June 23, 2009
The Future of Newspapers
The Social Cost of the Decline of Newspapers?Becker
According to data compiled by my colleagues Matt Gentzkow and Jesse Shapiro, the number of daily newspapers in the United States has been declining for more than 90 years, from a peak of about 2200 to its present level of about 1400. The decline started with the advent of radio, accelerated with the growth of television, and continued of course as the Internet became more popular. The likelihood is that many more newspapers will disappear during the coming decade, and that dailies no longer will be a major source of information and news. This has already happened to evening newspapers: their circulation went from about five eights of the circulation of all dailies in 1940 to only about 12% at present.
A free press has been a foundation of democracies because the press spreads information about political and other developments. This is why one of the first moves totalitarian and other non-democratic governments make is to suppress the press. For example, the Iranian government has closed virtually all newspapers that are openly critical of the government. Nevertheless, I do not believe that the decline in the number of dailies, even if it rapidly accelerates, poses a major threat either to the viability of democracies, or to the spread of political and other information.
The main reason for this belief is that the Internet is far more efficient than newspapers in providing news, information, and opinion. This is obvious with respect to sports, financial developments, and weather since online updates are much more frequent than is possible even for the best papers. During the past 10 days of the Iranian election crisis, my wife and I turned mainly to the Internet for the very latest news and pictures on what was happening in Teheran and elsewhere in that country. These sources certainly included online editions of several newspapers, but also important were various online accounts by observers of and participants in the protests.
That the Internet is a more efficient provider of news and opinion than newspapers is seen in the fact that hardly anyone under age 40 now reads papers. Readership is also declining among older persons, but many of them continue to read papers- we subscribe to 3 daily and 2 Sunday editions- primarily because they built up strong habits of reading papers at breakfast or at other times. The lack of newspaper reading among younger persons is in small part a lifecycle effect, but mainly it is a strong predictor that the market for papers will continue to fall sharply.
The best newspapers, like the New York Times, Wall Street Journal, Financial Times, and Washington Post, not only present the latest news, in depth analysis of events, and selected opinions, but they certify the accuracy of what they are reporting through reputations built up over many years for objectivity, and care in checking sources. To be sure, they sometimes slant which facts to emphasize, or select stories that fit in with their particular points of view. Polls do strongly confirm that the great majority of journalists are liberal. Nevertheless, readers can usually have confidence in the news and other reports in the eminent papers.
Do online reports have a similar accuracy? I confess to being surprised by the huge numbers of men and women (including Posner and me!) who want to use the Internet to present their opinions and describe events they witness. Many millions of bloggers regularly report on everything from what they had for dinner to major political developments. Although the quality of these discussions varies greatly, many of them have gained reputations for rather accurate and unbiased reporting and analysis. A good example is the open source encyclopedia, Wikipedia, which has millions of entries that are continually updated. I have not read enough articles in Wikipedia to have an overall assessment, but I have been favorably impressed by most of those that I have read and can evaluate for their accuracy.
Although the printed newspaper industry is doomed, and will be missed by those of us that remember newspapers in their heyday, they are being replaced by good substitutes in the form of blogs, social networks like Facebook and Twitter, online news gathering by various groups, including newspapers, and other electronic forms of communication. People in democracies will continue to have access to independent and often quite accurate, reports on events in their own countries and most other parts of the world. In fact, the populations of undemocratic countries now have much greater access to what is happening in the world than they had in the past because it is far more difficult to suppress access to the Internet and other electronic forms of communication than it is to suppress newspapers.
The Future of Newspapers--Posner
Warren Buffett, who is a wit as well as a multibillionaire, said with reference to the fact that Bernard Madoff's long-running Ponzi scheme came to light during the financial collapse of last fall that until the tide goes out, you don't know who's swimming naked. A year ago Becker and I blogged about the decline of the newspaper industry. A year later the decline has accelerated. The economic crisis has hurt the newspaper industry as it has so many industries. The question is whether it will recover (or at least rejoin its slower downward path of last year) when the economy as a whole recovers; or has the economic crisis merely revealed the terminal status of the industry.
I am pessimistic about a recovery by the newspapers. One reason is the current economic situation. A serious, protracted economic crisis can result in changes in consumer behavior that persist after the end of the crisis. A change in consumption, even in some sense involuntary, can be a learning experience. People make what they think will be merely temporary adjustments in their consumption behavior to reduce financial distress but may discover that they like elements of their new consumption pattern; and businesses too, which have reduced their newspaper (and other print-media) ad expenditures drastically. They may never go back.
Newspaper ad revenues fell by almost 8 percent in 2007, a surprising drop in a non-recession year (the current economic downturn began in the late fall of that year), and by almost 23 percent the following year, and accelerated this year. In the first quarter of 2009 newspaper ad revenues fell 30 percent from their level in the first quarter of 2008. This fall in revenue, amplified by drops in print circulation (about 5 percent last year, and running at 7 percent this year--and readership is declining in all age groups, not just the young), have precipitated bankruptcies of major newspaper companies and, more important, the disappearance of a number of newspapers, including major ones, such as the Rocky Mountain News and the* Seattle Post-Intelligencer*. Falling revenues have led to layoffs of some 20,000 employees of the remaining newspapers. Print journalism has come to be regarded as a dying profession. Online viewership and revenues have grown but not nearly enough to offset the decline in ad revenues. Even the most prestigious newspapers, such as the* New York Times*, the* Wall Street Journal,* the* Washington Post*, and* USA Today*, have experienced staggering losses.
News, as well the other information found in newspapers, is available online for nothing, including at the websites of the newspapers themselves, who thus are giving away content. The fact that online viewing is rising as print circulation is falling indicates a shift of consumers from the paid to the free medium. The economic downturn has doubtless accelerated the trend, but economic recovery is unlikely to reverse it. To repeat my earlier point, many of the people who have switched under economic pressure to the free medium may find themselves as happy or happier and hence will not switch back when their financial condition improves.
Moreover, while in many industries a reduction in output need not entail any reduction in the quality of the product, in newspaper it does entail a reduction in quality. Most of the costs of a newspaper are fixed costs, that is, costs invariant to output--for they are journalists' salaries. A newspaper with shrinking revenues can shrink its costs only by reducing the number of reporters, columnists, and editors, and when it does that quality falls, and therefore demand, and falling demand means falling revenues and therefore increased pressure to economize--by cutting the journalist staff some more. This vicious cycle, amplified by the economic downturn, may continue until very little of the newspaper industry is left.
So what will happen to news and information? Online news is free for two reasons. First, in the case of a newspaper, the marginal cost of providing content online is virtually zero, since it is the same content (or a selection of the content) in a different medium. Second, online providers of news who are not affiliated with a newspaper can provide links to newspaper websites and paraphrase articles in newspapers, in neither case being required to compensate the newspaper.
As newspaper revenues decline, newspaper content becomes thinner and thinner--but by the same token so does the linked or paraphrased newspaper content found in web sites that have no affiliation with a newspaper. If eventually newspapers vanish, online providers will have higher advertising revenues (because newspaper advertising will have disappeared) and may decide to charge for access to their online news, and so the critical question is whether online advertising revenues will defray the costly news-gathering expenses incurred at this time by newspapers. Imagine if the New York Times migrated entirely to the World Wide Web. Could it support, out of advertising and subscriber revenues, as large a news-gathering apparatus as it does today? This seems unlikely, because it is much easier to create a web site and free ride on other sites than to create a print newspaper and free ride on other print newspapers, in part because of the lag in print publication; what is staler than last week's news. Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.