AJR  Features
From AJR,   August/September 2012

On the Rebound   

Things are looking up at Minneapolis’ once-troubled Star Tribune, where a publisher with deep local roots believes customers will pay for news—print, online, wherever—if the paper delivers the goods. Thurs., September 6, 2012.

By Mark Lisheron
Senior Contributing Writer Mark Lisheron (mark@texaswatchdog.org) is Austin bureau chief for Texas Watchdog, a government accountability news Web site.      

Mike Klingensmith is selling the news in Minneapolis' Star Tribune, and people are buying it.

In the last 18 months, the Star Tribune's publisher raised the prices of subscriptions and single issues of the newspaper. Daily circulation once again crept past 300,000 and Sunday circulation jumped by 6 percent to more than 514,000.

In November, he inaugurated a metered paywall for the digital newspaper. More than 18,000 readers have signed on, many ponying up in advance. When Klingensmith speaks of future online news growth, it is in multiples of 18,000, not the small percentages of paid-content skeptics.

Customers now account for roughly 45 percent of the Star Tribune's revenue, in an industry that once could count on advertising for as much as 80 percent. Klingensmith says the paper has a plan in place to reach a 50-50 balance of customer and advertising revenue over the next two years.

The plan is so simple, so logical and for so long so widely discounted that it almost seems counterintuitive. It is based on principles followed by every industry in America that isn't a monopoly – that you succeed by giving the customer more not less; better not worse – and you don't give your product away.

As long as newspapers controlled the means and reaped the enormous benefits of mass advertising in their markets, they were free to ignore those business principles. The Star Tribune still sells ads, needs ads, will sell ads as long as it is practical to sell them. A smaller and smaller number of potential advertisers buy ads.

Customers, Klingensmith says, buy news.

Day in and day out, customers in Minnesota get what remains one of the fine regional newspapers in the country. From the front page through all of the section fronts, the paper captures a true sense of living in a smart, connected city in one of the northernmost and mostly rural parts of America.

Big ticket investigations read like answers to real community problems rather than responses to a call for prize-contending ideas in an editorial meeting. Eight- and 12-inch stories show an attention to detail.

The Star Tribune is a newspaper worth paying for.

"Our goal as a company is to be the best single source of news in the state of Minnesota," Klingensmith says. "That is our engine. At the end of the day, that is the product we sell."

Klingensmith's message, that the newsroom on Portland Avenue is the center of the Star Tribune universe, is clear and energizing. In interview after interview, staffers express gratitude that Klingensmith is a native who understands the importance of the newspaper and its news to a literate culture of the Twin Cities and the state of Minnesota.

Perhaps most important, from bottom to top, the people who work for Klingensmith believe him.

"When you get to know Mike Klingensmith," says Todd Stone, the paper's business editor, "you learn right away he's not the kind of guy to say things he won't back up."

At the same time there is caution forged and tempered by layoffs, the sale and resale of the newspaper itself, and bankruptcy.

When I came to report on the Star Tribune in 2007, the paper had gone through two rounds of buyouts, losing nearly 70 staffers. After one announcement, more than 100 employees, many who had come to work dressed in black, met in a park across from the paper to mourn the loss of their colleagues.

While those employees left were being reorganized to reflect the smaller newsroom, Par Ridder, the paper's publisher at the time was being sued by his former employer, the rival St. Paul Pioneer Press. On my first morning of interviews with reporters and editors, the Star Tribune ran a story announcing its unpopular owners, Avista Capital Partners, had sold one of the employee parking lots to the Minnesota Vikings for $45 million.

When I came back in early July of this year, the mood was brighter, but wary. There had been more good news in the past two years than in the previous 10. But in the paper that morning was news that a major stockholder, Wayzata Investment Partners, was bidding to take a controlling ownership stake from the company put together to bring the paper out of bankruptcy, Star Tribune Media Co. Who knew what that would portend for the future?

