No newspaper editor has devoted more thought to the Internet’s potential than Alan Rusbridger, who runs the London-based Guardian. In 1996, when most newspapers were still figuring out how to put stories online, Rusbridger, who had been named top editor the previous year, started the Guardian Online as a separate division. During the dot-com bust, as other newspapers cut online staff, he kept investing in digital journalism. More recently, he delivered some of the smartest coverage of the U.S. diplomatic cables from WikiLeaks, dealing with Julian Assange to get the information and asking readers what was worth searching for in the trove of documents.
Although more news outlets have started charging for content, Rusbridger believes Internet “paywalls” could hurt journalism itself. “That might be the right direction in business terms, while simultaneously reducing access and influence in editorial terms,” Rusbridger said in a January 2010 speech at the London College of Communication. “It removes you from the way people the world over now connect with each other. You cannot control distribution or create scarcity without becoming isolated from this new networked world.”1
Rusbridger pointed out that the Guardian, the left-leaning read of London’s smart set, was only the ninth or tenth most popular newspaper in the U.K. Online, he said, it’s the second-biggest English-language publication in the world, after the New York Times, with thirty-seven million readers per month.2 Rusbridger himself—a rumpled intellectual with Harry Potter–esque glasses and a sideline writing children’s books—has become a major player in the media business. In 2008 he moved the Guardian from its cramped headquarters on Farringdon Road, where the print and online departments were separated, to a museum-like glass office building with a theater that overlooks the Regent’s Canal near King’s Cross.
As Rusbridger extolled the possibilities of digital journalism, however, a message flashed behind him on a screen he was using to display slides: “You are running on reserve battery power.”3 For all his optimism, Guardian News and Media—which includes the Guardian and the Observer and their respective Web sites—has not made money since 2003. A few months before Rusbridger’s speech, the company, which is owned by a charitable trust, disclosed that the paper was losing £100,000 per day.4 It had two rounds of layoffs in 2009 and reported a pretax loss of £57.9 million ($92.6 million) in its 2009–2010 fiscal year. (The Guardian declined to comment.) A rival British newspaper, the Independent, wrote of Rusbridger, “His editorial ambition and The Guardian’s revenue have travelled in opposite directions.”5
In the United States, newspapers have never been more popular—or less profitable. Even amid considerable competition from blogs and online start-ups, newspaper Web sites reach about seventy-five million readers a month, more than a third of all U.S. Internet users.6 That actually undercounts the impact of newspaper reporting, which is packaged by online aggregators, repeated on Twitter, and discussed on blogs. Old-media companies published 99 percent of the stories linked to on blogs, according to one study, and four of the biggest—the BBC, CNN, the New York Times, and the Washington Post—accounted for 80 percent of those links.7
All this online activity isn’t generating much income, though. Between 2006 and 2009, newspaper ad revenue fell almost 45 percent.8 Since 2007, newspapers have cut about 13,500 newsroom jobs—almost 25 percent of the old total9—and around two hundred newspapers have either folded or stopped publishing print editions.10 Even big-city dailies are shrinking: Seattle’s Post-Intelligencer now publishes only online; Detroit’s Free Press has limited home delivery to three days a week; and the Tribune Company, which owns the Chicago Tribune and the Los Angeles Times, entered bankruptcy in late 2008.
This downsizing inevitably affects what stories get reported. One in five news executives say they don’t have the resources to deliver more than a minimum level of coverage.11 International and investigative reporting is mostly limited to the New York Times, the Wall Street Journal, the Washington Post, and the Los Angeles Times. Many city and even state government issues now go uncovered.
Understanding why newspapers are going broke reaching so many readers requires understanding that they’ve never actually been in the business of selling news—at least not directly. Newspapers make money by assembling an audience and selling it to advertisers. The news is there—along with columns, crosswords, and comics—to attract readers. The price for one copy of a newspaper rarely even covers the costs of printing and distributing it. The real money—traditionally about 80 percent of revenue for most U.S. newspaper companies—always came from advertising. The bigger the audience, the more money that advertising brought in.
Like Rusbridger, American newspaper executives looked at the Internet as a way to get what they always wanted: a larger audience for advertising and, truth be told, a larger stage on which to play. With online distribution practically free, millions of readers were only a click away, so they figured ad dollars would be theirs for the taking. But they ignored the basic facts of supply and demand.
For decades, local newspaper publishers had set ad prices in a print world where the supply of space was limited and few media markets had much competition. For most of the last two decades, they enjoyed easy double-digit profit margins, even as they cut newsroom staff. Online, the amount of ad space has no obvious limit. Back in the 1990s, online ads sold for a fairly low CPM, or cost per thousand, the most popular measure of advertising cost. Publishers expected prices to rise as advertisers adjusted to marketing on the Internet. But to the surprise of old-media and online executives alike, they never really did. Faced with theoretically unlimited ad space—and, later, the ability of sites like Facebook to generate more at almost no cost—demand couldn’t keep up. Since overall ad spending rarely grows much faster than the economy in general, it probably never will.
