The End of News Media or Just an Accidental Business Model?

This post first appeared on the Content Matters blog.

Pew Internet has released its 2009 State of the News Media study, its sixth annual study of trends and analysis in the news media industry. Though there was not a lot of positive news for those in the media industry, the study did suggest that the picture may not be quite as gloomy as some project.

For newspapers, 2009 does not bring good news. But while the study anticipates further bankruptcies and closures in the newspaper industry, it notes that for 2008, the industry overall remained profitable. The study attributes about 50% of the industry’s current woes to the economic downturn and 50% to structural problems caused by online competition. The key question then is whether newspapers can find a way to convert their growing online audience into sufficient revenue to sustain the industry before their shrinking revenues from print fall too far? And if some succeed and some don’t, what are the characteristics of a newspaper organization that survives and one that doesn’t?”

Pew suggests that abandoning print does not yet make sense, as newspapers typically generate 90% of their revenues from print, while eliminating it will only save 40% of their costs. They do expect to see more of the hybrid model, initially taken by the East Valley Tribune and the Detroit Free Press, where they go online-only during weekdays, with printed copies on the weekend.

The industry challenges are those that are well-documented: eroding circulation, rapidly diminishing advertising revenues (in print and online) and often a large amount of corporate debt, all leading to plunging earnings. The study notes that “after losing 42 % of their value between 2005 and the end of 2007, publicly traded newspaper stocks lost 83% of their remaining value during 2008.” And, while the $38 billion advertising revenue generated by the industry in 2008 won’t disappear overnight, profit pressures will continue to reduce the amount newspapers are willing to spend on journalism.

While newspapers continue in free-fall, the Pew study noted that 2008 was a banner year in some ways for online news. Online surpassed print as a source of news, second only to broadcast television as a news destination. Helped in part by the elections, traffic to both traditional and alternative news sites grew throughout the year. Yet the slowdown in the online advertising market did little to answer the revenue question for news organizations.

The Pew study also points out that, despite years facing these problems, the traditional media industry largely refuses to face those challenges. Specifically, “the problem facing American journalism is not fundamentally an audience problem or a credibility problem. It is a revenue problem—the decoupling, as we have described it before, of advertising from news.” Yet, it continues, “There are growing doubts within the business, indeed, about whether the generation in charge has the vision and the boldness to reinvent the industry. It is unclear, say some, who the innovative leaders are, and a good many well-known figures have left the business. Reinvention does not usually come from managers prudently charting course. It tends to come from risk takers trying the unreasonable, seeing what others cannot, imagining what is not there and creating it. We did not see much of it when times were better. Times are harder now.”

The Pew conclusions are similar to those posed by prominent Internet analyst Clay Shirky in a blog post last week. As Shirky says “The problem newspapers face isn’t that they didn’t see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several.” Yet, in all the scenarios they explored, they avoided what Shirky refers to as the unthinkable scenario: “The ability to share content wouldn’t shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking.”

Instead, traditional media organizations hatched various plans, all with a common basis: “Here’s how we’re going to preserve the old forms of organization in a world of cheap perfect copies!”

Shirky compares the current environment to the impact of Gutenberg’s printing press. Not the long-term benefits, which have been long documented, but the disruptive and chaotic period as the printing press was introduced in 1500. He suggests “That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn’t apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can’t predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing.”

And so, the coming years will be a period of confusion and difficulty for traditional media. Shirky notes that there was no real basis for advertiser-based support for journalism. There was no underlying logic for why Wal-Mart ads should fund a newspaper’s Baghdad bureau. It was merely accidental that advertisers spent money with a medium that used those funds to cover the cost of journalism. Now that there are many methods to reach an audience, those loose ties now fall aside. All things considered, the online media industry is still quite nascent. It may be several decades before the new business models for online news are fully established. And that means many more years of disruption and continued challenges for traditional media organizations.

Comments

[raytayzmd:]

...nice post...thanks for the link -- I like Clay Shirky's thinking.

Mar 17 12:40 PM

[Tradememe:]

The news media will not end. It will just adapt to the new medium such as the internet. Some will succeed, but many will fail. Even the online blogs are highly dependent on the traditional news media even if they pretend they are fierce competitors to the mainstream media. In our aggregator business news site, www.tradememe.com , we see a lot of outgoing links from the blogs to the traditional news sites, but the reverse is very rarely true.

Mar 17 02:12 PM

[Doug Poretz:]

I would not worry about the end of news media. There are plenty of distribution channels to get messages (including news, ads, etc.) to audiences. The distribution channels will increase and change. That isn't the problem -- the problem is that JOURNALISM as we have known it is dead and we are beginning to see the rise of neo-journalism. That is really a very serious issue, espeically as the world is in turmoil. More thoughts on greater detail here: tinyurl.com/b8b5ey

Mar 18 09:22 AM

[tedstr:]

You guys all still need to think bigger.

Two issues: 1-What is Journalism? 2- How much news do we (or the average citizen) need.

These questions have been previously answered in a way that fit the old model, but did not necessarily serve the marketplace or citizens. They were contorted into a service that fit the economics of the industry at the time. This was true in all traditional media forms.

If Journalism is about accurately conveying the news of the day, there are thousands of bloggers and other young publishers anxious and qualified to do this. The ones who aren't will be sorted out by the marketplace and I would argue, dispatched by the readers faster than Jason Blair from the NY Times with less damage.

If Journalism is about deciding what is the news of the day and inserting subtle opinion or managing the dialog, then yes, those days are over. Like 16th century calligraphers, the vast new flow of information, collaborative filtering, personalization, RSS, and reduction of capital necessary to disperse that information has made many of you redundant and that toothpaste cannot be put back in the tube.

That said, the needs of people to rely on a brand, any brand, for quality assurance, will never go away. There is a fundamental economy of convenience in brand buying (or reading) that will always be with us, so some journalists will always have a home, just far far less. BTW, advertisers love those publishing brands as well.

That leaves only one other kind of Journalism to survive in the marketplace. Exceptional perception, insights, analysis. If this is the last remaining winner or differentiator for the news business why is there so little of it. Rhetorical question. Because it is hard and in very short supply. But isn’t that true of all great products and services and the most profitable businesses. See: The Economist. Why newspapers have continued to report on the news of the day, usually 10 hours too late and surpassed by the electronic media, for 40 years is beyond me.

How much news do we need? Certainly not as much business news as FOX seems to think. Not as much as the old radio networks used to think. Vast amounts of general news and information have been generated everyday for 50-100 years to generate pages to support the media spending and grow the business. Did we ever really need that much?

Never the less, it’s all still there and more, live every second on the web, but now we get to discard it without killing a tree if it does not suit our needs. The market too will sort this out, and because of the Internet, it will sort it out faster than ever before into a stasis that keeps the government honest and the people informed, and some people employed in journalism and media…just as much as they need to be, and not what a publisher used to think he or she or we needed.

Mar 18 12:01 PM