Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

August 17, 2008
David Warsh, Proprietor


| contents |

That Newspapers Are the Central Banks of Social Currency

The newspaper industry’s funk is worse than ever. The most helpful discussion of the situation that I have seen in a long time was put forward the other day by Jack Shafer, the media critic at the e-zine Slate. Yes, classified and help-wanted advertisers have been migrating to the Web, Shafer writes. But the deeper problem has to do with the other half of this two-sided market, the readers.

 

Newspapers have lost their once-dominant position in the provision of “social currency.” The big city dailies no longer supply, exclusively, or even mainly, the tidbits of information that we exchange with one other in the course of daily life – from news of whatever movie won the weekend box-office sweepstakes to sports scores and weather forecasts  to “Did you see what so-and-so said/did?” Much the greater part of that information now is distributed and, in many cases, originated by social networks, television and radio broadcasts, websites, blogs, and all the other media, old and new, that compete for time and attention. That’s what’s eroding the critical readership base of newspapers and sending into a tailspin their claim on advertising revenues and their share prices.

 

The phrase social currency comes from sociology, Shafer notes, where it is long been employed to describe the information we acquire and trade or give away “to start, maintain and nurture relationships with our fellow humans.”  For a fascinating conjecture about just how deep-rooted may be our taste for this sort of thing, see Grooming, Gossip, and the Evolution of Languge, by evolutionary psychologist Robin Dunbar.

 

Whatever its wellsprings, the present-day demand for every conceivable sort of “news” is obvious, if only because the amount on offer is so staggering. It comes at us from every conceivable direction. With the rise of the Internet and the explosion of bandwidth, the mindshare that once belonged morning and afternoon newspapers and whatever arrived in the postal mail has shrunk.

 

It’s a great argument, indisputable as far as it goes.  But it doesn’t go far enough.  It doesn’t take account of the hierarchic nature of the market for news.  It doesn’t recognize the nearly unassailable position at the top of the chain occupied by the well established dailies. Thus it misses the one thing that papers must do to maintain their hegemony. 

 

They must keep their paper editions strong.

 

Just the other day, an old newspaper friend called my attention to NewsStand.com. As the name implies, the Austin, Texas, firm operates an online kiosk, offering perfect digital copies of newspapers, complete with ads, from cities all around the world, at about half the price of their paper edition. He enthused, too, about Amazon’s Kindle e-book reader, another tool that makes it easy to read a replica your favorite paper. The new device, whose screen is considerably friendlier to the eye than a backlit computer monitor, is selling briskly – according to Amazon, as fast as was Apple’s iPod when it was first introduced.

 

A couple of clicks to NewsStand or Amazon, then, to start a subscription and the delivery problem is solved. The paper is never late again. Before long, my friend continued, all newspapers would be delivered this way. No more messy paper and ink, no more trucks and gas.

 

Alas, to go down that road would be a big mistake. The paper-and-ink version is easy to read, easy to share, comforting in its corporeality, reassuring in its permanence: it has a durable market niche. But that doesn’t mean that some newspaper executives aren’t longing to do away with it altogether rather than iimprove it, chiefly by becoming more considerate of readers’ time and attention span. An example: with the nearly useless daily digest that has opened up on pages two and three of The New York Times (not to mention the index that takes up a sixth of its front page and the Web teasers and corrections that fill page four), the company is sending a signal that its top managers are still infatuated with the Web. (Remember the “Internet tracking stock” they wanted to issue at the height of the bubble?) The Times – and every other big newspaper that wants to be around fifty years from now – should think again and learn again to love its heavy load.

 

Those enormous rolls of newsprint, tank-cars of ink, long lines of presses and fleets of delivery vans are the newspaper industry’s best friends. Among business strategists, they are known as barriers to entry. The capacity to print and deliver the paper product from cities around the world is what makes newspapers different from everything and everyone else in this media-sodden world. Precisely from all this impedimenta – and the paper product it produces – does the authority of newspapers’ increasingly extensive Web-based operations derive.

