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Paper Chase
The new debt-free newspaper company arising from the Journal/Scripps merger will still have a huge challenge ahead.

Photo credit: Paket/Shutterstock

So what lies ahead for the new Journal Media – the new newspaper company that will launch when the Journal Communications/E.W. Scripps deal is completed in 2015?

Journal Communications Chairman Steve Smith – who was present at the first private conversations out of which the complex merger-and-spinoff grew – enthusiastically declared it an “everyone wins” transaction when it was announced July 30.

Meanwhile, in an email message to me, a New York media consultant compared the arrangement to cutting off a rotting leg.

To recap: Scripps – owner of 14 newspapers, TV stations in 16 markets and eight radio stations – will merge with Journal Communications, owner of The Milwaukee Journal Sentinel, WTMJ radio and television, a dozen other TV stations and nearly three dozen radio stations, along with weekly newspapers and related websites, primarily through two subsidiaries. The transaction is subject to approval by federal regulators and shareholders of both companies.

Scripps, headquartered in Cincinnati, Ohio, will keep all the broadcasting operations. The print and related digital operations will be spun off into a separate company, Journal Media Group, to be headquartered in Milwaukee. The Journal Sentinel will go from being the company’s only daily to the largest and flagship of a15-paper chain.

The saving grace for the newspaper side of the deal is that the new Journal Media Group will be debt-free, with a $10 million cash nest-egg when the deal is completed. So that does give the print business a chance for – as the JS reporter Bill Glauber put it in his Thursday morning story – “a fresh financial start in an uncertain media world.”

“That’s huge,” says Bruce Dobie, a digital media entrepreneur in Nashville.  “The fact that they put this thing in a debt-free company speaks volumes… You’re going to be judged by what’s going forward. You’re not saddled by having to make interest and principal payments every month.”

Dobie suggests that putting all the newspapers under their own roof helps sharpen the focus of the resulting business. “What newspapers still have going for them is, they are still the dominant news and content creators in our towns and cities,” he says. “Isolating them in their own ownership structure calls attention to that.”

But news industry consultant Ken Doctor points out that $10 million cash infusion won’t be much.

Metro newspaper ad revenue continues to decline nationwide – down 5-to-7 percent this year, on top of declines of eight percent each of the last three years. Pay walls have provided a short-term bump for one to two years, but that return is getting soft, he adds. “That is the problem that they deal with from day one.”

So when the deal is finished, Doctor tells me, “The major question around the print side is whether they will circle the wagons or whether they have something broader in mind for the future.”

A variation on “circling the wagons” would be if the new Journal Media goes out on a newspaper buying spree. That would not be a winning strategy, Doctor says, but “a milking strategy” – buying more readers and getting more advertising revenue at lower marginal costs, but in an industry that remains in decline. “That’s what I call a ‘last man standing’ strategy. Print is declining – but there’s a lot of print.”

A related open question, Doctor says, is how the new company will integrate the JS and the Scripps papers. Other newspaper chains – Tribune Co. and Gannett among them – have moved to centralized copy desks that serve several papers. That’s saved money, but insiders suggest the editorial results have been mixed at best.

Ultimately, though, the better long-term future – but also one that’s far more risky and far less certain – will come from figuring out how to break the papers out from their current trajectory.

“The playbook that’s being written on the fly requires more investment in alternative forms of advertising and selling digital services to small and medium businesses,” Doctor says. “Scripps is not known as a leader in that itself” – although he allows that perhaps the company has done more and just kept quiet about it.

Marketing deeper content to paying audiences is another avenue for growing revenue. But each of those strategies requires an investment in technology and in people.

In many ways, Journal and Scripps are latecomers to what has been a growing trend: splitting print and broadcast divisions from each other, as Rick Edmonds, of the journalism training organization the Poynter Institute, observes: Rupert Murdoch’s News Corp., Tribune Co., Time Warner, and A.H. Belo (owner of the Dallas Morning News) among them. 

Edmonds’ colleague at Poynter, Al Tompkins, points out that broadcasting/cable in general is performing strongly. Developments such as the skyrocketing reliance of political campaigns on television ads – and a recent court decision blocking local TV rebroadcasts on the internet without paying for the content -- have further bolstered the business, he notes.

These deals are undoing marriages that were supposed to give broadcasters and newspapers money-saving synergy and help them hedge against losses when business cycles hurt one sector or the other. Now they are freeing broadcasters from being dragged down by their associated newspaper properties.

“They are consolidating their profitable assets (TV) from their long term disasters (newspapers) with an eye toward long term valuations of each,” New York media entrepreneur Michael Rosenblum tells me in an email.

 “Separating them is the equivalent of that kind of surgery that MDs do when someone gets infected with the flesh eating bacteria. They cut off the leg to save the patient, in the understanding that the leg will die,” he says. “In this case, the newspapers are the leg.”

That may be an especially harsh analogy, but it reflects Rosenblum’s chronic skepticism about the future of legacy newspapers.

His own business revolves around capitalizing on the explosive growth of cheap digital video technology, and he’s been working with newspapers to get them to adapt it more extensively. He’s firmly convinced video is the future of all journalism.

The strength of a newspaper staff is in gathering and processing content, he argues. “The screens need content. It should not be so hard to put those two together.”

Rosenblum doesn’t expect most established newspapers to make the leap, however.

Doctor might not share Rosenblum’s pessimism, but he agrees that video is critical – on the advertising side as well as in the newsroom. “Video is the one kind of advertising that has more demand than supply,” he says – and fetches three times the revenue that regular online display ads collect. As a consequence, all the papers he sees “are struggling to create more video.”

With the Journal Sentinel already well down the path of bringing more video to its website, the new Journal Media would seem to have a head start in that direction.

And if it goes that way, it might be a bit of an irony if, after separating print and TV, the print side survives by plunging headlong into video itself.

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