Apr 27 2009

Newspapers: the DeLorean of the New Era

Okay. We get it. Newspapers are defunct. They never even had a viable profit model because they succeeded only by selling classified ads to support their journalism and printing costs, sort of like DeLorean selling coke to keep making his cars.

by Erik Aker

A few weeks ago San Francisco Chronicle editor Phil Bronstein was on the Colbert Report arguing that newspapers made a catastrophic error when they decided to give away content for free. He struck a chord similar to what Walter Isaacson, former editor of Time magazine, said when he went on the Daily Show a couple of months ago.

There’s a whole movement of people saying the same thing right now, and these guys are part of an effort to get the industry excited about micropayments, where news readers pay incremental amounts, sometimes per article and sometimes at subscription rates, to read text. Micropayments have come raging back as the suggestion du jour and pobably a few thousand articles have been written on the subject in the last month and the idea has also been the subject of journalism conferences and lectures across the country. Bronstein and Isaacson may even be part of a coordinated effort to reinstate micropayments for all online news sources under the idea that if they all do it then consumers will have no choice but to pay for news somewhere.

To hear these two tell it, the newspaper industry started out by giving everything away for free and that was their strategic error. If only they’d waited for iTunes to come along, they’d have seen that people would pay money for electronic content. At the very least this argument is incredibly naive, and at worst it obscures a real culpability on the part of the newspapers.

In fact, almost every newspaper started out as micropayment driven. I remember this well and I remember the frustration of trying to find information when Google would return search results hidden behind the New York Times‘ barrier page inviting me to become an online subscriber. I never did become an online subscriber, but in the meantime I became a huge reader of BBC and the Guardian.

Michael Kinsley, the founding editor of Slate magazine, remembers the micro-payment model. He wrote a nice op-ed in February stating why micropayments shouldn’t work. “Somewhere at Microsoft,” Kinsley begins,

there is a closet packed with leftover Slate umbrellas — a monument to the folly of asking people to pay for what they read on the Internet. These umbrellas — a $20 value! — were the premium we offered to people who would pay $19 for a year’s subscription to Slate, the Microsoft-owned online magazine (later purchased by The Washington Post).

That closet full of umbrellas is symbolic of Kinsley’s point: the micropayment idea was a total failure. Kinsley goes on to make the outrageous claim that the delivery of newspapers on an actual newsprint was also a dumb way to make money:

Newspaper readers have never paid for the content (words and photos). What they have paid for is the paper that content is printed on. A week of The Washington Post weighs about eight pounds and costs $1.81 for new subscribers, home-delivered. With newsprint (that’s the paper, not the ink) costing around $750 a metric ton, or 34 cents a pound, Post subscribers are getting almost a dollar’s worth of paper free every week — not to mention the ink, the delivery, etc. The Times is more svelte and more expensive. It might even have a viable business model if it could sell the paper with nothing written on it. A more promising idea is the opposite: give away the content without the paper. In theory, a reader who stops paying for the physical paper but continues to read the content online is doing the publisher a favor.

Doing the publisher a favor? How’d they ever make money? Oh, that’s right, they sold classified ads before there was Craigslist, and those classified ads were one of their biggest revenue streams. That means the readers of a newspaper never were the paper’s primary revenue source? Okay. We get it. Newspapers are defunct. They never even had a viable profit model and they succeeded only by selling classified ads to support their journalism and printing costs, sort of like DeLorean selling coke to keep making his cars.

Moreover, in the past newspapers could rely on another factor in their favor to sell newspapers: they had absolutely no competition. In other words, when newspapers complain now about not having a viable online profit model, in many cases it’s not simply small-town papers but hugely successful corporate conglomerates with former monopolies on content that are complaining about suddenly not having a business model.

As Kenneth Lerer said at Columbia’s Journalism School recently,

Years of media consolidation created a handful of conglomerates that now control enormous swaths of the media market. Some, like Disney, G.E., Viacom and Time Warner have bought up all types of media, from magazines and TV to movies and books. Newspaper companies followed the lead and expanded as well. News Corp., Hearst, and the New York Times Company now own over two hundred newspapers between them. This vertical integration left them with far less competition, so they were able to grow without innovation. But they also lost perspective. They doubled down on a business plan that seemed to work short term, and then stifled creativity by barricading themselves in a corporate echo chamber. So they kept expanding their control in the analogue world, even while the digital world was on the rise.

In fact, Bronstein’s paper was part of this consolidation and like most Hearst properties could probably even be criticized in this way. Lerer moves on to state that “In the case of newspapers, which base their entire cost structure on monopoly pricing, the rise of competition has made their business model obsolete.”

Thus, in the face of armies of competition, a business model that has been defunct for a long time, and their only new suggestion about how to make money a decade-old idea that failed miserably the first time around, newspapers are definitely dying.

Ultimately, their failure appears so imminent that it wouldn’t even be worth talking about if they didn’t keep threatening to take journalism with them. Bronstein said precisely this when he quoted costs to break major stories such as Abu Ghraib and said, “I don’t think Google will pay rooms full of journalists to work.”

The problem for this argument is that everyone outside of journalism appears to think it inconceivable that journalism will go away. Indeed, the rise of the internet means that journalism is now more viable, more important, and more widely consumed. As Clay Shirky wrote last month in a widely reposted blog posting,

It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem.

And this is precisely the point. Newspapers are old-world, and technology has now solved the problem of information dispersal that newspapers used to address. As a result, newspapers have been obviated. Information, however, is more valuable than ever.

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Erik Aker is a Cal graduate, former Bay Area resident, freelance writer and trenchant observer of the changing media landscape. This column was originally published at www.erikaker.com.