 

There was a vogue in the 1970s and ’80s among strategists, economists and lawyers to make light of such barriers (Even some business executives got carried away: it was in those years that Pittsburgh’s Brockway Glass boldly went into the airline business.) But experience has shown that high fixed costs, steep learning curves, access to delivery systems and expensively-maintained reputations are powerful deterrents to ambitious start-ups (the success of Southwest Airlines and Jet Blue and many other new entrants to long-regulated industries notwithstanding).

 

Well-established newspapers have a welter of advantages in the high end of the news business. Their mission is clear, deeply rooted in the circadian rhythms of their readers and those they write about. Their product is well-differentiated from all others, its nature spelled out in the shorthand of their marketing campaigns:  without fear or favor, all the news that’s fit to print, the daily diary of the American dream, the first rough draft of history, etc. Newspapers offer a summing up at the end of each day and the beginning of the next, the best that can be said by the time the sun goes own, a provisional kind of truth. Many readers will be satisfied with the inferior information they can get for free anytime from the Web, or hear on the radio, or learn from their friends. But many will continue to prefer the real thing.  

 

In fact, the role of newspapers with respect to social currency in many ways resembles that of central banks with respect to money itself – just as central banks expand and contract credit in accordance with business conditions by manipulating lending bank reserves, so newspapers ultimately determine the amount of attention given to a particular story by the resources they commit.

 

Looking casually at the vast array of global banks, investment banks, private equity firms, hedge funds, nonbank banks, credit card networks, mortgage companies and payday lenders, it may be tempting to conclude that what central bankers think and do doesn’t matter much any more – until the Federal Reserve Board or the European Central Bank actually does something.  In the same way, the naïve view that newspapers don’t matter much any more is contradicted every time a big story comes along.  

 

Take the story of John Edwards oft-denied campaign love affair with free-lance cinematographer Reille Hunter. The National Enquirer, which seems to make a specialty of sacking presidential candidates’ love lives (it played a part in breaking the Gary Hart/Donna Rice story in 1988), first reported in October, 2007. Bloggers, especially Slate’s Mickey Kaus, amplified the story with limited success. Then last month the Enquirer staked out Beverly Hills hotel in which then Edwards was visiting Hunter and obtained photographs.

 

(American Media Inc., which owns the Enquirer, in turn is partly owned by Evercore Partners, founded by Roger Altman, a senior economic adviser to Hillary Clinton, as noted (second item) last week by the Palm Beach Post. The tabloid’s staff had been told there were to be no anti-Hillary stories during the campaign, according to one senior editor who spoke to Post columnist Jose Lambiet on condition of anonymity.)

 

But not until the Charlotte and Raleigh papers in Edwards’ home state of North Carolina began to pursue the story did Edwards make a confession under carefully controlled circumstances on ABC’s Nightline program – whether full or partial is still not clear.  With that, the national dailies at last felt free to begin writing about the story. Newspapers may not be the first word, but they are the last.

 

Or take the story of the war between Russia and Georgia. The on-scene scrum naturally includes anyone with the money to send a reporter to somewhere near the front lines. Bloggers who emerge participate in the coverage as well. But only those news-gathering institutions that can afford to cover various departments of the US government, maintain a Moscow bureau, subscribe to the mainstream news services and print or broadcast a continuing account of the affair have much general authority.

 

Central banks exist by dint of government monopoly; newspapers owe their special franchise to their owners’ willingness to put capital at risk in a particularly tricky game, the creation and management of public opinion through narrative. Reputation depends on customers’ willingness to pay the freight.  What was once a relatively straightforward two-sided market – advertisers and readers, the latter consisting of subscribers and those who bought on impulse at newsstands – now includes the key metrics of the Internet, unique sites, page-views and click-throughs, indicating a vastly more extensive and interactive audience.

