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The Story So Far – Dollars and Dimes: The New Cost of Doing Business

January 7, 2011

Journalism is expensive and good journalism especially so, however a 2007 study found that the newsroom accounts for only about 15 percent of a newspaper’s expenses.

Robust newsrooms have been made possible by the information and advertising dominance that news media traditionally enjoyed. Outlets with 20 percent profit margins had the luxury of not having to think about the cost of each story produced.

One print daily, in a mid-size market with a relatively low cost of living, recently did an analysis to determine how much various articles cost. They found the average cost per staff-written story was $227 and articles by stringers cost $85. Those figures don’t include editing, production or distribution, which could easily triple the cost.

This points to a central paradox of the online news economy: In an environment of sharply constrained ad revenue, the media’s traditional economies of scale break down. What look like powerful editorial and business assets for online journalism — like established brands and well-staffed newsrooms — are turning out to be liabilities, because they are accompanied by a severe reduction in pricing power for circulation and advertising.

One local TV station illustrates this paradox well. has a 150-person news staff and is a leading source of local news in its market and has operated a website for several years. On paper, the site has the assets to be a top online outlet for news about its city. It can draw on its sizable reporting resources and the promotional power of the station’s broadcast operation. And it has free access to a large supply of valuable “rich media” assets in the video and audio segments produced by its parent. It has built a large audience of around 2.5 million, yet the station’s general manager has struggled to make the site break even.

The cost pressure can be even more severe for local newspapers following their audiences to the Internet. A newspaper has enviable assets for putting news on the Internet—because it produces so much news text every day—and in theory it can also achieve enormous savings as it makes the switch to digital distribution, which does not require ink, paper and delivery trucks.

The notion of “trading dollars for dimes” captures the impact of digital distribution on the economics of the business. Newspapers, magazines and broadcasting are all characterised by high fixed and low variable costs; it’s quite expensive to produce the first copy of a newspaper, but it’s far cheaper to produce the second copy—or the millionth. Those steep fixed costs created a natural barrier to competition.

Online, the equation changes dramatically, the barriers to entry are radically lower than in print or in broadcast. The steep initial investment required to launch a media business is gone, and that has opened up opportunities for low-cost local or topical sites.

Add to this examples like Google, whose 175 million monthly users in the U.S. — generating billions of page views per month — allow it to capture more than 40 percent of the entire U.S. online advertising market.

Most legacy news producers operate in the large and difficult middle of the cost curve, with traffic too low to compensate for the fixed expenses of news production, despite the savings that come from publishing online.

In the newspaper industry, a rule of thumb has been that every 1,000 additional readers justifies an additional newsroom employee. The comparable figure in online news media is closer to one person on the editorial staff per 150,000 readers.

As far as costs are concerned the real advantage of digital-only operations is that they don’t have to “trade
dollars for dimes” — they are natives of the dime economy. By contrast, legacy news outlets must navigate a tricky cost transition when they go digital, cutting expenses and boosting online revenue while minimising the damage to the traditional advertising that still sustains them.

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