Tuesday, December 19, 2006

COMMENTARY: The coming collapse and rebirth of newspaper journalism

Published Dec. 11, 2006
in B&B, "The magazine for marketing strategists"

The coming collapse and rebirth of newspaper journalism

By Paul Gillin

Paul Gillin is a writer, content marketing consultant and author. His
book, The New Influencers: A Marketer.s Guide to Social Media, will be
published by Quill Driver Books in the spring of 2007. His blog is at
http://www.paulgillin.com/. He's a former editor-in-chief of ComputerWorld

The near-total collapse of the American newspaper industry as we know it
is inevitable. Anything newspapers could have done to stop it should have
been done years ago (Slate recently wrote that newspapers saw this coming
in the mid-70s). All the social, demographic and economic trends are lined
up against the industry. Over the next decade, there will be agonizing
rounds of layoffs, consolidation and bankruptcies. It will be painful to
watch, but it will be a necessary process for the industry to reinvent

In this essay, I.ll outline the reasons I believe this and propose a new
and very different model of publishing and journalism that will take hold
as this cycle plays out. This will be a very exciting evolution but it
will be very painful, too.

A broken business model

First, some background and assumptions. The business model of metropolitan
daily newspapers was developed over 150 years ago to support a delivery
method that is becoming irrelevant. Huge staffs of people were needed to
create content, turn it into type, print it on paper and distribute it on
a timely basis. It was very expensive, but it was necessary because there
was no alternative way to deliver information on a daily basis.

Large editorial staffs were needed to create proprietary content. A few
alternative sources of content were available, such as news wires, but
there was almost nothing at the local level. In any case, running wire
copy didn.t differentiate a newspaper from its competition, so staffs of
salaried reporters were needed to turn up original news. At some
newspapers, these staffs can run to several hundred people.

Newspapers had to maintain large circulation operations and massive
subscriber lists in order to justify their ad rates. Circulation is
expensive. While renewal rates for daily papers have always been high,
it.s costly to acquire new subscribers through advertising and direct
mail. For most papers, the cost of circulation didn.t come close to
matching the small revenue it generated. Circulation revenue at newspapers
has also been falling in recent years due to price cuts and competition,
further squeezing margins.

Capital costs inherent in buildings, presses, paper, ink and people to run
all those machines were astronomical. Labor unions added to those costs.
In some cases, the unions have succeeded in preserving jobs that were
automated out of existence years ago. People go to work and literally have
nothing to do.

Add it all up and a metropolitan daily newspaper must employ several
hundred people to produce the product. Newspaper advertising is very
expensive because of the large fixed costs. The Chicago Tribune, for
example, charges $755 per column inch in the daily paper ($1,135 on
Sunday). That business works as long as advertisers are willing to pay for
it and for many years they have. That.s because newspapers were one of the
most effective means for businesses to reach consumers in certain

The upside, though, is that newspaper model has traditionally been
profitable and predictable. Once a newspaper achieved dominance in its
market, it was practically unassailable. As consolidation reduced the
total number of daily newspapers (there are about 1,500 in the U.S.
today), competitive pressure eased and the winning papers were able to
drive their ad rates higher. Until the mid-1990s, this was a pretty nice
state of affairs. Even the Internet didn.t put much pressure on
newspapers, at least during its first decade.

That is all about to come to an end. The business model of metropolitan
daily newspapers is poised for a collapse that will be stunning in its
speed and scope. The cause is Web 2.0 and the vastly superior economics of
that emerging business.

A new model

A recent story in Business 2.0 magazine revealed the income of some
popular bloggers. Read this article if you want to understand the emerging
economics of blogosphere. This new medium is far more cost-efficient than
the ones it will replace.

.Blogs today benefit from what might be termed uneconomies of scale,. the
Business 2.0 article says. .They are so cheap to create and operate that a
lone blogger or a small team can, with the ever-expanding reach of the
Internet, amass vast audiences and generate levels of profit on a
per-employee basis that traditional media companies can only fantasize

Take the Fark.com example. The site generates 40 million page views a
month with a staff of one full-time person and two contractors. Its only
real operating costs are bandwidth charges. It produces almost no original
content and has no capital costs. Members contribute their own content, so
no editors are needed. The site almost runs itself. Yet this could
approach $10 million in revenue before long.

Another example is Craigslist.org . It.s is the fifth most popular site on
the Internet, with global reach and an estimated four billion page views a
month. It is absolutely killing the newspaper classified ad business. One
published report estimated that Craigslist had cost San Francisco
newspapers $70 million in revenue in just one year. The entire staff is 23

Digg.com, with less than 20 employees, has more Web traffic than The New
York Times, according to Alexa.com. Other popular mainstream publications
are even farther behind.

all part-time. Google Blogoscoped, which is the best independent source of
information about Google, is run by one person in his spare time. It.s
averaging four million page views a month. Gizmodo grew to become one of
the top five blogs on the Internet with only a single contributor.
Digg.com, which is barely two years old, is already among the top 25 sites
on the Web. Its traffic outstrips all the largest media sites. It has a
staff of 15.

