TheGraphicOnline

Yes, I know I promised you that this week would be a Final Solution to the “Newspaper Dilemma.” But I want to introduce you to an interesting guy named Walter E. Hussman, Jr., who might be called the Poster Boy of this entire rigamarole. Or maybe an Avenging Angel, or maybe just a Voice Crying in the Wilderness.

Before reporting on what he has done, let me give a little background that I think you’ll find interesting.

Hussman comes from a third-generation newspaper family that owns the Little Rock (Ark.) Democrat-Gazette. His family owned some smaller papers in that vicinity until, back in 1974, they bought the Arkansas Democrat, the afternoon paper in the state capital of Little Rock. Since two daily newspapers can rarely exist in the same city, Hussman in 1977 sought a “Joint Operating Agreement” with the morning rival, the Gazette, which promptly turned down his overture, thus launching a 13-year newspaper “war.”

So young Hussman went to work improving his paper, including offering free want ads (remember the Action Ads?), a move that tripled the Democrat’s classified section. He continued to close the gap with the dominant Gazette until its local ownership threw up their hands in 1986 and sold out to the Gannett Company, the nation’s largest newspaper chain, which proceeded, as it always did at that time, to run its competition out of business. Then, a strange thing happened: The Democrat matched Gannett’s powerful Gazette blow for blow. Actually, they were able to match them loss for loss, or a total of about $25 million a year. In 1991, Gannett cried “Uncle” and sold out to Hussman. It was (and is) the only time Gannett has lost a newspaper “war.” By some coincidence, I happened to be in the office in the Washington, D.C. area of Gannett’s corporate controller in January, 1992 soon after the surrender and he was lamenting the fact that he had been able to sell the Gazette to Hussman for only $65 million. (Imagine, selling a business losing up to $15 million a year for $65 million!) Hussman knew what he was doing – he bought a monopoly in Little Rock, and monopoly is always worth whatever you pay for it. You will notice that he then named the combined paper with his brand first, the Democrat-Gazette.

Well, that’s more than enough background. Do I dare give you one more – a sort of coincidence? Here it is. At that time, the U.S. Department of Justice did not allow one newspaper to sell out to its rival in the same town, due to laws against restraint of trade. The seller had to show that there were no other possible buyers. So Gannett hired an “independent” broker to survey the market to search for buyers and, of course, he came up with the finding that there was none. The name of that “independent” broker was Rupert Phillips, the same man to whom I sold The Graphic in 1990, because I thought he was independent, since I didn’t want to sell to the local daily. Phillips later told me that the only reason he bought The Graphic was to sell it to the Pal-Item.

Oh!, I was going to tell you about Walter Hussman, wasn’t I? Here it is, in brief: Hussman’s Little Rock paper is the only major hometown newspaper in the country charging for its web site. This journalistic David who slew the Gannett Goliath admits that he started out with a free site, “like everybody else.” But he was smart enough (and independent enough) to learn – to realize that such a business plan didn’t make sense. He says he first realized this when his friends began coming up to him thanking him for the free online version so they didn’t have to subscribe to the paper anymore.
Since 2002, a relatively small number of Little Rock residents subscribe to the Democrat-Gazette web site to read the paper online. Revenue generated is minimal, less than 1% of total revenue. “The point is,” Hussman explains, “if they can’t get the news for free, they are going to get it from the newspaper.” And he adds: “That is the purpose of charging for content, not to get some heap of money. The purpose is to maintain the print edition.” To prove his point, Hussman surveyed the change in circulation of major newspapers surrounding the Democrat-Gazette. Every paper with the exception of the D-G experienced deep declines. Every paper with the exception of the D-G has free content.

In 2007, Hussman submitted an op-ed piece on his philosophy to the Wall Street Journal that startled the industry. Did his colleagues recognized him as a New Genius in Their Midst? Hardly. They chortled about his strange ideas and went right back to their plans of giving away free what they are trying to sell. As they are still doing.

So now that we have given the redoubtable Hussman his due, you will definitely receive this writer’s Final Solution to the Newspaper Dilemma next week. Promise.

–Vic Jose

Vic Jose :: May.10.2009 :: Uncategorized ::

Trackback URI | Subscribe to the comments through RSS Feed