June 29, 2008
Are Newspapers Doomed?
Yes, Newspapers are Doomed
Yes, Newspapers are Doomed-Becker The number of general-purpose newspapers has been declining in cities ever since the growth of television, and the decline accelerated after the Internet was developed. The trend downward will continue, and perhaps even accelerate. I do not see much of a future for the general-purpose hard copy newspaper that combines opinions, sports, advertisements, comics, and information.
A telling fact is that young people today do not read general newspapers, whereas they did in the past. When I was a boy my father bought at least five newspapers every day, and I "read" (that is, looked mainly at sports and comics) three or four of them. It is now rare to see anyone under age 30 reading the New York Times, Chicago Tribune, or any other major newspaper. A teacher used to be bothered when bored students starting reading newspapers in class. That is no longer a problem since they now turn to their computers and play video games or email friends.
I find it hard to reconcile the rapid decline in the number of newspapers with Posner's data suggesting that newspapers are quite profitable. Declining industries, such as the American automobile industry, have always been associated not with profits but with substantial losses, as is happening to Ford, General Motors, and Chrysler. There is no doubt that the many newspapers which went out of business did so because they were losing money. Of course, the surviving newspapers tend to be the ones that are more profitable, but they too are experiencing financial problems. They are cutting staffs, long-term owners are selling their papers to others- as with the Wall Street Journal and Chicago Tribune- and they are trying various approaches to deal with the tough competition from online advertisements and other online services.
The Internet has gravely wounded the newspaper industry because it provides information, opinion, and entertainment more frequently and effectively than newspapers do. The Web offers as much sports news as desired, and presents the progress of baseball and other sporting in real time. The weather is updated every hour, or more frequently, and so are stock market quotes. Online ads give pictures and personal information about individuals looking for jobs, and prices and other characteristics of products offered for sale. Major as well as minor news stories, local and general news, and opinions on numerous issues are continually being presented.
A case still made for good newspapers and magazines is that they separate facts from opinions, and do enough checking to stand behind the materials presented as facts. I do not know of anything comparable on the Internet, although the reputations of better-known bloggers do rise and fall with changing perceptions about their insights and accuracy. Yet it is not apparent that the demand is very strong for this dimension of what newspapers have traditionally provided.
Newspapers are trying to strengthen their survival prospects by expanding online presentations, and combining these with print editions. In the short run this may help them, which explains why all the major newspapers are moving aggressively to expand online materials, and widen their online customer base. However, I do not believe this approach will succeed in the long run. The reason is that the way newspapers bundle different services is not the right approach to online presentations that usually provide information about the weather on websites that are different from those used to discuss sports or present ads for cars. Some online sites specialize in opinions about domestic politics, others discuss religion, some present pornographic pictures and films, while others focus on economic issues. The traditional newspaper does not readily fit into this format, and so they are generally losing money in their online efforts.
This does not imply that online presentations in the future will continue to be organized in the same way as at present. Perhaps the growing tendency for some websites to link to other sites will coalesce into organized multi-site presentations that deal with many different topics. Already some subscriber-based sites collect and present the best blogs on different topics. How that will evolve is not clear to me, but it is unlikely to develop into anything that looks like the conventional newspaper that has bundled news, information, and advertisements for hundreds of years.
The rapid and continuing decline in the number of major newspapers will be regretted mainly by older persons who are accustomed to reading several newspapers daily-my wife and I still subscribe to four and read others online. However, by voting with how they use their time, the great majority of consumers clearly have shown that they prefer to get their information, entertainment, and opinions from television, and especially from the Internet, than from newspapers.
Are Newspapers Doomed?--Posner
A newspaper is a bundled product. A bundled product is one that combines a number of products the demands for which may be quite different--some consumers may want some of the products in the bundle, other consumers may want other products in the bundle. (Another good example is the Windows operating system, a bundle of a number of different programs.) Bundling is efficient if the cost to the consumer of the bundled products that he doesn't want is less than the cost saving from bundling. A particular newspaper reader might want just the sports section and the classified ads, but if for example delivery costs are high, the price of separate sports and classified-ad "newspapers" might exceed that of a newspaper that contained both those and other sections as well, even though this reader was not interested in the other sections.
Bundling also facilitates price discrimination by snagging consumers who place a high value on particular products in the bundle. It also increases the risk of entry by single-product competitors because the marginal cost to the consumer of the bundle of any component of it is zero. He gets the sports section for "free" (in the sense that the newspaper costs him no less if he throws the sports section away without reading it) but would have to pay a positive price for a free-standing sports newspaper.
