In a 2006 report, Warren Buffett, perhaps the most renowned stock picker in the United States, pronounced that “fundamentals are definitely eroding in the newspaper industry” (PDF). Yet Buffett’s assessment hasn’t dampened investor interest in some of the premier news brands in the United States. Since Buffett's report, high-profile investors have moved to purchase major media firms including the Tribune Company (which owns the Los Angeles Times and the Chicago Tribune), the wire service Reuters, and Dow Jones & Company, which owns the Wall Street Journal. Peter R. Kann, the former chairman of Dow Jones, says several factors—the Internet, declines in reading habits among young people, and broad competition—threaten traditional news organizations, but points out major news franchises continue to produce strong cash flows. Kann says the main question for advertisers is the “intensity of the relationship” between a reader and a publication and notes traditional web metrics fail to capture this dynamic.
A lot of bad things get said these days about the future of print journalism. But at the same time there has also been a fair amount of investor interest in buying up major newspapers over the past couple of years. Do you think major newspaper brands are accurately valued by the market right now?
I think one has to basically trust the market values. As you indicate, while there is on the one hand a certain amount of pessimism about the future of print, per se, there is still a fair amount of optimism about the value of what you’re calling brands—and I might call franchises. If you own a newspaper franchise or a news franchise in a given community, you can serve it in multiple ways—print, online, even radio and magazines. Even in modest-sized communities, those franchises are still something close to monopolies and they produce strong cash flows relative to most businesses. I don’t think this is true of every newspaper franchise but a lot of them are still fundamentally healthy, albeit in transition.
Has the Internet improved the quality of journalism?
No. Generally I would say not. Here and there, there are exceptions. The best newspapers in print tend to also produce strong Internet sites—the Wall Street Journal perhaps in particular because the Journal actually charges subscribers for it—but others too. That said, the Internet contains so much information and opinion that doesn’t come close to being news in a traditional sense, so its overall effect is to reduce the standards of trustworthy information that people have available to them, even as it vastly increases the quantity of information.
How do you judge user-generated content as a business prospect? Is there a viable business model for user-generated content, or is it simply overrated?
Here and there, there may be a blog that is significantly profitable. But an awful lot of them are what I would call vanity publishing. That doesn’t mean that they are all bad but I doubt that is a viable economic model. Most of them, again, do not produce reliable information of the kind that those of us of a certain age grew up with.
There is a big debate about web metrics going on right now. At Dow Jones, what information would you have wanted from web metrics that you weren’t really getting?
The most important metric, whether in print or online, is something that measures the intensity of the relationship between the subscriber or the user and the source of the information. That’s what produces, at its best, a level of trust and loyalty to a news brand or information brand. That, in turn, is really what advertisers are looking for—the quality of the relationship rather than simply the numbers or clicks. This is true in print, too. A giveaway publication that is handed out in front of Penn Station that someone glances at and tosses into the trash may be able to claim that X-hundreds of thousands of people have seen it, but that doesn’t mean that X-thousand people have absorbed that information in a way that leads to a relationship of trust, which is what an advertiser is buying into when it chooses to place an ad in a publication. For me, that’s really the most important metric in any form.
Do measures like time spent on a site get at this, or are those flawed as well?
They come closer than simply clicks, yes.
What would improve them?
I don’t have a particular metric in mind. I just think any metric that gets at the quality of the relationship is more reliable or more important than [those that] simply get to quantity.
A number of major newspapers and magazines have been cutting overseas bureaus. I was hoping you could run us through a basic cost-benefit analysis of foreign bureaus for a major paper like the Wall Street Journal.
I don’t think that any editor can actually prove to his publisher or to his shareholders that the investment in overseas bureaus pays off in that narrow sense. You can argue—and I always did—that if you were going to have a complete high-quality publication, its coverage can’t stop at the shoreline. Issues are increasingly global and issues are globally interconnected. This is perhaps most true of all with economic and business coverage. You can say that absent a significant investment in overseas bureaus and overseas coverage you are going to have a less dimensional or weaker publication. But in the long run, smart readers are going to notice that and turn somewhere else. But if you try to justify that by having a Beirut bureau or a Singapore bureau that you’re going to produce higher profits, you almost invariably and inevitably lose.
We know how volatile gasoline prices are, but how volatile are things like paper prices and how big of an impact does that have on the bottom line of a company like Dow Jones?
I don’t have the prices in my head anymore but I don’t think that gasoline, or energy, is a significant cost to publishers. Newsprint is. It’s one of the major costs, along with distribution and news and marketing. Newsprint has always been a commodity and has always been cyclical. Sometimes it’s fairly volatile in its cyclicality but if you look at newsprint costs over an extended period of time, there’s modest inflation but it is not the reason that print publications are in some degree of economic trouble. The larger reasons for that are the ones we’ve touched on before: the Internet, the decline in reading habits—particularly of young people, and extensive competition. In the overall context, newsprint, for better or worse, is something that is necessary to produce news on paper, and all publishers kind of factor it into their basic economics, including some degree of volatility.
The counterpoint to the situation faced by U.S. newspapers is some of the success that has been seen abroad. The developing world has done relatively well. Is there more that can be done by U.S. papers to capitalize on that growth market?
Yes and no. There are parts of the world where print publishing is probably healthier at this point than in the United States, although it’s always a little difficult to compare the profit margin of a newspaper in China, where who knows what it really is, to the profit margin of the New York Times or the Wall Street Journal. For U.S. publishers there are really two ways to go abroad and conduct business abroad. One is to buy into national newspapers in other countries. There has been a modest degree of that, but it’s not a course that most U.S. publishers have taken. There’s a certain risk to that in many parts of the world, in part because there are regulations prohibiting foreign publishers from owning national publications. India is an example of that. In China you might be able to own a minority interest in a Chinese publication but you cannot assure that publication is going to produce honest news of the sort that you would expect it to produce in the United States or Europe.
Another way to go abroad is to take your brand and produce variants of your U.S. publication in other parts of the world. That’s what the Wall Street Journal has done with its overseas publications; it’s what the New York Times does in a sense with the International Herald Tribune. It’s what Time, Newsweek, BusinessWeek, and many of the magazines have done for years with the international editions. Those have certain benefits. You do produce an international news flow for your U.S. edition or U.S. publication, and that’s important, but it’s probably hard to think of any U.S. publisher, or any publisher anywhere, that is actually making any significant amount of money producing editions outside its own market. The one exception, I think, would be the Economist, because the Economist almost has no home market anymore. It has become a genuinely international publication. It doesn’t really fit the category that everyone else is in.
If a college student asked you today whether they should become a journalist, how would you respond?
I’m actually teaching some of them at the Columbia Journalism School. I think it remains a terrific career for young people. It serves some sense of idealism, it provides, at its best, a real career adventure. It engages young people intellectually. They feel they are doing some social good by informing people and at times, at least, exposing wrongs and challenging power. It is probably not a career that has as many opportunities as it might have ten years ago. Hopefully, that will change again over time.
The other caution I give to young people is there are a lot of problems with the mass media these days. There’s too much mixing of news and entertainment. There’s too much mixing of news and opinion, mixing of news and various commercial agendas; too much pack journalism and too much sensationalism. There is really a long list of problems, journalistic problems, in the mass media these days. But to me, that’s not a reason not to go into journalism; it’s a reason to go into it with eyes open and with the idea that one can challenge and correct some of the flaws and still do great journalism, at least at a limited number of publications.