Breaching the wall
COMMENTARY | April 18, 2005
'The Wall' is a mythical barrier between journalism's advertising and news departments. In his new book, Knightfall; Knight Ridder and How the Erosion of Newspaper Journalism Is Putting Democracy At Risk, retired Knight Ridder editor Davis 'Buzz' Merritt shows how corporate newspaper management repeatedly breaches the wall, sacrificing the public interest for quarterly profits. This excerpt details The Los Angeles Times' infamous Staples Center conflict of interest, which ended with a surprising victory for 'the wall.'
By Davis "Buzz" Merritt
The notion of strict separation between the business and journalism functions of newspapers is relatively recent in terms of the whole of American newspaper history, and judging by current practice, it may be only a passing phase.
Certainly nineteenth-century publishers were unencumbered by such ideas, as the newspapers of that time were widely reviled as corrupt subjects of big money corporations. By the days of the Great Depression, however, people like John S. Knight, Col. Robert McCormick in Chicago, Henry R. Luce in New York, and Nelson Poynter in St. Petersburg were defiantly declaring their independence from pressures of the countinghouse. That they were wealthier than most other people perhaps made such freedom easier to assert, but their matching philosophies found fertile ground in newsrooms. At McCormick's Chicago Tribune building, there were even separate sets of elevators for newsroom people and businesspeople. The editor's business-side partner, the general manager, spoke only to the editor among newsroom employees.
It is not clear why the idea began to gain credence when it did, but part of the explanation may lie in the fact that in the nineteenth century, advertising provided less than half the total revenue of newspapers. By the 1920s, it was up to two-thirds and rising steadily toward its present 80 percent.
At most newspapers, including Knight's, the doctrine of strict separation lasted well into the 1970s. A newspaper or newspaper company either respected the wall between the journalism functions and the business functions or it did not. The wall was either impenetrable, high, and thick, or it didn't exist at all. Its presence, or lack of presence, was determined by the owners, but its viability was never a function of the form of ownership: There were public newspaper companies whose leaders respected it and ones who did not; there were private and family owners who valued it and those who did not.
If a newspaper was thought of, by its owners, as just another way to make money, the wall was an impediment; the enterprise's financial success could be maximized only if the wall did not exist. Maximizing a newspaper's income is not a difficult process if there are no concerns about public service and intellectual honesty: Write only stories that please advertisers and potential advertisers; allocate newsroom resources to the subjects that surveys tell you people say they want to read; ride the partisan winds in editorial policy; don't rock the boat. Few American newspapers acted that way, which was fortunate for democracy.
Today, however, the wall is increasingly transparent, a relatively recent development that is potentially dangerous to and surely unfortunate for democracy. Instead of doing one or the other, the great majority of American newspapers today try to walk a slack wire across the abyss -- tricky stuff akin to trying to be a little bit pregnant. It is not certain how long and in what fashion that balancing act can be sustained, if indeed it can be sustained. Nor is it clear exactly when the balancing act started, but as the twenty-first century opened, most newspapers had at least one foot on the wire, and many of them were several shaky steps along the downslope. There's no safe haven on the other side of the abyss to make the risk worth the danger of a tumble; once out on the wire, the only safe resolution lies in deciding to back away, which, on a slack wire, presents its own set of dangers.
The argument in favor of a high, impenetrable wall incorporates both journalistic and business considerations. A newspaper's credibility is its most vital asset. Its information and editorial opinions cannot be trusted, in the case of news, and persuasive, in the case of opinion, if readers suspect that the judgments behind the information and opinions are influenced by other than journalistic standards. Conflicts of interest between journalistic and business aims, as well as the appearance of conflicts, must therefore be avoided.
Likewise, the credibility of a newspaper's advertising lies in the proposition that the space purchased delivers full value for the advertiser's dollar, with no other considerations necessary. If a newspaper provides more to the advertiser than the purchased advertising space itself, the message is clear: Absent additional considerations, the advertising is overpriced and its value is in question. So the wall protects the integrity of both the journalistic content and the advertising content while allowing the people on both sides of the wall to pursue their separate but mutually supportive goals.
The change in newspaper attitudes about the wall is not so blatant as to make a simplistic quid pro quo connection between news and advertising content a routine practice, at least at most newspapers. The change is much more subtle than that, and it is much more insidious because it involves structural changes in the organization of responsibilities of key newsroom people, and it involves their personal compensation.
Editors and other newsroom employees now regularly sit on marketing committees with advertising and circulation managers. They share financial goals through their overlapping MBOs (management by objectives) and other compensation mechanisms. This puts immense direct and very personal pressure on the newsroom people to align their journalistic standards of judgment with the very different business judgments of their non-news peers. Failure on the part of the newspeople to conform their thinking to the rest of the management group can have direct, negative financial consequences for everyone in the room. Entire regular sections of the newspaper as well as special sections are conceived, designed, and executed in that philosophically muddled environment, with ethical and practical results ranging from benign to devastating.
