The Future of Newspapers--Posner

Warren Buffett, who is a wit as well as a multibillionaire, said with reference to the fact that Bernard Madoff's long-running Ponzi scheme came to light during the financial collapse of last fall that until the tide goes out, you don't know who's swimming naked. A year ago Becker and I blogged about the decline of the newspaper industry. A year later the decline has accelerated. The economic crisis has hurt the newspaper industry as it has so many industries. The question is whether it will recover (or at least rejoin its slower downward path of last year) when the economy as a whole recovers; or has the economic crisis merely revealed the terminal status of the industry. I am pessimistic about a recovery by the newspapers. One reason is the current economic situation. A serious, protracted economic crisis can result in changes in consumer behavior that persist after the end of the crisis. A change in consumption, even in some sense involuntary, can be a learning experience. People make what they think will be merely temporary adjustments in their consumption behavior to reduce financial distress but may discover that they like elements of their new consumption pattern; and businesses too, which have reduced their newspaper (and other print-media) ad expenditures drastically. They may never go back. Newspaper ad revenues fell by almost 8 percent in 2007, a surprising drop in a non-recession year (the current economic downturn began in the late fall of that year), and by almost 23 percent the following year, and accelerated this year. In the first quarter of 2009 newspaper ad revenues fell 30 percent from their level in the first quarter of 2008. This fall in revenue, amplified by drops in print circulation (about 5 percent last year, and running at 7 percent this year--and readership is declining in all age groups, not just the young), have precipitated bankruptcies of major newspaper companies and, more important, the disappearance of a number of newspapers, including major ones, such as the Rocky Mountain News and the Seattle Post-Intelligencer. Falling revenues have led to layoffs of some 20,000 employees of the remaining newspapers. Print journalism has come to be regarded as a dying profession. Online viewership and revenues have grown but not nearly enough to offset the decline in ad revenues. Even the most prestigious newspapers, such as the New York Times, the Wall Street Journal, the Washington Post, and USA Today, have experienced staggering losses. News, as well the other information found in newspapers, is available online for nothing, including at the websites of the newspapers themselves, who thus are giving away content. The fact that online viewing is rising as print circulation is falling indicates a shift of consumers from the paid to the free medium. The economic downturn has doubtless accelerated the trend, but economic recovery is unlikely to reverse it. To repeat my earlier point, many of the people who have switched under economic pressure to the free medium may find themselves as happy or happier and hence will not switch back when their financial condition improves. Moreover, while in many industries a reduction in output need not entail any reduction in the quality of the product, in newspaper it does entail a reduction in quality. Most of the costs of a newspaper are fixed costs, that is, costs invariant to output--for they are journalists' salaries. A newspaper with shrinking revenues can shrink its costs only by reducing the number of reporters, columnists, and editors, and when it does that quality falls, and therefore demand, and falling demand means falling revenues and therefore increased pressure to economize--by cutting the journalist staff some more. This vicious cycle, amplified by the economic downturn, may continue until very little of the newspaper industry is left. So what will happen to news and information? Online news is free for two reasons. First, in the case of a newspaper, the marginal cost of providing content online is virtually zero, since it is the same content (or a selection of the content) in a different medium. Second, online providers of news who are not affiliated with a newspaper can provide links to newspaper websites and paraphrase articles in newspapers, in neither case being required to compensate the newspaper. As newspaper revenues decline, newspaper content becomes thinner and thinner--but by the same token so does the linked or paraphrased newspaper content found in web sites that have no affiliation with a newspaper. If eventually newspapers vanish, online providers will have higher advertising revenues (because newspaper advertising will have disappeared) and may decide to charge for access to their online news, and so the critical question is whether online advertising revenues will defray the costly news-gathering expenses incurred at this time by newspapers. Imagine if the New York Times migrated entirely to the World Wide Web. Could it support, out of advertising and subscriber revenues, as large a news-gathering apparatus as it does today? This seems unlikely, because it is much easier to create a web site and free ride on other sites than to create a print newspaper and free ride on other print newspapers, in part because of the lag in print publication; what is staler than last week's news. Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

Comments

[Anonymous]

As always a thought-provoking post. But I wonder about a few of your points:

1. You say most of the costs of a newspaper are journalist salaries, but I would think these trivial compared to the production and distribution costs of the newspaper itself.

2. You say that online news is free, but that is so only in the sense that most sites don't charge direct fees to the readers in the form of subscription or pay-per-view. (The Wall Street Journal has a hybrid model, with some summaries and content free and the rest charged by subscription.) Online news isn't truly free, for the sites take advertising to underwrite their (lesser) costs. So reading the "free" content also means being exposed to the ads.

