This two-part article spins the tale of two modern newspapers and their challenges over a 15-year period: the advent of digital media, an eroding readership, with a horrendous recession dramatically accelerating changes. This is a story of mistakes, beliefs, learning the hard way, and making hard and daring decisions at critical times. These two papers, The Journal and The Chronicle, fictional titles, are composites drawn from years of observations in France, the United States, and Scandinavia. Looking for similarities with actual entities, or attempting to judge who’s smart and who’s really daft is beside the point.  This is a story of people and corporations all trying to make do with what they have: brains, culture, and historical assets.
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Part 1: the (comparatively) easy years

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2000 — At the turn of the century, The Journal and The Chronicle are fierce competitors in the same national market. They don’t have the same approach to the news business, nor the same DNA or history.
The Journal is of a conservative management type: strong journalism, highly structured governance. The Chronicle is definitely more flamboyant. One day, sparks of genius fly in the newsroom, brilliant news coverage inspiring its journalists. But, the next day, on another story, the paper totally misses the point. The Journal is solid, regular, and more often than not, a bit dull. The Chronicle is brilliant, extravagant and unpredictable.
Both companies are financially sound – that is as much as a newspaper can be in the year 2000.  They both face the (then) usual cost structure — high industrial costs (paper, printing, distribution), too much staff (even unions admit it) — and a dual revenue stream: 60% advertising (a large chunk of it classifieds), and copy sales for the remaining 40%.
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The two boards of directors are as different as can be. The Journal’s board is a stern and demanding group of people. There is the lineup of usual suspects: managers of serious businesses, intellectual figures such as the dean of a major university (which includes a school of journalism), the head of the n°1 venture capital fund of the country, a more classical banker, the founder of a successful tech company who now spends his time scouting the planet for new ideas (he’s a consultant for a big cell phone company). The Journal union representative also sits at the boardroom table — this will turn to be a key element in the turbulent years ahead. The Journal boards members are kindly requested to do their homework prior any meeting, and they have a small secretarial office to assist them.
The Chronicle’s board is more like an intellectual forum. There are also strong business people, but global pundits from many horizons outweigh them. Discussions are much wittier and more vibrant that the debates at The Journal, those are more technical and down to earth.  Although heavily unionized, The Chronicle’s board doesn’t include union representation, a simple matter of keeping discussions inside the boardroom, “among equals”.
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On the Internet, neither paper makes significant money, but each does it in a different way. The Journal’s managers feel there might be something big out there, but they are not willing to cannibalize their business by giving away too much for free; as a result, a portion of the site charges for access, especially archives.
The Chronicle is more open; most of the content is online, readers are invited to join the fray, which they do with enthusiasm. Therefore, on the Internet, The Chronicle is much more visible than The Journal. This is amplified by The Chronicle’s ability to latch on emerging digital trends. Undoubtedly, hype is on their side.  They closely monitor the pulse of  the dot-com boom and tell glowing stories of eccentric start-ups with skyrocketing audiences, tons of fresh capital and maverick CEOs.
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The Journal is more circumspect toward the dot-com frenzy. A year earlier, its board of directors and its top managers gathered in for a two-day session to examine the Internet’s impact on the paper’s business. They came to two conclusions:
a) Do not rush the news transfer to the Net as long as there are no compelling application or viable business models;
b) Focus on areas where the Internet offers an indisputable advantage, that is on everything that can be stored in database systems, i.e. guides and classifieds.
Based on these findings, The Journal will keep a low profile on news but will allocate capital to invest in small outlets such as city guides and applications that could help migrate classifieds to the web. On March 10, 2000, as the Nasdaq peaks at 5132 points, The Journal and The Chronicle are clearly on a divergent path. The Chronicle is surfing on these trendy digital times. It is the darling of advertising agencies eager to express their creativity.
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2000-2005
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Then, the downfall, the burst of the Internet bubble. In less than 3 years, the Nasdaq index is divided by five. Advertising dries up in the same proportion. Since the Journal has partaken much less than The Chronicle in the dot-com boom bonanza, it suffers less.  To adjust, The Chronicle slashes a large percentage of its investment in its own website, reducing staff, reassigning people to the paper itself.
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At the Journal, the board is upset. The company must take a sizeable write-off for the acquisitions — small ones — made in the previous years. But management stays on one consistent message: It doesn’t matter that companies based on sand and fictitious “eyeballs” have gone belly-up. Fact is, this colossal correction won’t stop a major trend: everything that fits better on the Internet will inevitably migrate on it. Then, say the managers, let’s cut costs to restore margins, but let’s keep investing in niche businesses poised to become tomorrow’s profit engines. Between 2000 and 2005, The Journal invests in no less than 15 companies, ranging from cultural events agenda to all kinds of guides (local ones, travel, shopping).  These are connected to the transaction business through long-term deals that don’t look too sexy by the time they are signed. The idea is to snare the user into a mesh of relevant contents and services, small by themselves, but powerful when interconnected. Among the acquisitions are technologies and services suited to the progressive transfer of the lucrative classified business to the on-line world.
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On the advertising front, The Journal faces another challenge. Its books show an alarming concentration of orders coming from a small number of big media buying agencies. As day to day negotiations over dollars (or Euros) per page are growing more difficult, The Journal feels vulnerable — and slightly pressured, to say the least. Too often, after protracted bargaining for big, annualized contract, an additional deal comes up. For the coming year, the deal focuses on the amount of market research the paper will purchase from the media-buying agency: this is a quid pro quo, a thank you for the Big Automaker or the Big Retail Chain pages.
The Journal’s management is so inflamed by this practice that it decides to initiate a slow-motion strategy: for big annual budgets, bypass media buying agencies and deal directly with advertisers. The board is warned: this is a multi-year strategy, in which the performance might first degrade before improving.
