The Story So Far

What We Know About the Business of Digital Journalism

Bill Grueskin, Ava Seave, Lucas Graves

• Publisher: Columbia University Press
• Year: 2011
• ISBN:
  9780231500548
• Topic: Languages & Linguistics
• Subtopic: Journalism
• Index: Languages & Linguistics

Bill Grueskin, Ava Seave, and Lucas Graves spent close to a year tracking the reporting of on-site news organizations—some of which were founded over a century ago and others established only in the past year or two—and found in their traffic and audience engagement patterns, allocation of resources, and revenue streams ways to increase the profits of digital journalism.

In chapters covering a range of concerns, from advertising models and alternative platforms to the success of paywalls, the benefits and drawbacks to aggregation, and the character of emerging news platforms, this volume identifies which digital media strategies make money, which do not, and which new approaches look promising. The most comprehensive analysis to date of digital journalism's financial outlook, this text confronts business challenges both old and new, large and small, suggesting news organizations embrace the unique opportunities of the internet rather than adapt web offerings to legacy business models. The authors ultimately argue that news organizations and their audiences must learn to accept digital platforms and their constant transformation, which demand faster and more consistent innovation and investment.

Chapter 1

News from Everywhere: The Economics of Digital Journalism

In early 2005, a researcher at the Poynter Institute published a column that was instantaneously read and—by many—misunderstood.¹

Rick Edmonds, who studies the financial side of the news business for Poynter's website, speculated about how long it would take for online newspaper revenue to match the dollars brought in by the print side. He estimated that digital ads accounted for around 3 percent of the total revenue for an average U.S. paper. Edmonds assumed an optimistic online growth rate, around 33 percent a year, and what seemed then to be a reasonably sober estimate of print growth, around 4 percent.

High hopes

Given how low online sales were at the time, Edmonds noted it would take 14 years for digital revenue to catch up to that of print. As he wrote, these calculations provided “little cause for cheer.” He also noted “there isn't any reason to believe any of these numbers will remain steady state over time.”

His disclaimers were lost on many readers. At several conferences later that year, participants pointed to the study and cheered one of the presumptions in the column—that digital revenue would grow by a third every year, as far as the eye could see.

For a few years, it seemed as if this scenario might be realistic. Newspapers' online revenue grew by more than 30 percent in both 2005 and 2006.² But growth slowed the next year, came to a halt during the recession and still hasn't fully returned to what it was in 2007. Meanwhile, print revenue hasn't grown at 4 percent a year since 2005; indeed, newspapers' print revenue in 2010 was less than half what it was in 2005.

Fifteen years after most news organizations went online, it is clear that old media business models have been irrevocably disrupted and that the new models are fundamentally different from what they once were. What made traditional media so vulnerable to the Web? Or perhaps the better question is this: Why has digital technology, which has been such a powerful force for transmitting news, not yet provided the same energy for companies to maintain and increase profits?

Mainstream news organizations had already started losing audience before the Internet became popular. Broadcast network news programs have been sliding steadily since 1980 and now reach slightly over 20 million viewers a night, down more than half in three decades. Newspapers began to experience significant circulation declines decades ago. Total daily newspaper circulation has fallen by 30 percent in 20 years, from 62.3 million in 1990 to 43.4 million in 2010, as people found other sources, particularly local television news, to be an adequate substitute.³

Revenue, however, held steady or increased for mainstream news outlets, even as audiences shrank. This was true in the early days of the Web, too, thanks in part to an advertising bubble spawned by the Internet boom.

To begin to understand the disruptions of the digital transformation, it is important to appreciate the circumstances that made the news business—whether in broadcast, cable, magazines or newspapers—so profitable for so long. The commercial heyday that buoyed the fortunes of American newsrooms in the last half-century had its roots in changes that began much earlier.

Through the 19th Century, newspapers benefited from economic and demographic shifts that accompanied industrialization—in particular, rapid urbanization and the attendant rise of the big-city retail economy. The growing advertising market encouraged urban publishers, who had begun to loosen their ties to political parties and to think of themselves as independent businesspeople. In the process, they realized they could make most of their money from local retailers, rather than from people in the street paying a few pennies to buy their papers.

