In a YouTube video they produced called "The Big Idea", Leitner and Timpone pitch directly to potential clients. Who are they? "They tend to be organizations that are best in class and nobody knows it or have a unique take on the marketplace and nobody knows it," said Leitner to me in a phone conversation. "Organizations that need the market place to understand the issue more fully, so the public would know why our client is best suited to help them."

I think of it as being more like "Guiding Light", the long-running, recently-cancelled soap opera that was wholly sponsored by and owned by Proctor and Gamble for over fifty years. As a sponsored television show, P&G paid ABC for the airtime and put on their show. ABC acted as a conduit for the show, whatever the content might be, because P&G paid for it and produced it themselves.

But "Light" was a soap opera and this is news.

I know Leitner professionally, and some months ago he invited me one afternoon to meet Timpone to help them hash out their idea. Mostly we talked about various ways news media companies attempt to make money from their products. The word "journalism" never came up in our conversation. Instead the discussion was entirely focused on how to actually make money from news.

For that reason, there are many who will have a problem with Private Label News. There's also an inherent conflict of interest problem - if I am paying for the news coverage, there's a good chance it might be slanted in my favor. Italy, whose billionaire Prime Minister, Silvio Berlusconi, owns most of his country's news media, is struggling with this problem in a big way, but Berlusconi doesn't seem to have problem with it.

Unlike Berlusconi's Mediaset, Private Label News does not aim to cover the big stories of the day. Leitner and Timpone imagine it will be interesting to those who want the smaller stories of the day to get coverage. As the "Big Idea" video suggests, it would cover industries that have lost their coverage as a result of shrinking news budgets.

"Timpone has been doing this for years on behalf of the U.S Chamber of Commerce," said Leitner. "They want good coverage of the state Attorney Generals offices, [because] AG's are a real battleground on the issues for tort reform debate. That's a real good example of turning the lights on in the gym so people can draw their own conclusions."

The news service Leitner refers to is Legalnewsline.com. It works just like any other wire service, and plenty of local newspapers quote from it. It is hard news, covering a beat that nobody else wants to or has the resources to cover. It has a few small advertisers. The "About Us" page doesn't draw any connection to the U.S. Chamber of Commerce.

Frankly, as a reader, I am not quite sure what to think of this approach. It seems impartial, and I know Leitner well enough to know he is not hiding anything from me. But the average reader would not entirely know who is behind legalnewswire.com - so wouldn't knowing that information change how their news is received?

But then again, think of all the talking points fed to Glenn Beck and Keith Olberman by less than impartial sources. All the effort expended by various PR agencies to influence reporters - the junkets, the personal conversations.

When I first started working in politics, I helped put on a "frozen chicken bowling" event with famed chef Wolfgang Puck in the U.S. Capitol, so Congressmen and the national press would learn how chicken categorized as "fresh" are actually frozen, according to USDA rules. The event was a smash hit, with stories in papers and TV stations across the country. Soon after, the USDA changed the rule on what constituted as "fresh" chicken.

The event was sponsored by smaller local chicken producers that didn't have the resources to freeze their chickens and ship them across the country. My lobbying firm cast it as consumer issue, but for the local producers, it was a money issue.

None of the TV stations mentioned the appetizers handed to them personally by Puck, or that they got to bowl chickens with famous Senators. That must have impacted them, right?

Private Label News is on to something. I am just not sure where it will take us.

But first a polemic: I am a strong believer in the long-tail theory. In that vein, I believe Hyperlocal is yet one more slice of the tail. It will never dominate news, but it will become a hard to ignore bit player, sort of like 12" club remix records.

There's a lot of talk about hyperlocal these days, because people are still assessing its ultimate value and trying to figure out how it fits in with the rest of the media mix. But in the end, I think the talk will die down and hyperlocal will become just one more part of everyone's daily media diet.

It appears that hyperlocal news is separating itself into three broad implementations I call:

• Aggregation;
• Augmentation; and
• Original Content

Aggregation is the easiest to implement, since it is merely grouping news stories by town, neighborhood or zip code. It is growing the fastest since a robust aggregation hyperlocal site merely needs a good news scraper/spider to pull original content from elsewhere. It also provides the least value. Quite a few Google Ad link farms are aggregation hyperlocal sites.

Examples: Outside.in, Patch.com

Original Content is on the other side of the extreme, where original content is generated by some mix of dedicated or freelance on-the-ground reporters. This is time-consuming and expensive since original reporting requires lots of legwork. It is also of high value to readers, since the site is providing content that is otherwise unavailable.

