On the economics of the MSM print media

Paul Wells, Andrew Potter and Dan Gardner have posted recently on the plight of the economic model of MSM journalism. What will happen to popular discourse if people stop buying newspapers and magazines because pretty much everything that's in them is available for free on the internet?

Well, let's consider what's at stake. From page 309 of Paul Wells' book Right Side Up on the aftermath of the 2006 election:

I do not believe there was nearly enough effort made by many of my colleagues, especially among newsroom managers, to understand how long-term trends toward fluffy, gossipy Ottawa coverage turned us into sitting ducks as soon as we tried to argue we were standing up for any kind of journalistic principle. We had razed forests to tell Canadians about Paul Martin's chef and Jean Chrétien's golf balls and Harper's formidable gut and the odd little fishing vest he wore in Cancun and the way he shook his daughter's hand when he dropped her off at school. And we were supposed to be the guardians of - what, precisely?

Sadly, his colleagues did not take this scolding to heart in the most recent election. As I ranted over here, "if you wanted to actually learn something about [the] issues, the very last place you should go searching for enlightenment is the mainstream media". Too many of them - with all-too few exceptions - made no effort to understand the issues; in particular, those who used the word 'complicated' to describe the Liberals' 'Green Shift' proposal have no business referring to themselves as professional journalists. I cannot believe that public discourse would have been degraded any further if the number of media types covering the last election had been reduced by half. Or two-thirds.

Which brings us to the MSM journalists' defense of their profession against the blogosphere. If all the journalists have to offer is insider access and re-writes of press releases, then they might as well hang up their skates; the insiders and PR types will eventually shift their attention to the bloggers. And quite frankly, the prospect of insiders and PR flaks scrambling to make their views known through a more fragmented set of stenographers doesn't fill me with despair.

Until recently, the MSM were able to act as oligopolists: media technology required a large fixed cost for distribution, and this led to the development of large networks and/or conglomerates. With that oligopoly position came oligopoly rents. But that technology has changed: it is no longer necessary to invest in an expensive distribution network to reach an audience, so media have moved closer to a competitive model. And in a competitive model, price equals marginal product.

In this sort of transition, the losers are the former oligopolists. But the winners are the consumers.

Comments

[Declan]

If one had the time, you could probably set up a classification system for news stories / media contents and then figure out what percentage of current reporting / media requires a MSM in the current form or could be easily replaced by a decentralized network of unpaid (or low paid) but interested parties (e.g. bloggers, for print stories.

I'd guess, in agreement with your post, that the percentage is fairly low, and dropping.

[ignorantmike]

Paper ownership is going the way of Hollywood movie production. An expensive hobby.

[jg]

I fully agree with the post. I would add that one of the major problem of MSM, particularly in print media, is the paucity of the columns published in the opinion pages. We either get the useless columns dicussing haircuts, or some form of hackery written by someone working for an interest group. So and so from Oil company X says gas taxes are too high and it's hurting the economy; so and so from the CAW says we need to bailout the big 3 or Canada is doomed etc. It's incredible how few academics or at least or at least unafiliated "experts" are published. The other problem is that there aren't enough Blogs like Pr Gordon's in Canada to turn to to get insightful comments.

[Patrick]

I'm don't think the popular media has never been a good source of information. There might be an ebb and flow over time to the level of mediocrity, but it's still mediocrity. In the past, the only alternatives were just other print media from more reputable sources. The internet just adds more options, but it isn't all good. The internet if rife with garbage. There's no end to the number of tin foil hat wearing, Mises worshiping, Ayn Rand disciples advocating that we all hoard gold, tinned soup, stock-up on ammo and prepare for the end of days.

[Meh]

One of the dangers in the way we tend to discuss MSM economics is that we can forget that it is a tripartite exchange.

The history of even "quality" newspapers is not that they did a lot of good journalism and then people paid to read it.

Rather, newspapers sell the attention of people to advertisers. In order to attract that attention, they do "reporting." What becomes clear from this is that serious quality reporting is probably as much a niche endeavour as say, serious quality theatre.

The problem is of course that serious reporting is by far the most expensive part of reporting. It was subsidised for many years. To use a stereotype, all those people who bought the paper for the hockey scores helped subsidise a proper set of foreign correspondents.

When TV arrived... you didn't need the paper quite so much for the hockey scores. So they had to find other ways to attract attention... Paul Martin's chef?

The internet increased that pressure at first, but in reality, it poses a new challenge... it breaks up the integration. When delivery is no charge, one can easily go to a dedicated sports site for the hockey scores, a dedicated food site for the Chef coverage.

Now quality news has to stand alone. And the economics are pretty difficult. I think it can work out, on a small scale, but it will be a much smaller scale than before. It's going to be a long while for people who are used to getting news for free or 50 cents are prepared to subscribe to something much more expensive to get better quality news. This is amplified by the fact that most people don't want it that much anyway, so you're working from a minority audience to begin with.

[Chris S]

Yes, newspapers sell their readers to advertisers.

But it's not just the biggest advertisers that are the issue. It's the smallest. Many newspapers depend deeply on their classfied ad revenue. But those classifieds have been siphoned off over the years, first to newsgroups, and later to Monster, eBay, and Craigslist. (None of the linked articles even mentions classifieds.)

