BANKRUPT NEWSPAPERS GIVE EXECUTIVE BONUSES

Failure isn’t what it used to be. Bankrupt newspaper companies are following the lead of AIG and Lehman Brothers and rewarding executives with large bonuses. The Tribune Co. is trying to pay out $13 million in bonuses, the Journal Registers Co. is trying to pay $2 million, and Philadelphia Newspapers has already given hundreds of thousands in bonuses to its corporate officers.

Company spokesmen say the bonuses make good business sense by rewarding good performance and keeping executives from leaving the companies. Both arguments are hollow. The first rationale rewards performance in running the companies into the ground and the retention rationale assumes other newspaper companies are hiring and would want to hire the tainted executives.

The issue of bonuses has emerged because newspapers filing for bankruptcy are not liquidating, but using Chapter 11 to create reorganization plans that will allow them to change the terms of the debt and union contracts. They have to seek approval from the bankruptcy court for their expenditures.

It is true that most of the papers in these bankrupt companies are making operating profits, but their corporate parents are losing money. The fact that profits exist are one of the reasons the companies have been petitioning the bankruptcy courts to allow them to pay bonuses. Not surprisingly, company debt holders—including states that are owned taxes—are not too happy with the idea and employees who have suffered layoffs and wage concessions are rightfully resentful.

The bonus debacle is yet another indication that the bankruptcies were created in the board rooms and corporate offices, not by the economic downturn. Poor corporate and management decisions are their root problem.

The newspaper business is clearly hurting because of the recession, but it is not a unique phenomenon. About once a decade for the past 50 years, recessions have played havoc with newspaper revenues, but the industry has survived them. Poor economic times, however, push companies whose managers have not paid sufficient attention to their balance sheets into financial crises and bankruptcy.

The last time we saw such wholesale problems was in 1991-1993 recession. Ingersoll fell into insolvency in 1991 and was broken up after its use of junk bonds for financing backfired. The New York Daily News went into bankruptcy that year as part of the collapse of the Robert Maxwell house of cards. United Press International went into bankruptcy in that recession as well. All three were victims to poor managerial choices made earlier and their positions became untenable in the recession.

History is repeating itself.

The bankruptcies today are the result of companies surpassing their financial capabilities and because executives have exceeded their own abilities to manage the firms. Some newspaper executives unwisely loaded their companies with enormous debt to make acquisitions and others are in trouble because the cumulative weight of poor management over a period of time has finally caught up with them.

Most newspapers, however, are surviving the downturn and will be serving their communities for many years. They are responding to the poor advertising climate with responsibility and thrift--NOT by giving executive bonuses that should be used for strengthening their businesses.

PERFORMANCE PROBLEMS SHAKE MYSPACE

The high hopes that News Corp. had for MySpace when it paid $580 million in for the social networking site in 2005 have never been realized and appear more elusive than ever.

Consequently, MySpace co-founders Chris DeWolfe (who is CEO) and Tom Anderson (who is President) are being pushed out of their management roles in major shakeup of the company's leadership.

The move is signals News Corp’s concern over the site’s declining market share and poor returns.

In the past three years Facebook has surpassed MySpace in total number of users worldwide, but MySpace has managed to remain the largest site in the U.S. and has 130 million users globally.

In 2008 the company had estimated advertising revues of $585 million, with the bulk coming from its ad-sharing deal with Google. But it will take a long, long time for News Corp. to recoup its investment at that pace. That revenue problem is compounded because Google has been unhappy with its MySpace deal and is unlikely to continue it at present terms when it expires next year.

The shakeup at MySpace underscores the value creation challenges that online media face. Services are typically offered free to generate high numbers of users and then these are used to create audiences for advertising or as a market for up-selling enhanced services. Although the audiences are attractive for some advertisers and some types of advertising, online advertising is not yet as effective as television and print advertising for most brands and retailers.

DOES ONLINE NEWS STILL NEED OFFLINE TIES?

When the Seattle Post-Intelligencer ceased publication in mid-March it continued www.seattlepi.com as a web-only publication. It employs 20 persons, making it one of the largest online staffs of any local Internet news organization.

Although it has a much smaller staff than the print edition did, the site continues to cover local news and sports, provides national and international feeds, and features local bloggers. In many ways it is what many observers have called the future of post-print journalism. It is well recognized that print is an expensive way to convey news, information, and commentary so observers argue that the Internet is the answer for community informational needs because the public is increasingly getting their news there anyway.