David Brauer, a longtime Twin Cities media reporter who writes Braublog for the Minneapolis-based news Web site MinnPost, was the first to report on August 3 that Wayzata had bought out one of the paper's creditors, Credit Suisse, to take control of 58.2 percent of total shares in Star Tribune Media Co.

The news about Wayzata also revived bitter memories of Avista Capital Partners, the last private equity firm to own the paper. With Avista and Publisher Chris Harte in charge, crushed by nearly $500 million in debt, the newspaper filed for bankruptcy in January 2009 .

"To me it symbolized everything that was wrong with the way we were being run," says Graydon Royce, a theater critic who has been with the paper for 32 years. "You have an owner running the paper from New York, a publisher [Harte] who lived in Texas and Maine and a CFO who commuted from here to Duluth."

In nine months, Star Tribune Media Co. emerged with its debt reduced to $100 million and in the hands of its creditors. The company installed Minneapolis businessman Michael Sweeney as chairman of the board. Three months later, had hired Klingensmith to be the publisher .

"We were seeking a mature leader who gives a damn about the Twin Cities," Sweeney said in a statement. "We wanted a media veteran who was open to new ways of doing things. And we wanted a leader who understood that although our economic model must change with the times, our commitment to excellence in journalism is timeless."

At 55, Klingensmith had taken early retirement from Time Inc. where, during a 32-year career, he served as the president of Sports Illustrated and as a corporate vice president. He also cofounded Entertainment Weekly.

After spending six months watching his son finish his high school baseball career and joining a New York investment firm at one of the worst times for investments in modern American history, Klingensmith says he made an inquiry about the Star Tribune "out of curiosity."

Klingensmith grew up in Fridley, a suburb northeast of Minneapolis. He has a Minnesota Twins baseball jersey and photos of the stars of his generation, like Harmon Killebrew, hanging in his office. He followed his team from New York via the online Star Tribune.

"I grew up reading the paper," he says. "I had been an avid consumer of the entire Star Tribune Web site, not just sports. And I had been keeping up following their unfolding saga. Even with the seriousness of the job, the challenges, I thought it might be fun to come home."

Klingensmith's inquiry, however, was anything but sentimental. He was impressed at the reduction in the debt load. He liked the reorganization plan. And he learned the paper, even in its bankruptcy, had always been profitable. While he doesn't discuss the numbers for the privately held company, he was confident the paper could be even more profitable.

The Star Tribune earned those profits by engendering an unusually intense loyalty in the community, Brauer says.

Market penetration for the print version of the paper continues to be one of the envies of the industry. Its combined circulation (print and digital) of just over 300,000 makes it the 17th-ranked newspaper in the country. However, the paper achieves that rate in a metropolitan area with 3.3 million people. The Philadelphia Inquirer has a combined circulation of 325,000 and the Houston Chronicle 384,000 in metropolitan areas of 6 million. The Star Tribune's print-only Sunday circulation, 476,000, is higher than the Chronicle's (459,000) and the Inquirer's (413,000).

With more than twice the daily circulation and almost twice the Sunday circulation of its Twin Cities competitor, the Pioneer Press, the Star Tribune remains the de facto newspaper of the state.

"I think you could say [Klingensmith] had plenty of reason for rational exuberance about the Star Tribune," Brauer says. "If any newspaper should do well going forward, it should do well here."

Klingensmith says he recognized in 2010 an additional advantage that eased the pressure to panic, a slowing in the rate of decline of the paper's ad revenue. Like other newspaper executives, Klingensmith doesn't pretend the industry will ever reverse the steady leaching away of ad money. But he is baffled by decisions like the one by Newhouse's Advance Publications, to drop four days each week of the print editions of New Orleans' Times-Picayune and Advance's three Alabama papers . That move, he believes, is sure to drive off subscribers and advertisers.

The Minneapolis paper's announcement that it was raising daily copy prices from 50 cents to 75 cents stirred little comment, Brauer says, probably because the price hadn't gone up since it went from 35 cents to 50 cents in 1996.