These days, a major metro paper might have an average CPM of between $80 and $100, while its Web site could charge a tenth of that.12 According to statistics from the Newspaper Association of America, a print reader is worth an average of about $539 in advertising alone, while an average online reader is worth $26.13 The money saved on printing and distribution doesn’t come close to covering the difference.
Logically, then, the dumbest move for newspapers would have been to convince their readers to abandon the print edition in favor of their Web site, where they’re worth between a tenth and a twentieth as much. Yet this is exactly what most of them have done. They’ve poured resources into free sites full of extra blogs, video reporting, and data-driven presentations. By improving their online offerings—and often raising the price of the print edition to fund them—newspapers essentially encouraged readers to stop buying physical copies.
The conventional wisdom of the technology world was a seductive force, says Rob Grimshaw, managing director of FT.com at the Financial Times, which has thrived by charging for content. Rather than reassess their strategies for the digital age, publishers created online divisions, staffed them with inexperienced executives, and gave them a free hand. “They said, ‘We’ve spoken to all our friends in the Internet community, and they tell us we should be giving it away and putting advertising on it,’ ” Grimshaw says. “Publishers swallowed everything they told them and said, ‘Okay, great, stick everything on the Web for free.’ ” As much as anything else, charging for online content was considered extremely uncool.
It’s hard to know how much of the decline in CPM at online news sites is simply a result of the Great Recession. Some of it is certainly due to the rise of “remnant ad networks,” which Web sites use to sell extra inventory. Online, most advertisers pay to reach a certain number of consumers, measured in either views or clicks. If publishers draw more traffic than they have ads to sell, networks can fill the space with low-cost ads—usually for the kinds of products consigned to the backs of magazines. While this gives publishers a way to collect a little extra revenue, it drags down their average CPM and, more important, further erodes their pricing power.
Newspaper publishers “had no idea how much the Internet would change ad spending, and they didn’t realize that ad inventory on the Internet was infinite,” says Ken Doctor, a former vice president at Knight Ridder Digital who now works as an industry analyst. When the recession hit in 2008, newspapers lost much of their automobile and real estate advertising. By then, Web sites like Craigslist and Monster.com had already taken most of the classifieds that generated as much as half of all ad revenue at some publications. Due to bad decisions that had nothing to do with technology, many newspaper chains were saddled with enormous debt run up by parent companies that overspent to buy publications and gain market share. And they faced a post-boomer generation of readers who have not picked up the habits of paying for news or reading it on a printed page.
Conventional wisdom says that newspaper journalism must be reinvented for a changing world—blogged, Twittered, or somehow crowdsourced. It’s a tempting prescription—innovative, optimistic, and forward-looking—but it doesn’t get to the heart of the problem. Despite complaints about the media, newspaper journalism now reaches a larger audience than ever before, both directly and on various sites that summarize it. How dissatisfied can readers really be?
The product isn’t the problem. Online publications that Twitter on a 24-7 schedule face the same difficulties, and even the inventive start-up Politico has said it makes most of its revenue on the print edition it distributes in Washington, D.C.14 At most online start-ups, any interest in journalistic innovation seems to come from the desire to cut costs, which is why more of them are experimenting with “citizen journalism” than, say, professionally shot video.
For all the talk about how people now consume information differently, the real online revolution is in advertising. For more than a century, marketers funded content without caring much about it; they just needed a way to reach consumers. (Advertising without content was called junk mail and generally ignored.) Now they can reach potential customers directly—on search results pages, through social networks, and on their own sites. The car companies that used to advertise in newspapers now spend part of their ad budgets creating Web sites that offer potential customers more information about vehicles than print ads ever could.
Newspapers that believe in the potential of ad-supported Web sites promote the concept of the “Rusbridger Cross”—the idea that rising online ad revenue will equal, then surpass, falling print spending. But that doesn’t mean those online ad dollars will go to newspaper Web sites. The sheer scale of the Internet means that less revenue will go to any individual publication, and the changing nature of advertising means most of it won’t go to any publication at all. About half of all online marketing spending goes to search sites, and that percentage is rising.15 This is just a matter of efficiency. Traditionally, appliance stores bought ads in newspaper sections aimed at readers who might be looking for a new TV—the Sunday sports pages, for example. It was inexpensive to reach each reader but pricey overall, since advertisers paid to put their message in front of millions of people who had little interest in it. By advertising on search pages with Google’s AdWords program, those same appliance stores can target Internet users who enter a specific search query, such as “new TV.” Newspapers can’t offer that kind of efficiency.
