What’s Killing The Newspaper? It Isn’t Bloggers.

In the last few months, the discussion of the future of newspapers has become a recurring topic in the media and online. Several common themes and arguments have emerged. The most common gripes are either that newspapers are being killed by bloggers, or that newspapers are being killed by failing to get their own news, relying on wire services instead.

The truth has little to do with quality, reporting or bloggers. It’s all about money.

You see, a newspaper has three sources of income:

  1. Circulation: this is the cover price you pay, or the subscription you bought.
  2. Advertising: these are the big, splashy boxes in the body of the newspaper.
  3. Classifieds: these are the tiny, densely packed text ads at the back of the newspaper.

If you ask most people how a newspaper makes its money, most would tell you circulation, many would tell you advertising, and some would mention classifieds.

But the order is actually backwards. In most papers, classifieds are the biggest earner, followed by advertising, followed by circulation. In fact, for many papers, the cover price doesn’t fully cover printing and distribution. All the journalistic institutions of the 20th century were subsidised not by readers, but by the “rivers of gold” — the regular flow of classified ads, lodged week in, week out with nary an interruption.

But the rivers of gold are drying up. In the USA, the free classifieds website Craigslist is busily sucking the money out of the local markets newspapers have traditionally relied on. And although the big newspapers and conglomerates have online versions of classifieds, it’s much harder to enjoy the kind of exclusivity they used to get in most towns. To start a daily newspaper takes years and costs millions of dollars, and is very risky into the bargain. To start a website costs perhaps $20 and a bit of time installing software. The barriers to competition are very low.

Advertising is losing its punch too. Newspapers have tried to import the “display advertising” model into the online space, with limited success. Again, the problem is that anyone can set up a website and sell advertising space. This space — called “inventory” by the industry — is expanding extremely rapidly. It has expanded more rapidly than the number of people online. At the same time, demand for all forms of advertising is slumping. The iron laws of supply and demand are driving down the money that can be earned from online advertising, and it simply cannot replace the profitability of print advertising.

In some ways, circulation is unimportant. A newspaper that isn’t printed is a smaller loss to make up. But of course advertisers and classifieds customers rely on circulation to get their value for money. This is one area where free alternatives, like bloggers, does affect the long term shape of the industry — by gutting circulation, it makes newspapers less attractive than free or cheaper online alternatives.

It’s all about money, folks. The newspaper business has had more than a century of stable income. That period is suddenly coming to an end. The invisible hand is slapping the newspaper business, and slapping it hard.

Where to from here? Some newspapers are reportedly planning to simultaneously introduce ‘paywalls’ to their content. Online distribution of content is expensive, but nowhere near as expensive as physically printing and distributing newspapers — you might say that the haulage on photons and electrons is cheaper than the haulage on atoms.

So, the reasoning goes, if you charge a low price for access to the content, then circulation could take up the slack because it would be profitable in itself.

But they’ve already sussed out the problem with this model: you need to form a cartel for it to work. Putting aside the legal niceties of antitrust and competition laws, there’s the plain economics of the matter. If any one reputable newspaper or group breaks ranks, they will clean up the “eyeballs” and so be able to earn more. Cartels do sometimes succeed, but usually don’t because of the incentive to cheat. And with everyone in a panicky mood, how long would it take for somebody to break ranks?

So there you have it: a quick summary of why newspapers are withering.

Disclosure: Before moving to Perth, I was employed as a classifieds salesperson. I am also working on a startup which I hope will upend this dreary economic situation. I have a truly marvelous scheme which this margin is too narrow to describe (and may be looking for investors and directors soon).

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15 Responses to What’s Killing The Newspaper? It Isn’t Bloggers.

  1. Nabakov says:

    Having worked in newspapers m’self once and still dealing with ’em professionally, I’d go along with your points Jacques.

    I’d also add that newspapers don’t deliver the same profit margins as other media, being much more labour and resource intensive than electronic outlets and so the conglomerates that acquire newspapers with little understanding of how they actually work beyond “synergy with our other media/entertainment properties” , keep squeezing the rags to deliver more than the 10-15% or so that the old print barons happily lived with. So consequently the reader expectations aren’t met and the punters move on.

