Alberto Ibargüen, Knight Foundation CEO and president, Mr. Media Interview, Part 1

With $2.6 billion in assets, the Miami-based John S. and James L. Knight Foundation is the 22nd largest foundation in the United States. Its mission is the betterment of the 26 communities in which it works and the promotion of journalism as a career and industry nationwide.

The latter part of Knight’s mission is particularly challenging at a time when traditional newspapers are shrinking and, in many cases, evaporating.

That puts Alberto Ibargüen, CEO of the Knight Foundation and a former publisher of the Miami Herald, at the same crossroads that silent movies encountered with talkies, talkies with radio, radio with television, television with cable, and now traditional print journalism with online reporting, blogs, podcasting, v-logs, streaming media, and so on.

Since 1950, the Knight Foundation has invested more than $300 million to advance quality journalism and freedom of expression worldwide. It has a vital interest in seeing journalism survive in whatever form it takes.

I interviewed Ibargüen recently for an old media business magazine and liked his approach to a rapidly changing world, and I was delighted when he accepted my invitation for a second round of conversation.

You can LISTEN to this interview by clicking the BlogTalkRadio.com audio player below!

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BOB ANDELMAN/Mr. MEDIA: Reading the newspaper this morning, I see we’ve got more bad news in the business. Even The New York Times is talking about cutting 100 jobs.

ALBERTO IBARGUEN: It’s something like eight percent of their newsroom, yes. They’re certainly not immune from the drop in national advertising and the drop in jobs and jobs/classified advertising. Those are two traditional mainstays of newspapers. They represented, for most newspapers, well over half the revenue, and both of those categories are way down.

ANDELMAN: How do we square what’s happening, like the announcement at The New York Times today, for example, about 100 jobs -- with the amount of money that someone like Rupert Murdoch is pouring into The Wall Street Journal all of a sudden? How do those two square with each other?

IBARGUEN: I don’t think anybody else could possibly have paid that much for The Wall Street Journal or for any newspaper because that’s not, I think, the reason why Rupert Murdoch was so interested in Dow Jones. I think Rupert Murdoch was interested in Dow Jones because he’s starting a competitor to CNBC, and Rupert Murdoch is as committed to news online as anyone else in big media. I’d say more so. So what he was buying was not the newspaper. What he was buying was the best news organization around, and so I would expect that, over time, those resources and that talent, when the talent is enormous at The Wall Street Journal for covering business news, it is a great newspaper, that that talent will be applied on television and online.


ANDELMAN: So as far as print journalism goes, that was actually a pessimistic purchase rather than an optimistic purchase.

IBARGUEN: It’s hard to call that much money pessimistic, but I guess you’re right.

ANDELMAN: What about, if we move further West with that, what about Sam Zell and him buying the Chicago Tribune, plus the Los Angeles Times and Orlando Sentinel? He doesn’t have that same kind of online or electronic package, or does he?

IBARGUEN: No, I don’t think it’s the same, and I’m not sure that the deal is the same either. That one engaged a great deal, I think, of employee money. I don’t know if it was their retirement funds. I know that the Tribune Foundation became a contributor to that purchase. I think, in Chicago, the Tribune Company has long had lots of synergy with television and online, and I’m honestly not on the inside so I don’t know how they’re doing with that. In their smaller papers, they may be able, at least for a period of time, and Sam’s in Ft. Lauderdale here in Florida or in Orlando, they may be able to do reasonably well. They are, traditionally, newspapers that were run at very high margins, much, much more profitable on a percentage basis than say The New York Times or The Wall Street Journal, but they really did also depend on classified advertising and national advertising.

I think the picture for the national papers is actually not bad if they can figure out the online piece because online is part of the worldwide web, not the local, geographically defined web. And by thinking of it as a national paper, you can begin to have the kind of national scale that the web seems to be naturally suited for.

The ones that I think are also probably okay, at least for the short-term, are the papers in very small communities where they still can publish the local news, whether it’s the high school football team or what happened at city hall. They can do that better than anybody else. The ones that are really getting squeezed are the so-called major metros, and that would include the Chicago Tribune, The Miami Herald, even the Los Angeles Times because those regional papers are trying to do something in between the national scope that fits the web so well and the very local, local, almost neighborhood scope that the small town dailies are doing. So those are the ones that you’re seeing the biggest stress on, and there are some like the Boston Globe, a great newspaper, that although it made some money last year, I think the year before, they actually lost money. That would’ve been unthinkable five or 10 years before.

ANDELMAN: It seems like the smart move 20 or 25 years ago was for these major metros, the Miami Herald, Atlanta Journal-Constitution, the St. Petersburg Times, and so forth across the country, to add regional editions and grow and spread out, but now we see some of that coming back, and maybe that wasn’t the way to move long-term.

IBARGUEN: Yes, hindsight’s wonderful, isn’t it?

ANDELMAN: I thrive on it, frankly. Yes.

IBARGUEN: We’re so smart after the fact. I don’t know what they could’ve done. When you were doing your introduction, you were talking about being in the position of the talkies with silent films and so forth. It actually was the position that Jack Knight, our founder, the founder of Knight Foundation, that Jack Knight found himself in at the beginning of the century when he actually built the second biggest newspaper company when newspapers were everything in news. He actually built the second biggest newspaper company by figuring out how to use new technology. Other people were being destroyed by it, and he figured out that because of improvements in transportation, improvements in printing, but mainly improvements in something fantastic and new at the beginning of the 20th century called the telephone, he could actually create a newspaper company that he could run from one place but ultimately in 26 cities, actually in his brother’s lifetime in 26 cities.


