Who Will Pay for the News?

Posted on April 3, 2007

USA TodayI have recently been working my way through the Frontline special entitled “News War” which chronicles the changing face of today’s newsmedia. The series tackles some intense subjects including whether or not a reporter has a right to withhold their sources from the government, the role of newspapers in terms of reporting on issues that could compromise national security and the effect of new media on the traditional media.

Covering all of those things in this post would of course mean a very lengthy post so I would like to focus on one of the main issues News War brought to the surface and that is the simple question of who will pay for the news in the future.

Before we delve into the subject at hand I think it is pertinent to discuss the changing meaning of the word news in our society. It seems that most of us have started to view news as something that is more in line with entertainment rather than something that is supposed to inform us about the world in which we live.

We are making choices to view more entertainment rather than news which is, of course, leading to more news organizations trying to entertain us to keep ratings up and ad dollars coming in rather than reporting on what we really need to know. They are a business after all and they need to keep increasing profits each year.

What’s interesting to note is that there was a time when news organizations were not looked at as profit centers. In fact, they were looked at as more of a public interest organization. The FCC even has a rule (section 315 of the FCC code) that states that media companies need to have a news service that serves the public interest (i.e. tells them what they need to hear). As News War points out this notion of news as a public interest org changed when CBS saw how profitable 60 Minutes had become and decided the news could be a big money maker.

As news organizations became a larger and larger part of the profits of their parent companies the parent companies, as any business would, started to make the news service parts of their organizations provide more entertainment which means more dollars flowing to the bottom line. In a sense, they wanted the news organizations to provide the public what they wanted rather than what they needed.

After discovering all of this I began to wonder if we need a news organization that is not a business. I then ventured further into the News War documentary where I began to learn some interesting facts about the news business that I wasn’t aware of and hadn’t given much thought to.

I assumed that newspapers were not doing well and that the companies that owned them needed to make cuts and report more entertainment just to keep them going. However, a stat from News War refutes that. Apparently the typical newspaper achieves around a 20% operating margin which is roughly double what a typical fortune 500 company will do. However, since the LA Times is publicly held through the Tribune Company, they needed to continue to earn more an more money each year or else their shareholders will see a loss in value (it should also be noted that newspapers, even though they make a lot of money - LA Times makes about $1 billion per year with $200mm of that being profit - are still on a downward slope in terms of overall earnings which means shareholders are upset).

Of course a lot of the loss in the growth of newspapers comes from the loss of their classified ads business to the internet. At the peak of classified ad sales in newspapers the average newspaper would see about 70% of their pretax profits come from classifieds (source: News War). With more and more of these classifieds heading onto the net (which provides a far better user experience than the newspaper) the newspapers have had a hard time staying afloat without cutting real news out of their papers and their staff.

As most of the long time readers know I am a big proponent of running organizations as for profit entities since I believe for profit entities are more motivated to find efficiencies which ultimately help them perform better (whether it means making more of a product or helping more people). In the case of the news I am not so sure that is the best approach given what I have written above and what I have read.

The news is truly a public trust. They need to be there to provide us, as citizens of the world, news of what is happening in our world so we can be informed and make good decisions. In fact, I would say that the newsmedia are an important part of the very foundation of the United States since they are the conduits between the world, the government and all of us. They can get us insight and hard news that, for the most part, we couldn’t get ourselves. Of course all news organizations have their biases but the loss of them to media that is fully entertainment would be a bad sign for this country.

Another interesting point that came up in News War was the fact that the majority of original reporting done in this country is done by newspapers. In fact, Eric Schmidt (Google CEO - not that I even need to note that!) says the following in an interview done for the News War documentary:

“There’s no question that we [Google] depend critically on reporters reporting new facts, new stories, new ideas. Who’s going to write it if it’s not the reporters?”

He then goes on to say:

“We’re [Google] in fact critically dependent upon the success of these newspapers so anything that screws up their economics, that causes them to get rid of reporters, is a really bad thing. The fact of the matter is that the consumption of news is up but the way in which people consume news has changed and its affected newspapers, in a business sense, pretty negatively.”

The fact is that most web organizations like Yahoo! News and Google News simply link to newspaper articles. Bloggers are definitely reporting on a lot of new things, generating some original reporting and becoming a larger part of the media world but the vast majority of original reporting and hard news comes from the newspapers which are in serious trouble (blogs also do a great job of promoting and continuing the discussion of hard news originally reported by newspapers which is very important in a free society like ours).

Of course the web will save, or at least help, a lot of these newspapers if they play their cards right but ad spending on the web still has a long way to go to reach the numbers of print ad spending. Perhaps hyperlocalism will help in the meantime. I do believe that hyperlocal data and reporting can be a big profit center and so do a lot of big papers who have started to work on hyperlocal additions to their websites. Even the Washington Post is looking into hyperlocal news on the web. However, world news still needs to be reported on and it seems we still need something other than profit to drive news organizations in order preserve hard news so I am still left with the question of who will pay for the news or, to put it another way, who should own the newspapers? (Side note: Hyperlocal news and info is a whole other post that I may get to soon.)

Perhaps the answer to newspaper ownership is private ownership either through a non-profit foundation or a family. The non-profit structure of a foundation obviously limits the burden forced on papers by profit expectations and family owners can decide to be OK with flat growth or only 5 - 9% profit instead of 20% in order to keep the news organization’s ability to produce hard news intact. In fact, there are large papers that fall into these categories today.

The St. Petersburg Times is a for-profit organization but their owner, the Poynter Institute, is not meaning they aren’t stuck with the profit issues of other papers. The New York Times and Washington Post are also in a better situation being that they are both family owned papers who continually produce hard news that we need to read.

Being part of the media business and, quite frankly, simply a citizen of this country meant that all of this really hit home. Thinking of a world in which hard news is hard to find really worries me and I hope that we’ll be able to find a way to preserve and pay for solid news. As always, I would love to hear some of your thoughts in the comments.

Photo Credit: Photo by Orrin (aka theliar) on Flickr.

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4 Comments so far
  1. Somewhat Frank April 7, 2007 6:18 pm

    End of the Web’s Free Ride?…

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