3. Of course the same is true in part of the printed newspapers--the price to the consumer is subsidized by advertisers who, again, get exposure to readers. Even newspapers that are public companies don't break down their costs and revenues in a useful way on the balance sheet, but one might wonder if the breakdown is something like the advertising revenue pays for the journalist salaries while the price for the paper covers the printing and distribution costs. If that were true, then eliminating the media and moving all the advertising over to the online model would mean no loss of profits.

4. Again no one knows how the breakdown of advertising and payment by consumers nets out for the printed paper, but the breakdown I suggest is supported by the success of broadcast television, which charges nothing to consumers much as much online news charges nothing. Yet broadcast television is still profitable, so apparently the advertising more than covers the costs of production and distribution.

5. The biggest disaster for the printed papers has been the loss of classified ads, which were apparently the cash cow, now migrating to online venues such as Craiglist, where they can be easily searched (and where the advertisers do the labor of typing and categorizing). Newspapers tried to create their own classified portal in 1999, but were stymied by their own fear of cannibalizing the print market and possible antitrust intervention. The joint venture failed miserably, while Craigslist, on a development budget of almost nothing, proceeded to eat the lunch of the printed ads. The decline of the printed papers has been greatly hastened by the loss of classified.

6. It may be, as you say, that today's online venues simply link to journalism paid for by the remaining newspapers and therefore, in the long run, are running an unsustainable business. But a new model of journalism is emerging with the collaborative tools of the Internet, where individuals post photos, videos, and facts they have access to and the online community stitches this together. Obviously this method is in its nascent form and may not replace "professional" journalists (most of whom do little if any investigative work anyway). But maybe it will.

My experience working in the newspaper industry as a consultant during the early years of the Internet suggests their management was more resistant than other industries to accept the reality that a new medium required new business approaches. Perhaps because so many of the leading U.S. papers are privately-held, family-owned businesses (or largely so), the inability to adjust to a disruptive technology was higher.

[Anonymous]

A third reason online news is free. There is no assurance of editorial rigor, and, thus, you get what you pay for. GIGO

[Anonymous]

A newswire duopoly would be dangerous. I share Professor Becker's optimism about social networks, but I'm not yet convinced that the cloud can exactly replicate Woodward-style investigative journalism.

However, we still have the very profitable Economist. Network news and cable news could pick up some of the slack as well. These outlets also have an online presence and could hire recently laid-off journalists at a discounted rate to bolster their credibility, give them exclusive coverage, and provide fodder for discussion on air. I wouldn't be surprised if we see tighter integration in currently existing media empires, like Rupert Murdoch's.

[Anonymous]

Tow points:

1. The cost of creating the content is by far the largest line item on a newspaper's P&L. What's happening is that we're losing edited content.

Edited. Content.

2. The revenue from online doesn't even come close to covering the cost of creating journalism.

Whoever said "GIGO" is dead-on.

"News" has morphed into entertainment; one need look no further than Rush Limbaugh for proof (although there are equals on the left as well).

It says a great deal that Gen X & Y regard John Stewart and the Daily Show as their most trusted source of news. Stewart may be a comedian, but he's also perhaps the best interviewer out there today.

Unless publishers can come up with a model that supports the process of creating high-quality, edited content, we are at risk of losing perhaps the single most important underpinning of our democracy.

[Anonymous]

Sorry - "two" points.

[Anonymous]

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[Anonymous]

http://www.becker-posner-blog.com/archives/2009/06/the_future_of_n.html

[Anonymous]

Whatever happened to local News content? I know more about what's going on in the likes of Bosnia-Herzegovina and the like than I do in my own backyard. It has become so much more easy and cheaper to just "tear" off a News story from the Wire Services than hire and train News Reporters. As for the new "Medium" of online content, the "Press" is just going to have to adapt or perish. Much like it has with Radio and Television.

[Anonymous]

Bar access using copyright? Why, I think media companies have sufficiently distorted the copyright laws enough in this regard. I don't think copyright owners should be given any more rights--and using copyright law to raise revenue's for newspapers is probably not the best way to "save" the newspaper industry.

[Anonymous]

I am somewhat troubled by the reasoning in this portion of your piece, which you use to support your conclusion that changes in the copyright laws are necessary:

"Imagine if the New York Times migrated entirely to the World Wide Web. Could it support, out of advertising and subscriber revenues, as large a news-gathering apparatus as it does today? This seems unlikely, because it is much easier to create a web site and free ride on other sites than to create a print newspaper and free ride on other print newspapers, in part because of the lag in print publication; what is staler than last week's news."

Underlying your assertion is an unstated premise that consumers view all websites equally. I am not sure that I agree. Using your example, I think the New York Times enjoys the benefit of a strong reputation. As such, consumers will be more inclined to patronize NYTimes.com than a competing website that aggregates and regurgitates its news from The New York Times.

