In many U.S. markets, the dominant paper is a fading enterprise, losing readers faster than it's gaining them, even though the population is increasing. Young people, especially, resist the newspaper habit, preferring to get news and information from television, radio, the Internet, and magazines. Instead of using the classified ads, like their parents, they go to Craigslist or eBay. In the long run, no newspaper is safe from the competition posed by electronic technologies.
A cynical owner of a fading newspaper, Meyer writes, will "squeeze the goose to maintain profitability today without worrying about the long term." He'll raise the price of the paper and increase advertising rates. He'll cut the news hole, trim the staff, reduce circulation in remote and low-income areas, and suppress salaries. He'll do whatever is necessary to keep profits as close to the 30 percent margins some dominant papers have recorded. The owner who follows this path is essentially liquidating his publication over time, Meyer writes.
If an owner insists on squeezing the goose ("harvesting market position" in business-speak) he creates an opportunity for a competitor to enter with a new paper. If the competitor builds goodwill (editorial quality and standing) into his paper from scratch that is comparable to that of the established newspaper, he can end up with a paper as profitable as the dominant title but at only 20 percent of the cost (printing plants, trucks, offices, computers, etc.). Meyer explains:
... the challenger can get the same return on investment with a 6 percent margin that the old paper's owners get with a 30 percent margin. Voila! A happy publisher with a 6 percent margin!
There is no way to overstate the complacency or arrogance of the greater newspaper industry. In many markets, the big daily acts like a quasi-monopoly, raising advertising rates annually or semi-annually—anything to reach those historic 30 percent margins. As falling circulation has put a crimp in advertising rates, some newspapers such as Newsday, Hoy, the Dallas Morning News, and the Chicago Sun-Times have padded the numbers to appear healthy, defrauding advertisers in the process. At Newsday, one-sixth of circulation was phony! A recent Prudential Equity Group report, which factored out those four naughty papers, assailed the general quality and quantity of American newspaper circulation.
With segments of the traditional newspaper audience peeling off, this market is now in play. But Anschutz can't execute the fading-newspaper scenario in San Francisco or Washington if for no other reason that the dominant papers, the San Francisco Chronicle and the Washington Post, are not yet "harvesting market position." Still, some of Anschutz's moves in San Francisco are straight out of Meyer's playbook. The Examiner's previous owners, the Fang family, stripped it down to its chassis, torched it, and left it to rust. Its printing plant, not the Examiner name, was its biggest asset. But in the first year of Anschutz ownership, the paper's credibility rose. According to San Francisco journalist Tali Woodward, the new, 160,000-circulation Examiner "has fewer typos, cleaner copy, even a snappy, almost elegant, new design."
Woodward also gives the paper's staff credit for beating the Hearst-owned Chronicle recently on local stories, even though it has only six reporters on the beat compared to the Chron's dozens. Woodward spots a "general pro-big business, conservative ideology that's out of touch with the San Francisco mainstream" in the Examiner, but she notes that the paper soft-pedals its master's views: It didn't endorse for president in 2004.
In Washington, the Examiner has no reputation. Anschutz purchased the suburban Journal newspapers and its printing plant and rebadged the Journal papers with his "Monarch of the Dailies" logo. It's still too early to pass editorial judgment on the D.C. Examiner, which only launched last month and claims free circulation of 260,000. To say it's better than the Journal newspapers—which it is—is damnation with faint praise.
Both free Examiners, however, already beat the established daily papers on price. The Chronicle, daily circ about 510,000,costs 50 cents on weekdays, and the Post, daily circ about 700,000, held its weekday price to a ridiculously low 25 cents until bumping it up a dime at the end of 2001. The Examiners limit distribution to affluent neighborhoods, which benefits them because it's cheaper than full market saturation. Limited distribution appeals to hoity-toity advertisers who regard their diamond and Bentley ads as wasted on poor folks. Blocking the Examiner's 6 percent adventure is the Washington Post Co., which pre-empted the non-reader market in August 2003 with its own free non-newspaper, the Express, which started with a circulation of 125,000 and now stands at 200,000. Express stories are so short the paper makes USA Today look like the Times of London.
The newspaper industry's "inherent conservatism, a consequence of their easy-money history, places them at a disadvantage in attempts at innovation," Meyer writes. Anschutz's free dailies are innovative enough, but are they worth bending your back to retrieve in the morning? Not in my Arlington, Va., neighborhood, where the orange-bagged, home-delivered Examiner slowly composts in many a front yard.
Following Meyer's formula, a genuine newspaper war won't break out in San Francisco or Washington—or wherever Anschutz takes his Examiners—until he elevates editorial quality to something approximating that of the local dailies. If he covets 6 percent margins, he'll have to make editorial investments close to what the 30-percent-margin papers are spending.