Star Tribune publisher Mike Klingensmith on the Pioneer Press, the ad biz and the future of print and digital media

Courtesy of Twin Cities Business
Mike Klingensmith has not been able to solve the obsolescence issues facing newspapers, but nor is the Star Tribune facing the kind of circulation and revenue erosion of most of its peers.

Mike Klingensmith joined the Star Tribune in 2010, after a career in the high-flying world of New York magazine publishing, most of it at Time Inc. Tapped to lead the newspaper company just out of bankruptcy reorganization, he is widely credited with developing and executing a business strategy that has allowed the Strib to rise above its industry peers, many of which labor under more difficult ownership and market positions, notably its crosstown rival, the St. Paul Pioneer Press. The transition to benevolent, community-minded owner Glen Taylor in 2014 notably reduced pressure on Klingensmith to deliver returns at the expense of journalistic mission.

TCB sat down with Klingensmith, 65, in his glass-framed office at Capella Tower in early June. The Minnesota native and University of Chicago MBA has not been able to solve the obsolescence issues facing newspapers, but nor is the Star Tribune facing the kind of circulation and revenue erosion of most of its peers. Rather, he works to keep the business stable while the industry figures out if there is room for more than Facebook and Google among the winners in digital, and newspapers seek a soft landing in the transition from print.

Twin Cities Business: What do you understand about the economics of this business and the future of newspapers that you didn’t realize in 2010?

Mike Klingensmith: When I started the job, I didn’t really know what to expect. We had just come out of a restructuring and we had a plan. What I didn’t know was what the [circulation] revenues were going to be going forward with the onset of digital. What I didn’t know was that we would be a relatively stable business. Our revenues trade plus or minus 1 percent in any given year, more often down than up, but it takes an incredible amount of innovation and execution to maintain that stability.

TCB: Newspapering has been in the news this spring. Did the revelations from the leaked financial documents of Digital First Media [owners of the St. Paul Pioneer Press] surprise you?

MK: Not really. I was surprised slightly by the degree that they maintained their profitability, but I had a good sense of that from various sources. I knew their philosophy was to do what was required to maintain the margin.

TCB: Mary Meeker at Kleiner Perkins released her annual media study this week, which measures advertising spend versus reader engagement. It continues to show print with revenues twice its engagement. It suggests the industry could still see half its revenue base erode.

MK: I don’t buy the methodology. It’s flawed, in my opinion, because we also spend time on media that attracts no advertising, like HBO, for example. On a macro level, there’s a relationship [between engagement and advertising spend], but it’s not a [direct] relationship.

TCB: Does external prophesizing like this affect your business?

MK: Eventually it becomes self-fulfilling. The constant drip, drip, drip of even quarterly earnings announcements of public media companies [affects] advertisers, even readers. When a reader doesn’t get a paper delivered on time, they’ll say, “No wonder your industry is in trouble.” It is not helpful. We work on trying to come up with metrics to display the strength of newspapers, but there isn’t a good collective set of metrics to make that case easily.

TCB: Retail is as disrupted an industry as media is. Brick-and-mortar retail advertising has been part of your foundation. How has the atrophying of this trade affected you?

MK: The majority of our advertising revenue is derived from retail. As that industry declines, that’s causing us problems. The line item on our P&L that’s declining is print advertising revenue. And in that line item is preprints.

TCB: You’re talking about the glossy flyers inserted mostly in the Sunday paper?

MK: Yes. They had been stable for us until about two years ago. It was classified advertising and run-of-paper advertising that’s mostly declined. But now preprints have started declining. One of the leading grocers [Cub Foods] has taken their preprint to direct mail.

TCB: What percent of ad revenue is connected to preprints?

MK: About a third.

TCB: With preprints, you’re basically a distribution service, right?

MK: It’s been a backbone of the business. It’s very effective and it can be tracked and measured.

TCB: Why did Cub leave?

MK: It was related to a change in the day of the week they wanted to change over their store discounts. It was supposedly an operational matter.

TCB: A former big-city newspaper editor I know blamed business management for failing to anticipate and innovate through the changes that have rocked the industry. Was there a better way through for newspapers if they only had more foresight?

MK: That’s a trick question. I’ll say this: Once what happened digitally happened, this decline and shift was inevitable. When I was at a fancy New York media company [Time Inc.], we weren’t smart enough to see it coming and we had Harvard MBAs out the window.

TCB: Alden, Tronc, et al. has created the impression that there is a lot of ownership not committed to the core newspaper business and public service mission. Can newspapers survive the companies that are buying them?

MK: Well, I don’t think you can make a sweeping generalization. With private equity ownership you could come closer to making a generalization. Now the Star Tribune’s owners when we came out of bankruptcy were private equity and they were wonderful owners, so it doesn’t have to be the case. Tronc views itself as in the news business. They just bought another newspaper. You can discuss how well they’re managed or run.

