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October 20-26, 2005

loose canon

Feeding the Iron Dinosaur

Can Philly's dailies survive? Not with the plans of their corporate boss.

The monster that will devour the Philadelphia Inquirer and Daily News isn't even on the radar of the bosses at Knight-Ridder. And their plans to curtail news coverage and print more advertising will only make this creature more powerful.

That monster is Google. And here's one version of the nightmare that corporate bosses have yet to acknowledge: Imagine walking down the street, feeling cold and needing a sweater. Something fancy, something blue. A couple clicks on your handheld and a navy cashmere sweater appears. It's in a shop just up the street. Second shelf down, on the right.

Now, I ask you: What newspaper coupon can compete with that? This is why Google is wifi-ing San Francisco for free.

The woes of Philadelphia's dailies are many and multiplying: The cost of newsprint is spiking, union contracts are coming due and classified advertisers are abandoning print for Craigslist and such. There's also fierce local competition: The Daily News is being demographically devastated by Metro, and surrounding regional dailies are hemming both papers in. National auto ads are way down, movie advertising is disappearing and one humongous advertiser, Strawbridge's, has been sold.

But in the catalog of catastrophes that Knight-Ridder CEO Tony Ridder recently offered during a teleconference of major stock analysts, there was no mention of The Big One. There's one huge reason why thousands aren't bothering to buy their dailies. Google is the killer app in the age of information; it's more objective than even the most objective newspaper. More convenient. And free.

At the teleconference, the Ridder folks were scrambling, and Philadelphia was their scapegoat. If they said the right thing, investment dollars would once again flow. And right now, the company's sickly stock needs a big infusion of cash. The share price just hit its lowest point in two years, off more than 20 percent. Currently, the nation's second largest newspaper chain is making a fraction of the profit of its larger American cousin, Gannett. Last year, K-R achieved a profit margin of 19 percent, while Gannett (publisher of USA Today) boasted 28 percent. (To put this into context, the average profit margin for the newspaper industry is around 12.5 percent, about twice that of an average Fortune 500 company.)

Traditionally, big-city papers have boasted massive margins. But now the Inquirer and Daily News, K-R's biggest properties, are in deep trouble. Both papers are hemorrhaging advertising lineage, and dragging down the rest of the company's chain. Philadelphia newspapers sold a whopping 14.1 percent less advertising this August than last. As one stock analyst politely noted, Philadelphia is a "burden to K-R's portfolio."

Still, the K-R team offered few specifics on how the Philly newspapers could sell more ads. Instead they promised to chop costs by cutting employees — all from the newsrooms. They reiterated a previous promise that editorial staffing would be reduced by 16 percent. Between the two papers, there would be about 535 in the newsrooms, a number that Ridder characterized as "generous."

But this was old news to these analysts, whose questions grew pointed. They wanted more. One analyst even asked if K-R was ready to "rethink," from "an editorial perspective," their support for the current "newspaper model." Translation: Can big-city journalism make enough profit?

With that, Tony Ridder unveiled the other half of his Philadelphia plan: less news for the city, and more expansion into the 'burbs. The way to rescue Philadelphia, Ridder declared, would be to put out free "niche publications." A fleet of free suburban "shoppers" would surround and protect the old city newspapers.

"A bigger footprint," promised Ridder, but not for either newspaper, it turns out. K-R would drive further into suburbia with new "products" that don't require editors, writers or photographers.

Ohmygod, I thought — they have to feed their printing presses. They're still trying pasture their iron dinosaurs on suburban lawns. But instead of using their $300 million printing plant to expand newspaper coverage — as was once the plan — the mammoth plant in Conshohocken would be spewing out circulars, shoppers and other advertising ephemera.

So, this is K-R's answer to onslaught of the intelligent ad? Topping suburban landfills with colorful debris? Is this how they propose to defeat the collective brainpower behind Google, or the targeted ads that Comcast plans will soon pipe to you — yes, just for you — on your TV?

It won't work.

Brawn alone will lose against smart competitors. K-R needs eyes, ears and brains in their newsrooms if they plan to capture a viable share of this marketplace.

"We are not just a company that is bound by these big, very expensive, heavy presses," Tony Ridder recently wrote. "We are an information company."

Maybe. But without the brains to gather, test and lend a context to information, all that K-R will offer is acres of advertising, vomited by an iron dinosaur.

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