When it comes to the newspaper business, Amazon.com (NASDAQ:AMZN) CEO Jeff Bezos says that he's playing tee ball compared with the major leaguers at The Washington Post. And in a memo to his new employees at the paper, he admitted, "there is no map, and charting a path ahead will not be easy."
This sort of humility from one of America's greatest business leaders is refreshing. It's also not entirely accurate.
Jeff Bezos has talked a lot about his vision for The Washington Post recently, and I believe he has a very clear sense of where he'd like the paper to go. With the finalization of the sale earlier this week, I'm extremely confident that The Post will be successful in the coming years.
The road to irrelevance?
A look at the current state of The Washington Post doesn't inspire much confidence in its future. Here's a look at some of the numbers for just the newspaper segment from the Washington Post Co.'s (NYSE:GHC) most recent quarterly filing:
In the first six months of 2013, revenues declined, and the paper reported losing $49 million; $40 million of that loss was a result of a pension expense, so the newspaper lost approximately $9 million from operations. Over the past year, the average weekday circulation has declined by 8.4% to 484,385. Circulation is down over 40% since the early 1990s.
There is a glimpse of promise in the recent online revenue numbers. For the first six months of 2013, online revenues have increased 12% to $55.6 million.
But don't get too excited. Online revenues only account for roughly 20% of the paper's overall revenues. One of the biggest challenges facing the newspaper industry, of course, is that the online business hasn't been able to come close to making up for the huge declines in print circulation and advertising.
Beauty is in the eye of the beholder
Despite the grim condition of the paper, Bezos told some newsroom staffers recently that he spent a lot of time thinking about its possibilities, and concluded that things weren't hopeless. Instead, he "was actually very optimistic about the future of The Post."
One thing I learned from Bezos' remarks to his employees, which were posted in audio form by Washington City Paper, is that he isn't interested in a declining business, even if it somehow managed to turn a profit. At one point he told reporters and editors that "making money isn't enough. It has to be growing."
That point was underlined when he laid out his vision for the paper. Here's what he said to the newsroom team,
My point is pretty simple, that we can't be in survival mode. We have to be in growth mode. We have to be reader-focused, not self-focused or advertiser-focused, and that we need to also figure out how to use the gifts that the Internet gives us, at the same time that we are acknowledging that there are many things the Internet has disrupted in this business.
Later, he added that The Post is a challenged business, and that "no business can continue to shrink." A shrinking business, according to Bezos, "can only go on for so long before irrelevancy sets in."
Unpacking these comments actually tells us a lot about Bezos' thinking on newspapers. Here's an illustration.
This summer, prior to the sale, The Washington Post introduced a paywall where readers would have to pay a fee after reading 20 articles each month. This, of course, actually penalizes The Post's most-committed readers without really offering anything extra. That doesn't feel like a strategy that puts the reader first, even if logically it makes sense for heavy users to pony up for the content.
Bezos notes a much bigger problem with focusing on paywalls, however. They don't actually solve the biggest problem facing newspapers, which is that well-researched stories by The Post or The New York Times can be rewritten by the likes of Business Insider or Huffington Post in a couple of hours. Adding salt to the wound, the rewritten versions, which often have better headlines and ledes, often perform a lot better than the originals.
Bezos believes that the way to get after that is by offering readers a bundle of content that they will be willing to pay for. It's not about a paywall per se. Rather, it's about offering readers enough outstanding and exclusive content that they'd happily open their wallets for it. That's a subtle, but important distinction.
In his discussions with employees, Bezos has said that "job one is to figure out the daily habit" of readers. Once he knows that, he'll be able to create a compelling bundle. "People will buy a package," he said, "but they will not pay for a story."
He went on to say that, "there are so many knobs that can be turned and things we can experiment with that I'm confident there's something we can find that readers will love and will be engaged with – and that we can charge for."
What will be included in the bundle? Obviously, it's too early to know, though Bezos has indicated that he'd like to see more investigative reporting, and he doesn't want to aim for the lowest common denominator (bless him). Perhaps most succinctly, he said that rule number one is that The Post mustn't be boring.
Connecting the dots
Based on what I've heard and read in recent weeks, I'm pretty confident that the Bezos-led Washington Post will be more national, more digital, and will have some sort of membership model. And unsurprisingly, there will be a strong connection between The Post and Amazon.com. That relationship alone could be extraordinarily beneficial to the newspaper.
Most of these points seem straightforward. The Post is one of the few papers with a national reach, so doubling down on that is an effective way to grow readership. As someone who lives in Washington, DC -- and gets The Post delivered each day -- there doesn't appear to be a lot of room to grow the print business, even though that represents the lion's share of revenues at the moment.
Online success won't come easy. Bezos told his new employees that tablets "could offer a way of rebundling the newspaper" and confidently added, "I'm convinced that the reach of the tablet will give us a bigger paying audience."
What if – and I'm wildly speculating here – a Washington Post subscription via a Kindle or iPad included both the daily paper and books and other long-form content from The Post's talented writers and reporters. And what if members of The Washington Post received outstanding books like The Alchemists (which was written by The Post's Neil Irwin) for free? I know I'd be interested.
Bezos has said that the one thing he's forming a conviction on is that the center of The Post's universe should be the reader. Through that lens, the key will be to provide lots of amazing content and features that cannot be obtained elsewhere for free. I'm feeling pretty bullish that the guy who built a $150-billion business from scratch will be able to solve that problem. What do you think?
John Reeves owns shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.