Future of News: Economics of News

  • Gordon Crovitz, recently retired publisher, Wall Street Journal
  • Mark Davis, vice president of strategy, San Diego Union-Tribune
  • Eric Alterman, distinguished professor of English, Brooklyn College, City University of New York, professor of journalism, CUNY Graduate School of Journalism

Caveat as before. This is a rush transcript.

Gordon Crovitz. When David told me that this panel was the economics of news, I wondered if this was a yes/no question. We’re 10 years into the digital revolution, and in a deadline driven business, we’re just asking this question.

He told a story. His young son threw sand into the waves for 20 minutes, hoping that that waves would change. They didn’t. Reminds him of news executives. Three things affecting news, not in good ways.

  • Technology changing news consumption.
  • Technology driving new business models but not address high fixed costs of old model such as paying journalists to create content.
  • Changes moving at rapid but unpredictable pace.

The newspaper had a business model that hadn’t changed for three generations. In Silicon Valley, the first law of technology is that we over-estimate change in the short term but under-estimate it in the long term. He pointed to web 1.0 and said that after the crash, many executives breathed a sigh a relief that they had dodged the change. They didn’t realise that the web continued to evolve and consumer behaviour continue to change even after the crash.

He talked about the laying of an undersea cable. It allowed Queen Victoria to send a message instaneously to President Buchanan of the United States. It caused riots in New York.

The Wall Street Journal’s mission wanted to get information of markets to people information about the markets with a level of professionalism.

Why are newspapers in trouble?

Twenty years ago, if you lived in Chicago and you wanted information, you could read Chicago Tribune or the Sun Times. They were great bundles of news. It was delivered to you once a day. Now, you can get better information.

If I were half my age, I wonder if I would read my newspaper on a daily basis. My local newspaper focuses on information from the day before, when we’ve all seen that news on the web or through our Blackberry. Newspaper editors are still stuck telling us news from the day before. We have seen 30-40% decline in readership, and the advertising revenue is even worse reading. There are now people paying to read the Wall Street Journal online than pay to read the paper version of the New York Times.

The advertising is the big problem. Targetable media like online has made non-targetable media like newspapers and magazines very uneconomic. That does not favour mass media like newspapers and magazines. That is married to the fact that technology drives consumer choice and consumer behaviour. Most news companies are totally unprepared to think of new forms of distribution when they have grown up in an analogue world. Circulation revenues do not cover much of the news costs.

I am optimistic that a business that has been so slow in adapting will find a way. We’re in about third or four inning (about half way through) marketers finding the most efficient ways to market. Online revenues are pennies or quarters on the dollar of what we got in print. We’re not at a low point in terms of print advertising, but we’re no where near a high point in online ad growth.

There will be a lot of experimentation. In the end, the business model starts with the high fixed costs of journalism that creates the content that creates the brand. News publishers one way or another will have to figure this out.

Mark Davis

Once a quarter at the San Diego Tribune, we have a meeting of managers. CEO says times are tough, but we’ll make it through. CFO says that times are really tough, you can’t buy anymore pencils.

Statistics of daily readership, in the last five days have you looked at a newspaper?) 1964, 81%, 2007, 48%.

Daily Circulation: 1964, 60m, 2006, 52m.

Population in 1964, 192m, now 400m. Advertising, 49bn, total advertising, down 13%.

Mice in the front door, elephants out the back. Or pennies on the dollar. Monthly uniques, 10 times our print circulation, but revenue one-tenth of print. Online advertising growth has slowed. We upselled advertising from print to online, but we never sold online only. We can sell to smaller advertisers but are losing market share as others such as Google sell to small guys. They don’t want to talk to sales rep. Google is all self-servce. Newspapers need to be self-serve.

In recessions in the past, newspaper advertising bounce back after three years, but it hasn’t since the 2001 slow down. We’re in a sectoral downturn not a cyclical downturn. I want to debunk a myth about margins. The question in 2008, isn’t whether our margins will be 20% but whether they will be positive or negative.

