Time to say goodbye?

The Information Needs of Communities

Is it really a sunset industry?Part 1 of 5:

This is the first in a five-part-series on the decline, fall and possible renaissance of local news.

In this first installment, I’m going to share key excerpts from a very interesting 475-page report on the state of local news by the Federal Communications Commission. The report is called “The Information Needs of Communities: The Changing Media Landscape in a Broadband Age” and it’s not your typical government bureaucracy report.

Most of us don’t have the time these days to read a 475-page report. I didn’t read the whole thing myself, but I did make it through a good portion of it.

What follows below are what I thought were the most interesting excerpts, with a heavy slant toward local newspapers. The FCC report also provides deep coverage of radio, TV and cable and goes into quite a bit of depth on communications policy, so if you are someone who cares about these issues, this report will be an amazing resource for you as well.

What prompted the FCC’s interest in the information needs of communities? Something I hadn’t fully understood about the FCC. In August 2003, FCC Chairman Michael Powell launched an inquiry into “broadcast localism” by explaining: “Fostering localism is one of this Commission’s core missions and one of three policy goals, along with diversity and competition, which have driven much of our radio and television broadcast regulation during the past 70 years.” (page 291 of the report).

The report doesn’t candy coat our current predicament, but the fact that the FCC is even publishing something like this is very encouraging in and of itself. It’s a fitting launch to this series, and the guarded optimism I have for the future of local news.

Old Style Newspaper Economics:

  • The great unbundling: During the news media’s most profitable days, in many towns, there was only one newspaper, leaving consumers with limited choice. And, though we may not have thought of it this way, purchasing a paper meant having to buy a bundle of goods, even readers only wanted certain parts. A cross-subsidy system had developed, in which a consumer who bought the paper for the box scores was helping to pay the salary of the city hall reporter. (page 17)
  • The shifting power of “distributors” and “content creators”: In the past, content distributors and creators were one and the same (e.g., the newspaper company wrote the articles and hired the paperboys). They could use the profits generated by distribution to subsidize the creation of content. (page 23)

Monopolies, Chains and Consolidation:

  • In 1920, 42.6 percent of U.S. cities had two or more newspapers competing with each other. By 2000, only 1.4 percent did, mostly because afternoon newspapers had disappeared. The increasing competition from early news on television, the shift away from a manufacturing work schedule of 7 a.m. to 4 p.m., and the flight of readers from the central city into the suburbs had made delivery of an afternoon paper less profitable. (page 35)
  • Between 1965 and 1975, ad rates rose 67 percent (remaining below the inflation rate); but between 1975 and 1990, as more newspapers became monopolies, rates skyrocketed 253 percent (compared with 141 percent for general consumer prices).  (page 36)
  • The rise of the monopoly newspaper coincided with another development: the growth of the newspaper chain. Large companies and Wall Street investors saw profits in local newspapers, profits that would grow through the efficiencies of chain management. At the same time, the federal government’s imposition of inheritance taxes had prompted some families that owned local papers to sell in order to avoid having their heirs pay substantial inheritance taxes. In 1920, 92 percent of newspapers were independent. Eighty years later, 23.4 percent were. (page 35)
  • But chains also led to the corporatization of newspapers. (page 23)
  • Unlike family newspaper owners, who had long histories with their papers and were rooted in the communities they served, newspaper chain executives oversaw properties in many cities and towns across the country. They often lacked a connection to their readers and to the journalists who reported the news, and they focused more on overall corporate financial performance. (page 36)
  • For all the controversial aspects of consolidation and profit taking, it could be argued that the high profit margins of the late 1980s led to high employment levels for journalists. In 1989, newspapers employed more editorial personnel than at any time during the previous 30 years. However, journalism jobs began to disappear in the 1990s and early 2000s, as corporations, responding in part to Wall Street investors, squeezed higher profit margins out of newspapers. (page 36)
  • During the years of the bull market on Wall Street, corporate managements were impelled to maximize current earnings as a way of boosting the price of the stock. (page 37)
  • “I first heard the phrase ‘harvest strategy’ in the nineties, when it was briefly mentioned in a board meeting at the Baltimore Sun. I was the Sun’s editor then, and merely hearing those two words gave me the willies.“ I sensed what they meant. They meant milking a declining business for all the cash it can produce until it dies. . . . “For the record, I am unaware of any formal decision to harvest the Sun or any other paper. . . . And yet, symptoms of harvest are staring us in the face. They include a low rate of investment, fewer employees, fewer readers, falling stock prices and, most especially, high profit margins. (page 37)
  • The 2011 Pew State of the Media report declared: “As a result of bankruptcies, private equity funds now own and operate a substantial portion of the industry. (page 38)

The Rise of the Web:

