Monday Note

It sounds like the perfect oxymoron: Isn’t cost-cutting the enemy of creativity? True if your main cutting instrument is Excel, one that works pretty well for near-sighted managers.  First, rip questionable positions (some are always to be found) and, presto, your P&L looks healthier. Next, human resources problems: summon the victims, hand the letter, follow the procedure, bargain a bit, and you’re done. Such procedures result in post-traumatic stress, survivor’s guilt for the ones who have been spared and a confused organization that will waste precious time struggling to regain its previous performance level.

Now, let’s move to a better perspective. The state of the economy can be viewed as the best time to unleash creativity. Make no mistake here: we are facing a major and irreversible downsizing of most news organizations. And this is just the beginning. As Henry Blodget puts it in last week’s Alley Insider about the salaries reductions at the New York Times: “Eventually, when the economy recovers, some salaries might once again be raised to 2007 levels.  Over the intervening years, however, at least 40%-50% of the newsroom will be fired.”  I can’t agree more. What is true for the 1300 editorial staff of the Times will apply to most newsrooms in Europe. The dilemma is the choice between acute vs. chronic pain. The US market seems to be leaning toward acute pain with massive, brutal but decisive restructurings. Others — like the French — are en route for chronic suffering with subsidies acting as intravenous painkillers. The choice, here, is between a “J curve”  — things getting worst, hopefully for a short period, before they get better — and a rather L-shaped arc, where hopes for a recovery lie in a much more distant, uncertain future.

Given these predictions, you might wonder where the room for creativity lies. The short answer might be, to paraphrase James Carville:  “It’s the value, stupid”. Put another way, the optimal path focuses on what a news organization does better against the current competition, not the old one. The biggest mistake, one made by many, is preserving an obsolete system instead of building a new one.

An example: newspapers have lost the battle for the daily news. When newspapers hit the street, most of their content is already out of date. Problem is: many of their managers still believe their primary mission is delivering yesterday’s news; they still allocate most of their resources accordingly. At the same time, as they cut staff, they’re left with less and less intellectual firepower available for the making of a genuine difference, for creating true added value, for providing a motive to the act of buying the paper. This is a lose-lose strategy, energy wasted on news without a difference, nothing left for the original content readers are looking for.

What is the value of an old-style news outlet against an armada of blogs of every size and shape? For a national daily, such value lies in the wide spectrum of its news gathering process versus the online pure player’s limited staff and niche focus. For a business daily, it will be the ability to handle complexity or to compile data. Value also comes when a great line-up of writers and experts is combined with a “trusted brand”. Thomas Friedman on global issues, Walter Mossberg on technology are invaluable assets of, respectively, the New York Times and the Wall Street Journal. But they would lose their appeal, and a large fraction of their audience, outside of their trusted brand; this is why Tom Friedman turned down a juicy offer from Yahoo a couple of years ago. So far, no Internet pure player has been able to compete with such old-style news outlets, at least on a global scale. This doesn’t mean there is no great talent in the stand-alone online world, but the global reach remains — for now — the trademark of big news organizations, with the smartest ones capturing external talent in their orbits: cf. the 20 blogs of the Financial Times, the 44 of the Guardian, or the 60 of the New York Times, all competing for great minds.
One fact shows how much early in its infancy the online news sector still is: in its annual ranking of the most valuable blogs (actually superblogs, some have big staffs), the site 24/7WallSt mentions that most of the 25 blogs it measures draw their value from their founder’s notoriety.

Once the value has emerged, the price will set itself almost automatically. I subscribe to the online edition of the Economist because of the fit between the €59 I paid every year and the depth and uniqueness of the service; I do the same for the Wall Street Journal (€77) and Le Monde (€72 ) without even thinking twice before clicking on the “renew” button. But I won’t do it for the French business daily Les Echos which charges 365€ a year for its online subscription and 526€ if I want the dual subscription Web + print. I won’t do it because the price is inconsistent with the value I find in Les Echos. (When asked why they charge four times the price for the Wall Street Journal Europe’s  combined versions, the sole response is: “We are the only ones in our segment”. This surely is a great strategy to massively expand readership.)

The value equation also applies to advertising: the content behind the paid wall on the Wall Street Journal website yields high dollars. Said WSJ.com former managing editor Bill Grueskin on the Newsosaur blog:  “One of the lesser-known benefits of WSJ’s subscription model was that it enabled the site to charge considerably higher rates for ads than free sites did. Advertisers were paying for the Journal’s audience, which, beyond being affluent, was in a position to buy Cisco servers and JP Morgan financial products.” Value attracts value — obvious yet often forgotten.

The issue today is no longer publishing ; putting the news available has become a cheap and accessible commodity. More than ever, the true assets of the traditional news outlets lie in their ability to organize their inner talent. Those first to acknowledge and focus on such value are more likely to survive. —FF

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