How the internet changes the rules of newspaper economics

by Jason Preston on August 4, 2008

This post is part one in a three part series on the changing economics of the publishing business.

Newspapers, like every other company that sells a service or a product, have always had a bargain with their subscribers.

For ages, that bargain has been: if the reader pays a couple of dollars per week, the newspaper will give them the scoop on what’s going on around them and in the world. The newspaper will also help bring the local community together though services like letters to the editor and the classifieds section.

But also implicit in this bargain was the promise that the newspaper would be the best way for the consumer to do these things. That’s why it was worth the money.

The internet has changed those rules dramatically.

Changing the deal

Getting a stack of paper on your doorstep is now, comparatively, one of the worst ways to get the latest news. Until recently, it was slower than TV, but still much more informative. The internet makes it just slow.

So now that we have the internet, newspapers and readers need to find a new bargain. Newspapers will probably continue to bring people timely news, analysis, and community-connecting services (classifieds, a platform to communicate), albeit online.

But part of the new bargain is that readers no longer have to pay. Instead, all they have to do is look at the ads that the newspaper puts alongside its content (which they’ve had to do all along, anyways).

Monopoly

One big difference is that no newspaper holds a monopoly on their local audience anymore.

There’s a reason most big cities only have one or two newspapers. People don’t need to read the same news story five times (nor, frankly, do they have the time).

Which means that if a company wanted to advertise to the local audience en masse, there were really only one or two ways to do it. Which in turn means that for a long time newspapers were in control of an ad platform that was incredibly scarce, and they could charge advertisers a large premium just for access to their audience.

But the internet has turned that on its head. Attempting to control the distribution of information is no longer a reasonable business model, and the proliferation of online ad networks means that there is now more ad space to fill than there are ads to fill it.

When anything on the internet can be seen by anyone, ad space becomes a cheap and plentiful resource. Google’s business is based on making a few pennies for every one of those ad spaces, not making thousands of dollars off a limited number—in other words, it’s a volume business, not a margin business. Seems to work pretty well.

As Clay Shirky astutely put it, the economics of content still forms around two basic questions: who pays for it? and is that payment voluntary (a donation)?

Creating new challenges

The internet has shifted the answers to those questions dramatically.

Consumers are no longer willing to pay for news because it’s available in so many places online for free. And donation-based journalism was a laughable concept until recently, but it may not be far from reality anymore.

The sheer volume of advertising opportunities online also makes it impossible for newspapers to charge advertisers the same monopoly rates they can on print products. Online, the real leverage comes from scale, targeting, and brand value.

BoingBoing can charge a higher CPM for their ad placement than I can because they have scale and they have a brand that people are highly passionate about, not because they’re the only gig in town.

All of which creates a number of challenges for newspapers as they begin to chase the shifting market into uncharted territory.

This post is the first in a series of three on the economics of the publishing business. The second post is here – make sure you’re signed up to the Eat Sleep Publish RSS feed for more good posts.

{ 2 trackbacks }

What makes online news different than print, audio, or video news? — Eat Sleep Publish
08.06.08 at 8:21 am
The power of five dollars — Eat Sleep Publish
08.09.08 at 9:14 am

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