Another Market Failure: Journalism

by: Daniel De Groot

Sun Dec 14, 2008 at 09:00

You might not have noticed what with all now millions of people losing their jobs, the largest looting of a national treasury since probably the Sack of Rome and the dogged determination of Senate Republicans to revive the glory years of the Pinkertons, but the newspaper industry is evidently going Big Crunch:

The Newspaper Bubble, Too, Has Burst

The bankruptcy filing of the Tribune Company on Monday is just the latest, largest evidence that the American newspaper industry is suffering the hangover from an immense buying spree in 2006 and 2007 at what turned out to be the worst possible time for the buyers, just as the business was about to enter a drastic decline.


Daniel De Groot :: Another Market Failure: Journalism

Newspapers would be in trouble either way. The steady leak of advertising and readers from print to the Web has become a widening torrent in this recession year. Most newspapers remain profitable, but the margins are dropping fast, with the industry losing about 15 percent of its ad revenue this year.

The Miami Herald Is Said To Be For Sale

The McClatchy Company, burdened by debt and a steep slide in newspaper advertising, wants to sell one of its most-prized properties, The Miami Herald, according to people briefed on the company's plans.

The Rocky Mountain News Is Put Up for Sale After Losing $11 Million in 9 Months

The E. W. Scripps Company announced Thursday that it was selling the money-losing Rocky Mountain News, its largest newspaper.

That Ann Coulter is thrilled should be a clue that this isn't actually good news, however much magnates like Sam Zell deserve it:

If I understand this correctly, Sam Zell basically bought his newspaper empire by pretending the employees were actually the owners and then borrowing lots of money in their name, paying it back by deducting from payroll.

Journalists Falling, and They're Not Getting Up

I have little doubt Matt and Atrios are right that many of the wealthy families that have been running newspapers have been corrupt or incompetent.  Anyone who watched the saga of Conrad Black has seen this.  I don't care about newspapers per se, but to ensure there are enough full time primary-source journalists gathering news. In particular, professional investigative journalists with the budgets needed to do that work well.  As it stands, nothing else supports these things nearly so well as newspapers (as presently constructed).  

I don't believe there's room to be sanguine about this.  Local news gathering is fairly difficult to do profitably.  Meanwhile investigative journalism is even worse off.  It's hard to profit from information which is only valuable if it is widely broadcast.  Good for winning awards, but Pulitzers don't show up on the balance sheet in the quarterly reports to shareholders.   The market will not provide these things in anywhere near the quantities required absent some external driving factor.  Thus, as the post is titled, journalism is a market failure.

The thinking that assumes "something" will come along to fill this void is probably a product of the era we have lived in, where local and investigative journalism has been quite common and reasonably effective.  However I don't think that is actually the norm.  The norm in history is not to have these things, so once they are lost, they will be difficult to recover.  After all, newsrooms have been shrinking for quite some time.  Despite this contraction, nothing really has come along to fill the void, despite the rise of new media.

New Media and Journalism

Perhaps the most obvious example here is TalkingPointMemo.  TPM produces reputable political journalism, and even some amount of investigative journalism (mostly by poring through reams of documents rather than classic gumshoe dirt-digging).  This is all great, but TPM is the individual success that proves the systemic failure.  TPM's scope is national, and even then it is a business model that can only sustain a handful of full time staff.  If the New York Times goes bankrupt, neither TPM nor anything like it is going to fill that void, and be able to employ the people needed to run a "paper of record."  If a country the size of the US only has an internet market large enough to sustain a few web-only investigative outfits like TPM employing a few dozen reporters, how could the model work in any smaller market?  Could TPM's model be workable even for a large state like California or New York?

Similarly, local journalism does not appear to be very viable on an internet-advertising revenue stream.  The US has a handful of profitable web publications and blogs, but they are national in scope.  Local blogs like Raising Kaine in Virginia can have an impact, but simply can't attract enough readers to be sustainable business models.  

One of Josh's alumni, Paul Kiel, is involved in the non-profit journalism venture ProPublica, which says of itself:

Investigative journalism is at risk. Many news organizations have increasingly come to see it as a luxury. Today's investigative reporters lack resources: Time and budget constraints are curbing the ability of journalists not specifically designated "investigative" to do this kind of reporting in addition to their regular beats. This is therefore a moment when new models are necessary to carry forward some of the great work of journalism in the public interest that is such an integral part of self-government, and thus an important bulwark of our democracy.

The business crisis in publishing and - not unrelated - the revolution in publishing technology are having a number of wide-ranging effects.  Among these are that the creation of original journalism in the public interest, and particularly the form that has come to be known as "investigative reporting," is being squeezed down, and in some cases out.

ProPublica is trying to remedy that somewhat.  But what of their own revenue stream?

The Sandler Foundation has made a major, multi-year commitment to fund ProPublica. Other philanthropic contributions have been received as well, and more are welcomed.

It is hoped that, over time, once stories begin to be published, and a "brand" built, other sources of sustainable funding, including possibly from readers, viewers and users, can be developed. The non-profit form, of course, meaningfully reduces the necessary revenue for sustainability.

The portends here are not great.  Investigative journalism may become the province of philanthropy.  If that is the case, we better start facing the music and not waiting for the market fairy to rescue a core societal oversight function.  The media is often called the fourth estate, and as the reference to the three estates of pre-revolution France implies, it has a role as a pillar of society, almost governmental in itself.  If the market doesn't provide it, other ways must be found.

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There have been changes in models of funding newspapers over time (4.00 / 2)
A century ago, the best selling newspapers were those from labor unions, ethnic groups, socialist papers, and the like.  They mainly survived off of their purchase price or subscriptions.  Their circulation figures were larger than the now 'mainstream' newspapers, which back then were the newspapers of the bosses and city elites.

