Charlotte Observer publisher Ann Caulkins is right and I hope McClatchy listens to her

In a Charlotte Observer podcast this week, Ann Caulkins reiterated her belief in quality journalism and investing in figuring out how to monetize in today’s media environment.

Ann’s strategy is exactly the right strategy, but it’s not exactly what McClatchy is doing.

The entrepreneur in me would love to see Ann lead an independent Charlotte Observer. I would follow her, and I believe in her.

But an independent Charlotte Observer won’t happen — at least not for a few years until McClatchy is forced to sell assets (papers) to deal with their large debt obligations. The Charlotte Observer is owned by McClatchy. McClatchy is a publicly traded company and owns 29 daily newspapers across the United States.

The McClatchy vision is not as strong as Ann’s vision. Just listen to their latest earnings call and you can understand why an interested investor would post this to the Yahoo Finance message board: “When I hear the names of the guys at the top, they have been here for years, same old song and dance, same old shuffling the chairs on the deck of the Titanic.”

The unintelligent race to digital is accelerating the death of metro newspapers.

The digital assets at metro newspapers (website/apps) are horrifyingly unprofitable. Let me run you through an example. You run a metro newspaper website that generates 20 million pageviews per month. You serve four banner ads per page. Your banner ad gets a $5 CPM (CPM = cost per thousand). You just made $400,000 a month or $4.8 million annualized. Let’s say newsroom payroll is 1/3 of your expenses — that’s $1,584,000 annualized. This means you’d have a newsroom of only 20 people (with $80,000 salaries) just to break even.

Furthermore, the above scenario doesn’t factor in the downward pressure on banner advertising (the Internet is getting infinitely big) and the fact that on mobile you’re forced to show fewer banner ads.

Another way to look at this is through the lens of a competitor, Facebook. Facebook has $0 newsroom costs, better reach for advertisers, better analytics for advertisers and better targeting for advertisers. That’s tough competition for a local publisher.

Metro newspapers are running toward a model where you monetize on popularity/scale, and it’s illogical. The math is so obvious to me that I truly can’t understand why a metro newspaper would run head first into digital.

Just because print is in decline doesn’t mean that you race toward a bright, shiny object without looking at the simple math.

Major symptoms of this metro newspaper “race towards digital” mistake

Symptom #1: Metro newspapers will employ fewer older professional journalists. You’ll see newspapers subtly replace an $80,000 older reporter with a $40,000 young reporter. Doing this dramatically reduces expenses and the effects on revenue are longterm, so it doesn’t show up immediately in the financials.

Symptom #2: Metro newspapers will produce more Internet-y content because newsroom incentives are led by business people who are misguided. Reporters and editors will have “pageview goals” and they’ll be celebrated for popularity. As a reader, you’ll see more lists and more op-eds about 9-year-olds that don’t like Cam Newton. Just look at the videos on the center of the Charlotte Observer homepage yesterday morning…

Symptom #3: Metro newspapers will have worse customer service. Just like replacing a seasoned $80,000 reporter with a hungry $40,000 junior reporter, customer service expense reductions have immediate positive impacts on cash flow and the effects on revenue are longterm in nature.

Let’s back up a second

Regardless of innovation, strategy or execution, metro newspapers will get smaller. Smaller newsrooms. Smaller revenue. Smaller profits. That’s just part of unwinding an amazing monopoly on information.

Many metro communities and many journalists think that newspapers and journalism have an inherent right to exist. That doesn’t make sense. Newspapers are businesses.

Make no mistake, this isn’t about getting smaller. This is about survival. The economics are worse and shakier than people think. Because of the cost structure, a metro newspaper can still have significant top line revenue (thus be relatively big in size/influence) when they become unprofitable. This is really, really important and should provide a greater sense of urgency to metro newspapers.

What should metro newspapers do?

Ann’s right about the solution. On the podcast, Ann said, “We invest in great journalism” and she also added, “I want us to be more entrepreneurial.”

Metro newspapers should do what Ann says: (1) Invest in differentiated quality and (2) invest in figuring out monetization.

Here are three tangible strategies that metro newspapers should focus on over the next 1-3 years.

(1) Maximize print. Printing stuff and distributing printed stuff is very hard. Also, print advertising works. Metro newspapers should continue to invest in print, especially niche print (community journals and annual guides). For an example, look at the company N2 Publishing — there’s a reason why they’re “Among the 1,500 Fastest-Growing Private U.S. Companies 5 years in a row (Inc. 5000, 2015).” Print cash flow gives newspapers optionality and differentiation.

(2) Go after paying digital subscribers. Instead of racing toward Internet-y content, metro newspapers should maintain quality and charge people for it. The Charlotte Observer newsroom should have the goal of acquiring 20,000 digital subscribers who pay $399/year for their content. This aligns the newsroom with the customer — we produce stuff, you pay for it. For an example, look at The Information which charges $399/year for tech news and produces about two stories a day. They’re growing, fast.

The lazy counterargument to this is “people don’t pay for news” — I disagree. I believe there is room for metro newspapers to become the HBO of metro news, but it requires a different execution/approach.

(3) Focus on the packet. In the podcast, Ann mentions “inserts” several times. Why? Because they’re freaking cash cows. They perform for advertisers. Inserts are the pieces of paper (ads) that go into the newspaper. The “entrepreneurial culture” that Ann describes should focus on packets of delivery that give a digital insert ad experience that advertisers get from print inserts today. You can picture swiping through an iOS app where one or two of the 10 swipes is a full-screen video ad. For example, think Yahoo News Digest with one of the cards being an ad/insert.

Metro newspapers’ parent companies should embrace risk, longterm thinking and fight for their lives.

The newspaper industry suffers from massive group-think and risk-aversion at the parent company level. From the outside it’s difficult to understand why. You’d think that organizations with impending death would stop looking at their struggling peers for answers and take huge risks.

Metro newspapers must face reality as it is, not as they wish it to be.

But you can’t expect transformation without transformational leadership. And unlike Bezos at the Washington Post, the executive teams at metro newspaper holding companies look a lot like life-long newspaper people in their 50s and 60s.

I love the Charlotte Observer. I read it every day. It produces most of the original journalism in our city. It’s important. But it needs leaders like Ann to have complete freedom in order to survive.