    But as you mention, it’s the decline of classifieds revenue that’s really sticking it and turning it around.

    And while this list is aimed at book publishing, I think some points are also applicable to the newspaper game as well.

    Anyway, good piece. For a blogger.

  2. pablo says:

    Newsprint has paid some of my bills too and I agree with your views JC with one additional. It might be seen as trivial in comparison with the big three but if you want evidence of it just check the waste bins nearest your friendly newsagent on a Saturday morning. We constantly underestimate the environmental factor in just about everything. In newspapers it is the swag of unread – and never to be read – additions, best seen on a Saturday or in the following week’s recycle bin.
    I simply won’t buy a broadsheet, let alone a tabloid, for the guilt trip I face in ‘thoughtfully’ disposing of the future pulp. After all we do know that plenty of newspulp in a recession goes to landfill.
    So I use the local library and can put up with the odd classified tear out or defaced crossword – after I’ve perused the real news via the internet of course.

  3. pablo says:

    As a follow-up I would suggest that an enterprising newsagent ought to offer newspaper buyers the option of taking all sections of an edition or culling on the spot for what they know they want. I’d love to think this sort of selectivity could filter back to the presses and the ‘barons’ could twig the dials accordingly. But I suppose that would upset the display advertisers.

  4. Nabakov says:

    “We constantly underestimate the environmental factor in just about everything. In newspapers it is the swag of unread – and never to be read – additions, best seen on a Saturday or in the following weeks recycle bin.”

    Another good point. I’ve given up lugging home kilos of the weekend papers partly because I felt niggled about throwing so much of them out unread.

    Also these days, instead of getting into the weekend papers like a warm bath as someone once memorably described it, you can just dip in and out of a wifi-enabled laptop on the bed breakfast table between the coffee and toast.

    “I see Julia Gillard’s just had a wardrobe malfunction.”
    “Really, show me!”
    “Careful, yer getting marmalade on the mouse.”

    Cue Henry Green’s pungent description of a classic English breakfast.

  5. Patrick says:

    Really, show me!
    Seriously? ;)

    I would only add that your points about charging are largely substantiated by the NYT and the smashing success of TimesSelect (remember that)?

    But I would argue that they got TimesSelect arse-about. They thought that people were reading the NYT to know what Bob Herbert or Maureen Dowd or some copyboy who the boss liked had written about events. The revelation was that people read the NYT for the news, amazing as that seems if you are a NYT opinion-writer contemplating your own marvelousness and perspicacity.

    The WSJ caught that from the outset – opinion journal has been free, partly because there is not much point in publishing opinions if people can’t read them, and partly because there are so many opinions out there that people will just skip the expensive ones, even if only in favour of someone else’s summary thereof.

    But their business and markets content, which people did pay for, was not free. Same as the AFR here.

    Which largely proves Jacques’ point since those two organisations do operate mini-monopolies in their markets, but also highlights that there is a difference between opinion, which imho will never be successfully monopolised or cartelised, and real reporting, which is resource-intensive and valued, and may be.

    Similarly, this extends beyond just finance news. my dad used to (still does I believe) subscribe to the Age, despite the execrable opinion and editorial pages and dismal local news coverage, because he needed to know what was going on in the Victorian Labor party (I’m not kidding). But he still read the Herald-Sun to know what was actually happening around him!

    My final thought is that markets and finance reporting is particularly intensive because you need qualified staff and deep contact lists. But people like Michael Totten, Michael Yon, JD Johannes and some of the bloggers at places like obsidian wings have demonstrated that conflict-reporting can be done free-lance and ‘open-source’, and numerous bloggers at places like calculatedrisk or Arnold Kling have started demonstrating that even business reporting need not be the sole domain of newspapers.

  6. Nabakov says:

    To spin off your good point Pat about op-eds as opposed to news, papers like the Fin, the FT and The WSJ need have good technically accurate news sections because their core readership depends upon such news, free of any ideology, in order to make informed decisions.

    All the op-ed stuff, quirky colour pieces, brights and Alex strips are just amuse bouches chucked in.

  7. MikeM says:

    They thought that people were reading the NYT to know what Bob Herbert or Maureen Dowd or some copyboy who the boss liked had written about events. The revelation was that people read the NYT for the news, amazing as that seems if you are a NYT opinion-writer contemplating your own marvelousness and perspicacity.

