I've been watching the demise of newspapers with some interest for more than a year -- especially The McClatchy Company. McClatchy is the third largest newspaper company in the US. They're headquartered here in Sacramento, and they own the local newspaper, the Sacramento Bee. In September 2007, I noticed that McClatchy's stock price had been falling in a straight line for two and half years since it peaked in April 2005 at about $75/share. If I drew a straight line through the data, I could predict that the stock price would hit zero some time in the fourth quarter of 2008. At the time, I worked for Raley's, a regional supermarket chain, and my provocative question for the marketing department was, "how are you going to reach our customers after the newspapers are gone?" (Traditional high/low supermarkets have a marketing strategy that is largely dependent on advertising weekly discounted prices in the local newspaper.) Today, the stock closed at $0.51/share, and the company is in deep financial trouble. Since April 15, 2005, the company has lost more than 99% of its value. And McClatchy is not alone. Over the same time period, Gannett (the largest newspaper company in the US) has lost 95% of it's value, the New York Times Company (2nd largest) has lost 88% of it's value, and the Tribune Company has declared bankruptcy. In contrast, the syndicated news service Thomson Reuters is down only 30%.
So why the demise of the newspapers? I think they got too comfortable in their local monopoly on information distribution, and they weren't able to adapt quickly enough to the opportunities and challenges presented by the Internet. Printing and delivering news and advertisements on paper is very expensive. On the Internet, the marginal cost of publishing is approximately zero, and the news is provided for free. Also, good information systems on the Internet are far more effective than the old paper-based systems. Finding news of interest is far easier with key word searches. Connecting a specific, relevant advertiser with a person at the moment they're looking for something ("search") is possible. Finding what you're looking for on Craigslist is much easier than searching the classified ads, and in my experience, much more effective for selling things. Furthermore, the newspapers have lost their monopoly; they now compete with every other news source in the world that posts material in a language that the reader understands.
Do we (society) need newspapers to survive? I don't think so. Journalism maybe, but not the newspaper. Printing and delivering newspapers is both environmentally harmful and unnecessary. If newspaper companies can't get advertising to subsidize the cost of printing and delivering a newspaper, then they should simply raise the price of the paper to what it actually costs to produce the paper and deliver it. I don't know what this cost is, but I would guess that most people wouldn't choose to pay for it -- especially if it's like buying a book every day.
There's a basic principle that if you're going to participate in the value chain, then (1) you need to provide value, and (2) someone needs to pay for it. Do you really need a paper copy of the news? You should pay for it. I think newspapers are ripe for disintermediation (removal of unnecessary links in the value chain). If we examine the value contributions, I think we'll see in broad strokes: (1) content creation, (2) editorial review (content selection/aggregation), (3) publishing (either online or on paper), and (4) overhead functions, such as payment systems, administration, marketing, etc. The primary value in all of this is content creation -- assuming that it's distinctive; we don't need a thousand people writing the same story. Overhead functions should be minimized. The editorial selection/aggregation function can be replaced with software, such as Google News, TechMeme, and others.
So how do we compensate the journalist? I think there's a parallel with the music industry here. Some people write (or make music) simply because they're inspired to do so. Others try to make a living out of it. Here are four different methods for compensating content creators:
- membership/subscription -- this assumes a monopoly over content, or a compelling service (e.g. "editorial quality")
- advertising -- selling the reader's attention (e.g. Google AdSense, classified ads, etc.)
- micropayments, or pay by the piece -- this works for books, reports, and in-depth analysis, but not for news bits or memes
- donations, by the consumer (e.g. Kachingle, PBS, or NPR), the producer (a labor of love), or the taxpayer (e.g. NEA)
The first two methods (subscription and advertising) have been used by newspapers in the past. The latter two have been recently proposed by industry pundits. I think advertising makes the most sense, but instead of a news company selling their own ad space, they should just outsource that function to Google and use Google AdSense. Google uses technology to more effectively match the ads with the interests of each reader, and this would be very difficult for a news company to reproduce. General display ads are just offensive visual noise, and I filter them out with an ad-blocking extension to my web browser.
Newspaper companies are facing a harsh reality. They need to re-examine their business, find the segments where they still add value, and lose the rest. This means focusing on local content creation, online publishing, and a payment system for collecting ad revenues and compensating content creators. Oh, wait... this already exists. It's called a blog. Sure, there's plenty of useless drivel out there, but there are also excellent journalists using blogs. Organizations providing editorial selection/aggregation functions can help bring quality content to the forefront. A Google executive recently identified online publishing as a future growth area with tremendous opportunity. As journalists get laid off from failing newspaper companies, perhaps a number of them will continue to contribute on the web.
I think the future of news is a combination of blogs, press releases, local online news organizations like the Sacramento Press, and major syndicated news organizations like Thomson Reuters and the Associated Press. I sure hope the New York Times survives in some form. They do a wonderful job of analyzing and presenting quantitative information. I'm also interested in seeing what kind of user-centric news browsing tool Google might come up with (improvements on Google News). This is certainly an interesting time to be alive!
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