Examples: CenterSquareLedger.com, MyBallard.com, BaristaNet.com

Augmentation is not exactly a compromise between the two but it does take from both implementations. As the name suggests, it is always a part of some already existing news collection enterprise. The hyperlocal content can be either repurposed news from some existing publication, "directors' cut" versions of stories that didn't make it on TV or in print, a reporters' blog or other stories that were never intended to go on air or in print.

Examples: KOMOnews.com/communities, NY Times: The Local, Chicago Now

In my opinion, all of the above implementations qualify as "hyperlocal" news. There are many who would disagree with me, probably mostly those who run Original Content sites.

Also, while all of the above implementations use the name "hyperlocal", I think it is important to note that they are no more direct competitors than Digg.com and NYTimes.com are direct competitors.

To illustrate, let me compare hyperlocal local news to a more common example.

Aggregation = Aldi

Augmentation = Basic supermarket

Original Content = Boutique butcher shop

Aggregation is cheap and gives you no more value than the basics. Just like Aldi.

Augmentation is meant to be part of a broad offering of content. There's lots to choose from, but not all of it is targeted at your needs. Most of it is produced in a distant factory with little local flavor.

Original Content is made just for you, has lots of local flavor and is quirky. It doesn't always have the most professional methods, but you tend to look the other way because you feel like you have a personal relationship with the people making it.

I also believe that each of these implementations serve different groups of advertisers. Because of the audiences served by each implementation, it is hard for me to see how advertisers would benefit by moving between each group.

• Aggregation is almost a pure Google Ad play or for broad national ad campaigns.
• Augmentation would work well to extend national or regional ad campaigns looking to penetrate certain geographic areas.
• Original Content sites are mostly for regional or neighborhood-based advertisers.

I believe we should expect all of these implementations to grow and peacefully co-exist for some years to come. All are potential money-makers because all of them aim to serve a different audience and can carry different types of advertisers.

The Center Square Ledger has been officially publishing for three weeks now and I think we're starting to get the hang of things. After a frenetic publishing schedule to show new readers that we've got a lot going on, we slowed down a bit. The slower pace doesn't seem to have hurt our daily average readers, which has settled at about 350 a day.

This is a GREAT number from our perspective. Outside of flyering the neighborhood el stops on our first day and hitting the local blog scene, we've really been growing by word of mouth. 350 a day puts us just over 10k a month, which was the dream scenario Patrick and I had when we talked about our launch. This is a real number ­- five digits - that you can show people.

So while traffic is doing well and we seem to be publishing compelling content, revenues are not what we'd like.

The mystery to me has been why. I'm pretty sure our ad pricing is very competitive versus other outlets. I know we are considerably more targeted than other outlets. We have solid readership numbers.

Thus a conundrum: Why don't people want to advertise with the Ledger?

A few things come to mind:

• It's January/February and people don't want to spend
• The economy, stupid
• Web advertising is not physically tangible and thus perceived as less effective
• Local businesses generally don't advertise

The first two I can live with. The third requires salesmanship and buyer education. The fourth - well that's the one that gives me the shivers.

Door knocking does not intimidate me. As a political campaign worker I think I've probably knocked on tens of thousands of doors. Probably somewhere in six digits. People have siced their dogs on me, cursed at me, yelled, you name it. As a campaign worker, I know that I have to get through a certain number of doors in order to persuade a certain number of voters.

Eventually you learn a vibe. If you knock on enough doors, you get an intuitive sense if you have a good message. You can tell when, even if the voter doesn't sign on, you've got them thinking.

I've had that good vibe at about 25% of my stops. That's encouraging. But really, I think I need to be reaching out to more people, more often. Mailing postcards keeps coming to mind, but I'm not sure it is cost effective. Besides that, getting contact information is not easy, since no list of local businesses is readily available.  Could I buy one? Probably. But I'm not sure I'm ready to pony up the money considering we have a no cash flow operation.

What we have done is started thinking about ways we can make the Ledger more relevant to businesses. We've considered doing a regular print distribution, but the need to create a whole new operations process for that has held us back. We're looking at doing some special publications, but a few things need to be lined up before we can get that going. We're also thinking about running an ad special - along with coupons to prove the connection.

Clearly we need to get over a hump with local businesses, the question is how.

Before I go further, a disclaimer.

I love Apple products.  I'm on my fourth Mac and I own an iPhone. I was an Apple contract employee my senior year of college. But please leaven that with the fact that I also spent college doing repair work for PCs, VAX/VMS and Unix machines as well as Apple. I used to bleed Windows and hated Mac-heads, until I got sick of fixing the same recurring problems on my own PC. Then I saw why Apple products are great. They just work.

So, my religious conversion aside, here's the things that most impressed me with Apple's demo today:

• 150 million iTunes accounts - That's 150 million people who are have already put their credit cards into Apple's computers. An incredible draw for anyone selling anything.
• 75 million iPhone owners - Like Steve Jobs said, those are people who already know how to use (and like) the iPhone interface. Because so many people already have a high likelihood of purchasing the new iPad, content providers can be sure there will be readers on this platform soon.
• Over 3 billion Apps sold through iTunes - Again, lots of people like to buy stuff through Apple. Not through Amazon. Or B&N or what ever proprietary system devised by Google or Palm.
• Books sold on iTunes will use ePub standard - If you've coded HTML, this open standard is easy to understand. Anyone can create content - text, video or audio and publish it immediately.
• Five major book titles are behind the launch - It's not as big as when four big record labels got behind iTunes, the book market is more fragmented, but it means lots of new content will be hitting iTunes' virtual shelves.

Then, some other things we didn't see in the demo:

• McGraw Hill CEO Statement - Terry McGraw's early leak on iPad yesterday just proves that one of the world's biggest textbook publishers is taking iPad seriously. Imagine if you bought your college textbooks on iPad? Remember what a pain selling your books were? Imagine the money saved by eliminating print.
• Sports Illustrated's "think piece" - Watch this amazing video. SI released it in December and it shows not just how forward thinking SI editors are, but how much cooler SI could be on the iPad rather than print. If you could subscribe to this today, would you buy an iPad? I think I have a sports nut brother-in-law that might. (He does not like computers, BTW.)
• iPhone OS 3.0 In App Purchase API - Bear with me here on the geek speak. Apple announced this last year. It basically means that you don't have to run over to iTunes to buy stuff. From Apple PR, "you can create a subscription magazine app where you ask for payment on a monthly, yearly or periodic basis of your choice...Build a general-purpose city travel guide app and let your customers pick the city guides they want."

Are you excited yet?  It gets better. Although the iPad won't hit the street for two months, you can download the iPad developer kit today and start making your new online magazine/newspaper/hybrid-whatever. Anyone. Even you.

The hybrid-whatever ideas are what excites me the most. With each new information technology paradigm - and that's what the iPad is - we've learned that new technologies bring new uses and new ways of seeing things. We should expect future news products to be a blend of newspaper/tv/travel guide/magazine/blog/etc. Everything will blend. 

Don't try to mash this into your current understanding of things.  It'll be totally different.

The most important lessons of the first week:

1. 
   Leg work pays off. We hit every El and Metra stop for our launch day's morning commute. It was cold, dark and more than half of the people were rude. But many others took our flyers - and we saw an immediate increase in traffic that night. This is yet another case of, "If it was easy, everyone would be doing it.
2. Tell everyone you know. Even in a metro area as big as Chicago you'd be surprised how interwoven we are. For instance, it turns out one of the close friends of my tenants works for a local chamber of commerce. By the time I called her for help, she had already heard about the Ledger.
3. Join the local chamber of commerce. We live in an isolating world and that's made worse for me by producing a product that's delivered electronically. Opportunities to gather and talk to other like-minded people are important. The local chambers of commerce provide those opportunities, and at the very least I emotionally benefit from those interpersonal relationships.
4. Keep working and be patient. At the Lincoln Square Chamber meeting I was talking to Gunther Kempf, one of the two brothers that founded the Chicago Brauhaus in 1963. After he finished boasting about how his annual Oktoberfests are jam packed, I asked him how things were when he first started. "Well, it was hard, of course. We had lots of nights when the place was empty, and we struggled. But we kept going, and things got better." When you look at the success of a long-running business, it often seems impossible to replicate. But then, how do you suppose the successful people got started?
5. Stay positive. It's easy to be positive about places like Lincoln Square and Northcenter. They are great places to live and work. But I find that humans tend to be sourpusses. As a result of our generally positive (but not whitewashing) coverage this week, we've received at least half a dozen messages and comments from readers thanking us for our positive outlook. I'm convinced that's an element of our future success. And it certainly makes things more fun.

Next week we're going to start really beating the bushes for advertisers. That should be an interesting process - and I am sure we'll learn lots about what we should and should not be doing.

Dang this is fun.

I wanted to be like Michael Scott.

The news of his sudden, unexplained death on Monday morning shocked me to the core. The idea that someone I admired so much is dead - either by his own hand or by someone else's - is very difficult for me to believe.

