You’re not in the railroad business, you’re in the news business

Countless times in the past 15 years I’ve heard online news gurus exhort newspaper executives to “get” the digital media future with admonition: “Railroads thought they were in the railroad business. They didn’t realize they were in the transportation business.”

The lessons were were supposed to learn from this MBA-style wisdom is that

  • Newspapers needed to realize they were in some other business than the news business — communications, perhaps, or community, but certainly not news on paper.
  • Newspaper executives needed to focus on customers not product.

But what if this bit of sage advice isn’t so sage after all? What if it’s just plain wrong in every respect?

My current iPad book is Bully Boy, by Jim Powell. It’s about the disastrous consequences of just about every policy initiative Theodore Roosevelt under took throughout his political career.

Besides being a racist, imperialist warmonger, Roosevelt fashioned himself as a trust buster — along with other progressives of the era — with a chief target of his wrath following on the railroad industry.


  • Every publicly subsidized railroad company of the 19th Century went bankrupt and were rescued out of receivership by railroad owners who prided themselves on building their companies without the aid of taxpayer money, such as James J. Hill, Edward Harriman and J.P. Morgan. Hill, especially, built his business by investing in quality and keeping prices low — hardly the practice of an anti-consumer monopolist.
  • When Harriman, Hill and Morgan decided to consolidate rail operations, Roosevelt initiated a lawsuit under the fairly recent Sherman Anti-Trust Act and successfully broke up their holding company, Northern Securities.
  • Roosevelt’s next anti-trust target was John D. Rockafeller‘s Standard Oil, which was accused of monopolistic practices because it used its superior technology, assets, economies of scale and frugal business practices to secure lower shipping rates on rail lines compared to smaller and regional competitors.
  • From the 1870s or so until the government began controlling rates, passenger and shipping rates across rail lines continued to fall as more lines were built and technology improved (rail also still competed with water transportation, which helped push prices down).
  • The reason rail companies were portrayed as evil in news reports and populace myth were that even as prices fell, they fell faster for big shippers (benefiting from economies of scale), and farmers, small meat packers, small fuel producers, resented paying higher rates.
  • The main competitive pressure for farmers, however, wasn’t rail prices, it was other farmers.  Many Civil War vets, after the war, went into farming. In 1850, there were 1.4 million farms in the U.S.  By 1900, there were 5.7 million. The number of acres of land in production rose from 293.5 million acres to 841.2 acres.  Still, farmers, blamed rail “monopolies” for their woes.
  • Feb. 4, 1887, Congress passes the Act to Regulate Commerce, which creates the Interstate Commerce Commission, which begins to regulate railroads, including setting long-haul rates.  This process intensified after Roosevelt became  president when he increased the number of board members from five to seven so he could appoint two people more aligned with his policies on railroads.
  • In 1903, Congress passed the Elkins Act, which outlawed rebates on railroad shipping.
  • In increasing the power (greatly limiting the ability of railroads to appeal rate decisions) and size of the ICC in 1905, Roosevelt declared, “The government must in increasing degree supervise and regulate the workings of the railways …”
  • Starting after the turn of the century, the rise of labor unions in the rail industry further increased costs and depressed profits.
  • Railroad investment in its own infrastructure peaked in 1907 — decades before interstate highways.
  • During World War I, the federal government nationalized the rail system, leading to $900 million in loses for railroad companies.
  • In 1971, historian Albro Martin estimated that more than $5 billion in investment capital that might have helped upgrade the rail system before World War I went to other financial opportunities. Martin wrote, “Developmenst like the diesel locomotive were delayed twenty years even though the steam locomotive had passed its peak by 1914.”

Railroads did not fail to invest in better passenger service because of lack of focus on customers, but because government control constrained investment, dried up profits and made it impracticable to add air conditioning or other comfort improvements, let along invest in new and faster engines.

Whether you agree with progressive trust busting or not, certainly, knowing these facts, it’s hard to make the argument that railroad executives were the authors of their own demise.

What are the implication for newspapers?

Perhaps publishers need to do a better job of remembering their in the news business after all.  Yes, focus on customers, not the product, but one thing that I’ve relearned numerous times over the past four years is the product customers most want is news.  Embrace the fact: You’re in the news business, not the communication business.

A prescriptive look at the news business

The clip above came to mind while scrolling through comments on Dean Starkman’s CJR piece, Confidence Game: The limited vision of the news gurus.

As Starkman points out, there’s two camps in the game of predicting where the news game is going and how it will survive.  There’s the Future of News Crowd, a group of academics and business elite who proclaim everything is changing, the world is falling apart and the old models will not work in the fully digital future.  The other camp is the Journalism for Democracy gang (Starkman’s phrase).  This is the group that us digital types have often dismissed as “printies,” dinosaurs who decry the changes in media markets and demand, “somebody must pay.”

