09 December 2010

Future of Newspapers

There has been endless hand-wringing over the future of the newspaper industry. Seldom a month passes with a major new column or editorial, trumpeting the importance of a free press and wailing about the trends.

Make no mistake: a free press is vital and the trends are dismal. But I so seldom see something new in the mix; it seems every time Columbia Journalism Review highlights another of these columns, they say the same thing. "Who watches the watchmen? Ad sales are falling. The Internet is the future, but how?"

John Lanchester's column in the latest London Review of Books, titled "Let Us Pay," is no exception. But he says it succinctly, and offers the most persuasive case for the future I have heard.

Between 2004 and 2009, the US newspaper industry lost 34 per cent of its readers; the UK industry lost 22 per cent. Since then, the speed of the downturn has increased. In the last 12 months alone, seven broadsheet titles in the UK have seen their sales decline by more than 10 per cent. In the US, in the first six months of this year, the Chicago Tribune lost 9.8 per cent of its remaining readers, and the Los Angeles Times 14.7 per cent.

The trends in newspaper advertising have, if anything, been even worse. When circulation goes down, ad revenue goes down too, because the ads are reaching fewer readers and are therefore worth less. Compound this effect with a general advertising recession and the numbers are horrible. In the US, advertising revenue declined for six quarters in a row through mid-2009: in fact, it not only declined, but did so at a rate which increased every quarter. Total advertising dollars fell by 19.9 per cent, on a year-to-year basis, in the quarter to March 2009. Even online advertising fell. And things continued to get worse. In the next quarter, advertising fell by another 28 per cent, year-to-year. In the quarter after that, it fell by another 27 per cent. In the quarter after that, by 23.7 per cent.

This skewed and unusual arrangement reflects the fact that in the US, the newspaper business is a local one, with a strong tendency towards de facto monopoly. Most of America’s cities have (or had) a dominant newspaper, and that paper had a monopoly of classified advertising. During the long years of the 20th century’s newspaper boom, that monopoly was the proverbial licence to print money. It was this gushing faucet of classified revenue which allowed the elaborate superstructure of American newspapers to develop. The well-staffed offices, the air of self-conscious seriousness shading into pomposity, the tendency to file what from a British point of view always seemed several hundred words too much – all these features of American papers were underpinned by the easy money of monopoly-based classified advertising. It is one reason lessons from the US are not instantly generalisable to the UK, where the newspaper market is national, and as competitive as any equivalent business anywhere in the world. It is also the reason US newspapers are for the most part more fundamentally serious than British ones. In Britain, the papers have never been able to forget for long their close proximity to the entertainment industry.

With the arrival of the internet, in the form of both specialist job-search sites and free advertising outlets such as Craigslist, the fountain of classified ad revenue simply stopped. It is this more than anything which underlies not just the desperate financial condition of the US industry, but also one of the most obvious symbols and symptoms of the decline, the sudden physical shrinking of American newspapers. The Washington Post was once a behemoth, so big it could be physically hard to get to grips with. Now it feels like a freesheet.
So, now what? Is that it, Game Over for print media? I don’t think so, not quite yet. Just as one of the industry’s biggest strengths, classified advertising, turned out to be a hidden weakness when that business simply upped and left, now there is a similar paradox, but the other way around: one of its greatest weaknesses may turn out to be a potential saviour. That weakness is simple: it is the cost of physically producing a newspaper. The production and distribution of newspapers is fantastically, outlandishly expensive. Everything about it, from the paper to the newsprint to the presses to the maintenance to the distribution infrastructure, costs a bomb. In OECD-speak: ‘On the cost side, costs unrelated to editorial work such as production, maintenance, administration, promotion and advertising and distribution dominate newspaper costs. These large fixed costs make newspaper organisations more vulnerable to the downturns and less agile in reacting to the online news environment.’

Why is [the huge cost of printing a paper] a good thing? Because the internet can make all those costs go away. If newspapers switched over to being all online, the cost base would be instantly and permanently transformed. The OECD report puts the cost of printing a typical paper at 28 per cent and the cost of sales and distribution at 24 per cent: so the physical being of the paper absorbs 52 per cent of all costs. (Administration costs another 8 per cent and advertising another 16.) That figure may well be conservative. A persuasive looking analysis in the Business Insider put the cost of printing and distributing the New York Times at $644 million, and then added this: ‘a source with knowledge of the real numbers tells us we’re so low in our estimate of the Times’s printing costs that we’re not even in the ballpark.’ Taking the lower figure, that means that New York Times, if it stopped printing a physical edition of the paper, could afford to give every subscriber a free Kindle. Not the bog-standard Kindle, but the one with free global data access. And not just one Kindle, but four Kindles. And not just once, but every year. And that’s using the low estimate for the costs of printing.

At some point, the economic logic of this is going to become irresistible. To my certain knowledge, some newspapers have been discussing moves along these lines. In the meantime, one crazy visionary is already giving it a go, by developing an iPad-only daily newspaper which employs more than a hundred journalists but (or maybe that should be ‘and’) has no print edition. The name of this fantasist, this dreamer, this desperado? Step forward again, Rupert Murdoch. His new online-only paper is going to be called the Daily. (There’s a rumour that they wanted to call it the Daily Planet, the paper that Superman worked for, but DC Comics said no.) The project is a joint venture with Apple, and is going to cost 99 cents a week. That is a very tempting price indeed, and when you compare it with the cost of a single day’s access to the Times – £1 – it makes the point about what you can do with the economics of the business once you stop printing papers.

So this, I think, is the future of newspapers. Their cost base will force them to junk their print editions.

It's long and the above are the highlights, but it's a good commentary. Check it out.

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