The Money Sucker
In the days before Internet startups blew through $30-million in half a year, no one could imagine that a newspaper, an actual product with actual customers who were tossing 50-cents into the pot every morning, could burn through $100-million in five years. That’s the thing worth getting your head around. If the newspaper was actually reaching 240,000 customers at its peak, that means it was taking in $600,000 a week on circulation alone, much better than fictitious Internet businesses of 1999. According to McKenzie, the paper spent $150-million in 23 months of production and start-up. What was the biggest money-sucker? Though he was on the phone, it was easy to imagine McKenzie shaking his head and rolling his eyes while talking about the satellite system which linked the newsroom in
“The satellite system was absolutely required. Otherwise we couldn’t have done it nationally. Everybody understood that going in,” Deford said. “I don’t know what the thing cost, maybe it could have been cheaper…we weren’t completely organized technically. In the beginning, we lost some readers who got pissed off at us (because they were subscribers who didn’t get their papers), but that had nothing to do with the ultimate failure a year later.”
When Deford speaks of losing readers early on, he’s referring to The National’s over promising its ability to deliver. Remember, a significant chunk of the audience that The National was targeting were luxury-car driving, NPR-listening readers who were used to getting what they wanted from vendors both in their personal and business lives. Along with buying radio time on sports-talk stations like WFAN in
“While we could acquire a strong distributor who went to all these places, we had to get to their distribution points and go find a printer near their distribution center. Most newspapers own their own plants, and have those plants adjacent to the center or (in the) center of their major circulation (areas). We, as a startup, couldn’t own printing plants. We wouldn’t have known what to do with them most of the time. So we had to go find printing facilities that would not only print on a very tight timetable to meet those trucks for Dow Jones, but in quality color which was very important for us. We had to find quality newspaper plants, and then getting them to do business with us (wasn’t easy),” Price said. “If you’re going to Miami, for example, since South Florida is a very important sports market, and you ask the Miami Herald or the Ft. Lauderdale Sun-Sentinel to print your paper, and you’re coming to town proposing to be the best sports paper, and they know that most of their male readership reads sports before anything else in their newspaper, they don’t welcome you in their vicinity. And they certainly aren’t going to print you in their plant. And if they’re using a commercial plant, they might find some reasons to find this (to be) interference with the distribution of their paper, and you can interpret what that might mean.”
While Price spoke about the logistics problems hypothetically, columnist Scott Ostler found out about the distribution first hand, when he was covering the Final Four.
“Somebody called me from the circulation department and asked: ‘Would you mind if we deliver a big bundle of newspapers to the hotel, would you mind taking it out to the arena tonight?’ And I said: ‘That would be cool, I don’t mind that,’ so I was the newspaper guy that night. I took a big huge bundle of newspapers and dropped them off in the press room” he said.
So, distribution was a serious roadblock, which Deford said was the most important reason why The National folded. If they had envisioned the problem in advance, Price and Azcarraga might not have gone ahead with the newspaper.
“The reason that it failed, nobody anticipated, including us, by the way. But everybody who said, in the beginning, that it would fail, said so because (they thought) there weren’t enough people who would be interested in it, or you wouldn’t draw enough advertising,” Deford said. “Nobody that I can remember said you’re going to have trouble distributing it. I don’t remember anybody saying that, and we certainly didn’t talk about that in any detail. Again, I’m on the editorial side, so a lot of this went on along a parallel track from me, and it became obvious early on, that we had real problems delivering the newspaper. And ultimately, that was it, that’s what killed us. There wasn’t anything else that killed us. I was there, and by the end I was much more involved in the business side of things, and we did everything to figure out how we could have more-efficiently delivered the newspaper…But that was it, there was nothing else that sank The National.”
Even if you believe that spending 30-percent of the of the 5-year nest-egg on a satellite-networked computer system was a necessity, The National’s spending was still legendary. Guidera’s column, after the gentle beginning, went on to recount some of the paper’s more sensational expenses: the office at 666 5th Ave. was on the world’s second-most expensive block of real-estate; an advertising department staff meeting in Bermuda, where one dinner check was $4,600; a $6,000 ticket on the Concorde for a reporter to come home from covering the French Open to console a despondent kitty; the $130,000 brass eagle, a replica of the newspaper’s logo that was supposed to be prominently displayed in the lobby, that couldn’t fit in the freight elevator and required a crew with a crane and the removal of a window – for another $12,000 to do the job; the $10,000 place-settings in the executive dining room; the portrait photographer (and her assistant) who were sent from New York to Los Angeles and put up in a fancy Santa Monica hotel to take mug shots of Scott Ostler and Steven Clow; the numerous 35-inch Mitsubishi televisions installed in the office; the building-wide cable wiring job that was required so that those televisions could actually receive sporting events, the $980 fantasy football draft party at a bar around the corner; the fleet of cars that no one shared, that would whisk staffers home to New Jersey or Westchester County if they left the office after public transportation had shut down for the night; the special elevator that was put in on the corner of the building so The National’s address could be next door to New York’s famed 21 Club. The list goes on. Carpenter and Lee Gordon, who ran the statistics desk, had worked out that they would need four, maybe five fax machines so that they could receive all of their score updates from stringers in arenas and stadiums around the country. Presenting this in detail to McKenzie, “Van immediately turned to the business manager and said: ‘We’ll take six.’ And these were $2200 a piece. That little snippet told the story. Everything they did, they did in excess. There was no restraint, there was no need to worry about anything,” Carpenter said. “It was crazy, it was spending like crazy, and everything was
Deford admitted that all those stories, as outrageous as the may sound, were true, but 15 years later, he didn’t hesitate to defend the expenses.
“Could we have saved a little money here and there? Yes. But remember, Mr. Azcarraga lost $150-million, and the only reason he quit, it wasn’t because he was $150-million down, he had a billion more or two to go, he quit because we couldn’t see any way out. That’s the reason he quit at the end,” Deford said. “It was impossible. We had investigated all the areas. The last thing we investigated was a possibility of getting our own trucks, and when Jaime Davila, who was then the boss, ran the numbers on it, we saw we couldn’t do it. It would be that much more expensive. It would lose even more money. So, what did
By the time the losses started mounting, some of the little things changed. Deford said he was beginning to think that the end was near as soon as Azcarraga replaced Price with Jaime Davila, his Mexican business manager, in the fall of 1990. But the newspaper kept on ticking, at one point raising its price to 75-cents in an effort to inch toward the black. As outrageous as the spending was in the early days, when things began to look bleak, equally strange cost cutting practices began. Ostler said the
“That’s when I knew things were starting to go bad financially,” Ostler said. “They said they could save six dollars a month or something. So they went from one extreme to the other.”