This fundamentally changes the dynamics of the advertising market. In the print world, newspapers competed with niche publications that charge premium ad prices to reach a more desirable audience. Online, the sites that get the highest ad rates are the ones that have the most information about readers. The airline ad budget doesn’t go to the publication with the most appropriate content—whether that’s Condé Nast Traveler or a local newspaper travel section—it goes to the site where users are searching for “flights to Paris.” The incentive to produce compelling journalism has been replaced by one to track readers.
Newspapers have an informational disadvantage, since online giants like Google and Facebook have access to data they can only dream about. From its various products, Google might know what users watch (YouTube), how they communicate (Gmail), and even where they go in the real world (its Android mobile phone operating system). Facebook can track users’ behavior on its own service, as well as any Web site they sign in to using Facebook Connect. Both companies have not only sophisticated ad targeting but the scale to collect information from all over the Internet. Many newspapers track only where users go on their particular sites (and how much does a lively interest in state politics really reveal about a reader anyway?).
As readers and advertisers move online, newspapers need to either increase revenue or cut costs. So far, almost all of them have chosen to do the latter, which usually means laying off reporters, since it’s hard to make incremental cuts in printing or distribution. But this makes it even harder to compete with the online journalism start-ups courting their readers. If newspapers want to keep putting out the kind of journalism they do now, they’re going to have to find a way to get into the business of selling news.
Just outside his sleek glass office in News Corporation’s east London headquarters, James Murdoch keeps a life-size statue of Darth Vader. The unusual trophy comes from Lucasfilm, whose Star Wars movies were distributed by the company’s Fox Studios. It could be taken as an inside joke: this is how a sizable portion of the public sees Murdoch and his father, Rupert, whose News Corp. owns the Times and the Sun in the U.K., the Wall Street Journal and the New York Post in the United States, and scores of other newspapers, as well as an array of cable television assets around the world. Newspaper reporters, many of whom resent the politics and tabloid sensibility of some of the Murdoch family’s properties, are probably even more likely to hold that opinion. That’s why the Murdochs make such unlikely candidates to become saviors of journalism.
Polished and pragmatic, James Murdoch—who works standing up behind a high desk because it helps him stay focused—is the opposite of the Guardian’s Rusbridger in almost every way. Unsurprisingly, he has a very different vision for journalism, which involves charging readers and making money. Although News Corp. earns most of its money in the cable television business, Murdoch shares his father’s passion for newspapers. “I love the business of journalism,” says Murdoch, now chief executive of News Corp. in Europe and Asia. “It was our first business in Adelaide in the fifties and it’s the heart of this company in many ways.”
Along with his father, James Murdoch, who ran the online operations for News Corp. in the late 1990s, has come to believe that newspapers are killing themselves with free content. He has challenged Google’s right to excerpt his papers’ stories without compensation. And he has no kind words for Rusbridger, who took aim at the News Corp. plan to start charging for the Times in his January 2010 speech but four months later said on a radio show that it would be “crazy to be fundamentalist” about the issue.16
“The problem with the Guardian is that they become orthodox about something very faddish and then they assert it as a principle,” Murdoch says. “So free news online has been orthodoxy for a while and then, when it looks like we start to make some headway, he goes on the radio and says, ‘Well, if it works, we might do it.’ ” (There’s little love lost between the Murdochs and the Guardian for a variety of reasons.) The Guardian can afford to lose money, since it’s owned by a trust. But Murdoch places more trust in the market.
To him, that means charging for content. “If you’re going to monetize something, you should probably not give it away for free,” he declared in November 2010, at the Monaco Media Forum.17 The Wall Street Journal, which News Corp. owns, has had an easy time selling content on the Internet, and it now has 400,000 online subscribers. But it won’t be as easy to convince readers of the unique value of the Post or the Sun. In July 2010, the Times started charging readers who don’t subscribe to the paper £1 per day or £2 per week, and it attracted just 100,000 consumers; another 100,000 get free access with their print subscriptions.18 The Web site’s traffic plummeted by almost 90 percent, and much of the U.K. media declared the idea of charging a failure, especially after some public relations companies said they were less eager to get clients in the paper.19 But the economics of online journalism means the company could actually be making more money; it’s impossible to tell until it releases more numbers. Perhaps most important, the Times could have a smoother transition to a digital business if it can make about as much revenue from an online subscriber as it does, after distribution costs, from a reader who buys the print edition.
As News Corp.’s heir apparent, James Murdoch takes a much broader view of the online media business than most newspaper publishers. The company is involved in almost every aspect of the media business, including movies and television through Fox and book publishing through HarperCollins, and Murdoch began his career at the company running the Australian music label Festival Records. (Before that, he had helped to found the independent hip-hop label Rawkus Records.) All of these businesses are now plagued by piracy. “You have what everybody agrees is illegal activity going on,” he says, “but you’re accused of not being either bright enough or innovative enough or modern enough if you can’t figure out how to make a return when everyone’s stealing or indexing your stuff.”