  • In 2000, revenue from ads for employment, real estate, vehicles, and the sale of smaller items and services accounted for 40 percent of newspaper’s print advertising revenue, but by 2010 it had fallen 71 percent, from $19.6 billion to $5.6 billion, amounting to just 25 percent of total print ad revenue. (page 40)
  • This led to the saying in the newspaper world that “print dollars were being replaced by digital dimes.” (page 39)
  • In 2000, one percent of online ad dollars went to the purchase of advertising units appearing in search engine results. In 2009, 47 percent did. (page 17)
  • Currently only 20 percent of digital marketing spending goes to legacy media companies (TV, magazines, radio, billboards, etc.), and that is projected to decline to 13 percent by 2020 (page 23)
  • Each piece of content can now be subject to return-on-investment (ROI) analysis. To be sure, companies can decide to sustain money-losing propositions in the service of some greater corporate goal—improving prestige or brand, for instance but each time the CEO or the finance department assesses the performance of the company’s products, the ones that lose money will have bulls-eyes on their backs. (page 23)
  • Hal Varian, Google’s chief economist, concluded that the “online world reflects offline: the news, narrowly defined, is pretty hard to monetize.” (page 24)

The Overall Impact on the News:

  • Hyperlocal (neighborhood-based) information is better than ever. Local (municipal and state) information is struggling mightily—with a measurable decline in certain types of accountability reporting. (page 21)
  • In many newsrooms, old-fashioned, shoe-leather reporting—the kind where a reporter goes into the streets and talks to people or probes a government official—has been sometimes replaced by Internet searches. (page 55)
  • As technology offered consumers new choices, it upended traditional news industry business models, resulting in massive job losses—including roughly 13,400 newspaper newsroom positions in just the past four years. (page 5)
  • In some ways, news production today is more high tech—there is nary a reporter in America who does not know how to tweet, blog, and use a flip video camera—but in other ways it has regressed, with more and more journalists operating like 1930s wire service reporters—or scurrying on what the Columbia Journalism Review calls “the hamster wheel” to produce each day’s quota of increasingly superficial stories. (page 13)
  • While digital technology has empowered people in many ways, the concurrent decline in local reporting has, in other cases, shifted power away from citizens to government and other powerful institutions, which can more often set the news agenda. (page 6)
  • In another study—of local broadcasters in 175 cities—coverage of city government was found to be about one-third as common as crime stories. (page 13)
  • The percentage of Americans going without any news the day before they were surveyed rose from 14 percent in 1998 to 17 percent by 2009, according to Pew. The percentage is highest—31 percent—among 18 to 24 year olds. (page12)
  • The combination of time pressures and the influence of the web has led a stunning 62 percent of newspaper editors to say that “the Internet” has caused “loosening standards” for journalism. (page 57)

Citizens to the Rescue?

  • Citizens can now play a much greater role in holding institutions accountable. Whether it’s snapping photos of potholes that the city hasn’t fixed and posting it to a website, or scouring documents to help a news website uncover a scandal, a broad range of Americans can now more easily scrutinize government, companies and other powerful organizations. (page 15)
  • But when Pew’s researchers analyzed the content they were providing, particularly regarding the city budget and other public affairs issues, they discovered that 95 percent of the stories—including those in the new media—were based on reporting done by traditional media (mostly the Baltimore Sun). Even when they are working primarily with the reporting of others, they often add tremendous value–distributing the news through alternate channels or offering new interpretations of its meaning. But we are seeing a decline in the media with a particular strength—gathering the information—and seeing it replaced by a media that often exhibits a different set of strengths (for instance, distributing and interpreting it).  (page16)

A Different Approach?

  • Perhaps we have not gone from an era when newspapers could be profitable to one in which they cannot, but rather from an era when newspapers could be wildly profitable to one in which they can be merely moderately profitable or break even. It is an important distinction, because it means that certain public policy remedies—for instance, making it easier for newspapers to reestablish themselves as nonprofit entities—might be more fruitful than in the past. Or it may mean that wealthy individuals—entrepreneurs and philanthropists—will view newspaper ownership in a different light than most corporate leaders have: not as a profitmaking venture, but as a way to provide an important civic benefit that will help to sustain democracy. (page 56)

 

Up next… (July 7) Part 2 of 5 – The Great Unbundling and Collapse of Local Newspapers

Part 1:   The Information Needs of Communities
Part 2:   The Great Unbundling and Collapse of Local Newspapers (July  7)
Part 3:   Social Enterprise and the Renaissance of Local News (July  14)
Part 4:   Social Networks and the Renaissance of Local News (July  21)
Part 5:   Mobile Computing and the Renaissance of Local News (July  28)

Image modified from original by Puzzler4879.