Revolutions in the media economy (1): the context of crisis

September 14, 2009 · by David Campbell · media economy

Revolutions in the media economy Revolutions in the media economy (1): the context of crisis

The way news and information is reported and delivered to citizens is undergoing profound transformations, especially in the United States and Europe. In the last twelve months commentary has been rife with claims about “the death of newspapers,” the end of journalism, and the impact this crisis will allegedly have on democratic politics.

In a series of four posts, I want to consider the revolution that is reshaping the media economy through which we come to know about the wider world. This first post deals with the reasons for this upheaval and how it is changing the economics of news. Because of the ground to be covered in providing the context of these changes, this will be quite a lengthy discussion.

The second post will look at how the structure of information is changing in this new economy and what it means for the practice of journalism; the third post will ask what these transformation mean for photojournalism; and the fourth post will consider some of the implications for academic publishing. [Update: in December 2009 I added a fifth post on "the pay wall folly for photographers"].

What crisis?

In the US the transformation of the media economy has been mapped on Paper Cuts, which records company closures and job losses in journalism. With high profile newspapers like the Christian Science Monitor and Seattle Post Intelligencer giving up print and moving on-line, and the Rocky Mountain News shutting for good after 150 years, the decline of traditional news outlets has been hard to miss. In the UK, the local and regional press has been equally hard hit, with half of that sector facing closure in the next few years. These changes may not be repeated globally, but it is clear the established outlets of the print media economy are vulnerable.

Structural changes or cyclical problems?

Because the upheaval in the print media has coincided with the international financial crisis of September 2008 onwards, we have to ask whether the global recession is to blame, or whether there are larger structural problems in the media economy that are now coming to the fore?

Newspapers have been in decline for a long time. In America, overall circulation (when adjusted for population growth) is “about half of what it was in 1946 and is declining rapidly”. That decline has been constant since the 1960s, when other media, especially television, overtook papers as the primary source of news. The decline in readership by age has been constant for all groups, but given younger generations have always used papers less, there is no prospect of this trend being arrested in the future.

The way papers have been in competition with other forms of media such as television shows that the impact of the Internet on newspapers is not a qualitatively new phenomenon, even though it might be an especially important development. These changes were obvious after the 2008 US presidential election:

For the first time, more Americans are getting their news online than from traditional ink and paper, although the popularity of television still eclipses all other forms of media. In an apparently sharp shift in habits…the number of consumers using the web as a main news source surged from 24% to 40% in a year, overtaking the 35% who rely on newspapers. Television slipped from 74% to 70%.

These structural changes in audience behaviour intersected with changes in media ownership beginning in the 1970s and 1980s. City and regional papers in America were purchased by corporations trading on the stock market, which meant shareholders rather than readers became the primary concern of management. Balancing the books to ensure profit meant that journalism was cut, which in turn accelerated the decline in readership as people went elsewhere for news. In recent times, these corporate strategies have produced a further decline in journalism because servicing the massive debts undertaken to finance new acquisitions has required cost cutting on a grand scale.

The collapse of print advertising revenues during the current recession is regularly cited as a reason for the death of the newspaper. But as Nichols and McChesney have written, this revenue stream has been in long decline too:

Print advertising, which still accounts for the lion’s share of newspaper revenue, declined gently as a percentage of all ad spending from 1950 to ’90, as television grew in importance. Starting in 1990, well before the rise of the web as a competitor for ad dollars, newspaper ad revenues went into a sharp decline, from 26 percent of all media advertising that year to what will likely be around 10 percent this year [2008].

Long-term declines in audience and advertising, constant challenges from other media such as television, all hastened by debt-financed corporate strategies that put profit ahead of journalism, show that changes in the media economy will not be reversed even if the current global recession is followed by a period of renewed economic growth. They also show that the constant sniping at Google and craigslist for ‘killing journalism’ are way wide of the mark, even if both organizations have added to the current pressure on traditional news organizations.

Save newspapers or save journalism?

The current crisis in newspapers has led people to speculate at every opportunity about what strategy, product, technology or unknown revenue stream will “save journalism.” There are two things going on here that need unpacking, because how we approach this question conditions the sort of response we can imagine.

First, there is the assumption that journalism, as routinely practiced in traditional news organisations, is a public good essential to democracy because of its history of challenging authority. To put it mildly, this is viewing things through rose-tinted lenses. It’s easy to think that each and every news organisation is run by people who see Bernstein and Woodward’s pursuit of the Watergate scandal as a template for daily reporting. But recent history suggests that much reporting promotes the interests of those in power (think about The New York Times cozy coverage of the run-up to the invasion of Iraq, which subsequently prompted an apology of sorts from the paper) or recycles PR material (see Nick Davies critique of “churnalism” in the UK, and the “10 ugly truths about modern journalism.”). For sure, we need critical journalism more than ever, and there are some good existing examples, but overall it is something to create as much as it is something to protect. With survey’s showing Americans barely trust what they read or see, journalism’s belief in its inherent social value is ill-founded and needs to be re-established.

