AJR  Features
From AJR,   April/May 2007

Home Free   

Is delivering free newspapers to affluent homes a recipe for success in todayís volatile media environment? The fate of Philip F. Anschutzís three Examiner dailies should provide a clue.

By Lori Robertson
Lori Robertson (robertson.lori@gmail.com), a former AJR managing editor, is a senior contributing writer for the magazine.      

In 1981, Henry Grunwald, then editor-in-chief of Time Inc., and another company executive paid a visit to newspaper consultant John Morton. Time's Washington Star had recently folded, just three years after the company acquired the daily. But Grunwald still wanted to have a paper in the nation's capital, Morton recalls. The pair asked him to figure out what kind of paper that should be.

Morton, who is also a longtime AJR columnist, conducted an analysis and came back with a verdict: "What it ought to be is free. It ought to have a distinctive but fairly conservative look," he recalls saying. And it ought to be mailed to the 200,000 richest households in the market. For nothing.

"They were appalled," Morton says; they dismissed such a publication as a "throwaway."

But "you can't do it on the same terms as the dominant newspaper," Morton says of his thinking then--and now. "It has to be free. I don't know if it will be successful, but I know every other attempt to establish a newspaper in competition with an existing one has been a failure."

In the end, Time Inc. didn't launch a new D.C. daily. But a variation on Morton's model is being tested. It only took 20-plus years for someone to come along with enough money and conviction to give it a try.

Philip F. Anschutz's Examiner newspapers--in San Francisco, Washington and Baltimore--are the only known free daily newspapers in the U.S. that are home delivered to neighborhoods that exhibit advertiser-enticing characteristics: households inhabited by 25- to 54-year-olds with kids and median incomes around $75,000. The papers have circulations between 190,000 and 250,000, with the majority of those copies dropped off on doorsteps, the rest picked up at street boxes.

But Anschutz's papers, which operate under the aegis of a company called Clarity Media Group, aren't aiming to put the established metro dailies out of business--or even compete with them head to head. Clarity CEO Ryan McKibben sees the Examiner filling both an advertising and content niche exposed by market segmentation and the circulation loss of traditional newspapers. There are readers--would-be news-paper readers--out there, he says. They're just not buying a big, fat daily. With the Examiner, consumers get those things market research says they've been clamoring for--local news, short stories, no jumps--while advertisers get a desirable audience and a good rate.

It's a direct-marketing business plan for a quick-read tabloid. And it's not cheap. The Examiner's distribution approach and its goal of beefing up its journalism make it a more expensive endeavor than your typical free subway-station tab. So far, there's not much, if any, buzz about "great stories in the Examiner." But over the past year, the Washington paper, in addition to employing young reporters, has been assembling a national team of experienced journalists. In January, it lured Stephen G. Smith from his perch as chief of the Houston Chronicle's D.C. bureau--and a long career marked by stints at the three major newsmagazines--to be executive editor. But how much great journalism can you pack into a paper that a reader is supposed to finish during the morning commute? And more important for an industry seeking a way to build readership instead of losing it, will this business model actually work?

Clarity Media Group is a private company, and it won't reveal financial information. But McKibben says he is optimistic about the Examiner's ability to fill a need for a new type of newspaper, coexisting peacefully with the major metros. "Everybody thinks this is a zero-sum game, and it really isn't," he says. "Differentiation is part of our model, and our papers are clearly a different read than the incumbent newspapers."

McKibben, a former publisher of the Denver Post, joined a Gannett paper not long after that company launched the original McPaper, USA Today, in 1982. He remembers people worrying that it would eat into the Wall Street Journal's business. "What everybody found out, it created a whole new marketplace for the reader and didn't hurt the Wall Street Journal at all," he says. "And that's what we are." A local USA Today.

"Free" has been a popular mode of operation for new newspapers in recent years, with media companies launching tabs aimed at the young (see "Hip-- and Happening," April/May 2005) and Sweden-based Metro International setting up shop in various American cities. Piet Bakker, an associate professor at the University of Amsterdam School of Communications Research, chronicles the free daily phenomenon on his blog, Newspaper Innovation (newspaperinnovation.com). He counts 200 free dailies in 44 countries distributing 35 million copies, a circulation number that has doubled since late 2004. "The last two years, I would call an explosion," he says. "Three (Netherlands, Sweden, Italy, Greece) to four (Spain, Czech Republic, Paris, London) dailies is not an [exception] anymore," he writes of the free papers in an e-mail. "Denmark has 5."