TCB: You have an owner, Glen Taylor, who owns properties the newspaper has to cover. In Las Vegas, a casino magnate and major GOP political benefactor owns the paper. How do newspapers maintain their watchdog role?

MK: It is possible for a newspaper to cover their own business in a responsible way. At Time Inc. we had Fortune, and we were always in the news. We had a church and state line, and we honored it.

TCB: In Ken Doctor’s coverage of Alden and the quasi-revolt at the Denver Post, he published a chart that showed the Pioneer Press running with about a 60-person newsroom to the Strib’s 245. Are you four times the size of business they are at this point?

MK: No, not four times the size.

TCB: They are quite lean…

MK: To some extent it depends on your ambitions. Theirs is to be locally focused, by necessity perhaps. We still have the ambition to cover national, international, and local news. . . . We also view ourselves as the state paper. That’s an intentional strategy. Instead of reducing the number of people in the newsroom, we’ve had the same people create more products. We’d rather create new revenue than cut.

TCB: Are you surprised, given the atrophying of the Pioneer Press, that its revenues and profits and circulation are as robust as they are? Is parochialism all that’s keeping St. Paul going? Or am I being unfair?

MK: Well, I don’t think they’ve maintained anything all that well except EBITDA. But if you look at relative circulation and revenues, I think you would see them in quite sharp decline. But I agree with you that there is a community loyalty to that flag and that brand, and it’s a very strong loyalty.

TCB: So if there was ever an opportunity for these businesses to combine, you would need to think long and hard about whether consolidating under a brand that didn’t have “St. Paul” in it was prudent.

MK: Exactly.

TCB: The Strib is losing circulation nonetheless. Your Sunday circ may be fifth-best in the country, but it’s down roughly 40 percent from the early part of the decade. Are you on the same road as the Pioneer Press but simply in the slow lane?

MK: I have to think there’s enough evidence to indicate a market can support one daily paper. And it’s inevitably headed to that, one newspaper or at least one ownership. Let me give you a perspective on the declining circulation, because it was my specialty at Time Inc. Circulation is an indicator of the quality of what you produce and how much it’s valued, and secondly the price you charge for it. What’s amazing to me is how much newspapers are valued. Think of the highest-priced magazine, People . . .

TCB: Probably The New Yorker…

MK: …what is it, $50 a year? People subscribe to newspapers at $600 a year and renew at higher rates than magazines. There’s incredible dedication to the product. What’s cushioned our advertising losses is the willingness of readers to accept higher prices. … Our circulation declines are far below the industry average, and our circulation revenue has grown every year.

TCB: Do you have a sense where the decline stops, or where your pricing power ends?

MK: I don’t know. We don’t have as much pricing room as when I got here. Then, we hadn’t taken a price increase in nearly 15 years. I’m a believer there’s a long tail for print.

TCB: You say 55,000 digital subscribers. Is that where you had hoped it would be by now?

MK: Digital subscriptions grow really rapidly to start. You end up with 30,000 almost overnight from the metering [of free content]. Then you have to start doing traditional consumer marketing to try to grow that number. It gets harder over time. My medium-term range is for us to have 100,000 digital subscribers.

TCB: Would you rather have me as a digital or print subscriber?

MK: Definitely print. [There’s] much more profit per unit in a print subscription, way more advertising in a print subscription than a digital subscription, despite the distribution costs.

TCB: You are not gaining a digital subscriber for every print subscription lost, are you?

MK: No, we’re not yet 1:1.

TCB: Let’s talk about the content side. You appear to be at the crest of a wave of generational retirements in your newsroom. Are you going to maintain headcount or are you planning on creating economies?

MK: We want to maintain the capacity we have in the newsroom. New people tend to help lower your costs anyway, when you have a retirement.

TCB: Have you identified content that is value-added, that people are willing to pay more for, or that drives subscriptions or incremental purchases?

MK: If you have a story uniquely and exclusively, a story local in nature. Local sports is one piece that fits into that. People value service reporting—restaurants, home tours. Beyond that, it’s the things you’d expect: breaking news, sports, the offbeat.

TCB: When you redesigned the website a few years ago, it was very clean and user-friendly. I notice an increasing number of videos and shape-shifting advertisements that slow it or distort the reading experience. Is all that jumping around the price of selling advertising?

MK: We watch that very carefully. We factor the reader experience, but, yes, the answer is it is advertising driving it. You try to keep the ad stream as healthy as possible, and the result is some cluttering of the experience. We look comparatively good in terms of clutter compared to other news sites. By the way, we serve more ads to those who are not subscribers. If you’re not logged in, you’re going to see a much heavier ad load.

TCB: Home delivery—I didn’t get my paper today. Don’t know why. I’ve noticed the reliability of home delivery has declined. What’s the challenge there?

