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Tech Moguls and the TNR Meltdown

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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When Chris Hughes took over the ailing New Republic in 2012, journalists rejoiced that someone was pouring money into expensive, high-quality journalism. For the past few months, however, rumors of trouble have been afoot.  Yesterday, the trouble converted from "afoot" to "full racing gallop": Franklin Foer, its editor, announced his resignation, as did Leon Wieseltier, who has run the magazine's influential back of the book for decades. In the intervening hours, it became clear that key senior staff were going to follow Foer and Wieseltier out the door. This morning, TNR alum Ryan Lizza broke the news on Twitter of a mass resignation that included staffers Jonathan Cohn, Isaac Chotiner, Julia Ioffe, John Judis, Hillary Kelly, Adam Kirsch, Alec MacGillis, Rachel Morris, Jeffrey Rosen, Noam Scheiber, Judith Shulevitz, Greg Veis, and Jason Zengerle, along with many of their most distinguished contributing editors, including Ryan Lizza.  

Lloyd Grove reports that "It is far from clear whether the remaining, relatively inexperienced staff will be able to get out the next issue, which is scheduled to close on Wednesday. Two multi-thousand-word pieces slated for publication--a profile of Jeb Bush by Alec MacGillis and a report on Vladmir Putin’s political arch enemy, Mikhail Khodorkovsky, by Russian expert Ioffe--were still being edited when the ax fell." This also means the loss of a lot of TNR's Web content.

The most incredible part of the story, however, is that Foer found out he was being pushed out from a Gawker item, which reported rumors that Gabriel Snyder, late of Bloomberg Media, was taking over. Media firings tend to have a dramatic aspect, both because the industry is unstable -- I was once recruited for a magazine that shut down four days after I would have started, had I accepted the offer -- and because your entire recruiting pool consists of, well, reporters. But even by my profession's cinematic standards, this is going to be one for the Criterion Classics collection.

A lot of tearful, angry, and mournful pixels have already been spilled over yesterday's events. I recommend Alan Jacobs on the significance of Wieseltier's back of the book,  Jonathan Chait's more-in-anger-than-in-sorrow eulogy, and about a million tweets from journalists.  On the sunnier side, I suggest Ezra Klein's essay, in which he argues that this change was inevitable.

On the inevitability point, I think that Klein is probably right. I'm as sad as anyone about the probable death of the magazine that I read for decades, but it's easy to forget that before Hughes swept in with his Facebook millions, The New Republic was already on a long, slow march toward the abattoir.  Budgets got leaner and leaner, the publication schedule was cut in half, and many of its terrific staffers fled because there wasn't money to keep them.  There were a lot of reasons for this: competition from upstarts, a rift with the left-wing reader and donor base over the Iraq War, the general decline of advertising revenue that has afflicted every media company. But whatever the cause, the deathwatch began well before this latest crisis. Chris Hughes may be delivering the coup de grace, but before he did, he probably gave the magazine a few extra years of life.

That is not to say that I think that this was handled wisely, or that the new conception of The New Republic as a "vertically integrated digital media company" is necessarily going to prove more successful than its old conception as a landmark magazine of the progressive movement. Chris Hughes is the second tech mogul who has run into trouble with his media property in recent months, and there are some strong parallels between Pierre Omidyar's issues at FirstLook Media, and the blowup at The New Republic. Specifically, the problem of tech owners who think they know how to run a media company.

As Jack Shafer pointed out, there's a lifecycle to rich people who buy magazines thinking they can make money on them:

Stage 1: The vanity mogul announces that he'll return the publication to its former glory but says he doesn't need to make money right away. Quality, he says, will attract readers. (That's you, today.)

Stage 2: He replaces the editor with a journalistic star, redesigns the publication, expands editorial and art budgets, moves it to better quarters, and muses about parlaying his single title into a publication empire. (You're writing that memo now.)

Stage 3: As fresh red ink flows, the mogul hires "name" writers to compose columns that will be talked-about and to get invited onto television to build buzz. (I see it in my crystal ball.)

Stage 4: Still losing money, the mogul grumbles, "I'm not running a charity here!" He eliminates employee perks, increases the price of the product, and reduces frequency of publication.

Stage 5: The losses make the mogul want to bail, but can he abandon the rise in social standing that the publication has given him? He wonders how much budget cutting he can do without being compared to Mort Zuckerman, who has amputated and bled U.S. News & World Report to the point of homicide. He sacks the troublesome "star" editor and hires a pushover.

Stage 6: Panic. The mogul does everything that Zuckerman did to U.S. News. Cuts medical benefits. Skips issues during the summer and the holidays. Closes the cafeteria. Reduces the staff to bare bones. Shutters the bureaus. Makes staffers give plasma and confiscates the proceeds. Fires the pushover editor for a paper shuffler.

