E&P Boss Catches Up With Hussman, Remotely

Walter Hussman Jr., chairman of Wehco Media Inc., in his office at the Arkansas Democrat-Gazette.

Walter Hussman knows that the days of big daily newspaper profits are gone. Now it takes continual innovation just to keep a shingle up.

“I will never make the kind of profits newspapers previously made, but if we make enough to cover a major capital expenditure — and usually the big one now that people don’t buy printing presses anymore is to replace the roof,” the three-decade Arkansas Democrat-Gazette publisher said. “You have to have enough money to replace the roof.”

Hussman, chairman of the Democrat-Gazette’s parent company, Wehco Media Inc., assessed two “new normals” in a podcast last month with Mike Blinder of Editor & Publisher: life under coronavirus and the novel newspaper business model Hussman has adopted.

For six months now, he has printed a physical newspaper for home delivery only on Sundays and lent subscribers iPads for reading a digital replica of the paper. They keep the iPads as long as they keep up their $34-a-month subscriptions.

Over 40 minutes, with Hussman appearing remotely in front of his family room fireplace overlooking the Arkansas River, the publisher and Blinder pondered the internet’s utter disruption of the advertising model that sustained the newspaper industry for generations.

The Democrat-Gazette, which once boasted close to a quarter-million circulation statewide on Sundays, has fewer than 35,000 paying subscribers now. Still, it remained profitable through May despite crushing COVID-related downturns in advertising, Hussman said.

As he told Arkansas Business last year, readers rather than advertisers now primarily support the 100-person newsroom. And the digital model allows the paper to still cover news statewide with that relatively large news staff.

Blinder, the media consultant and “evangelist” who bought E&P last year, called Hussman’s two-year experiment with the iPad model “one of the most major decisions in the history of newspapers.” So how is it going?

“Well, advertising has taken a major hit,” Hussman replied. “In March, we had a couple hundred thousand dollars of advertising canceled in Little Rock, but we actually still made a profit that month, and that’s a result of the digital replica. April was worse, down about 49% in advertising. May was a little better, down 42%, so it’s been very, very difficult.”

He said that, obviously, closed businesses don’t advertise much.

But he praised his journalists in covering the pandemic. “Most of our people are working remotely, and I thought that would be a big problem, but the quality of reporting is just about as high as it’s ever been,” Hussman said.

Start of the Revolution

He recalled the Democrat-Gazette’s experiment in early 2018 in Blytheville, nearly 190 miles from Little Rock, testing subscription rates and iPad acceptance, and refining a plan later carried statewide. “When we looked at our budget for 2018, we realized we were going to lose money for the first time in a couple of decades, and it was because of this tremendous drop in advertising revenue all over. … We just thought, you know, we’ve got to come up with some other solution.”

The Democrat-Gazette’s digital conversion was fully completed in February, but work goes on at its sister paper, the Northwest Arkansas Democrat-Gazette. “Originally we had about 40,000 home delivery subscribers when we initially converted everyone,” Hussman told Blinder. “Today we have about 34,000, having lost about 5,000 over two years through attrition, people moving or dying off, etc.”

Before the conversion, the two Democrat-Gazettes had about 100,000 home delivery subscribers between them, Hussman said. “The interesting thing about these 34,000 that we have now, about 27,500 of them we’ve given iPads. So what about the rest of them? Well, one of those people said, ‘I don’t want an iPad. I’ve already got an iPad.’”

Most papers nationwide butchered newsrooms and cut news space as revenue plunged, but Hussman saw that as a losing strategy for remaining statewide. “We decided to keep the same amount of people in our newsroom and the same amount of news space, but try to eliminate other costs like newsprint and distribution costs, carrier subsidies, production costs.”

In short, he did the math.

“We sat down and did a pro forma income statement. If 70% of all the subscribers in Arkansas would continue to subscribe at their current rates or rates that would get into $34, could we be profitable?” That meant eliminating most printing costs, carrier distribution expenses and production outlays. “The answer was, yes, actually, we can go from being unprofitable to profitable. So is it better to have only 70% of our home delivery customers and none of our single copy revenue? The answer was, hey, it’s better for us to be profitable and sustainable, even with less circulation.”

Hussman said if he’d done what his publishing counterparts did in Des Moines and Oklahoma City, “so many of these other towns that eliminated statewide distribution, those people wouldn’t have been able to get our paper. And I thought, is it better just to stop giving them the paper and reduce our losses? Or if we could continue giving the paper but in a different form on a digital replica, would that be better for them? And the answer was obviously yes.”

In a world of misinformation and deceit, he said, “newspapers still try to curate and edit and provide accurate information to the best of their ability.”

Northwest Arkansas Details

Hussman elaborated on the northwest Arkansas transition to digital. “We’ve gone into the Fort Smith area, Fayetteville, Springdale and Rogers,” he said. “We’re pretty much still working in the Rogers area, and getting a good start in Bentonville.” He expects to finish the initiative sometime this month.

The north Arkansas test started in Harrison, the Boone County seat of about 15,000 people. “We said, look, you’ve all heard about this program in the rest of the state,” Hussman recalled. “We’ve got to get $34, not $17 or $10 [per monthly subscription]. So we said here’s the deal: We’ll work with you, if you’ll work with us, and raise your subscription price $1 per subscriber per month. If you’re at $20, it’s going to take you 14 months to get to the full price. If you’re at $17, it’s going to take you almost a year and a half. But we’ll go ahead and give you the iPad now. And in Harrison, we got 78% of the people to convert.” The subscription costs have been stepping up now for six months, and fewer than expected have been canceled.

Hussman said the biggest mistake most newspapers made trying to adjust to digital reality was copying other papers’ failed efforts rather than testing new ideas with a pro forma approach. “Because if you can’t be profitable under your assumptions, why are you doing it?”

Smaller iPads

After starting its program by buying $800 iPad Pros for subscribers, the Democrat-Gazette realized its offer had just as much appeal with a smaller, $350 iPad model. “Some women even preferred it, because it would fit in their purse.”

Market research shows that readers enjoy the ability to see additional color pictures with a click, and have responded to digital replica ads that serve as links to what advertisers would like readers to see. “You’ve got to experiment and try things and see what works and what doesn’t work and then pursue what does work,” Hussman said.

And what do readers like best about the digital replica, which works with the Press Reader app?

“The No. 1 thing they like better is to take those two fingers and spread them apart and the type gets bigger and they can take off the reading glasses, you know,” Hussman said. “We worked with Press Reader to come up with the idea of taking a photograph in the newspaper and turning it into a video, or hitting a button and you see videos of the same story, or see photo galleries. People really liked it. It helps tell the story better. It tells the story more completely than having a single photo.”

Video: Walter Hussman With Mike Blinder of Executive & Publisher