John McManus

No Business Like News Business

The Wall Street Journal reported last week that executives at Knight Ridder Inc. have laid before potential purchasers a rosy scenario for boosting profits another 20 percent by cutting more journalists and news pages. Here's the talk Tony Ridder should have given his fellow moguls:

Now that I'm 65, I've come to believe that there's more to life than earning more money than you can possibly spend. (My neighbor, Larry Ellison, may disagree.) So I'm going to level with you.

You're familiar with the trends in newspapers -- falling circulation and ad revenue, increasing paper and fuel costs. But you may not be familiar with just how different a business news is from anything else you've run.

If your goal is to make as much money as you possibly can, take a pass on news.

Morgan Stanley estimates that Knight Ridder newspapers spend $350 million a year they don't have to. But the consultants don't understand journalism. That "surplus" spending is what it takes to produce the kind of journalism that has made America strong and rich. It's the reason Knight Ridder has won 84 Pulitzers over the years and Gannett -- which cuts $350 million worth of corners -- has won 45.

Here's what separates news from other businesses you've run. In every business but journalism, the customer is always right. The firm that best satisfies the customer wins the day. But journalism's codes of ethics require news media to disappoint their most important customers -- advertisers. You all know that advertisers provide more than 80 percent of our revenues. You may not know that most retailers want the news tailored to the ad -- to create interest in what's for sale. But news media that take the advertiser's point of view, and not the public's, violate ethical standards. If you uphold those standards, I guarantee that will lose you some advertising dollars.

Not only that, advertisers seek readers with good customer potential. They'll pay more for young people who are establishing homes and buying lots of stuff than for older folks at the end of their buying years.

If you want as many ad dollars as possible, you'll ignore the less affluent and older people in the community. But journalism has an obligation to serve everyone, not just the upscale.

Journalists are also required sometimes to disappoint their other essential customers -- readers. We've pledged in our codes of ethics to tell people what they need to know in order to be effective citizens. Yet on any given day, we could attract a larger audience with stories that merely amuse our readers.

Hell, we'll even disappoint your investors: Often, what readers need to know is hidden by the powerful. Exposing corruption costs much more -- in staff size, expertise and time -- than rewriting press releases and the police blotter.

I don't know if you read any newspapers other than the Wall Street Journal. But last week our San Jose Mercury News provided a terrific example of why journalism isn't a great business. We assigned one of our best-paid reporters, Fredric Tulsky, to do almost nothing else for three years but study the criminal court system in Santa Clara County. Mr. Tulsky tells me his series cost the paper $400,000.

It was the least cost-effective thing we could have done. Yet those stories may free a man improperly convicted and showed flaws in our criminal justice system that affect thousands of local people. Another example. To save money we could close our bureaus in Washington and elsewhere. Why not rely on the Associated Press or the New York Times?

Here's why not. The vaunted New York Times got one of the most important stories of our time wrong. They lost their skepticism and helped sell the Bush administration's casus belli -- that Iraq had weapons of mass destruction.

Our bureau got it right, reporting that the U.S. intelligence community had strong doubts about the administration's view.

In most businesses, duplicated effort is waste. In journalism it can be the difference between truth and falsity, or war and peace.

What's that? You say the public won't know the difference if journalism's ideals are violated? People just want to be entertained?

With all due respect, sir, think how venal you'd sound if you were addressing another profession. Would you suggest that standards don't matter in medicine, engineering or law? Let me answer your question two ways:

A business answer first: The more you entertain rather than inform the public, the more you enter a marketplace crowded with every form of diversion from soap operas, sports, recreation, movies, prime-time television, video games, MySpace and other web delights. Do you really want to abandon the market niche we dominate -- local news -- for a more competitive one? Second, I'll confess that news has become more confused with entertainment. God knows, I've fostered some of that myself! And maybe most people haven't caught on to it -- that we're displacing the costly news they need with the inexpensive news they want.

But as sure as a hangover follows a binge, reality will crash the party. It always does.

Eventually people will recognize when political leaders have led them astray and squandered their human and monetary resources and their government's moral authority. As that day dawns, they will turn on those news media who played them for suckers.