Both James and Rupert Murdoch have made the case—aggressively and publicly—that News Corp. should get paid when Google indexes or excerpts its journalism. Google has always said that both its search engine and Google News are covered by fair use, but that applies only in the United States—the U.K. has similar laws, but other countries don’t—and James Murdoch points out the company has wavered from its stance that it should never have to pay for content it indexes. In May 2010, Eric Schmidt mentioned that the two companies were in talks about the issue, which Murdoch sees as progress.20 “When [Schmidt] disclosed that we were in negotiations with them, I think Google ceded the ground they had from the standpoint of righteousness,” Murdoch says.
To get a sense of how Murdoch sees Google, consider that he named News Corp.’s most ambitious online journalism venture Project Alesia, after a 52 b.c. battle in which Julius Caesar conquered the barbarians of Gaul. The plan, postponed indefinitely in October 2010, called for News Corp. to build an online system that would make it easier to sell content from all of its newspapers, as well as other publications that signed on. The company bought rights to the Skiff digital reading device to provide the hardware, and made a substantial investment in new technology.
Just as Rupert Murdoch has his roots in tabloids, James Murdoch is a creature of the cable television business. He made his reputation fixing Star TV, News Corp.’s Asian satellite television service, then ran the British pay-television company BSkyB (in which News Corp. owns a stake). Like cable companies, Project Alesia would have signed up content companies, bundled their products, and established a monthly billing relationship with consumers—in order to sell something that used to be free. But News Corp. couldn’t convince enough other newspapers to join the project.21 Murdoch says News Corp. will bring back another version of the project, and that much of the staff, thinking, and technology behind it went into the Daily, the iPad newspaper News Corp. launched in February 2011.
“We saw a situation that was frustratingly lacking leaders, so we got out there and we started talking about it,” Murdoch says. “Basically, nearly all the CEOs and publishers are saying, ‘I’m with you, win or tie.’ We may be wrong, but at least we’re out there trying to make change happen.”
Despite the nervousness at newspapers about charging for content, the Wall Street Journal is not the only visible success. The Financial Times had 200,000 digital subscribers by the end of 2010, and it predicts that by 2013 it will get as much revenue from selling content as it does from advertising. “This is not about some mission to spread liberal journalism or some conquest of the U.S. media marketplace,” says FT.com’s Grimshaw, in what might be interpreted as a reference to Rusbridger. “This is about generating profit for our shareholders—that’s what we’re here to do.” But this decidedly unsentimental view can result in better journalism. While sites that rely on advertising have to attract as many readers as possible, the Financial Times can focus on what it does best: European news, international economics, and market analysis.
Although many publishers believe paywalls will cut into their online advertising revenue, Grimshaw says that isn’t necessarily so. Since FT.com gets some data on users who buy subscriptions, it can get higher CPMs—between £30 and £40. “For very precise targets—let’s say senior managers in particular industries—you can get to £60 or £70 CPM,” he says. “The difference comes in terms of what you know about the reader.”
In many ways, the Financial Times is more forward-looking than other newspaper companies. In June 2010 it became the first newspaper to win a “Best iPad App” award from Apple, which has a reputation for being a finicky critic of design. It gives staffers £300 toward the purchase of an iPad at a time when benefits of any kind are disappearing from newsrooms. And it has started to sell subscription licenses directly to corporate clients, rather than going through database companies like LexisNexis.
At the same time, most of the newspaper’s online success comes out of the fact that it produces a product readers are willing to pay for, in part because the staff hasn’t been decimated by layoffs. “You’ve got major publishers all over the world wringing their hands, saying how could they ever produce something compelling enough to pay for,” Grimshaw says. “I look at these organizations, with hundreds of journalists, and, frankly, if they’re not producing anything worth paying for, it’s time to go down to the newsroom and have a quiet word.”
It’s the third day of the April 2010 NewsNow Ideas Summit, the annual conference of the American Society of News Editors (ASNE), and the publisher of the Arkansas Democrat-Gazette, Walter Hussman Jr., is talking about how he keeps his paper profitable. A voluble sixty-three-year-old with a tan jacket, a Southern accent, and a passing resemblance to James Carville, Hussman is speaking on a panel in the basement of the Washington, D.C., JW Marriott about whether charging for content is “fix or folly?” He’s arguing for the former.
In 2001, when Hussman started charging for most of the content on the Democrat-Gazette Web site, his peers at other papers thought he was nuts. Now, Hussman says, his Little Rock, Arkansas, paper remains profitable, and its weekday circulation is holding steady at about 177,000.22 (Financial information for the paper is not publicly available, since the company that owns it—as well as some other publications and a few small cable companies—is privately held.) In a business declining as quickly as newspaper publishing, that makes him something of a hero, and the buzz of side conversations quiets when he tells his story.