When the major money city newspapers began being able to support themselves via advertising, and sales & subscriptions became a tool used to sell newspapers to advertisers rather than directly support the publication, the keys were handed to the business departments, and the cash flow allowed them to dominate their sales & subscriber based competition.

Up until the 1920s and 1930s, we had a sales & subscriber based model of newspapers.

It may be the case that we're losing the ad-based bosses' newspapers as a model of business profitability, but it's not the case that no other models have existed in the nation.

I'd be happy to subscribe to a daily newspaper I thought was worth it.

The new model? (0.00 / 0)
Maybe we could see media companies that rely primarily on TV revenue.  Newspapers and web sites would then be extensions of their brand.

I don't know if it will happen.  Since the Tribune filed for bankruptcy, I'm starting to have my doubts if this will be the new model.

Greater reliance on advertising (4.00 / 1)
Thirty years ago, advertising provided half the revenue for a newspaper; now it is 75% (at least at Gannett which is a quintessential local newspaper chain).  Advertisers now have considerably greater impact on content.  And advertising moves up and down a lot more with the economy (projected to decline 14.8% this year according to Editor & Publisher).

What makes this a lot worse is the purchasing spree of some chains like McClatchy that was financed with heavy debt.  McClatchy's debt payments are equal to their operating expenses.  When revenue sinks by say 12% the results are disastous.  In their case, they'd have to cut operating expenses by about 17% to pay for thew drop in ad revenue.  Considering they are already losing money, make that 20-25%.  I have no figures for the costs of newsprint, leases, real estate taxes, heat, light, power etc. but that might translate into a 40% cut in editorial staff.  

Twenty to thirty years ago, a lot of the blue collar labor was squeezed out of newspapers through computerized typesetting, etc.  The next to go is a lot of the reporting staff.  National, international and state bureaus went ans then investigative staff went.  The size of the newshole remained the same or even grew (news = 60% of nespaper space; advertising 40%).  What's the easy way?  Recycle press releases.  The better newspapers ask a few questions and re-write them.  "Business" news has changed from coverage of local and national companies (mostly) to coverage about the stock market.

The future is pretty clear.  Local newspapers are not going out of business but they will be  going exckusively to the internet.  It can cut the operating expenses without cutting the advertising revenue.  That will cut expenses enormously without eliminating the product.  

Investigative journalism is very profitable (4.00 / 2)
Investigative journalism drives the brand. Talking Points Memo grew out of investigative journalism into false allegation of voter registration fraud by SD Republicans. That is the story that began to drive up its numbers, even though it was Trent Lott follies that put it into national consciousness.

Without Watergate and the Pentagon Papers, the Washington Post would be just another home town newspaper.

Local news can be done profitable. The Falls Church News Press is profitable.

But you cannot sell Republican newspapers in a Democratic towns. Most of our newspapers are based in Democratic metropolitan areas and they are being run by Republicans.

Above all, you cannot lie. And as Gene Lyons, Joe Conason, Bob Somerby, and a host of others have shown, our largest newspublications have been playing us for fools for decades.

Even now the people losing their jobs bear no relations to those who created the problem. Newsweek is going to lay off dozens of reporters, but they will keep paying Karl Rove his oversize check to write his brand destroying column.

With any luck Google will buy the NYT and make Al Gore the publisher. Maybe then we will end the assault on reason.

tpm is too small (0.00 / 0)
To replace what is being lost.  If the problem was just that WaPo and NYT had crummy management, other chains would have displaced them with profitable investigative journalism models.  They haven't.  Even McClatchy is in trouble and cut staff significantly earlier this year.

The pool is drying up and there's no sign of rain.

[ Parent ]
Perhaps "incompetence" is a bit of reductive shorthand, (0.00 / 0)
but it's certainly a lack of foresight that led Tribune et al. to expect what were in fact relatively rich profits (average operating earnings were over 27% from 2000-2007) to continue to pay off their debts. If those profits drop down to the expected 20%, does that really mean that newspapers are unprofitable, or does it rather mean that Sam Zell and co. were simply engaging in unsustainable practices?

Where's the ad revenue going? (0.00 / 0)
So, ad revenue declines as circulation declines. This makes sense, as more people prefer to go to the web for their news.

But why doesn't the newspaper's web site command the same ad rates? Or even better ones? One would think that an advertiser would pay a premium to know exactly how many people saw the ad, their geography, and if they interacted with the ad in any way.

For the newspapers the benefits should be obvious - finally they can compete with TV for instant breaking news, and they can tailor their ads to local audiences - the New York Times can show a different ad to someone browsing in New Jersey or California for that matter than they do for someone in NYC.

It just seems mind boggling to me that the ad space is less lucrative on the web than it was in print. Unless, of course, the print ad rates were grossly over-inflated, which is always possible. Or they just still don't know what they're doing when it comes to the web, which seems insane for 2008.

It might be that Google will wind up buying one or more of these organizations much as they bought Youtube. Google already brings in billions from news related searches - being able to host the content themselves will probably let them optimize (and monetize) it even further. At least, they seem to have a clue how to, whereas the newspaper companies don't.

cheap labor (0.00 / 0)
it is not just that people are turning to web, the truth is that the main news organizations remain the chief source of news for most people, but not as much.

If you are a millionaire pundit, how do you compete with the cheap labor at Open Left? Well, telling the truth for openers, but since your management hired and promoted you for your ability to sound sensible while spewing lies, that business model is not open to you.

And local reporters have to compete with local bloggers. This is a terrible crisis for our society. A free society needs a vigorous press, that means journalists with good salaries, penions and a health plan.

As I say, people are losing their jobs in inverse proportion to their responsibility for the current catastrophe.

[ Parent ]

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