John Paton is the chief executive officer of Digital First Media, a company created to help newspapers make the transition from print to … something else.
He’s in charge of more than 70 newspapers – from small titles such as the Morning Journal in Lorain, Ohio to well-known papers as the Pulitzer Prize winning Denver Post. I had lunch with him in Manhattan a few months ago for a Report On Business Lunch, but only a fraction of any interview usually makes it into a piece.
Here is a barely edited transcript of our conversation.
On newspapers today
Life is harder. If you have been in a newsroom for 10 years, five years ago life was easier than it is today. That’s a fact. Companies have to realize that, and you have some companies that haven’t been able to give raises for five years. When I make speeches to employees, I feel more than half are pulling for us but it’s been a slog and they really do mostly just want me to go away. That’s what you get from newspaper employees – when I give the same speech about changing the business to digital companies they just look at me with a big “duh” look on their face. They say “Of course you are doing this.” They don’t have “digital first” meetings at Google.
The day it all changed
Every newspaper has ways to put advertisers on credit watch to make sure everything is OK using algorithms and patterns. One day in 2008, the CFO walks in and says “We just put GM on credit watch.” We just looked at each other; we knew it was a moment we’d have to remember because our lives just changed profoundly. It was just one account. But it was General Motors. Then it went bankrupt. This little company knew that ahead of time. I wish I could bottle that moment and show it to every reporter and salesman, GM and publisher and mid-level executive and have them understand that this moment is happening all the time now. I remember that one because it was the first – but I bet 10 per cent of our businesses are on credit watch. GM was the moment things changed.
How quickly are things changing in the newspaper industry?
Changes in the industry are so rapid – if a legacy media company today doesn’t have the kind of culture that allows this pace of change they’ll die.
What sort of things can you do to keep up?
I watched a guy demonstrate to me how an ad can be built algorithmically for a client he had never met, that would fit all forms of newspapers, websites, tablets and smartphones in 60 seconds. I was stunned. The ads were certainly were good enough for an ad at the price point of hundreds of dollars versus an ad of hundreds of thousands of dollars. This is a war of dimes. Trying to find cost effective way to get the dime in the house and make some money.
On paywalls
So, you want to adopt a paywall strategy? It better be a strategy, and not a tactic. The thing that scares me? I think in the past quarter NY Times newspaper, not the entire company, had more circulation revenue than ad revenue. I’m looking at this thinking that’s a bad thing for sustainability, but it’s being lauded as success.
And more on paywalls
I can see it as a very solid line of revenue. But as a game changer? How do these numbers sustain themselves? We’re going to have everybody in the United States subscribe? Everyone in an age demographic? It’s not sustainable, if that’s the model. The circulation line doesn’t go straight up – it goes flat. You run out of people. If you didn’t really focus on the new revenue opportunism that come with digital – not web – if didn’t focus on building those then you are so far behind trying to monetize.
Oh, also some stuff about his paywalls
The all-access strategy in many places is simply an excuse to raise the home delivery price for the newspaper and throw in digital and say someone is getting something for free. That has only so much life in it before it runs out of gas. I think people will pay for things that are worth paying for. And I would argue that at general interest newspapers, there is a small chance that equals what’s in the paper and that’s why I don’t like paywalls. There’s a larger chance to build apps – true standalone products that are different from the Web and different from newspapers. People will buy things that they use differently.
On Facebook
From a pay perspective on the web, I don’t want to do anything that will mess up traffic. The bigger the audience, the more my opportunity. People can argue about declining CPMs, but I will give you this analogy – a billion people using Facebook. I read all over the place that Facebook hasn’t figured out monetization. Facebook hasn’t figured out mobile. I think any entrepreneur would come back and say, “Well we have a billion people and we’ll figure it out.” The opportunity is so much bigger because of the size of the audience.
On paywall alternatives (ie, more paywalls)
At Digital First Media we have 60 million Americans using our products. I’ll start with that audience, thank you. I have to be able to find a way to monetize that audience. I don’t want a paywall to stop that audience from coming. I think “pay” can mean “earn your way past the paywall.” As a test at we put a Google consumer survey, poll, on media gallery sites. They get massive traffic, but advertisers don’t like them. So I argued this – if traffic fell what would I care? It’s hard to monetize. So we put Google surveys after every 10 on 75 sites, question pops up. We’re getting paid to survey. One question, true or false. Generates a much higher revenue rate than the paywall does. And it turns out the traffic comes back – it’s only one part of site and not harming overall site traffic.
On obstacles
We have to be able to think about what monetization looks like, and what we’re asking the consumer to do. Consumers take out phones when they are in line to get a coffee – they have ten minutes. When that person does, that app better come up and it better be awesome. He needs to use all his 10 minutes. Having a paywall without thinking about what that mobile opp ought to do is a diversion of management’s time – there’s definitely more dollars serving up that audience you’re going to get on a really well defined app.
