Saturday, September 12, 2009

Saving Newspapers

Like a slow poison the advent and evolution of the Internet is slowly leading to the demise of the newspaper industry. Slow to respond to the possible threat of the Internet, some argue that the industry cannot survive whereas others argue that extreme measures need to be immediately taken such as micro-payments in order to ward off a descent into non-profitability and oblivion. Overall, like with all problems, it is important to understand how the problem arose, how newspapers went from king of mountain to possibly the trash heap and what, if anything can be done about it.

The superiority of newspapers throughout the 20th century was predicated on two key factors, access and analysis. Access can be attributed to two separate elements. The first portion of access relates to the ability to communicate with important people that could have pertinent information regarding a given subject. For instance only certain individuals with proper clearance could listen in on the daily Whitehouse press secretary briefings or talk to the star point guard of the local professional or college basketball team and later communicate that information to the populous in a column. The fact that this information was difficult to acquire as well as valuable to many members of society instilled an important informational niche for newspapers.

Unfortunately the exclusivity of that access has waned in the 21st century with the creation of cheaper communication tools developed for the Internet. Now instead of talking to a beat-writer about what happened in the last game or how rookie x is looking in practice, athletes are now breaking news on team policy and action on Twitter. Instead of only allowing traditional forms of media to listen in on press briefings, both alternative forms of media like bloggers and non-print media like CNN are now able to acquire Whitehouse press clearance and communicate that information over the Internet.

Normally such a lack of access would not be such a significant problem if all things were equal, but that is not the situation. Newspapers are multi-faceted organizations that require significant capital to run properly based on current design structure and therefore have to provide their services at a fee whereas other forms of information dissemination via the Internet have significantly reduced capital costs if any at all. The reduced capital costs allow Internet based information providers to typically offer their opinions and reporting for free. When comparing the merits of two reasonably identical items against each other, the one with a lower cost will almost always be preferred. This rationality was used by newspaper corporations at the beginning of the Internet age when their online material was provided free of charge. In addition it was also presumed that online viewers would eventually migrate from online to offline and purchase subscriptions under the rationality that if the information was good enough individuals would not mind paying for it.

Unfortunately a mass migration from online reading to offline reading did not occur; in fact one could argue that more readers have moved from offline to online. Most newspapers have been unable to evolve from their role as exclusive providers to distinguish themselves from other available information providers on the Internet. Another detrimental element to the rise of online reading is that advertisers still have less confidence in the ability of online advertising to push their products, thus online advertising provides less money than television or newspaper advertising leading to the losing equation for newspapers of less revenue while maintaining similar costs.

With conventional advertising revenues dropping, most analysts believe that newspapers need to increase revenues through the process of micro-payments. Micro-payments simply converts the distribution of online information to a similar context to that of a normal paper; instead of offering online information for free the information requires an individual to pay a fixed fee in some form. These fees can take the form of a fixed price for access over a given period of time, a ‘pay as you go’ program where each article is purchased for a flat fee individually or free access to the given publication is limited to only select material and more detailed content requires the reader pay a fee. Some publications like the New York Times already have applied the third micro-payment option as well as some magazines like Time and Scientific American where most of the content is free, but archived material requires some form of payment.

Whether or not micro-payments will be successful is dependent on one of two schools of thought. The biggest concern with widespread administration of micro-payments is that online consumers have become accustomed to free content and it is reasonable to expect that consumers will not respond favorably to having to pay for content that used to be free leading to complete abandonment of those institutions that apply a micro-payment system. Basically to critics a micro-payment system is too similar to the previous strategy that an Internet version of these newspapers would act as gateways to increase circulation and interest in the offline publication, a strategy that can be regarded as a failure.

