Compaine on the Future of Newspapers

by on February 27, 2009 · 12 comments

There’s been plenty written about the death spiral that America’s newspaper industry finds itself stuck in — here’s an amazing summary of the recent online debates — and I’ve spent a lot of time writing on this issue here in the past, too.  Ben Compaine, one of America’s sharpest media analysts and the co-author of the classic study Who Owns the Media?, has added his own two cents in his latest essay over at the Rebuilding Media blog. Like everything Ben writes, it is well worth reading:

If newspapers have essentially been able to thrive on the revenue from advertisers alone (again, with cost of printing more or less covered by circulation revenue), why are they having so much trouble today? The answer is not one single factor, but a major contributor is that newspapers – whether print or digital—are just worth less to advertisers than they were 20 years ago. Back then, local advertisers did not have many options for reaching the mass local audience. What was the alternative for auto dealers? For real estate agents? Supermarkets or department stores? For some, direct mail was one possible option. But that was about it. Using pre-prints instead of ROP became attractive for some large display advertisers, leaving the publishers with a piece of the cash flow. Advertisers were hit with regular rate increases. And they pretty much had to pay, The publishers made good money.

But then a double whammy. Just about the time the Internet became a real alternative for classified listings—think Craigslist, Monster.com, eBay, Autotrader.com—and for retailers—think DoubleClick, Google, et al—the boys at the cable operators had perfected the insertion of highly local spots into their feeds. Between 1989 and 2007 local cable advertising increased from $500 million to $4.3 billion—or from 0.4% of all advertising to 1.6%. Advertising in newspapers fell from 26% to 15% in this period. Although some of the highly local advertisers going to cable may have taken some of their funds from budgets for radio or other local media, it is probable that a significant share came from the hides of newspapers. I estimate perhaps up to 20% of the decline in local newspaper advertising share can be attributed to local cable spots.

The other whammy, the gorilla in the room, is Internet advertising. No need to elaborate. But its impact on newspapers is not just that it has siphoned off dollars per se. Much more importantly is that the Internet has given most advertisers greater market power against newspaper publishers. Many big advertisers—like car dealers, real estate offices and big box retailers—don’t need the newspapers as much.

Ben’s got it exactly right. The decline of newspapers comes down to the death of  “protectable scarcity” (thanks to Canadian media expert Ken Goldstein for that phrase).  There’s just too much other competition out there online already for our eyes and ears.  We’re witnessing substitution effects on a scale never seen in the media world, with disruptive digital technologies and networks splintering our attention spans.  That de-massification of media means that high fixed cost endeavors like daily newspapers are not going to be able to sustain the cross-subsidies they’ve long gotten from advertisers.

If you want to boil the newspaper death spiral down to an equation, it would look something like this:

(1) unprecedented technological change

+

(2) massive inflow of new media competitors / platforms

+

(3) end of geographic “protectable scarcity”

=

(4) inability to capture a guaranteed audience

&

(5) complete loss of advertiser / investor confidence

And the process is viciously self-reinforcing.  Again, a seemingly hopeless death spiral.  So, do papers have any hope?  Compaine considers where papers might turn next in terms of a business model:

I suspect that what we will find in the intermediate future is a mix of models and choices, among them:

  • The Detroit model [Detroit Free Press and Detroit News] is one reasonable experiment: An attractive daily digital version, with home delivery of the paper reduced to Thursday, Friday and Sunday.
  • An advertising supported all digital model, with the publisher closing down the printing plant, selling off its trucks, laying off the circulation and production departments.
  • A voluntary pay model. This may take one of several forms. The “shareware” model for software has proven to work to a point. Users are asked to pay what they can or think the product is worth. Many users will be free riders. But, as we see with public television and radio, millions in their audience make annual contributions. (In 2007 at least one-third of those who downloaded Radiohead’s free “In Rainbow” album made a payment, in some cases higher than what the band would have received from a CD sale.)

The problem with that last model is that it might help some papers remain afloat, but it is highly unlikely such a model could sustain the industry as we know it today.  There’s a reason, after all, that NPR doesn’t have a lot of competitors in the non-profit radio world; only so many benefactors — whether corporate, foundations, or individuals — are willing to spread around their donations when it comes to news.  A non-profit model or charity-based model might work for a couple of big-dog dailies with generous sugar daddies — think the New York Times and Carlos Slim — but that model won’t work for most other papers.

