Friday, March 05, 2010

Fall of the Washington Post, Part Five

The Washington Post newspaper, one of the greatest institutions of world journalism, is in deep trouble. Circulation, ads and employment have been falling for decades. The newspaper lost $193 million in operating income in 2008 and $164 million more in 2009. Its employees account for a disproportionate amount of the parent company’s pension plan, which now has more than a billion dollars in obligations. The company might be out of business were it not for its profitable Kaplan and television subsidiaries. What will happen now?

Dear readers, your author has been employed in the labor movement for fifteen years and has battled numerous rapacious corporate executives and management consultants. When you have waged combat against an opponent for that long, you learn how they think, what they care about and what they are likely to do. If the Washington Post Company ever brought in a crack turnaround management team, we can imagine what would happen.

Any new team would likely conclude that the newspaper is an unsustainable drag on the rest of the company. Kaplan will have a growing number of competitors in years to come and the company’s television operations have their own challenges, so they cannot carry the newspaper forever. But the newspaper likely cannot be sold for anything approaching the potential worth of its brand name. At the very least, its losses must be minimized. Here’s a brutally ruthless four-point plan that we would expect to see from a turnaround regime.

1. Break the Unions
Many companies break their unions, legally or illegally, for the simple objective of lowering costs. In the Post’s case, a consultant would want to eliminate them to clear the way for radical structural changes. Anti-unionism is not a hard sell to Post executives, who have waged war on their unions for decades. As a result, the unions are nearly broken already. Of the newspaper’s seven collective bargaining agreements (CBAs), four have expired. The agreement with the 435 mailroom workers expired on 5/18/03 and the company imposed its last offer in 2006. That bargaining unit is effectively dead. The newspaper’s last CBA expires on 11/16/11. After that date, it can be effectively union-free if management wants to take on that fight.

2. Terminate the Pension Plan
The Washington Post Company’s pension plan is in no imminent danger of failing, but it is headed in the wrong direction. At the beginning of 2007, the plan had $1.778 billion in assets and $803 million in obligations. At the end of 2008, the plan had $1.327 billion in assets and $1.007 billion in obligations. The plan’s loss on assets of $468.3 million contributed to the company’s disastrous 2008 results, maybe the worst in its history. The company cannot risk this happening again. And if the plan were to become under-funded, 2008 might look the good old days.

Since the pension plan appears solvent for now, it may be eligible for a standard termination. All participants could receive an annuity or a lump-sum payment equal to the present value of their vested benefits. The Post Company would be freed from any funding consequences down the road. Most importantly, the company would gain more flexibility in redefining its terms of employment.

3. Convert Reporters into Independent Contractors
Journalism has long had freelancers. They are cheap, do not receive benefits and are owed no commitment by the company. Nothing is stopping the Post newspaper from increasing its reliance on freelancers, and possibly converting nearly all of its full-time reporters to that status. In essence, the Post would be overseeing a workforce of independent contractors. The company would not have to pay any social security, unemployment insurance or workers’ compensation premiums to these workers. The company could even use these savings to increase their take-home pay.

This is a common tactic in the construction industry, which often misclassifies employees as independent contractors. FedEx treats its drivers as “contractors” and is being sued because of it. But if the freelancers do not operate out of central offices and have reasonable discretion in pursuing their coverage, the Post’s classification of them as contractors could just be legal. And it would save management a ton of money.

4. Franchise Content
After all of the above has been accomplished, the Post will be ready for the final step: outsourcing content. The Post could establish relationships with third-party companies to produce stories that would be vetted by a small team of Post editors. Those companies would then be allowed to carry the Post imprint as franchisees. The logical place to start is by spinning off the Post’s own subsidiaries, like the Gazette, Southern Maryland Newspapers, the Herald and La Raza Del Noroeste. All of them could be licensed to operate with the Post’s brand. So, for example, the Gazette might be called “Washington Post Maryland.” The Post could then sell franchises to many other small operations in its home region and beyond. Its brand would be bigger than ever but its business and employee commitments would be minimal. If one firm under-performed, there would be no need for layoffs or buyouts – just find a competitor, franchise them instead and resume operations.

Under the above plan, The Washington Post newspaper would no longer be a centralized organization. It would operate more like a general contractor in the construction industry. It would have a small central staff of editors, supervisors and marketing personnel who would coordinate with a network of smaller subcontractors that produce content and receive the Post imprint. Most important of all, by maintaining revenues and cutting both labor costs and overhead, the newspaper could be a reliable money maker again.

The Post has already started down this road with the Fiscal Times, a start-up financed by a conservative billionaire that is supplying content to the paper. Post ombudsman Andrew Alexander described their relationship this way:

The Fiscal Times is one of the nontraditional news organizations being created to provide specialized reporting. The Post and other media outlets have begun partnering with them to bolster coverage diminished by staff reductions.
The first article submitted by the Fiscal Times to the Post has already generated accusations of conflict of interest. But the Post is still marching into the brave new world of outsourcing with predictable consequences to come.

Let’s be clear: we do not advocate the above plan. It would be a disaster for readers. Reporters would be more transient than ever. Quality would be more difficult to control in a subcontractor network than in a large office of reporters directly overseen by editors. Coverage would be even more driven by profit than it is now. The Post’s brand name will have far greater reach, but ironically, it will mean far less substantively.

The chief alternative to the mass destruction above is charging for online content. That idea has merit because it produces a new revenue stream that, frankly, the Post and other media organizations deserve to have. But it is incompatible with the Post’s existing strategy of cutting staff and coverage, which leads to quality declines. Who wants to pay more for a product that is going downhill? If the Post is going to charge, it must increase its reporter and editor staffing and endeavor to produce better content. If not, its new revenues will be less than expected and visitors will be driven away.

Whatever happens, the awful years of 2008 and 2009 were not a blip. They resulted from the baleful trends of decades. The economic depression merely pushed the storm surge over the levee walls. For better or worse, the company must re-align its business model. Otherwise, we will surely witness the Fall of the Washington Post.