When Hussman used to offer free access to the online Democrat-Gazette, “People kept coming up to me and saying they appreciated me putting up the content for free so they didn’t have to subscribe,” Hussman says with a sly chuckle. He started charging when he realized the site was taking readers away from his more profitable print business. (The newspaper’s entire site is free to print subscribers, and its headlines and Associated Press wire stories are free to anyone.) “The first reaction was outrage,” he remembers.
The Democrat-Gazette immediately lost about 60 percent of its unique visitors. But the number of Web page views, which determines how many ads a site can show, declined far less. Hussman mostly lost casual readers who might have followed a search engine link to a particular article. Some of them didn’t live in the area, which meant they weren’t worth much to him anyway.
Even though Hussman charges for content, it turns out he’s not all that interested in selling it, and he has only thirty-four hundred online-only subscribers, who pay $9.95 a month each. He mostly just wants to discourage readers from canceling their print subscriptions. Hussman fought hard for those subscribers in a late-1980s newspaper war between his Arkansas Democrat and Gannett’s Arkansas Gazette, which he bought in 1991. “That’s probably why I was one of the first people to charge,” he says.
Hussman isn’t afraid to use free goods as a marketing tool; long before Craig had a list, he gave away classifieds to win readers from the Gazette. But he takes a certain amount of pleasure in mocking new-media buzzwords. “I’ve heard a lot of people say, ‘We’re platform agnostic,’ ” Hussman says. “And I think, ‘Why would we want to be platform agnostic?’ Every Sunday, Best Buy buys a circular, and they pay about $40 per thousand [readers]. When we sell advertising on our site, we’re lucky to get $4 per thousand.” He says a newspaper like his can generate more than $300 a year in revenue for each print subscriber but only about $10 for each online reader. That could turn any agnostic into a believer.
Putting up a PowerPoint slide that compares his 1998 and 2008 circulation with those of other large dailies in the central-southern United States, Hussman shows that the daily circulation of his Democrat-Gazette is up 1.7 percent, while those of almost all the other papers fell, from as little as 2.7 percent in Knoxville, Tennessee, to as much as 29.3 percent in Dallas. (This ignores the Louisiana papers, since the state’s population shifted so much in the aftermath of Hurricane Katrina.) Hussman’s Sunday circulation fell by 1.1 percent, but that’s the smallest decline on the slide.
The newspaper business is full of skeptics, and one editor raises his hand and asks if it’s true that Hussman’s paper had some layoffs. Hussman replies that his newsroom went from 190 to 170 employees over the past few years, mostly due to the recession. His revenue declined too, by 13.2 percent in 2008 and by another 14.6 percent the following year. But that counts as good news to this crowd: the industry saw average declines of 16.6 percent and 27.2 percent in those years.23 “At first people thought, ‘This guy’s a Luddite,’ ” the Dallas Morning News’s chief executive, James Moroney III, says after the conference. “Now he’s been vindicated.” Editor & Publisher named Hussman Publisher of the Year in 2008, and the Atlantic chose him as one of its “Brave Thinkers” the following year. Executives from bigger newspaper chains regularly call for advice.
Some technology executives have advised publishers to embrace the Internet, even if that means losing money. In March 2010, Netscape’s cofounder Marc Andreessen, who owns part of the online news recommendation service Digg, suggested that newspapers abandon their print businesses entirely, to “burn the boats,” as the Spanish conquistador Hernán Cortés is said to have done to force his expedition forward. More free online news would certainly benefit Digg, but it’s hard to see how it would help newspapers. Printing and distribution account for about half a newspaper’s costs, but the print editions they produce can generate about 90 percent of its revenue. As their readers go online, newspapers obviously need to prepare for the future. But it’s easier to do that with the revenue from a healthy print business and the reporting staff it can support.
Hussman knows he’s only putting off the inevitable. “Absolutely, I’m delaying it!” he says with a laugh. “But I’m doing a lot better job of delaying it than most people are by giving their content away for free. If we can delay it long enough, maybe something else will come along.” When it does—if it does—the Democrat-Gazette will still have the staff to produce a product like the one it does now.
Charging for content changes the nature of competition in the news business. Online, if current trends hold, newspapers and start-ups will compete on a more even playing field: both will survive by selling inexpensive ads. Since readership for most publications has some inherent limit—only so many people are interested in Little Rock politics, for example—the journalism business could become a brutal contest to do more and more with less and less. Charging for news would change the game, allowing publications to distinguish themselves by the quality of their coverage—assuming anyone is willing to pay for it.
So far, the results of experiments with paywalls have been mixed and hard to measure, since revenue from a small increase in print circulation can offset money lost from a large decline in online traffic. Most surveys show that between 15 percent and 50 percent of newspaper readers are willing to pay for online access.24 But New York’s Newsday got only thirty-five subscribers in three months after it began charging for its Web site in late 2009, even as the paper’s print circulation fell.25 “From what we’ve seen,” says Ken Doctor, “the paywall strategy tends to work better in local areas with a limited number of alternatives.”
