John Harris, Jim Vandehei, and Politico Part a CSJ

CSJ- 09- 0021.0 • • Risky Business: John Harris, Jim VandeHei, and Politico Part A Late at night on January 21, 2007, John Harris and Jim VandeHei sat surrounded by marked-up sheets of paper. Only two months earlier, the two had left high- profile jobs at the Washington Post to start a new multimedia publication—part website, part newspaper—focused on Washington politics, and especially the upcoming 2008 presidential election. To their satisfaction, they had managed in a very short time to attract other well- reputed political journalists with the kind of name recognition the entrepreneurs hoped would draw devoted readers. Those reporters would bring credibility and prestige to the new Web- based news operation, dubbed Politico. Harris and VandeHei had felt themselves fortunate in November 2006 to secure startup funding from Allbritton Communications, a company that ran television stations. Admittedly, they had had to make a small adjustment to their dream. Harris and VandeHei had envisioned a website devoted to the kind of news that absorbed those who worked on Capitol Hill. But Robert Allbritton, who owned Allbritton Communications, had long wanted to own a Capitol Hill newspaper, and had even gone so far as to assemble a small staff of young reporters. In exchange for financing their Web operation, he asked Harris and VandeHei to run the paper he had decided to start. It seemed a reasonable trade, and the two agreed—especially after Albritton convinced them that advertising revenue from the newspaper could help make their enterprise self-sustaining within a few years. Harris and VandeHei wanted to launch their website on January 23, 2007—the date of President George W. Bush’s State of the Union speech. They decided that the newspaper, also called Politico, would launch the same day. The date would underscore the publication’s focus on Capitol Hill. It also marked the unofficial beginning of the 2008 presidential campaign, which promised to be a nearly two-year event. That left them barely two months to address the technical, financial, and personnel challenges of starting a new business. They had to assemble a staff of well-known political reporters, prepare to launch the website, and fill a newspaper. This case was written by Kathleen Gilsinan for the Knight Case Studies Initiative, Graduate School of Journalism, Columbia University. The faculty sponsor was Dean of Academic Affairs William Grueskin. Funding was provided by the John S. and James L. Knight Foundation. (11/2009) Risky Business: Part A _____________________________________________________ CSJ-09-0021.0 By Sunday, January 21, they were impressively on schedule to meet their goal. That evening, the two partners sat down to review for the first time the copy for the inaugural newspaper edition. Allbritton’s staff of reporters had been working on the stories for weeks; website content would not be the same as the newspaper content. Harris and VandeHei had originally planned to write pieces for the front page themselves, and fill the rest of the newspaper with stories from Allbritton’s staff. But as the two paged through the copy, VandeHei watched the color drain out of Harris’ face. The stories were poorly written, full of errors, and in some cases incoherent. The two did not have time to rewrite all of the stories—and some, in their estimation, were not good enough to use even if they did rewrite them. Both men were exhausted from the efforts of the last 60 days. Under the pressure of ramping up, each had suppressed the very real doubts they had about their ability to run a business. Now, to their astonishment, it was not the unfamiliar marketing, technological or human resources aspects of their new business which threatened to sabotage their venture before it had even begun. They were choking on the editorial piece— the area of their greatest expertise. They had two days to fix it, brace for embarrassment, or postpone launch. At the Post, none of this would have been their problem. Each wondered if they had made a terrible mistake. A changing industry Both Harris and VandeHei came from traditional newspaper careers at the distinguished Washington Post. VandeHei had joined the Post in 2002, having reported for Roll Call and the Wall Street Journal; Harris had started at the Post as a summer intern in 1986 and spent his entire career there. In the spring of 2005, Harris decided to accept a promotion to the position of national politics editor. It was not an easy choice for him—he had spent nearly 20 years as a reporter and writer. In all that time, he says, “I never had any particular administrative interests, or, incidentally—I think people around me would confirm this—any particular administrative talents.”1 But Harris had grown bored. He recalls: “Reporting and writing was becoming too familiar, too easy, and insufficiently satisfying.” He was also keenly aware that under the pressure of the Internet, the business of journalism itself was changing, and he wanted to play an active role in helping the Post maintain its storied place in political, national, and international news. As an editor, Harris felt he would be in an ideal place to observe and help direct some of the changes taking place within the Post and in the industry at large. One of Harris’ national politics reporters was VandeHei. Through the second half of 2006, the two had frequent discussions about the changing industry, and their own newspaper’s slow adaptation to the new reality. As new ways of delivering news proliferated, they 1 Author’s interview with John Harris, on February 25, 2009, in Washington, DC. All further quotes from Harris, unless otherwise attributed, are from this interview. 