Newspapers: The Bleeding Continues

by on February 28, 2007 · 10 comments

Via Richard Bennett, Wonkette reports the following depressing statistics about the newspaper industry:

Net income plunged 6.7%.
Classified advertising dropped 22%.
Overall ad revenue is down 8%.
Circulation is down 2.9% — except for Sunday, which is down 3.2%.
Operating income in the publishing division fell by 24%.
Craigslist’s CEO says this is because U.S. newspapers just plain suck.

There are a number of ways you might interpret these figures. Richard thinks, bizarrely, that the problem is “parasitic web sites” like Craig’s List [Update: Richard says that he was talking about news aggregators, although he didn’t mention those in his original comment]. Craig’s List’s CEO, on the other hand, thinks it’s the newspapers’ fault:

Journalism as practiced at newspapers has been hurt by an excess of money over the years as you’ve seen newspapers bought and sold and consolidated into large chains run by corporate managers to maximise profit, and increasingly over decades have resorted to running wire stories, putting an ever-greater proportion of advertising into their newspapers and shying away from writing hard-hitting stories about corruption in high places.

I think this is rather naive. Certainly, there’s something to be said for hard-hitting stories, but I don’t think there’s any reason to think they’re the primary thing that drives newspapers sales. If anything, I think Richard is right that hard-hitting journalism is a public service that newspapers perform at a loss, subsidized by high advertising profits.

The fundamental problem is that the core competence of a newspaper is printing distributing information printed on bundles of paper, just as the core competence of the recording industry is pressing and distributing plastic discs. Newspapers’ investments in printing presses, delivery trucks, and the army of personnel that delivers those pieces of paper every morning are simply becoming sunk costs as people figure out how to get their news from cheaper Internet-based services.

This can be seen most clearly in the case of classified ads, because with classified ads, information transmission is all the newspaper does. The newspaper doesn’t add any value at all to the information, and so it’s extremely hard for them to compete with a company like Craig’s List that provides exactly the same service for free.

Newspapers also employ some reporters that provide the valuable service of gathering and summarizing the news of the day. This part of a newspaper’s business is not being rendered obsolete, and newspapers may survive, and even thrive, on the strength of providing those services. The financial plight of the newspapers is not the fault of the reporters or editors. The problem is the inefficient distribution technology, not bad content.

And I don’t think we can even fault the newspaper editors (too much) for clinging to outmoded distribution technologies. It’s been pretty clear for a while now that the traditional newspaper is a business on the decline, but in the short run, it’s still profitable. Indeed, even with recent financial difficulties, I would bet that newspapers are still more profitable, on a per-reader basis, than most of the web-based sites and services that are displacing them. So even if paper distribution is a losing strategy in the long run, it may still be the most profitable strategy available in the short run.

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