The enthusiastic response to the charging for digital content reinforced for Klingensmith a fundamental belief that the Star Tribune was the dominant news delivery system in its market, a profitable position worth preserving.

The early result is that the paper has so far shaved $30 million from the $100 million of debt it carried when it came out of bankruptcy in 2009. At the same time, employees will be getting profit sharing checks for a third consecutive year.

The Star Tribune's early success at charging for digital content isn't likely to quell the national debate about the issue. Critics say the practice is too little, too late; that it can't hope to make up for lost print ad revenue; that it will drive viewers to abundant and free Web alternatives; that it is simply a Band-Aid across deep wounds in the business of American journalism.

Those issues will play out thanks to an explosion of newspapers – the estimates range from 150 to 300 in the U.S. – charging in one way or another for their digital content.

Ken Doctor, a news industry analyst and the author of "Newsonomics: Twelve New Trends That Will Shape the News You Get," says Klingensmith is among the first of the publishers to ask a more immediate question: What happens if we do nothing?

Doctor, a former managing editor of the Pioneer Press, says digital subscriptions complete a circle of ownership around all of a newspaper's content. Customers no longer have the option of buying your content (in print) or getting it for free (digitally).

For the first time, a newspaper is able to set prices for all of its products and know how many people are willing to pay that price. Growing the business becomes expanding the audience for what you are selling: the news, Doctor says.

In Minneapolis, management has decided it isn't a question of deciding between print or digital, or that digital revenue must replace all lost advertising revenue today, Doctor says.

Doctor says this transition strategy is necessary if legacy papers like the Star Tribune want to survive.

Klingensmith is "looking at the endgame. The print component, the digital, the development of new digital products are all pieces of the revenue puzzle," Doctor says. "By being rational, Mike Klingensmith is ahead of the pack."

What Klingensmith is up to in Minneapolis makes Steven Brill smile. The investigative journalist, author and media entrepreneur cofounded Press+, which helps publishers raise money from their digital content, on the same faith that newspapers could recapture and increase the value of digital news.

"This changes the equation," Brill says. "The core reason for producing your product is no longer just a civic matter but a business matter. Your success is measured by the quality of your product. The good news is that it puts the burden back where it should be, on the editors and the reporters."

Since Klingensmith arrived, the Star Tribune has been hiring. Not a spree, editors and reporters say, but enough to replace those who leave. Years of buyouts and layoffs reduced the editorial staff from 400 in 2006; the number has held at about 260 for more than two years.

At the height of the paper's financial trouble, reporter Thomas Lee left for the Detroit office of Xconomy, a digital business news startup. Lee was making as much money as he did at the paper, and received stock and stock options. This was his chance, he thought, to be part of the new model for newsgathering.

But Lee was concerned about Xconomy's financial underpinnings. He drew a salary that came from grants from two foundations. How long might that last? he wondered.

He didn't wonder long. He got an offer for a technology reporting job from the Boston Globe, another paper that charges for digital content and has an ambitious plan to expand its digital news operation. Then the Star Tribune asked him to come back to the business desk.

"I thought, what the fuck just happened? The economy stinks, the newspaper business isn't better. Why would I want to go back to an old medium?" Lee says.

But go back he did. In spite of having grown up loving the Globe, Lee decided to return to the Star Tribune. The editors who wooed him told him they had a plan to build a newsroom around their talent and they would help move that talent along.

"I wanted them to give me a career track," he says. "Newsrooms stink when it comes to career development. I told them I eventually wanted to be a columnist. They liked the idea."

Lee returned, a wizened 34, telling younger reporters what the new model told him about their model. Nothing, old or new, is for sure these days. Take control of the copy you produce. Do the best job you can and promote it. In return, at least in his case, you get to work for a newspaper that, in spite of its past travails, seems a lot better off than many others.

"Let me put it to you this way. I came back because I wanted to believe in something," Lee says. "I want to believe there is a place where you can do good work where it matters. Here, it's about finding the next business model. No guarantees. But every time I swipe my badge through security and the light turns green, it's been a good day."