Historians of journalism argue that these economic and political shifts underpinned an increasingly professionalized and objective journalism that became the norm in the 1920s and 1930s. The move toward general-interest, advertising-supported newspapers aimed at broad audiences also drove a cycle of concentration and consolidation that would continue for decades.

With audiences and ad revenue growing even as competitors disappeared, newsrooms and newspapers swelled in size. An analysis of major metropolitan dailies by the American Journalism Review found that between 1965 and 1999, eight of the 10 newspapers studied saw at least one competitor disappear.⁴ During the same period, on average, each of the surviving newspapers doubled the amount of news it produced. Even as new or expanded sections—sports, business, lifestyle—claimed a larger share of each edition, the total coverage of local, national and international news continued to increase.

The trend of increasing consolidation in a growing advertising market helped to compensate for declining readership. By the early 1980s, most U.S. cities had just one daily newspaper. Or, in markets with two papers, one was clearly dominant and the other was kept afloat by favorable terms negotiated in joint operating agreements that Congress had created to preserve local journalistic competition. Radio and television newsrooms enjoyed similar access to a lucrative market. The advertising business in broadcast was so strong that even television and radio stations with small market shares were profitable; those with a strong command of the audience were cash machines.

The monopoly or oligopoly that most metropolitan news organizations enjoyed by the last quarter of the 20th Century meant they could charge high rates to advertisers, even if their audiences had shrunk. If a local business needed to reach a community to promote a sale or announce a new store, the newspaper and TV station were usually the best way to do it. Even if the station or newspaper could deliver only 30 percent of the local market, down from 50 percent a decade earlier, that was still a greater share than any other single medium could provide.

That changed after 2001. The recession that followed the September 11 attacks forced many companies to cut spending, reducing media companies' advertising stream. More importantly, the digital transformation accelerated, and more users began to get their news, for free, on personal computers. The link between a consumer's getting the news and a provider's expensive investment in publishing, broadcast and delivery was broken; this brought a flood of new competitors. Craigslist helped devastate classified ads, newspapers' most lucrative source of revenue, and in 2008, the deep recession fueled by the financial crisis undermined real estate and employment advertising.

As we get further into the digital age, we can more plainly see how the transformation has affected news organizations and the citizens who depend on them. Consumers certainly have benefited—they have more choices, speedier delivery of news and more platforms. But as legacy companies shrink, these advantages have often been accompanied by a loss of original news coverage. New entrants have achieved impressive editorial results, but not many of them have achieved financial stability without some philanthropic or other non-market support.

The move to digital delivery has transformed not just the business of news, but also the way news is reported, aggregated, distributed and shared. Each of those changes has an underlying economic rationale, and the media industry has sometimes been slow to recognize the changes or has been paralyzed by their impact. Below, we list some of the most consequential changes brought on by the digital era and offer thoughts on how they will affect the way journalism is supported in the years to come.

I. A Different Business

• Digital requires a new way of thinking about your audience, one that now feasts on an abundance of information. In the words of Syracuse University Professor Vin Crosbie, “Within the span of a single human generation, people's access to information has shifted from relative scarcity to surplus.”⁵ As Crosbie notes, it isn't enough simply to transfer content from a legacy platform to a new one. Digital journalism requires an entirely different mind-set, one that recognizes the plethora of new options available to consumers. Tom Woerner, a senior vice president at freelance-generated site Examiner.com, notes that “the old distribution model allowed for only so much content. There are only so many pages you can print, only so many minutes you can sell in a broadcast. … Now the limits are gone, for both good and bad.”
  
