It
has not touched India as yet, but the news from abroad,
especially the US, is alarming. Revenues and profits
of newspapers are on the decline, and many are threatened
with bankruptcy and on the road to closure. All of them
are cutting costs by downsizing staff and getting journalists
and non-journalists to accept salary cuts. On the surface,
the source of the problem seems obvious: a decline in
the revenues from advertising in an industry with a
financial model that makes such revenues fundamental.
Newspapers worldwide operate on the presumption that
people are willing to pay much less for news than it
takes to collect, select, analyse and present for the
news. Prices are kept low to attract audiences whose
presence attracts advertisers, who provide the revenues
needed to deliver profits after covering the subsidy
implicit in the shortfall in newspaper prices relative
to production costs.
The crisis in the news business stems from the fact
that advertisers are deserting the media, especially
the print medium. According to the Pew Research Center's
State of the News Media Report for 2009, newspaper advertising
revenues have declined by 23 per cent over the last
two years. While the recession has made matters much
worse, the evidence suggests that this is a long-term
tendency that points to terminal decline unless the
industry can reinvent itself.
At the moment the industry seems to be haemorrhaging
badly. The 150 year old Rocky Mountain News published
out of Denver, Colarado closed on February 26. The Seattle
Post-Intelligencer shut down its print edition in March
and turned an internet-only newspaper. The Journal Register
Company and the Philadelphia Inquirer have joined the
Chicago Tribune and Minneapolis Star Tribune in filing
for bankruptcy. The New York Times is threatening to
close The Boston Globe. And majors like the Los Angeles
Times and the New York Times are looking to cut staff
costs significantly. Cutting staff may make accounting
sense, but good journalism and accounting are no soul
mates.
If this was just the immediate effect of the recession,
then it could have been seen as a necessary shake out
in an industry that may have grown too big for its audience.
But the prognosis is that this decline would continue
because advertisers are likely to keep moving out of
print because the audience is migrating to the internet.
The Pew study reports that according to one survey,
the number of American readers going online regularly
for the news increased 19 per cent over the last two
years, with traffic to the top 50 news sites rising
27 per cent in 2008. What the recession has additionally
done is damage the ability of organisations to respond
and adjust to this rapid shift of audience. The recession
years are estimated to have witnessed a doubling of
advertising revenue losses in the news industry. Though
network television reportedly bore the brunt of the
decline, the print medium too was starved of funds to
invest in reinventing itself.
Over the long term, audience migration to the internet
has also resulted in the migration of advertising. Emarketer
estimates that online advertising in the US grew by
10.6 per cent in 2008, when newspaper advertising revenues
were in decline. But this does not automatically create
a new business model for news delivery-over the wires
and onto screens rather than on newsprint. Two factors
make the Internet a technologically good but business-wise
bad delivery model. First, internet advertising does
not flow adequately to the news business but tends to
be swallowed by the Search business, especially Google.
Tying up with search allows advertisers to target ads
to those who are interested in their products, as revealed
by their search choices. Link this with ''performance
advertising'' in which advertisers pay per click or view,
allowing them to find interested as opposed to stray
(and disinterested?) clients, and the returns on advertising
riding on search agents tends to be higher. This means
that even if migrating the news to the internet may
save on newsprint costs, advertising gains for the newspaper
industry may be inadequate to finance news gathering
costs.
Second, even if newspapers get a fair share of internet
advertising, the absolute sum may be inadequate to keep
the business going. This is because even though online
advertising revenues are growing at positive rates,
those rates themselves have been falling-from25.6 per
cent in 2007, to 10.6 per cent in 2008 and an estimated
4.5 per cent in 2009. There just may not be enough money
to meet everybody's needs. In the event, while every
newspaper is on the net, there does not appear to be
any which is generating revenues from the net adequate
to deliver profits. In fact, most offer access to their
web editions for free.
