Substituting pennies for dollars

For each dollar it gains in online advertising revenue, the New York Times looses six dollars in print ads. See the first quarter financial results released last week by the company Q1 2008 yielded a loss of $335,000 for the period compared with a net income of $23m for Q1 2007. Advertising revenue is down 9.2% for the group even though circulation revenue is up 1.9%.

A closer look is even more alarming. It shows a sharper decline in advertising on all regional markets (-26% for its New England operations and -19% for its other regional papers). This is actually a trend : a decline of 30% in advertising revenue versus 2007 is not uncommon in certain regional US markets affected by the complete collapse of both jobs and real estate classified ads. For the New York Times, the drop was 35% for jobs ads, 30% for real estate and 20% for cars. Needless to say, the entire US newspaper industry is bracing for the release of the first quarter results in the coming days.

The fundamentals of the sector are deteriorating much faster than anticipated. The advertising side is impacted by two factors: number one is the current recession that affects first the real-estate market, then job related ads, and now all sectors of the economy. The second factor is the structural migration of a large portion of ads towards Internet pure players — not only classified but display ads as well, since advertisers are now seeking a cheaper and measurable space on the internet. Both trends are irreversible. Revenue lost to the Internet won’t come back, even if the economy rebounds: every player will soon be addicted to a cheaper and more efficient internet. And circulation won’t help either. It is and will remain flat since newspapers are not keen to invest in major audience-boosting initiatives. In the meantime, newspapers are increasing their online audience (+12.3% for Q1 over a year ago according to the Newspaper Association of America).

What’s next then ? First, a major depreciation of assets. In an interesting piece published by Portfolio, Howell Raines, former executive editor of the New York Times, wonders if newspapers aren’t “The worst investment in America“, quoting the story of Brian Tierney who bought the Philadelphia Enquirer two years ago. Since then, Mr. Tierney has seen the value of his investment melting like the polar cap. The same applies to Sam Zell, the Chicago real-estate mogul who bought the Tribune Company last December for $8.2bn. As The New York Times reported recently Tribune Co. is dealing with a debt (now amounting to $12.8bn) that it is likely to default on, in the wake of a double-digit decline in advertising. The long-term part of this debt is now trading at 50 cents a dollar. And Mr. Zell is disappointed with the level of internet revenue (he actually coined the term “pennies for dollars”). As Howell Raines puts it in Portfolio, “[Publishers] have to find more revenue at a time when little, if any, elasticity is left in the old business model, even though newspaper profit margins still average a deceptively healthy-looking 17 percent. But those margins have been maintained by one-off fixes like radical slashes in payroll, trimming news holes and circulation, and a self-defeating stinginess in regard to innovation”.

Emerging economies –The design of the fourth billion cellphones

It took about 20 years for the first billion mobile phones to sell worldwide. The second billion sold on four years, and the third billion sold in two. 80% of the world populiation lives within range of a cellular network, which is double the level in 2000. Among other cellphone manufacturers, Nokia wants to own a big chunk of the next billion of handsets. The New York Times Magazine sent a reporter to follow anthropologist employed by Nokia who is scouting the world to see how people use their cell phone. He founds out that the ownership of a communication device such as a cellphone is becoming almost as essential as the access to running water or a sewage system. And in many instances, through amazing grassroots innovations, cellphones can help to reduce poverty. Read this great story in the NY Times Magazine.

The turnaround of the Financial Times

Call it the success stories of the British press. Last week we looked at the stimulating story of the Economist that is harvesting global praises both from its business performances and its journalistic insight. It is last edition, Business Week did the same for the Financial Times. Here are quick facts:
- in 2007, the pink austere business daily turned profit of $60m for a revenue of $600m. This come after a $60m loss in 2003 and $17m in 2004.
- interestingly enough, overall staff remains in the same numbers thanks to increase in digital team that has compensated cuts in the print. Its current headcount is about 600, less that half of the NY Times for instance.
- as for The Economist global view proven to be a strong concept. The FT has four edition plus a Chinese language website ; circulation is 150,000 in the US (vs. 1.7m for the Wall Street Journal) ; 140,000 in UK, and 160,000 for the rest of the world.
- advertising endorses this global reach : not only it increases by 10% last year, but also three quarter of the ads appears in more than one edition.