  Impact: Readers have access to far more information than they used to, almost always for free. But for publishers, the competition is nearly infinite, meaning much of the news has become a commodity, with pricing to match.
• Digital is where the users are heading. In the most recent study by the Pew Research Center for the People & the Press, 65 percent of people ages 18 to 29 get their news from the Internet—outpacing television for the first time and far exceeding the 21 percent in that age group who rely primarily on newspapers.⁶ Among people ages 50 to 64, the Internet (34 percent) and newspapers (38 percent) are almost tied. The Web's growing popularity means the “network effect” can kick in. That is, as more people use news sites, those sites become more valuable to their users, especially as readers and viewers comment on—and contribute to—stories. Meanwhile, more usage is gravitating from computer screens to smartphones, tablets and other mobile devices. According to a January 2011 Pew study, 47 percent of American adults say they get at least some local news and information on their cell-phone or tablet computer.⁷
  
  Impact: Digital platforms provide ways for audiences to build quickly with lower marketing costs than in traditional media. And the shift to mobile provides news organizations with more opportunities for targeted content and advertising. But increased audiences don't always lead to proportional gains; in other words, more people may be viewing a site, but that doesn't mean revenue increases to the same or greater degree. Witness a recent report by McClatchy Co., the third-largest newspaper firm in the U.S. The company said the number of local daily unique visitors to its websites grew by 17.3 percent in 2010, yet digital revenue rose only 2.4 percent for the year.⁸ And mobile ad sales have so far been less lucrative than those on Internet platforms. Chris Hendricks, vice president of interactive media for McClatchy, says that “seven percent of our traffic comes from mobile. The traffic is significant, the revenue is not.”
• Digital provides a means to innovate rapidly, determine audience size quickly and wind down unsuccessful businesses with minimal expense. The substantial capital expenditures that used to be involved in starting a new media company are largely gone. A video service need not build tall antennae atop the highest hills in town, and print publishers can avoid capital-intensive investments in printing presses. The large staffs associated with getting information to readers—whether they're camera crews or printing staffs—aren't as necessary. It took Sports Illustrated at least 10 years to get its formula right and become profitable⁹; it took Huffington Post less than six years to go from an idea to a valuation of $315 million in its 2011 sale to AOL.
  
  Impact: The development time from idea to market is shortened, greatly increasing efficient use of a firm's resources. But because competitors can imitate or adapt more quickly, it is difficult to cash in on innovations. The shorter cycles can lessen the length of time that innovations remain unique, relevant and valuable.
• Digital platforms extend the lifespan of journalism. In the analog era, news stories were as ephemeral as fruit flies. An article was prominent for a day, then available only on a library's microfiche; a video would be broadcast to millions on the nightly news, then it would be sent to a network's vault. Journalism now can be freely accessible for as long as a publisher wills it to be. In the words of one programmer, “There is no such thing as ‘yesterday's news.’”
  
  Impact: News organizations can make money from their archives as part of a subscription or pay-per-view service, or as part of a scheme to provide more content and build traffic and ad revenue. But as increasing amounts of content stream into archives, consumers may have greater difficulty finding what they want.

II. Content and Distribution: A Fundamental Change

• Digital disrupts the aggregation model that was so profitable for so long. Almost no one used to read the entire newspaper every morning, and audiences frequently tuned in and out of the network news at night. Yet, news organizations sold their advertising as if every page was turned and every moment was viewed. Indeed, print publications applied a multiplier—often up to 2.5 readers—to account for the audience for each edition they sold. But in the online world, content has become atomized, with each article existing independently of the next. It is as seamless for a reader to go from a tallahasseedemocrat.com story to a video on msnbc.com as it is to read back-to-back stories in Esquire...

Table of contents

• Cover
• Half Title
• Epigraph
• Title
• Copyright
• Table of Contents
• Introduction
• Chapter 1: News From Everywhere: The Economics of Digital Journalism
• Chapter 2: The Trouble with Traffic: Why Big Audiences Aren't Always Profitable
• Chapter 3: Local and Niche Sites: The Advantages of Being Small
• Chapter 4: The New New Media: Mobile, Video and Other Emerging Platforms
• Chapter 5: Paywalls: Information at a Price
• Chapter 6: Aggregation:‘Shameless’ – and Essential
• Chapter 7: Dollars and Dimes: The New Costs of Doing Business
• Chapter 8: New Users, New Revenue: Alternative Ways to Make Money
• Chapter 9: Managing Digital: Audience, Data and Dollars
• Conclusion
• Executive Summary
• Acknowledgements
• The Authors