Russel Pergament, the founding publisher of two free dailies, Metro Boston and amNew York, is a firm believer in the need and power of the product. He's launching another one later this year called Boston Now with the backing of the Icelandic company Dagsbrun. He offers kudos for the Examiner's hybrid model but also raises questions. "They're taking a very ambitious approach--high-income delivery as opposed to young commuters, which means they're going head to head with traditional dailies," he says. "The paper is much beefier than the typical commuter daily..very ambitious editorial treatment... I think that works for kitchen-table suburban families. Probably not as fitting for the typical commuter" who has 19 minutes to read the whole thing.

Philip Anschutz, a 67-year-old, publicity-averse Denver billionaire who made his money in oil, railroads and entertainment, entered the newspaper business with the February 2004 purchase of the San Francisco Examiner from the Fang family. Later that year, he picked up the Washington-area Journal newspapers, renamed them the Washington Examiner, trademarked the Examiner moniker in 63 U.S. cities and unveiled the home-delivery model for his fledgling newspaper chain. In April 2006, Anschutz started publishing his first Examiner-from-scratch in Baltimore.

"I think he saw that with the decline of market share in advertising and the decline of circulation [at traditional daily newspapers] that there was probably an opportunity," Ryan McKibben says. McKibben, an acquaintance of Anschutz, says he started consulting with the businessman in June 2003. "So that's why I think he called, and we started to dig into this. There's clearly...a disconnect between traditional newspapers and the readers and their advertisers." (Anschutz doesn't do interviews, and his spokesman said that would be true for this story as well.)

In the beginning, McKibben says he did not know that Anschutz would buy the San Francisco Examiner, where P. Scott McKibben, Ryan's brother, was publisher. Newspapers pegged the purchase at $20 million, but the Los Angeles Times later reported that, according to a copy of the sale agreement, the price was a better bargain--$10.7 million for the Examiner, the now-defunct Independent newspapers, which were thrice-weekly freebies, and other assets. Florence Fang subsequently sued Anschutz, alleging that the McKibben brothers conspired to give him a favorable deal. The billionaire settled the suit. (Clarity Media won't comment on any of that.)

While Anschutz was becoming a media player, another entrepreneur was in Washington trying to turn around the struggling Journal newspapers. James McDonald, a free-paper believer who had been an executive at Metro International and publisher of the chain's Philadelphia paper, obtained a stake in the Journals in 2004. The three newspapers, distributed in the D.C. suburbs, had begun a less costly version of targeted circulation, home delivering free papers to select neighborhoods based on ZIP codes. In April of that year, McDonald says he went to Denver with a pitch for the Anschutz company: buy the 115,000-circulation Journals, turn them into the Examiner, use that as a common brand and launch newspapers all over the country.

Clarity Media Group spokesman Jim Monaghan says the company was looking for acquisition opportunities. McDonald's pitch found a receptive audience. In late September 2004, Clarity took over the Journal papers, but it wasn't until the Washington Examiner was about to launch in February 2005 that the unique business approach began to attract attention. "We were into that model when we bought Washington, because we already started in San Francisco," distributing to census block groups, McKibben says.

With an infusion of capital, McDonald says, the distribution system became "a more refined process, because we were able to buy better data and look at census blocks and dig deeper." McDonald stayed on as publisher of the Washington Examiner for just a few months before leaving, because, he says, he "wanted to do my own thing." He's now president of M Six Media, a consulting company in Philadelphia.

A census block group is much smaller than a ZIP code, housing between 600 and 3,000 people, according to the U.S. Census Bureau. The focus in Washington and Baltimore is more on the suburbs than the cities. (Only 37,000 copies are distributed within D.C.)

"We essentially listened and created a product and a model in the eyes of the reader and the advertisers," McKibben says. He touts wide advertiser support from companies such as Macy's, Home Depot, Kohl's, Southwest Airlines, Citibank and Wells Fargo.

But it was the little advertisers--the small retailers who would never dream of buying an ad in the Washington Post--that were a tough sell, at least at first. Charleen Stewart, advertising and marketing director at the Newspaper Association of America, was the vice president of advertising for the Washington Examiner from November 2004 until August 2005. She says mom-and-pops theoretically would be the ideal advertiser. "But the reality was, it was harder to get the smaller guys to sign up, because the distribution model was so sophisticated and different than a daily paper in a metro market, that it took awhile to explain it," she says. "You couldn't buy it on the newsstand, and if they didn't get it at their home or their business, they didn't see it."

The easier pitch was to a larger advertiser who understood targeting and wanted a specific demographic. Stewart, whose career includes a stint as the Washington Post's director of strategic initiatives, says while she was at the Examiner, the paper went through numerous iterations of how to carry out this novel business plan. "We just had to keep tweaking, tweaking, tweaking until we got to a place we wanted to get to," she says.

Controlled circulation is not as attractive to advertisers as paid, says John Morton, but it's more appealing than random distribution in news racks. "At least the advertiser has some confidence that his ad is getting delivered to all these addresses."

The question becomes whether people are actually reading the papers. There have been numerous stories about Examiners littering suburban gutters or piling up on the stoops of vacant houses. Some frustrated residents have told the media their tales of calling to get their homes off the distribution list, to no avail. One man in Baltimore filed a temporary restraining order against the paper to stop delivery. (It eventually did.)

McKibben says that the business plan is based on delivering papers to households in which they are read. But he acknowledges that there are times when a new carrier forgets to stop delivery to a certain home. He says fewer than 3 percent of households selected in Baltimore, San Francisco and Washington have opted out, and Clarity Media Group recently purchased a GPS system to monitor route deliveries. "It's been a significant improvement," McKibben says.

David Gasperetti, who was circulation director at the Washington Examiner at its start, says delivery required constant fine-tuning. "There were some distributors that had to be replaced that couldn't do it well," he says, explaining that the Examiner model calls for teaching people to deliver from an exception list rather than a delivery list. It's like dropping off papers in a hotel but being asked to skip certain rooms.

Outside the U.S., this business model isn't limited to one nascent newspaper chain. In Denmark, there are three free daily home-delivered newspapers with a combined circulation of 1.5 million--and with similar cancellation problems, says Piet Bakker at the University of Amsterdam. Two of Denmark's free dailies were launched by major newspaper companies after the Icelandic company Dagsbrun announced it was going to create such a publication.

One "sensitive" and "very smart" aspect of the Examiner's plan, Bakker says, is to limit the number of papers in each street box. "It creates scarcity: 'Well, you want it now, don't you?'" he says. The community isn't as littered with papers, and "advertisers aren't paying for non-picked-up newspapers."

The Examiner has about 2,000 street boxes in each city, McKibben says. In Washington, 80 percent of the 258,752 daily copies are home-delivered. That means there's an average of 26 copies in each street box. In Baltimore, with 93 percent of the 254,740 circulation home-delivered, there are about nine copies per box. San Francisco's model favors a higher single-copy delivery. The paper puts 36 percent of its 190,000 daily run on news racks. That's 34 papers a box on average.

Fewer papers per box means costlier distribution--more of a marketing model than a circulation one--but a better chance at giving advertisers a good audit. Clarity Media boasts that an audit by Certified Audit of Circulations found eight out of 10 households that get the paper read it, with an average of 2.4 readers per household. A readership study by CAC estimates the Examiner's weekly cumulative readership to be about 700,000 in San Francisco, 590,000 in Washington and 490,000 in Baltimore.

Those sound like great numbers, but they pale in comparison with what the big dailies offer. According to Scarborough Research, the Examiners are reaching a small percentage of the total market. While the San Francisco Chronicle reaches 30 percent of the market weekly with its print edition alone, only 7 percent of San Francisco adults looked at the Examiner during a five-day period. The Washington Post, with one of the highest penetration rates among U.S. newspapers, reaches 48 percent of adults in the market weekly with its print edition (the number jumps to 68 percent with the Web site factored in). The Washington Examiner's print product is seen by 6 percent of the market.

In fact--as Ryan McKibben suggested--the big dailies and even the Baltimore City Paper say they're not feeling any ill effects from the Examiner's launch.

"If anybody puts 250,000 papers in the market, it's going to have some effect. It's just hard to quantify," says Tim Thomas, vice president of marketing at the Baltimore Sun. "Did we lose any big accounts? No."

Anecdotally, he says, there appears to be a lot of overlap between Sun readers and Examiner readers. "If they're print readers," Thomas says, "they tend to be print readers," using the quick Examiner as a complement to the Sun.

If the Examiner is aiming to be meatier than your average free daily, it is succeeding on some fronts but not on others. A report by the Project for Excellence in Journalism released in late 2005 compared three youth-oriented tabloids, the Washington Examiner and the section-front stories in three broadsheets (which the project deemed an apt comparison). It found that the Examiner often fell somewhere between the tabloids and the big dailies.