So my friends, you may succeed in cashing out the Knight Ridder brand. But not for long.

Let me leave you with a warning: If you do "harvest" the qualities we've worked so hard to cultivate at Knight Ridder, be sure you make enough money to isolate yourself and your children in private schools and gated communities. The loss of social cohesion when news is treated like any other business won't be pretty.

In a global economy America can survive the decline of almost any business. But take a lesson from James Madison: America will not survive broad public ignorance. Good night and good luck!

Liquidating the News

It's come to this: A single wealthy investor is able to threaten the civic vitality of 32 American metropolitan areas by forcing the sale of their newspapers to new owners in order to satisfy his demand for larger profits.

Because those higher returns almost certainly will come at the expense of investigative reporting, independence from advertisers and adequately staffed and skilled newsrooms, the readers of Knight Ridder newspapers ought to rise up in opposition to the planned sale or dismemberment of the company.

After a decade of shrinking its news staffs, the nation's second-largest newspaper company no longer commands the respect it earned winning 84 Pulitzer Prizes in 79 years. But papers such as the Philadelphia Inquirer, Miami Herald, Charlotte Observer, Fort Worth Star-Telegram, Kansas City Star, St. Paul Pioneer Press and San Jose Mercury News are still too essential to the civic life of their cities to be auctioned off like so many pork bellies.

Not just Knight Ridder's problem

Bruce S. Sherman, CEO and chief investment officer of Private Capital Management (PCM) catalyzed this threat to the public-service ethic of journalism without concern for the communities affected. And if he succeeds, he will not stop with Knight Ridder. PCM is the largest shareholder in six other large newspaper companies and owns a major stake in two more.

Because Mr. Sherman is focused on making money for his clients and gaining a personal payday that the Wall Street Journal estimates in the hundreds of millions of dollars, only a bottom-line argument might persuade him to back off. With more than 90% of Knight Ridder stock controlled by institutional investors pledged to maximize return to shareholders, there is only one force that can stand up to Mr. Sherman -- the company's customers. And then only if they act in concert.

Readers dismayed at the prospect of denatured local news should write letters to Mr. Sherman promising a boycott of the new owners of their paper -- if they fire journalists or slash their compensation in order to meet PCM's price.

As a carrot, readers should also agree that if Mr. Sherman abandons his power play, they will try to convince at least one other person to subscribe to the newspaper. A rise in circulation would boost shareholder value the right way.

Newspapers are still essential

Whether you subscribe or not, the newspaper is an essential democratic institution, affecting everyone in the region. Newspapers empower civic participation. They set the public agenda by digging up much of the content seen on local TV news, radio, cable and the Web.

News has the power to define reality. It is unlike any other product traded on Wall Street.

In recent years Knight Ridder, like other news companies beholden to the stock market, shed hundreds of journalists and adulterated its news with inexpensively produced sensationalism to please investors. It has also retreated from its commitment to ethnic diversity in its newsrooms and jettisoned important weekly ethnic papers.

But Mr. Sherman and PCM are not satisfied with the sacrifices Knight Ridder has already laid at their feet. News could be squeezed for still greater returns. Just as ClearChannel found a way to make radio more profitable at the public's expense, new ownership could dismantle the many remaining qualities of Knight Ridder, whose skeptical reporting of the White House case for the Iraq war was a standout example of public-service journalism. John McManus

Tony Ridder as Katharine Graham

Although he's been widely criticized, Knight Ridder CEO Tony Ridder may come to seem almost as beneficent as the Washington Post's legendary Katharine Graham compared with the new ownership PCM and its allies would force upon these communities.

There is the outside possibility a buyer concerned with journalism integrity might be found, perhaps a cash-laden technology firm. But Google and Yahoo are reportedly not interested. If speculation on Wall Street sheds any light, the most likely purchaser would be an investment firm specializing in turnarounds after severe cost cutting.

Any new owner will have to incur massive debt to meet Mr. Sherman's desired share price. In an industry with declining advertising and circulation revenues, it's difficult to foresee how such debt might be paid off without further cuts of bone and muscle in the newsroom. As Newsweek business columnist Allan Sloan put it: "New owners will almost certainly depopulate newsrooms even more than Knight Ridder already has, accelerating the decline of its papers."

