and punish companies that fail to achieve them. But the newspaper chains themselves are partly responsible for setting unrealistic expectations. During the '70s and '80s, Gannett developed what would become a popular formula for making papers more profitable: Buy up a local newspaper, crush the competition, jack up ad rates, downsize the editorial staff (and, if required, break the union), then watch earnings soar.

The cut-and-gut approach does not treat newspaper ownership as a public service, but rather as an investment in a commodity like any other. This can make dumping papers an attractive option when profits sag or shareholders get antsy. Last spring, the Knight Ridder chain succumbed to pressure from its largest private investor and sold off its entire lineup of 32 papers to the McClatchy Co. for more than $4 billion. McClatchy then made a healthy profit flipping 12 of its new titles, including the well-respected Philadelphia Inquirer and San Jose Mercury News. Then, in December, McClatchy reaped a $160 million tax write-off by selling its "underperforming" marquee paper, the Minneapolis Star Tribune. The buyer, a private equity firm, had no experience running a newspaper. "They're buying cash flow and tax-benefits," an analyst told the New York Times. "It's not the sort of religious commitment that you hope to get from newspaper owners."

Obviously, the newspaper business is changing. The Internet has made it harder to sustain high profit margins, not because readers are abandoning news but because publishers have not yet figured out how to make more money from their websites. Until now, papers sustained themselves by selling a physical product and the ad space in it. With online readers refusing to pay for what they read and web ads generating pennies on the dollar, the old model is collapsing. As Jay R. Smith, president of Cox Newspapers, told Editor & Publisher, newspapers are "finding whole new pockets of audiences for which they get no credit," clocking record-breaking readership figures if online traffic is included. But online advertising will account for just 6 percent of newspapers' $50 billion in ad revenues in 2007, the Newspaper Association of America predicts.

What's really at risk here is not the future of newspapers but of the news itself. While our democratic culture could survive the loss of the daily paper as we know it, it would be endangered without the kinds of reporting that it provides. It's the journalism, not the newsprint, that matters.

Even in the online era, more than 60 percent of Americans say they read a local newspaper daily or several times a week. And with good reason: Few of the cable channels and websites that newspaper chains claim as competitors actually provide original news and information. Cable networks do virtually no local reporting of their own, and while bloggers do a good job exposing journalistic lapses, they generally aren't doing the muckraking, beat reporting, and pavement pounding that generate news. (See "A Blogger Says: Save the msm!") As the 3rd Circuit Court stated in its opinion upholding the cross-ownership ban, the Internet "may be useful for finding restaurant reviews and concert schedules," but it does not offer "the type of 'news and public affairs programming'" that public policies should promote.

fcc head kevin martin has suggested that "newspaper-owned [television] stations provide more news and public affairs programming and also appear to provide higher quality programming," echoing the findings of a 2003 study by the Project for Excellence in Journalism. However, the study did not examine what happens to the quality of newspapers after they merge with television stations. From what I've seen of these hybrid operations, the results are discouraging.

In the late 1990s, I spent two weeks inside Tribune Co.'s famous Chicago office tower interviewing reporters and editors for a book about a local heat wave, but found that everyone wanted to talk instead about "corporate synergies" and "cross-platform production." The company had just started to require its newspaper staff to report breaking stories on its cable news station, cltv. Many reporters were anxious about the new arrangement, which meant more work without more pay, and less time to do their regular jobs. They weren't comforted when managers announced that they were remodeling the newsroom to put a television studio directly outside the editor-in-chief's door. These reporters recognized that technology was changing their industry, and most were eager to learn new digital skills and make the occasional TV appearance. Their main concern was that as "content providers," they were losing time for reporting, thinking, and writing—the essential ingredients of their craft—forcing them to churn out increasingly dumbed-down articles.

