Will there be journalism after newspapers?

At MediaPost, Dave Morgan has posted his "Last Column on the Newspaper Industry." (Check out the long comment thread there, also.) After explaining that "I no longer believe that the industry is very relevant to the future and things digital," Morgan makes an interesting point that should be considered by anyone whose motivation in wishing to save the newspaper industry relates to the preservation of "quality journalism:"

[T]he notion that the purity of newspaper journalism is the cornerstone upon which today's great metropolitan newspapers were built is revisionist history. Most of today's great newspapers were built through achieving dominant distribution in their markets, not through delivering better journalism. Most U.S. cities used to have two or more competitive newspapers. The eventual winner was almost always the one that won on the battle on distribution or advertising, almost never on journalism. Great journalism came later. For example, the Philadelphia Inquirer didn't become a Pulitzer Prize-winning machine until after it put the Philadelphia Bulletin out of business (and we won't even get into the role that some believe that organized crime may have played in that victory). Only after that the Bulletin was gone did the Inquirer have the ability to invest outsize, monopolistic profit margins into great journalism, which is exactly what it did. The same holds true for many of what we see today as great, "journalistic," metropolitan newspapers. Pulitzers don't make great newspapers. Local distribution monopolies make great newspapers.

And a local distribution monopoly, or even some degree of dominance, is not possible in a digital world, since barriers to entry are negligible, compared to the sunk investment costs in newspaper buildings, presses, distribution channels and even retail shelf space.

But dropping most barriers to entry also creates huge opportunities for more and better in-depth journalism as readers increasingly turn to the web for news content.

Today, would the New York Times print and distribute the full text of the Pentagon Papers? Of course not, they'd put it all online at much less expense. But the Times and other newspapers still regularly devote multiple pages to long investigative work, often by teams of reporters. It's admirable, but it burns money needlessly. I would guess that at most 10 or 20 percent of readers get all the way through that kind of material. In fact, the average readership of any article in the paper is probably less than 20 percent. In other words, distribution of quality journalism on newsprint entails a waste factor of at least 80 percent. Since the ballpark cost of newsprint and ink on a single page of the New York Times is more than $3,000, that wasted expense is $2,400 or more per page. Publish the same investigative effort online, and not only is there no waste, but the team can freely post all their background material and all the photography, video and audio that it might want to share with an unlimited reader/viewership.

That audience is real. I linked yesterday to John Parker's piece on the growth of mass intelligence, which maintains that the appetite for intellectually challenging cultural content is growing, not shrinking. While he focuses more on the arts than on news, certainly good journalism appeals to the same consumers that visit museums, go to the opera, listen to NPR, and so on.

But art, music, dance and even public media are subsidized heavily by philanthropy. So is it necessary for good journalism to pursue a non-profit model, even when we get rid of unnecessary costs like that $2,400-per-page waste at the Times? The folks at MinnPost, Saint Louis Beacon, Voice of SanDiego would say so, as would John Thornton at Insomniactive. On the other hand, reports David Westphal at OJR, Charles Sennott and Philip Balboni considered going non-profit with their global journalism startup GlobalPost (which launches Monday), but decided that they could make money doing this.

As part of their model, they see individual journalists as entrepreneurs, which makes sense. It puts them in the same class as other providers of intellectual fodder: artists, musicians, authors—some succeed through commercial channels, some succeed through philanthropic subsidies, but none are supported by monopolistic distributors of advertising.

Can news sites get their slice of the advertising pie?

Recent findings by Pew and Gallup indicate that, generally speaking, U.S. consumers now prefer news delivered via the internet over news printed in newspapers. This redoubles the need for a viable business model in which online news content is supported by adequate advertising revenue.

Unfortunately, as pointed out by John Thornton at Insomniactive, only a fraction of the ad revenue formerly aimed at those print-oriented eyeballs has followed their attention over to the web. By Thornton's educated guestimations, online news via newspaper sites is garnering only about 4 percent as much revenue as newspapers still manage to sell into their printed products.

Can this problem be overcome? Can newspapers crank up the sales pressure and find more revenue for their electronic offerings?

One way of looking at this says no: Historically, printed newspapers were monopolistic enterprises, their positions protected by very high barriers to entry which gave their owners the market power to set prices high enough to cover the cost of a liberally staffed newsroom and still reap princely profits (such as those that built and furnished Hearst's San Simeon). This monopolistic privilege has only gradually eroded over the last 50 years as television, and then the web, claimed their slices of the pie, as illustrated by this graph showing the share of various media of total U. S. ad spending since 1948 (click for clearer enlarged view, see November 30 post for more info).



But clearly, no newspaper, or other news content provider, has much pricing power in the online world. Does that mean there's simply no chance that online advertising on newspaper sites can grow enough to make them viable?

One observer at Seeking Alpha, Alex Rampell, seems to think not, in a piece entitled "The End of Brand Advertising." Basically, Rampell's thesis is that brands are waking up and realizing they've historically been getting bilked, that " there is at best a tenuous link between consumption of their goods and consumption of the free content they are sponsoring." And that, having figured this out, they'll shut the spigot. This explains, according to Rampell, why CPMs on MySpace run 25 cents per 1,000 while Time Magazine, in good times, got $25 per 1,000.