The problem with such structures as interdepartmental marketing committees is that the newspeople are invariably outnumbered by business-side people, and they are also rhetorically outgunned because the business people are dealing in dollars and cents and the newspeople are dealing in a philosophical concept that, too often, business people either do not understand or do not support.
In an ideal -- though admittedly fiscally inefficient -- world, editors would decide what subjects to write about without regard for whether there was an advertising tie-in opportunity. For example, an editor could decide that the intense public interest in wellness, exercise, and nutrition justified starting a weekly section devoted to that subject. Letting the advertising department know in advance about the launch of such a section would be a logical thing to do, but the coordination would end there, and the section would be driven by news-information considerations. If the advertising department wanted to sell ads for the section, that would be a plus for everyone, including readers, but if the advertising were not forthcoming, the section would still be produced because there were clear informational imperatives involved. That's in an ideal world. In the real world of 2005, most newspapers would not proceed with the section absent advertising support because it could not be cost-justified, even though there was an identifiable reader appetite.
Tying coverage of such matters as health and nutrition to advertising interest may seem a minor compromise of editorial judgment, because while such matters are important, they are peripheral to the most basic Thomas Jefferson/First Amendment kinds of journalism. But insisting upon an advertising tie-in is a step onto the slack wire, and once a newspaper is in that business, it is over the abyss.
Automobile dealers are among the business world's most aggressive competitors, in part because of the broad array of similar products to sell, and in part because they run in narrow, low-single-digit operating margins, certainly far less than the 25 percent to 35 percent common to even the worst-performing newspapers. The recession of the early 1990s and newspapers' subsequent efforts to impose advertising rate increases heightened the tensions that already existed between the two. The auto dealers' ability to use other, even if less effective, modes of advertising gave them the opportunity to flex their considerable economic muscle as the third-largest newspaper advertising buyer (behind department stores and real estate), and they did so.
Newspapers, in their efforts to help readers with their lives, were full of copy about automobiles: safety ratings, reviews of new models, analysis of car-selling techniques, and, of course, tips on how to haggle as well as the car dealers. Many newspapers developed freestanding auto sections, some of them products of the newsroom, some of them done by advertising departments. The newsroom sections tended to be more aggressive in coverage than the advertising-produced sections, of course, and the former also sometimes gave local car dealers indigestion and a reason for taking on the newspapers. The early-nineties period saw dozens of boycotts and threatened boycotts of newspapers by auto dealer associations, and dozens of instances of harried publishers apologizing publicly for what the dealers said were newsroom transgressions.
Three factors eased the tensions: First, the economy began to improve. Second, in 1994, the Federal Trade Commission (FTC), investigated a one-month, $1 million boycott of the San Jose Mercury News and declared it an illegal conspiracy to restrain competition among dealers and a chilling of the publication of important consumer information. The Mercury News' alleged offense had been a story showing consumers how to analyze factory invoices so they could better bargain with dealers. The next year, the Santa Clara County dealers' association signed a consent agreement not to promote such boycotts. Other auto dealer groups heard the FTC's message and formal, organized boycotts trailed off. The third factor: When dealers boycotted newspaper advertising, car sales dipped, often sharply.
The tension with auto dealers and other major advertisers in times of economic stress led some newspapers to try various routes around the problem. One, The News & Observer in Raleigh, North Carolina, transferred its automotive writer from the newsroom over the wall to the classified advertising department in 1991. But Dan Neil was no ordinary auto writer. From the newsroom, he had written provocative, tough-minded, often irreverent stories and new-car reviews, the best of which often were passed around gleefully (and enviously) in other newsrooms. He did not change his style when his boss became the classified advertising manager rather than the editor, and he plied his trade without anyone editing his copy. Finally, however, local auto dealers tired of his aggressive style, and Neil was ordered to run his copy by the classified advertising manager before it was published. He refused and was fired. After several years of freelancing for various publications, he was hired by the Los Angeles Times as its auto critic, working out of the newsroom again. And it was a newsroom, as we shall next see, that had been through the Mother of All Wall Breachings.
Where's my bazooka?
In 1995, the directors of Times-Mirror Corp. were worried about their floundering flagship, the Los Angeles Times. From 1960 to 1980, under famed and outspoken publisher Otis Chandler, the newspaper earned prominence for both its business and journalistic performances. After his retirement, however, the enterprise began to drift, and by 1995 the directors, mostly Chandler family members, were desperate for new leadership: The operating margin was at 6.5 percent, down from the mid-twenties; the stock price had skidded from $42 to $18; and circulation was down almost 20 percent. They turned to Mark H. Willes, a General Mills executive whose only newspaper experience was reading them. As CEO and then chairman of the corporation, he also named himself publisher of the Times. In 1998, he hired as president of the Times Kathryn Downing, an attorney whose publishing experience involved only legal periodicals, not newspapers.
