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]

I read today's news. Don't let the lunatics out there intimidate you. Take care of yourself and stay safe.

[Anonymous]

I agree with Posner but I don't think he goes far enough... The free-riding problem isn't specific to print, Reuters and Associated Press are headed for disaster too. Once one news agency purchases a copy of a Reuters or Associated Press article, then every other online news agency can paraphrase it for free and keep any advertising money they have on their site. The result is that the wire services will have fewer paying customers and their quality will decrease as well.

If law can solve this problem, which I'm pretty certain it cant, its goal should be to funnel money away from the free-riders and towards the real news-collecting companies, whether they be print or a wire service. I don't think Posner's suggested strengthening of copyright would work, but it is a nice thought.

[Anonymous]

One point that no one has mentioned is that one big reason that newspapers are failing is that they are competing with the U.S. Postal Service. Take a look in your mailbox. Most likely, over half of what is there every day is bulk advertising. Thirty years ago, that came in your newspaper. Then the USPS made delivery of those ads cheaper by mail. Today, newspapers are making less than what they would have without the US government's competition for delivering ads. That means that they make less profit, print a lower quality paper, or have to raise subscription or ad prices.

[Anonymous]

This problem will correct itself. Either there will be few enough real news generators that they can safely charge for their content or there will remain several real news generators in which case we shouldn't worry about it.

[Anonymous]

1. A newspaper without readers is fishwrap.

Newspapers can voluntarily take themselves off the net.

If newspapers want to follow their readers to the net, the price is giving up control of their content to their readers discretion.

Readers don't want information that they can't use, that is, republish, copy and forward. Make these things impossible and we readers are gone.

Paywalls haven't worked except in a few limited instances where paying (e. g, Wall St Journal) is tax deductible.

2. The best coverage of any newsworthy event is from people who were there when it happened.

Reporters can't be everywhere, nor are they. Newspapers only report old news. They get new news off the net ... like their readers.

3. Newspapers haven't operated in the public interest for years. Public interest reporting, when it existed, was a frill made possible by the paper's monopoly delivery system profits.

There's no public interest in supporting the newspaper's obsolete business model.

There's better reporting in The New Yorker.

[Anonymous]

Whatever happened to local News content? I know more about what's going on in other countries and the like than I do in my own frontyard. 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 and hard workers. 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]

At least now we have John Kerry to save the day...good luck with that...

Kerry Aims to Save Newspapers

[Anonymous]

I really don not think that the newspaper will ever recover!:(

[Anonymous]

A study last year by the Neiman Foundation found that at least 85% of all the content on "news" websites, blogs, radio and television originated with a print newspaper or its free website. In other words, new media is much more reactive when it comes to news than proactive.

When the print newspapers and their websites go away, so will much of the blogosphere and alternate sources that everyone seems to be counting on.

[Anonymous]

This is an excellent post ,thanks a lot ,I'm grateful to you .

[Anonymous]

great post thank you

[Anonymous]

Another reason for the demise of newspapers is that the quality of journalism as been in decline for some time now, independent of economic circumstances.

Not only does one find news content online practically free but one can search a variety of sources and therefore perspectives and thus can gain a greater insight into whatever news story one is interested in.

Journalism that raises questions, that provokes, that stimulates thought is a thing of the past, at least in newspapers but online this is not so.

[Anonymous]

I do think that internet will take the place of newspapers.
tiffanys

[Anonymous]

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nice post
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[Anonymous]

Even without going into the copyright expansion argument, I can see one really big hole in this plan: the newspaper industry has been failing for decades, even before the Internet was available for public consumption.

Papers like the Los Angeles Herald-Examiner (RIP 1984) did not fail because someone stole their content by linking to it or by making it available for free online. They failed because their business model (and that of the whole newspaper industry) was based upon above-average profits, which are going away.

Publishers themselves killed off their industry when they let local coverage die in their zeal to focus on wire stories. If 500 papers all print mostly the same wire service stories, what reason is there for more than one or two of them to exist? If you want readers, you have to cover LOCAL news that is not available from any other outlet. As long as papers fail to respond to the needs of their communities, they are doomed to failure.

Many news stories are merely unresearched ripoffs of Wikipedia. Reporters do not dig into things, seeking to uncover, research, and reveal. Instead, they trundle from press conference to press conference and relish in the details of the latest celebrity divorce. Away with that tripe and trivia! Away with your moralizing and attempts to persuade me to your political view! Give me the what, the who, the where, the how, and the why, and let me decide whether it is good or bad and how to react to it.

That said, I love the dead-tree version of the news, but it is sixteen hours old by the time I have a chance to read it. It is far better to turn on the TV or read it online soon after the event, even without the delightful tactile sensations that accompany the print version of the news.