Newspapers like Idaho’s Lewiston Tribune and New Mexico’s Albuquerque Journal have been charging for online content for years. The Tribune’s paywall stabilized its circulation, although its publisher, Nathan Alford, says it faces no local print or television competition. The Journal has seen a 10 percent decline in circulation—not as good a record as Hussman’s, but better than most papers of its size—and it’s now experimenting with selling online access to individual editions of the paper as well as subscriptions. “Charging isn’t a panacea that’s going to save the industry,” says the Journal’s assistant managing editor, Donn Friedman. “But not charging is a certain route to failure.”
Hussman has some important advantages most newspapers don’t: his company has no significant debt, he understands his local audience, and only one blog competes with the paper to cover Arkansas state government. Hussman knows more will follow. When they do, though, they’ll face off against a newsroom that hasn’t been decimated by layoffs, as so many others have been. “I don’t think they’ll be able to have a sustainable business,” he says of potential online competitors. “If they want to come into this market and generate $3 per thousand [as a CPM] and compete with me when I’m generating $40 per thousand, I’m not too worried about that.”
What he should be worried about are the sites that aggregate his journalism and sell ads against it themselves.
For someone who appears on television all the time, Arianna Huffington loves to criticize the mainstream media. True to form, she sits down at the ASNE conference panel called “The 24/7 News Cycle,” promotes what she’s doing on her Huffington Post Web site, and tells a roomful of editors what’s wrong with their newspapers. In her view, it has nothing to do with the fact that online readers are worth less than a tenth of their physical counterparts; it’s the stories themselves—many of which her site links to and summarizes.
Huffington launches into a critique of newspapers, characterizing their coverage of the 2008 financial crisis as too little, too late, and pointing to a lack of reporting on safety problems that could have played a role in the disaster at Massey Energy’s Upper Big Branch coal mine in West Virginia the previous week. Sitting alongside the director of the University of Southern California journalism program, an editor of the Orlando Sentinel, and the New York Times business columnist David Carr, she says her site can compete to cover these big stories by excerpting and linking to other articles online.
By the time of the ASNE summit, the Huffington Post had become one of the ten most popular news sites on the Internet, with an editorial staff of only about a hundred. (In January 2011, the Huffington Post drew 27.6 million readers in the United States, second among news sites only to the New York Times, which had 34.5 million.26) And while the site later poached the Times journalists Peter Goodman and Tim O’Brien, with plans to do more ambitious reporting, most of the Huffington Post still consists of Associated Press wire stories, summaries of pieces from other publications, and blog posts written by volunteers. “Self-expression is the new entertainment,” Huffington says. For a site like hers, which compiles it in bulk and makes sure it scores high in Google’s search results, it’s also a new business model. In February 2011, the Huffington Post was acquired by AOL for $315 million.
The panel starts taking questions, and a woman walks up to the microphone in the audience and introduces herself as Geri Ferrara, editor of the Dominion Post, a twenty-two-thousand-circulation daily paper located about two hours away from the site of the mining disaster. “I just want to ask,” she says, her voice rising with emotion, “how many reporters you have at that site, Arianna?”
Huffington isn’t fazed; she’s accustomed to fielding such questions from ink-stained newspaper types who don’t share her vision. “We are going to aggregate,” she says in her Greek-accented purr, “and we are going to link people to your story.” Huffington, who likes to say that the mainstream media suffers from attention-deficit disorder while her site has obsessive-compulsive disorder, said it would continue to follow the story. For the rest of 2010, the Huffington Post aggregated many stories about the mine disaster but published few of its own. Most of its original stories consisted of opinion columns, Associated Press pieces with added reporting, and a few calls to revise safety regulations. (Huffington has had a complicated relationship with originality at times herself: her 1981 biography of Maria Callas drew charges of plagiarism—which eventually resulted in an out-of-court settlement—and an art history professor accused her of borrowing heavily from her thesis on Picasso for a subsequent book, although no legal action was taken. Huffington has said she did not plagiarize other writers.27) And while the Huffington Post brings attention and online traffic to newspapers like Ferrara’s, those drop-in readers have little value.
When the Huffington Post runs original material from bloggers, it doesn’t exercise the kind of editorial oversight one would find at most newspapers. According to a July 2009 story in Salon—an Internet site that does smart original reporting but has had trouble finding a business model to support it—the Huffington Post’s health coverage has been dominated by “bogus treatments and crackpot medical theories.”28 It regularly ran stories about the supposed link between vaccinations and autism, which credible scientists say doesn’t exist. A blogger promoting a book on colon cleanses recommended them as a way to avoid swine flu. Readers might assume that the site’s wellness editor, Patricia Fitzgerald, is a medical doctor, but she has a doctorate in homeopathy. (A Huffington Post spokesman said, “The opinions expressed by our bloggers are their own, and encompass many viewpoints about health and wellness issues.”) This might be excused as the growing pains of a new form of journalism if Huffington weren’t implicitly promoting it by criticizing the mainstream media every chance she gets.