 

Reputation is what long ago propelled the Times into first place among US newspaper sites. Today it is the 11th-largest American presence on the Web, with 47.2 million unique visitors in the United States last year.  Traffic at NYTimes.com soared 41% in June from the same period the year before, according to Nielsen Online, to 17.7 million unique visitors.

 

But its authority, like that of every other national or big city daily, depends on being able to put its paper on the newsstands and the front porch. Why?  It is a circular argument: because there, in the commingling of the interests of readers and advertisers, is where the money is – and where the money is, at the top of the best seller list, is where readers will continue to congregate. Those who fail to perfect their paper presence will rapidly fall off the chase.

 

Rupert Murdoch, having acquired The Wall Street Journal, has talked a lot about wanting to “take on” the Times, his rival for credibility across Times Square in Manhattan.  So far, though, he’s only muddied up the brand. First he forfeited some of the Midwestern common sense and good nature that was the key to the institutional temperament invented by managing editor Brnard “Barney” Kilgore in the years after World War II.  Now Murdoch’s losing ground to the Financial Times (daily) and The Economist (weekly). The WSJ obviously is still great paper, but its character, its fundamental identity, is for the time being much less clear than before. Gradually the Times and the Journal will probably converge to become as Avis is to Hertz, clothed in different colors but offering the sae basic service underneath.

 

The real test of this barriers-to-entry proposition is yet to come with Bloomberg LP, the enormous news service built with the revenues from a bond price data base that is distributed to subscriber’s terminals by wire. Recently Bloomberg hired a major impresario (former WSJ managing editor Norman Pearlstine).  What are the chances they’ll begin buying newsprint by the kiloton?  It’s the only way that Michel Bloomberg, facing term limits as mayor of New York, can hope to significantly enlarge his influence as a media baron.

 

Who will buy and read a paper edition of a newspaper in the future?  People with good jobs for whom familiarity with the operating system of democracy is important. Up-and-comers who will wear the paper product like a badge. Those with a little extra time or money to spend who simply crave the luxury of being well-informed. Persons who are involved, in other words, persons near the center of things. Most students don’t read newspapers today, if they ever did.  It is only when they get their first good job that their interest quickens in the world of newspapers.

 

How many of potential subscribers are there?  What kind of a distribution system will they support? How big an editorial staff? It’s not yet clear. Fewer than formerly, obviously. Perhaps no more than half.  That’s what the current downsizing of newspaper staffs and the tightening up of the papers themselves is about. Many of the next generation will prefer to get their news online, where the “most popular” list of stories is often the destination of choice. Meanwhile, the “demographic inversion” of the city– gentrifiers gradually displacing poor people to suburban regions, as described by journalist Alan Eherenhalt, among others – will operate in favor of the newspapers’ paper editions. 

 

Even half as many subscribers as before will be sufficient to justify a good advertising rate card, especially since such a committed audience will represent precisely the kind of influential readers that certain advertisers want to reach. At some point, online ad revenues will begin making up for sagging circulation, and the best newspapers will begin growing again.

 

To make it happen, however, will require confidence and nimble planning. The disability that newspapers must now fear is what historical economist Paul David calls technological presbyopia – a confusing far-sightedness such that developments appear to be looming just ahead when in fact they will occur only eventually, if at all. Credibility in newspaper markets will require heavy spending on presses and delivery systems, Necessary investments on print are easy to neglect when there are more glamorous opportunities to spend big on Web operations.

 

The cover of Jonathan Zittrain’s new book, The Future of the Internet: and How to Stop It, shows a single railroad track branching into two, one track continuing straight over a cliff, the other turning sharply to proceed away from the precipice. It is a powerful image. Zittrain, a Harvard Law School professor, means to contrast the choice between open and closed standards facing the architects of the Internet and designers of the myriad devices that will connect to it.

 

But the same kind of warning applies to newspapers as well.  Invest in Web operations by all means.  But pay attention to the nano-economics of the news biz, and invest whatever is necessary to maintain a strong paper product.  Newspapers will remain the central banks far into the future, as long as they master the intricacies of pixels and paper.

| contents |


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.