Stage 7: He finds a new sucker to buy the publication. And we return to Stage 1.

I've worked at one magazine that defied this cycle, The Atlantic, and one that didn't, Newsweek. And unlike most journalists, I've also worked at a bunch of firms that are not media companies, including ones that failed. Both journalists and non-journalists usually fail to understand just how weirdly different media companies are from other sorts of firms, which means they don't understand that experience with one side gives you virtually zero insight into how the other kind works. Without unduly sucking up to current and former executives, let me note that David Bradley succeeded at The Atlantic by hiring people who understood the business -- including Justin Smith, who now works for Bloomberg -- and giving them room to do what needed to be done.

Turning around any money-losing company is difficult, but media companies are especially tricky, because you're not running a normal type of organization; you're running a professional group. Most of the lessons that you learned in another business aren't very relevant.  

Prominent among the unique challenges of the media manager: the frequent tension between the actions that build your reputation and audience, and those that monetize it; the difficulty of getting creative types to produce great stuff on demand; the astonishing amount of autonomy that journalists need, because it's impossible to write hard guidelines, and too expensive to supervise long hours of reporting and typing; the fact that great writers are frequently terrible managers and editors, which screws up the normal management pyramid; the simultaneous need for speed and accuracy; the fact that media employment selects for a cluster of personality traits that resists closer management; the professional ethic that will stymie you when you decide to make a different set of trade-offs between competing priorities such as speed, accuracy, and the need to monetize your content; the fact that writers, especially in the digital age, frequently take their audience with them if they leave, making it even harder to impose discipline.  These days, add the fact that the whole industry is having trouble figuring out a financial model that works. Not all of these problems apply to every company -- and each of these problems can be found in some other industry. But the collection of all these problems in one place makes media, particularly the glamourous prestige media that most outside owners want to buy, an unusual headache.

Every new owner looks at media and thinks, "This is insane and inefficient. Obviously, this is a dinosaur industry ripe for rationalization by someone who actually knows how to run a business." When you get inside, however, it turns out that the industry is not actually staffed, as previously assumed, by archaic snobs who wear suspenders and spats when they sit down with a glass of sherry to read the latest Dos Passos epic. Instead, most of the seemingly inexplicable inefficiencies are driven by the peculiar nature of this business.  

Reading what went on at FirstLook and TNR, I suspect that Omidyar and Hughes were more blind than most to these differences, because if you squint right, a tech company looks kind of like a media company. After all, aren't we all in the business of acquiring content and selling it on the Web? And didn't I just prove that I'm really good at identifying those sorts of business opportunities, and monetizing them? We'll take over, identify some top talent, get some good management in there, and kick this industry into the 21st century.

This overlooks a number of problems.  First, they seem to have missed the fact that journalists will not respond well to the kind of management that may work splendidly in Silicon Valley. Attempts to use a conflict-avoidant, buzzword-filled, meeting-heavy management style fail miserably with journalists who are by nature and profession confrontational, cliche-avoidant, and in need of many solid, unbroken stretches of alone time to complete their work.

Then there are the economics. The tech companies that Omidyar and Hughes were involved with have one big thing in common with a magazine: They're working in a two-sided market, where you're bringing together two groups (buyers and sellers, readers and advertisers), and trying to maximize your total revenue from both sides. But the resemblance ends there. In many ways, a company such as Facebook and eBay is the opposite of a media company. Those companies have huge network effects, and they get their content for free or nearly free. Making a lot of money out of a business like that is hard -- many more attempts have failed than succeeded.  

But a prestige media company makes expensive content that has zero network effects; you can't copyright a fact. In the new digital world, hours after your expensively reported story is out, dozens of other outlets will have re-reported the same facts and taken some of the traffic. Making a lot of money out of a business like that is much more difficult. Chris Hughes was not insane to think that he could make something like a New Yorker for Washington. It was, however, pretty crazy to think that you could do so without losing a bunch of money.

You need only read the stories about FirstLook and The New Republic to understand how badly tech-style management assumptions translate into media. When that approach failed, spectacular public meltdowns ensued. So the new moguls now learn another key difference about the media business: You are always being closely watched, so communications, and effective crisis management, are supremely important. A spectacular HR crisis translates more directly into loss of reputation, and sales, than it does almost anywhere else. It also makes hiring new talent really difficult -- and that shows up faster in our industry than elsewhere. The few staffers who remain had better be doing some finger-stretching exercises this morning, because they've got a lot of copy to write if The New Republic is going to publish anything at all.

That doesn't mean that either TNR or FirstLook will fail outright; the nice thing about the media business is that if you put out great content people want to read, you can win your audience back faster than you'd think. But the fundamental failure to understand that they were entering a new and very tricky business has made that task a lot harder than it could have been.

  1. No, I don't know what this means either.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net