Digital journalism reaches sustainability, but transitional business problems interfere

The income streams of digital news providers continue to grow and many have now reached the point of sustainability. Fundamental financial and business problems, however, are keeping publishers from moving out of print and becoming digital-only operators.

This leads many publishers and journalists to continue bemoaning the fact that digital media do not provide as much income as print and many still argue that organized, regular newsgathering and distribution cannot survive in a digital-only environment. They point to the fact that digital advertising produces only about 15 percent the income of print advertising—largely because it does not appeal to retail, display advertisers--and that paid circulation for digital products is growing slowly.

Their analysis is flawed, however, because publishers do not require as much revenue online as offline because the costs of digital operation are so different.

Editorial operations account for only about 10-15 percent of total costs of operation of print newspapers, but they are the primary cost for digital operations. About half of the costs of print are taking up by printing and expenses for getting papers to readers; when the costs of paying for and maintaining buildings and land used to house presses and circulation equipment are factored in, those costs rise to about 60 percent of total costs. Expenses to maintain the large advertising operations found in print newspapers add another 10 percent to overall costs and the managerial costs due to the large number of personnel and functions in non-editorial activities add about another 5 percent. Thus, switching to digital operations can take out at least three-quarters of the costs of print newspaper operation, making the lower revenue of digital operation sustainable.

A growing number of newspaper companies are already generating 15-20 percent of their total revenue from digital operations, making nearly enough money to sustain the kinds of journalism practiced by legacy news media. So why does negativity about the future of journalism remain so high and why are newspapers not yet moving to digital-only operation?

There are three primary reasons:

1. Print newspapers still continue producing above average returns compared to all industries. No publisher is willing to throw away those operating profits even if the costs of print operation are higher than digital.
2. Retail advertisers get more return on investment from newspaper advertising than any other form of advertising, including digital. As long as they remain willing to advertise in newspapers, no publisher is willing to give up the revenue stream and operating profits that they now provide.
3. Owners of print newspapers have a great deal of capital tied up in facilities, printing and distribution equipment that cannot be withdrawn because few buyers want to acquire the used equipment today.

The fundamental challenge today isn’t that digital journalism has not reached sustainability; its how does a publisher transition from the print to digital-only operation in a way that is financially feasible and desirable.

The transition is critical for society because it will bring with it the reportorial strength and organization that exists in newspapers. That is something that digital startups do not provide because they generally lack the capital to build and sustain staffs as large as those of print newspapers and because they lack the reputations and brand identity of established papers.

Newspaper owners, publishers, and journalists then need to stop decrying the digital revenue problem and start focusing on solutions to the business challenges of when and how to realistically reduce and end the print operations. It will happen at some point in the future; the problem is how to plan and manage the switchover.

Cable firms and Facebook Continue to Disappoint their Customers

Serving and satisfying customers is a crucial part of  value creation in any business,but U.S. communication firms continue to struggle with the very basics and are being heavily criticized for poor service, price gouging, billing problems, and generally poor customer relations.

40 percent of the top 15 companies that most dissatisfy customers are communications firms, according to the latest data from the American Consumer Satisfaction Index.

The companies American most dislike include Facebook and cable systems, which operate as near monopolies and consumerss have no real competitors to turn to for better service. The scores for the companies are:

Direct TV: 68/100

Facebook: 66/100

Comcast: 61/100

Time Warner: 63/100

Cox Communications: 63/100

Charter Communications: 59/100

These are failing scores on any grading system.

The companies have little incentive to spend time and money to improve service and relations with customers because there is no real competition that can discipline the market and promote consumer benefits. The problem is compounded because cable services are largely unregulated and there are no watchdogs to demand better behaviour in the absence of market-imposed sanctions.

That means the only thing that can drive improvement is company pride, but it is abundantly apparent that these firms have no shame and really don't care what their customers think.

Letting go: Making sense of social magazines and news readers

Applications that aggregate articles based on what others in one’s social network are reading and reformat them into an attractive magazine and presentation formats are growing in popularity, but they are raising concern among some publishers.

The processes build upon the referral and curating functions of colleagues and friends in social networks and reduce the need for users to go to multiple sites for content on their own. Some of the best known social magazines are Flipboard, Newsmix, Currents, and Pulse. Some publishers are starting their own social reading apps, such as New York Times that has a Facebook app pulling together stories that friends have read in NYT.

Many publishers are fearful of these developments, however, because they represent another step away from publishers controlling when, where, and how readers use their content, reduce the impact of the publishers’ brand strategies, and diminish control over the presentation and marketing of their content.

But publishers really don’t have a choice whether or not social magazines and readers grow in importance. That ship has sailed. The real choices is whether publishers use them for best effect and whether they are willing to accept the benefits of having more readers driven to their content and reaching persons who haven’t used their content before.

