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Archive for November, 2013

As the editor of a small newspaper, I sometimes have a number of other roles to fill. Recently it has been business reporter following the bankruptcy process of one of this county’s major employers, Furniture Brands International.

Once it became obvious that the company would almost certainly end up in the hands of KPS Capital Partners, a private equity firm specializing in turnarounds, I read up on KPS and its approach.

Part of an interview with ABF Journal, a trade magazine, by KPS partner Michael Psaros about the keys to success in a turnaround continues to echo in my head:

“We’ll get there by actually understanding where our companies are making money in terms of the products they are selling and the customers they are selling to.”

As obvious the last point may seem to be, Psaros says it’s a point that seems to elude almost every management team KPS replaces. “It never ceases to amaze me that in almost every case, we ask the simple question: ‘Which products and customer relationships are profitable and which aren’t?’ And the answer winds up being: ‘We don’t know.’ I’m left to wonder, how can you run a company and not know this information?”

I read that and can’t help but wonder how newspaper owners would answer that question. We (newspapers) simultaneously tell the public we are selling them a package of information and/or entertainment even while we get most of our money from selling ads to businesses based on how many people are willing to buy that package from us. What’s our product in that equation, the paper or the audience? The customer relationships with readers are the reason we can build the customer relationships with advertisers, but the relationships with readers are not by themselves very profitable, or not profitable at all.

By the pricing strategies of major newspapers, you can tell that the owners still feel they are in the advertising business. They continue to sell subscriptions for a fraction of the cost of producing a copy of the newspaper. How much they are willing to subsidize a subscription amounts to the cost of raw material to assemble the product, which is the readership, that will be sold to advertisers. Any talk, then, of the quality of the news in the newspaper might be considered only so much branding because it doesn’t do anything to build the part of the business where the most money is made.

KPS says on its website that it would consider investing in “all industries except for high technology, financial services, telecommunications, broadcast media, real estate and natural resources (exploration).” Its emphasis is on industries that make things, where there are processes and supply chains that can be made more efficient, and tangible products that can be improved upon. Print and online news media are not in the “do not invest” list, but I can’t help but wonder.

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NT Lenoir News-Topic template 9-20
This morning, for the first time in decades, there was no morning print edition of the Lenoir News-Topic.

Several dozen regular readers are not taking it well.

We dropped a day of publication as a way of cutting expenses, but we also are trying to make something good out of it by adding pages to the Sunday paper, which actually is going to come out Saturday night. Our first “weekend edition” is eight pages fatter than the usual Sunday edition had been (which was just 18 pages).

We began a PR push on the change two weeks ago, including two front-page stories explaining the changes. But at least some people apparently didn’t realize that “we’re combining the Saturday and Sunday editions” means that there will now be one edition instead of two.

And most of the comments reflect one of the biggest problems newspapers face: Many people don’t think the economy or the rules of business apply to newspapers, and they have no clue how little of the cost of producing newspapers is covered by what they pay to buy one.

And that is the industry’s own fault. You can’t spend decades practically giving the paper away for free in order to attract more advertisers and then expect people to understand that they have never really been paying the cost of the product.

The newspaper industry’s “original sin” was not giving away content online for free, it was giving content away for nearly free in print for over a hundred years before the Internet was even invented.

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