Why doesn’t everyone get this? A recent post on BuzzMachine, Jeff Jarvis’ blog, is titled The Real Sin: Not Running Businesses.  Possible reasons why newspapers are sunk: not innovating, not charging, inaction, tying online to print.  Jeff explores the concept that perhaps newspapers are sinking because for the longest time they weren’t run like businesses.  I commented:

“Talking about the future of news is interesting; talking about the future of newspapers is a waste of time. It’s over.” No one ran a newspaper group more like a business and less like a journalistic endeavor than Tony Ridder. He supported (albeit unenthusiastically) many innovations, was ruthless in terms of cost-cutting (Darth Ridder), drove publishers to resign (Jay Harris) and loved the business. But it is impossible to achieve enthusiasm (employee, investor, stakeholder) for any high-margin business that suddenly turns into a low-margin business. And CraigsList did that to newspapers. Tony’s huge mistake was making his company a pure newspaper play when it was on the road to being a diversified media company, with print, broadcast, cable and business information assets.

There’s an article in Wired – Why Craigslist Is Such A Mess – that touches on what everyone should know by now: once classifieds disappeared newspaper margins disappeared and that was all she wrote.

The current CEO, Jim Buckmaster, joined the site in 2000 as a programmer and handles every business and strategic issue. It was Buckmaster who crafted the current strategy for growth—a slow, bloblike, seemingly unstoppable accretion of new craigslist cities, each an exact clone of the others, launched with no marketing or publicity. Sometimes a new site grows very slowly for a long time. But eventually listings hit a certain volume, after which the site becomes so familiar and essential that it is more or less taken for granted by everybody except the distressed publishers of local newspapers. Revenue from newspaper classified ads is off nearly 50 percent in the past decade, a drop that comes to almost $10 billion. Only a fraction of this loss is because of Newmark’s company, but as the largest online classified site, craigslist is easy to blame. Because he is the founder of a remarkable Internet company that also happens to be helping the nation’s dailies go out of business…

I disagree with “only a fraction of this loss is because of Newmark’s company” but that’s neither here nor there.  Margins on classified were tremendous, especially at papers where the sales force wasn’t unionized.  Newspapers had close to a monopoly on classifieds.  Take the $10 billion number mentioned above. Cut it in half and use that as a proxy for cash flow from newspaper classifieds. Multiply that by 10, which is the multiple of cash flow newspaper companies used to command. The result is that $50 billion of market cap was sucked out newspapers through the loss of classifieds.  In May of 2002, the combined market cap of Dow Jones, Gannett, Knight-Ridder, New York Times and Tribune was about $50 billion. Talk about news all you want. Please stop talking about papers.