It's a bit unclear in your blog post whether you're also assuming that NYT will have to begin charging for its content if it fully migrates to the Internet. Again, this is a premise that I think must be more fully assessed.

Ultimately, I think the copyright solution you have proposed carries with it many problems; problems that themselves warrant an entirely separate treatment. I'd be fascinated if you'd take that topic into consideration for a future blog post.

[Anonymous]

"Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion."

Yikes! This statement is so disconnected from reality, I'm not sure where to begin.

First, you already need the copyright holder's consent to access copyright materials. So there is no "expansion" necessary. Unrestricted, public access to online content is already by their consent. The license to access it is implicit in putting on the net. If the copyright holder did not want their content online, they do not need to put it there. If other do it, then they risk copyright infringement.

Second, expanding copyright protection to exclude paraphrasing is about the most ridiculous idea. Quoting and citing sources (even block quoting) has a long history in both journalism, writing and scholarship. Why would you treat the web differently? How would you ever detect "infringement" of someone slavishly copying text (as a paraphrase) from a printed version and simply linking to the online story?

Third, I'm not sure how expanding copyright to include linking is helpful. A "link" is effectively a plain text source citation. Expanding copyright protection to limit linking would either introduce inefficiencies (copy & paste the source citation into the url bar) or go to far and prevent people from adding footnotes. Again, source citation has a long history in both journalism, writing and scholarship.

Finally, I think that Judge Posner assumes too much about the effects of online access to content. If online access to content is killing the revenue making portion of the business, then what rational company would keep publishing online? The truth is that online readership is still readership. Readership means relevance. Relevance means advertisers. Advertisers mean money.

[Anonymous]

Another interesting thought concerns the effect the decline in print journalism will have on writing and literature. Many great (or OK) writers began as journalists. Print journalism is perhaps the most abundant source of written communcation. As journalism focuses less on long-form articles and more on other forms of communication (videos, tweets, etc.), the effect on writing and literature could be profound.

[Anonymous]

If the traditional news gathering and newspaper circulation becomes an unsustainable business model (ads won't pay for it anymore), then the newspapers may become outlets for interest groups. Instead of having journalism intended to be objective, having newspapers published by interest groups will promote their causes at the expense of others.

[Anonymous]

I think one other feature that (so far at least) is lacking in on-line reporting or blogging/commentary is an overall lack of investigative journalism. It can take months or years of continuous research and publication - a recent example is the Chicago Tribune's investagation of political clout and student admissions at the University of Illinois that is still on-going and in litigation over FOIA requests, not to mention all the Rod Blagovich stories. These are quite costly to conduct.

Plenty of local government and business scandals are uncovered this way (and certainly stories with national implications like Watergate). Is there a substitute for this as the newspaper model declines? It's not part of, at least as far as I am aware, the Reuters business model.

[Anonymous]

Re comment by Anonymous at 9:33 A.M.:

This may be the way forward. McCain/Feingold prevents (or is intended to prevent) money from flowing into politics and thereby political advertising.

If a political group simply bought or started a newspaper, it would seem that it could spend as much as it wants and publish anything it wants with First Amendment protection.

[Anonymous]

Newspapers have also assisted in accelerating their own demise. A few issues that I've noticed in many "reputable" newspapers:

#1 The post acknowledges liberal bias, but not only is the information often slanted, articles often fail to present any alternative viewpoint.

#2 Headlines, written to grab attention, are misleading relative to the actual content of the articles.

#3 The one advantage that the "reputable" papers should exploit is fact-checking. There have been a number of articles in these papers that I've seen that are blatently lacking in this department. Granted, they are the exception rather than the rule, but if I can't trust the New York Times to provide more thoroughly researched content than a blog, why bother with them? Even when they make an error, they do a poor job of informing the readers of the mistake (perhaps a deliberate ploy to conceal their errors, thereby signaling accuracy?).

[Anonymous]

Gary Becker and Judge Richard Posner is correct that newspapers on the decline.

This became evident with the introduction of online word processing and the Internet being married at the altar of E-Mail.

Television certainly was the foreplay of what was down the road with the shortening of the attention span of those watching as a responsive parties in this media of information.

It also signals the future for reading and books.

Good writing will become a thing of the past

We have already the future in many magazines. Most aren’t worth the paper that they are printed on. Here, articles have become shorter and less critical, lacking a knowledge base.

A good example is The American Scholar.

How many readers would like to have the old Scholar back with Joseph Epstein at the helm?

Now we have blogs like this one, offering little of nothing of what will be held in value in the future, a source documentation of those who had so much and at the same time having so little to show.

Newspapers are only the tip of the Iceberg!

Thatguy

[Anonymous]

They don't really need copyright protection, they just need to not give away their content. I mean, are the papers in the business of selling papers or supporting the Internet?