It didn't help that their bosses had abandoned even a rhetorical commitment to newspaper journalism and the values it represents. "I am not the editor of a newspaper," Editor-in-Chief Howard Tyner told the American Journalism Review in 1998, "I am the manager of a content company." Tyner's predecessor, James Squires, had already observed this shift. "Journalism, particularly newspaper journalism, has no real place in the company's future," he wrote after leaving the paper. "No one ever uses the word. The company bills itself as an 'information and entertainment' conglomerate and hopes that newspapers will become a smaller factor in its total business."

Media General, a newspaper and television chain in the Southeast, became a leader in convergence journalism due to its long-standing ownership of the Tampa Tribune and nbc affiliate wfla. In 2002, I spent a week at its Tampa News Center, a cutting-edge facility where the newspaper, television, and web departments shared an editorial "Superdesk" that looked like the bridge of the starship Enterprise. Although the Tampa market is considerably smaller than Chicago's or Los Angeles', the News Center is one of the world's most technologically sophisticated and innovative convergence complexes, drawing visits from media executives eager to see the future of 21st-century news production.

Editors and reporters at the News Center were trained to constantly look for ways to make stories overlap in as many outlets as possible. Every day, print, TV, and online editors held a 15-minute "convergence meeting" to discuss shared projects. And every month, the company's multimedia manager compiled a report that listed successful overlap and praised "overt acts of convergence."

While the Superdesk enabled editors to do more with less, some Tampa Tribune reporters were finding themselves juggling competing demands. I shadowed several print journalists who were pulled away from their desks to do short spots and longer stories for television. While one was waiting to tape a shot, I asked her how she felt about the added work. "Well," she began, "the good part is that it's fun, it's different, it's difficult, and it's interesting for me. It's a break from my regular routine. But a few weeks ago I did TV every day for two weeks. And every day—when you spend 40 minutes writing the script, 20 minutes putting on makeup, 20 to 30 minutes taping, and then taking the makeup off—it takes, like, two hours to do the job. That's two hours—a quarter of my day—and that doesn't help my reporting." As their job descriptions required them to be more telegenic, some reporters feared that the norms of TV news production—short stories, soft features, celebrity journalism—were creeping into the print side.

These concerns reveal the vicious cycle that drives the newspaper business today: Slashing editorial content and standards may be a recipe for quick revenue, but it doesn't retain readers. However, doing the meaningful, quality reporting that print and online readers expect is expensive. And so each new round of convergence, downsizing, or outsourcing further erodes the product, paving the way for yet another round. As Los Angeles Times columnist Tim Rutten commented last fall, "A newspaper that is indifferent to its bottom line goes out of business; a newspaper that thinks only of its bottom line has a business that isn't worth saving." He knew what he was writing about: In October 2005, as its circulation plummeted, the Times announced that it would attempt to regain readers by running shorter articles and more celebrity stories.

this is the choice that Kevin Martin, the Tribune Co., and other advocates of continued media deregulation seem to be offering: We must destroy our newspapers in order to save them.

It doesn't have to be this way. Citizens, communities, and even a few media executives are beginning to make intriguing suggestions about how to reverse the course of radical deregulation and replenish the nation's supply of local media outlets. Frank Blethen, whose family has owned and published the Seattle Times since 1896, has been advocating newspaper ownership caps that would discourage chain journalism and create new opportunities for locally controlled dailies. Grassroots organizations in several states, including California and Illinois, are calling for the fcc to put teeth back into the broadcast license-renewal process. And radio enthusiasts, recalling the '60s boom of free-spirited FM radio, are asking why radio and TV stations should not be required to air original programming on the 1,000-plus new channels they will get on the digital spectrum.

Meanwhile, the fcc says it will continue to hold public hearings on the future of America's media. The question is how closely Martin will be listening. Last November, he quietly commissioned his staff and a few select contractors to complete new studies on media ownership, which will presumably bolster the rule changes he unveils. Whatever happens next, the stakes couldn't be higher. As Michael Copps, the other Democrat on the fcc, observed at October's hearing in Los Angeles, "We're back at square one. It's all up for grabs."

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