I believe in, more than ever, the middle ground.

There will be no radical shift in the news business (though, I myself, fretted about it in my newspaper company executive days).  There is an evolution going on, not revolution.  Newspapers may die (and maybe they won’t), but the news business, and journalism, will survive.

The main thing both the FON and JFD groups miss is a sense of history, hence the Bogart clip.

Since early in the 19th Century, the news business has been constantly evolving, and each step of the way, there has been somebody to mourn the passing of an era, from the six-penny publishers losing out to the penny newspapers, from the muckrakers being superseded by the professional journalists, and then you had the advent of radio and TV and the death of evening newspapers, and finally, the digital age.

Each step of the way, the old school reacted with fear and loathing.

But somehow, each step of the way, new and better forms of journalism emerged.

Some of the greatest work in newspaper history came after broadcasters began competing for listener and viewer attention and local advertising dollars.

If you study the charts on newspaper readership and circulation declines, newspapers have suffered more from the changing demographics of America and changes in their own business structure than the rise of new technology.

Newspapers have been hurt by three things:

  • World Wars.  Both the first and second big wars caused great migrations around the country, mostly toward the west, as workers went to factories to find wartime jobs and military personnel found new ports of call on the coasts.  This created a less rooted society, which hurt local newspapers as people felt less connected to their communities, and therefore less interested in what the local daily or weekly had to offer.
  • Professionalization.  The rise of journalism schools and the sense that all reporters and editors needed to be “professional journalists” turned newspapers away from being interwoven in the fabric of their communities toward disconnected observers that need not be troubled with the consequences of what is covered, or not; and, more so, gave a sense of entitlement to reporters that they need not bother with the trifles of community life.
  • Chains and IPOs. Once a newspaper (or radio or television station) becomes part of a chain, it’s profits are no longer its own.  A certain layer of revenue gets sent back to corporate HQ to cover corporate expenses (corporate HQs are by definition incapable of generating revenue to support their own operations) and the local profits must be shared with corporate overlords. This means money that once stayed in the community to reinvest in journalism is now ripped away from the place where it could do most good for the health of the community and the news organization.  The introduction of publicly traded newspaper companies in the 1970s brought a whole next level of evil in the chain ownership structure.  With shareholders to please, insane profit margins needed to be maintained.  The news business — and it is a business — is not of sufficient structure to make rapid enough change or introduce new quickly commoditized products (the way a traditional manufacturer can) to maintain those profit margins.  The best newspapers can do are invest in themselves to improve and maintain quality.  In the publicly traded world, that’s not possible.

The news business was in decline before the Web came along.  Like the proverbial frog in hot water, nobody noticed how these structural changes to the news business were leading to irreversible long-term declines.  In fact, it looked like things such as chain structure (so bean counters could create “efficiencies of scale”) and a more professional work force (which also made reporters more like factory workers, more interchangeable), were in some ways beneficial (professional reporting is better, after all, than gossip mongering).

If my thesis is true — and obviously, I believe that it is — then digital represents more of an opportunity than a threat.

And the opportunity lies with those businesses that are addressing the structural flaws in the American media landscape.

  1. Local ownership.  Only local owners can address two of root causes of the news business decline. First is a connection to the community and a commitment to the community. Second is that revenue is not frittered away on support of a wasteful corporate infrastructure.  So called “scale” has no place in the news business. Local news operations by their most eloquent definition can’t scale.  Regionalism is one thing, national scale is a pipe dream.
  2. Start ups.  A start up doesn’t have the baggage that goes with legacy.  A start up can come out as a pure digital play and build a business around realistic cost and revenue projections. Digital is a different medium from paper or air. It calls for a different approach to news and business. The start up owner has the flexibility to experiment and fashion a structure that better fits the environment.
  3. Reinvent journalism. The independent editor has the freedom to change the rules of the game, re-evaluate all of the sacred cows that have been erected in the high church of journalism and decide what makes sense and what doesn’t.  The reinvented journalist can once again be a booster for his or her community, can care about the health of the local business community, can more effectively point out the rights and the wrongs in the civic sphere, and can engage his or her community in ways that are meaningful and hopefully attract more people into a new engagement with the very places they live and work.

There’s a lot of talk in the pundit class about the “sustainability” of local online journalism.  To me, it’s a ridiculous topic to theorize about.  Of course, local online journalism will be sustainable.  Each stage of journalism, from the penny press to the arrival of television, local journalism has remained sustainable.  Those who navel gaze lack a sense of history.