It is important to note there that this faith in the assumed relationship between journalism and democracy comes in part from what Daniel Hallin calls the “high modernist” understanding of journalism as “objective” and “socially responsible.” This journalism ran from the end of World War II until the 1980s, when more partisan and ideological coverage emerged, yet it is now being resurrected as the essential ethos of journalism rather than a historically specific form of the practice. Equally, we should not forget that the idea of objectivity as the defining characteristic of journalism was also central to corporate strategies in the post-war period – the best way to maximise audiences for advertisers was to draw readers in via a promise of non-partisan reporting, because the advertisers’ clients did not want to be associated with controversy.  All of which underscores Hallin’s argument (revisited recently by Jay Rosen) that journalism in recent times has been less about fearless objectivity than producing the “sphere of consensus” for political debate.

Second, there is the assumption that newspapers and journalism are the same thing. While we certainly want to save the good, critical, contextualising bits of journalism, we need to understand the difference between the practice of journalism and the particular modes of its delivery. Saving journalism is not the same as saving newspapers. As Robert Picard has argued:

Many…misunderstand the nature of journalism. It is not a business model; it is not a job; it is not a company; it is not an industry; it is not a form of media; it is not a distribution platform. Instead, journalism is an activity. It is a body of practices by which information and knowledge is gathered, processed, and conveyed. The practices are influenced by the form of media and distribution platform, of course, as well as by financial arrangements that support the journalism. But one should not equate the two.

Journalism was synonymous with newspapers so long as there were no competing media. The advent of radio news in the 1920s and television news in the 1950s broke that link, but the current debate proceeds as though journalism cannot exist without traditional print media organisations. Yet the financial analysts Moody’s have called newspapers a business suffering “structural disconnect” given that only 14% of their operating costs are dedicated to content creation (i.e. journalism) while 70% of costs are consumed by printing, distribution and corporate functions. There is no doubt that legacy organisations like The Guardian or The Washington Post carry important cultural baggage when it comes to producing credible reporting, but their journalism can be delivered to audiences much more cheaply and effectively through a variety of media, as is now the case with web sites, podcasts and the like.

This highlights what is most significant about new technologies in the evolving media economy. As Richard Stacey has observed, “the social media revolution…is all about the separation of information from its means of distribution.” Journalism is the information and newspapers are the means of distribution. The death of the latter does not equate to the death of the former.

How do we fund the good stuff?

The Internet has solved the problem of distribution and collapsed the cost of printing (assuming widespread access to broadband, which is not something that can always be assumed), making almost everyone a potential media outlet. Plenty of people are making money from the web (especially pornographers), but how can this new technology of distribution be used to fund the public information we need? While good journalism has been under financial pressure for the past thirty years, how can the social media future be leveraged to support investigative work?

The first thing that is necessary in answering this is to resist the temptation (again) to look back on an allegedly golden age that has been lost. We have to recognise that news and probing journalism has never made money by itself in order to pay for itself. We should not, therefore, be judging the social media future for reporting via the flawed assumption that we are looking for a business model that will do what has never previously been done.

We have to recognise that the media in the twentieth century has always been corporate, and that journalism has always been funded indirectly. Oliviero Toscani once noted that editorial was “the advertising of advertising,” the content which drew in the readership to view the material the advertisers paid for, thereby indirectly subsidising that information. The idea of a newspaper as a publication containing everything from comics to sport scores to political analysis to clothing advertisements was simply a function of those ads requiring a large print format that was expensive. Clay Shirkey has put it succinctly by noting:

The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn’t because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn’t really have any other vehicle for display ads.

The search for new business models for news is occupying the minds of people much more knowledgeable than me. However, from reading recent debates it is pretty clear that the new model will in fact be a series of diverse models producing revenue indirectly. As John Temple, the last editor of the Rocky Mountain News has declared, news organisations do not make money from news; news is the ‘brand’ for the organisation and the money comes from relationships and services only indirectly related to journalism.

When it comes to the question of how to ‘monetise’ journalism on the web, everyone is talking about “pay walls” – especially now that Rupert Murdoch has flagged his intention to introduce them on all his publications in the next year. However, a large number of commentators and publishers believe they are not the answer. Why are pay walls not the future solution to funding journalism?

This has been a raging debate in the last year – see this huge selection of recent articles and posts from a short time – but there are few if any examples of enterprises successfully restricting the openness of the web. This is because the Internet, and the link in particular, has fundamentally changed the structure of the information economy, enabling a distributed and collaborative conversation happening in different places at different times (think about the composition of this post and the links it employs, for example). If people using the web by following links come up against a pay wall – part of a site that demands a small payment or subscription for access to a piece of information – nine times out of ten they will go somewhere else where information is free and accessible. The result is that the information behind the pay wall is cut off from the audience and the developing conversation, and the author of that restricted information has had their public impact curtailed.

How do we know comprehensive pay walls don’t work for most news journalism? Take the web site that emerged in the wake of the Rocky Mountain News closing. InDenverTimes needed 50,000 subscribers paying only $5/month to support their operation. The RMN had 210,000 subscribers before it closed so this seemed reasonable – yet only 3,000 of those individuals were willing to go on-line and pay for the new site’s content. In contrast, think of how The New York Times ended its TimesSelect subscription in October 2007 and saw its web traffic increase by 40% as a result (thereby making its columnist’s views part of the public conversation and boosting advertising revenue through a larger audience).