The majority of the Examiner's stories were 500 words or less, while the majority of the broadsheets' were more than 500 words. But the paper's articles ran longer than those in the youth tabloids. The Examiner, at about 50 pages, was fatter than those tabs, ran about twice as many stories and included more staff-written pieces. Yet stories in both the Examiner and the tabloids were thinner than those in the broadsheets: The Examiner had fewer sources and less diversity of opinion in its articles, with almost half of all stories including one or no source. In stories concerning a conflict, 49 percent of Examiner articles included only one viewpoint; 36 percent of such stories in youth tabloids did so, but a mere 11 percent of pieces in the broadsheets contained only one viewpoint.

The Examiner is trying to take a news-lite model as its foundation and build a decent journalism reputation on it. If the business model was a somewhat risky proposition, this is an even tougher battle.

"In my conversations with people about local news and politics, I have never had a conversation in the last few years, saying, 'Oh did you read that story in the Examiner?' It's always about what was in the [San Francisco] Chronicle," says Michael Stoll, a journalism instructor at San Jose State University who has written critically of the free paper as associate director of Grade the News, a media research organization that examines the quality of Bay Area news outlets. (Stoll worked for the Fang-owned Examiner from 2000 to 2002.)

David M. Cole, editor-publisher of News Inc., a weekly publication about the newspaper business, gets the San Francisco Examiner delivered to him and reads it. "From a down-on-the-street daily journalism perspective, they're covering the board of supervisors as good as the Chronicle covers the board of supervisors," Cole says. "Where you make your bones is investigating BALCO" (the Bay Area laboratory implicated in sports doping charges). "And the Examiner is not going to investigate BALCO. That's not what they're going to do."

But the Examiner would like to do something. Something more than a tabloid, but not something as time-consuming, staff-intensive and, above all, long as what readers find in a broadsheet.

Vivienne Sosnowski, Clarity's vice president and national editorial director, says the company is concentrating on strengthening its journalism, particularly at the Washington paper. In addition to hiring Stephen Smith as executive editor, the paper named Micah Morrison, a former Wall Street Journal writer, as a national investigative reporter. Morrison rounds out a "national team" at the Washington Examiner that includes Bill Myers, from the Chicago Daily Law Bulletin, who covers Capitol Hill, and former Washington Times reporters Bill Sammon and Rowan Scarborough, who cover the White House and national security, respectively. The Times' former Capitol Hill bureau chief, Charles Hurt, is now the Examiner's chief congressional correspondent. All were hired within the past year.

Their stories will be used by the other papers in the budding chain. "Hopefully we'll have more papers down the road, and those people will be more and more valuable to the chain as it grows," says Sosnowski, who first joined the San Francisco Examiner as executive editor in September 2004, then the Washington paper in January 2006, before taking on her current role.

Smith says when he first met Philip Anschutz at the private jet terminal at Washington Dulles International Airport, Anschutz began by saying, "'All I want to do is put out quality newspapers.'"

That got Smith's attention. And he believes that while the Examiner will never be as great as the dominant daily--"it is silly to say that we're competing head to head with the Washington Post"--it offers something for people who don't want to read the Post or for those who read both papers. "When it comes to our model in a strictly journalistic sense, I think it matches up with a kind of sensibility that is in part shaped by the Internet age and in part shaped by just the hurry-up pace of modern life," Smith says.

He compares the format of the Examiner to old-fashioned newsmagazines, which were neatly divided into easy-to-navigate sections and kept story length to a manageable level. "One of the guiding principles of the traditional newsmagazine was respect for readers' time," Smith says. "And a paper that does respect its readers' time has an opportunity to win its way into their households. So we try to write tight, and we try to write bright, and we try to have a very high story count."

Smith oversees a newsroom of about 60 staffers. Sosnowski won't say how many people are on staff at each paper but says the total newsroom count for the company would be "around the mid one-hundreds."

Such numbers sound low compared with daily newspaper staffs--and mean most reporters are churning out two and three stories a day. But a staff of that size is larger, and more expensive, than that of the typical free paper.

The Examiner, says Smith, will give people quick reads, but occasionally it will offer a somewhat lengthy enterprise piece. As one example, he points to Bill Sammon's five-part series in January on Sen. Barack Obama's memoirs. "Bill read [Obama's writings] carefully and made connections and wrote, I think, the most revealing piece about Obama that's been written yet," Smith says. "If someone wants to claim that we're McPaper, they might want to read that series."

But add too much length, and the Examiner is no longer a paper you can finish with breakfast. "We're very judicious about writing longer, but do we write longer? Yes we do," says Sosnowski. "If we do it all the time, we're not going to be the paper we set out to be."