And if you think that it costs little to maintain a newspaper Web site, as your local editor about the size of his paper's IT department.

[Anonymous]

Or maybe the survivors of the market shake out will still produce good stuff. Slate has some pretty decent articles and I don't see them crying about losing out on the dead-tree medium.

[Anonymous]

"Online news is free...." Not quite, if I'm paying(monthly)an internet provider like Comcast five times the cost of my local daily newspaper. If you want to regulate someone, regulate that provider.

[Anonymous]

In what respect is this discussion related to higher quality newsweeklies?:

http://www.theatlantic.com/doc/200907/news-magazines

People will be willing to pay for quality--readers of the economist and other high-quality weeklies expect a degree of reflection and analysis that isn't generally seen in daily newspapers.

[Anonymous]

I think that it's interesting to assume that the reason readers are migrating from printed newspapers to online versions is because the online versions are free. Perhaps that's part of it, but I think that it's also the case that the online version is simply more convenient in today's world. People at work can (and do) check the website of the NY Times throughout the day - how many regular employees have you ever seen kicking back with a printed newspaper on company time? Online newspapers are also available to our increasingly mobile world via iPhones, Blackberrys, and other PDA / smartphone devices. While it is true that the printed paper is mobile, there's a difference in the convenience of scrolling through the news on your phone or PDA and between dealing with folding and unfolding a newspaper.

In a way, this is similar to the debate about .mp3s and the music industry. For years, the music industry decided to litigate rather than innovate. Consumers didn't flock to .mp3s primarily because they were free - they did so because they were convenient. They wanted their media when they wanted it, without having to make a trip to the local Tower Records store. One only has to look at the success of the Apple Music Store (and its competitors) for confirmation of this. When music was made available to consumers in an instantaneous and convenient form for a nominal fee, consumers were more than willing to buy it rather than obtain it illegally. The other thing that Apple did to change the way that music was sold was to offer individual songs as opposed to full length albums.

I think that if newspapers ever want to start obtaining revenue from consumers through their online operations, they should not look towards the subscription model (a la the now defunct Times Select) but rather the microtransaction model. This is similar to the music industry moving away from offering only full CDs (~$15.99 a pop) to offering individual songs (~$.99 per). It's a lot easier to convince someone to pay a penny or dime per article that they consume than to ask everyone to pony up $15 or $30 / mo (which is what it would have to be if the industry were to attempt to sustain itself entirely on such revenue). You could always have subscription plans for high volume users or corporate / academic environments, but I think microtransactions are an intriguing solution for the average consumer.

[Anonymous]

Draconian copyright laws are not the answer.

The newspaper's old business model may be dead. This doesn't mean that there is no business model by which news gathering can make economic sense. National Public radio, for example, receives very little of its funding from government sources, even though it has a government charter. The Colorado Independent, in the sidebar, also has a grant based business model, rather than an advertising or subscription based business model.

Before commercial investor owned, advertising funded companies came to dominate news collection in this country, political parties provided a funding base for most newspapers, including one of the predecessors of the Rocky Mountain News. Before newspapers that served the general public came along, we had "foreign correspondents" whose business model was similar to that of today's investment analysts. Notably, newspapers in a fair share of the world manage without any copyright protection at all for their news reporting.

The vast majority of the fine arts sector operates on a mixed of fee for service, advertising and contributions for donors, something close to the National Public Radio business model. So do many private educational institutions, and most private hospitals started out that way although many are now profitable from fee for service alone.

Indeed, the Associated Press, as its name suggests, is not itself an advertising revenue driven, investor owned operation at all. It is a producer cooperative of participating newspapers, in which participating newspapers generate much of the total content available. Most of the member newspapers are advertising revenue driven, investor owned corporations, but the AP is not. Members contribute both funds and content to the shared enterprise with funding requirements based on audience size, just as NPR member stations do.

Also, fair use blogging of news stories is a big part of what drives traffic to newspaper websites. The notion that this kind of citation reduces newspaper website traffic is probably empirically wrong.

In Japan and New Zealand, at least, probably elsewhere, part of the way TV and radio ccontent is paid for is with a tax on each TV and radio you own.

The item by item licensing contemplated by copyright law is horrifically cumbersome in practice and if it was really required in practice, every commercial radio station in the country would soon collapse under a mountain of copyright suits. In fact, the only way commercial radio exists at all is for the copyrights in the vast majority of the songs to be available by paying a small number of blanket licenses based upon audience size, and then to impose record keeping requirements on licensees. The data from the radio stations is then used to divy up the the royalties to artists and music studios and others entitled to them.

Why do I get a newspaper even though I could get most of the content online? Simple. Ease of use and scanning issues aside, I want the coupons that come with it and it is nice to have the physical paper around the house for various purposes (like surface protection from children's paint projects).

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