In coping with this and other disaggregation of content, however, many publishers need to adjust their own ways of presenting digital content. Because readers from social magazines, other aggregators, and search engine are directed to individual articles, it becomes more important to think about how that material appears to these new readers and what can be done in its layout to attract the new readers to stay on the site and sample more content. They are not entering through the home page so greater thought needs to be given to what appears on article pages.

Social magazines provide another mechanism by which deliver content to new readers and to existing readers hn new ways.  They are not the ‘silver bullet’ for solving publishers’ digital challenges, but they are another means by which benefits can be obtained and pursued. 

Focusing on what control social magazines transfer to users and their branding downsides is a distraction for publishers who are beginning to learn the value of letting go of the control in the digital environment. Digital media are now bringing 15-20 percent of the traffic to many publishers’ digital content and they are feeling the benefits of letting readers decide the means and uses of that content.

Is the future of digital journalism an outside job?

Making small digital news providers sustainable has become the holy grail of journalists and the search continues for workable business models and revenue streams.

Advertising may produce some revenue, but it will never generate sufficient resources to support digital journalism because so little advertising money is available for sites with small audiences. About three-quarters of all online advertising goes to the top 10 sites and Google, Facebook, Microsoft, and Yahoo account for about 60 percent of all online revenue. This leaves very little advertising expenditures to be contested among all other players--of which news providers are only a small fraction. At the same time, the prices paid for online advertising are falling because there are so many sites offering advertising, the advertising inventory is nearly infinite, and audiences continue fragmenting.

This means the majority of funding for start-up digital journalism must come from elsewhere and online news sites—especially start-ups—are having mixed success trying to construct multiple revenue streams from philanthropy, memberships, events, consulting services, and payment systems. Both large legacy news organizations that dominate provision of news in the digital space and free automated aggregators are hampering efforts of small sites to develop audiences. The primary successes that can be observed have been for start-ups carrying out special forms of journalism or concentrating on highly specific topics.

The answer to sustainability may not lie in the business creation and business operational approach. The key to making emergent digital news providers sustainable may lie in the 18th and 19th century approaches to journalism, in which journalism was an avocation and not a profession (or at least only a part-time profession).

If one reviews the history of newspaper start-ups around the world, one finds that the bases of journalistic compensation were not journalism itself. It many cases it was funded by public employment—serving as postmasters, teachers, or other civil servants—or by operating commercial endeavours—such as printing firms, taverns, and retail shops (Even brothels funded the costs of newspapers in some towns in the Western U.S. during the nineteenth century).

The current inability to effectively fund small-scale digital journalism means that we all need to be thinking more broadly about how we can support the functions and people involved in them. If the past is a guide, we may need to return to provision of local journalism as community activism, political activity, or business support service—all of which played significant roles in establishment of news provision in years past.

The thorny problem of media pluralism

The term pluralism is regularly used in critiques of media and in arguments for public intervention. It is employed so loosely, however, that it allows varied interpretations to be attached and this makes it highly challenging to turn general support for the concept into specific policy. Much of the lack of clarity is the consequence of indefiniteness of the term and because it is used as a proxy for more involved concepts.

The term is derived from “plural”, an indistinct quantitative concept indicating the existence of more than a single thing and plurality itself merely indicates a state of being numerous. This alone allows the term plurality to be used in various ways when applied to media.

For some it means a plurality of media outlets. This is indicated by having multiple types of media and multiple units of each media and the existence of a range of print, broadcast, satellite, and Internet content providers can represent pluralism. For other observers pluralism means plurality in ownership, that is, a range of owners and different types of ownership. For others it is indicated by the existence of public service as well as private commercial firms so some provision is made by an organisation(s) without direct individual economic self-interest(s).

The amount of media, its ownership, and its operation are not in themselves the objects of concern about pluralism, however, and these usages are merely shorthand semantic devices that indicate a collection of political, economic, and cultural concepts and ideologies. Because that collection is not universally agreed, the term pluralism is disparately employed.

The term encompasses fundamental concepts in liberal democratic media ideology and neo-Marxist critiques of media. It incorporates ideas of the benefits of free flow of information, ideas and opinions and the value of a variety in artistic and cultural expression. It recognizes the amount of content that can be offered by any one provider is limited by temporal and spatial factors. It accepts that the abilities of individuals to obtain and attend to content are affected by monetary and temporal limitations. It recognizes that operation of media is accompanied by political and economic benefits such as access, privilege, influence, and power and that those can be used for personal advantage and interests.

Those who accept these concepts underlying the term pluralism differ widely about the proper means for its pursuit, however. They have divergent beliefs about the roles of the state and the market and differ widely about whether policy should promote beneficial outcomes through regulation or incentives and whether—and the extent to which—non-market provision of content is desirable.

The difficulty of achieving the ultimate objectives is further complicated by the fact that public policies promoting pluralism tend of focus on the overt evidences of plurality in media outlets, media ownership, and media operation. Although multiplicity of media outlets, ownership and operation increase the possibility of achieving the objectives of pluralism, they do not guarantee because they are not necessary and sufficient conditions for its existence. Thus ‘external pluralism’ is sometimes not enough. This has led many to advocate for ‘internal pluralism,’ meaning that within a single broadcasters or publisher as variety of content and perspectives are provided. The provision of internal pluralism is typically used to justify public service broadcasting and narrow internal pluralism is a typical critique of private media.