Outsourcing everything.

None of these sites is making piles of money yet, but that.s only a matter
of time. Michael Arrington is pulling in $60,000 a month writing
TechCrunch. BoingBoing.net is on target to gross more than $1 million.
Fark.com founder Drew Curtis says he.s on track to soon log sales of
$600,000 to $800,000 per month.

Companies like John Battelle.s Federated Media and Nick Denton.s Gawker
Media are figuring out the business side. And it.s not like these blogs
have to make a lot of money to keep going. Adrants.com generates over
$100,000 a year in advertising and that.s plenty to keep Steve Hall
plugging away at his one-man operation. He.s got almost no costs and he.s
getting paid to do something he.s passionate about.

How do these keep their overhead so low? They outsource everything.

Editorial content is outsourced to an army of individual enthusiasts and
bloggers who find interesting information on the Web and feed it to the
site operators. Editorial expenses, which account for about a third of the
operating costs of a daily newspaper, are practically zero.
Circulation is outsourced to Google and links from other sites. In fact,
there really is no concept of circulation in these new media because
there.s no way to .own. the reader. This is a very different model from
conventional publishing, which relies heavily on subscriber lists to
validate advertising rates. The Web approach is much less controllable but
also much cheaper.

Production is outsourced to Typepad, Blogger or any number of other hosted
services at minimal cost. There.s no need for designers because everything
is templated. Some sites practically run themselves. Bandwidth costs can
be steep for popular properties, but that.s true for newspaper websites as

Sales is outsourced to Google Adwords, Federated Media or other sales
agents. This may change in time, but for now, most Web 2.0 companies can.t
be bothered with a captive sales force.

Marketing and promotion aren.t even done. In the new Web, your marketing
is your content. People either link to you or they don.t. This creates a
lot of pressure on the site operators to be fresh and innovative, but
that.s not a bad thing.

This model is so compelling that it will almost completely upend the
existing mainstream media model.

Newspaper death spiral

New competition from Web 2.0 companies along with continuing demographic
shifts are about to send metropolitan daily newspapers into a spiral of
decline from which few will emerge intact. Why now? People have been
wrongly forecasting the death of newspapers for years. Why is this time

The first decade of the consumer Internet was very different from that
which we're now entering. Web 1.0 was the display Internet. It was a
decade when organizations put their brochures online and users got
comfortable with the idea of a global network. Search tools were
rudimentary, Web content was difficult to create and interactivity was
limited. The brands that dominated the pre-Web days were able to extend
their brands online. While a few important new sources of information did
emerge, media giants like CNN, The New York Times, The Washington Post and
the Associated Press continued to dominate online media. There was little
threat to their underlying businesses.

That's all changed. It's now easy for individuals to create Web content.
Computing power, storage and bandwidth costs are declining rapidly. The
open-source software movement has dropped the price of software to near
zero. Search engines have become a more effective marketing channel than
e-mail. Google AdSense and affiliate marketing networks can generate
income for website operators, even at low traffic levels. Today, a small
group of people with a few thousand dollars and a good idea can build a
self-sustaining web franchise in a matter of months. You couldn't have
done that five years ago.

Layered on top of that is a demographic shift that is about to move a
large new group of Web-savvy consumers into the economic mainstream. This
new generation simply doesn't have the loyalty to established media that
their parents do. And they don't read newspapers at all.

The spiral begins

So here's where the spiral begins. Newspapers' profitable classified
advertising business will be all but gone in 10 years, a victim of the
vastly superior results and economics of search-driven online advertising.
Display advertising will be under intense pressure from alternative media,
including not just Web sites but an emerging class of small print
publications and supermarket advertisers that serve local audiences (print
publishing is getting cheaper, too). The department stores and cell phone
companies that sustain newspapers' display advertising business will apply
intense pressure on papers to bring down their prices.

Newspapers will be forced to lay off staff in order to maintain margins.
Cuts in services will lead to cuts in editorial coverage, making papers
less relevant to subscribers. As circulation declines, advertising rates
will have to come down to remain competitive. This will put more pressure
on margins, leading to more layoffs, more cost cuts, more circulation
declines and more pressure on margins. Once this spiral begins, it will
accelerate with breathtaking speed. And it has already begun.

Experience has shown us again and again that business models based on
vertically integrated, proprietary products quickly collapse when
confronted with competition that is open, standardized and much less
expensive. It's happened in consumer electronics, telecommunications,
computers and household appliances and there's no reason it won't happen
in media. Advertisers will rebel at having to pay newspapers' high fixed
costs when they can get the same audience through other channels at a
fraction of the cost.