It is still early days for forming a definitive view of how dropping print may affect online demand, but the P-I’s situation gives a unique opportunity to observe effects. In February—before the print edition closed—the website had 1.8 million unique visitors. In March, that number dropped to 1.4 million unique visitors. If these initial results hold true over time, it would indicate that print still provides some important reputational and marketing benefits to online activities.

Those interested in the online future of journalism should be watching the Seattle situation with interest in the coming year.

THE WILD AND WOOLLY WORLD OF CABLE, SATELLITE AND BROADBAND MARKETING

Increasing competition among cable, satellite, and broadband suppliers, combined with slower growth in consumer uptake because the industries have reached maturity, is leading to aggressive marketing efforts to wrestle market share from other companies.

If the leading companies followed classic marketing strategies, they would be offering consumers better arrays of networks and services, better customer service, and/or better prices in efforts to attract more customers.

Instead, many of the largest competitors have been engaging in acts that harm customers and consumers by using illegal and deceptive marketing practices and strategies designed to unwittingly wring greater revenue from their customers. Although the companies apparently think there are benefits in behaving badly, their marketing practices are increasingly getting them into trouble.

Aggressive telemarketing—which has always offended consumers—has landed a number of leading firms in hot water. Comcast and Direct TV have just admitted charges and are paying fines to the Federal Trade Commission for violating telemarketing rules by ignoring the federal do-not-call list. The FTC has also filed a suit against Dish Networks for similar violations.

Companies tend to advertise heavily when competition is high and ads for cable, satellite, and broadband services have helped the revenues of thousands of television stations, newspapers, and magazines across the U.S. Unfortunately, the veracity of advertising claims in cable, satellite, and broadband services has been widely questioned by consumer groups, governments, and other competitors. In recent months Bright House Networks filed a complaint with the Federal Communications Commission about the practices of AT&T, the National Advertising Division of the Council of Better Business Bureau chastised Cablevision for advertising claims after complaints from Verizon, and Verizon itself has been sued for misleading claims by NJ Division of Consumer Affairs.

The industry also sought to market different levels of broadband Internet services to customers and planned to charge different rates for users—a strategy that would allow them to advertise a low price even when many customers would have to pay a higher price based on usage. Plans by Time Warner, Comcast, Frontier Communications and other firms to offer tiered service plans have now been dropped after complaints by customers and legislators.

Cable and satellite firms have traditionally been mavericks and rogues in the media industries and many Internet service firms followed their example. Even though the industries have matured and the number of players has been significantly reduced through mergers and acquisitions, the wild and woolly world they created is still evident in their marketing practices.

We can only hope they will learn to become good corporate citizens—or at least firms concerned about their own reputations.

TECHNOLOGY RESTORES COLLECTIVE CONTEMPLATION

Humans are social and tribal animals and we have always collectively contemplated the meaning and potential responses to issues and events. In the past tribes gathered around fires and villagers gathered in taverns, cafes, and community halls to consider contemporary developments.

Individual engagement and participation in discussion were the norm, with some reliance on leaders and those who held the history and wisdom of the community.

Lifestyle changes in the 19th and 20th century society created mass society and reduced time and opportunities for collective contemplation. It was replaced by a form of representative contemplation and a greater reliance on expert and professional commentators. The effect was primarily to produce communications telling members of communities what to think and do.

Contemporary communication technologies are dramatically altering that situation and supporting a return to collective contemplation. While not producing face-to-face discussion, blogs and technology-assisted social networking have increased opportunities for discussion and interaction. Individuals are gaining greater opportunities to share their opinions and views, to inform each other, and to respond to and engage in conversation that has been impossible for many years.

Concurrently, technologies are beginning to allow effective meta analyses of buzz, blogs and social networking that gather topics and some sense of opinions being expressed. These information technologies allow us to aggregate the views of millions in ways not previously possible.

Where such technologies will take us in unclear, but the contemporary engagement and contemplation by millions of people online is far better for society than the disenfranchisement that mass society previously encouraged.

Media organizations will have to wrestle with how this collective contemplation is altering the roles and functions of editorial writers, op-ed authors, and columnists. They will have to increasingly engage with the public and see their roles as provoking conversation, not merely telling people what to think.