Newspapers Face Broken Business Model in Wake of Internet

Newspaper circulation has hit a 70-year low according to a study released by the Audit Bureau of Circulations and paying readership is down 10.6 percent.

Journalism needs a new business model and it needs one in a hurry because the old newspaper business model is dead and unsustainable. Business classes were never part of Journalism school and that is starting to haunt the industry.

Newspapers and Magazines seem to be closing their doors at alarming pace. The Rocky Mountain News closed in February 2009 and Gormet magazine ceased publication in October 2009. John Temple, former editor, president and publisher of the Rocky Mountain News, provides an in-depth look at how his paper misunderstood the internet.

Its all About Advertising Dollars
The heart of the problem is that people are getting their news online rather than buying newspapers, but the real problem is that internet advertising is broken. Internet advertising pays pennies on the dollar compared to traditional print advertising.

In the traditional newspaper model, a newspaper controls distribution (printing and delivering that paper) and advertising. If you want an ad in the New York Times, you call the New York Times and pay their fees, but that it not how it works on the Internet. The Internet uses advertising middle men like Google Adsense. Few internet ads are bought directly from the website owners. Website owners place links back to companies like Adsense and they actually provide advertising and keep most of the money in the process. The newspaper owns its own content distribution (a website) but loses control of the advertising stream.

Newspapers get paid whatever Adsense think the going rate should be which in most cases is the same payment program as a blogger sitting at home with no overhead. In traditional newsprint, advertisers pay for the space that their ad takes up on the page and how many people are likely to view the ad (circulation.) But the internet is different, some large sites get paid a small fee for displaying ads, but mostly internet advertising dollars come from click-throughs. If a reader comes to your site, reads all of the content and never clicks on of the ads, then you didn't make any money.

Subscriptions won't save the day
Subscriptions never really paid for newspapers, it was always advertising that paid the lions' share of the paper and printing costs. The internet has made news a commodity that is available all over the internet. Why should I pay for a subscription to Wall Street Journal when I can get a free version of the same story from Yahoo or the New York Times? Even if all of the newspapers banded together and charged subscriptions, then they would still have the problem of news aggregator sites like Consumerist and Drudge Report that have subscriptions and provide article summaries under the Fair Use Doctrine.

News aggregators have the perfect business model
These aggregator sites essentially just surf the Internet, find interesting articles that fit their niche and provide summaries with links back to the original article. In most cases, people never click through to the original article because the summaries are good enough and the content creator never gets a slice of the advertising. Aggregator sites can operate with little overhead because they generate nothing, but benefit from the quality content created by other sites.
Ironically, Mark Cuban, owner of the Dallas Mavericks, who became a Biilionaire off the hey day of the Internet, suggested that newspapers block all these aggregator sites and try to force readers to come directly to them. But the plan will only work if every newspaper and magazine does it.

The Kindle won't save the day either
The Amazon Kindle, an electronic reader, looked like the newspapers savior. It would become the iTunes of print media, but Amazon keeps 70 cents of every dollar earned, and that is not enough to sustain the level of journalism that newspapers and magazines currently provide. Dallas Morning News Publisher and CEO James Moroney explained to a US Senate Subcommittee in May that Amazon keeps too much money and that the Kindle was not a sustainable business model for newspapers.Rupert Murdoch has also spoken out against the Kindle business model.

What will happen when the last newspapers close their doors
The internet advertising model is broken and content creators, not just journalists, are losing out. Quality content has little place in new media. For the short term, quality reporting falls to the level of television news, which often lacks the depth of print journalism. But the days of TV stations are numbered too. It's only a matter of time until the internet is available in the living room as a television signal. Then they face the same core problem of advertising that newspapers now face. Historically, a local TV station was your only source for your favorite TV shows, but that is no longer the case. Many network shows and national news segments are available on the Internet.
After the fall of the TV stations, the only thing left is citizen journalism, untrained people reporting the news which whatever bias they care to bring in the story.
Ironically, that is how journalism started in the early days--just buy a printing press and boom, you are a journalist. Hopefully, a new news industry will emerge again that can be considered the fourth branch of government again.