Michael called a great number of people "friends." Unlike most people in politics it was not because he was playing them along, it was because, I believe, that he genuinely saw some good in everyone and wanted to identify with that goodness, no matter who it was.

With that qualification in mind, I think Michael called me a friend. In my mind, he was more than that. He was a mentor. On occasion he took time to counsel me, give me guidance, provide personal wisdom and relate his own life to mine. I had some chances to watch him work and admire his style and talent. I wanted to emulate him as much as possible - although I lacked his essential coolness of character.

There are certain people you meet in life that become models for your behavior. In my clearer-headed moments I would ask, "How would Michael handle this?" Then I would piece things together and try and be like Michael Scott.

That's why I'm having such a hard time with his death. I suppose now and then it seemed like something darker lurked beneath his surface - maybe that's where his boundless empathy came from - but I just can't believe the darkness was bad enough that he felt like he had no options.

That was one of the things about Michael: "Patience," he would tell me. "You never know what's going to come later on down the road." Coolness. Calm. Patience. Empathy.

But none of that jibes with suicide.

Then maybe he did kill himself. The evidence released so far points to that possibility so I have to prepare myself for that. Denying the possibility of suicide feels like I'm holding on to him a bit more. It is a temptation: As if I am defending his honor.

But the Michael I knew would shrug his shoulders, look down at the ground and probably say, "Well, you never can know someone else's thoughts." He'd give words of comfort and suggest we get on with living.

Dammit. I'll really miss him.

In the past month three new "public interest" news gathering efforts have been launched and I have been told that as many as three more may be on their way. The three efforts already daylighted, Chicago Current, the Chicago News Cooperative and Chicago Public Radio's rebranding into "Chicago Public Media", all call for production of new "public interest" reporting to be distributed on multiple platforms. The other three still-gestating efforts also focus on the "public interest" news arena, each with a different business model.

And then many of Chicago's established news brands are attempting a retool:

• The Chicago Reader's new publisher, Jim Warren, has said that he wants to determine, "where the Reader is situated in Chicago" and then reinvent the paper.
• As part of an effort of all network owned-and-operated stations, NBC 5's new NBCChicago.com has led a big increase in new site visitors with new original content.
• In an effort to rise out of the basement, CBS 2 has been trying every play in the book, including bringing old news anchors back to the broadcast.
• WGN Radio is bringing Chicago Now bloggers to their broadcast.

The common thread through these efforts is that nobody seems to think getting skilled reporters is difficult. Never has high quality, experienced, news-gathering talent ever seemed so inexpensive.

Simultaneously, Chicago's bigger news brands are under attack more than ever before. Chicago's news media outlets have unclear and undefined brands and it is difficult for news consumers to make news purchase choices.

"The intangible sum of a product's attributes: its name, packaging, and price, its history, its reputation, and the way it's advertised." - David Ogilvy defining "brand"

One of the things you learn in business school is that the value of a brand is hard to quantify - but once it is established, it is the most valuable asset your organization can own. For this reason the Chicago Reader and "Chicago Public Media" deserve praise for publicly recognizing they have a specific niche in Chicago news - even if neither organization is capable of voicing it.

The other news brands undergoing their retools as well as Chicago's new public interest news organizations also lack clear brands. Who are they serving? What unique service do they provide?

It is no longer enough to merely provide "hard-hitting" news or lots of it. Because news-gathering is cheap the market is becoming saturated with news outlets - all preparing to provide the same content - in-depth "public-interest" reporting. Occasionally one will scoop the other, allowing them to crow a bit. But how do these various outlets differentiate themselves?

I am sure each of Chicago news outlets believe they have a well-defined brand. But unless the average reader knows and understands a product's brand then the product is in trouble.

What is NBC Chicago's brand? CBS2? The Chicago Reader? The Sun Times?

The big guys are having trouble telling us their brands. It's never been cheaper to start and operate a high-quality news operation. So who's going to be the one to establish the most powerful news brand in Chicago?

There has been a growing fear that Capital-J Journalism, A.K.A. "Public Interest Journalism", is endangered by declining mainstream media budgets and ignorant media executives chasing higher stock prices. "Unless we find enlightened corporate ownership/government subsidy/foundation support," the fearful ones say, "our local news will plunge into darkness and soon be all AP stories and soulless breaking news updates."

This is empty thinking unworthy of a trade supposedly grounded in clear-eyed analysis. 

In response to the hue and cry, Chicago has become the crèche of multiple Capital-J Journalism rescue operations, each heralding Public Interest Journalism as their raison d'etre. They include the money-hemorrhaging purchase and operation of the Sun Times Media Group by Jim Tyree and associates, the MacArthur Foundation-subsidized Chicago News Cooperative and the enlightened capitalist for-profit venture of Geoff Dougherty, ChicagoCurrent.com.