As Ben suggests, the best hope likely lies in some combination of all of the above, with a particular focus on finding a way to monetize the all-digital model (model #2) as quickly and effectively as possible.  But some papers are late to that game, and even those that moved aggressively to get everything online have found that the economics are still challenging in a crowded field.  The advertising cross-subsidy they lost is in the old world has already been captured online by many others. There’s just less ad $$$ to go around with so many other outlets presenting more targeted and affordable platforms than what old newspapers offer.

Regardless, I think it’s time to accept the uncomfortable reality that the newspaper industry as we know it is dead and will never return.  As an old newspaper fanatic and journalism student, this makes me a bit sad.  I still get two dailies on my doorstep every morning and will certainly miss them when they pass from this Earth.  Of course, a lot of that news will be repurposed online. And other news sources and outlets are still out there or will develop in response.  But challenging issues remain about how “long form” investigative journalism gets funded going foward. I don’t believe in the pollyanish fantasies about a world of user-generated content and “We-dia” giving us all the important news of the day.  You can’t reassemble the New York Times one Twitter at a time.

  • Stephen

    The news media will rise once privacy regulations fall (or, more precisely, the THREAT of privacy regulations, as the regulations themselves generally aren't too onerous).

  • some_thoughts

    The three models discussed are focused on the media used (digital versus paper), publication frequency (for online and paper), and revenue model (ads versus voluntary pay). There are many other areas that newspapers must consider at this time. What about the type of news? Do we really need several (or dozens) of different online news sources that cover the exact same story in almost the same way? Which market is the “paper” going to serve? Can it continue to server the same geographcial area? What about the target readers? Can it continue to target the same readers? Should the paper consider targeting a specific type of reader with different demographics and psychographics? Can the paper continue to cover the same subjects (e.g., top stories, sports, business, entertainment, etc.) Or must it focus on a specific niche suject? What about the use of social media? Does it make sense for the publicaiton to use social media and how? what about the use of video? What other revenue models could be used besides or in addition to ads and voluntary pay? Which media / content partnerships does the paper need to succeed in its chosen market? How will the “paper” need to market and promote its offerings online and offline? I am not suggesting that all of these questions must be answered, but this a representative sampling of the types of questions that must be considered. Repurposing print news for online consumption and adjusting the publication frequency and deciding whether to make money from ads or voluntary donations is likely not going to be enough for survival.

  • some_thoughts

    The three models discussed are focused on the media used (digital versus paper), publication frequency (for online and paper), and revenue model (ads versus voluntary pay). There are many other areas that newspapers must consider at this time. What about the type of news? Do we really need several (or dozens) of different online news sources that cover the exact same story in almost the same way? Which market is the “paper” going to serve? Can it continue to server the same geographcial area? What about the target readers? Can it continue to target the same readers? Should the paper consider targeting a specific type of reader with different demographics and psychographics? Can the paper continue to cover the same subjects (e.g., top stories, sports, business, entertainment, etc.) Or must it focus on a specific niche suject? What about the use of social media? Does it make sense for the publicaiton to use social media and how? what about the use of video? What other revenue models could be used besides or in addition to ads and voluntary pay? Which media / content partnerships does the paper need to succeed in its chosen market? How will the “paper” need to market and promote its offerings online and offline? I am not suggesting that all of these questions must be answered, but this a representative sampling of the types of questions that must be considered. Repurposing print news for online consumption and adjusting the publication frequency and deciding whether to make money from ads or voluntary donations is likely not going to be enough for survival.

  • some_thoughts

    The three models discussed are focused on the media used (digital versus paper), publication frequency (for online and paper), and revenue model (ads versus voluntary pay). There are many other areas that newspapers must consider at this time. What about the type of news? Do we really need several (or dozens) of different online news sources that cover the exact same story in almost the same way? Which market is the “paper” going to serve? Can it continue to server the same geographcial area? What about the target readers? Can it continue to target the same readers? Should the paper consider targeting a specific type of reader with different demographics and psychographics? Can the paper continue to cover the same subjects (e.g., top stories, sports, business, entertainment, etc.) Or must it focus on a specific niche suject? What about the use of social media? Does it make sense for the publicaiton to use social media and how? what about the use of video? What other revenue models could be used besides or in addition to ads and voluntary pay? Which media / content partnerships does the paper need to succeed in its chosen market? How will the “paper” need to market and promote its offerings online and offline? I am not suggesting that all of these questions must be answered, but this a representative sampling of the types of questions that must be considered. Repurposing print news for online consumption and adjusting the publication frequency and deciding whether to make money from ads or voluntary donations is likely not going to be enough for survival.

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