News Lawyer

Online Ad Spending by Format (in millions), 2009. Source: The Atlantic

Thus asks Derek Thompson of the Atlantic, who offers some depressing statistics for those folks hoping to make a dollar or two in online journalism.

Thompson emphasizes the lack of profitability for the percentage of audience ushered in through search engine results.  Like someone looking for a specific number in a phone book, people who enter via Google and its fellow search engines come with tunnel vision – they know what they want and tune everything else out.  Online advertisers know this too, so the audience is effectively reduced by almost half right away.  Rich media ads are still not fully developed, and competition from Craigs List and eBay has eviscerated the classified advertising market.

In a prior post, I discussed this issue in light of a talk with Walter Hussman, publisher of the Arkansas Democrat-Gazette and firm believer in the power for paywalls for local content.  Hussman believed that people would pay for local news for which the national media and bloggers could not devote sufficient resources to compete.  People are willing to pay for local news and quality niche content such as that offered by The Wall Street Journal, but are not as eager to pay for general content, even from brands such as the New York Times.  Newsday, Long Island’s chief local newspaper, recently switched to a Hussman-type local paywall model and only attracted an initial readership of 35 people.

Newsday and other would-be local media behemoths are plagued with mite-sized competitors – mini-local dailies that operate with lean staffs and rely heavily on freelancers, who in turn barely eek out a living.  Former internet behemoth AOL has also entered into local markets through its Patch local dailies.  Competition from local cable news stations and bloggers makes even the local solution to sustainable profits less than optimal.

A real solution might lie in the shoals of our flagging economy.  With venture capital drying up, local startups may be unable to attract the necessary capital to compete with incumbent news carriers, even with lean staffs.  Incumbents can survive on brand equity when investment capital is scarce.  “Ride out the storm,” say the wise men, failing to mention that such advice has been offered to online ventures since the birth of the internet.

Media watchers have long theorized solutions such as micropayments as a possible solution to media unprofitability.  Readers might be willing to pay a penny per article, so the theory goes, so why not squeeze those pennies and watch them add up to real cash?  Unfortunately,  the idea has never really taken off.

Thompson teases his readers by promising a near-future update with solutions beyond online advertising and paywalls erected by newspapers such as The Wall Street Journal.  He would be a Pulitzer-level media hero if he could offer wisdom to reverse the slide, which promises razor-thin profits at best for the foreseeable future.

Walter Hussman, Publisher of the Arkansas Democrat-Gazette and scourge of free content, appeared at a luncheon on Thursday at Columbia Journalism School to push his argument that newspapers should not be in the business of giving away free content. Hussman contended that the decline in newspaper circulation has in large part been due to the media strategy of newspapers giving away their content for free. Consumers, being rational, got their news without needing to spend additional money.

Buttressing his argument with statistics from his experience of charging for content with the Democrat-Gazette, Hussman compares the success of newspapers who charge for content versus those who do not. The numbers are compelling. Expounding on his earlier column in The Wall Street Journal, Hussman made a strong case that newspapers would fail to offset revenue lost in declining print circulation with revenue generated from online visitors. Citing the Inland Cost and Revenue Study, Hussman claimed that newspapers generate between $500 and $900 in revenue per subscriber per year, versus $5 to $10 per unique visitor per year.

These numbers tell only part of the story. Hussman then compared circulation figures for the Democrat-Gazette with the Columbus Dispatch. The Columbus Dispatch and Arkansas Democrat-Gazette are the sole mainstream dailies in their respective markets, both of which are similarly-sized state capitals. The difference between the two newspapers? The Dispatch switched to a free content model on Jan. 1, 2006. In its first six months of offering free content, the Columbus Dispatch’s daily circulation declined 5.8%, compared with a loss of 0.4% daily for the Democrat-Gazette. This comparison reflects national trends for newspapers that have decided to offer their content for free. Under Hussman’s analysis, it is difficult to see why any newspaper would offer its content for free.

