Some serious food for thought this Easter Sunday morning:
Whaat weent wrongg?
Secure in their profits, Globe and other newspapers underestimated the impact of the Web
By Robert Weisman, Globe Staff | April 12, 2009
Months before The Boston Globe launched its own website in 1995, a brash young entrepreneur named Jeff Taylor visited the newspaper's headquarters in Dorchester to offer its executives another foothold in the emerging digital world.
Taylor sat across the table from a team of Globe executives, including members of an unrelated Taylor family, the one that had run and held a controlling interest in New England's dominant newspaper for more than a century before selling it to The New York Times Co. in 1993.
He described Monster Board, his fledgling venture in Maynard that sold help-wanted ads online. Jeff Taylor proposed the Globe put up $1 million for an ownership stake that would give the paper a chance to put its lucrative classified advertising business on the Web - a step that might have cut into its revenue in the short term, but offered a chance to take the franchise national.
The answer was no. Sharing the newspaper's nearly $100 million a year in help-wanted advertising didn't make sense. "Our grandfathers would roll over in their graves," Jeff Taylor recalled being told. Soon after, he sold his business to the advertising giant TMP Worldwide. It expanded into Monster.com, a website that in 2000 generated more than $500 million, marking the beginning of the end of newspapers' near-monopoly on classified ads.
What happened that day highlights the predicament the Globe and other papers have faced over the past 15 years as changes in technology and consumer habits upended their business model.
For decades, advertisers relied on newspapers to post job openings, sell homes, and unload cars because the medium reached a broad audience. But as more people migrated to the Internet, websites like Monster.com, Craigslist, and Cars.com popped up to specifically target those customers. Newspapers were slow to recognize the power of the Internet to erode, then splinter their familiar and almost effortlessly profitable business model. And though they've now built a significant Web presence, newspapers' online ad sales haven't grown nearly fast enough to offset the precipitous drop in print advertising. Nor do online ads command as much money as ads in the paper.
The dilemma came into sharp focus on April 2 when the Times Co. told Globe union employees it is seeking $20 million in concessions, including pay and benefits, within 30 days or it may shut down the paper. The Globe has reported it lost an estimated $50 million in 2008 and is projected to lose $85 million this year. While the recession has hit the company hard, and it is no longer generating enough revenue to cover its costs, the biggest factor may be a shift of advertising to the Internet, which has accelerated in the past two years.
Newspapers were "spectacularly slow" to capitalize on the changing trends in technology and advertising, said media analyst Alan Mutter, a former editor and widely quoted commentator who now blogs on the industry's woes.
"The newspaper business was a victim of its enormous success," Mutter said. "Because their revenues continued to grow up to 2005, about 10 years after most people heard about the Internet, they put very little effort and energy into trying to imagine how the world might change and what their position would be in a changed world."
Such changes have taken hold most rapidly in high-tech hubs, like Boston, San Francisco, and Seattle, which have been quick to embrace the Internet, mobile technology, and websites like Google and Facebook. Sixty-one percent of adults in the Boston area live in households with broadband access, the second-highest penetration rate in the United States after the San Francisco Bay Area, according to a recent Scarborough Research analysis. People with broadband access spend more time online, and look to the Internet for news - and advertising.
A missed chance
Asked about the mid-1990s rebuff to Monster.com, Steve Taylor, who was executive vice president of the Globe during those discussions, said, "I'm sorry to tell you that's an absolutely true story."
Taylor family members in Globe management at the time recall the episode as a missed investment opportunity, something that might have given the company a financial cushion though certainly not slowed the Internet's rise or the erosion of the print classified ad base. "The Globe just didn't want to cannibalize itself," Steve Taylor said.
Ben Taylor, the last member of his family to serve as publisher of the Globe, also remembered the paper's decision to pass up an investment in Monster.com. "Getting a piece of Monster might have been a quantum leap into the digital world," he acknowledged. "But it may have been a leap we weren't prepared to take."
There were other fateful decisions in the early years of the Internet era. The Globe was one of the nation's first newspapers to set up a website, launching Boston.com in 1995. But like papers across the country, it opted to post stories online without charge, accustoming a new generation of readers to expect news would be free. Mutter has called that decision the "original sin" of newspapers in the digital age.
