When there's someone making news in the White House day after day, the news business thrives. But when things get boring—or people start to get burnt out, which many of us are—those same news organizations struggle.
In the case of the Washington Post, the struggle seems to be real. And it will need to figure out a vision if it wants to overcome its lackadaisical growth.
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Before I left on vacation, the New York Times did a piece on the growing frustrations at the Post due to its business struggling.
The organization is on track to lose money in 2022, after years of profitability, according to two people with knowledge of the company’s finances. The Post now has fewer than the three million paying digital subscribers it had hailed internally near the end of 2020, according to several people at the organization. Digital ad revenue generated by The Post fell to roughly $70 million during the first half of the year, about 15 percent lower than in the first half of 2021, according to an internal financial document reviewed by The New York Times.
Many news outlets, in addition to The Post, have experienced declining readership since former President Donald J. Trump left office. But two of The Post’s top competitors — The New York Times and The Wall Street Journal — have added subscriptions since Mr. Trump left office.
Unsurprisingly, 2022 advertising revenue is down compared to 1H 2021. This is because the economy has seen contraction this year and last year was probably the best year for advertising we've seen in a long time. For example, the New York Times did $71 million in digital advertising revenue in Q2 2021; in Q2 2022, that dropped to $69.3 million.
What gives me more significant concern for the Post is the second paragraph in that quote, which talks about how its subscriber base has contracted since Trump left office compared to the continued growth for NYT and WSJ.
I don't love comparing WSJ to WaPo. The former is a business publication, and I question whether it is as cyclical as WaPo, which is more focused on politics. I would expect WSJ to continue growing versus WaPo, which may be overly reliant on who is in the White House.
But the comparison with the Times is healthy because the two publications are going head to head. They are general news publications with large newsrooms trying to serve broad, general audiences. And so, for the Times to continue seeing growth while the Post sees a contraction is a sign that the Times continues its position of dominance.
According to research from Oxford's Reuters Institute for the Study of Journalism, in the United States, the median number of paid subscriptions a person has is two. That's up from the median being one three years ago, so we are seeing progress. But that two include many
publications beyond just the major newspapers.
And so, if you're a consumer, are you going to pick similar publications as your two subscriptions? It's unlikely. This is why the Times won. Its marketing engine is so strong that it's been able to grow faster and reinvest more aggressively. That "serve everyone" mentality only works for one publication since it is a winner-take-most atmosphere.
It reminds me of this interesting statistic that Tony Haile, formally CEO of Scroll, said in this piece a couple of years ago.
Here’s the Times in 2020: it added 587,000 new subscribers in the first quarter. That’s almost three times the number of total subscribers to the Los Angeles Times. It’s more than 70 percent of the total cumulative subscribers to Gannett’s 260 media properties. The New York Times has more digital subscribers in Dallas–Fort Worth than the Dallas Morning News, more digital subscribers in Seattle than the Seattle Times, more digital subscribers in California than the LA Times or the San Francisco Chronicle.
If you're an advertiser that wants to target the Dallas-Forth Worth area, do you go to the Dallas Morning News, or do you go to the Times? Which has more scale? Incredibly, the answer is The New York Times.
It will likely lose if the Post continues to try and go head to head with the Times. And if owner Jeff Bezos insists on the company being self-sustaining—and I agree with that demand—then we'll likely see cuts at the Post at some point.
What the Washington Post needs is a vision. Where I think it could play well is squarely in the local world. The Washington Post itself wouldn't go more local; rather, it would amalgamate additional publications that serve local communities around the country.
In that piece that Haile wrote, he suggested a hub and spoke approach where the Washington Post partners with local papers around the country. Here are the two essential parts:
In a hub-and-spoke network, a digital subscription to the Post is combined with a local publisher in a series of bilateral skinny bundles. For example, the Seattle Times may struggle to compete with the Times on its own, but a subscription that provides the combined local and national coverage of the Seattle Times with the Post for the same price as the Times is far more attractive.
Distributing subscription revenue based on attention share would be more effective. A Seattle Times subscription is $16 a month. We can set aside $6 for the Seattle Times as a revenue buffer, and put the remaining $10 into a pool based on attention share. If the Seattle Times subscriber spends 50 percent of their time on the Post’s site, then the Seattle Times makes $11 that month and the Post makes $5.
Some might say this isn't smart because both publications are making less money per subscription. I don't buy that. By bundling these two together, the perceived value is more significant than each publication on its own. For example, a subscriber gets national/international news from the Post, and you get local Seattle news from the Seattle Times.