Newspapers do know this - the classifieds manager for a major Toronto daily pretty much went white the first time someone explained to him how newsgroups work and how much they cost. That was 1993. The bigger problem for newspapers is that this is not easy to fix. They could certainly go online with classifieds (and some have), but electronic media appears to offer a permanent cost advantage over paper delivery, not to mention a value advantage for both the advertiser and the reader. It costs less, and works better.

If people are going to buy "newspapers" (paper or electronic) just to get good news coverage and investigative reporting, they may have to actually spend more money directly on those features. I would argue that this is new - with rare exceptions, people have *never* paid for this content. They have paid for a bundle of content, only a small fraction of it being the detailed news and reporting. They were also paying for movie listings, a food section full of recipes and reviews, and a classifieds section. Aggregation was a cost advantage for the newspaper, but a value loss for the reader. But there was a balance point, and it included getting news and reporting.

Now there will be a new balance point. But as of yet, we don't know where it is. The downturn won't help, either. Nobody is giving up their internet connection, because it includes email and music and news and video. But I might give up the newspaper, because most of what I get in the paper is online, albeit from different sources.

[Chris S]

Ok, this is almost funny (except it's not). I tried looking for discussions of classified revenue - and it's overwhelming!!!

Here, check for your self ... http://news.google.com/news?q=revenue%20from%20classifieds

It's not that people have stopped paying for news. They never did. There's your challenge - figure out how, for the first time ever, to sell news.

I realize this isn't directly germane to Macleans, which prompts a question. How much does a magazine like Macleans depend on newspapers to seed the ground ahead, finding stories worth pursuing, weeding out the non-starters, and acting as a training ground for writers? Can a weekly/monthly magazine operate on its own without newspapers filling some of the space around them on a daily basis?

[Stephen Gordon]

Felix Salmon has a post on the topic today:

There's an old saying that you'll never understand newspaper economics until you understand why newspaper vending machines are designed so that you can take as many papers as you like for your quarter. Newspapers are, first and last, devices for delivering ads to readers. It's the ads which account for all the profits, not the cash coming from subscribers or people who buy their paper at the newsstand. Yes, news itself is free, nowadays. But it always has been. What we've been paying for all these years was never news, it was papers.

[Nick Rowe]

Here's a different perspective.

There are two sorts of bloggers: amateur/part-time bloggers; and professional/full-time bloggers (who usually operate in larger teams, and are called "journalists"). Some of the full-time bloggers also use a print medium, mainly as a legacy from earlier days.

Falling fixed costs of production have led to an increase in the number of firms in the blogging industry, especially amateur/part-time bloggers (who operate at much smaller scale). This increase in the number of firms has reduced the profits of professional/full-time bloggers (especially the profits from the print medium).

Equilibrium will be restored by the exit of some firms.

We will also see a change in the type of blogging done by professional/full-time bloggers, as they produce those goods where they have a comparative advantage over the amateur/part-time bloggers. For example, few amateur/part-time bloggers are prepared to do the leg-work (phone calls, interviews etc.) to hunt down the facts of a story.

We may also see mergers, where amateur bloggers join a professional team (look at the UK Financial Times economics blogs, Freakonomics, Paul Krugman, etc.).

One other big difference, apart from lower fixed costs, is that "letters to the editor" get published a lot quicker.

As an aside, how many "blog" posts rely on a newspaper story for content, just adding commentary? How many newspaper stories rely on a blog post for content, just adding commentary? 1000:1 ?

[Dee]

I compare the msm inability to understand and therefore misinform the public about Green Shift the same as the American msm reporting of wmd and reasoning to invade Iraq. All are and were harmful on so many levels.

Chicago Times, LA Times and the NY Times are all in some sort of financial trouble. Canadian reporters in msm have to adapt or look for a new career. Given the amount of grey matter some msm reporters have one has to wonder what other career is out there for them?

I would think those in academia would find the evolution of media fascinating. ;)

[Declan]

Nick, I believe Andrew (Potter) was saying much the same thing in the article Stephen linked to. However, I think he has a better read on the nature of the market and the eventual outcomes in Canada.

It is ironic that the only thing that might save the media would be a market-failure-recognizing government intervention of the sort unlikely ever to happen thanks to the hordes of free-market loving, state-interference hating zombies that the media itself is complicit in creating.

For example, how many people have heard of the chapter from Schumpeter's 'Capitalism, Socialism and Democracy' entitled 'Creative Destruction' which lauds the chaotic process through which capitalism advances society. And how many know the subsequent chapter, 'Monopolistic Practices' where Schumpeter tempers his previous chapter, saying that, "Old concerns and established industries, whether or not directly attacked, still live in the perennial gale. Situations emerge in the process of creative destruction, in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm. ... there is no point in trying to conserve obsolescent industries indefinitely; but there is point in trying to avoid them coming down with a crash and in attempting to turn a rout, which may become a center of cumulative depressive effects, into orderly retreat."

Might be relevant at the current moment, but whatever.

One last note, to Dee's post above, given the way the media handled 'The Green Shift' in the last election, while the small 'c' conservative part of me worries about the impact on our culture from a withering MSM, another part of me sees them more as a medium for the spread of disinformation as opposed to contributing to any actual increase in understanding on the part of the citizenry, which, getting back to Wells' original point, undermines whatever case they might make for help along the lines proposed by Potter.

[Phillip Huggan]

Labor Ready beckons.