But others disagree that a pay-model, like The Wall Street Journal's wsj.com, is the industry's silver bullet. Some believe that if papers keep their sites free, they will make more money because of the higher number of online readers and ads that follow.
On the decision to make Boston.com free, Steve Taylor, who was then president of Boston Globe Electronic Publishing, which started Boston.com, said: "I'm not sure it wasn't a mistake. That's still a burning question, but it's not clear to me there's a right or wrong answer. It's a very difficult, complicated problem."
Readers may view newspapers as a source of news, information, and entertainment. But papers are a business, and up until this decade a hugely profitable one. Investors - among them financial guru Warren Buffett - often scooped up shares of publicly traded newspaper companies because they were viewed as firms with steady cash flow and high profit margins. Fidelity Investments, the Boston mutual fund giant, even owned a chain of Massachusetts community newspapers during the 1990s.
Advertising - big display ads from retailers and smaller classified ads for jobs, homes, and cars - has always been the biggest revenue driver. And classified ads were long the crown jewels in the Globe's franchise, helping to cement its regional dominance and pay for the news that built its national reputation.
With a strong subscription base, it became a classified advertising powerhouse. When area veterans returned home from World War II, the Globe offered special sections, fat with classified, on how to find jobs. "It was the right thing to do from a patriotic viewpoint, and it was a smart business move," said former publisher Ben Taylor.
During the boom years of the 1980s and 1990s, classified accounted for about half of all Globe advertising, and help wanted about half of classified ads, Taylor recalled. "On peak weekends, there were help-wanted sections that were over 100 pages at $40,000 to $50,000 a page," he said. "We're talking $5 million newspapers for those Sundays. These were big, healthy newspapers."
The rollicking success of the Globe and other newspapers in the first years of the Internet age made it harder to anticipate the threat from upstart websites like Monster.com, Craigslist, and Google, which links advertising to its popular search engine. The Globe's annual profits reached about $100 million for several years in the late 1990s, according to a former executive. Among their best-paying advertising customers until the Internet bubble burst in 2001, ironically, were dot-com start-ups buying brand advertising to raise their profile.
But in recent years the Globe's advertising revenues have sagged. With the recession exacerbating the decline, total advertising revenue at the Globe is projected to fall more than 25 percent this year, while advertising at Boston.com is expected to remain flat, according to people familiar with the matter who requested anonymity because they are not authorized to speak publicly. Classified advertising is projected to plummet 50 percent this year, these people say.
Nationally, the picture is much the same. Financial analysts from Barclays Capital project US newspaper advertising will decline 22 percent in 2009 and another 10 percent in 2010.
The migration to the Internet hasn't been the only factor driving down advertising sales. Another has been consolidation in the retail, banking, and real estate sectors. Locally owned department stores that had long bought full-page ads, like Jordan Marsh and Filene's, were acquired or closed, and other retail advertisers such as Tweeter and Circuit City shut down. Several ad-buying banks and real estate brokers, like Fleet Financial and DeWolfe Cos., were also acquired.
"It's a very difficult economy for newspapers," said Jack Connors, a veteran Boston advertising executive and business leader who at one time was interested in buying the Globe. "Advertisers still have to advertise, but the Internet has allowed them to be much more targeted and cherry-pick customers. If they're selling Volvos, they're able to reach just the people who own Volvos."
Ernie Boch Jr., president of Boch Enterprises in Norwood, whose auto dealerships have advertised in the Globe for more than 50 years and still do, said an increasing share of his spending has been redeployed to television, radio, and the Internet - including Boston.com - in recent years. Boch, who has reduced his advertising in the Globe by 40 percent in the past year, said he is following his customers.
"The newspaper at one point was a very powerful tool for selling automobiles," he said. "And the Globe had a stranglehold over advertising because they were the only game in town."
When the economy recovers, few expect newspapers to regain much of the lost classified ad revenue. For Globe executives, the growth of niche-oriented websites has required a new approach and new attention to customers.
"There were better days," acknowledged Sam Martin, the Globe's chief advertising officer. "Customers thought about newspapers first, and they called us. Now we have to work harder to prove our value to customers because they can go elsewhere."