Willes quickly decided that the wall between news and business functions was an anachronistic barrier to financial revival and declared publicly that he would destroy it "with a bazooka, if necessary." Such words from a cereal magnate only a year into the newspaper business horrified and alarmed many journalists at the Times and elsewhere, including its editor, Shelby Coffey, who resigned. Predictably, the response did not deter Willes from acting on his conviction by decreeing regular coordination between news and business at many levels. He announced a plan to appoint general managers for each of the newspaper's sections who would coordinate with the section editors; each section would be required to develop a pro forma with readership and profit targets.
The restructuring set up the Times to get more than a little bit pregnant and a long way out on the slack wire.
The next step onto the wire was the newspaper corporation agreeing to be a founding partner in development of the Staples Center, a 20,000-seat arena touted as a catalyst to the revitalization of downtown Los Angeles. The agreement had the newspaper paying Staples about $1.6 million over five years in a combination of cash, free advertising, and about $300,000 from later, unspecified joint projects. Similar deals are not uncommon in other cities, despite the fact that a newspaper partnering with a business that its news department covers inevitably raises conflict-of-interest questions about fairness.
Some executives argue that a newspaper company has an obligation to be an active participant in community life, and that its journalism responsibilities do not and cannot make it less than a fully participating corporate citizen. However, such deals make life much harder for the newspaper's journalists. They must contend not only with the conflict-of-interest questions but also with assumptions on the part of the partner/news source that its involvement with the business side of the newspaper changes the equation in dealing with the news side. Editors and reporters would much prefer a totally clean-hands situation.
The Los Angeles Times involvement with Staples did not stop with the founding membership. As the arena's opening day approached in 1999, people on both the news and business sides were thinking about how to mark the occasion. Editor Michael Parks felt that the opening was an important news event because of the arena's role in the renaissance of the center city. Business-side people saw it as a financial opportunity. Together they developed a plan to devote a 168-page special issue of the Times' Sunday magazine to the subject, with the news staff providing the stories and the business managers the financial support. So far, so good.
But unbeknownst to the newspeople, the business side, in one of those "later, unspecified joint projects" had carved out a deal with the Staples Center to share profits on the special issue, thereby helping the Times fulfill its founding-partner obligations. The special section was well into production when, to the shock and chagrin of Los Angeles Times editors and reporters, The New York Times broke the story of the profit-sharing arrangement. The story, and the resoundingly negative reaction to it from journalists and journalism ethicists across the country, made the clear point that the work of the Los Angeles editors and reporters had been compromised -- not only on the magazine project, but also on any future coverage of the arena and its various partners.
Three hundred Los Angeles Times journalists signed a petition condemning the arrangement, and even the retired but still-revered Otis Chandler weighed in with a letter saying, "Successfully running a newspaper is not like any other business," and calling the Staples deal "unbelievably stupid and unprofessional" and "the most serious single threat to the future during my fifty years of being associated with the 'Times'. . . Respect and credibility for a newspaper is irreplaceable. Sometimes it can never be restored."
Willes and Downing were initially flummoxed, not grasping the seriousness of the ethical breach, but soon they came to accept, if not understand, the seriousness of the offense and apologized publicly. The Chandler family decided it was not capable of managing the company and newspaper without Otis Chandler in the picture. Without the knowledge of Willes, the chairman and CEO, they negotiated a $6.1 billion sale to Chicago's Tribune Company, and Willes, Downing, and many other key players in the event were gone.
David Shaw, media writer for the newspaper and nationally respected for his detailed reporting and analysis on newspaper matters, including those involving the Los Angeles Times, spent months reporting on the disaster. The result was a 32,000-word report in the newspaper. For Shaw, the bottom line was that the bazooka shot at the wall created the conditions for the ethical fiasco. "I don't know that the publisher and the advertising department would even have conceived of such an idea were Willes not pushing for new and innovative ways to bring in new revenue," he said in a 2004 interview.
By 2003, John Carroll, hired in the wake of the Staples affair as the new editor of the Los Angeles Times, had fully rebuilt the wall, and he needed an automobile critic. He personally sought out Dan Neil, who had been through the Raleigh wars of the wall. In 2004, Neil was awarded the first Pulitzer Prize for criticism ever given to an auto critic, one of an impressive five the revitalized Times won in that year. How high is the wall now?
"I'm not allowed to talk to anybody in the advertising department. It is forbidden," Neil said.