Executive Session with John Paton
'Digital First' Strategy Reaps Gains For JRC
Since sinking into bankruptcy in 2009, the Journal Register Co. has been reinventing itself, emphasizing content and sales while shedding printing plants and above all, focusing on building online readership. This year, the company's cash flow margin sits in the mid-teens, on par with the best in the newspaper industry, according to company CEO John Paton. In this interview with NetNewsCheck.com's Carol Marie Cropper, Paton talks about how JRC uses crowd-sourcing to beef up its local content, while centralizing national news gathering in a project called Thunderdome. By Carol Marie Cropper NetNewsCheck, June 27, 2011 11:44 PM EDT
Three years ago, the Journal Register Co. was one of the newspaper industry’s worst black eyes. After building up mounds of debt -- in part by paying $415 million for publications in, of all places, Michigan, in 2004 -- the sprawling chain of small to mid-sized newspapers, shoppers and magazines was careering toward a crash. The New York Stock Exchange delisted its stock in 2008. Bankruptcy followed in February 2009. Today, the company looks more like the shiny poster child for change, with industry onlookers hoping at least some of its many experiments succeed. Earlier this year, Editor & Publisher listed three Journal Register newspapers on its annual “10 Newspapers That Do It Right” list. The young publisher of one, Matt DeRienzo, was named to E&P’s “25 Under 35” list. JRC has opened its newsroom and editorial meetings to the public at The Register Citizen in Torrington, Conn., reached out to citizen journalists and bloggers at its Community Media Labs, and used its Ben Franklin Project to show that newspapers can grab free technology off the Web to publish online for less.
In March, the company’s new CEO, John Paton, crowed to rank and file employees that JRC had beat its goal of $40 million in 2010 profits and bonus checks were on the way. It’s worth noting that that profit was just EBITDA -- earnings before interest, taxes, depreciation and amortization -- and not the real bottom line. As executives at companies that borrowed to buy newspapers before the market plummet of recent years can attest, interest expenses do matter. But JRC emerged from bankruptcy a private company owned by former creditors, with less debt and less need to share financial details Through all this, Paton has emerged an industry star. E&P had already named him Publisher of the Year in 2009 for his work as co-founder, chairman and CEO of impreMedia LLC, the nationwide Hispanic publishing company. After joining JRC in January 2010, he added Newspaper Association of America board member to his resume. Paton has become a sought-after speaker at conferences anywhere the future of newspapers is discussed, regaling audiences with his message, “Digital First.” Paton has called on legacy media execs to put the tech-savvy in charge, stop investing in print, slash or outsource any effort not tied to gathering the news or generating ad sales, and aggressively chase “digital dimes.” NetNewsCheck recently caught up with this high-energy CEO. An edited version: You’ve said the newspaper model is broken and must become digital first and print last. Can you elaborate, and describe what that means in terms of what you’re doing at your own company? In essence, the 'digital first' strategy is about allocating resources appropriately to how news is now created and consumed. It means that news breaks on CMS, the Web. That process continues ’til the very last thing we do is print.
So the business model actually allocates to that new news ecology as opposed to the other way. Most newspapers are still allocating all of their resources to how the paper’s actually printed. That doesn’t make any sense anymore. We actually have a bigger digital audience than print audience. We’re trying to allocate resources to what people want, and that’s digital. We have currently 19.6 million Americans access our product: 11 million of them are online customers -[monthly] unique visitors -- and 8.6 million of them are readers of our print product [dailies and non-dailies]. [Online was] 5.5 million a year ago. Print has stayed the same and digital has doubled. We’re outsourcing everything. If it doesn’t have anything to do with the creation of content, marketing and research … then we’re either outsourcing it, reducing it, stopping it or selling it. So, yes, we’ve been getting out of printing. We’re getting out of distribution -- the physical distribution of the newspaper. Tell me about what your company has been doing with crowdsourcing. On a daily basis, we now crowdsource news in all of our newsrooms. We have community media labs where people can come into the newsroom and work alongside the journalists. We do that in 20 of our locations. That’s different from our open-to-the-public newsroom in Torrington, where the public can come and sit in on news meetings and participate. Basically it’s become a community center. That newspaper -- which wasn’t making any money two years ago -- is now in its second year of profitability. Its digital audience is almost 6 times its print audience on a monthly basis. We know that from a bottom line perspective it has been very good for the newspaper itself. This will be the model for all of our daily newspapers going forward. We have gone from 5.5 million uniques to 11.7, and we’ve gone from nearly zero bloggers to more than 1,500 in the same time frame (bloggers that reside on our site or their content does). Clearly they’ve played a role in expanding our content
offerings and expanding our audience. As has our partnering with companies like SeeClickFix, which is a phenomenal success for us. SeeClickFix lets us do oldfashioned journalism about fixing a pothole here or raising an alarm about a dangerous intersection there. What about concerns about accuracy? It’s just like the Internet. You ask for information. You get it back. You have to judge its veracity. The bloggers speak for themselves. We are simply linking to bloggers who have information in our community. And our guys are very good at policing the blogging communities that are on our site to make sure things they are talking about -- are they correct and are they palatable? We don’t review them for accuracy on a day-to-day basis. All of our newspapers are experimenting with crowdsourcing on their assigning of various stories and their reporting of various stories. That goes on on a daily basis. We have 20 media labs total -- 18 of our dailies and two of our large weekly groups -- where we have set up blogging stations in the newsrooms to invite bloggers in and discuss the content that they might be chasing, give them our rules of the road and let them learn from us and us learn from them. What did you accomplish with the Ben Franklin Project, where you set out to publish using only free resources? Essentially, the Ben Franklin Project was our attempt to reinvent a newspaper and online site … Sometime around June 4 of last year, I told our guy to assign, edit and produce 18 daily newspapers and 18 daily Web sites using only free Web tools. And they did it. They pulled it off. There’s now a Ben Franklin site. You can get Ben Franklin in a box. We continue to update it, sharing with the hacking community and others new developments on free tools. In March, you announced that the company had topped $40 million in profit. That’s the bottom line?
$41 million. That’s earnings before interest, taxes, depreciation and amortization -EBITDA. JRC went through bankruptcy in 2009. But, mid-decade, it was reporting net income -- not EBITDA -- as high as $116 million in 2004. The company that went into bankruptcy is no longer the same company. There are 150 fewer publications, compared to the 2006 and the 2007 and 2008 numbers. The company sold off a whole bunch of assets as it went through the bankruptcy process both pre- and during. They had 2,000 more employees … The $41 million of EBITDA is a margin -- as I told everybody -- in the mid-teens. Most newspaper company margins are in the mid-teens or lower. At the end of the day, can your company expect its “Internet First” strategy to provide for the same sort of news operations you had before? Yes. The company used to have margins on a same-store basis somewhere in the low to mid 20s. Now the company has a margin in the mid-teens. From a funding news point of view, 2/3 of our cost structure is like any other newspaper cost structure. Two-thirds of the cost structure is in infrastructure costs - something we don’t want to do. Not content, not sales and not marketing. Our job right now is to try to figure if we can replace lost print ad dollars with digital dollars, or what’s becoming digital dimes. Right now we’ve been able to grow our digital revenue at about 70% this year over last year. We did that in Q1. We’re about to do that in Q2. The industry average, according to the NAA, in Q1 of this year, digital grew somewhere between 10% and 11%. We’re about 7 times that average. And that’s because we’re selling this audience that we’ve grown, that’s doubled. If we stay on track this year … that growth will be within a percentage point or two of replacing every lost print advertising dollar with a digital advertising dollar. Do you expect print advertising dollars to continue declining as they have?
I do. Anybody relying on a print advertising recovery is not going to see that happen. What percentage decline have you seen in your print advertising? It’s a private company. I’m not going to tell you that. But it’s better than the industry average. And as you know from the NAA stats, print has been declining about 10% the first quarter this year. You’ve been seeing 70% increases in your digital advertising. A 70% growth rate is extremely high. Do you think that can go on much longer? I think it can go on for the next couple of years or so. But of course it’s not sustainable at that level of growth over an extended period of time. What do you see five years from now in the industry? Will the industry see enough revenue coming from the Internet so that whatever is happening with print won’t matter? I think it depends on how you start now. I think if you do not have a digital first type of strategy … which means you start reducing costs that are associated with print and are reinvesting in digital, and if you are not growing your digital audience, then you’re not going to see the growth in digital advertising that you’re going to need to sustain the business. If those things aren’t started on now and you’re in the newspaper business, five years from now, I think you’re probably out of business. We may find that those charging online for access for their Web sites will find robust revenues. I don’t think that’s going to be the case. I think, for example, what’s happening in Dallas is a mistake -- that charging for readers to access your Web site online will not be a robust revenue stream. It’ll end up shrinking the digital audience, which in turn will lessen your opportunity to sell digital advertising. We’re going to have to create specific content for the platform. For example, we expect in the third quarter of this year to launch JRC TV -- it’s basically just online
video on demand -- because right now we’re producing 4,000 minutes of news video in our markets per week. That gives us an opportunity cost-effectively to create an online, on-demand video channel in our market. That will be another revenue stream. Do you see a way to get advertisers to pay more for the ads they buy online? Advertisers are buying two types of advertising with us. Some are buying what I would call performance advertising -- cost per thousand or cost per click. And others are buying what you would call share-of-voice advertising … for example, a sporting goods store that wants to be the sole advertiser on the high school football results page. That’s a brand positioning fee. What we’re seeing is that anything that’s sold by remnant, is going to go down in price and a CPM -- that means a third party selling your empty space -- that’s just going to keep going down. The price point on that is going to become very, very low. On high income pages of high engagement, such as high school sports, we’ve actually been able to [sell] drop down ads -- what are called pencil ads … we’ve actually been able to raise the price this year a couple of times. Because we’ve been selling out that inventory, meaning there is a high demand. It’s different in different markets, but overall I can tell you in those categories we’ve been able to raise the rates about 50% since the beginning of the year. But digital ads, of course, are still much cheaper than print ads. A digital ad at best is still only 25% of the revenue you can get on a similar print ad. Do you see print existing in five years? I think print will be with us for a long time. But I’ve been very stern in our industry in saying if you don’t have a plan to deal with the transition to largely digital in the next five years and you’re relying upon print only, then I think you’re going to be out of business.