The Globe has moved to diversify in recent years, launching niche publications like FB, a glossy fashion insert; Lola, a free magazine aimed at women; and Design New England, an upscale home magazine.
Different publications give advertisers more opportunities. "Today, the Globe is the foundation, but we sell a multiplatform approach," Martin said. "We want to give customers the strength of the Globe, but also the reach of Boston.com, our direct mail company Globe Direct, and our niche publications."
A paradox of the Internet age is that the Globe and other newspapers enjoy more readers than ever through their papers and websites combined, but fewer readers pay for the news. Boston.com was a pioneer in creating a regional website that did more than simply post news from the paper. While the Globe is the nation's 14th-largest newspaper, Boston.com today is the sixth most visited newspaper website, with 5.6 million unique visitors in February, according to Nielsen Media Research.
Globe executives are optimistic that the new ventures will bear fruit, and that Boston.com will become a much bigger revenue engine. "We are very much at the beginning of the game," said Susan Hunt-Stevens, a Globe senior vice president who oversees the company's digital operations. "Boston.com has got to grow. We clearly need to develop ways to grow revenue. How we do that is something we're looking into closely."
Newspapers haven't been the only businesses blindsided in the Internet era. In recent years, Monster.com itself has had its share of setbacks as online competitors like Craigslist have let people place classified ads for free. That's eaten into Monster's help-wanted advertising sales and forced the website to again look to alliances with newspapers. In 2006, the website partnered with Boston.com.
Jeff Taylor, the Monster founder, recalled being introduced as a "franchise killer" when he addressed a newspaper convention in 2001. Taylor went on to start Eons Inc., a website catering to aging baby boomers. And he recently launched Tributes.com, an online venture that is targeting another staple of newspapers: obituaries.
Taylor said he was saddened to learn the Times Co. was threatening to close the Globe. "I grew up in Needham," he said. "The Globe is as important to me as anyone. I never created this business with any malicious intent."
From the cross-town rival Herald:
Boston Globe unions are showing signs of digging in against management as frustrated labor leaders say their members have already given up enough in the effort to keep the struggling broadsheet afloat.
“The general attitude is, ‘When is this going to stop?’ ” a top Globe union official said yesterday. “The unions are going to tell management, ‘We’ve worked with you as much as we can. Now you are taking it too far.’ ”
“We’ve already given up enough,” echoed the frustrated leader of another Globe union, who added that even if the unions agree to the $20 million in concessions demanded now, management “will soon be coming back around again.”
Last week, managers at the New York Times [NYT] Co., which owns the Boston Globe, told officials who represent the paper’s 10-plus labor unions that they need to cut costs by $20 million by May 1.
If they fail to do so, managers told union leaders, the paper will be shut down.
“The New York Times Company is threatening to shut down the Boston Globe while also bullying the workers who have made it one of the premier newspapers in America,” Boston Newspaper Guild President Daniel Totten said yesterday in an e-mail statement.
The Guild represents some 732 Boston Globe reporters, editors and business-side workers.
In the past year, the guild has lost 80 members to layoffs and buyouts, and members have not received a raise in four years.
Other unions have made concessions, too.
Six months ago, Times Co. managers asked the Globe’s truck drivers and press operators to cut $10 million from their payroll.
After the unions’ accountants reviewed the beleaguered broadsheet’s books, Teamsters Local 259, which represents the paper’s 200 union drivers, agreed to cut wages by 5 percent and to eliminate 10 holidays.
(In contrast, when Times Co. managers took a 5 percent pay cut earlier this year, they got 10 days leave in exchange.)
The newspaper’s unionized pressmen reportedly accepted a 10 percent reduction in wages.
This time around, the Times Co. has refused to open its books for the unions, a potential sticking point that could make any cuts very hard for union officials and their members to swallow.
In the months after unions made those concessions, Times managers received bonuses in the form of stock options. When they are eventually cashed in over the next three years, executives could make hundreds of thousands of dollars. That’s in addition to million-dollar plus salaries.
The stock options were awarded even as the value of company stock plummeted and the Globe newsroom braced for a round of layoffs.
Earlier this week, after the Times Co.’s ultimatum, Ralph Giallenella of Teamsters Local 259, which represents Globe drivers, said: “There’s nothing left to take out of anyone’s contract.”