The sole advantage that newspapers have is their reach in local markets.
Small businesses that sell aluminum siding, flowers and cleaning services
have have few alternatives to newspapers for their ad dollars. That, too,
is changing. The declining cost of electronic composition and offset
printing is leading to resurgence of local newspapers and Web 2.0
technology is making it cheap for citizens to launch their own community
websites. Search engine makers are figuring out how to provide value in
local search. These forces are converging to attack newspapers' last

In 10 years, probably a third of metropolitan daily print newspapers will
be gone. Some will go entirely online, while others will merge with
regional competitors. What will replace them? And what will the new
journalism look like?


What emerges from the rubble of the newspaper industry will be a fresh,
vibrant and very different kind of journalism. It will make a lot of
traditionalists uncomfortable. It will force us to re-examine our
assumptions about everything from readership to libel law. But it will
ultimately be an evolution of the profession into something that is
richer, more inclusive and much more dynamic than anything we have ever

Print newspapers are modeled on assumptions that were defined by physical
constraints but which are outmoded and irrelevant online. Basically,
information is scarce and publishing is archival. In most metropolitan
areas, the newspaper has been the principal or only source of news for
many years. This required editors and publishers to take a very serious
view of everything they set into type. Layout, headline selection, story
lengths, story placement and design were critical considerations in a
space-constrained world. The importance of a story was reflected by its
location in the paper or on a page, the weight of the headline and the
number of column inches dedicated to it.

Once a story was in print, it was permanent. This necessitated an almost
obsessive attention to detail and fact-checking. All facts had to be
assembled before the story was written. Often, multiple editors were
assigned to review and challenge information in the article. If
information wasn.t verified, it wasn.t published.

Structure was critical. Because stories were cut from the bottom,
newspapers invented the .inverted pyramid. style of writing, in which more
important information was placed higher in the story. Good information was
omitted because there wasn.t enough space.

Online publishing changes all the rules

Of course, all that is irrelevant online, and the new journalism will be
based on an entirely different set of assumptions. Any report may be
quickly and easily updated and corrected. Search engine results and
referral links are the principal drivers of readership. Layout is almost
irrelevant to a web site. Blogs have no hierarchy at all. Stories can be
as long for a short as they need to be, or can even be composed of many
links to other content. Stories may appear in many places at once and even
in many forms, depending on how they are tagged. Readers are able to
comment upon and contribute to articles. Graphics, audio and video
illustrations are easily linked to text. If something is wrong, you can
always go back and correct it.

In short, the online world challenges nearly every assumption of
conventional newspapering. It will dictate a very different approach to

For one thing, the craft of journalism will evolve to include far more
aggregation and organization that has in the past. Editors will assemble
their reports from a vast library of resources located across the
Internet. Some information will come from paid staff writers, others from
freelancers and still more from reports and opinions published by
independent third parties and even competitors. Editors will still have a
critical role, but their value will increasingly be in assembling and
organizing information for readers who don.t have the time to sort through
the vast Web.

The craft of reporting will become faster and more iterative. Rumor,
speculation and incomplete information will be published far more readily,
on the assumption that errors can be corrected. Stories will, in essence,
be built in real time and in full public view. Reporters will file copy
directly to the Web, often without a review by an editor. Readers will be
a central part of the process, correcting and comment upon articles as
they are taking shape. Reporting will become, in effect, a community

This new model will be very disruptive and very controversial. The idea
that a news organization would publish information it did not know to be
true flies in the face of all of our expectations. The concept of actively
involving readers - who have no formal relationship with the news
organization - in the reporting process will be too much for some editors
to accept. There will be hand-wringing over fears of libel suits and
other litigation. It is going to be an unholy brawl.

But this is where journalism will go, and it is happening now, every day,
on blogs and community media sites across the world. There authors
knowingly publish information that is unverified and unreliable. They do
so with the expectation that their readers will set them straight and that
the truth will be arrived at through a process of publishing and
correction. More than half a million blog posts are logged every day, yere
there has not been a single successful libel suit resulting from any of
them. Libel law, after all, is based on the expectation of archival
permanence. Nothing is permanent Online.

The future is taking shape

New models are already being tested at community-journalism sites like
Backfence, iBrattleboro.com, Northwest Voice and Korea.s OhMyNews.com.
The Washington Post recently reported on a Gannett experiment to reinvent
news journalism in Fort Myers, Fla. More will follow. Many more.

Journalism will become much more local. As the cost of publishing falls to
near zero and citizens become more comfortable with the tools of
publishing, thousands of mini .newspapers. will form around different
geographies and topics. Aggregation sites will emerge to sift through and
organize the reports and conversations going on in these small
communities. Many of these sites will involve human editors who understand
the needs of their audience and monitor online activity on their behalf.

This will be nothing less than a complete rebirth of journalism around the
concept that information is plentiful and cheap. Instead of 1,500 print
newspapers, there will be perhaps five to ten national .super-papers. and
many thousands of regional and special interest community news sites. The
process of getting there will be wrenching and controversial, but the new
model will create a more dynamic and diverse information landscape than we
have ever known. It will be incredibly exciting. I hope to be around for
the ride.

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