SOCIAL STUDIES

How to Save Newspapers--and Why

Newspapers' revenues have shrunk even as their audience has grown, because online-ad revenue does not come close to replacing print-ad revenue.

by Jonathan Rauch

Sat. Jun 14, 2008


Six or seven years ago, Walter E. Hussman Jr., the owner and publisher of the Arkansas Democrat-Gazette, discovered, as every other publisher in America was discovering, that his newspaper was losing circulation to the Internet. He responded by doing what almost no other publisher has done. Instead of moving more free content online to attract "eyeballs," Hussman moved the paper's news pages behind a subscription barrier. To read the Democrat-Gazette online today, you must pay $4.95 a month for electronic access or $12.50 a month for a print subscription.

"We got a lot of flak," Hussman recalls. "Man, people were unhappy about that." Readers became more forgiving when they were told that editorial operations cost about $14 million a year, but other publishers scoffed. The industry, with scarce exceptions, had bet heavily on the eyeball model: Free content would attract readers, who would attract advertising, which would pay the bills.

Last month brought only the latest in a long, long series of signs that the eyeball model is bankrupt. The Washington Post bought out more than 100 members of its editorial staff, including some of its leading lights. The great paper's newsroom employment will decline to 700, from more than 900 in 2003. No one believes that The Post is finished cutting.

The whole industry is hemorrhaging. Last year the San Francisco Chronicle cut 25 percent of its newsroom jobs and The Boston Globe closed its three remaining foreign bureaus. The New York Times' Sunday circulation dropped "a whopping 9.2 percent" in the six months ending on March 31, according to Editor & Publisher magazine.

Industry-wide, circulation fell 4 percent over that six-month period, continuing a depressing trend. Newspaper advertising revenues fell by 7 percent in 2007, according to a recent report by the Project for Excellence in Journalism, and 2008 looks worse.

All the more impressive, then, that the Arkansas Democrat-Gazette is holding on to its overall circulation and is actually increasing its home deliveries. "We still haven't had any layoffs here at the Democrat-Gazette," Hussman says. Not coincidentally, Editor & Publisher recently named him 2008 Publisher of the Year. The industry may at last be awakening to the possibility that Hussman is doing something right.

On paper, the eyeball model might have worked. Its failure has been empirical, and thus not foreseeable. The industry expected readers to migrate to the Web, and they have. In fact, thanks to the Internet, the audience for newspaper journalism is larger than ever. The industry also expected advertising to migrate to the Web, and it has. Newspapers' online advertising grew about 20 percent in 2007, and more than 30 percent for several years before that.

Harder to foresee was the emergence of a painful paradox: Newspapers' revenues have shrunk even as their audience has grown, because online-ad revenue does not come close to replacing print-ad revenue. Exactly why is not perfectly clear, but one reason is that only some newspaper advertising has moved to newspaper websites, with the rest shifting to such online upstarts as Google and Craigslist. Another reason is that readers seem to perceive print ads as information but Web ads as distractions, and so ad rates are much lower online than in print.

The upshot is that, as Hussman notes, newspapers generate $500 to $900 a year in revenues per print subscriber but only about $5 to $10 a year per unique website visitor. For all the growth in eyeballs, the Internet still accounts for less than 10 percent of newspapers' revenues.

The resulting problem was summed up, with a touch of perhaps unintended irony, by The Post's Howard Kurtz. Looking on the bright side, Kurtz noted that the paper's circulation may be plummeting, "but we are drawing an eye-opening 9.4 million unique visitors online each month.... Those readers don't bring in the cash that print subscribers do," he continued, "but they do expand our reach."

To which Walter Hussman replies: "Try to make a payroll with 'reach.' "

From his point of view, nothing will work short of a change in the business model. "I don't see the industry surviving giving away all its content for free," he says. Layoffs are no solution: They mean less news, which means less advertising, which means more layoffs--a classic business tailspin. "I think newspapers are going to have to get paid for their content," he concludes.

Hussman believes that it's not too late for newspapers to make the transition to paid online readership, though "it's going to take some real courage." He adds, however, that "the best solution is for newspapers to work together collectively." He has a point. If any one newspaper puts its content behind a pay barrier, many readers will simply hop to another paper that is free.

"It makes no sense for each newspaper organization to do this in competition with every other newspaper organization," says Tom Rosenstiel, the director of the Project for Excellence in Journalism. Newspaper publishing confronts what economists call a coordination problem. The industry would be healthier if it moved to a pay-to-read business model, but whoever goes first takes a bath.

If solving this problem seems a matter of indifference to you, I would ask you to think again, and not just because I'm a self-interested journalist (though I am). It may be true that the market will find a way, ultimately, to finance the production of news. In the absence of coordination, however, getting from here to there may come at a much higher cost in disruption and waste than is either desirable or necessary. Vast swaths of newsroom infrastructure might shut down, only to need reassembling under new auspices.

But whose auspices? Google, Yahoo, and the other Web aggregators don't want to enter the news business, and even if they did, the prospect of relying on these Internet octopuses for journalism as well as for practically everything else seems unsettling. The blogosphere shows little sign of embracing journalistic values, such as checking facts before publishing them, giving the other side its due, and doing tedious and often expensive investigative spadework. Indeed, some precincts of the blogosphere hold those values in contempt.

In America, the newspaper newsroom is to the media as the family is to society. It does the training that transmits reporting skills and core journalistic values from one generation to the next; it provides the basic organizational structure for intensive news gathering; it embeds journalists in their communities and teaches a public service ethic. For society as well as for journalists, moving this news-gathering infrastructure to a sustainable footing would be better--much better--than watching it collapse and then attempting to reassemble the rubble.

Suppose, then, that newspapers solved their coordination problem much as music companies do at sites like eMusic.com. I pay eMusic $10 a month for a subscription that entitles me to download dozens of songs from thousands of independent record labels. I get excellent value for the money, and the participating labels share a broad base of paying customers.

For the newspaper business, Rosenstiel suggests emulating the cable television model by bundling content subscriptions with Internet service. Another approach (which I'm partial to because I invented it) might be what I call PressPass.net, a content pass offered directly by a broad consortium of papers. Either approach would give consumers a one-stop subscription to hundreds of newspaper sites. This would provide convenience and value to consumers, and a steady source of revenue to newspapers.

Unfortunately, however, it is probably illegal for newspapers to form a subscription consortium. Antitrust law was written generations ago, when newspapers were local monopolies or duopolies. Today, of course, they compete with the whole Internet. The problem now is that they have too little market power, not too much.

Even so, antitrust law regards collective pricing as collusion. "There is a well-established tunnel vision in applying antitrust laws," says Lee Simowitz, a media lawyer with Baker Hostetler in Washington. "Broader values don't enter the equation." Allowing newspapers to combine forces, he says, is "really up to Congress."

At the moment, no one is talking about adjusting the law. Newspapers have yet to abandon the eyeball model; the public has yet to focus on the social implications of news-infrastructure decline. Who knows? Maybe the eyeball model will start to work.

I suspect, however, that Walter Hussman is right. Sooner or later, newspapers will need to get their acts together--literally--and charge collectively for content, and it will be in the public's interest to let them do so.