    This may be right but even so, among the top 25 most emailed items in the last 24 hours in The New York Times at this moment, opinion pieces are numbers 3, 4, 6, 12, 15, 17, 18 and 19. Looking at the data for the past 7 days, opinion items are at 3, 4, 8, 10, 12, 15, 23 and 24.

    The newspaper doesn’t publish the raw numbers involved, but it is clear that there is a body of readers that strongly values the opinion content. As we know, that body was insufficient for the Times to persist with the Select experiment, but the value of opinion columns should not be written off.

  8. Patrick says:

    Hm, I could almost buy that last paragraph, but you left a few words out of the penultimate sentence, so I’ve fixed it for you:

    It is clear that there is a body of readers that strongly values the opinion content, unfortunately most of them are NYT writers and friends. A much larger body of readers weakly values the opinion content, at slightly, but clearly not much, higher than zero.

  9. JC says:

    Good post Jacques.

    I think Murdoch is right in that we are fast coming to an end where papers are free on the web as that model simply doesn’t work.

    I have spent a little while trying to figure how they can make money and I’m damned if I can figure it out.

    Here’s what I think

    I think the entire model is screwed up. The tree version ought to be a lot more expensive and should pay it’s own way along with an acceptable return. For instance The Age readers are not going to start reading The Sun Herald if the price of the tree version was 50% higher.

    The webs version ought to be cheaper less the costs of the tree version or what the market will bear.

    The ads should no longer be treated as the bread and butter of the operation and should only be thought of as the icing on the cake. In other words if the money comes in, it comes in. If it doesn’t, too bad, but the business won’t go broke because of a lack of ads.

    Murdoch is strongly angling for charging over the web. In fact there was meeting in Chicago over the past few weeks over this very issue and it will be interesting to see how it turns out.

    Other issues.

    Why on earth should should say Fairfax have two news operations in both cities when one paper with a local supplement would suffice? You don’t need two editors for what is essentially or should be one newspaper…. The Age and the SMH. There is probably still enormous duplication going on there.

    Murdoch is also right about one other thing, in 15-20 years time people will simply carry around some sort of electronic tablet and the tree version will end.

  10. crispin says:

    Subscription models will never work en masse for online news without either micropayments or some kind of syndication (ie. so you can pay one subscription but use it to pull stuff in from a wide variety of sources). The nature of the web is pick-n-mix, to which single-site subscription is fundamentally antagonistic.

  11. Tel_ says:

    I could simplify your argument by just saying that although the newspaper industry managed to convince themselves they were delivering a service to the public of quality journalism, professional layout, attention to detail and high standards of integrity; when push came to shove it turned out that the real gold mine was in gatekeeping the public communication channel.

    With a broader, more competitive, cheaper channel that cannot be dominated by a small group of players, the money has diluted (as you say) by law of supply and demand.

    All those journalists suddenly face the realisation that they could have been writing pretty much anything all those years for whatever difference it would have made (I strongly suspect that many of them knew this long ago).

    In fact, for many papers, the cover price doesnt fully cover printing and distribution.

    So in theory they should be better off with electronic media, because they were making a loss on distribution anyhow and even without any cover price they still make a smaller loss with web hosting. They would be better off too, if it wasn’t for all that dang competition.

    There are two free local papers delivered round my area and you get them whether you want them or not, I doubt anyone would purchase such a thing. They are quite literally lawn spam, and I do hope the publishers go broke soon. They contain classifieds, real-estate ads and some articles supposedly of local interest. They can be handy in the garden.

  12. James A says:

    Why journalists deserve low pay “Wages are compensation for value creation. And journalists simply aren’t creating much value these days.”

  13. Nabakov says:

    Kazzang! James A.

    I don’t believe the point is 100% true but yes an awful lot of so called journos need to have that observation in their faces – as a screen-saver at least.

  14. JM says:

    ” I have a truly marvelous scheme which this margin is too narrow to describe”

    Tempting fate there Jacques given what happened to the last guy who said that.

    Don’t get in any fights this weekend ok?

  15. John Greenfield says:

    Newspapers are dying because newspapers hire dumb people to be journalists.

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