The contemporary world creates lower barriers to participation in communication by making production easier and shifting distribution away from technologies that limited the number of providers and content available—the fundamental rationale for concern about pluralism. In the digital media world, the fundamental challenge involving pluralism is not limitations on producing content, expressing divergent ideas and opinions, or access to distribution systems. The primary challenge is the ability to effectively reach audiences.

In this environment promoting pluralism must focuses on reducing control over what flows through new digital distribution systems so dominant owners of production and distribution systems are not able to marginalize alternative perspectives and make them difficult to locate. And the fundamental content and attention problem remains.

Although digital media provide many more opportunity to be heard, the issue today is not ‘share of voice’, but ‘share of ear’. We need to seek ways to promote knowledge about alternative content and to make it more readily accessible. Otherwise the concentration of where the audience goes—in terms of aggregators and sites—is every bit as damaging to pluralism as limitations on spectrum and concentration of ownership. This is especially true by the Internet service providers, content aggregators, search engines, and video on demand services that pursue their own interests through in-transparent practices and algorithms that skew the access to and distribution of information, even when it is ‘personalized’ by individuals.

Those who hold that pluralism is no longer an issue in the digital world argue that its underlying infrastructures are neutral. That technology may be neutral, but the systems necessary to make them function are under the control of companies with their own agendas and the abilities to limit or direct its use in ways that harm pluralism.

Changing social power is reflected in the sales of newspaper offices

Newspapers across the US are shedding large downtown buildings in favor of more modest facilities, often away from the center of cities.

The downsizing is the consequence of reduced need for office space following staff cuts, changes in production technologies that reduce space requirements, and the outsourcing many printing and distribution activities. Examples include:

• The Miami Herald has sold its bayfront building and the 14 acres around it for $236 million and is planning to relocate elsewhere next in 2013. It will use the proceeds to pay down debt and pension liabilities.

• The Ft. Worth Star-Telegram has sold its home for the past 90 years and will be moving to new offices this spring
 
• The Boulder Daily Camera in Boulder, CO, sold its downtown facilities for $9 million and is moving to facilities outside the center of town.

• The Tribune & Georgian in St. Mary’s, GA, shed its former building by donating it to United Way of Camden Country in February to be used for work space and a training resource center for charitable organizations. The paper no longer used the building because it had moved to other facilities after outsourcing its printing operations.

The changes are not just indicative of the changing financial and operational characteristics of newspapers, but of the position of newspapers as major institutions in society. Over the past 150 years, newspapers used the wealth they generated to construct buildings in the center of towns—sometimes monumental and architecturally significant edifices—that reflected their importance and power in the community and their location at the center of society.

Social, economic, and technology developments have stripped that wealth from the newspaper industry. But cities are also changing and many downtown areas are no longer the locus of economic and political power in communities. As we continue to move more firmly into the digital age, the physical manifestations of where the center of society is located will continue to change.

Changes in media and media industries reflect deeper social changes that will continue altering our lives in may ways for many years to come.

Newspapers increase use of co-opetition practices

U.S. newspapers are increasing their use of co-opetition practices, that is, cooperating with competitors to reduce costs, create synergies, or reduce risk in new markets. Such activities are permissible if they are not designed to create cartels or control prices for advertising or circulation.

The latest example occurred this week when the Boston Herald announced an agreement with the Boston Globe for its competitor to print and deliver the Herald. The move creates cost savings for the Herald by allow it to cut printing, trucks, and delivery personnel, while simultaneously creating production and distribution economies and an additional revenue stream for the Globe--a win-win for both companies.

Such service agreements do not violate antitrust laws because the papers remain independent, set their own prices, and create their own content. If papers were to engage in such actions they would have to apply for an antitrust exemption under the Newspaper Preservation Act (see John C. Busterna and Robert G. Picard, Joint Operating Agreements: The Newspaper Preservation Act and its Application. Ablex, 1993), but those agreements have not proven successful in the long run.

The Boston agreement comes on the heels of numerous printing agreements, including that of the Chicago Tribune and Chicago Sun-Times, that have been made among publishers in the last couple of years.

Another example of co-opetition is seen in the 59 newspaper and information companies—including New York Times Co., McClatchy Co., Washington Post Co., E.W. Scripps Co., A.H. Belo, and Associated Press—that have now banded together to create NewsRight to track use of digital content and ease its licensing. By cooperating with each other, the companies have brought more than 800 content sites into the operation and created a significant player in the digital industry.

Daily newspaper companies have historically disliked cooperation unless it was absolutely necessary—as in the case of news services. The new types of cooperation emerging show that the preference to go it alone is being eroded by contemporary financial conditions and the difficulties of operating independently in the digital environment.