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No such moves at The Chronicle. The relationship with the advertising food chain – creative people, planners, media-buyers — is so wonderful that it is out of the question to spoil it with pedestrian bean-counting considerations. Two years after the dot-com bust, the Post is back with its Internet enthusiasm in full bloom, thanks to two engines: blogs and user generated content (UGC). Its faithful and devoted audience creates a veritable cornucopia of blogs, funny and controversial ones, cleverly screened and promoted by a gang of dedicated editors. The Chronicle’s journalists are invited to join the party. Most of them do, often brilliantly.
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One day, The Chronicle’s digital editor presents interesting stats to the CEO: almost 50% of the page views on the site are generated by stories not originated by the physical paper. An excellent news by itself. Except that UGC doesn’t pay very much: the ad community doesn’t view UGC as valuable inventory. As far as the journalists’ blogs are concerned, they are treated as private space for reporters and therefore carry no ads.
The digital edition manager is ordered to open everything to banner ads. Foreign correspondents, whose blogs are the most successful ones, are the first to react: “Great”, they say unanimously, “How much we get for this?” Management patiently explains: since the paper is spending big bucks to maintain a bureau in New York and Shanghai, it sounds normal to include the correspondents’ production into the journalistic perimeter that is entitled to be monetized by the company. “No money, no ads on our blogs”, is the answer. To avoid confrontation, the idea is shelved.
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At The Journal, managers have taken note of the blogs quarrel. Along with the board, they pore over figures showing the potential of blog audiences: authored by pros or by talented amateurs, either way, huge! Time to take another look at the future and to make smart legal moves. The board summons a specialized law firm and issues the following brief: we want to own these things. Not only for our own monetization with banners and search ads, but we also want the leeway to syndicate these contents to other sites. It’s OK to pay for a good outside specialist, as we do for freelancers, but not for our own staff.
The Journal’s managers decisiveness is stimulated by another statistic showing the constant erosion of readership. “The big shift has begun”, says the CEO to its board.
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2005-2009
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Six months later, The Journal lawyers come with a proposal for the union representatives. The key points are:
-    Our revenue base is eroding sharply.
-    Five years from now, at the current rate, there is no way we’ll be in a position to sustain a newsroom with several hundreds journalists and editors.
-    The only way to stabilize the drop in revenue is to take advantage of the ongoing shift to the on-line world. Specifically: monetize every single piece of editorial on as many platforms as we can.  We’ll use our position, a powerful and trusted source, to syndicate our content on other media.
Six months of intense bargaining follow. Unions obtain a better profit-sharing formula aimed at the time when the digital windfall materializes.  Also, unions manage to get much better control over what the company can and cannot do with editorial content. At the board level, a Content Integrity Committee is created. It will guarantee the preservation of contents and prevent its dissemination to third party considered not compatible with The Journal’s (high, it goes without saying) standards. This body will be co-chaired by the union rep and the dean of the university; it is given its own part time staff of junior auditors (law students specializing in copyrights).
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On that basis, The Journal launches multidirectional initiatives to capitalize on its digital foundation. Journalists are encouraged to set up blogs based on their beat. Some are even allowed to tap on a pool of junior editors who will manage vast streams of user generated content: qualified comments on stories (the ones that excite debate and traffic), external “experts blogs”, moderated forums on specific subjects boosted by “online events”, highly publicized on all the online brands of the company and in the newspaper itself.
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On the commercial side, the salespeople are relieved. Thanks to the integrated brand strategy, the available inventory increased dramatically, not only in real terms (which is not sufficient), but on relevance terms vis-à-vis the ad market. The salesman working on travel and tourism for instance, is now able to sell a vast set of contents, ranging from reporting by the in-house writer, supplemented by a dozen of specialized bloggers and forums where users exchange travel tips. All of this increases the granularity of the coverage and accrues to The Journal’s quality label, to its “trusted source” image.  In addition, the cut The Journal gets on travel and tourism transactions (the four-year-old deal) is gaining traction, meaning revenue numbers are going up.
In summary: The Journal built a nice ecosystem in which every brand takes advantage of the other, getting and sending back traffic, supporting the sales force’s killer pitch: “We are specialists / We offer a profiled audience”.
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In the meantime, the strategy of progressively bypassing media buying agencies and their utterly expensive food chain is yielding mixed results: media agencies have a lock on many key accounts. But, over time, The Journal’s firmness of purpose gains credibility and begins to yield better deals. The real crack is discernible among online advertisers, they begin to see media-buyers as adding little or no value. A Yalta of sorts ensues, and CPT stop spiraling down.
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As far as The Chronicle is concerned, the end of the decade finds it in a different position. The progressive loss of paper readers is taking its toll on its P&L. The paper is losing money (so does its competition). It maintains good journalistic acumen and creativity, but it is losing momentum. In the last two years, several of its prominent journalists have launched their own blogs outside the mother ship. For instance, the football specialist feeds his highly regarded blog with all the material he gets while on assignment for the paper. It is a lose-lose game. The writer does not make much with the ads (a third-party network of sites sells his blog); and his online work is not an asset for his paper, which pays for it. The Chronicle enjoys great assets, though. A remarkable brand,  a sharp feel for the spirit of the times — at least intellectually speaking — and enviable journalistic firepower and influence.
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This is how the end of the year 2008 looks like for The Journal and The Chronicle, two great media players in their markets, facing dreadful times. Neither anticipated that the Big Shift will, in fact, mutate into a textbook-case of value destruction. In this new arithmetic, each dollar painfully gained online translates into a loss of 8 to 12 dollars for the print product — which, at this time, still account for three quarters of the revenue. They’re horrified: in spite of all their efforts, their world is unraveling much faster than anyone expected. –FF

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Next week: the tough years: 2009-2015
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