If enough customers speak up, however, PCM won't find any buyers; it will be peddling devalued properties.

Even a chain paying sweatshop wages like Dean Singleton's MediaNews would refuse to offer a premium price per share if as few as 5% of the customers promised to cancel their subscriptions. Each letter would signal the displeasure of many others who didn't bother to write. Fewer readers mean lower ad rates.

Is a boycott threat realistic?

Is it realistic to think that communities such as San Jose, Charlotte, Philadelphia, Miami, Kansas City and more than two dozen others might stand up to Wall Street for the sake of their newspapers?

Once it might have seemed unlikely. But using the power of the Internet, journalists, educators, community and government leaders, and citizens who recognize that newspapers form the spinal cord of participatory government now have the power to generate a massive protest. The supposedly apathetic public forcefully changed the debate two years ago when the FCC tried to allow greater media concentration, and later when congressional Republicans tried to cut the public broadcasting budget.

How new owners might treat news

The stakes in this fight are just as important. If boosting return to Wall Street became the only concern of editors, the quality of journalism as a resource for citizens would decline in predictable ways:

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Local News Fails the Grade

Sometimes it's useful to turn conventional wisdom on its head.

What would you think if I said that Jayson Blair, the New York Times reporter who admitted plagiarism, harmed the public less than any news director at the three largest stations located in San Francisco in the weeks before the March 2 primary?

Mr. Blair disgraced journalism. He stole other reporters' copy. The public harm? Readers got another journalist's report. More damaging, Mr. Blair made up some quotes. These misled readers, but most of his embellishments didn't fundamentally alter the import of the stories he was covering. And Mr. Blair's reporting constituted a tiny fraction of the Times' weekly output.

While public harm was limited, Blair threatened the credibility of the Times. His actions called into question the newspaper's quality control mechanisms. But the paper responded vigorously and remains respected, even revered.

The news directors at KGO Channel 7, KPIX Channel 5 and KRON Channel 4 are good people with sterling reputations. I doubt any would plagiarize. But Grade the News recorded their premiere evening newscasts during two of the final three weeks before Election Day, March 2. We found that they utterly failed at their first responsibility as journalists. That's to enable the public to make informed choices when we have the chance to shape our democracy as voters.

This obligation arises from the very first sentences of the Code of Ethics of the Society of Professional Journalists: "public enlightenment is the forerunner of justice and the foundation of democracy. The duty of the journalist is to further those ends..."

As citizens looked for help in deciding complicated questions in the weeks before March 2, these stations devoted a minute or less of their prime evening broadcasts to news voters could use to decide all local, state and national races combined. Citizens who depended upon them to decide $27 billion worth of state propositions, 65 local ballot measures and scores of candidate races were distracted and disempowered. Is it any surprise that San Francisco's voter turnout trailed the state average?

Jayson Blair's harm was limited to a single reporter. The decision of news directors to downplay politics affected three entire newsrooms.

Mr. Blair was, of course, fired. So were two top managers at the Times. The paper broke with a long tradition and hired its first ombudsman. Supervision of reporters increased. The ethics policy was revised.

But there was no consequence for shortchanging the citizens of San Francisco. On the contrary, the stations enjoyed their usual campaign windfall, selling hundreds of political ads.

Jayson Blair knew what he was doing was wrong. He was violating a trust in the New York Times newsroom. In contrast, the news directors at KRON, KPIX and KGO were keeping a trust. Not with the public, but with a management far more concerned with private profit than public service.

The conventional logic and way of doing business in these three newsrooms needs to be turned on its head.

Battling Dirty Politics

With its audience-tested messages, slick television production and endless repetition, political advertising threatens to drown political journalism.

Remember the 2002 Republican gubernatorial primary? Bill Simon stunned pollsters by coming from obscurity -- 33 percentage points behind Richard Riordan -- to 6 points above in a single month. The Field Poll called it "one of the most remarkable turnarounds in California election history."

