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Paul Gillin's Blog - Social Media and the Open Enterprise: The New Journalism
Paul Gillin's Blog - Social Media and the Open Enterprise
Wednesday, November 15, 2006
  The New Journalism

It would be pointless to continue to post headlines about the looming financial disaster in the newspaper industry, so I’d like to focus instead on what will emerge from the rubble of that industry’s inevitable collapse. Over the next few blog posts, I’d like to sketch out a model of a new kind of journalism that is being formed in Web 2.0. I believe it will come to replace much of journalism as we now know it, and may form the basis for a rebirth of newspapers.

First, some background and assumptions. The business model of metropolitan daily newspapers is badly broken and can’t be fixed. The model was developed over 150 years ago to support a delivery method that is becoming irrelevant. Huge staffs of people were needed to create content, turn it into type, print it on paper and distribute it on a timely basis. It was very expensive, but it was necessary because there was no alternative way to deliver information on a daily basis.

Large editorial staffs were needed to create proprietary content. A few alternative sources of content were available, such as news wires, but there was almost nothing at the local level. In any case, running wire copy didn’t differentiate a newspaper from its competition, so staffs of salaried reporters were needed to turn up original news. At some newspapers, these staffs can run to several hundred people.

Newspapers had to maintain large circulation operations and massive subscriber lists in order to justify their ad rates. Circulation is expensive. While renewal rates for daily papers have always been high, it’s costly to acquire new subscribers through advertising and direct mail. In my experience working for a paid newsweekly, the cost of circulation didn’t come close to matching the small revenue it generated. Circulation revenue at newspapers has also been falling in recent years due to price cuts and competition, further squeezing margins.

Capital costs inherent in buildings, presses, paper, ink and people to run all those machines were astronomical. Labor unions added to those costs. In some cases, the unions have succeeded in preserving jobs that were automated out of existence years ago. People go to work and literally have nothing to do.

Add it all up and a metropolitan daily newspaper must employ several hundred people to produce the product. Newspaper advertising is very expensive because of the large fixed costs. The Chicago Tribune, for example, charges $755 per column inch in the daily paper ($1,135 on Sunday). That business works as long as advertisers are willing to pay for it and for many years they have. That’s because newspapers were one of the most effective means for businesses to reach consumers in certain geographies.

Because newspapers are so capital- and labor-intensive, their revenue-per-employee is relatively low. The New York Times Co., for example, generates about $280,000 per employee. The Journal-Register Co. generates a much more modest $105,000 per employee.

The upside, though, is that newspaper model has traditionally been profitable and predictable. Once a newspaper achieved dominance in its market, it was practically unassailable. As consolidation reduced the total number of daily newspapers (there are about 1,750 in the U.S. today), competitive pressure eased and the winning papers were able to drive their ad rates higher. Until the mid-1990s, this was a pretty nice state of affairs. Even the Internet didn’t put much pressure on newspapers, at least during its first decade.

That is all about to come to an end. As I’ll argue in future posts, the business model of metropolitan daily newspapers is poised for a collapse that will be stunning in its speed and scope. The cause is Web 2.0. In the next installment, we’ll look at some of the economics of that emerging business.

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Comments:
So what you're saying is that the Boston Globe and the likes of it will eventually fold. I understand that traditional newspaper publishing can't do business as usual as ad spending is moving online and as people get their news from somewhere else. However, I wonder if a Boston Globe (or any other metro newspaper), however, has a chance surviving if they completely change their business model. Why couldn't a Boston Globe mutate into a conglomerate of several neighborhood and topic-oriented blogs (with a local angle)?

I think I might know your answer: Such a business model would represent too dramatic a change!
 
Hey, you're jumping ahead! No fair. :-)

That's basically where I'm going with this, but first I want to explore the underlying economic principles and why they so strongly favor a new approach to newsgathering.

To preview my conclusions, newspapers aren't going way, but there will be many fewer of them. Targeted media is the future. The role of the journalist in a Web 2.0 world will be very different from the traditional role.
 
Yes, and I think he's on to something. Northwest Voice is another online publication that's doing interesting things.
 
the problem with internet based news services is that they do not service "local" communities very well. the non-geographic nature of the net can be a weakness when it comes to knowing what's happening in your neighbourhood. i know it's possible to build 'local' sites but they don't seem to be successful.

i suspect the local "free" newspapers are the future of the newspaper industry.
 
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