Think back to the original penny press publishers — they had no concept of professional journalism and certainly couldn’t imagine paying for it with classified ads, especially with big profitable verticals in jobs, cars and real estate, nor could they imagine full page spreads from department stores, nor did they think much about special sections and Sunday morning inserts — all of the things that went into making modern newspapers powerhouses of revenue and investigative, watchdog journalism were not invented for decades after the penny press was born.

We don’t know how online journalism will evolve, but it will evolve.  It will find ways to make more and more money to pay for more and more journalism.  The audience is there for it, local businesses will always want to connect with that audience, and entrepreneurial minded people will find ways to put the pieces together.

Recommended reading (books that influenced the thinking behind this post)

The future belongs to the independents

1885 Newspaper Publishers

1885 Newspaper Publishers

Look at the pictures of these men.

Set aside the fact that they are all middle-aged white men, consider the other traits they have in common.

They all owned newspapers in 1885 that were not part of chains. They weren’t concerned about scale. They owned their newspapers at a time before big department stores bought inserts on Sundays or recruitment agencies bought blocks of help wanted ads. The sold their papers for a penny a piece. The term “professional journalism” was not a phrase they had ever heard in their lives. If the newspaper they published in 1885 was still alive in 1985 and they strolled into the newsroom, they would have been shocked at the multitudes of reporters sitting at desks and found the whole notion preposterous.

The news business was very different in 1885.

There are two trends in local online journalism today.

One trend is “throw a lot of money at the problem.” This is the faction that says “scale” is what is needed in local news. The proponents give us Patch and Main Street Connect.

They ignore the fact that no chain in the history of mass media has ever begun as a chain. Frank Gannett owned but one newspaper at one time, as did E. W. Scripps, Joseph Pulitzer and even William Randolph Hearst.

The first great newspaper chains were built one acquisition at a time (and they weren’t publicly traded companies).

The other trend is the independent online publishers. This are mostly bootstrapped operations.

But the independents are also the ones with the greatest percentage of sites that are actually making money.

There are at least a dozen, and perhaps as many as 20 local independent news sites pulling in more than $100,000 in annual revenue. Tim Armstrong would kill to have even 10 Patch sites with that kind of revenue at this point.

The future doesn’t belong to the insta-chains. It belongs to the independents.  Like the newspaper publishers of the 19th Century and early 20th Century, they are building real businesses, forging alliances in their communities, defining the future of journalism, serving their communities and building the foundation of long-term profitable businesses.  They are doing it through hard work, with little to no investment capitol and showing real progress.

I know this not because it’s how I view myself.  I know this because I personally know most of the men and women doing it.  I’m a witness to what is really working, and what isn’t.  Those who focus too much on “scale” are missing the real scale being built in a hundred different towns and suburbs.

You should only work this hard if you own the business

The list of duties for Patch editors in this Romenesko post is pretty much the job description for every local news site owner I know, at least the ones making a living at it.

When I’ve written about the number of hours I put into my business critics have said I don’t have a business model, my business isn’t “sustainable,” and so on.

Of course, this is coming from people who probably don’t want to work that hard, preferring the good old corporatism days of journalism with secure 9-5 jobs, two weeks paid vacation and dental coverage. Those days are disappearing, but the knock against hyperlocal start ups is that they’re not staffed as bodaciously as the newsrooms they may or may not replace.

To the second point, my response remains: Newspapers started small, cheap and with different standards. No newspaper started with staffs of dozens and a raft of Pulitzers. To hold an online-only start up to those standards is just plain daft.

To the issue of hard work, yes it’s hard work to start your own business, and I figure the critics of the online start ups have never dealt much with small business owners.

I deal with them every day, and for any of them that started their own businesses, they will readily tell you of the 100-hour work weeks, the weeks of just barely getting by and the impossibly long to-do lists. The hardships and sacrifices just go with the territory of starting your own business.

But here’s the thing about the work load for Patch editors: They’re not owners. They are expected to do all of the things they would have to do if they owned their own web sites, but merely in service of building wealth for AOL shareholders. Sure, work hard and keep your job is a nice benefit, and as a former corporate employee I think employees have an ethical obligation to help build shareholder value. That’s what they’re paid to do.

I’ve also been critical of corporate employees who aren’t willing to put in a little extra effort to help a project succeed.

However, if what we’re hearing is true about the Patch workload, I can only ask: Why are you doing it?

Patch editors should know that what they’re being asked to do on salary they could do for themselves far more successfully and with some chance of building a valuable business for themselves and their families.

I’m not writing this to wish Patch ill. I am not one to hope for anyone’s failure. I’m writing this for the sake of the seemingly overburdened Patch editors, and asking, “Why not just start your own local news site?”

Jump on in, the water’s fine.