Those in favor of micro-payments believe that the reason the online to offline strategy failed was not because people were not willing to pay for the offline publication, but instead modern society has selected online as the primary medium for acquiring news information, not offline. Micro-payments will have a higher probability of success because the medium remains the same. However, the biggest problem with micro-payments may be that newspapers have yet to distinguish their content from those of other providers, instead the online edition of newspapers have relied on their existing reputations to attract readers. Overall it is reasonable to assume that unless newspapers are able to differentiate their content from that of an organization like, it is difficult to anticipate micro-payments being successful, relying on local news can only go so far.

Another aspect of access that allowed newspapers to flourish was that until the Internet become sufficiently organized, newspapers were the cheapest means of advertising for the average individual. For most of the 20th century classified ads provided a significant portion of revenue for newspapers, for smaller papers these ads made up a majority of the revenue. The reason for the success of the classified ad is simple awareness per cost, if someone wants to purchase or sell an item, advertising in the newspaper was the best way to reach the most people for the smallest amount of money. Unfortunately for newspapers the development and evolution of online auction sites like eBay and online classifieds like craigs list have eliminated almost all of rationality for taking out a classified ad in a newspaper. Why pay a fixed fee for the opportunity for 100,000 people to see your request to purchase Taylor Swift concert tickets when you can post that request in an online environment where not only do many more people see it, but there is no fee and the request is easier to find and successfully negotiate due to better targeting methodologies?

The second reason for newspaper superiority in the 20th century was analysis. The newspaper provided a medium where individuals could gather in-depth information and facts about a particular subject versus the television news sound bite. Also in combination with the access attribute, the newspaper allowed multiple viewpoints through their letters to the editor section creating a wide breadth of information exchange. The Internet hijacked this information exchange and enhanced it by creating specific specialized niches while newspapers maintained a general information format. Unfortunately the general information format has be expanded in television coverage on stations like CNN due to incorporation of web videos, Facebook, Twitter and the like creating a peudo-discussion forum for viewers with an interplay turnover that leaves letters to the editor in the dust.

Returning to the niches, originally these niches were not a significant concern because of their lack of reach, but as the Internet became more pervasive the advantage and preference of these niches became more relevant. For example it makes more sense to express an opinion regarding tax reform in a medium that is for general consumption and reaches half a million people than in a medium that primarily discusses finance and reaches only 50,000 people. However, once the latter medium gains a larger population it becomes a much more attractive venue for expressing an opinion on tax reform for the purpose of debate.

A second element has also reduced the viability of analysis. The birth of this element is the chief reason that it will be difficult for newspapers to differentiate themselves from other information options to justify micro-payments. Modern culture has seemingly become more accepting of the 60-second sound bite over a 10-minute in-depth breakdown of pros and cons as the means to discuss a given issue. The reason for this shift can be explained one of two ways. First, humans have developed into a worker bee culture where one does not have enough time to read a point-counterpoint study on a topic like healthcare. Overall such a premise is rather hard to believe when one considers how much time people waste in the average day.

Second, humans have become more accepting of a system of consciousness that can be best described by the old adage: ‘too often people enjoy the comfort of opinion without the discomfort of thought.’ It is difficult for most humans to accept being incorrect and partaking in an in-depth analysis of a given topic is much more likely to expose flaws in reasoning leading to the difficult psychological position of actually facing a situation where a long held belief is not correct. It is much easier for individuals to rest easy in the superiority of their own beliefs when those beliefs go unchallenged instead of dealing with the consequences when those beliefs are challenged.

This aspect is unfortunate for newspapers because if a majority of society favors 60-second sound bites then how can newspapers differentiate themselves from other available information sources when most of the niche areas are already occupied? Newspapers seem to be caught in the crossfire of the cultural quandary of how society can evolve to an attitude where being right is more important than thinking one is right even if it involves abandoning an initial hypothesis.

Of course one could make the valid argument that newspapers have only themselves to blame for their problems as they were slow to recognize and act on the opportunities and threats provided by the Internet. Due to this delay in action, the situation can be likened to that of a cancer patient who is told that conventional treatments are no longer viable and only a series of experimental treatments can result in remission, but these experimental treatments may fail and significantly shorten the lifespan of the patient. Clearly any rational actor undergoes the experimental treatments otherwise the only outcome is death. Such is the action that newspapers need to take if they wish to avoid becoming a relic of the past.