Lee's boss, Stone, was editing business for the St. Louis Post-Dispatch during the Star Tribune's darkest days. He hadn't been looking for a job when the paper contacted him.

Like so many in newsrooms and far too few in boardrooms, Stone had always believed it was insane to give away digital news. What the last few years have proved, he says, was, like it or not, neither journalism nor the business could survive unless they complement one another.

"I was tired of hearing about everything you couldn't do in this business," Stone says. "I thought of what we could do if newspapers could get out of [their] cost-cutting posture."

So far, management has kept its promise to resist cost-cutting by further reducing staff. The pressure of an inevitable shift to the digital world has meant hard decisions about deployment of personnel and what to cover, Managing Editor Rene Sanchez says.

Sanchez, a longtime Washington Post reporter who came to the Star Tribune in 2004, is a writer's editor, asking his reporters to tell readers stories, with a sense of character and place.

Increasingly, the storytelling is harnessed to enterprise pieces and public service journalism. The stand-alone investigative team filtered back into various departments to give beat reporting heft. "We've really tried to put substance, depth and firepower into those stories," Sanchez says.

A months-long investigation into abuse at nursing homes, headed by investigative reporter Brad Schrade, led to tougher penalties on abusers passed in April by the Minnesota Legislature.

Schrade, Jeremy Olson and Glenn Howatt began the same sort of organic investigation into home child care in July.

Beats have been dropped or created, no longer a reflection of the loss of staff but of a better understanding of what the staff ought to be doing. With the encouragement of Klingensmith, the Star Tribune, for the first time in many years, has been spending money on quantitative research and market research done with focus groups.

With so many families with relatives in Iraq or Afghanistan, a military beat made sense. Strong community interest produced a nonprofits and charities beat. There is now a reporter covering families and children, Sanchez says.

The paper has refocused on the University of Minnesota, the state prison system and the state Department of Human Services.

As at many newspapers, the role of the features department at the Star Tribune has been eclipsed by harder reporting. And while the core Metro beats remain, Sanchez says he has made it clear readers aren't much interested in institutional, turn-of-the-screw stories from City Hall or the county courthouse.

"Coming through these tumultuous times, I have a philosophy of not doing anything to diminish the franchise. Don't do anything self-defeating," Sanchez says. "As journalists, there are things we can't control, like the focus of advertising. So, you try to throw up a firewall around your reporting ranks and try to control what you can."

Environmental reporter Josephine Marcotty, one of the stars of the reshuffled order, says the paper's editorial decisions offer more opportunity for reporters and better stories for readers.

Marcotty was a longtime medical reporter. She doesn't consider herself an investigative reporter. And yet she has produced hard-hitting looks at mining, mercury poisoning and air quality. Her best work, like her slices of life about Minnesotans' love affair with their more than 10,000 lakes, is indicative of the storytelling encouraged across the newspaper.

"There are a lot fewer boring meeting stories, a lot fewer boring political process stories, more interesting stories from a broader spectrum of issues," Marcotty says.

There is also a little defiance in Marcotty, as if the staff and the newspaper have been issued a challenge by the times. Whether in print or online, Marcotty says, no one is better at telling people what's going on in the Twin Cities.

The current challenge for Editor Nancy Barnes is telling people equally, on all platforms. In spite of the digital reality, there is a feeling among staff that reporters and editors are being asked to do multiple jobs, serving print and digital masters, says Janet Moore, a business reporter and co-chair of the Star Tribune Newspaper Guild.

Like most newspapers contending with the Internet, the Star Tribune's online staff was separate, its demands based on breaking news rather than the old 24-hour print news cycle.

Beginning with sports, Barnes asked print editors to oversee staffs producing copy for all platforms. Sometimes that means shorter digital stories posted early and expanded later for digital and print. Sometimes it is digital posting while creating separate print stories.

The point, Barnes says, is to have all of the news decisions coming from news editors. The platform shouldn't matter, because it doesn't matter to readers who just want to get the news.