There has been some questionable journalism. Grade the News, which lost its funding but still maintains its Web site, published stories in late 2005 taking the Examiner and the Palo Alto Daily News to task for blurring the line between news and advertising. In the most egregious case at the Examiner, the paper employed an ad salesman to write a column about area restaurants. He was quite up front in telling Grade the News Director John McManus that the copy was specifically designed to entice restaurants to buy ads. After McManus called Sosnowski, the editor at the time, she said the paper would label the page as "advertising."

Sosnowski says the restaurant column "never looked like news. It looked like advertising." But she adds, "Of course they must be identified as advertising..and I was able to make that happen." Ryan McKibben says the practice was a vestige of the old Examiner that the new ownership hadn't had a chance to correct.

McManus is not impressed. "They agreed to be ethical not from their own sense of journalistic integrity but only when threatened with exposure," he says.

The Baltimore paper, too, has taken some hits from the Baltimore City Paper, which has scrutinized sensational stories in the new daily. One report concerned a series of alleged murders of women in the Park Heights neighborhood. Residents told the Examiner that women had been killed and decapitated, though police had no record of such crimes. The Examiner story didn't include names of victims or quotes from friends or relatives. The Baltimore Sun ran a story debunking the rumors of Park Heights murders, and the City Paper challenged the Examiner piece directly in a convincing critique headlined "Habeas Crapus."

Sosnowski, however, is standing by the Examiner's reporting. "I think the story hasn't finished yet, and I think we should maybe look at that again in a few months and see where we are with it." The first Examiner piece was published in October. She adds: "Of course our competitors are going to criticize us where they think they can."

While Clarity Media Group searches for a balance between quality journalism and direct-marketing savvy, it has also embraced the cheap-and-flimsy model of tabloid news. In San Francisco in November, it launched the City Star, a newsletter-like free daily, distributed on news racks in eight ZIP codes in the city. It features local news, mostly wire copy. McKibben calls it beta testing. A similar freebie, the San Francisco Daily, calls it a direct assault on the Daily's existence.

McKibben says the paper isn't an effort to drive the Daily out of business, nor does he see the latest Clarity newspaper as competition for the Examiner. "It's a neighborhood paper," he says of the 6,000-circulation City Star. "The Examiner is a market-wide sort of metropolitan paper in its reach."

Clarity also has made online forays into additional markets. In March 2006, Examiner.com debuted, with fine-tuned sites for its print products and 21 other wire-copy-filled sites for cities, among them Atlanta, Boston, Phoenix and Pittsburgh.

There are no staffers in those venues; instead, the pages are built "through software and a lot of rules and algorithms that we've identified to select the news," says Examiner.com President and CEO David Schafer, MapQuest's former general manager.

Personalization is one of the goals. There are tools to customize news, such as a search function that enables users to type in any word and get an index page filled with related news. The site is soliciting applications for Examiner bloggers.

Spokesman Jim Monaghan says the move doesn't necessarily mean Clarity is preparing to launch newspapers in those cities. "Where opportunities present themselves..we'll take a serious look at it, and if it makes sense after some look, we'd move ahead," he says. "And since the electronic footprint is in the major metropolitan areas, it wouldn't be surprising to find new rollouts, if they may occur over the next few years, would be in those areas."

It could be years--many years--before anyone knows whether the Examiner business model is a success. John Morton says it typically takes seven or eight years for a new paper to be profitable. While individual Metro papers were in the black, it took Metro International as a company 11 years to show a profit. As a private company, Clarity isn't likely to reveal financial numbers ever.

"About the only thing we can infer is that, because they've gone on to establish one in Baltimore, and they've kept three of them going, that they must be satisfied with the results so far," Morton says. "That doesn't mean they're a financial success, but they're not such a disaster that they've shut them down."

Miles Groves, a media economist and consultant, says newspaper publishers should be paying attention to how well the Examiner does. "It's a very interesting model that's coming out, and they've put serious talent and serious marketing savvy talent into these things. So I'm hoping they succeed. But I still think it may be too early to make that claim," he says. If it works, major newspapers may have to assess their own circulation models. "Will that mean that people like the Post and the Baltimore Sun and the Chronicle will suddenly have to rethink being a paid product? How important is that for advertisers?"

Primarily, the prognosis for the Examiner depends on the commitment of the billionaire backing it. When he's in an Examiner city, Philip Anschutz, after his morning jog, frequently takes to the streets to hawk the paper.

Sounds like the owner with deep pockets also has deep conviction.

Senior contributing writer Lori Robertson (robertson.lori@gmail.com) wrote about the Richmond Times-Dispatch in AJR's February/March issue. Editorial assistant Emily Groves contributed research to this report.