While Capital-J Journalism  projects have been attracting bon mots, outside the limelight Chicago has seen some true news innovation. The renaissance has been led by projects like Everyblock, Gapersblock, The WindyCitizen, Chicagoist, The Beachwood Reporter, District 299, 600 Words, The Expired Meter, CTA Tattler and Lake Effect News. All of these efforts have ignored journalism's "tradition" baggage and has instead provided new meanings to "news". 

Maybe you've heard of Everyblock because of its recent sale to MSNBC. But each of these projects have three things in common: They are online-based, they target a specific demographic or psychographic and they serve a specific need or interest that is otherwise unserved by traditional news media.

When Chicagoist was founded six years ago I stumbled into its then-editor, Rachelle Bowden, and became the site's politics writer. During the two years I wrote for Chicagoist, our writing lacked content consistency and freewheeled like mad, despite Rachelle's attempts to focus us. But we had a snarky, ironic voice and managed to write about events and report news the Chicago Tribune and Sun Times missed. Our daily readership grew from dozens to thousands in two years and now the site averages about ten thousand daily readers - and is profitable.

Is Chicagoist journalism? For the most part it certainly is not. But on occasion it has breaking news and Tribune's Red Eye often swipes stories for its next edition. Other sites, like District 299 and Everyblock are more earnest than Chicagoist and actually attempt to distribute real news, minus the snark.

Together these sites make up the category killers of news. They don't want to serve everyone, just their specific, isolated niche. They do not pretend to replace the Tribune or Sun Times, but together they are dealing our daily newspapers a thousand tiny paper cuts in readership and ad revenue. Enough to kill them? Probably not. But in our post-modernist world, consumers want more choices, not less, and these category killers are here to stay.

This is the future home of Public Interest Journalism. A significant portion of Chicago learned about and rallied against the parking meter privatization at The Expired Meter. District 299 is the only place providing consistent news about Chicago's School Board. Service changes and CTA budget cuts are written about at CTA Tattler first and in more depth than our daily newspapers. You can learn more about zoning changes and neighborhood crime at Everyblock than in the dailies.

Talk to any reporter and they'll tell you that more than half of good reporting is getting information into daylight. Judging by the amount of information coming out into the open, it would seem to me that we are entering a new age of Public Interest Journalism that relies on many smaller, category killing publications, rather than mass market daily newspapers.

It wasn't that long ago that when you needed something, you knew you could find it at a department store. Big ones like Marshall Field's, Carson Pirie Scott, Wannamaker's, Woodward & Lothrop and Filene's worked to be one-stop shopping for everything you needed. Maybe you remember a time when Marshall Field's had a grocery in the basement, appliances and electronics on the top floor and everything else you could imagine in between.

Yes, you could find these things in other places, but Field's carried the best of everything. If you wanted the newest and greatest television set, you could go to State and Randolph with its Tiffany glass ceiling, get your new TV and maybe some great clothes. Later that week a green truck would pull up in front of your house to deliver and set up the TV.

Department stores were designed to provide everything under one roof. Certain items and departments sold better and had better returns than others - but department stores were obliged to sell everything under every category imaginable. If it was new, the department store would carry it. Otherwise, for many consumers it just wouldn't exist.

Consumers and producers alike were drawn to department stores. Consumers, because it was the only place in town to get many items. Producers, because it was the only place in town to sell your new products to the consumers they wanted to reach. It was a powerful combination that made department stores unbeatable and very profitable for a hundred years.

And then came the category killers.

Best Buy exploded on the scene in the late 80's and early 90's, offering a wide selection of electronics and household appliances. The stores had stripped down looks, were located on cheap real estate and were big. You could compare models from many brands - more than Field's offered - and get at home installation - just like Field's, but without Field's prices. These "category killer" stores took high margin electronics and appliances from department stores and left everything else behind.

Desperate to protect their one-stop-shopping reputation and big margins on electronics, the department stores scrambled to compete. They created exclusive brands just for their stores, slashed prices and tried flashy marketing. But nothing worked. Consumers saw the low prices and big selection and voted with their wallets.

Today very few department stores sell electronics or appliances. It was a serious blow to department stores' profitability and sustainability. For department stores that lacked strong downtown shopping districts it was a deathblow. For everyone else, it put them on the ropes.

And then came the on-line stores.

The Chicago Tribune and the Sun Times are facing situations similar to that of department stores in the early 1990's. Not very long ago, if you needed to know something current - news, sports scores, stock prices, movie times, and airline ticket prices - you picked up your local newspaper. Everyone picked up a newspaper. For this reason, newspapers could guarantee unbeatable mass coverage.

Like department stores, consumers chose newspapers because it was the only place to find new stuff, and advertisers went to newspapers because it was the only place where you could find all the people.

But daily newspapers held onto their monopoly of coverage because the cost of production was so high. It was rare for a new daily to be launched, and were usually done by wealthy iconoclasts on behalf of "the people" rather than as shrewd business decisions.

Then the internet arrived. Once production costs were no longer tied to distribution, readers began to choose other venues for specific information. The category killers for news were Craigslist, ESPN.com, Fandango.com and others. Newspapers quickly began to lose their readership.

It's been a long, slow decline for newspaper circulation. Earlier this week the Chicago Tribune announced its daily circulation was 501,000. Ten years ago it was 627,000. For the Sun Times circulation has fallen to 312,000 from 472,000 in 1999.

Worse yet for newspapers, sensing that there are more effective ways to find consumers, advertisers have begun to shift their ad buys to other channels.

Department stores, weighed down by their big, downtown emporiums, went into a downward spiral after category killers arrived. Philadelphia's Wannamaker's, D.C.'s Woodward & Lothrop and Boston's Filene's no longer exist. Carson's is gone from downtown and Marshall Field's State Street store - now Macy's - often seems more like a tourist destination than a working store.

Daily newspapers differ from department stores in that they produce their product as much as they deliver it to the consumer. With this difference comes an opportunity, newspapers can choose to stop trying to be a one-stop-shop and serve individual segments.

Some large daily newspapers will continue to be profitable - like the Chicago Tribune - because of sheer momentum. But like department stores, daily newspapers are living in a changed world that won't change back. Unless they radically alter their model and focus on whom they are serving, their future is bleak.

Despite my doomsday warning a couple months ago, it seems the Sun Times Media Group (STMG) will be granted a reprieve today, in the form of financier James Tyree's purchase and expected capital injection. But reported details of Mr. Tyree's impending purchase agreement do not provide answers for how the Sun-Times plans to stay in business.

STMG has been losing a great deal of money for some time now. Unless Mr. Tyree plans to spend his entire personal fortune on keeping a very expensive butterfly collection, it is clear the he will need to make some major changes to keep his new company in business.

Here I discuss some of the business challenges Mr. Tyree faces and challenge him to take bold action to save his new collection of newspapers.

• James C. Tyree, Chairman and Chief Executive Officer of Mesirow Capital is leading a group to purchase the company and take it private;
• Mr. Tyree has offered $5 million in cash and to assume $22 million of outstanding debt;
• STMG will be broken into two companies, using the same model as General Motors' recent bankruptcy and reorganization. The "good" company will be the newspaper group we all know and the part Mr. Tyree owns;
• The "bad" company will exist on paper to mainly carry the $601 million of IRS debt. There's no word on what happens to this part of the old STMG;
• It is unclear how much money Mr. Tyree is committing to keep the company going, since it will have about $13 million on hand at the end of this month and it is losing more than $40 million a year; and,
• The unions serving STMG have agreed to significant concessions, which add up to a continued pay cut, elimination of seniority, and increased rescission payments for six months, give Mr. Tyree ability to keep costs down and remold the company almost any way he wants.

Tyree's Challenge

Now that he owns the company, he has two very concrete limitations and two deep-seated problems with the company's current business model. First, the limitations:

1. The "centerpiece" Sun-Times newspaper seems to be the money loser of the group. Previous analysis conducted in this blog shows that the Sun-Times daily newspaper is shedding readers, and seems to be the big money loser of the STMG properties. There have also been reports that national advertisers have pared back their buys in favor of the Chicago Tribune. This is a limitation because consumers in STMG's biggest market have demonstrated a lack of interest in the company's biggest product - it will be hard for the company to just grow itself out its current revenue problems.
2. STMG does not have many "hidden" assets that can be sold or put into play. Unlike the Tribune Company, which owns the Tribune Tower and the Freedom Center real estate properties as well as (until recently) the Chicago Cubs and many broadcast properties, STMG can't just sell off a bunch of properties to provide a cash injection for operations or capital improvements to the core business. All improvements will have to paid for by Mr. Tyree or whatever other investors he brings to the table.

For the most part, we assume that Mr. Tyree is already aware of those limitations and he plans to solve them with his wallet. Hopefully Sam Zell's cautionary tale at the Tribune Company made that clear to him.