Quality journalism is available on all platforms, Barnes says. But the paper needs to improve the ease with which readers can engage with the Star Tribune.

"I still don't think we do it well enough. People have to be able to get to it to engage with it," she says. "We're going to get better at it. My philosophy is to own our content across all platforms. It didn't make sense to give it away."

Since we last spoke in 2007, the biggest change is Barnes' sharpened focus on the news. Five years ago, she attended awkward going away parties for staff, made decisions while a publisher fought his own legal battles and dealt with a board that didn't understand the community.

"As a company, I feel like we were once a sinking ship," she says. "Now I think we're very, very steady. A steady force in the community."

Brauer says no one could have managed a transition out of bankruptcy better than Klingensmith. The print edition is better than it was several years ago, and the online edition is getting better all the time.

With the perspective of someone who has covered the state's media for 30 years, Brauer says the nostalgia for the days of a newsroom of 400 ignores a complacency that came from being the dominant newspaper in Minnesota.

The Star Tribune last won a Pulitzer Prize in 1990. That was eight years before the Cowles family, which owned the paper for generations, sold it to McClatchy for what now seems like an impossible $1.2 billion, 16 years before McClatchy sold to Avista for what seemed then like a fire sale price of $530 million.

The Milwaukee Journal Sentinel, with a similar size staff and resources in neighboring Wisconsin, has won three Pulitzers in the last four years.

"It is a better paper than it was at the end of the McClatchy era, but there's always been a feeling it wasn't as good as it should be," Brauer says. "The balance sheet says the paper is much better off than when they left bankruptcy. But the next act for Mike Klingensmith is going to be much more difficult than his first act."

Having put his money on selling the news, Klingensmith's second act will be dependent upon a supporting cast that goes into bargaining in January having gone without a raise for four-and-a-half years, Moore, says.

During that time, staffers took base pay cuts of between 8 and 14 percent and accepted unpaid furloughs. Pensions were frozen while health care costs went up.

And while most of the nine people who left the papers in the last year were replaced, 19 copy editors were laid off about the time Klingensmith took over, Moore says.

There is a widespread optimism about the new technology. The initial public response to the digital subscription initiative was reaffirming. But there is also a sense of being asked to do it all without the backing of training and without exactly knowing why, Moore says.

"We're the reason why the paper is getting out of the hole it was in," says David Chanen, a courts reporter and Moore's co-chair. "I'm not sure they share a sense of reciprocity."

Reciprocity, Klingensmith says, is a matter of increasing revenue. Nearly all of it will be coming from the digital side. The paper has iPad, iPhone and Android apps.

The meter on the Star Tribune's Web site, allowing for 20 free views of stories a month, is going to go away, exactly when Klingensmith won't say.

The paper has been flogging digital subscriptions, and over the past few months has offered full digital access with a Sunday-only print subscription for as little as $5 for eight weeks to start.

"I think it's important to try it," Robert Levine says. "Why not? What's been done so far hasn't been working."

Levine, who lives in Berlin, is the author of "Free Ride: How Digital Parasites are Destroying the Culture Business, and How the Culture Business Can Fight Back" and a former executive editor at Billboard magazine. The preoccupation of his book is how to survive in a world where it is nearly impossible to sell information.

Moving from an ad-based business to one that actively sells content "is a revolutionary idea," Levine said. "Very few newspapers have ever tried to sell news. The Minneapolis Star Tribune is in a very good competitive position because no one in its market delivers its news product like the Strib does."

When you charge a customer for the news or anything else, Levine says, the pressure shifts to the people producing the product.

No one needs to remind Klingensmith about pressure.

"We need a newsroom capable of producing that product. The newsroom has to be the last place we go to for cost savings," Klingensmith says. "I'm very mindful, really motivated to get employees to feel good about where they work and where we're going."

Senior contributing writer Mark Lisheron (mark@texaswatchdog.org) is Austin bureau chief for Texas Watchdog, a government accountability news Web site. He wrote about media news blogger/aggregator Jim Romenesko in AJR's Spring 2012 issue.