2 Risky Business: Part A _____________________________________________________ CSJ-09-0021.0 saw the Post challenged on a number of fronts in which it had once been dominant. Harris says: We both felt that the… Post’s achievements day in and day out were not as strong as its reputation. We both felt that the Post was adapting with insufficient creativity and speed to the way the Web was transforming journalism, transforming the audience’s relationship to the journalists and work they do, changing the impact that certain kind of stories had versus others. Revenues. For one thing, says Harris, “the financial model that made the Post a huge success was under radical stress.” Newspaper circulation was declining across the industry, and this trend had a double effect on the way newspapers made money. It meant, first, that newspapers made less money in subscription fees as readers shifted to free sources of news on the Internet, often websites paid for by the newspapers themselves. 2 But newspapers earned only about 20 percent of their revenue from subscriptions.3 The rest came from advertising. Advertisers, however, recognizing that print readership was declining, increasingly acquired ad space in less expensive, more frequented venues—often on the Internet. In particular, newspapers’ historical preeminence in classified advertising— categorized listings of jobs, real estate, and merchandise—was under severe threat from websites such as Craigslist.org, Monster.com, and eBay.com, which offered searchable databases of advertisements. In 2005, classified advertising netted daily newspapers $17.3 billion—36 percent of their total advertising revenue that year.4 Even then, however, online classified advertising was steadily siphoning ad revenue growth away from newspapers. Though newspaper sites themselves claimed a large share of the growth in online advertising, the gains were insufficient to offset the slump in paper advertising because online ad rates were significantly lower. At the end of 2006, online newspaper revenue had grown at an average annual rate of nearly 30 percent for five years. Nevertheless, 2 An Audit Bureau of Circulations report dated October 30, 2006, showed that the Washington Post’s average daily circulation had declined 3.3 percent from the previous year, http://www.mediabistro.com/fishbowlDC/news_notes/ ouch_46431.asp. 3 In 2000, advertising industry-wide accounted for 82 percent of newspaper revenue, with circulation providing the other 18 percent. See: Robert G. Picard, Evolution of Revenue Streams and the Business Model of Newspapers: The US Industry Between 1950-2000, Business Research and Development Center, Turku School of Economics and Business Administration, Turku, Finland, 2002. Citied in Philip Meyer, The Vanishing Newspaper, University of Missouri Press, 2004. 4 Project for Excellence in Journalism, State of the News Media 2007, http://www.stateofthemedia.org/2007/ narrative_newspapers_economics.asp?cat=3&media=3. 3 Risky Business: Part A _____________________________________________________ CSJ-09-0021.0 annual growth in overall advertising had slowed to a standstill and looked poised to turn into outright decline.5 Summarized the Project for Excellence in Journalism: Unfortunately, after all that growth, online typically still contributes only 6 percent or 7 percent of ad revenues. So while developing the new platform, papers can ill afford to take their eye off the ball of a print operation that constitutes 94 percent of the business.6 Newspapers had tried to raise revenue by offering specialty products to certain segments of their audience. So-called “niche” publications were an efficient and cost- effective way for advertisers to reach consumers likely to buy their products. The Washington Post Company, which owned the Washington Post, had captured some advertising revenue with free publications about cars, retirement, and real estate.7 Industry-wide, niche publications and online advertising were becoming newspapers’ only reliable source of advertising revenue growth.8 Costs. Meanwhile, though new technologies had eased some of the costs of distribution, producing news—which meant maintaining a staff of reporters, editors, and burgeoning Web departments; financing bureaus nationwide and overseas; and paying for newsprint, paper, and delivery—remained expensive.

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