[Anonymous]

Anon., June 26, 10:55 am,

I guess paraphrasing is a form of flattery. ;)

From a former Paperboy, who spent hours, days, months and years delivering the News and trying to buildup his Route. At least, it helped pay for part of the College expenses down the Road. Even still, Saturday and Sunday mornings are still a B****. Not too mention, cheapsskate customers who are never home and don't want to pay up. :)

Anon., June 24, 5:17 am

[Anonymous]

http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&cPath=6_11&products_id=285745-1&highlight=

Kerry gave serious consideration to allowing newspapers an antitrust exemption so they could negotiate with Google rather than get picked off one at a time

[Anonymous]

And this is why, folks, why the future of the USA is doomed. When you have legal minds like Judge Posner propose such a stupid and boneheaded proposal to save a DYING INDUSTRY, you know that USA has no future.

I'm appalled at how misguided and SILLY Judge Posner's advice is.

[Anonymous]

your articles are interesting and thought provoking. keep posting.

[Anonymous]

I would like to link back to this article from my blog, to get more people to view your blog post, however I dont want to infringe your copyright.

I did after all find this blog post by a link from another site. Did they break the law?

What a ridiculous idea you have of the web.

Why provide a trackback url? That is just asking people to distribute your content on the web.

If newspapers are not willing to innovate then they will die. This is the same as everything throughout the years. Things move on with technology. It always has and it always will.

Or would you prefer technology to never evolve? Shall we all sit round our log fires in our caves, or is that too far?

Of course their ad revenue decreased. People realised that they couldn't work out how valuable it was to have an ad in printed media. They would always be taking a gamble. How many people read the advert? They have no real idea. People started to realise this when other ad streams appeared online. They could start to analyze their ads, and could positively tell how many people click on the link.

I dont read newspapers anymore. The question you need to ask is why? The answer is, half the time the newspapers have articles I dont care about, and the other half, I have already found out about somewhere else online.

[Anonymous]

i agree. however there is always going to be someone that doesnt have a computer that would like a paper. a paper is also less expensive for that day. GREAT blog.

[Anonymous]

JyYvhf comment1 ,

[Anonymous]

This is a blindingly stupid perspective by a lawyer who knows nothing of the underlying economics of newspapers.

Journalist salaries are a minor component of the cost structure of operating a daily newspaper.

Most newspapers are still profitable today. Some of them are making 30 to 40 percent profit margins.

Where newspapers are taking a financial hit, it's coming from drops in classified advertising that would NOT be protected by any sort of copyright law changes, and from the demolition of locally owned advertisers by Wal-Mart and Best Buy.

Where newspaper OWNERS are in trouble, it's their own damned fault for gambling big with other people's money. It's not Google or blogs that created this mess, and killing the Internet will not fix anything.

[Anonymous]

The people serving the copyrighted content already has to consent to being linked from 3rd parties. When they receive a request they are provided with information about where the user clicked on a link. They (the content provider) decide what content to provide- e.g. "Sorry, links not allowed from someguy.com".

[Anonymous]

Mr. Posner, I saw you speak a couple of times while I was at Harvard Law school and found you to be a thoughtful and intellectually honest man. Your post worries me because I feel like you are acting atypically in taking a very strong stance on this subject with little knowledge about the subject matter and with heavy biases towards the status quo merely because they are already enfranchised and established entities. I hope that you will re-consider your thoughts and continue to do research on the subject.

This is an example: I came to this post via a link on a techcrunch article after reading a paraphrased version of your thoughts on techcrunch. My presence (and others who are doing likewise) adds value to your site: a) if you had advertisements here people like me would click them, b) your reputation, your blog’s brand, and the memory of your arguments increases and becomes more popular with me and people I share you with, c) my comment actually adds value to you (increases likelihood of more visitors via search or links, and it also potentially helps achieve the goal of many blogs by challenging your opinions and making them more well-founded).

Online traditional news sources (like nytimes.com) do everything they can to get people to link to their content. To people who make a business on the web, links are described as "the currency of the web" and actually proprietize your content and extend its value across the web as opposed to devaluing it. Look into the SEO industry, look into back-linking, there is a huge amount of information here that you should learn about before taking a stance as strong as you have about repealing fair use and standard practices in a new technology that actually greatly increases social value by its ability to take advantage of zero marginal costs.

Sure the internet is a disruptive technology, and maybe perennial giants like the New York Times will have to change to survive as power is decentralized in the market to individuals via blogs and real-time news sources like twitter, but that doesn’t mean that the government should step in and arbitrarily save the most profitable embodiment of traditional organs just because they are a more centralized / organized / traditional interest group. They will survive, just in a more efficient / value-producing embodiment for society after they internalize the cost of finding this new embodiment (like every other company has to do in changing times). This shift is inevitable no matter the government safeguards that are imposed. The best way to increase the Good through changing times is to hold fast to our traditional values and to choose NOT to sacrifice them in cases of surprising new circumstances—from the Patriot Bill to repealing standard copyright protections / free speech laws on the internet.