Future of Journalism

In an era of information overload, the American press has become an endangered species. Steep drops in both circulation and advertising revenues have led to drastic cuts in news staff and content. In turn, fewer people and less space equates to significant erosion of serious accountability in the form of traditional investigative reporting. Throughout the history of the newspaper industry, the standard business model relied solely on subscription and advertising revenue, which boils down to selling words to readers and selling readers to advertisers. With the advent of the Internet, the industry attempted to reconcile the old business model with new technology, to no avail. Thus, it has become painfully clear that the newspaper industry must rethink every aspect of operation while adapting to the new landscape of the 21st century. Due to the complexity of the dilemma, no single business model will provide an adequate solution. Instead a combination of innovative models including the redesign of online format, conversion from for-profit to non-profit funded by large endowments and the implementation of a moderated version of micropayments for online subscriptions will function to offset company debt as well as pave the way for a hybrid future of print and online publications.

It is no secret that the newspaper industry is in decline. According to the Project for Excellence in Journalism’s annual report “2009 State of the News Media,” circulation is plummeting, with losses accelerated to 4.6% for dailies and 4.8% for Sunday papers compared to the same sixth month period last year (Chart 1). As the economic recession deepened in 2008, advertising experienced an 18% drop with big losses of classifieds to digital competitors like Craigslist, the collapse in employment advertising and bankruptcies in retail. In 2006 advertising revenue amounted to $49.5 billion while in 2008 it was $38 billion, a 23% decline. Meanwhile, advertising revenues online dropped to -2.4% in the second quarter of 2008. As stocks fell sharply, pubic company shares loss more than three quarters of their value and companies sunk deeper into debt. Several metro newspapers are threatened with closing. The Rocky Mountain News closed in February while the Seattle Post-Intelligencer became the first daily newspaper to be published online only. Other companies are close to failing, the Tribune Company along with the Journal Register, Gatehouse Media and Philadelphia Newspapers all filed for bankruptcy in early 2009.

However, it does not make sense for newspapers to forgo the print version in favor of online-only. Papers still make roughly 90% of their revenue from print whereas the cost of printing and delivering newspapers averages only 40% of costs. Furthermore, print still commands premium ad pricing and it is clear that the current form of online advertisements has not been as successful (Chart 2). The first step towards the new business model is to redesign the online format as well as rethink the role of the printed newspaper. Online users desire a reader-friendly design suited to quick and easy access to information on the go. Media analyst Lauren Rich Fine recommends developing a PDF-format downloadable newspaper that could be accessed on a device like an I-Phone or I-Pod Touch. In this way, the editorial integrity of the paper and advertisements are preserved while enabling consumers to browse easily. Secondly, printed newspapers might consider covering less breaking news and focus more on providing analysis, perspective and context. Just as television and radio are better suited for immediacy, leaving breaking news and hard facts for the online version enables the printed newspaper to preserve its core function in investigative reporting, foreign correspondence and in-depth analysis.

In order to address its financial problems, the industry must reconsider its for-profit existence given its inability to generate enough revenue from Web sites to offset losses in print. The possible solution: converting newspapers to tax-exempt nonprofits supported by large endowments. In an opinion piece for the New York Times entitled “News You Can Endow”, David Swenson, chief investment officer at Yale University, stated, “By endowing our most valuable sources of news we would free them from strictures of an obsolete business model and offer them a permanent place in society, like that of America’s college and universities.” However, there are drawbacks to this model, such as the risk of companies becoming beholden to their donors or the fact that tax-exempt status may restrict them from endorsing candidates and running editorials on pending legislation. Furthermore, there exists the twofold question of how to persuade shareholders to sell and to convince philanthropic foundations to invest in a shrinking business.

Nevertheless, several organizations have been successful in transitioning to nonprofit status, including Minnpost.com and ProPublica. The local news site Minnpost.com is a nonprofit that manages sustainability through a mix of membership donations, corporate sponsors and advertisers while the nonprofit ProPublica is devoted to investigative journalism and funded by philanthropic organizations. Charles Lewis, founder of the nonprofit investigative journalism organization “The Center for Public Integrity,” maintains that the future of journalism may depend on whether “the philanthropic community steps up and embraces this civic moment and crisis and tries to solve it. This is a failure of the market. The market can no longer support news substantially” (As Troubles Mount, Newspaper Industry Reconsiders Business Model). By having newspapers at least partially supported by endowments, the industry could bolster revenue without relying so heavily on advertisements.

The final aspect of the new business model should incorporate a subscription service partially based on micropayments. Several analysts have recommended developing a system of micropayments similar to iTunes where online users would be required to pay a small fee (one or two cents) for an article. Although it is true that a publication’s primary duty should be to its readers and not to advertisers and that news content should not be given away for free online, Lauren Rich Fine brings up an important difference between downloading songs and downloading news articles. “The comparison to iTunes is flawed as a purchase of a song can be heard over and over again vs. news which becomes stale very quickly,” she told Content Matters blog site. It is too late to attempt to enforce “no more free content” and if companies demand walled subscription services it may drive readers to other sites. Perhaps online sites could offer PBS-style volunteer membership packages along with discounts among local businesses or establish news networks linked by the same pay system so that users could pay a flat fee with access to all the sites.

The ultimate challenge to the newspaper industry is finding a business model which functions in the digital world. It has become obvious that relying solely on advertising is a flawed plan, making the publication entirely beholden to the advertiser and not the reader while failing to draw in enough revenue. A hybrid model combining new technology, philanthropic contributions and reader payments could spread the revenue sources more evenly between ads, donations and subscriptions. No matter the method, something must be done to preserve quality journalism and allow it to return to its roots of investigative and analytical reporting.

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