Even if we leave aside the larger questions of participation in the new link economy, a rough analysis of a pay wall for Murdoch’s paper The Times suggests the economics don’t make sense. A common assumption for any business offering free versus paid versions is that only about 10% of the customer basis will migrate from the free to the paid. If 10% of Times readers were willing to pay, it is estimated they would generate between £4-8 million/year (excluding the administrative cost of running the on-line payment system). Given that the paper probably earns about £45 million in digital advertising, and that this amount would decline sharply with the lost audience who refuse to cross the paywall, thereby wiping out the revenue generated by the subscription if not much more, the value of the exercise seems dubious. And for a media company that has £445 million in revenue and £51 million in losses, the gain of £4 million+ seems hardly worth the effort even if there were no associated losses. On a different scale, a recent review of small-town American papers that have instituted some form of on-line charging, usually to protect print editions, shows mixed results, with declines in on-line audiences. It is therefore no wonder that most publishers “fear they could lose 75% or more of their traffic and banner revenue if they started to charge for content.”

Comprehensive pay walls might work if every single credible news organisation erected one at the same time, but that isn’t going to happen. In the UK The Guardian declared it will not follow Murdoch down the subscription route (partly because they recall the American audience they created while TimesSelect was in place), the BBC will always have news free for global users (albeit paid for by the indirect subscription of the license fee in Britain), and National Public Radio will continue to offer its 26 million listeners quality programming without direct payment (NPR’s executive director recently called the desire for pay walls a “mass delusion” of the media industry).

The desire to make pay walls a key strategy in the new media economy is historically odd given that news organisations have never relied on subscriptions for the majority of their revenues. As a rule only 20% of newspaper revenues have come from subscriptions with 80% from advertising. That means even if pay walls were somehow successful it would only ever be a very small success on the road to funding journalism. And as the only beneficial pay walls are likely to be small and partial – as part of a “freemium” strategy that leaves general news open to all while restricting access to premium content – the revenue they produce is likely to be even smaller.

A common response to this argument is to highlight the small number of successful instances of subscription, such as the Financial Times, the Wall Street Journal or a consumer publication like Which in the UK. However, what these outlets have in common is that they offer subscribers sensitive information with financial benefits (often paid for by corporate expense accounts) or, in the case of Which, they provide impartiality through advertisement-free reports. And if someone argues that micropayments for individual news stories might be a better approach than a comprehensive pay wall then — aside from questioning the idea there can be an ‘iTunes for news’ — we should ask if this is a good scenario: would journalists like their proprietors to judge the quality of their work by the number of consumers who had purchased their writing? Would serious investigative journalism compete well in an environment where pageview bonuses (like those at Gawker) were in operation?

That leaves funding journalism back in the troubled world of advertising, which as noted above, has been declining in print media for a long time. In the early days of the on-line revolution, it was hoped the vast amount of web traffic (“unique users”) going to sites would provide the basis for a new advertising model for the Internet. In part this has occurred, and on-line advertising remains a growth area in percentage terms even during the current recession. The trouble is that the values of this advertising is small, perhaps one-tenth of the print sector it is replacing. Except for Google and its distributed mode of advertising, “print dollars are replaced by mere online dimes” [Jarvis, What Would Google Do, p.125].

So neither pay walls nor advertising are the answer; what then? As noted above, instead of a single business model for journalism emerging, we are going to see a series of diverse models producing revenue indirectly (see the example of one profitable blog, Techdirt, here). And that will bring journalism into line with other digital industries. Take music for example – it is rumoured that only 10% of U2′s revenue comes from its songs/albums. The bulk comes from concerts, merchandising, video games, advertising, sponsorship and any number of other sources. It’s going to take some creative accounting, but funding good investigative journalism will only be as difficult as it has always been, and largely achieved indirectly.

Next…what all this means for the structure of information and the practice of journalistic inquiry in the new media economy…

 

 

(These thoughts stem in large part from my presentations on ‘the political economy of multimedia’ made to the MA Photography programme at the Dalian College of Image Art, China, in June 2008 and July 2009. I am indebted to Dave Clark for making those presentations possible, and for our on-going conversation on these issues.)

Photo credit: William Couch/Flickr, used under a Creative Commons license.

 

 

19 Responses to “Revolutions in the media economy (1): the context of crisis”

  1. New information relevant to the above arguments is appearing all the time, and I will update the post with new links, and note the changes in the comments here.

    Today I have added these links to the original post:

    * A New York Times story about the Financial Times pay model;
    * 10,000 Words post on “10 ugly truths about modern journalism
    * An interview on how Techdirt became profitable despite giving its content away for free;
    * A New York Times report on the low levels of trust Americans have for the news media

  2. For once I’ll violate my “I’m not commenting on other people’s sites” policy: this series of posts is most excellent! Very, very well done!

  3. Very important contribution to this discussion and critical links. I’m working on something that will show where some of the new money for real journalism should come from…

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