Know when to say “no” – Chicago Sun-Times Media Group and Newspapers

I never cease to be startled by the optimism of businesspeople.  Why would anybody buy a newspaper company these days?  Yet, Crain's reports "Sun Times Sale Appears Near."  It's believed the buyers are a group of independent investors, no media experience, led by Mesirow Financial Group.

Ever heard the term "smart money?"  This is definitely not "smart money."  Just like Cerberus was none to clever to spend billions buying Chrysler a couple of years ago.  Shortly before it went bankrupt.  Too often, those with lots of money to invest become full of hubris.  They believe their experience allows them to "fix" any business.  This almost always involves cost cutting – such as letting go any sort of R&D, product development, advertising, marketing and often sales.  Assets are sold to raise cash and incur one-time write-offs (with tax deductions) and get rid of depreciation charges.  These financiers believe they can "fix" any business if they are "tough" enough to cut enough costs, and get the remaining employees "focused" on specific segments with specific products.

Only we're finding out that just doesn't work.  This sort of "company flipping" was prevalent in the early 2000s.  But it added no value, and it wasn't long before market investors quit playing.  The value of these cost-stripped businesses, with no growth potential, dropped like a stone.  Without growth, the business just keeps on shrinking.

Tribune Corporation, parent of newspaper Chicago Tribune, has already filed bankruptcy.  But it is expected to wipe out bondholders (lots of it the employee pension plan), and come out of bankruptcy.  To a market which in which fewer and fewer people read newspapers, and fewer and fewer advertisers are buying ads.  There is too much competition today for too few subscribers, and too few advertisers, in newspapers.  Sun Times Media has no major on-line presence, nor television stations.  So how will these investors make a return on their acquisition investment?

They won't.

It's hard to give up in business.  It's hard to believe that there just isn't demand for buggy whips any more.  It's hard to believe that the last remaining buggy whip manufacturers are so competitive, unwilling to give up, that they don't make much profit.  We are romanced into believing that "if you really want to be a blacksmith, there's a way to make money at it."  We want to believe that somehow if we work hard enough, if we're smart enough, we can "fix" any business.  But when the market has shifted, and demand drops, the smart leaders know to say "no."  They take their investing to where customers and demand are growing so they can make a much better rate of return.

Invest in the Rapids.  Not the Swamp.  Companies in the Swamp almost always end up in the Whirlpool.  It's hard to think Sun Times Media isn't already there – what with their negative cash flow and very small cash hoard.  Unless you know exactly how you're going to add growth to a troubled business, it's best to simply walk away.

It Takes White Space to Transition – Tribune Corporation and HuffingtonPost.com

"This is the future of media.  Whether in print, over the air or online — the delivery mechanism isn't as important as the unique, rich nature of the content provided."  That's what the Tribune Corporation's COO, Randy Michaels, said in "Tribune Merges Conn. paper, stations" as reported on Crain's ChicagoBusiness.com.  After filing bankruptcy, and seeing both newspaper subscribers and advertisers hacked away dramatically, Tribune is merging together all operations – newspaper and 2 TV stations – in Hartford, CT.  They are cutting costs again.

We can hope Mr. Michaels means what he says, but excuse me if I'm doubtful.  Despite the rapid acceleration of on-line news readership, and the fact that in most major markets Tribune has one or more TV stations as well as a newspaper, Tribune has never consolidated it's news operations or its advertising sales force.  This is sort of remarkable.  Going back at least 5 years, it made sense when gathering the news, or talking to an advertiser, to discuss how you could maximize his value for ad money spent.  That meant a sharp company would have laid out programs showing how they could give advertisers access to eyeballs from all sources.  But instead, at Tribune each station had its own salesforce, each newspaper, and each on-line edition of the newspaper.  There was little effort to give the customer a good value for his spend – and no effort to discuss how he could transfer dollars between media to be a big winner.  Even though Tribune was an early investor in the internet, it has not learned from its investment and migrated to a new Success Formula.

At a time when advertisers are unclear about how to justify their spending, a sharp media company would be explaining how many eyeballs in are in each format, the demographic profiles and the cost to reach those eyeballs.  A company that really is "media independent" would have a big advantage over one trying to sell only the legacy products, because it isn't learning from the marketplace how to offer the best product at the best price and make a profit.

And Tribune had better move quicklyArianna Huffington has announced the launch of the "Huffington Post Investigative Fund," as announced on the website HuffingtonPost.com.  This is her effort to create a pool of investigative journalists for on-line sites who will do the kind of work we historically expected newspapers to do.  She is throwing in $1.75million, and asking others to put up additional money.  Thus giving this White Space project not only permission to figure out a "new age" model for investigative reporting, but hopefully the resources with which to experiment and learnWhether this project will succeed or not is unclear, but that it is intended to make on-line news (and her website) more powerful and successful is clear.  With each step like this, and this one she took all over the airwaves Monday discussing on multiple television stations, the case against quality of on-line news declines – and increases the on-line competition for eyeballs with television, radio and newspaper formats.

What we'd like to see is an announcement that the Tribune project in Hartford is a White Space project intended to figure out the Success Formula for future media.  As we come ever closer to the "Max Headroom" world, depicted in the 1980s of a future where there is 24×7 news around all of us all the time, what no one knows for sure is how the profit model will work.  Those who experiment first, and learn the fastest, will be in a strong position to be the leader

Unfortunately, the Tribune announcement does not look like White Space.  The Tribune leadership has still not Disrupted its grip on the old Success Formula.  The project in Hartford looks more like a cost-saving effort, trying to defend the old newspaper, than a learning proposition.  The project seems to lack the permission to do whatever is necessary to succeed (like perhaps stop printing), and it has no resources coming its way with which to experiment as it keeps trying to maintain all 3 of the legacy business units.  Rather than a learning environment, this looks more like an effort to save 3 troubled businesses by cost saving - a Defend practice that doesn't work when markets shift and new competitors are trying all kinds of new things.