So what do newspapers do? First, all newspapers need to apply a micro-payment system to online material where either a subscription is required to access any material or readers utilize a ‘pay-as-you-go’ plan. The best scenario is for the publication to offer both options to readers, which can be selected when a reader registers for access and anytime after. Any changes to the preference of payment can be made at anytime, but will not be applicable until the first of the next month. For the ‘pay-as-you-go’ option readers would be entitled to a free preview of the first paragraph of the article as well as information regarding how long the article is and key discussion points. Such transparency should be viewed as proper, not only because it is right, but also because prospective customers may become agitated by purchasing an article that was perceived to be about something when it was about something else entirely due to a misleading headline. Billing could either be conducted through a system like Paypal or a simple check at the end of the month.

In addition to providing pay-per-view content, newspapers need to ensure that individuals or groups do not manipulate this system through the use of loopholes. For instance one person registering for content and then taking that content and posting it verbatim on a blog allowing his/her readers to view it for free. Therefore, newspapers need to disable the ability of readers to copy and paste their material. One way to accomplish such a requirement is to convert all material to protected PDF files where the save and copy/paste options are not available (the print option still remains usable). Such a system significantly limits the ability of an individual or group to take that information and post it on another site circumventing the payment policy.

Newspapers also need to eliminate the ability to free link to their content, a practice used by many secondary news sites like Huffington Post, Drudge Report, Newser, etc. It makes little sense to allow secondary sites the fruits of labor at no cost when both institutions are in competition within the same field. It can be argued that these secondary news sites provide a publicity service for the primary sites in that if a reader wants to know more or read the original story the reader will visit the primary site, a visit that might not have occurred without the secondary site. Such an opinion is rather irrational because there is little reason to believe that the number of readers directed to the primary sites via the secondary sites exceed the number of readers that do not visit the primary sites at all because they get their information from the leaching secondary news sites.

A major criticism of both the micro-payment and anti-linking strategies is that the entire newspaper community would need to jointly take these actions, otherwise their application will more than likely fail hastening the demise of those publications that apply them. The unpredictability of outside parties makes this concern more dangerous than it should be. Initially it seems that such a concern is unwarranted because the application of micro-payments and anti-linking are essential to the survival of the newspaper industry, not participating guarantees failure. However, such a contention is not valid if a small number of major players do not participate. For example if all newspapers administer the above strategies except for the New York Times, the New York Times could survive because by maintaining relatively free content it would theoretically draw more readers which would then result in more advertisement and advertisement dollars ending in the demise of all newspapers that utilized the above strategies and cementing the survival of the New York Times.

That example basically sums up the real problem for the newspaper industry in general, a lack of industry trust brought on by competition and capitalism. If the industry simply resolves to cooperate in defeating the secondary little to no original content news sites, it can be done with little damage; however, all sides seem more interested in acquiring whatever advantage they can in the competition against each other. A similar example is illustrated by the famous Prisoner’s Dilemma. Recall that in the Prisoner’s Dilemma two criminals are both accused of a crime and during the interrogation process both criminals are asked if they committed the crime where their penalty is influenced by both their response and the response of the other criminal. The figure below documents the penalty possibilities.

The prisoner dilemma represents the ideal example for Nash Equilibriums, the idea that one should always take the action that results in the best outcome for him/herself while assuming that all other players in the environment are acting with the same motives. As shown in the above figure, for both prisoners it makes the most sense to proclaim not guilty because if the other prisoner proclaims guilt then the first prisoner goes free instead of serving 1 year in jail and if the other prisoner proclaims not guilty then the first prisoner serves 5 years instead of 10 years. Based on this information and the requisite actions of the prisoners, both prisoners will always end up receiving 5 years in jail.