I want to be the glass is half full, five areas of strategic focus:

  1. Revenue – online ad networks such as Yahoo Newspaper consortium. The next generation will have geo-targeting and behavioural targeting.
  2. Organisation – newsrooms are re-organising, integration, bringing together online and offline newsrooms. Re-organised by market segments.
  3. Relevance – quite honestly most of this workshop is about relevance. When you start to look at local news organisations, local becomes really important. You have to begin – difficult for traditional newsrooms – you have to think about what the audience wants. You have to think about utility. Do they want to find a movie? Do they want to find out about local government?
  4. Community – We cannot create community but we can enable it. In San Diego, communities around Padres (baseball team), Chargers (American football team) and surfing.
  5. Distribution – Mobile. Not just WAP site. What do people want to do? TV, radio, RSS feeds. Devices we look at, mobile, computers and other devices. We don’t have to compete with TV.

Eric Alterman

He wrote about Bush administration’s war on the press. He wrote articles in The Nation. He couldn’t get them to pay notice because they were struggling with digital revolution. He saw that they had fat margins, and if they had this beneficence, they had a public responsibility. Even when they were pulling in these margins, their stocks were in free fall.

When Knight-Ridder put up for sale, McClatchy was the only bidder. They paid several billions dollars, and now McClatchy has lost 82% of its stock value.

Why with these incredible margins, why were these newspapers being punished. He wrote a New Yorker article to look at this. Advertising numbers are troubling, but trust numbers are even more troubling. He teaches young people, and they don’t read newspapers.

Average age of newspaper reader in US is 56 and growing. If it was a television programme, it would only have hemorrhoid commercials. These are not people that advertisers want to reach. This has many implications.

Newspapers are losing online because they are not the best vehicles to reach people. I care about the future of the news business because I care about the news upon which our democracy depends. It is hard to see in this world where the support for that kind of journalism. It’s hard to see an obvious market.

Until 35, my career didn’t make any sense. I went back and forth between academia and magazine journalism. I didn’t really fit. He got a doctorate in history. Then the internet was rising. He had this talent to reach a small number of people in a number of ways. He has two professorships. He writes a media column in The Nation. He writes a daily weblog for Media Matters. It was originally begun on MSNBC. He has written a bunch of books. He has about seven jobs, and he thinks he’s speaking to roughly about the same people in all seven jobs.

On some platforms, they pay. On some, they don’t. I have an idea of what is different about each platform. I have this little talent about giving my views on things I care about. I have this one little talent. When I started, there were just about three dozen, but now there are a few thousand.

Some break news, but most just give you an intelligent context to understand the world around you. There is a tiny audience for that relative to the cost of producing. Every one of these news producing or information producing entities is under siege and no one knows where the bottom is.

Molly Ivins said that the newspaper industry solution to the problems facing it is to commit suicide.

He pitched this article to the New Yorker, and he was focusing on the Huffington Post. Huff Post is up to 12m unique readers per month. It’s the eighth or ninth most read news site in the US. He found very little value added to content from mainstream publications like the New York Times, Washington Post and the Guardian. He went back to publications that he had criticised about their coverage in the lead up to the war in Iraq, and he found value there despite his criticism.

I found that there just isn’t the support for the kind of journalism. 1200 reporters at the New York Times. 800-900 reporters at the Washington Post. I would be surprised with advertising going the way it is even at 50%. If we don’t have that news, we will be more open to propaganda and manipulation. I think we’ll move to an elite model where people pay a lot for information like The Ecnomist, where the vast majority will be open to manipulation.

Enormously disturbing that not only is there not support this kind of journalism but he worries that this will erode democracy. (This is a very rough paraphrase of what he said.) He believes that all university students should be required to buy a subscription to a newspaper as part of their education.

Q: Writer for tech policy site. He wonders if news won’t be organised geographically but along other ways such as specialist coverage areas.