Innovation, Part II
I started spending a lot of time in Silicon Valley. I don’t mean to pat myself on the back, but more time than other newspaper executives. I want to spend time with people who expose me to ideas that aren’t newspaper related but are definitely media related.
On his digital investments
I started Digital First Ventures, taking small interest in startups in tech that look at content and advertising. And investing in those companies puts me in front of people who newspaper people don’t usually get to see. There’s no part of my day that doesn’t involve some sort of tech development as it relates to content and sales. If you’re going to be a CEO these days, you have to do that. You just have to.
On timelines
I think the timeline is the wrong question. There’s a realization that if the largest part of your business is legacy, it needs to become something else. The question is – what does it become? And the answer to that is, ‘Not what it is today.’ And that’s why you need to build the revenue streams and cost structures to build whatever that is going to be, fully realizing you’ll need to fund all of that from the profits of your printed products. What it is today is what it will be five years from now but smaller. You’re going to need a plan – the timeline is only important against the plan – what are the things you are building now that will be bring value to your shareholders and customers. What will the revenue streams and cost structures look like to achieve that – fully realizing that you’re going to have to fund all of that from the profits of what you have now.
On funding new businesses to replace the old
The business of newspapering has to become the business of maximizing free cash flow to feed the new, growing businesses. Is anyone arguing print isn’t challenged forever and a day? Of course it is. Is anyone arguing there’s a bottom? Of course there’s not. The idea is to recognize that and start building new businesses while you have the opportunity to do so. You can argue over timeline, and it’s a good argument to have, but is anyone arguing that print isn’t challenged forever and a day? Of course it is. So, the idea of a digital first strategy is to recognize that and start building new businesses while you have the opportunity to do so and let print will become whatever it’s going to become.
The future of print
Any media owner has to ask basic questions. Not about the future of print, we know it’s less than it was. If you don’t accept that answer you can’t build the right plan. So if you do accept the answer, then you think about the strategy and tactics around future products. There’s a role for print, but not the role that it had. Print will do whatever it will do and you will care less because you have built what customers want.
On management
If you’re hiring managers they need to understand that part of plan is to build new things. You need to have a team that is fully focused on what to build this year, and not be fixated on how many dollars they might be losing. Need to where the fastest revenue growth is, you need to look at your legacy side and maximize your cash flow to get it done.
On culture
It’s hard if you’ve established print will remain challenged. You need a culture that understands that. If not, you end up with newspaper guys telling you about how everything was better the year before and digital people telling you what they would do if they weren’t hampered by the print side. The digital side needs to understand they don’t have any money unless we can do print well, and the print people need to get that they are feeding the digital future. If the print guys don’t understand this, then you’ve got the wrong print guys.
On high wires
The plan is about “how do I make the print company as stable as I can, considering it’s not coming back and how I can feed the engines of growth and make digital investments. All while keeping expense down. This here is a high-wire act. And people will tell you there’s nothing left to cut in this industry – well if you go out of business, there’s 100 per cent more to cut.
On the haters
When I’m speaking, about half the room thinks there’s no way I’ll be able to do any of that. Half the room, usually editors and ad sales, look like they hope the devil will leave soon because they don’t want to have to figure this out. And funny thing – age isn’t the defining thing here. You have people in their 60s that are so adept. And then you have reporters in their 30s who are saying “Hey man, I’m here to do my story because that’s what you hired me to do.” You look at a reporter like that and just think “If that’s the way it is, we’re both going to be out of work.”
On new things
I’m working with a team that says “We’re figuring out the newspaper side but the effort has to be building value on the other side.” When we get to the other side of it these are companies that are new businesses, they are related to what we used to do but will not be the same. When the old business eventually goes away in 25 years or 10 years or five years, these new things that have been built on back of old will exist. It’s easy to say and incredibly difficult to do.
On failure
I came here as a Canadian and wanted to be quiet and do my thing, but you realize in NY that’s not going to serve you well, so you get louder about what you think is right. The bankruptcy has everything to do with pension issues, debt and real estate and has nothing to do with performance. But it becomes about a bankruptcy of ideas, so you need a thick skin. They come at me because I’ve been so loud about having all the answers. I used to be really comfortable saying that. These days it’s pretty uncomfortable.
On legacy costs
Capital structure is an issue for every media company private or public. They all have debt and obligations- long-term leases, pensions, whatever. They all have that. That is part and parcel. I never let that deter me – it’s what we have to deal with. You take some brain damage figuring out some tough steps like bankruptcy or just laying people off. This is hard to do, but doable if you have a plan. You need to get in front of things and have a plan.
On positivity
Looking forward is a gift. You can see that with investors. They say “Hey, you used to be worth $100 a share and now you’re only a dollar.” Well, the smart investor says “What can we do to make it a buck and a half?” And look, we have a plan. I believe in our plan. I think we can do this. I’m not at the forefront of anything except trying. If this plan doesn’t work, we’ll find another one.
Clearly, this has not been edited for length.
