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Failing with a 20 percent margin

I love Molly Ivins, but I wouldn't go to her for business advice. Still, her column today reminds anyone who's interested of a very good point about the recent sale of Knight-Ridder newspapers: that far from being failing businesses, the papers had a 20 percent profit margin.

Lots of business would kill for that kind of margin. Then why did the KR board bail? Because newspapers are seen as a "failing" business, one "in decline." It's true that they're losing circulation, but that could be perfectly good thing: why spend oodles of money reaching the N+1th reader who doesn't see the value in your product? (Propping up circulation, by the way, is what killed Life magazine; circ acquisition and retention was costing more than the marginal rate increase the ad sales people could charge per reader.)

Of course, seeing a newspaper as a local branded information resource rather than a bunch of pulped pine trees might extend profitability. But that would require looking at a financial enterprise as more than a quarter-to-quarter business. As Molly says:

"So we're looking at a steady decline over a long period, and many of the geniuses who run our business believe they have a solution. Our product isn't selling as well as it used to, so they think we need to cut the number of reporters, cut the space devoted to the news and cut the amount of money used to gather the news, and this will solve the problem. For some reason, they assume people will want to buy more newspapers if they have less news in them and are less useful to people. I'm just amazed the Bush administration hasn't named the whole darn bunch of them to run FEMA yet.

What cutting costs does, of course, is increase the profits, thus making Wall Street happy. It also kills newspapers.

Aside from my own sentimental attachment to newspapers, I have no objection to all of us shifting over to the Internet and doing the same thing there. You'd still have the two big problems, however: A) How do you know if it's true? And, B) how do you put a lot of information into a package that's useful to people?"

Of course, that last graf confuses medium with message. By this time, it's abundantly clear that accuracy and reliability can be had online as well as in print. Arguing that there's so much trash online neatly overlooks the fact that there's so much trash in print, too. The barriers to entry are lower online, but they always have been. As I wrote back in 1995, all anyone ever needed to publish on the Net was an online account and a suppressed capacity for embarrassment. What's different today is that publishers have figured out that quality readers will be attracted by quality online content -- and that quality advertisers will pay to be associated with it.

Ivins' solution is that newspapers should become charitable enterprises. I love Molly, but that's just dumb. Any enterprise with a 20 percent profit margin is a real business (and it's not like charities are all spotlessly clean, either.) No, I long beleved that in all but the most unusual and enlightened instances, public ownership of media companies usually causes grief. Private companies, which can afford to take the long view, are usually better bets for safeguarding the public interest.


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