Wednesday, January 21, 2009

The Future of News, Part One-- The Problem

Guest Blogger

C. Edwin Baker
University of Pennsylvania

Massive layoffs of journalists at most newspapers, continuing and increasing circulation declines, sharp losses of advertising revenue, bankruptcies and closures create a foreboding spiral in the news industry. The future of professionally produced news hangs in the balance with no remedy in sight. Of these five problems, however, I put aside highly publicized bankruptcies, mostly caused not by lack of operating profits but by excessive debt generated by shortsighted recent purchases. And I put aside closures, like those threatened by the Seattle P-I and the Rocky Mountain News, which reflect the twentieth century’s experience that competing dailies in two newspaper towns are seldom economically sustainable.

Most troubling is the loss of journalists on which news production depends. The San Jose Mercury has lost over half its journalists over the last decade. By last summer, the Philadelphia Inquirer, the Dallas Morning News, the Minneapolis Star Tribune had seen newsroom cuts of 30% to 50%. Further layoffs are continuing at most major papers. What should be made of this? Does it represent merely a historical transformation to a new cultural order? Is bemoaning the loss simply conservative romanticism for an inevitably by-gone era – nostalgia intensified by justified concern for all those who have devoted their career to a once glorious profession? Or, is the lay-off of journalists a real crisis for democracy, different in kind than, say, the passing of livery stables, the decline of the family farm, or lay-offs in the troubled, oil-dependent airline industry? And if a crisis for democracy, can anything be done?

Withering of public interest in news not the problem

Common wisdom blames the crisis in newspapers on a loss of people’s, especially young people’s, interest in news. This explanation is not only simply too easy. It is wrong. True, new online diversions combined with the pace of modern life – who has the time to sit and read a newspaper? – might explain some reduction in news consumption, but the evidence here is very weak. Two points must be made about the noted recent – and increasing – decline in newspaper circulation.

First, much of the decline of newspaper circulation relates not to fewer newspaper readers but to how those readers access newspaper journalism. The Newspaper Association of America reports that paid daily circulation staying at its high plateau of roughly 62 million between 1968 to 1990 period, but dropping off at an increasing rate to about 52 million in 2006. Over the last fifteen years, however, online readership has grown from basically zero to 63.2 million people (39% of active web users), who spent an average of 44 minutes on newspaper web sites in October 2007. Thus, the ten million loss in print circulation appears is largely replaced by sixty three million online readers. Moreover, even when people go to non-newspaper online sources of news, these sources have often derived, if not simply copied, their information from newspaper’s journalism. Evidence of a decreasing public reliance on newspapers as either the initial or ultimate journalistic source of news is way overblown.

Second, circulation declines are the predictable result of selling a degraded product – one produced by less journalists – or the same product at a higher price or, often, a degraded product at a higher price. (In addition, some circulation declines have been engineered. Since newspapers have long received the bulk of their revenue from advertisers, paying more for ink, paper, and delivery than the paper receives from readers, papers have increasingly chosen to shed circulation from parts of town or outlying regions of the state where readers are not likely to be customers of, and hence are not valued by, local advertisers.) Despite public hand-wringing, publishers know how to maintain or increase their audience – if they want to. Recent years have seen some papers gain circulation when they avoid either raising their cover price or reducing their newsroom budget. Clearly, papers that have and keep more than average number of journalists (per 1000 readers) are likely to avoid or limit declines and maybe even increase circulation.

The trouble is that keeping or expanding circulation costs more than the revenue it produces. Often papers accurately calculate that profits increase more if it spends less on journalists (or raises the cover price) even if this causes circulation losses. To maintain or expand circulation by hiring journalists to improve its product is simply more expensive than it is worth in bottom line results.

Financial base and advertising support as the problem.

Advertising has always been a problematic partner in the provision of news. Its increasing financial role since the late nineteenth century created the financial rationale for objectivity to replace partisanship and to become the ruling norm in journalism. Objectivity, even though less valued and hence requiring a price reduction, allowed selling a less differentiated product to a broader audience, which produced more than compensating advertising revenue. The greater uniformity then became central to the collapse of competition of multiple daily newspapers within a town. These changes suppressed political participation, a suppression skewed against portions of the public not valued by advertisers. Advertisers subsequently caused not only overt violations of the newspaper’s line dividing church and state, but also creation of advertising friendly copy and self-censorship, often unconscious, in the story lines pursued. And, of course, as the central cultural institution of capitalism, advertising likely contributes to American’s over-valuation of privately owned goods and inadequate taxpayer support for expenditures on public goods – goods seldom promoted by advertisers.

