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My Death...

By Arnold Kling - July 9, 2002 12:00 AM

The newspaper business is going to die within the next twenty years. Newspaper publishing will continue, but only as a philanthropic venture.

On Friday, June 28, the Wall Street Journal's James Taranto appeared at a conference called "Inside the Blogosphere." He disagreed with me about the grim outlook for newspapers. He pointed out that newspapers are a superior technology, because you can read them while sitting on the toilet.

Notwithstanding this strategic relationship with routine bodily functions, newspapers are in trouble based on demographics. For example, consider this analysis for the Newspaper Association of America. I found the chart to be particularly interesting.

The chart looks at spending on newspapers by age group. Relative to the average for the entire population, the highest spending comes from older people, and the lowest spending comes from younger people. The best demographic for newspaper spending is the 65-74 year-old age group, which buys newspapers at a rate of 136% of the national average. The worst demographic is 18-24 year-olds, who buy newspapers at a rate of only 25 percent of the national average. In fact, all groups under the age of 45 have newspaper spending rates that are below the national average.

When I raised the issue of the low rate of newspaper readership among young people, Taranto was dismissive. "People subscribe to newspapers as they get older," he sniffed. It is true that we have to disentangle life-cycle effects from cohort effects. If people tend to change their newspaper purchasing over the life cycle, then you need to compare young people today with young people in previous years.

To try to sort out the cohort effects from the life-cycle effects, I emailed the chart's creator, Peter Francese. Francese is the founder of American Demographics Magazine, a highly regarded publication that unfortunately appears to lack its own web site. Francese replied,
Arnold: You're in luck. I just finished a project on that subject. According to my calculations 63 percent of households 25 to 34 years old bought any newspaper product in 1985. By 1995 that figure had slid to 56 percent. But by 2000 it was down to 35 percent.

On a cohort basis, newspaper readership among young adults has fallen by over 50 percent in fifteen years. Taranto and the Wall Street Journal have plenty to worry about. In an industry that depends on economies of scale to overcome high fixed costs, a decline in volume that approaches 50 percent is going to be fatal. These demographic effects will slowly but inexorably kill the newspaper business.

Not the Best

In the age of the Internet, when competition is one click away, being good at a lot of things is not as effective as being the best at one thing. Newspapers, with their attempt to provide content in many categories, are poorly positioned. People will not turn to newspapers for updates on professional sports, because specialized web sites do that better. The same goes for business, weather, and hot news stories. On the web, focused competitors have stolen these markets from newspapers.

The most economically damaging competitor to newspapers is eBay. Classified ads, with their high profit margins, represent half of the net income of newspapers. As that franchise migrates to eBay (and to other web sites that focus on real estate, employment, and so forth), the newspapers will lose a precious revenue source.

'But You Need Us'

Newspaper professionals cannot envision a world without newspapers. They will argue passionately that we need newspapers for at least two reasons.
  1. To employ reporters to do the legwork to gather primary news.
  2. To employ editors who will ensure accuracy, objectivity, and trustworthiness of stories.

I am not convinced that either of these "needs" is valid. Much of the primary reporting is done not by employees for individual papers, but by news services such as United Press International, Associated Press, and Reuters. My guess is that a web-based network that relies on those sources could survive on a far lower subscription price than newspapers, while paying UPI and the others enough in fees to make up for the departure of the newspaper business. Ultimately, news junkies may pay $5 or $10 a year to a web-based network, rather than $150 a year for a newspaper subscription.

As to editorial judgment, people who read topical weblogs are experiencing a phenomenon of distributed editing. It does not work exactly like traditional centralized editing, but the end result is that people are finding help in sorting out fact from rumor and what's important from what's trivial.

Where is the Economic Model?

The subject of weblogs raises the issue of an economic model. Today, newspaper editors and reporters have an advantage over webloggers if for no other reason than the fact that editors and reporters get paid, while webloggers do not. If this condition were permanent, I would predict that weblogs will decline and traditional newspapers will win in the end.

In fact, what will happen is that old models will break down and new models will emerge. For example, in the music industry today, an established music star does better by going with a major label. However, assuming that music distributors fail to heed my advice, new musicians are going to find that they are better off using alternative distribution channels. Eventually, a "tipping point" will occur: alternative channels will become sufficiently popular that even the stars will find those channels superior.

Similarly, I believe that webloggers and other new entrants in journalism will come up with alternative revenue models. One idea is a broad-based club. However, this is a difficult project to get started.

I am becoming increasingly convinced that what Dan Kohn calls Micropatronage will be significant. Because information wants to be free but people need to get paid, various charitable donation models may hold sway.

The "tip jars" that webloggers use are one form of micropatronage. However, I am more persuaded by a model in which content producers are subsidized by corporate philanthropy or non-profit foundations. As Kohn points out, some magazines today are funded by this model. Indeed, that is the model for the very e-zine that you currently are reading.

In the future, it may very well turn out that both independent journalists and newspapers will require philanthropic support in order to operate. At that point, newspapers, with their high overhead, will be less likely to survive than independent journalists. However, I am sure that the New York Times and a few other newspapers will have sufficent nostalgia value in the eyes of some future wealthy mogul to ensure ongoing funding. Maybe James Taranto's newspaper will be among those fortunate enough to find a generous patron.

For a different perspective on the future of newspapers, click here.

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