Winter 2000

Economics 101 of Internet News

Supply expands, but has demand been adequately nurtured?

By Jay Small

Sssss…bzzfft…whine…screech…“Eighty-nine, WLS, Chicago.”

Ahh, I’m dialed in.

In the mid-1970’s, even in a hazy coal town in deep southern Illinois, any youngster with a decent AM radio could pick up distant stations such as WLS. It was fun to listen to John “Records” Landecker and others spinning Top 40 With today’s Web, we have greatly expanded the supply of news and related information. But—and this is the question journalists should ponder most intensely—have we adequately nurtured the demand?music from the city. Between the likes of Wings and The Steve Miller Band, WLS sometimes played a certain memorable commercial.

In it, to the tune of Olivia Newton-John’s saccharine hit, “Let Me Be There,” a chorus extolled the virtues of “the new 24-hour-a-day Chicago Tribune.” Did they say 24-hour-a-day? The idea that there could be enough journalists—enough news—in one place to write, edit, print and sell newspaper editions throughout the day was tough to grasp.

Mind you, at that time the Chicago Daily News was dying, and the remaining papers in the city postured to fill the void. But I grew up watching my dad and his dad put out a Monday-through-Saturday newspaper, The Daily Register, in Harrisburg, Illinois. It was only one edition per afternoon and it almost never exceeded 20 pages or 6,000 circulation.

So this small-town boy was dazzled by the big-town ways: all-night radio you could pick up from 300 miles away and all-day newspapers fresh off the press.

Today, no one is amazed by AM radio, especially not its endless banter. And no one is amazed that news and information are available from myriad sources day and night, though the “24-hour-a-day Chicago Tribune” and other all-day papers of that era have pulled back somewhat from their ambitious print cycles. But 24-hour news isn’t just the domain of broadcast networks such as CNN, either. News-oriented World Wide Web sites number in the thousands, operated by legacy print and broadcast media companies, and more than a few Web-only upstarts. Anyone using a computer with Web capability can go to the site of that little newspaper in southern Illinois as readily as the site of the mammoth Tribune.

Even as we contemplate the sheer volume of Web news content, engineers are developing methods to clear the next hurdles, permitting faster delivery to people at home, in the office or on the go: faster wireless networks, advanced home networks, and low-cost, portable devices that draw on both for communications, entertainment and information.

Consider the nature of news reports and the effects on newsrooms and business managers once cellular phones, touch-screen “tablets” and the like can send and receive data over the airwaves—from just about anywhere—much faster than the analog modem you probably have on your home computer. (Assigning editors: Do you have enough reporters to promise your news content is always up-to-date?)

Further, imagine using “intelligent agent” technology to behave like personal valets: beeping, flashing, vibrating or otherwise getting a user’s attention when a fresh copy of a favorite magazine or a news item of likely interest comes in over the air. This isn’t like the Web, where you must go out and pull down the information you want. It comes to you, when you want it, in a format you choose. (Copy desk chiefs: How do you edit for an intelligent agent?)

Further still, those devices may be components of a larger home or office “sphere” of interconnected electronics, synchronizing data with each other and with servers on the Internet at large. (Designers: Can you break that richly illustrated features cover into data components for a multi-platform user interface?)

This explosion of access and distribution points has its risks.

In elementary economic terms, when the supply of any good or service greatly exceeds the demand, the market value of that good or service falls. With today’s Web, we have greatly expanded the supply of news and related information. But—and this is the question journalists should ponder most intensely—have we adequately nurtured the demand?

The evidence, again in economic terms, suggests we have not:

  • Consumers, with a healthy assist from content providers, have pushed the hard-money value of news content on the Web to near zero. A few newspaper-run sites tried paid subscriptions in 1995 and 1996, but almost all converted to free sites, ostensibly to boost their dismal traffic enough to justify higher prices for advertising. The Wall Street Journal still makes users subscribe to its Web site, but few other newspapers charge for access to the articles they post. (News archives don’t count—it’s one of those strange Web phenomena that people seem willing to pay a small sum for old news but nothing for current news.)

  • The Web economy, meanwhile, has also driven the hard-money value of Web advertising to near zero. It’s too much supply (a half-trillion Web pages, most with available ad space) and too little demand (the Web is not effective at delivering commercial messages serendipitously; just ask yourself when you last clicked on a banner ad).