On Mar. 2 of this year, lightning struck again. Four weeks earlier, only a third of Californians favored Proposition 57, Gov. Schwarzenegger's $15 billion budget bailout loan. Pollsters were predicting its defeat. On Election Day, 63 percent voted for it.

Common to both turnabouts was massive spending on television ads. In Mr. Riordan’s case, then-Gov. Davis spent $7 million trashing the former L.A. mayor. Last month, Proposition 57 ads got more reps than Gov. Schwarzenegger's abs. Can you think of a newspaper or newscast swinging so many voters so quickly? Or anything journalists do, short of a smoking-gun investigation?

Although the ads alert everyone but hermits to an impending election and connect politics to everyday concerns, they can undermine the election in at least five ways:

1. At their best, they reduce policy and a candidate's past performance to slogans.

2. They are often misleading or downright deceptive.

3. They are expensive -- forcing candidates to steal time from public service to dial for dollars and enter potential conflicts of interest with donors seeking favors.

4. They favor the side with the deepest pockets.

5. When they go negative, they alienate voters, depressing voter turnout.

Print, Web and especially broadcast journalists must find a way to regain center stage. As some national newspapers have already begun to do, they must put deceptive ads on trial and expose their falsehoods early and often.

Stanford University political scientist Shanto Iyengar warns that in the effort to debunk ads, journalists should avoid replaying them. That would give them additional exposure that some audiences might remember on Election Day more clearly than the accompanying critique.

Rather, key claims should be compared to the record. If the stone-thrower's own house is glass, that should be pointed out. Analysis of campaign ads need not be expensive. In fact, the University of Pennsylvania's Annenberg School for Communication provides analysis of national ads for free.

Social scientists disagree on political advertising's power of persuasion. Obviously, TV spots don't guarantee a candidate's success. Howard Dean outspent his rivals on television in New Hampshire and Iowa and still lost. But ads appear to be persuasive particularly when they are negative, unequally opposed, and when voters haven't yet made up their minds.

Tobey Pipkin, a 61-year old Republican from the Central Valley, was planning to vote for Mr. Riordan back in 2002. But after Gov. Davis' television barrage, Mr. Pipkin told the Sacramento Bee, "A month ago, I really liked Riordan. I was believing everything I was hearing and reading. But now, I've been swayed."

Such stories sway politicians. President George Bush is betting most of the record-breaking $170 million campaign war chest he's raising on political advertising. And Democratic nominee John Kerry is desperately scrambling to catch up.

The televised political ad has come a long way from a chorus of cheery voices singing "I like Ike." Today cognitive scientists pre-test messages and images with focus groups comprising types of voters who might swing an election. Only those that touch a chord move into production.

Embedded in both entertainment and news programs, these ads reach most of the population. With their image-based associational logic, their demonstrated emotional punch and their frequent repetition, they can overwhelm conventional campaign news reporting.

The effect is even more pronounced when that reporting focuses on the "horserace," leaving voters with little information on which to base their decisions.

Many European democracies like Britain and France forbid political advertising on television. In its place candidates are given free blocks of air time to make their case, face-to-camera with the public. That solution reduces the impact of slick image-makers, makes campaigns far cheaper, equalizes the wealth advantage one side may exercise and gives candidates enough time to engage complexity rather than sling slogans. It also requires candidates not only to endorse any attack, as a new U.S. law requires when candidates pay for ads, but to deliver it themselves -- a strategy that has backfired on aggressive candidates in Britain.

But in the U.S., the First Amendment forbids the state from imposing any ban on political ads. Of course, networks and stations are free to reject advertisements. CBS, for example, rejected the political group MoveOn's Super Bowl ad portraying the president's budget policies as a burden on the next generation.

But don't hold your breath expecting television to turn away from an expected $1.3 billion in political advertising between now and November. Not only do networks and stations collect for the ads directly. The competition for scarce spots drives up rates for commercial advertisers as well. It's a bonanza.

Given that this gold rush depends utterly on use of the public's airwaves -- which are allocated at nominal cost in return for public service -- television news departments have a particular obligation to mitigate the harm done by toxic campaign ads. The fact that television reaches many citizens who don't read newspapers heightens this duty.

John McManus is the project director of "Grade the News" at Stanford University.