21st Century News - Part 1, The Playing Field

This is the first in a planned series of posts about the business of bringing news content to the consumer. The American news industry is in the throes of change. Old media, as those on the web like to call it, is either dying or transforming, depending on who you talk to. New media, referring primarily to internet delivery of news is either the replacement for old media or a parasite sucking the lifeblood from venerable news organizations. Again, it depends who you talk to. The issues are complex; the solutions incomplete, undeveloped or just plain unknown.

I plan to look at the current business models for American newspapers, the proposed changes to those business models, the future of old media in an internet-based society, the development of new media, current business models for new media, impact of proposed content licensing on new media, copyright and fair usage, and last but not least, possible directions for the future that benefit all concerned, but mostly benefit the news consumer.

Planned segments include:

  1. The Playing Field – An overview of where we are
  2. The Dynamics – Why do we need to change?
  3. The Money Part – How is all of this going to make business sense?
  4. The Future – What makes sense for both traditional and new media?

Of course, this plan is subject to change at any moment.

PART 1, The Playing Field

Print newspapers have been shrinking in size and scope for years, affected by competition from radio, network television, cable, and now from on-line news delivery.

According to Pew Research Center data, as of August 2008 the percentage of Americans who went online regularly for news (at least three times a week) was up 19% from two years earlier to nearly four in ten Americans (37%). No other medium was growing as quickly. Most saw audiences flat or declining.

The new numbers put the Web ahead of several other platforms for the first time. In the same August survey, 29% of Americans said they “regularly” watched network nightly news, 22% watched network morning shows and 13% Sunday morning shows.

On the surface, it might seem an easy transition from old media to new media. After all, it’s just a newer, more nimble competitor taking over from the old dinosaur, right? Well, if you sense my skepticism, you were right. There’s a bit more to it than that.

The business model for the traditional American newspaper is based not on how many papers a publisher sells, but on how much advertising revenue it generates. Some 80% of a newspaper’s revenue is derived from advertising. The subscription and news stand prices do not generate nearly enough money to cover the cost of operation. Advertising revenues for print newspapers have been steadily declining for years. The current recession has sharply increased the rate of decline, forcing many newspapers into crisis, if not outright bankruptcy. Some advertising revenue streams seem to be completely vanishing. PEW spotlights the formerly lucrative classified ads as an example of a vanishing revenue stream. Classified job ads used to be the province of the newspaper; now they are almost exclusively the province of on-line services such as CareerBuilder or Monster. Worse, with the economic downturn, many companies opted to go in the direction of “no-frills” on-line classifieds like Craig’s List, a free service which now is the classified option of choice for a large and growing number of commercial and private classified advertisers. The odds of classified advertising returning to the newspaper are nil.

The online news sources on the other hand, are still struggling to find a revenue model that will bring profitability. There are two primary types of internet advertising for news sites: display and search. Display adds include banner and pop-up graphics. These generate more revenue for the site, but are not the advertiser’s preferred method. In fact, revenues from display ads continue to be in decline. Search ads, dominated by Google, are a multi-billion dollar business. However, the revenue potential for news sites is weak, in comparison with other types of web site such as entertainment, finance or business sites.

The bottom line is that advertising revenue, the source of both operating capital and profit under the traditional American newspaper model, has not yet shown signs of enabling online news to generate enough revenue to support major news activities currently provided by traditional news organizations. The activities funded by that revenue which are in jeopardy include:

  • Gathering news
  • Writing news stories
  • Photographing newsworthy events
  • Disseminating news

On-line news sites tend to fall into several distinct categories:

  1. On-line versions of traditional print media. These sites provide reformatted and sometimes enhanced content developed for print delivery. Major sites, such as the New York Times and the Washington Post, benefit from large organizations with significant national or even international staffs. They produce a large amount of original content, incorporate a large amount of purchased wire service content, and have large infrastructure costs.
  2. Internet news aggregators. Sites such as Drudge Report, Lucianne and Real Clear Politics established their reputation on providing direct links to original on-line source material. Each became popular because their readers could quickly and easily gain access to articles and commentary on subjects of interest to them from within a single site. The links take the reader to the original site and allow the reader to continue to access material (and advertising) on the contributing source’s website. This makes the news aggregator, in effect, a distributor for the content developer.
  3. Internet commentary and discussion sites (blogs). This grouping is without a doubt the most numerous and the most diverse. A blog takes only minutes to start, with no start up and overhead costs other than computer hardware, software and an internet connection. The method of presenting news content on blogs ranges from careful attribution to outright plagiarism. Blogs rely heavily on content developed by traditional news sources, especially in the areas of politics and current affairs. Bloggers simply do not have the resources to replace the huge staff and infrastructure edifices of the established media when it comes to news gathering, direct reporting and mass-market dissemination. However, blogs and other forms of new media do provide for individual voices and opinions to be heard and they are increasingly providing significant counterpoint to the established media in the popular discourse.
  4. On-line only newspapers. As the print newspaper business becomes increasingly hard to maintain, due to vanishing ad revenues, a number of newspapers in markets ranging from very small to large are re-prioritizing away from print delivery to an increased emphasis on internet delivery of their newspapers. According to PEW, 37% of Americans get their news online. This business model is pretty new and encompasses elements of both traditional and new media. Examples include the Washington Examiner, which may reach more people over the internet than it does by traditional circulation, and the Beaufort Observer at the other end of the scale, which started out as a print alternative and switched to an online only format. They combine significant amounts of local news reporting and locally produced commentary on national stories with links to content on traditional news sites.

Those are the players and the challenge is to find a good business solution that provides for the continued development of news content as well as the fair distribution of that content by multiple players in the news business. Of course, the underlying conflict is the right to profit from original labor and development contrasted with the right to openly access and fairly use information.

More next time.

Cross-posted at What Caught My Eye.