Skip to content

The Story So Far -News from Everywhere: The Economics of Digital Journalism

January 7, 2011

It is interesting to note that mainstream news organisations had already started losing audience before the Internet became popular. Broadcast network news programs have been sliding steadily since 1980 and now reach slightly over 20 million viewers a night, down more than half in three decades. Newspapers began to experience significant circulation declines decades ago. Total daily newspaper circulation has fallen by 30 percent in 20 years, from 62.3 million in 1990 to 43.4 million in 2010, as people found other sources, particularly local television news, to be an adequate substitute.

The monopoly or oligopoly that most metropolitan news organisations enjoyed by the last quarter of the 20th Century meant they could charge high rates to advertisers, even if their audiences had shrunk. If a local business needed to reach a community to promote a sale or announce a new store, the newspaper and TV station were usually the best way to do it. Even if the station or newspaper could deliver only 30 percent of the local market, down from 50 percent a decade earlier, that was still a greater share than any other single medium could provide.

The move to digital delivery has transformed not just the business of news, but also the way news is reported, aggregated, distributed and shared. Each of those changes has an underlying economic rationale, and the media industry has sometimes been slow to recognize the changes or has been paralyzed by their impact.

    1.

      (i) Readers have access to far more information than they used to, almost always for free. But for publishers, the competition is nearly infinite, meaning much of the news has become a commodity, with pricing to match.
      (ii) In the most recent study by the Pew Research Center for the People & the Press, 65 percent of people ages 18 to 29 get their news from the Internet—outpacing television for the first time and far exceeding the 21 percent in that age group who rely primarily on newspapers. Among people ages 50 to 64, the Internet (34 percent) and newspapers (38 percent) are almost tied. Further, a January 2011 Pew study, 47 percent of American adults say they get at least some local news and information on their cellphone or tablet computer.
      Digital platforms provide ways for audiences to build quickly with lower marketing costs than in traditional media. And the shift to mobile provides news organisations with more opportunities for targeted content and advertising. But increased audiences don’t always lead to proportional gains; in other words, more people may be viewing a site, but that doesn’t mean revenue increases to the same or greater degree. Witness a recent report by McClatchy Co., the third-largest newspaper firm in the U.S. The company said the number of local daily unique visitors to its websites grew by 17.3 percent in 2010, yet digital revenue rose only 2.4 percent for the year.
      (iii). Digital provides a means to innovate rapidly, determine audience size quickly and wind down unsuccessful businesses with minimal expense. It took Sports Illustrated at least 10 years to get its formula right and become profitable; it took Huffington Post less than six years to go from an idea to a valuation of $315 million in its 2011 sale to AOL. The shorter cycles can lessen the length of time that innovations remain unique, relevant and valuable.
      (iv). Digital platforms extend the lifespan of journalism. “There is no such thing as ‘yesterday’s news.’ ” News organisations can make money from their archives as part of a subscription or pay-per-view service, or as part of a scheme to provide more content and build traffic and ad revenue.
    2.

      (i) Almost no one used to read the entire newspaper every morning, and audiences frequently tuned in and out of the network news at night. Yet, news organisations sold their advertising as if every page was turned and every moment was viewed. In the online world, content has become atomized, with each article existing independently of the next. The economic consequences of this fickle information-gathering are devastating for legacy news organisations. Michael Golden, vice chairman and president of the New York Times Co.: “We’ve lost the power of the package.” Low-cost aggregators compete with content creators for page views, and often win.
      (ii) Journalists today can find readers wherever there is access to the Internet. This is an enormous transformation after a century in which the reach of print journalism was limited by a company’s printing plants and trucks, and most broadcast news was tied to narrow geographic areas. By contrast, publishing online means that any article or video will become immediately available around the world, at no added cost. Journalists and media companies can go where the audience is, expanding markets at low costs. But the advantages that went along with distribution limits—such as protection against new competitors—are disappearing.
      (iii) Digital news organisations can track precisely how people share content. Publishers get free distribution with excellent, real-time information. At the same time, they are losing control of the distribution platform that generated such healthy profits.
    3.

      (i) News organisations can more easily build new audiences centred on specialised topics or interests. Highly focused audiences can provide more value to advertisers.
      (ii) Publishers have more information about their readers, in real time but many of these numbers are unreliable, misconstrued and prone to exaggeration. Media companies can measure the popularity of articles, videos or sections and adjust their strategy to maximise revenue and audience. But uncertainty around metrics inhibits advertisers from investing fully in the digital marketplace and depresses advertising rates for those who do take part.
      (iii) Digital platforms fundamentally change the customer experience, in ways that are both advantageous and harmful for news organisations’ economics. By tailoring content and advertising, publishers can charge higher rates to advertisers and win greater loyalty from users. But privacy concerns may lead to regulations that will limit the information publishers can glean about their users.
    4.

      (i) It costs a lot to produce the first copy of a newspaper or magazine. But the second copy, and the thousands or millions that follow, are relatively cheap. In the digital realm, many of those initial costs are eliminated . This is a particular challenge for companies that have sunk mounds of cash or taken on debt to make acquisitions that have high fixed costs vs digital competitors.
      (ii) On digital platforms, it is often hard to make sure that advertising supply matches demand. Because the cost of creating each additional page is close to zero, media companies can have a wide range of prices, charging the highest rates for the most desirable times, placement and audience. But all those unpredictable page views exert constant downward pressure on ad prices.
      (iii) Advertising is transformed in a digital format, and not always for the better. Some journalists may not realise this, but many of their readers and viewers see advertising as useful and entertaining. To get useful information from an online ad, a reader often must click and head to a new site, something people rarely do. And the more intrusive forms of online advertising—such as “roadblock” messages that take over the entire screen for a few seconds—upset the user experience. Compare this with Groupon, a company that offers online discount coupon, which has expanded rapidly into hundreds of markets and has turned down a $6 billion offer from Google. Users find that many digital ads on news sites convey little information and value.
      (iv) Many efforts to get readers to pay for content have been fitful, poorly executed and motivated more by ideology than economics. Users have unlimited access to most content, and publishers have unlimited access to most users. And one of the methods that advertisers have used to judge audience quality—willingness to pay—has evaporated as well.
Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: