Sunday, August 30, 2009 1 comments ++[ CLICK TO COMMENT ]++

It's hard to see newspapers (or their online websites) surviving

I wrote up a somewhat lengthy comment for one of the articles in The Economist on newspapers. I rarely leave comments but felt it was worth expressing my view. I thought I would re-produce most of it here, with some edits. It pretty much repeats the same views I have expressed here many times before. The core problem is that newspapers lived off the network effect and now the network effect is going into reverse and they are getting killed. Advertising and subscriptions/readership is colliding head-on and it's hard for newspaper websites to maximize one without damaging the other.

Published on August 27th of 2009 and titled, Now pay up, it examines various strategies newspapers are contemplating, including attempts to charge for news. Charging for news on websites has entered serious strategic thinking at newspapers, possibly after Rupert Murdoch suggested that he may start charging for content everywhere. As I suggested at that time, I see little chance of Murdoch winning. Newspapers tried charging for content a few years ago—The New York Times and The Economist were not fully free a few years ago—and it failed.

Here is a slightly edited version of what I posted:

The issue with newspapers and their websites goes way beyond paying for news. The problem is that the business model is dead! Unfortunately, this is going to hurt journalism but hopefully we will somehow maintain quality journalism even if the newspaper dies.

An overlooked point is how newspapers never really lived off the money they made on subscriptions. Instead, what really supported their cost structure are advertising, classifieds, real estate listings, and so on.

Furthermore, newspapers had a monopoly or oligopoly (except in big cities) so people seeking specialized information, say sports, would read the newspaper.

So, even though people think of it as if subscribers were paying for journalism, it was only a small piece of the pie. Most of the newspaper, whether the physical printing, or journalist salaries, or editing, or whatever, depended on classifieds such as used car sales, apartment listings, etc. The newspapers have permanently lost this revenue source. Ebay, Craigslist, and so on, have basically taken away the classifieds business. Similarly, other companies specializing in cars or sports or dating or whatever have probably taken away the revenue. If you want to read up on cars or technology or fashion or whatever, you have little incentive to go to the newspaper website and can probably get better value from a specialized site catering to that subject.

To sum up, people never paid fully for the news. The news was always subsidized by advertising and other sources. With the likely permanent loss of other sources like classifieds, newspapers are down to paying for everything using advertising and subscriptions. Advertising alone probably can't support all the organizations out there; and subsriptions alone can't either. But it's difficult to get subscribers to pay and to bombard them heavily with advertising (way beyond anything seen on the physical paper) as well. It's a tough situation...

One more thing that came to mind...

The other thing is, advertising and subscriptions work against each other in the online world. If you force subscriptions on the user, the number of readers would decline substancially. This would result in lower advertising. Conversely, if you keep things free, you have get more readers and higher advertising, while have lower subscription revenue.

In the physical print world, it wasn't quite like this. Since it was a monopoly or oligopoly in most towns, readers had no choice but to read your paper (or often the only other one in town), and advertisers also didn't have much choice in the print portion of their advertising budget. In the end, you ended up with the best of both worlds: high subscriptions/readership and high advertising. Basically the network effect at its best... in the online world, newspapers and their websites have the negative of the network effect!


1 Response to It's hard to see newspapers (or their online websites) surviving

Daniel M. Ryan
September 2, 2009 at 12:27 AM

Here's the real threat to the newspapers now: citizen journalism. It's not growing very fast, as its both hard work and typically unpaid, but there's a lot of potential that can be tapped if a way is figured out to pay and/or honour citizen journalists.

Even if the pay is sparse, there's the volunteer circuit. Citizen videography/video journalism is already caught fire, with only the hope of a brag as encouragement; it's only a matter of time before the written variety is too.

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