Many online sites produce original journalism that’s as good as or better than that in any newspaper: TechCrunch regularly breaks Silicon Valley business stories, Calculated Risk delivers prescient financial analysis, and Talking Points Memo offers smart left-leaning reporting. Competing with them will make newspapers better, or at least keep them on their toes. But aggregators like Google News and the Huffington Post excerpt or summarize the work of other publications without adding much to it, besides a link that few readers follow. (Google News, which offers excerpts and links to news stories, is distinct from the search engine.) A 2009 report by the research firm Outsell concluded that fully 44 percent of Google News users don’t click through to the original articles it excerpts.29 (A Google spokesperson has expressed serious doubts about the study’s methodology and pointed out that Google News sends publishers a billion clicks a month.) “The vast majority of the value gets captured by aggregators linking and scraping rather than by the news organizations that get linked and scraped,” according to Arnon Mishkin of the Mitchell Madison Group, who studied the subject.30
Publications have always summarized stories, and they have the right to do so under copyright law, which specifically covers only the expression of an idea rather than the idea itself. Time started out a digest of newspaper journalism, radio stations commonly paraphrase news articles, and every newspaper takes information from others in some form. Until recently, this wasn’t a problem, because differences in location, frequency, and format limited direct competition: dailies weren’t chasing the same audience or advertisers as the radio stations and local newscasts that relied on their reporting. Online, competition is immediate and fierce: the Huffington Post pursues some of the same advertisers that newspaper Web sites do. And large aggregators have an inherent advantage, since sites with more links show up higher in Google search results.
Like so many other situations on the Internet as it now exists, this amounts to what economists would call a market failure, since it rewards behavior that will eventually be bad for online journalism in general. Right now companies can make as much money aggregating content as they can creating it. Since aggregators spend less, they can sell ads at prices that producers of original content can’t match. Inevitably, this will lead more companies to aggregate and fewer to invest in original reporting. Eventually, when there aren’t as many stories to summarize, even the aggregators will suffer.
And this is why publishers like Walter Hussman should worry. By offering the same news at the same time as the publications that report it, aggregators make it very difficult to sell content. Discerning readers might seek out the original versions, but many Internet users would settle for summaries, to judge by Outsell’s research on Google News. Some bloggers might even take a certain pride in undercutting a storied daily: Gothamist’s cofounder Jake Dobkin mocked the New York Times for its “slavish devotion to originality.”31
Over the past few years, as the threat posed by aggregators has become more clear, newspaper executives have searched for a legal precedent that would give them some protection. They may have found it in a 1918 case, International News Service v. Associated Press, in which the Supreme Court established what was known as the “hot news misappropriation doctrine.”32 The Court held that the common-law doctrine of unfair competition—as opposed to copyright law—could be used to prevent one news service from immediately taking stories from another, even if it rewrote them. In the years since, news organizations haven’t litigated that many hot news cases, but a 1997 case in which the National Basketball Association sued the STATS news service brought the idea into the digital age.33 Although the NBA’s suit was unsuccessful, the U.S. Court of Appeals for the Second Circuit held that hot news claims could be valid if they showed that the plaintiff spends money to gather information; the information is time sensitive; the defendant’s use of the information constitutes “free-riding”; the defendant’s product competes directly with the plaintiff’s; and the ability to free ride would reduce the incentive to produce a product of the same quality.
Some news organizations are already trying to use the hot news doctrine to stop aggregators, or at least slow them down. In 2008, the Associated Press sued All Headline News for rewriting its stories and negotiated a settlement in which the aggregator paid an undisclosed sum and agreed to stop making “competitive use” of the wire service’s content.34 In March 2010, a group of investment banks got an injunction—later stayed—against the Web site flyonthewall.com for collecting and publishing their investment recommendations.35 (Flyonthewall.com appealed the case.) And in November 2010, Dow Jones settled a case with Briefing.com, which paid an undisclosed sum and admitted to violating the former company’s hot news rights.36 (The Briefing.com case also involved alleged copyright infringement.)
Lawyers, activists, and many journalists have suggested that the hot news doctrine would allow some publications to “own the news” or lead to a wave of lawsuits that could stifle free expression online. It does place some limits on free speech. But it doesn’t prevent anyone from discussing or re-reporting stories—just rewriting them without adding anything—and it couldn’t be used against hobbyist bloggers. It protects against the deliberate and continuous use of reporting from another company, in an ongoing pattern, and it would protect small blogs from having their reporting taken by larger publications, which have an easier time drawing traffic from Google. If anyone can report news, shouldn’t anyone be able to benefit from it?
