Tuesday, August 11, 2009

Newspapers' Financial Woes

It's hard to avoid the avalanche of articles in which newspapers describe their declining profits and fret about how to save themselves. Rupert Murdoch's solution, apparently, is to charge for some, most or (almost certainly not) all of his content, on some sort of subscription model. Other newspapers and their parent companies are making similar noises.

But here's something to consider. Maybe 150 years ago newspapers earned more than half of their income from subscriptions, with substantial portion of their revenues even them derived from advertising, but in modern history they've derived most of their income from advertising. Newspapers seem to believe that advertisers were drawn to their editorial content and news coverage - no, that's what brought in their regular readers. Advertisers were drawn to the fact that newspapers reached a large body of affluent, literate people who would turn to them first when buying a new house, car, furniture, groceries.... Secondarily they had classified ads, which historically were pretty much the only way for a regular person to advertise an item for sale or let the world know about an upcoming gar[b]age sale, obituary or legal notice, and provided a relatively cheap means of advertising a business or service. So, in very rough numbers, newspapers received about 20% of their revenues from subscriptions, 40% from classified ads, and 40% from other ads.

Online, newspapers have lost out on classified ads to sites (or should I say site) like Craigslist. People shopping for big ticket items have dedicated sites they can turn to, listing real estate, new and used cars for sale, and other big ticket items, and it doesn't make much sense to make a newspaper site the first place you look for a big ticket purchase. In essence, newspapers are trying to survive upon the remnants of their advertising base who hope that their ads will inspire an impulse sale, or are building brand awareness. Meanwhile, some of the reasons people who weren't particularly interested in reading the news subscribed to newspapers - access to local movie listings and reviews, TV listings, news about local entertainment - became as well or better available through other sources.

One of my problems with newspapers is that even before they were losing money they were happily slashing away at their news coverage. Many local newspapers were transformed, quite literally, into a local version of USA Today, with a smidgen of local reporting. I happily concede that quality reporting can help strengthen a democratic society, ferret out corruption, etc., but only if it's actually being done. But if the evidence of newspapers' own diminished interest in quality reporting weren't enough, can we admit that we're a long way from an era where a newspaper could operate profitably on only the revenues generated by people willing to pay for quality news coverage?

There's some merit to the argument that newspapers are failing because people won't pay to subscribe to content they can get for free, but newspapers are shifting the focus from what exactly it is they used to be able to sell. It's not just a matter of convenience that caused people to move away from newspaper subscriptions, but is also a response to reduced original and local reporting, increased reliance on wire services, syndicated and pre-packaged content. Why should I feel bad that I'm not paying my local paper for generic content, available from dozens to hundreds of alternate sources? Simply by virtue of the fact that they're local in name, although probably not in their ownership?

Like a lot of industries, newspapers didn't see the future. They didn't believe in a future in which people would get their news primarily online, didn't see the threat to their revenues from free online classified ads, and didn't anticipate that some of their most important advertisers would find different, more cost-effective channels to reach consumers. But worst of all, they didn't anticipate that a consequence of their own choice to cut their budgets for investigative reporting and local news would gradually erode their subscription base. Seriously, when you regard your reporting staff as the easiest and most obvious place to make budget cuts, and do so over a period of ten to twenty years, and when faced with a collapse in revenues respond with additional cuts, I'm not particularly impressed that you believe your own rhetoric.

If the goal is to return to prior revenue models, I'm not sure that the subscription model can work. The goal, after all, is not simply to replace historic subscription revenues. It's also to replace lost advertising revenues. Had newspapers maintained their advertising revenues, we wouldn't be hearing their present laments. The problem is that newspapers can no longer offer up a pool of subscribers who advertisers can't affordably reach by other means. A local car dealership or real estate agency isn't likely to pay a newspaper website the equivalent cost of a half-page, full-page or multi-page print ad in the hope that somebody passing by will be in the mood to buy a car or house - and if they do they're not likely to repeat that mistake. But let's be honest - if there was ever a time when a daily newspaper was able to thrive (or even subsist) with 80-90% or more of its revenues coming from subscriptions, it was at best in another era, before the dawn of radio and television, and... I doubt it happened even then.

I think the experience of the New York Times and Wall Street Journal represent what you can do with a subscription model. The newspapers can generate substantial revenues through subscriptions, but a small fraction of what they traditionally generated through print media. Even if you focus on the hardcore group of newspaper subscribers who really want good, local news coverage and are willing to pay for it, history indicates that they're unlikely to pay more than half of the cost of operation of a small newspaper operation - and the advertisers who used to have no realistic way to reach them cannot be expected to cover the other half.

Also, the more of your quality content that you hide behind a firewall, the less buzz you generate, and the fewer readers you have for your free content. People fall out of the habit of visiting your site, or get into the habit of tracking down your premium content from free sources. You don't need a change in copyright laws to prevent that - the Times tried hard, and full reproduction of their editorials violates current copyright laws, but within a few minutes to a few hours of publication pretty much any editorial they published during their firewall days could be found, reproduced in full and for free, on another website.

There's great variability in what might inspire somebody to pay for access to a newspaper website. Some will want the latest sports or celebrity gossip, some will want good local news, some will want strong international news and analysis, others will want restaurant and movie reviews, others may want a sense of community or a sense of exclusivity. It's hard to fashion a "one size fits all" subscription model, while simultaneously offering a product that's appreciably better than what others offer for a lesser price or for free.

The New York Times has played around with a form of pay-for-performance on its About.com site, but apparently has decided that the model of paying "guides" based upon the page views and revenue they generate doesn't translate well to its news sites. And they're right - people looking for coverage of a city council meeting, analysis of an international conflict, or an update on healthcare reform aren't in consumer mode - they're not likely to be inspired to click an ad or to make a purchase via an ad they see while reading the article. They also played around with offering some special, exclusive premium content during their "pay for commentary" experiment, but it wasn't enough to generate the type of traffic and revenue they wanted - and it cost them a lot of readers. Murdoch has played around with online communities via MySpace, but has yet to figure out how to turn a profit or keep competitors from eating away its user base.

I had a professor in law school who argued that it was consistent with the First Amendment to apply different standards to broadcast and print media, creating a context in which the broadcast networks would behave better in the hope of getting the type of protections offered to print media, and print media would behave well out of concern that they might be placed under restrictions similar to those imposed on broadcast networks. Fat chance?

The manner in which the mainstream media has been falling on its face in the current healthcare "debate", as exemplified by their general failure to call out obvious lies like Sarah Palin's "death panels", or their refusal to get under the skin of the issue and tackle the special interests who are distorting the debate and, more importantly, the legislation. Instead we get false equivalence (Palin says Obama's bill will create death panels that will order you euthanized, but Nancy Pelosi says it's immoral to make a profit by denying a service you've been paid and have contracted to deliver) complaints that healthcare analysis is hard, providing a platform for the dissemination of false and misleading claims under the guise of "analysis" or "allowing both 'sides' to speak", etc. - it's easy to be irresponsible, and it may even sell more papers (or get more page views), but it undermines the notion that mainstream newspapers are indispensable.

While words are a newspaper's forté, sometimes actions speak louder. So, newspapers, don't tell me about Watergate, then demand an expansion of copyright laws or other protectionist measures or subsidies. Show me that you're indispensible, right here, right now. Or slowly fade away. Your choice.

1 comment:

  1. . . . or start publishing pictures of "page 3 girls" . . . Hey, if they can't compete on one axis . . .



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