Compare the Web model to the traditional ways newspapers make the cash registers ring. It’s expensive to print and deliver each page of quality content in high fidelity to household doorsteps. People know this, but they want one or more parts of the end product enough to pay a portion of that cost. Ad space on such delivered pages is a limited, desirable resource. Advertisers know this, so they more than cover the rest of the cost of making and delivering the end product.

The cost to generate quality content stays pretty much the same even if the distribution method changes. Besides that cost, however, it is much less expensive to make one page of content available on a Web server than to deliver it in print. And once a server is set up to house the first page, it costs almost nothing extra to post the next thousand, or million, pages.

The Web represents mass aggregation and availability of content, like a library, not mass distribution, like a newspaper. Web “demand” consists of people hunting for individual bits of information from a diverse collective using inadequate, even maddening tools. That’s not the same as Jane down the street ordering specific compilations of content for periodic delivery to her home.

Web readers feel they’ve paid enough just to get on the Web, then worked too hard just to find the stuff they want to read. They view ad messages as barely tolerable and hardly compelling. So ad space on Web pages is an almost unlimited, but much less desirable resource. Advertisers know this, so most Web ad inventory is unsold and the rest goes for fire-sale prices.

Good journalism—the sum of skilled newsgathering, writing, editing, presentation and general management—is an expensive series of steps taken to produce quality content. The Web economy just can’t afford it. Thus, without subsidies of capital and content from the core organization, you’d be hard-pressed to find any so-called “online newspaper” that could survive financially on its own. Indeed, media groups have started trimming back their largely Web-focused interactive divisions. The Tribune Company reduced staff count in its Tribune Interactive division as part of absorbing Times Mirror. Other entities are quietly turning their attention from experiments with Web-specific news content toward online activities with a clearer return on investment—such as Web/print advertising bundles.

And all this would be depressing if the World Wide Web were the end game for getting journalists’ work into consumers’ hands. It isn’t.

In the mid-1990’s, we all glommed onto the Web because it was the easiest way yet to combine the depth and breadth of print journalism with the instantaneous availability of broadcast. We loved to experiment with hyperlinked nuggets of text, audio and video clips, and rapid redesigns of our directory pages. Writers enjoyed unlimited space and the absence of finite deadlines. Finally, a TV station had a medium where it could act like a newspaper, and a newspaper had a medium where it could act like a TV station. What fun! We just forgot to ask if that’s what our bread-and-butter constituents—consumers and advertisers—needed us to do.

Luckily, the Web is just a first taste of what the larger Internet might yield as a future platform for journalism. Think ahead to that world of widely available network access to deep, rich media content that can be picked up through a variety of devices, places and uses. Think about a device that looks and feels like a book—maybe it’s “War and Peace”—but with a swipe of a smart card, the text on its pages becomes articles from the Sunday New York Times. Think about pulling your minivan into a gas station and having the latest movies or TV programs instantly downloaded into a player the kids can use in the back seat. Think about being able to read, hear or see digital media (books, music, video) from your home collection while 1,000 miles from home.

Sure, newsrooms will need to adapt. Tweak all you want. Experiment with nonlinear storytelling, or three-shift-a-day news teams. But remember the fundamentals. Journalism largely as we know it today—without core changes to newsgathering techniques, writing style, news judgment or story priorities—has a place in that world. So does advertising. It’s reasonable to assume that the two can continue to live closely together to mutual benefit in the next generation of digital devices.

This time around, I’d humbly suggest that friends in my old world of journalism take a cue from friends in my new world of consumer electronics: Let the methods of delivering the news flow from the business model, not the other way around.

Jay Small grew up in a newspaper family and worked as a journalist for 15 years before joining Thomson multimedia, maker of RCA consumer electronics, in April 2000 as manager of digital media services. He led the development of Internet services at The Indianapolis Star, amid stints as an industry consultant and technology columnist.


2 Comments on Economics 101 of Internet News
Melissa Ludtke says:
September 28, 2009 at 9:15pm
Perl:

Given your current exploration of "social news sites that revolve around community generated content," you might be interested in taking a look at the current issue of Nieman Reports, the Fall 2009 one. Social media is this issue's main topic and you might find an article or two that relates to the subject of your thesis.

Melissa Ludtke, editor, Nieman Reports
Perl says:
September 28, 2009 at 3:57pm
I'm working on an Economics thesis and have been researching the effects on the search costs of web browsing, and I feel you have touched on a few of the aspects I have found; such as push notification, decreased search costs, and the cost of doing so. I'm also exploring social news sites that revolve around the community generated content and how these are dictating the search and delivery of information.

Nice read.
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