The easy way out is to blame the print media for wanting
to be just that. As Eric Schmidt, the Chief Executive
of Google put it in an interview to the Financial Times:
''The most important thing is that people are now reading
the news on all sorts of devices in all sorts of different
ways. The newspaper is only one of the many ways in
which they get information. So my view is that newspapers
need to connect all of that together; they need to get
that information in every way they possibly can.''
Faced with this situation the debate has shifted to
ways in which the newspaper industry can reinvent itself,
physically and financially. In principle, money can
be made if newspapers could migrate to the web, shed
newsprint costs and get readers to pay for the news
they get on the web either through subscriptions or
payments-per-article or both. Schmidt, the current internet
Guru, argues: ''There will be some very specialised content,
… , high-quality newspaper articles, magazines, that
sort of thing, which I suspect subscriptions will work
for. But for the average news that everybody gets today
they would prefer an advertising-supportive model.''
In his view: ''The specialised reader is going to pay
… with subscriptions or micro payments. For average
news even the best quality, but common news – what is
the President doing, what happened in the Senate – it's
highly unlikely, … , that the people will pay extra
… because there will be so many free versions.'' The
difficulty is that the interactive nature of the web,
in which netizens can post reports as easily as they
can download them, at very low cost, means that there
are too many sites that offer ''news'' for free and it
is difficult to monitor, prevent and combat piracy in
various forms. As the music industry has discovered,
this is a technology that militates against copyright.
The challenge this poses has resulted in many turning
to the idea that ''maybe'' news cannot be a business.
It is indeed possible to think of news as a not-for-profit
activity supported by charitable foundations that see
news reporting as being an element of a ''good society''.
But whether this can happen depends on how much money
the activity would need to sustain itself with the competition
needed to discipline an influential medium. One estimate
by David Swensen and Michael Schmidt from Yale University
suggests that the annual cost of the New York Times'
newsroom works out to $200 million-plus. This could
be covered by a $5 billion endowment that would also
guarantee the paper's editorial independence. Based
on that calculation the Nieman Journalism Lab has estimated
that it might cost $114 billion to subsidise every US
paper. That, many may argue, is small money when compared
with the trillions that the US tax payer is shelling
out to protect the financial sector from collapsing
as a result of its speculation driven by avarice. So
a combination of philanthropy, government subsidies
and tax breaks may be the way to go, so long as not
much if it underwrites private profit.
In fact, some argue that the problem with the news business
is not the costs involved but the profits expected in
an industry that has developed corporate ambitions as
a result of changed ownership and stock market listing.
As Paul Harris puts it in The Observer, ''the question
of who killed the American newspaper industry is not
quite as simple as that; in fact, the industry has done
a pretty good job of killing itself. Over the past few
decades - and even today - newspapers have been profitable,
often very profitable. Margins of 20 per cent or 30
per cent attracted large, publicly floated companies
to invest. Throughout the 1980s and 1990s, old family
owners or wealthy proprietors sold up, and fully fledged
American capitalism moved in to create huge newspaper
chains.
The result has been a disaster. Whereas a benevolent
family ownership might consider any size of profit a
sign of health, a modern newspaper company wants ever-increasing
returns. Thus when revenues began to fall, management
tried to keep margins at the same high level by cutting
costs and firing staff. And, in spite of everything,
most newspapers in America today remain profitable businesses;
it is just that they are not as profitable as they used
to be.''
According to this view, if these changes had not happened,
profit expectations would be much lower and of a magnitude
that can in most cases be garnered even in the current
market environment. Those expectations also lead to
cost cutting involving curtailment of editorial staff
and editorial expenses leading to poor quality that
further damages readership and advertising. So if organisational
forms can be found in which cost coverage matters, but
high profits and soaring stock values do not, news in
print may indeed have a future.
In brief, the story is not fully told. But globally
the question is being posed is whether we need to feel
newsprint when we down the news. It is true, that the
crisis has yet to overwhelm the Indian media industry.
But this experience overseas suggests that the fortuitous
interregnum should be used to think about the future
of the news media and find an early answer.
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