I think five years from now, if you have a progressive plan, then print will be part of what you do, but it’s probably going to be less than 50%. Going forward 10 years, I could easily see print being half of that -- maybe 25% of your business. What is JRC planning in the near term, say in the next 12 months? Our goal is to see how close we can come to replacing all lost print advertising dollars with digital advertising dollars. I think we have a shot at perhaps replacing all of it by the end of the year, so that if we’ve lost $1 in advertising in print this year, we’ve actually replaced it with digital advertising. We may not get all the way there, but I think we’ll get very close -- enough to prove to the wider world, and particularly the investment community, that newspapers do have this ability to transform. Do you anticipate a point where you’re not only stabilizing, but you’re actually building revenue because you’re gaining more from Internet sales than you’re losing in print? That’s quite possible. That’s already happened in the last three months in our Pennsylvania cluster. In March, April and May of this year, all of our products in the Pennsylvania area -- that’s almost $100 million worth of business -- replaced all of their lost print revenue with so much digital revenue that they’re actually up year-over-year in advertising. For those three months on a blended basis, they’re up about 2.5% in advertising. Do you know if any other companies have done that? I don’t know of any other companies that have done that on such a wide diverse set of assets. There may have been companies that have done this on a single paper basis. What else has your company been working on? The second thing is our focus on what we call Project Thunderdome. Our sites are kind of 40% local [content] and 60% nonlocal and the quality of the nonlocal varies, and it’s not particularly good. And so Jim Brady, who was at TBD.com and a former executive editor of the Washington Post online, is building a team right
now called Project Thunderdome. Essentially, what we will do there is create 60% of the content that’s not local and make it the same across all of our products and all geographies and all platforms -- but in a very, very high-end. [Thunderdome] will curate and aggregate from trusted sources so that we’re creating a very high-end 60%. And then [Thunderdome will] take over 100% of the production of all of the newspapers from an editorial perspective in all platforms, all geographies as well, so that we can in the end keep the people on the local side and put more resources into local reporting and still be able to save money. Will Thunderdome have dedicated reporters who write about, say, politics for all your publications. There will be a mix of some people doing actual creation and sourcing quality information from other points. But what we want to create is more feet on the street locally so that we increase our local resources. What we’re known for, of course, is local news. And right now, like most newspapers … half the people in the newsroom are really in editorial production rather than editorial creation. We want to centralize that production team so we can repurpose and put more people on the street to actually cover the community. We want to be able to hire people who really understand politics to aggregate that news for us rather than some poor guy in a newsroom who’s got to pull together the national page that night because that’s his job and the next night he’s doing the health page. Will Thunderdome then create a national section that goes out with all your newspapers? That’s right -- a national section, national sports, national business. And then the locals will create a business [section], etc. But all of the production will be handled by Thunderdome … both in print and in digital. Where will Thunderdome be headquartered? We don’t know yet, quite frankly. I suspect it will probably be in New York.
Do you see local newspapers being publications -- print and digital -- that provide the local coverage there in their communities, and then everything else is brought in from other sources, just as you talked about outsourcing circulation? I believe that you should hire a team of experts to originate, create and aggregate that content that is not local so that you can have as many local resources in the field as possible. There are a lot of quality organizations providing quality reportage and commentary out of the White House. I’d rather outsource that through something like Thunderdome, which has a quality control aspect to it, and send the bulk of my dollars on to areas where nobody’s covering the community other than us for original reporting. Do you envision linking to stories from The New York Times or other publications? I don’t see a limitation on what we’ll do right now, quite frankly.