Fading print

IT has not touched India as yet, but the news from abroad, especially the United States, 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 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 what it takes to collect, select, analyse and present 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 Centres 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, Colorado, closed on February 26. The Seattle Post-Intelligencer shut down its print edition in March and turned into an Internet-only newspaper. The Journal Register Company and The Philadelphia Inquirer have joined Chicago Tribune and Minneapolis Star Tribune in filing for bankruptcy. The New York Times is threatening to close The Boston Globe. And majors like 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 soulmates.

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 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 done additionally 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 U.S. 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 migration of news to the Internet may save on newsprint cost, 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 from 25.6 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 everybodys 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 free access to their Web editions.

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 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 micropayments. For average news even the best quality, but common news what is the President doing, what happened in the Senate its highly unlikely that the people will pay extra because there will be so many free versions.

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 an element of a good society. But whether this can happen depends on how much money the activity would need to sustain itself.

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 papers editorial independence.

On the basis of that calculation, the Nieman Journalism Lab has estimated that it might cost $114 billion to subsidise every newspaper in the U.S. That, many may argue, is small money when compared with the trillions the U.S. taxpayer 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 of 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 could 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 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 the experience overseas suggests that the fortuitous interregnum should be used to think about the future of the news media and find an early answer.