STMG's deep-seated problems are much more interesting. The newspaper business is being dealt a one-two punch. Production costs of a newsprint product are increasingly out of line with much more inexpensive electronic delivery. In addition, news consumers are changing their habits, taking advertisers and revenues with them. Thus Mr. Tyree needs to address:

1. What market segment STMG serves, and where it will turn for growth; and
2. The best way to deliver STMG's content to readers.

The Existing Newspaper Production Model

Like any business, traditional newspapers have two types of costs, marginal and fixed. The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. So, if it costs 10-cents for newsprint and ink for each newspaper, that's your marginal cost. Fixed costs do not vary depending on production or sales levels, such as rent, reporter salaries, leases and delivery truck maintenance.

For traditional newspapers, the fixed costs are high and marginal costs are relatively low. Therefore, newspapers are a "volume business", the more newspapers you can sell, the more money you make.

Also, newspapers have a hard time shedding fixed costs, and they are harder still to build back up again when you grow. For instance, it costs a lot to obtain reporters like Fran Spielman and Mark Brown. If the Sun-Times lays these people off, it's a relatively permanent decision.

In this way, traditional newspapers run a business model similar to heavy industries like automobiles: the path to success is volume and market share. The more you produce, the more your fixed costs are distributed and easier it is to devote resources to creating a high quality product. But, lower volume producers have lower margins and fewer resources to deal with market shifts. Under these circumstances, declines in readership can quickly lead to a death spiral that can only be survived with the injection of outside capital.

What Market Do Newspapers Serve And The Starbucks Problem

Daily newspapers are also squeezed by an increasingly segmented market place. This is a two-part conundrum: First, in their heyday, newspapers served a general audience that considered news a scarce commodity. Because distribution costs were high and newspapers controlled distribution, newspapers (and local television news, for that matter) could serve up whatever they wanted, and short of limited reader grousing, consumers bought it. Today, with RSS news feeds, podcasts email newsletters and a dozen other electronic delivery systems, delivery costs are low and consumers are offered and are enjoying a million different content sources.

The second half of newspapers' marketing problem is now that consumers enjoy a million different content sources, they are considerably more educated and finicky consumers. This is the "Starbucks problem".

If you're old enough, you remember the day when you bought morning coffee at either McDonald's, Dunkin Donuts or the neighborhood greasy spoon for 50-cents. Then came Starbucks. Consumers discovered how much they enjoyed good coffee and the market shifted. For a brief moment, Starbucks enjoyed being the only place to get decent coffee and announced plans to open thousands more stores. Then, ten thousand indie coffee stores opened, McDonald's and Dunkin Donuts improved their coffee and many greasy spoons improved their coffee - the market shifted again as consumers had more choices and Starbucks had to close stores.

Starbucks has other ways it can respond to the market shift (like sell "Via"), but in terms of the increased options available to consumers and the permanent market changes, blogs equal indie coffee shops. The indie shops aren't closing and neither are blogs.

What Now Mr. Tyree?

Here's an obvious statement: The news industry is experiencing unparalleled uncertainty. But because there's such much uncertainty there are no clear solutions to the problems it faces. So, the potential options are limitless - we're just not sure which ones make up the path to profitability. These circumstances call for creativity and boldness of action.

The reported circumstances of James Tyree's pending purchase of the Sun Times Media Group provides some breathing room for the company. But still does not answer the "What next?" question.

As discussed above, Mr. Tyree needs to answer the following questions:

1. How will you deliver your content? The paper medium is far from dead, but it has much less dominance. We should expect the transition to be more 1950's radio to 2010 radio than like CDs to iTunes.
2. What market segment will the Sun-Times serve? This needs to be clear enough for potential readers and advertisers alike.

These are big questions with earthquake-like potential outcomes for STMG. So far the publications that have worked the hardest to address these questions have either been small start-ups (Texas Tribune, Chi-Town Daily News) or daily newspapers facing liquidation (The Seattle Post Intelligencer, Detroit Free Press). These trailblazers should offer instruction for Mr. Tyree.

The results reported so far for daily newspapers that converted to electronic-only have not been pretty. But in most of these cases the efforts have been thinly veiled attempts to move the same content from one medium to another without determining the target market. It seems that because consumers can find newspapers in lots of places (news racks, their doorstep, on the bus), this signals important content. Electronic content from newspapers come from the same highly disposable place as blogs - so they have to do more work to demonstrate value and to retain readership.