Like other intellectual products, a newspaper has high fixed costs (the newsroom, etc.) but low marginal costs (the cost of printing and selling one more copy), and so there is a tendency to natural monopoly in local newspaper markets. It is offset, however, to an extent, by differences in content, outlook, and so forth among different newspapers, which limits substitutability and therefore makes some degree of competition viable. Nevertheless newspapers tend to be quite profitable (as recently as 2006, the average ratio of profit to revenue was 17 percent, which is high relative to industry as a whole), because competition is limited. High newspaper profits sometimes are attributed to the fact that most information comes free from public sources and that newspapers deal directly with their customers and so economize on distribution costs. But low costs are not a reason for high profits, since competition tends to push revenues down to costs.
High profits may seem inconsistent with declining revenues, but are not if the firm, seeing no future for itself, ceases investing in the its future and instead cuts costs to the bone (thus treating the firm's product or service as a "cash cow"). Many newspapers are doing that. Still, newspaper profits are plummeting, and with them the value of the companies. The reason is declining ad revenues (an inflation-adjusted decline of 20 percent between 2000 and 2007, and a further decline this year). This is a function in part of declining newspaper circulation but more profoundly of unbundling, as unbundling is the cause both of the declining ad revenues and of declining circulation. The Web provides a virtually costless method of distributing the products that are bundled in a newspaper. The distribution is not only cheaper, but better, because it avoids the time and space constraints of hard copy delivered on a daily (rather than instantaneous) basis and space-constrained by the cost of paper. The unbundling goes deeper than the section level (classified ads, the sports section, etc.), for every section of a newspaper is itself a bundle. The news section bundles a variety of news stories that different readers value differently; readers who have no interest in foreign policy nevertheless pay for a newspaper that may maintain costly foreign bureaus in order to produce good stories on foreign policy. The Web provides a customized news service that enables the tastes of particular readers to be identified and then satisfied by instantaneous and often costless delivery of a product laser-focused on those tastes. The bother associated with the physical bulk of the newspaper is also eliminated.
A study by comScore, Inc. in March of this year found that persons 65 and older are almost six times as likely to read a newspaper six days a week than persons aged 25 to 34 (and almost ten times as likely as those aged 18 to 24). The principal reason for the difference is not I think that older people have more leisure, because people in the 45 to 54 year old bracket, who do not have more leisure than the young, are more than twice as likely to read a newspaper six days a week than the young cohort. The reason, rather, is that younger people are much more comfortable getting information online than older people are; they have grown up in the electronic revolution. This will not change as they get older.
It appears that the only hope for the newspapers is to go online, and they have done this and have attracted many viewers to their Web sites. But they have not been able to charge for online ads anything like what they can charge for ads in their hard-copy editions. The reason I think is that there is much more competition in online advertising than in print advertising, especially for advertising, such as classified advertising, that is primarily informational; for the information in the ads is often available online at no or nominal cost from other sources, such as Craigslist. Moreover, the online newspaper is still a bundled product, and the Web provides close substitutes for all the sticks in the bundle. The blogs are a big factor here; in the aggregate, they not only are nimbler, but contain a vastly greater body of specialized knowledge, than the newspapers or other conventional media (as Dan Rather learned to his sorrow).
Suppose, then, that the newspapers are doomed, or, more realistically, that they are likely to continue to shrink, eventually becoming a retirement service, like Elderhostel. Are there social consequences that should trouble us? A common argument is that if news is customized to the tastes and interests of every individual in the society, people will not be exposed to conflicting views and as a result will become incapable of active civic engagement, for example as voters. That is implausible. It is important to distinguish between opinion and fact. Most people do not want their opinions challenged. So if they are liberal they read the New York Times and if they are conservative they read the Wall Street Journal. But people are both interested in, and influenced by, facts, such as the fall of communism or the rise in gasoline prices, and they will learn these facts (and more quickly) on the Web even if they do not read newspapers. The few people who actually read, compare, and take seriously opposing views on matters of public policy will continue to do so after they stop subscribing to print newspapers. With the rise of the blogs, moreover, the amount of information and opinion reaching the public is far greater than in the heyday of the print newspapers.
A second concern, to which the rise of the blogs may be only a partial answer, is that Internet news services (such as Google News) are parasitic on the print newspapers' large staffs of reporters, so that if they drive the newspapers out of business the Internet news services will lose much of their content. The copyright law cannot prevent this, because a newspaper can prevent the copying only of its articles--that is, of the verbal form in which the information in an article is expressed--and not the information itself. And it cannot prevent a news service from simply sending the viewer to the newspaper article via a Web link. The concern, in short, is that the Internet will kill the goose that lays the golden egg. But this is unlikely. If online viewers want the level of news and opinion that print reporters generate, the Internet news services will hire reporters, defraying the cost out of their online advertising revenues, which will be greater for an Internet news service that attracts additional viewers by offering them richer, newspaper-type fare. Indeed, long after newspapers like the New York Times and the Washington Post have ceased print publication, their Web sites may be among the leading Internet news services. The aggregate amount of news and opinion may be less, however, because unbundling will eliminate internal subsidies, for example of the news and op-ed pages by revenues from classified ads.