A Losing Proposition?   

Two new dailies try to break a depressing trend for startups: failure.

Attempts to start a daily in markets where another daily already does business have a history of unrelieved financial failure over the last 50 years. So why would anyone want to try this yet again?

Perhaps hope springs eternal. Perhaps some people get a glow from the notion of owning their own newspaper, somewhat akin to those old Hollywood movies about a bunch of kids, usually led by Mickey Rooney and Judy Garland, who shout "Let's put on a show!"

The latest show, the New York Sun, is headed by Seth Lipsky, lately of the Jewish weekly the Forward and earlier a journalist for Dow Jones. And now Richard J. Riordan, a former mayor of Los Angeles, has announced plans for a daily in opposition to the Los Angeles Times.

These two and their backers have chosen the most competitive newspaper markets in the nation, and it is worth pondering how they hope to succeed.

Startup dailies have failed in the past because costs have outrun revenue. A new daily has low circulation, especially in comparison with established competitors. If the newcomer charges advertising rates high enough to cover costs (with some help from circulation revenue), the rates for advertisers to reach a thousand readers soar far above the cost per thousand for an established paper. This disparity discourages advertisers, and advertising revenue fails expectations. If the fledgling daily sets its rates low enough to make its cost per thousand somewhat attractive to advertisers, the resulting revenue coupled with circulation revenue is typically not sufficient to cover costs. Thus the startup is caught between the proverbial rock and a hard place.

One way to confront this dilemma and continue publishing is to have access to lots of capital. Lipsky has said he has 12 backers, including some Wall Street types, and Riordan has said he has investors, but has not characterized them.

A lot of capital can underwrite a newspaper's losses until it can establish itself as an advertising vehicle. Unfortunately, in past efforts profits have been elusive and the capital drain goes on until the paper closes; merges with another; or like the Las Vegas Sun (founded in 1950), enters into a joint operating agreement with a competitor. An exception to this pattern is the Washington Times, which has survived for two decades. But it would not have if its losses weren't underwritten by elements of the Unification Church.

While the backers of the latest endeavors are wealthy, they may be surprised at how rapidly losses accumulate with a product that eats up money every day. There have been people in the past who thought they were rich until they wound up owning a losing daily newspaper. (The startup newspapers that have succeeded in markets with established dailies have been weeklies, which do not face the high costs of printing, newsprint and distribution every day.)

Another way to confront the advertising dilemma is to establish a readership that is so special and attractive to advertisers that they will pay to be in the paper despite the high cost.

This may be the strategy that the New York Sun and Riordan have in mind. The Sun's Lipsky has said the paper will have a decidedly conservative bent and it will cover New York in ways that the other New York papers do not. Whether this strategy will create a loyal readership remains to be seen.

Riordan has told the press that his motivation in starting a five-day-a-week paper is to counter the L.A. Times' "intellectual dishonesty and political correctness." He also said he has been advised to pick his target market by standing "on the highest point in Pacific Palisades and to go after everybody I could see from that point." In other words, the paper will focus on the wealthy regions of Los Angeles.

A.J. Liebling, the press critic, once famously wrote in The New Yorker a long time ago that freedom of the press is only guaranteed to the man who owns one. But technology has changed that to permit entrepreneurs to start newspapers with relatively little investment. The New York Sun's printing is farmed out to a commercial printer, and presumably Riordan will do the same. This spares investors the tens of millions of dollars required to create a plant. A disadvantage is that outside printing costs will be higher than if it could be done in-house.

However these efforts to start new newspapers turn out, those trying them should be admired for their courage. I personally wish that every city had two, three or four competing dailies, but alas, the history of failed startup attempts in the past in New York (twice); Long Island; Philadelphia; Atlanta; Phoenix; Albuquerque; Sarasota; Oklahoma City; Colorado Springs; State College, Pennsylvania; and, most recently, in 1989 in St. Louis suggests that my wish probably will remain just that.