Information about the success of smaller start-ups is harder to come by (probably because they have fewer disgruntled former employees to tell us about poor business practices). But former employees from the recently shuttered Chi-Town Daily News seem to be complaining about a lack of business focus at the publication and outside observation of the publication begs the question: Who was the target consumer? Who were advertisers supposed to be selling to?

The Electronic Delivery Question

It is clear to everyone that electronic delivery is where it's at (after all, you are reading this in a blog, not in a paper publication!) but it isn't clear what goes and the web and what stays on paper. Making the problem more complex for the Sun-Times is that there is some unquantified value of being able to read content in the paper edition - and the paper edition only. But how much value?

In addition, as I've discussed earlier, newspapers like the Sun-Times are attempting to provide two very different types of contents with different value propositions: Commodity news that is highly time sensitive and news analysis that has a longer shelf life and more long-term value.

Commodity news, like sports scores, how City Council voted and crime reports have a freshness date and are well suited for electronic delivery. News analysis, which takes time and experienced reporters can be consumed a day, a week or a month after the event happens (some reporters like Matt Bai for the New York Times Magazine specialize in this kind of work). This kind of content could be delivered either electronically or on paper.

What Is Being Sold And Who's The Market?

I'm not party to any market research the Sun-Times (or anyone else) has conducted, but for years the Sun-Times has positioned itself variously as the paper for city-dwellers, blue-collars, African-Americans and liberals. Because of the newspaper's steady readership decline, we can assume that either the newspaper's has been unable to deliver these segments, advertisers find these segments too broad, advertisers find these segments unappealing or a mixture of all these problems.

Hopefully STMG executives or Mr. Tyree has conducted market research to determine what parts of the Sun-Times these market segments and others find most appealing. If their market research has been done well, STMG leaders probably know which parts of the Sun-Times is making them money and which parts are being subsidized.

This is an old story at newspapers - it's why you can't find book reviews any more.  But the big change at the Sun-Times is that it does not have to put all the content it produces into a print product. Like the Tribune Company, it could create print products for different psychographic segments (i.e. Red Eye) or produce completely different online products from what it puts into print - sports scores and other time-sensitive content in a thin commuter daily and more analysis content in a Sunday paper or a publication delivered to businesses only - or a series of different businesses.

Segmentation is the name of the game - for both consumers and advertisers. The Sun-Times needs to respond to this new market environment and make a bold business decision - because it's clear that partial measures will not keep the Sun-Times or any major daily newspaper in the black.

Think Big Mr. Tyree

The traditional newspaper model is no longer working. I am sure there are many experienced newspaper executives that will argue with me on this point but from an outsider perspective, rapidly declining market share and an increasingly fragmented market space says more than enough.

So when you can no longer do the same thing, you need to do something different. As the new Sun Times Media Group moves forward, I would urge Mr. Tyree and his team to consider the following questions:

Who you intend to serve? What is your market? This is the core question the Sun-Times needs to answer. And it needs to be better than "the smart readers of Chicago". Really. Give us some demographics and psychographics. And don't be afraid to tell everybody. There are some people you just can't serve well. Admit it and move on to serving a smaller group of people well, and profitably.

Does Chicago really need two "newspapers of record"? Stop playing the Chicago Tribune's game. They want to be "Mother Tribune" and the final arbiter on every issue. Smart business people know they can't, but the Tribune hasn't figured that out yet, so just let them be and serve the readers you're going to serve.

How many ways and mediums can the Sun-Times deliver content to targeted consumers? This gets to the content delivery question. Use them all - podcasts, video, blogs, whatever you're going to get your hands on. You'll cannibalize your own readership for a while, but apply some intense market research to the experiment and you'll learn how people really want to read you. Then do that and charge for it.

Can you sell many small news products profitably as well as one big product? You need to be entrepreneurial. By nature, a big expensive daily print product is not going to be entrepreneurial. So make lots of smaller products focusing on small market segments. Some great examples are RogerEbert.com and TheWashingtonReport.org. Do more of this - and then bring back Red Streak, with a different name and a more targeted demo/psycho. Like maybe Metra Electric riders.

Are you willing to cannibalize your existing products? The best companies don't wait for their product lives to end, they create new products that cannibalize the old ones. Create a skunk works to promote entrepreneurial activity. Create new products around assets and columnists your market research says have potential and limit capitalization to $200k. Give your reporters equity in these new products. If they fail, you don't lose much money. If they succeed, you have new products and a diversified business line.

There's so much potential in the Sun Times Media Group. Hopefully James Tyree and his team are willing to risk the money they put in to create a new kind of media company and keep the Sun-Times from dying a prolonged, agonizing death of more-of-the-same.