The problem with this view is that while advertisers will, of course, always drive the best bargain they can, brand and image advertising has always been about achieving a degree of monopolistic market power. There may be a tenuous link between the advertised goods and the content sponsored by ads, but there has always been a clear relationship between the volume of advertising behind a product, and its consumption or popularity (as convincingly demonstrated in recent months by the Obama campaign's unprecedented promotional spending). Leading brands have almost always maintained their positions by brand and image advertising, not by informational advertising providing objective product specifications.

Historically, for at least 80 years, total U. S. advertising expenditures have been nearly constant at about 2 percent of GDP. Economic slowdowns push that ratio a little lower, expansions push it up, but with very few exceptions the range has been between 1.8 and 2.3 percent, despite all the changes over time in media technology and the consumer's preferred media mix. If there were, overall, no more than a "tenuous link" between advertising and sales, marketers would have discovered that, and adjusted their spending, a long time ago. But the fact is that the link is robust, not tenuous, and 2 percent is still the norm—it was 2.025% in 2007; 2008 will probably come in a tad lower.

[a.m. addendum:] The point is, the advertising pie, relative to GDP, won't shrink significantly, or permanently, because marketers seeking market share continue to have very strong incentives to advertise, but the media to which ad dollars are allocated do shift over time, as the graph shows.

The problem for web sites, including news sites, is that the web is not yet a great place for brand and image ads, relative to the attractive environments of ads on big-screen TVs, billboards and slick magazine pages. Like newsprint, the computer screen is still fairly low res, as amply demonstrated in any YouTube video, so the web has been more suited (as newspapers always have been) for informational advertising rather than brand and image promotion. It is part of the genius of Google that their model has never featured any brand or image advertising at all.

So the challenge, to newspaper web sites and news site startups, is to move beyond Thornton's 4 percent level by ramping up online versions of the informational advertising that sustained printed newspapers, as well as finding ways to host brand and image ads that were never native to newsprint. And to do this in the context of the new wisdom that is writing off the utility of traditional website banner and button advertising and trumpeting video ads as well as the new world of social network advertising.

Insomniactive: another smart blog

Last week/year I endorsed Gina Chen's almost brand-new blog, Save the Media; the next thing I knew, it was recommended by Tim Windsor and then by Jeff Jarvis. (And Gina went on to put up three more very smart, don't miss posts— 1 2 3 — while most of the rest of us continued to protract our holidays as long as possible.)

So let me suggest another addition to your RSS reader: John Thornton's blog, Insomniactive. John is a veteran venture capitalist in Austin, Texas, whose thoughts have been turning more and more in the direction of journalism, new media, and business models for news. He has been involved in a few media-related startups like Vignette and Ignite.

Insomniactive is written with flair and offers an informed perspective on the media business from someone not directly involved in the field, and supplies, as a bonus, interesting views on a wide range of other economic and political matters.

Recent Insomniactive posts of particular interest in to the journoblogger audience:

Sam Zell, the f-word, and Microeconomics 101: "Barriers to entry such as printing presses and and distribution networks–not rock star journalism– made newspapers obscenely profitable for decades. Public service journalism was the tail, not the dog. And unfortunately, this particular pooch is now too old, tired, and sick to do much wagging."

If I were the God of Newspapers, on why Peter Osnos is wrong to suggest that the New York Times Company divest itself of the the Boston Globe: "My inner Newspaper God suggests just the opposite: Let the Times Co. continue to run the slimmed down Globe and the local dailies with their eye 100% on the bottom line, as should be in the case when you’ve taken on these pesky critters called 'shareholders.' Don’t sell the Globe; sell the Times. Sell it for something like $1b to a group of shareholders to run it literally as a public trust." (And another post on the same subject reacting to Henry Blodgett's view that the Times needs to shed 40 percent of its newsroom cost.)

See you in the Pink Sheets: "No doubt, 2008 was annus horribilis, [like] none ever experienced before in the newspaper industry. But with the exception of a couple dozen properties, 2009 may well be annus ultimus–the year that the newspaper industry as we currently [recognize] it ceases to exist, much as 2008 was the year Wall Street became no more."

So, what's the solution? Thornton is hinting at the non-profit option in this intro to a manifesto: "While we’re very interested in business and very interested in journalism, we have concluded that serious journalism is a lousy business and that business principles are lousy for serious journalism. Clergymen are fond of saying that when you mix politics and religion you get politics. The mix of serious journalism and business is even worse: it yields businesses that aren’t worth investing in."

When "Good News" Could Hardly be Worse, on the vaunted new primacy of online news reading over newspapers discovered in recent polls: "You see, the online news outlets of the future are shaping up to be–and it grieves me to say this–a bunch of grubby, cruddy, marginally profitable little businesses. Entry costs are essentially zero, technology and inventory abundance is shifting power to the advertiser at lightning speed, and there’s less than no correlation between quality journalism and quality of earnings."

Finally (and most recently): What a Novel Concept, building on Jay Rosen's advice to "cut to a sustainable level and build from there."

And, yes, John Thornton likes News after Newspapers, as well. I'd be endorsing Insomniactive even if he didn't. Welcome to the conversation, John.