However, such a plan of action is illogical because in the Prisoner’s Dilemma both prisoners know the consequences for each proclamation and functioning under the premise of maximizing their overall benefit both should proclaim their guilt guaranteeing 1 year in jail. The only thing stopping such a result is that neither prisoner believes that the other will act in the best interests of the group not him/herself, even when acting in the best interest of the group results in the best outcome for the individual (1 year in jail vs. 5 years in jail).

So what would the dilemma look like for the newspaper industry?

Gee, that looks remarkably similar to the Prisoner’s Dilemma. The only way the newspaper industry survives is if they trust each other to look out for the interests of the industry first over the interests of a given paper, otherwise all of the newspapers will probably go out of business because of declining revenues.

If things work the way they should (famous last words there), then the application of micro-payments and anti-linking strategies should draw traffic away from secondary news sites as well as increase revenues, but what about primary news sites that exist on television and provide online content (CNN, MSN, etc.)? Backed by their television advertising revenue they can still afford to provide their content for free. The best way, and maybe the only way, to combat the free and reasonably quality content of these sites would be to link the online and offline material to remove redundancy and expand the overall content.

Redundancy between online and offline content is a continuing problem that reduces the ability of a newspaper to differentiate itself from its peers and other alternative sites. Logically it could be argued that redundancy is necessary because not everyone has access to online content, thus it is important that they have the opportunity to acquire the same information as those online, largely through the physical paper. In fact because of their experience with physical papers, newspapers normally have material that is available offline that is not available online. However, the problem is that none of that information is that unique or even important. Therefore, if newspapers would designate one region for in-depth material and the other region for sound bite material it would create a specific niche for each tool in their arsenal to make money.

For instance the offline material could have the generic news as it currently does with closing remarks suggesting that if the reader wants to understand more about the central point of the article he/she should visit some specific article written exclusively for the online version of the same publication. In contrast the online version of the publication would have little in the way of generic news, but would have exclusive analysis and content that significantly expands on what is generically reported for a given topic or visa-versa. Also specific commentators could be isolated to a single medium, either offline or online content, which could drive greater attention to that particular medium. Through this strategy instead of an individual visiting either the offline or online material and declining to visit the other medium because it is basically the same, each medium has significantly different content, which would demand visitation to both the offline and online material. However, the one caveat to this particular strategy is that readers are going to want to go deeper and learn more about a particular topic otherwise the expanded content in the online medium will be ignored.

Newspapers also need to acquire a new advantage in access. The average blogger may now have access to the same information sources once only exclusively held by newspapers, but newspapers still have a resource advantage. Using that advantage newspapers can change the context of access from exclusivity to depth. Whereas a blogger may be able to talk to a single Senator on the finance committee about the role of the SEC in future Wall Street regulation, a newspaper like the Washington Post has the capacity to initiate a roundtable discussion involving a much larger number of Senators on the finance committee for a honest and objective discussion about future Wall Street regulation. Clearly reporting on such a topic in such a way would appeal to those that have an interest in what new protections and restrictions will be likely when participating in the stock exchange, much more so than watching Jim Cramer play with sound effects.

In large part newspapers need to drive a new ‘smart’ revolution where the 60-second sound bite is unacceptable; social questions and the news in general need to be examined from all angles. No more allowing a sound bite like ‘death panel’ to be legitimized without extensive examination regarding its validity. No more saying a particular health plan is great or poor without knowing its intricacies. No more giving equal time to opposing sides of a given topic when one side is clearly not factually accurate.

Overall newspapers have the tools to put-off their demise, but they must have the intelligence, guts and trust to use them. If newspapers do not evolve and apply the necessary changes, then it is a significant loss for society. With the loss of each legitimate and reasonably objective newspaper another unique viewpoint is lost which further diminishes the probability that individuals in society can adequately come to proper conclusions regarding various problems.

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