Stop the presses: The problem with papers

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by Rich Broderick | 6/19/09 • It isn’t news that big city dailies are in deep trouble. According to some estimates as many as half of all daily papers in the United States could cease publication within the next few years.

Nor are the putative causes of this decline news either: dailies, according to conventional wisdom, are the victims of the recession and of the Internet.

ground zero is the blog of rich broderick, who teaches journalism, serves on the board of the twin cities media alliance, and sometimes still finds time to write for the daily planet.

This analysis is accurate – up to a point. But it overlooks a key change that has taken place over the past couple of decades in the newspaper business.

Newspapers have faced hard times before. As a medium that derives most of its revenue from display and classified advertising, newspapers have always been affected by changes in the economy.

This has been the case since at least the 1840s when the birth of the so-called Penny Press – triggered by advances in technology, like steam-powered printing presses and the development of cheap paper derived from wood-pulp, as well as growing urbanization – shifted the primary source of newspaper income from subscriptions to advertising.

Advertising is an exquisitely “cycle-sensitive” industry. When the economy slumps, advertising is one of the first expenditures that businesses cut back; when the economy recovers, spending on advertising is one of the last items to be restored.

Meanwhile, without question the Internet has cut further into the dailies’ advertising base, especially classified advertising. Why place a classified that not only costs money but may prove ineffective or continue to run for some pre-specified time period when you can post a notice on, say, _craigslist_, and pull it down whenever you want?

But even if the Internet had never been invented, even if there were no _craigslist_ or _Huffington Post_ or _Twin Cities Daily Planet_, traditional daily newspapers would still be facing, if not imminent extinction, than at least a profound transformation.

Over the past few decades, big city dailies have evolved from mostly privately owned corporations – corporations often controlled by a single family, like the Cowles – to mostly publicly owned corporations.

The critical difference is this: private corporations, especially those with a family as the majority shareholder, had the latitude to accept lower rates of return; publicly owned corporations do not. In hard times, the Cowles family, which owned the _Star-Tribune_ among other newspapers, could decide to forego a profit, or might even accept a short-term loss, either from a downturn in the business cycle or in the interest of a capital expenditure that might eventually result in higher rates of return, but whose principal aim was to enhance the journalistic quality of the paper.

Where a family- or privately owned daily or newspaper chain might think that a 3 or 5 percent profit margin was just fine, thank you, the management of publicly owned – which is to say, publicly traded – newspapers and newspaper chains are required to earn margins that maximize shareholder value. That is, profit margins that meet Wall Street’s, not Main Street’s, expectations. Over the past couple of decades, the margins demanded from news organizations have steadily risen, to 20 percent or more per year.

There are only two ways to increase profit margins: raise revenues or cut costs. In times of recession, raising revenues is not an option. That leaves cutting costs. At newspapers, the largest single cost-center is personnel – people. In a recession, the only sure way to boost profit margins is to slash staff. But cutting reporters and editors reduces the quality of a newspaper, driving readers away, depressing circulation, and, since ad rates are based upon circulation, ad revenue as well. In the end, the cost cutting that comes from Wall Street pressure – the same pressure felt, it should be pointed out, by every publicly traded corporation – can push a newspaper into a death spiral.

I don’t have any easy answer for this. Except in very exceptional cases, we cannot expect to see a return of the privately owned big city daily. Nor is the Internet going to disappear; even if it did, that would only slow, not reverse or necessarily even halt, the decline of newspapers.

On the other hand, the economic reality facing newspapers lends support to calls for legislation that would ease the transformation of newspapers from for-profit to non-profit corporations. Such a transformation would eliminate the pressure to earn a profit, make newspapers eligible for certain tax advantages, and create the opportunity for the establishment of endowments to help underwrite operations. A handful of newspapers around the country are already owned by non-profits; not coincidentally, the journalists who work for these organizations are happier, feel freer to pursue labor-intensive stories and investigative reports, while their customers are generally pleased by the paper’s overall quality.

Still, a transformation to non-profit status is probably only an option for a handful of large legacy papers. For smaller dailies, the outlook is bleak, though employee ownership and a business model based upon cooperatives might save some.

Till then, apologists for the mainstream media should stop blaming the Internet for all its woes. It’s the inexorable logic of free market capitalism – not pajama-clad bloggers – that’s causing the death rattle.

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