What’s Killing The Newspaper? It Isn’t Bloggers.

In the last few months, the discussion of the future of newspapers has become a recurring topic in the media and online. Several common themes and arguments have emerged. The most common gripes are either that newspapers are being killed by bloggers, or that newspapers are being killed by failing to get their own news, relying on wire services instead.

The truth has little to do with quality, reporting or bloggers. It’s all about money.

You see, a newspaper has three sources of income:

  1. Circulation: this is the cover price you pay, or the subscription you bought.
  2. Advertising: these are the big, splashy boxes in the body of the newspaper.
  3. Classifieds: these are the tiny, densely packed text ads at the back of the newspaper.

If you ask most people how a newspaper makes its money, most would tell you circulation, many would tell you advertising, and some would mention classifieds.

But the order is actually backwards. In most papers, classifieds are the biggest earner, followed by advertising, followed by circulation. In fact, for many papers, the cover price doesn’t fully cover printing and distribution. All the journalistic institutions of the 20th century were subsidised not by readers, but by the “rivers of gold” — the regular flow of classified ads, lodged week in, week out with nary an interruption.

But the rivers of gold are drying up. In the USA, the free classifieds website Craigslist is busily sucking the money out of the local markets newspapers have traditionally relied on. And although the big newspapers and conglomerates have online versions of classifieds, it’s much harder to enjoy the kind of exclusivity they used to get in most towns. To start a daily newspaper takes years and costs millions of dollars, and is very risky into the bargain. To start a website costs perhaps $20 and a bit of time installing software. The barriers to competition are very low.

Advertising is losing its punch too. Newspapers have tried to import the “display advertising” model into the online space, with limited success. Again, the problem is that anyone can set up a website and sell advertising space. This space — called “inventory” by the industry — is expanding extremely rapidly. It has expanded more rapidly than the number of people online. At the same time, demand for all forms of advertising is slumping. The iron laws of supply and demand are driving down the money that can be earned from online advertising, and it simply cannot replace the profitability of print advertising.

In some ways, circulation is unimportant. A newspaper that isn’t printed is a smaller loss to make up. But of course advertisers and classifieds customers rely on circulation to get their value for money. This is one area where free alternatives, like bloggers, does affect the long term shape of the industry — by gutting circulation, it makes newspapers less attractive than free or cheaper online alternatives.

It’s all about money, folks. The newspaper business has had more than a century of stable income. That period is suddenly coming to an end. The invisible hand is slapping the newspaper business, and slapping it hard.

Where to from here? Some newspapers are reportedly planning to simultaneously introduce ‘paywalls’ to their content. Online distribution of content is expensive, but nowhere near as expensive as physically printing and distributing newspapers — you might say that the haulage on photons and electrons is cheaper than the haulage on atoms.

So, the reasoning goes, if you charge a low price for access to the content, then circulation could take up the slack because it would be profitable in itself.

But they’ve already sussed out the problem with this model: you need to form a cartel for it to work. Putting aside the legal niceties of antitrust and competition laws, there’s the plain economics of the matter. If any one reputable newspaper or group breaks ranks, they will clean up the “eyeballs” and so be able to earn more. Cartels do sometimes succeed, but usually don’t because of the incentive to cheat. And with everyone in a panicky mood, how long would it take for somebody to break ranks?

So there you have it: a quick summary of why newspapers are withering.

Disclosure: Before moving to Perth, I was employed as a classifieds salesperson. I am also working on a startup which I hope will upend this dreary economic situation. I have a truly marvelous scheme which this margin is too narrow to describe (and may be looking for investors and directors soon).

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