However, there are real world problems with Hussman’s analysis. Most notably, Hussman’s strategy seems to require either establishing a dominant market position on local news gathering (i.e., the Democrat-Gazette in Little Rock), or serving a compelling product to a niche with disposable income (i.e., The Wall Street Journal to financiers). No less a robust content provider than The New York Times felt compelled to abandon its subscription model, hemmed in by the reality that it is neither a commanding local voice nor a provider of exquisite niche content. The evidence cited by Hussman suggests two possible strategies for newspapers going forward: first, to leverage local market power on news by charging for local content, which is difficult for larger publications with a national focus to replicate successfully. Under this model, national news offered on web sites would be posted for free, as such news is easily found elsewhere. Second, if local market power is not lucrative or too difficult to attain (such as in New York City), then obtaining a special niche or specialty would be the preferred strategy, perhaps with a component of local news. If local news is niche content that people will pay for, then large city dailies without dominant market positions might consider purchasing the smaller neighborhood newspapers, establishing neighborhood dominance to leverage for paid readership. Without establishing some kind of dominant market power, a newspaper in a multi-daily metropolis would find itself compelled to offer free online content, as any price charged would be immediately undercut by its competition. And web content does earn some money for the newspaper. Just not nearly enough.

Hussman’s arguments harken back to the early days of the dotcom boom, when the conventional wisdom was to spend money to obtain dominant online market positions. Once obtained and with hard-earned goodwill, the dotcom would finally be able to earn a return on all of the capital initially invested. The logic worked out well for some (ebay and Amazon), but failed more often than not. With control of the local Little Rock market and comparatively strong circulation, Hussman has found that it is good to be the last man standing.

Great musings from Tony Long of wired.com regarding journalistic (and human) desensitization to suffering. He blames it on culture’s stylized violence that diminishes our ability to care for those we do not already know.

Long says censorship is not the answer. I agree. I wonder, though, if journalists and future journalists might use a little restraint in looking for stories that might sell but pollute our cultural puddle?

A recent news item cited Senator Hillary Clinton for receiving sizable campaign contributions from Chinatown busboys and waiters, most of whom are presumably living on the margins and some of whom have already (proudly) said that they were merely following orders from community leaders. Donating at the behest of another person is strictly prohibited under federal campaign finance laws.

Catching Hillary and other politicians who garner money from suspect sources is a good thing. Our political offices are not for sale. But what is less clear is whether putting all of this information on the internet does not in some way infringe on other freedoms.

By analogy, the internet is in some ways like new traffic light photo technology that catches drivers who roll through empty intersections, or perfect speed traps that nab otherwise good drivers doing 75 on a long stretch of barren highway. Sure it’s still the law, but the law was passed in a time when enforcement was nowhere near 100%, a critical component for policy makers trying to ascertain the impact of speed limits on traffic patterns, safety issues, simple economics and overall convenience. Better enforcement throws the prior agreed-upon equilibrium of weighed interests out of kilter.

There is a lot of information about each of us that is public but not very accessible. In the pre-internet era, it would take a motivated person to dig up, say, my voter registration or property records. The information wasn’t private per se, but it was effectively shielded from public view due to the effort involved in digging up the public records. Newspapers could print my information and the information of my neighbors, but voter rolls and other mass quantities of data do not make for compelling reading.

The New York Times ran a fascinating piece on Subprime lending, tying in data on rates of subprime lending to community maps. The riveting maps took complex data and made it accessible and understandable to the general public. In the coming months we are going to see exquisite internet mashups showing public information laid out in maps of all types. This mapping is a prime component of the New Media Workshop course at Columbia, a cornerstone of the New Media concentration. Obviously, these maps are going to make data mining much more convenient. But therein lies a subtle problem.

