Much has been written on the subject of the internet-induced transformation currently underway within the news industry. (Those who’ve already had their fill of this topic should feel free to wait for Part 2.)
The basic idea is that the economics of distributing information online are radically different from print, so the business models that evolved within the physical world of newspapers no longer apply. The gradually declining fortunes of today’s newspapers mark the end of the previous era.
In meatspace, it made sense to keep the entire value chain – ad sales, news and editorial content, printing, and distribution – under a single roof. Given the economies of scale and high coordination costs from one end of the chain to the other, companies consolidated into local monopolies and national oligopolies in order to minimize costs and maximize profits.
The internet is changing things. Distribution costs are now much lower due to the ease of online publishing; new communication tools facilitate coordination among the different activities; and buying and selling advertising inventory is much simpler through automated web-based ad networks.
With the reduction in coordination costs, suddenly there’s much less pressure towards vertical integration. The value chain is more efficient when divided between multiple entities, each focusing solely on a single stage of the chain rather than doing everything (newsgathering, printing, distribution, etc.) in-house. Separate companies can develop their core competencies and engage with complementary firms within a competitive marketplace that stimulates innovation at each step in the chain.
So, the consensus among many internet gurus is that the news media is being reorganized. Within the new value chain, distinct companies are performing different functions – selling advertising (e.g. Google Ads, Tacoda), creating content (e.g. AP, NYTimes.com), and aggregating content (e.g. Digg, Google News), and other more narrow ones. They integrate almost seamlessly to deliver a product that was previously provided by a single company. Communications infrastructure firms, like Comcast, are also part of this new chain – they’re today’s delivery boys. But they’re simultaneously a part of many other web-based value chains, and they’re paid by end users, so their fortunes are much less dependent on the news industry.
This is not to suggest that the disaggregation process described so far is complete. Far from it. As more and more consumers get their news online instead of in hard copy, print advertising sales dry up. Online ad revenue, while growing, will probably never make up the difference – a major reason for this is that classified advertising, once a major source of newspaper revenue, has moved elsewhere. (Anyone heard of a site called Craigslist?) Newspapers of all shapes and sizes are being forced to cut back on editorial staff.
So the big question on everyone’s mind as the media ecosystem transforms is: As newsrooms cease to be able to support themselves as vertically integrated newspaper monopolies, how will they continue to do their jobs – if at all? It isn’t only journalists and news companies with a natural self-interest in protecting their livelihoods who ask this, but also foundations, academics, media watchdogs, and others who seek to safeguard a robust fourth estate out of a conviction that the health of our democracy depends on it.
Stay tuned for my thoughts on what’s in store in an upcoming post. The short version: Different types of news will sustain themselves through different business models.