News, advertising, subsidies and revenue streams: Disentangling products and profits

Yet again, I started to write a comment and then decided that it was a blog post rather than a comment. I was responding to a post that Jeff Israely, a former Europe correspondent for Time magazine and founder of Worldcrunch, has written for Nieman Lab. I love Worldcrunch, and when I was thinking of doing my own news startup, we had a chat or two. I completely understand the point that Jeff is making in his post, and this isn’t a criticism of what he wrote, but a conversation that we need to have amongst journalists trying to get our heads around the business of what we do. 

Journalism! We don’t need no stinking subsidies!

Ok, so that’s a tongue-in-cheek summary of Jeff Israely’s post for Nieman Lab, Don’t you call me subsidised — people are paying for news. Jeff, please take that in the good-natured way in which it is intended. 

I agree people are paying for news, and I understand how the idea of subsidy grates as a journalist. It’s offensive to think we’re taking handouts. However, in business terms, a cross-subsidy isn’t a handout but a revenue stream, often but not always, closely aligned with the core business, that generates net profits to support the entire enterprise. It happens in a lot of businesses. I can see the problem that Jeff has with the term subsidy, but I think it’s helpful to think of this in a different way. Does Gilette subsidise its shaving business  by selling the blades? No, but it’s become the way that it keeps the entire business profitable.

The journalism business debate is littered with unhelpful terms, and we’re not using the business term subsidy accurately. It bleeds out the business nuance of what’s really going on. Journalism is the business of news, but that business is supported not by a number of subsidies but rather by a number of revenue streams, some more lucrative than others. So, let’s stop using the term subsidy, or at least stop using in inaccurately. Let’s think about revenue streams, with the idea that a revenue stream may not necessarily be a profit centre. (I know that’s stating the bleeding obvious, but I often think that Econ 101 should be compulsory for journalists.) Reframing the discussion in terms of revenue streams rather than subsidies is a lot more productive. That’s why I like Jim Brady’s formulation that the business model problem for journalism isn’t going to be solved by a silver bullet but rather shrapnel, a bundle of revenue streams that support the mission. 

Jeff mentioned Google. Is it in the search engine business? Sure, that’s one of its products, but its business, it’s main source of revenue, is advertising, with 96 percent of its revenues coming from ads. Just like the news business, Google wouldn’t be able to dominate online advertising the way it does if it didn’t provide the search product. Google saw off other search engines – Hotbot, Altavista, etc – because it did a better job of delivering results, but it has excelled as a business because it has developed (well acquired really) an incredibly lucrative revenue stream tightly integrated to its core business of search. It has attracted a huge user base, one that dwarfs that of most news sites, so while CPMs have plummeted, it still is able to be profitable.

That’s why the MailOnline is pitching itself as competing not as other news sites but against internet giants. It’s in the volume business, and it wants what Google has. Smart, I say begrudgingly. We need a world where the Mail’s brand of journalism and its fellow travellers aren’t the only ones with good business models. Yes, I’m looking at you, when I say that. 

Back to news and in particular print media, we used to have a Google-sized fat revenue stream that more than paid for news and information that we journalists provided, and it happened to be advertising. The US newspaper business was especially dependent on advertising to pay the bills. Newspapers in other countries had a much larger percentage of  a lot more on news stand sales or subscriptions. In the US, the big problem for print media is the collapse of advertising for print newspapers, especially newspapers. Alan Mutter makes a lot of really terrifying graphs that put this collapse in the stark terms. From 2005 to 2012, first half newspaper ad sales dropped between 23 percent to 86 percent, depending on the type of advertising. Advertising used to be 80 percent of revenue for most US newspapers, what Ken Doctor called the 80/20 rule of newspaper revenue. Newspapers, like a lot of other post-industrial businesses, are just struggling through a transition where their primary source of revenue has been disrupted. 

To tie this up, I would say that hopefully with a wider range of revenue streams, we’ll end up with a more resilient journalism eco-system, one that isn’t so reliant on a single point  revenue failure, advertising. The over-reliance on advertising was especially problematic because it so cyclical. Newspapers have always taken a big hit during recessions because ad budgets are often the first to get slashed. 

Ok, this is a relatively dispassionate, rational look at the news business. Why does this entire discussion pose a problem for journalists?  The economic decline of the print business, with thousands of jobs lost, already has us feeling very vulnerable. The collapse of the business that supported journalism in many developed countries feels like a critique of the value of journalism. Why won’t people pay us for the valuable service we provide? It feels painful even writing that, and I don’t mean to dismiss or diminish the cultural upheaval we’re going through. It feels like an attack on the value of journalism, and we have to recognise the emotional side of this to work through it. But again, we’re letting the imprecision of our language get in the way.

I keep going back to some advice that was given to my college classmate, Theo Francis, when he was working for a news startup. A business-minded uncle said:

You know you’re creating value. But can you capture it?

For those of us who believe in the social value, and the economic value of journalism, what we need to rethink is how we capture economic value to support the work we do. We need to think of revenue streams to support the mission. I believe in journalism, and to quote Kunda Dixit at MDIF’s Media Forum last (MDIF being my day job):

To be truly independent, media needs to be financially viable. 

We’re already creating value, and now, we’ve got some heavy lifting to do in terms of figuring out how to capture value in the digital age. 

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