The Boston Globe: 50-50 odds it will perish

Newspapers are like derivatives. With one exception, their value depends on the success of others. They provide information about things that other people do. And they make money off that by selling advertising to companies seeking to reach people who are willing to pay a small subscription fee to read that information. If the car or high tech industries are minting money, they're willing to throw some of their money at the newspaper. If not, they retrench.

Meanwhile, other parts of the newspaper business -- like the former gold mine classified advertising -- are gone forever thanks to, Craigslist and others. In the face of these business challenges, newspapers started to give away their content for free online and sell advertising there. Meanwhile, the one exception I mentioned above -- investigative reporting which is an important pillar of our society (and wins prestigious prizes) while keeping our institutions honest -- has no visible means of financial support.

Into this hurricane of creative destruction, the New York Times (NYT), which bought the 137 year old Boston Globe for $1.1 billion in 1993, is trying to force The Globe's unions to cut $20 million as The Times copes with its own financial problems -- including an anticipated $85 million 2009 operating loss at The Globe. This weekend, two deadlines passed without an agreement on how to make those cuts so The Times filed a notice under federal law stating its intention of closing The Globe within 60 days. Will The Times close The Globe?

It probably should. After all, the Times Company's publishing segment fell 28.4 percent overall in the most recent quarter but the worst performer of all was its New England Media Group, of which the largest portion is The Globe, whose advertising fell 31.6 percent.

Meanwhile, The Globe's unions claim that The Times is resorting to bullying even as two of them agreed to $7.5 million in concessions ($12.5 million short of the savings demanded). Specifically, Teamsters Local 1 tentatively agreed to $5 million in concessions for its 145 mailers and Teamsters Local 259 accepted $2.5 million in cuts from its 210 Boston Globe drivers.

However, if the Wall Street Journal is to be believed, The Globe's Boston Newspaper Guild, which represents more than 600 editorial, advertising and business employees, has agreed to more than $10 million in cuts. If this is true, then The Globe's unions appear to have met the demands of its parent.

What I find most striking is that all the parties are thinking "inside the box" about how to solve the problem. Despite the worst financial crisis in The Globe's long history, it continues to think as if the dead-tree form of delivering content will persist. If The Times were serious about survival, it would put in place a plan to ditch the dead-tree newspaper.

How so? It would offer its Internet and dead-tree readers a choice: pay, say, $100 a year for the Internet version of The Globe or, say, $2,000 a year (the current subscription rate is $432 per year) for the dead-tree version. (To estimate the real prices I would figure out how many people would be willing to pay this higher price for the dead-tree version and then estimate the cost of providing it; to set the price I would divide the cost by the number of people. I'd do the same analysis for the online version.)

In the next 60 days, I think there is a 50-50 chance that The Globe will get close enough to the cost cuts demanded to keep the paper open. But unless it raises prices to encourage people to subscribe to the online version and to pay for the true costs of the dead-tree one, there is very little chance that The Globe will be around to enjoy another 137 years of life.

This leaves unanswered many other key questions such as what content The Globe is uniquely qualified to supply -- like its Pulitzer Prize winning investigations of Abuse in the Catholic Church -- and whether there is a way to get online advertisers and subscribers to pay enough to make an online version viable.

Update. After threatening to do so last night, Boston Globe management decided to hold off on filing the 60 day notice of closing after negotiating agreements with unions representing delivery truck drivers, mailers, press operators, electricians, machinists and technical services workers. The lone hold-out is the Boston Newspaper Guild, which represents 600 editorial, advertising and commercial workers -- which claimed that it submitted a plan for more than $10 million in cuts that management rejected.

Peter Cohan is president of Peter S. Cohan & Associates. He also and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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