This is why the Times continues to launch new subscription products—cooking, games, Wirecutter, and the Athletic. It wants the perceived value of its bundled subscription to be so high that no one balks at paying for it.
Making this work from an operational perspective is challenging. But the Post has a unique advantage because it already owns a CMS that powers many newspapers. And so, operationally, it could more seamlessly integrate with these disparate publications in a way most other players couldn't.
I think the real challenge is on the business side. While I agree with distributing revenue based on attention share, I believe getting different publications to buy into this will be complicated. For example, the Seattle Times might say yes to the $6 revenue buffer. But the Dallas Morning News might say it wants $8. Suddenly, the Post has to work out individual deals, and different players can balk. This sort of business
development work is a lot of work.
So, while I think this is a fascinating idea, and it would be wise for the Post to attempt it, I'm unsure if it can get done.
This leads me to the second way for the Post to execute on this hub and spoke strategy: buy them. Of course, this would require Bezos to agree to come up with the money, but let's assume the Post's CEO can make the pitch.
There's one specific target I'd have my eye on: Lee Enterprises. According to its own site, it serves "77 markets in 26 states." It grew aggressively a couple of years ago by acquiring Berkshire Hathaway's newspaper business. As part of that, Lee took on a decent amount of debt, with Berkshire as its primary lender.
On March 16, 2020, the Company closed on the comprehensive refinancing of all of its outstanding debt(4). The $576 million in financing has a 25-year maturity, a fixed annual interest rate of 9.0%, mandatory payments based on the Company’s Excess Cash Flow(4), and no financial performance covenants.
The principal amount of debt totaled $462.6 million, reduction of $20.1 million for the fiscal year to date.
This is why a company that is expected to do over $200 million in digital revenue only (excluding print entirely) is trading at a market cap of $110.46 million. But even with that debt on the books, it might just be the play needed to give the Post a boost.
Lee is growing its digital business while going through the same secular declines in print that every local paper is experiencing. In 2021, it had 402,000 digital-only subscribers. It expects to hit 515,000 by the end of this year.
Here's how I'd execute this strategy once the deal closed.
Step one is to work on a tech migration immediately. Every site that Lee owns would need to move to the same CMS that powers the Washington Post. I clicked on a "Subscribe Here" button on one of Lee's sites, and after 5 seconds of waiting for it to load, I left the page. Arc CMS is just going to be better.
Step two is to streamline the advertising offerings. Again, this can be a little complicated because what sells on a major site like the Post is unlikely to interest local buyers. But, again, the Post can help because it has ad software to streamline things.
So, these two steps are about getting Lee's properties to a solid technological baseline. We'll also find synergies here. For example, Lee owns Town Media, its own CMS provider. You don't need two of these, so in the process of migrating to Arc, Town Media could be shrunk considerably.
The third step here is to go through each site and understand the editorial strategy. Are there any that are investing resources covering national topics? Where are there holes in the local coverage? The approach here is to have the Post cover anything general and have the locals have what they should be the best at.
Step four, market like crazy. The calls to action on every local site should be "Sign Up for Local Site & The Washington Post." You're talking about a digital bundle where individuals can get everything they want with a single subscription.
What's important is the perceived value. The individual needs to believe that they are getting a deal by paying a bit more to get both their local and national/international news. Ideally, that results in a more substantial conversion from free to paid.
The belief with this sort of a deal is that 1+1=3. That's why The New York Times overpaid for The Athletic. It didn't care so much about current revenue. Instead, management believed that by adding a significant sports publication to its network, the perceived value of an All Access subscription would be great enough to get many more people to sign up.
The same would be the case for this sort of deal. The Post is worth something; a Lee site on its own is something. But when you combine them, the value should be greater than two somethings. If it's not, this deal isn't worth doing.
There's a straightforward reality here. The Washington Post is trying to go head-to-head with The New York Times, but it won't win. The Times understood the game faster and executed far better than its competitors. The Post can't win on its national/international coverage alone. It needs to develop its bundle, and I believe it can do that by going local.
Unfortunately, I don't know if the Post has the leadership to execute this. The New York Times reports:
The downturn at The Post has set off frustration internally. Some top executives are concerned that Mr. Ryan, picked by Mr. Bezos to be the publication’s top business executive, hasn’t moved decisively enough to expand coverage. Some have also become irritated by the company’s halting marketing efforts, which are guided by Mr. Ryan, and inconclusive talks about acquiring another large news organization.
Expanding coverage will help. But if the Post is going to continue growing as it did during the Trump years, it will need a new vision. Again, I believe local is the way.
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