In the coming year, the FT will face a dual competition. The WSJ is willing to beef-up its international presence (if someone has a global view, Rupert Murdoch does) and the New York Times could try to become a global brand by taking over the International Herald Tribune’s operation and putting its own name on the international paper.

The “brutally honest” Swedish solution

History shows solutions exist to the current banking crisis : try the Swedish one. It can be summed-up in one concept : guarantee the assets, punish the shareholders. The massive rescue of the Swedish economy in the 90′s was recounted last week in a Wall Street Journal article :

” In December 1992, Sweden guaranteed its entire banking system, insuring creditors and depositors — but not shareholders — of 114 banks against losses. Sweden imposed strict terms. To shore up confidence among creditors, the new authority required banks to disclose expected losses immediately, and it quickly assigned values to other assets, rather than let banks postpone reporting losses and take gradual write-downs. Banks receiving capital injections or loans surrendered shares to the government to avoid the possibility of rewarding shareholders, and to give Swedish taxpayers a chance to profit when the market improved”.

We are not here yet. The international financial system is still in the privatized-profit-socialized-losses mood. In the meantime, questions increasingly focus everywhere on the excesses of the system. In this interesting cover story “How to fix Wall Street”, Fortune magazine is pointing fingers at the flaws of the financial system. Compensation mechanisms, for example, have gone out of control : in 2007, employees of the Wall Street Big Five (Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley) have captured 60% of the firms revenues, versus 32% for JP Morgan and 28% for bank of America, both run more conservatively. In the meantime, ratio of assets to equity was 41:1 in 2007 vs. 30:1 in 2002, an interesting evolution knowing that, if a portfolio is leveraged 33:1, it takes a mere drop of 3% to wipe out its entire capital, as Fortune recalls. Did we reach an inflexion point ? Not so sure. Maybe the situation has not gotten ugly enough yet. But everyone is working on it.

Is Orange a TV channel ? “You Bet!” says Canal+

If Orange is becoming a paid-TV channel, it has to abide by the same rules as the TV networks. The CEO of Canal+ is accusing the French Internet and cellphone operator of anti-competitive practices and is about to challenge Orange’s position before French regulators. Bertrand Meheult said so last week in Le Figaro.

In play : the ever increasing packages Orange is proposing to its subscribers of all stripes: mobile phone, internet or ADSL-TV. The French carrier recently acquired broadcast rights for soccer matches, TV series and even first-release movies such as the next Harry Potter. Hence the ire of Canal+ chief. According the French law, any French broadcaster must abide by the so-called “production diversity” law and acquiring a quota of “genuine” French productions (even if they are not often audience attractors). Bertrand Meheult says mobile phone operators are now competing in the same area and must be submitted to the same constraints.’s audience jumps at records high. Newsroom integration works

The online version of the Wall street Journal is roaring. According to its editor, Alan Murray, quoted in the business monthly Portfolio , got 15 million unique visitors (UV) in March, a 175% jump over a year ago. In page views, figures for the same month came at 165m a 75% increase. Those figures have been compiled by internal traffic measurement tools (counting tags on each page). Nielsen measurement, is different : it gives 6m unique users for the versus 3.4 for March 2007. Nielsen is relying on panel — people are asked to tell what site they look. Why has this approximate, anachronic, measure become such a standard on the Internet? This remains a mystery – or a miracle of PR.

What is driving the audience ? Two things from a reader’s perspective : First, the site is good ; it is has depth, it is reactive, its interface is neat. Second, its content has been boosted for months by a stream of great stories ; the endless subprime saga, the debate about the scope of the recession, the difficulties and collapse of major institutions like Bear Stearns.

According to management, the creation of a unified, print and online WSJ newsroom, is a key element: “That had two really important effects,” says Alan Murray. “First, it got the entire news operation thinking on a more systematic basis about the online edition. Second, it really freed up my team to focus on making the product better, because we weren’t managing the daily news flow anymore.”

Others factors include the usual tools of the trade : better search engine optimization (SEO) ; clever approach of the “aggregator factor” with links from Google News giving access to one article even if it is part of a paid-for segment of the site. (Unlike many newspapers that ignore, or even reject any cooperation with Google — even if 40% of their traffic often come from search engines — , the is using the power of Google as promotional tool. This policy doesn’t affect his subscription policy. As the site is gradually opening to free users, its subscriber’s base of 1 million is growing 10% a year.