Nevertheless, advertising has provided the economic foundation of American journalism. The current crisis in the news industry is much less diversion of readers to online non-traditional media sources or abandonment of people’s interest in news than to the decreased value of readers to newspapers due to the diversion of advertising from support of journalism to support of non-news online activities. Newspapers have not been able, at least not yet, to squeeze near the advertising revenue from an online reader than from a print reader. People’s reduced reliance on newspaper advertising is also significant – as illustrated by huge losses of highly profitable classified ads to online services. Even if a newspaper company rather than, say, E-bay or Craig’s List owned and profited from the online listing service, the newspaper company has no economic incentive to plow that money back into their news product, into journalism.

Possibly most serious, advertising is a more or less fixed pot. Huge portions of advertising revenue now supports the suppliers of the “search” for all sorts of already-produced information (including product and personal information) rather than journalistic entities which produce news – which is the story of huge capitalization of Google. Internet advertising that basically did not exist thirteen years ago clocked in at $21.2 billion in 2007 – with 41% going to advertising related to “searches” – and the amount is rising rapidly. That compares with annual newspaper advertising of roughly $40 billion, an amount in decline due primarily to this increasing diversion to online advertising. Though advertising always goes down even in minor recessions, even more so in anything like what the country is currently experiencing, the movement to online advertising is of historic significance for the news industry. Essentially the advertising that has long paid for journalism is in irreversible decline. Without a solution, the future may simply provide an inadequate financial basis for support of the journalism profession and for the news a democratic society needs.

Significance of problem.

Economic theory clearly predicts that free markets will not alone produce as much quality news content as the public – as consumers – want. Using willingness to pay as a criterion of what people want, the market would achieve this result if, but only if, producers of news content can receive payment for all the benefits it produces, payments from all those who benefit, these payments being the proper incentives for production.

Certainly circulation levels and corresponding revenue reflect some of the benefits received by individual readers. These readers pay (or spend time then sold to advertisers) for being better informed, more amused, or otherwise fulfilled from receiving the paper. But when a journalistic unit exposes corruption that leads to reform, non-readers benefit just as much from the reform and hence from the news production as do the readers. When reporting portrayal of problems leads to government (or corporate or charitable) responses, all those suffering from the problems the paper identifies, not just its readers, benefit. When a quality journalistic unit’s reputation for casting light on misdeeds deters corruption and keeps those in power on their toes, once again the broader public benefits even though this deterrence means that the paper has no story to sell to its readers. Though people disagree about which political candidates are best, most agree that they and everyone else benefit when not only their own but other people’s vote is well informed. But a person can receive this benefit of quality newspapers informing other peoples’ votes without herself reading or paying. And she benefits more the better job the paper does – a job highly dependent on the resources the paper has. That is, I benefit greatly and in multiple ways from quality public radio news or solid investigative journalism of my local paper even if I do not listen or read – or pay!

All these potential benefits to people for which many pay nothing and for which no one pays fully results in the paper (or broadcaster) having inadequate incentives to produce the quality or amount of news that would provide the benefits at the level they are valued. Of course, the news entity does produce some journalism – its direct audience will pay something and advertisers add payments for access to this audience. This amount is, however, far, far less than the benefits that more and better journalism could generate at a cost less than the benefits it would provide. And the converse of these arguments applies to poor quality news – it creates uninformed, less informed or misinformed audiences to the detriment of the public as a whole.

To be sure, poor quality, misleading, or glaring absences of coverage can occur despite fully adequate newsroom budgets, just as bad judgments are sometimes made by the best physicians using the best medical tests and equipment. Nevertheless, the correct expectation is that more resources will improve quality. Any good editor will say, usually rightly, that she could provide better quality news if she is given more resources – more experienced reporters, bigger newsroom budgets.

[In Part Two tomorrow, Professor Baker will offer some possible solutions]

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