The point is that he knew, he figured out, how to use this new technology in a way to expand his business from one single newspaper in Akron, Ohio, and to be able to ultimately run a newspaper company out of Miami, Florida, that included Philadelphia and San Jose and Wichita and Biloxi and Duluth and St. Paul, Detroit, Michigan, and be able to do it all from here because of the telephone. That would’ve been unthinkable when that technology was first introduced or when Jack Knight first started to run the Akron Beacon-Journal.

And so I think one of the things that we try to do at Knight Foundation is, to be honest, we’re not responsible for figuring out how to keep these jobs. We’re not responsible for delivering a 25 or 20 or even 15 percent margin to investors. We’re trying to figure out, “How do you use that new technology?” Let’s experiment with different ways of delivering news and information because, in the end, we still do all live in geographically-defined communities. We still have environmental policy, education, who fixes the potholes are all ultimately decided by people we elect by geographically-defined communities, and either we change the construct of our governing structure, or we have to figure out a way of getting the people who are making those election choices better information, and it has to be electronic. It has to be digital.

ANDELMAN: As you said that, I’m thinking about how things have changed on one level. I think Ed Koch of New York City used to be known as “Mayor Pothole.”

IBARGUEN: Yes.

ANDELMAN: Right? And now we’ve got Mayor Bloomberg who is trying to affect national policy from his mayor’s seat. It’s a very different kind of world even at that level.

IBARGUEN: It really is. And Mayor Koch was fantastic. I happened to live in New York at the time, and there wasn’t a pothole that he couldn’t pay attention to. There wasn’t a ribbon-cutting. And Bloomberg has a different appreciation. Given his background and given what he built in his company, the Bloomberg Business Systems that he built that were an early and phenomenal user of digital technology to deliver business information.

There is another aspect, by the way, of the current newspaper problem, and maybe it’s also true of broadcast television, I’m not sure, and it’s the nature of the ownership. When newspapers were owned, up until the 1960s, there wasn’t any newspaper company that was a publicly held company. They were all family-owned or individually owned, and it didn’t matter whether it was the Meyers and the Grahams who owned the Washington Post or the Sulzbergers who owned The New York Times or the Chandlers in Los Angeles, Knight-Ridder, etc. In the mid-‘60s, the companies started to go public. There were great benefits to going public. You could raise a lot of money, you could invest a lot in the business, and it was a terrific growing concern.

But as ownership started to shift from the families to people who were interested in newspapers to institutional investors, the demand on newspapers, and at the same time, there was new technology coming along, not just radio then television, which were already there, but with the web and with cable, that really began cutting into the advertising base of the newspaper model. There was this sort of perfect storm of web and cable cutting into the advertising base at the same time that the investors in newspapers became more and more institutional investors. And institutional investors not only don’t, but cannot care about the basic function of the newspaper - that is the delivery of news and information to a community.

Jack Knight cared, and, in fact, when he went to Wall Street, there’s a very famous speech that he gave the only time that he went to talk to analysts, and he said, “Ladies and gentlemen, I’m here to tell you that if you don’t like the way I run Knight Newspapers then I suggest you buy another newspaper company’s stock because I’m not gonna change. I’m running this in the way that I think a newspaper should be run.” And that was a luxury that I think his successors didn’t have when a fella named Sherman a couple years ago decided that Knight-Ridder at, whatever it was, a 20 percent margin, wasn’t making enough money and forced the sale of the company. I’m reminded of that because I saw a note in the paper this morning that said that Mr. Sherman is now 100 percent out of newspapers, zero. He used to own some part of Belo. He used to own some part of The New York Times. He used to own a big chunk of McClatchy, which is a company that bought Knight-Ridder, and now he owns nothing.

It’s a different kind of commitment. A newspaper is not going to leave the town. An institutional investor will invest in the newspaper in the same way it might invest in a shoe company, it might invest in a rug company, it doesn’t matter. It’s just simply another type of investment, and they’ll do it for a period of time, and then they’ll either stay in because they continue making money or get out without any sentimentality. A news organization, whether it’s television or cable or even and certainly newspapers, cannot…The Miami Herald cannot leave Miami. And so there’s that institutional part that seems to me to be incompatible with institutional investors. And I think that’s a really big problem for, I believe, for all of the publicly held newspaper companies.


ANDELMAN: There seemed to be a time, and again, I go back 20 to 25 years when it almost seemed like a good idea to have people with good business sense to come into the newspaper business and apply some fundamentals to the operation. The problem is, I think, that the business has been changed in the last 10 years by technology and other things. It takes more than just business sense to make a newspaper work.

IBARGUEN: I think it’s a combination of problems as I indicated a minute ago. I think there is new technology that is absolutely disruptive – that is cable to television and Internet to both television and certainly to newspapers. So there’s disruptive new technology, and by the way, that’s not a negative. That’s simply a fact. It disrupts the old model in a major way, and so the people who are going to win are the ones who figure out how to deliver what the community needs on the new platforms. I firmly believe that’s what Jack Knight did in his day in the beginning of the 20th century, and I believe that’s what we’re searching for now.

But there’s another factor, which is that the institutional investor is looking for a return. The institutional investor, that is the Legg Masons of this world, don’t really care whether Philadelphia is informed, whether Tallahassee is informed, whether St. Petersburg is informed. They care whether you return the amount of money that they planned to have you return. And so if you returned 14 percent, and they were planning 13, then that’s great. And with newspapers, they came to expect somewhere in the 20 to 25 percent range, and that’s a lot of money. And that’s a lot of money when you have your core business, the business side, the core business attacked and under great pressure as in the case of national advertising and with the web coming on so strong on classified advertising for jobs and that sort of thing. Think about it. If you go buy a car, it’s just too easy to look up on the web virtually every model that you can think about. The last three cars I bought I basically shopped for online and sort of gone for the test drive, but I really haven’t gone to do much other comparison.

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© 2008 by Bob Andelman. All rights reserved.

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