GUEST POSTING: Despite Murdoch’s woes, shifting from print to web won’t save newspapers

An over-reliance in advertising is just one of the reasons for newspapers’ problems, says Stephen Quinn

News Corp’s announcement on Friday that earnings will fall 30 per cent this year because of depressed advertising demand reflects the continuing problems that media companies face, especially those based in the United States. Rupert Murdoch’s company suffered a huge second-quarter operating loss of $US7.6 billion ($A11.6 billion).    

For more than half a century, newspapers and commercial broadcasters have relied too heavily on advertising for their revenues. By the end of the twentieth century, for example, America’s newspapers derived 80 percent of their total funds from advertising.

 Classified advertising, which produced 40 per cent of the industry’s revenues and more than 40 per cent of its profits in 2000, generated only 23 per cent of newspaper revenues in the first nine months of 2008, according to the Newspaper Association of America.

 Until the global recession started to bite, media companies have managed to weather various economic cycles relatively well. But economic, technical and cultural factors have brought about a “perfect storm” that has savaged media companies. Shell-shocked broadcast companies and newspapers have cut costs to try to survive.

Newsprint continues to rise in price and it costs big money to distribute newspapers. Paper, printing and distribution count for about 60 per cent of the total cost of a newspaper. For managers, the only real area to cut is staff.

Chairman and chief executive Rupert Murdoch said the News Corp result reflected the tough economic times, adding that News Corp would cut costs and jobs. “We are implementing rigorous cost-cutting across all operations and reducing head count where appropriate.”

Cost-cutting is an understandable reaction from any business in tough times. But quality journalism, the very product that differentiates great media, suffers because of staff cuts.

News is expensive to produce. But audiences have been trained to expect it for free. Indeed, we give it away every weekday at the railway stations, and on the radio and television, and online.

As broadband and mobile wireless technologies developed and spread, audiences came to expect that free content to be delivered even more quickly.

Ironically, distribution mechanisms like telecommunications companies and ISPs continue to make money while the content producers have suffered.

At this point someone usually says: Why not shut down printing presses and sell off the trucks that distribute newspapers? Think of the trees that would be saved if all publishing were digital. This simplistic approach ignores the reality of media production around the world.

The vast bulk of online revenues at most newspaper companies comes from print advertisers who are “upsold” to the web when purchasing a print schedule. Alan Mutter, managing partner of Silicon-Valley based Tapit Partners who writes the Newsosaur blog, said it would require a huge leap of faith to believe the people who bought print advertising would continue to spend equal or greater sums on web advertising if the publisher eliminated the medium that attracted them in the first place. 

The $US 3.1 billion of online revenues the newspaper industry booked in 2007 was a mere 7 per cent of over-all advertising sales in the United States, Mutter said. “While it is possible the industry may have generated up to 10 per cent of its sales on the web in 2008, this is because print has been shrinking so rapidly that the online component has become proportionately larger.”

 The web site of The New York Times gets 20 million unique visitors a day, the highest of any newspaper company. Revenues from web-based advertising would only pay about a fifth of the cost of the newsgathering budget at The New York Times (which totals about $US 200 million a year).

 A December 2008 research report from Sanford C. Bernstein & Company said it was “idiotic” to expect web revenues to pay for quality journalism. “The notion that the enormous cost of real news-gathering might be supported by the ad load of display advertising down the side of the page, or by the revenue share from having a Google search box in the corner of the page, or even by a 15-second teaser … prior to a news clip, is idiotic on its face,” the report said.

 In a world of data smog where everyone chooses their own sources of information online, the implications for democracy and citizenship are severe if newspapers shrink or disappear. Without quality journalism, democracy and society suffer.

 Which leads us, as TS Eliot used to say, to the overwhelming question: How can journalism pay for itself? Journalism needs new business models, and it also needs to revisit some old ones.

 But that needs to be the subject of another article.

Stephen Quinn is associate professor of journalism, at Deakin University.


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.