A: Gordon Corvitz. He believes that a lot of journalism will go this way. There will be specialised, high revenue areas of coverage. But I fear that this will lead to the world that Eric fears. Information will be very valuable to people but in increasingly specialised, narrow niches. That is not the most efficient system.

Mark Davis: To me what you are describing are communities, both geographical communities but also communities of interest. That is potentially where we will succeed.

Eric Alternman: I have problems with that. When you think of New York Times story on Pentagon flacks and domestic wire-tapping and Saudi dating rituals, there is no business model that will support those stories. You need living and tech section to support those stories. If you take this away, there won’t be something to pay for those long form stories.

The 19th Century model of political parties having newspapers, which is like what you have in Europe, then you have no shared community. It creates a consciousness of citizenship. We are these communities of interest much more than we are geographical communities. We’ll have more fissures of understanding.

Q: Events and engagement have captured a small audience. Is that a profit centre for newspapers?

A: Gordon Crovtiz: In person events has been a booming part of the audience. the more time we spend in front of computers, the more we need contact carbon-based life form to carbon-based life form. The question is how many different areas you can do this with.

Mark Davis: Communities, we are feeling our way through this.

Eric Alterman: In world I live in, friends who do celebrity cruises. The Nation sent me on the National Review cruise. I wrote a piece that I am very proud of called The Heart of Whiteness.

Q: A lot of discussion has been about the cost of production but there is very little about the costs of consuming news online. The cost of buying computer very higher.

A: Eric Alterman: That’s not a media problem but a societal problem. Digital divide is much more geographic problem. You can get a computer for $300, which is less than it costs to the subscribe to the New York Times. About 75% consider themselves online now.

Q: What do you do about coverage of the under-privileged?

A: Mark Davis: When you’re in a business that is fighting for its survival, you’re not in a charitable mode. When you raise the issue of a new product, you always raise the chance of selling to that market segment. It’s a societal problem not a business issue.

Q: Several small or medium sized market have come under control of charitable organisation. Likely to spread.

A: Gordon Crovitz: It does allow families to be uneconomic. That structure can protect those papers for a time. I would be happier if there was a business model behind it.

Q: David Robinson: To what extent are people dissatisfied with news.

A: Mark Davis: If the audience really values this, then read it. I’m going to make a statement. Who are we to decide what people will read? If it’s important to me, then it should be important to all of you.

I don’t think that people are disinterested in news. Kids are informed. They know what is going on in the world. He was talking about a world story with his daughter. She was on Digg. She started there. She bounced around and read the story.

Gordon Crovitz: For a time, there is demand from people for professional media. If you believe that people need and value professionally created content from people who produce this with integrity. Most companies just exiting denial phase of this challenge, then there is optimism that people will figure out a business model.

Eric Alterman: The only way to be optimistic is say something like maybe global warming will be all right. Young people are not buying newspapers. Sorenstein Centre published study looked at how deep young people’s knowledge is from all of these stories and it was bad. They are getting very little information from The Daily Show.

You also have this issue of trust. Three times more people believe that 9/11 was an inside job than believe that the media is telling the truth. You add all these trends together, and I don’t see where this magic bullet will come from. Foundations and universities will have to play a much bigger role.

Q: Ethan Zuckerman said that news suffers not from a supply problem but a deman problem.

Eric Alterman: People don’t know what really high quality news is can’t demand it because they don’t know what it is. I think that everyone would live a richer life if they spent a half hour a day with the Guardian and an hour with The Economist. How in the world could you imagine Americans doing that? The problem has evolved into a crisis.

Mark Davis: I don’t know any manager who talks about demand of a product without talking about the product. How do we get this information out in a way that people want to consume it?

Q: I want Gordon Crovitz to respond to metro newspapers need to re-invent themselves. You have two front page stories that are from the Associated Press on Congress voting for a pay increase for military base and Mexican drug wars.

A: As we look online, we look to becoming a news and information portal. We think about the audience and what they want. We have to get over this link to this competitor. If you can become this portal to serve your audience locally.

Eric Alterman: Linking to competitors, traditional way to run newspapers not way to run digital business.