MK: Low unemployment and the thinning of routes as homes discontinue service is problematic. We deliver [all of the other newspapers you can have home-delivered] each day to help with the density question. We do hit 99 percent reliability with home delivery each day. But people are outraged when they don’t get their delivery, and [expectations] increase as prices increase.

TCB: Let’s talk about the current national media climate. Do you have any concern that the news industry has become too closely identified as the adversary of the Trump administration? I wonder how the news business will walk this back when the Trump presidency is over.

MK: It’s not as intense a worry here because our principal mission is not national coverage. I really worry about The Washington Post. It’s a problematic environment for all newspapers when you’re labeled the enemy of the people, when your mission is to be the advocate for the people. The other thing is political polarization; we try to play it down the middle, that’s our aspiration. But when your readers are at the poles, it makes it harder to connect with them.

TCB: I can click onto a social media feed of many journalists and identify their politics and ideology, including some in your newsroom. Are journalists sharing too much publicly? Has it eaten away at the distance required to retain influence?

MK: By policy, our journalists do not engage in political/partisan activity on social media. But then there’s human nature and reality. We do monitor it. We try as best we can to make sure people understand their role as journalists and the responsibility that comes with that.

TCB: How have the paper’s investments in alternate print products fared? Specifically, City Pages and the Star Tribune magazine?

MK: We’ve been happy with City Pages. It had a particular attribute that was valuable to us: 50 percent of their revenue comes from digital advertising services they sell to their advertising clients, and they’re really good at it. Alternative media has a challenging future if not fully engaged in the digital space today. They’re also really good and engaged in events, I’d add.

TCB: What was the purpose of the magazine?

MK: It was a way to increase subscription revenue and tap advertising budgets that required the paper quality of a magazine. We’ve gained incremental ad and circulation revenue, but the latter was the larger piece of it.

TCB: How was the Super Bowl for business?

MK: I’d like another one. We did a huge amount of advertising revenue. But I did speak to the publisher of the Philadelphia Inquirer, and they did multiples of what we did. It’s better to have your team in the Super Bowl than to host the Super Bowl.

TCB: Let’s touch on the magazine industry. Do you see its fate intertwined with newspapers, or do they have intrinsic advantages?

MK: No. They’re exactly the same and, in some regards, I think they are more challenged. Newspapers found the 24/7 transition to digital a manageable transformation. Magazines, to go from once a month to continually delivering content is not an easy transition. What do you publish every day in niche verticals? Print advertising revenue has held up a little better in the magazine world, but circulation revenue has been in freefall.

TCB: Are you surprised to see how robust the interest is in the Time Inc. properties that Meredith has put up for sale?

MK: No. They’re such prestigious titles. But the rumored prices are sad. Roll back the clock and one of those weekly magazines would have sold for a billion, a billion-and-a-half dollars. Now they’re going to sell for 100 [million], 150 million. But I’m not surprised at the interest. It’s not that difficult for high-net-worth individuals or digital companies to own Time magazine.

TCB: Let’s talk about the future. Content-wise, what have newspapers yet to figure out?

MK: I would think there would be a market for vertical digital products. It’s not a good example, but like The New York Times crosswords. We should be able to sell some verticals, and we haven’t figured out how to produce or market those.

TCB: What don’t newspapers get right on the revenue side?

MK: Digital advertising has been a disappointment. For reasons both technical and [practical], it hasn’t been anything close to a windfall. And 80 percent has wound up with two enormous companies [Facebook and Google]. In print, you get paid for the entire readership. It was accepted at a macro level that you could not prove the effectiveness of a print ad. In digital, you only get paid if they click.

TCB: How does print convince the advertising community it is still high-value engagement?

MK: I think the data point of what people are willing to pay for our content is really good evidence of engagement.

TCB: What’s the biggest X factor in newspaper economics over the next decade?

MK: It’s the future of print circulation and pricing. How many people will stay with us, and at what price [and] for how long? There’s no way to know that because the whole media context keeps changing. We’ll have to find out when we get there.

Twin Cities BusinessTCB: Is the decline in reading real news from journalistic sources at the root of our societal schisms and lack of a national consensus of what is real and actual?

MK: That’s a scary question. Young people are not interacting with print anywhere. People used to start reading newspapers when they became vested in the community. [Now] young people expect news to find them.

TCB: People in this building seem to highly value your presence. Are you planning on being around in 2020 to start your second decade, or are you planning to retire?

MK: I am at an age when people tend to do that. But I love my job. It’s endlessly fascinating and important, in my opinion. I like working. Partly because I’ve always gotten to work on things that I’ve really liked. I’m not anxious to give that up.

Adam Platt is TCB’s executive editor.

This article is reprinted in partnership with Twin Cities Business.

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