There is a lot of public information that, while public, we would prefer not to have broadcast. As the mapping software gets more intricate and more data gets mined, the public will have access to maps showing all sorts of interesting data about their neighbors that they would not otherwise work to have access to. For example, the voter rolls are public information, but are not generally accessed by the public. Conceivably, local community papers could create maps showing the addresses of Democrats and Republicans on a resident-by-resident basis. That access might not be comfortable for Democrats in Crawford or Republicans on the Upper West Side, as their neighbors would suddenly know who the specks of off-color are in their community’s otherwise monochrome map. Such minority status could well be a stigma for the outed. Over time, extreme minorities might take to registering themselves as something other than their preferences, yielding less speckled, albeit more inaccurate, maps, and distorting our culture and political system. Criminal records, property tax data, voter information – all of these could conceivably be mapped, giving all members of a community a far more intimate look at their neighbors than they had previously.

Our privacy culture and laws were in part based on the premise that public information would be mined only by the most overzealous of neighbors. Now, public information on the internet makes everyone that overzealous neighbor. Public information may be crucial in checking the appetites of avaricious politicians and for informative pieces like the aforementioned Times article. But, without revisiting what should lie in the public sphere, our past and present will soon be fodder for our neighbors, the world over.

One stab at the new journalism business model – putting the investigative journalists upstream of the newspapers.

This model might actually work. Investigative journalism is expensive and newspapers are finding that they cannot afford to keep this infrastructure in-house. Instead, investigative journalism would be outsourced to an organization specializing in the field, which would then sell pieces to the newspapers or publish their own. There might be significant economies of scale and savings associated with an organization specializing in investigative journalism. Such an organization could keep more newspapers in business, who could then concentrate on less expensive endeavors. On the other hand, this kind of wholesale investigative journalism organization might be more opaque – easily politicized and steered towards investigating certain parties and topics, with the public less able to discern the bias of a supplier of news up the supply chain from the newspaper rather than the bias of the newspaper itself.

On Forbes.com, some more bad news for journalists and those who aspire to the profession. The relevant quotes:

Another endangered species: journalists. Despite the proliferation of media outlets, newspapers, where the bulk of U.S. reporters work, will cut costs and jobs as the Internet replaces print. While current events will always need to be covered (we hope), the number of reporting positions is expected to grow by just 5% in the coming decade, the Labor Department says. Most jobs will be in small (read: low-paying) markets.

And broadcast journalists aren’t immune to this trend, either:

Radio announcers will have a tough time, too. Station consolidation, advances in technology and a barren landscape for new radio stations will contribute to a 5% reduction in employment for announcers by the middle of the next decade.

The writing is on the wall at Columbia Journalism School, where, according to one professor, even senior print faculty are stressing the need for all students to learn web skills. Ironically, some print students are more resistant to this emphasis than the professors, apparently fearing the technological learning curve or perhaps clinging to obsolete romanticisms of the profession.

The internet has changed the journalism economic model, with bloggers supplying content that journalists had previously charged for in print publication. At work here is the tragedy of the commons – bloggers and citizen journalists typically use news unearthed by professional journalists without compensation, republishing and repackaging the original news items with opinion. Each republishing and repackaging of the original reported content reduces the demand for the actual original form of the content – much like the case in the music industry and file-shared songs. With most news organizations losing money, the issue is whether an economic model can be developed to encourage reporting despite the lack of financial incentives to report. For even if intellectual property law developed in a way in which reported facts are protected by copyright, journalists would then only stand with musicians, trying to establish the fame necessary to generate ancillary income from (reporting) gigs that generate so little revenue of its own. By emphasizing New Media, Columbia Journalism School is trying to give its students the skills necessary to be one-man bands – to report and produce content in a variety of mediums for distribution over the internet. Each journalist would then be a hybrid – a reporter/publisher/producer/writer/techie – to varying degrees. To bring the analogy one step further, Columbia Journalism School is one step closer to making the logical yet startling concession – that traditional newspapers will wither like record companies, increasingly irrelevant distributors of content in the online world.

(Hat Tip: Instapundit).

At the risk of beating the musician-journalist analogy to death, here’s one more example, from Wired.com.  Jonathan Coulton combined a “name your own price” strategy with quirky music to build up a very loyal fanbase.  Would a name your own price work in journalism?

The Western Standard is out of business (or at least, the print business).