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Reuters America Claims New Territory; First Stop, Chicago & Tribune

|Includes: Thomson Reuters Corporation (TRI)

On the surface, it looks like the tale of new bedfellows, Reuters and Tribune, has a couple of great storylines. Number one would be that Reuters, the Brit insurgent, having rallied its forces makes another foray into the U.S. market. Number two would be that Sam Zell, never a comfortable presence at Associated Press meetings when he served as CEO of Tribune, was able to wreak one last bit of havoc on his way out the door.

Great storylines both, but unfortunately more fiction than fact.

In fact, the new launch of the Reuters America product and Tribune Company's embrace of it have more basic truths to tell us about fast the news marketplace is now beginning to change.

The deal itself is a straightforward one. Tribune is taking the newly announced Reuters America news service and halving its annual spend with AP. So that's a twofer for Thomson Reuters. It takes in somewhere in the neighborhood of $4 million a year in new revenue, while depriving its direct competitor, the AP, of about the same sum. Tribune's been spending close to $9 million a year with the AP, and now is cutting that ancestral baby in half.

It's easy to read the deal as a big loss for AP. The newspaper-owned cooperative sees one of its main members defect to the competition, further wounding the AP budget, already subject to serial cuts, and raising new questions about the stability of the 164-year telegraph-birthed coop. And yet: it could have been worse.

AP's been bracing for Tribune's decision for a long time. Two years ago, Tribune, under the Zell regime, gave its first notice of cancellation, when cancellation then required two years' notice. Since then, the parties have been negotiating, aiming for a new deal, with the current one ending Jan. 31. It's been no secret that Tribune might bolt, though the dispatching of much of the Zell team from the Tribune Tower raised the question of what new direction the company might take in regards to AP.

Tribune could have decided to jettison AP altogether, but it didn't. Seven Tribune papers will take AP Limited, a lesser AP service, while the Los Angeles Times will take the big package, AP Complete. Tribune Broadcasting, already getting significant content from CNN, will drop AP coverage entirely. So Tribune is halving its annual spend with AP, but it is keeping its membership and sounds genuinely to be in a testing phase, testing out the new Reuters relationships alongside the chance of a new romance with AP, if the old suitor can rise to the competition.

The Tribune deal is a significant crack in the foundation, but it's not a clean break, which would have been far worse for AP. As CEO Tom Curley and the AP leadership aim to restructure and re-energize the company for the next digital age (its Digital Rights clearinghouse is the latest shot in that war), there's now a still-heightened urgency to get it right. Get it right, and members stay. If not, we could see further defections that will raise the specter of whether AP will go the way of its northern cousin, CP. Just last month, Canadian Press passed from being a publisher-owned coop to a private, for-profit company, owned by three major publishers. Why? Two major Canadian publishers had left the CP, forcing a reshuffling.

If this all seems like a game of News Chess, it's simply a recognition of the changing nature and economics of the business, says Gerry Kern, editor of the Tribune and VP/editorial for the Tribune Company.

"Sam Zell has nothing to do with this," Kern tells me. "This was my project. I've been thinking about this for years." Kern served as vp/news for Tribune 2004-2008, and he advocated "shared content."  Even in pre-recession times, that made economic sense. Instead of each of the Tribune papers producing its own nation/world pages, why not do it once, create templated pages and have the papers use those templates. Then, each Tribune paper could use the labor savings to concentrate on the remaining strategic news priority of every daily (save the New York Times, the Wall Street Journal and USA Today) in the country: local news.

Media on Demand -- MODs -- was born. Now 40 staffers at the Chicago Tribune produce 240 modules a week for Tribune papers -- and Tribune is starting to sell the modules to others, with Schurz Communcations its first client.

So here's how shared content, budget cutbacks and the emerging potential of new content players come together in this deal.

Kern applied some metrics to the news offerings of the Tribune papers. At his Chicago Tribune, he computed a 60%/local news-40%/other percentage ratio.

Kern found that the Tribune company -- through its foreign bureaus (20 staffers), its DC bureau (32), the entertainment/features/sports offerings of Tribune Media Services and its own McClatchy Tribune Wire -- supplied three-quarters of the non-local content. That left a quarter of the 40%, or 10% of the total content, needing to be supplied by others.  (At the other seven Tribune papers, these percentages vary to some degree, but are in the same ballpark.)

So the question became: how valuable was the annual AP spend for what the papers need to do now, in print and online, and into the next couple of years? As of May, the Chicago Tribune says it essentially stopped running AP content, as a live test, seeing what it could substitute and what holes appeared. "We got zero calls from the public, and I don't think many people in the newsroom noticed," says Kern.  The experiment validated the theory that a wire reshuffling could work.

Enter aggressive Reuters, buoyed by its merger with Thomson in 2007, and under New York-based Reuters Media President Chris Ahearn's leadership, a forward-grabbing news presence worldwide, with new models of syndication, flexible packaging and pricing and eye for a deal that might break loose the U.S. market, a market in which it's long been a distant #2. Where Kern says AP told him it was unable to provide sufficient new models and staffing flexibility, Reuters said yes, resulting in the new deal. Among the details: Reuters content will be found in the Tribune's MODs. Mix and match and mix.

What is Reuters America, and what is it offering Tribune, and now others, as it aims to benefit from newspapers' occasional family squabbles with AP? The new product is plainly aimed to be a replacement for AP.  The new news service combines lots of elements to try to do that:

  • Reuters says it is committing to staffing 103 U.S. cities, though at unspecified levels. The staffing will be a mix of full-timers and stringers. The offices will share daily budgets with Tribune (and future customers), and offers to do on-demand stories, maybe as many as two to three a day, as requested by clients.
  • A beefed-up sports offering, intended to shore up a long-time Reuters deficiency in the U.S. market. Cricket and rugby coverage just doesn't cut it here, so Reuters has partnered with Sports Direct, the Sports Xchange and SB Nation to pump up coverage.
  • It's adding The Wrap News for more entertainment content.
  • It's partnering with Pro-Am, harvesting the work of those contributors.

Kern believes the new service (plus the more limited AP offering) will fill up that 10% of newshole well, and will save the company a little money, the savings being a secondary objective to right-sizing the content, he says.

The proof, of course, will be in the execution. While Reuters' 2900 journalists (about the same number as AP's) is proficient at global and business news, it remains to be seen whether the new staffing will produce enough high-quality news with an American accent. It choice of partners, especially (roasted in many quarters for its treatment of writers and quality of its content) will raise a red flag.

Still, it will be an intriguing test. Beyond the immediate test, we're seeing how flexible news content delivery is getting to be. Demand Media is selling content to USA Today and Hearst papers, while Reuters and Tribune buddy up to Examiner. Mix and match is the order of the day and un-bundling, just like what cable consumers are asking for, is happening. News companies, seemingly on the fly, are more and more becoming more discerning buyers, and sellers, witness Tribune's new sales of its MODs products.

It's content chaos, and in the new, heightened chaos that AP must regroup even quicker, as it plots its own way in the contemporary news wilderness.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.