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.

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.

What Makes Good Journalism?

Journalists and others concerned about the status of the news industry in North America and Europe keep arguing that we are getting poorer journalism because of the economic state of the industry. But when you ask them “what makes good journalism?” they find it nearly impossible to articulate the concept.

Those trying to articulate the elements good journalism tend to use comforting and immeasurable platitudes and to describe it through attributes based on professional practices: pursuit of truth, fairness, completeness, accuracy, verification, and coherence. These are not a definition of quality, but a listing of contributors to or elements of quality practices. Each attribute alone is not sufficient for good journalism and degree to which each contributes is unclear.

In practice, most of us settle on identifying journalistic quality by its absence or by its comparison to poor or average quality journalism. Thus we know it when we don’t see it or we describe by giving examples of excellent journalism.

Other industries are far better in establishing their definitions of quality. If you ask what is quality in washing machines, the answer is that it quality machines clean clothing more effectively, operate quietly, are safe, and are durable and reliable. All of those can be measured by specific indicators of dirt and stain removal, water and energy use, noise decibels generate, user injury rates, and breakdown rates. A quality manufacturer strives for better performance on those measures, provides effective support and service, handles feedback and complaints well, and strives for high customer satisfaction.

The reason quality journalism is difficult to describe is because it involves a body of practices and the mental activity that goes into those practices. Good journalism results from the information gathering and processing activities, PLUS the knowledge and mental processes applied to it.

It is thus labor intensive; it involves collecting, analysing, structuring and presenting information. The best journalism comes from knowledgeable and critical individuals determining what information is significant, backgrounding and contextualizing it, and thinking about and explaining its meaning. It is a creative and cognitive activity. It is difficult to articulate what makes good creative and cognitive activity and nearly impossible to measure these mental processes. Thus, we are forced to use surrogate measures of quality journalism.

Good journalism involves engaging language and fluid prose, but it is not merely a well written and good story; it is not necessarily evident in stories that make the most popular list of stories or are most shared on social media. Good journalism involves stories that have import, impact, and elements of exclusivity and uniqueness; it wrestles with issues of the day, elucidates social conditions, facilitates society in finding solutions to challenges, and is independent of all forms of power. Good journalism is rational and critical; it is infused with scepticism, but not cynicism.

Although it is difficult to effectively measure such attributes of quality journalism, it should be much easier to define and identify quality journalism providers. There are some surrogate and attribute measures available to rate them, such as the percentage of total costs devoted to editorial costs, the amount of serious news content, the percentage of content originated rather than acquired, the amount and handling of errors, levels of reader satisfaction, and brand reputation.

In the end, however, the question of what makes good journalism has to be answered by answering the queries: Good or valuable to WHOM? Good or valuable for WHAT? Only then can one begin to establish direct measures that determine the effectiveness of journalism in achieving those objectives.