Microsoft vs. Yahoo!– Covering yourself with feces…

“That seems sort of like trying to keep a wild animal from eating you by covering yourself with feces.

It might make awful sense for about a second, but it’s just a bad, bad idea. First, it’s unlikely to work — and, second, it’s just pathetic.”

To save itself from Microsoft’s jaws, Yahoo! considers buying AOL, the fallen leader of the consumer Internet. Crudely but accurately stated by Techdirt, the idea is to cause Microsoft to give up the chase, turned off by the smell. Complications piling upon an already convoluted deal. More incompatible systems, more hostile cultures, more risk of customer going “elsewhere”, meaning Google. To say nothing of added anti-trust scrutiny and talent flight.
But Microsoft isn’t any saner. Steve Ballmer wants the deal really badly: he’s willing to get in bed with Rupert Murdoch. News Corp’s wily patriarch got snookered into buying MySpace only to find the epicenter of social networking moving to Facebook.
Wait, there is more: Yahoo!, the deposed Internet king, wants to outsource search to Google. Better search results get a higher price for Yahoo! ads. According to our favorite Internet Bubble repentito, Henry Blodget, the putative outsourcing deal is worth $5 per share to Yahoo!


First, this mess shows again how far Silicon Valley is from Wall Street. Yahoo’s management, led by its founder Jerry Yang, opposes the deal: It will kill the company they care so much about. Never mind the years of mismanagement, delusion or neglect, never mind the sinking market share, the number one position lost to Google, the bad decisions made by the board of directors, the string of CEOs, Tim Koogle, gone, Terry Semel and his Hollywood connections, gone, Sue Decker and her consultant-speak memos, out of sight…. Is this really about the company, about shareholders? Or is it a few people trying to keep their phallus extender?

Speaking of Wall Street, all shareholders want is for the pain to stop: they lost 50% between January 2006 and January 2008, right before Microsoft’s offer at a 25% premium. How can they trust management’s promises to right the ship when the rosy predictions came as a reaction to the ogre’s appetite? Now, if Yahoo’s posturing results in Microsoft adding another 10-15% to their opening offer, I take back the sarcasm: management played a weak poker hand well, the bluff worked. In “real life”, we’re told, Jerry Yang is a good poker player….
Still on shareholders, those owning Microsoft shares aren’t so thrilled. They don’t distrust the directors and the CEO, Steve Ballmer, but they don’t see what the board sees either, that cloud computing spells the end of the Divine Earnings Stream, profits from desktop applications, mainly Microsoft Office. Microsoft shareholders see the short-term threat of the messy acquisition, not the longer term trouble with Google becoming the new Microsoft in the cloud.

Second, I wonder if there is another bluff taking place. Let’s assume Ballmer and his advisers hadn’t expected this much hostility. They now see the deal as substantially riskier than planned, they want out. Microsoft secretly welcomes Yahoo’s intransigence, postured and real. Ballmer doesn’t raise the offer and hopes Yahoo won’t budge. The deal dies of a “natural” death. Yahoo’s fault.

We’ll know soon whose bluff worked. –JLG

InterActive Corp backing the “Queen of Buzz” for a news site

Best editor money can buy. At least, that’s the pitch. Internet media mogul Barry Diller is teaming up with former Vanity Fair and New Yorker editor Tina Brown to launch an aggregator news site, reports Radar. In a conversation with the Monday Note last September in Monaco, Diller hinted that he was up to launch a news site, saying that, news media were far for having grasp all the potential of the internet.

Neil Budde: From Yahoo to the Daily Me

From Yahoo to the Daily Me In the Internet publishing world, Neil Budde is seen as both a pioneer and a reference. He created the Online Wall Street Journal that now enjoys one million subscribers. Then he left for Yahoo!, raising speculations that the search company will make a major move into publishing (it didn’t happen). Last week Budde announced that he was leaving Yahoo! for the customization-aggregator Daily Me. Is it simply a career move from a bureaucratic Silicon Valley giant to a more startupish venture? Or is it the expression of a vision ? Judge by yourself with Budde’s explanations.