So far, courts have dismissed cases that don’t involve a serious investment in information.37 “People say the AP is shutting down the Internet,” says the Associated Press’s general counsel, Srinandan Kasi. “But the truth is that there are very few cases in this area for good reason: the pleading standards are very high. The fact that you took five hundred words once to illustrate something is not a ‘systematic taking’ that takes away my incentive to remain in the business I’m in. If you’re running a competing service and you are essentially free riding on my work, then that is a problem.”
The Associated Press is already having trouble continuing to provide reporting of the quality it does now, and it would have a difficult time licensing news that other sites could rewrite for nothing. “It’s a battle for survival,” says the AP’s chief executive, Tom Curley. “We’re quite worried, and that’s started us on a number of responses.”
One of the more interesting initiatives is the Associated Press’s plan to launch a new licensing agency that would ensure it and other organizations get paid for the use of their articles online. Rather than allow or forbid other sites to reprint certain content, the News Licensing Group—a separate company that starts operating in 2011—will track the use of articles and try to collect compensation accordingly. In concept, it’s not unlike the music collection societies ASCAP and BMI, which pay songwriters for use of their compositions on radio and in restaurants. Technology companies that want to start businesses around Associated Press articles or content from other member companies would have an easy time arranging it, while those that don’t pay would have no excuse.
At a May 2009 Senate Commerce Committee hearing on the future of journalism, Arianna Huffington mocked the idea that the Baltimore Sun could charge for content that only Sun subscribers could read. “That’s not how people are consuming news,” she said.38 This is true, of course, but mostly because the Huffington Post and other online sites use Sun stories to draw in readers. The Sun, she implied, would just have to adjust.
Rather than apply regular media economics to online publications, which would involve spending more money on reporting, most technology executives push traditional publications to adapt online economics: inexpensive ads and content that costs as little as possible. Their ideas for the future of journalism include citizen journalism, nonprofit-funded reporting, and various innovations based on publicly available data. But they don’t seem to involve many journalists.
Few companies have done more to promote these ideas than Google, which has used the public discussion about the future of journalism to push its own priorities. In April 2010, the Knight Commission on the Information Needs of Communities in a Democracy, a group funded by the John S. and James L. Knight Foundation, issued a report with a series of recommendations, including having the government encourage the spread of high-speed broadband and maintain “open networks.”39 Google, whose vice president Marissa Mayer cochaired the commission, has lobbied for both policies, and the company gave the Knight Foundation a $2 million grant in October 2010. And both the Knight Foundation’s chief executive officer, Alberto Ibargüen, and its vice president for journalism programs, Eric Newton, promoted the idea of universal broadband access at government hearings about the future of journalism.40 (Ibargüen says Mayer was only one of fifteen commission members, and that $2 million is a fraction of the foundation’s $40 million annual budget.)
The Knight Foundation is absolutely right that broadband access needs to be available and affordable. But while widespread high-speed broadband access would help ensure the distribution of journalism, there’s no reason to expect it would help with the creation of journalism. Funding digital infrastructure won’t address that problem any more than building paper mills might have helped a few decades ago. At a time when Americans have faster and easier access to more information than ever before, they don’t seem to be any more informed than they were two decades ago. In a November 2010 study, for example, only 14 percent of Americans identified John Boehner as the presumptive Speaker of the House of Representatives.41 It’s hard to believe the other 86 percent couldn’t get information about the 2010 election results. Presumably, most of them probably just choose not to. This is definitely a serious problem, but it may not be one technology can solve.
Groups like the Knight Commission are also promoting the idea of public and nonprofit journalism. In today’s political environment, increased funding for public media isn’t realistic, however desirable it may be. Important investigative work has already been produced by some promising nonprofits, including the Texas Tribune and ProPublica (which won a 2010 Pulitzer Prize for a story about a New Orleans hospital overwhelmed by Hurricane Katrina). But while those organizations can serve a vital function by devoting resources to expensive stories, they don’t have the funding to get people to local zoning-board meetings. As the media executive and news business blogger Alan Mutter pointed out, U.S. newspapers now spend $4.4 billion a year on reporting, while nonprofit journalism institutions raised only $144 million over the last four.42
“The finding about that in general is that the content is great and the funding model is very unstable,” says Nicholas Lemann, dean of the Columbia University Graduate School of Journalism. “Then there are these experiments in crowdsourcing and other forms of social production, and my view is that they haven’t really delivered the goods.”
Although nonprofit groups like the Knight Foundation have become enamored with citizen journalism projects, their track record has been uneven at best. A 2010 study by the Pew Research Center’s Project for Excellence in Journalism that examined the news “ecosystem” of Baltimore over the course of a week found that traditional media produced 95 percent of the stories with new information and that newspapers were responsible for most of them.43 (It also found that 80 percent of all stories contained no new information at all, which is damning for old and new media alike.) “In every community I’ve ever studied,” wrote the Project for Excellence in Journalism’s director, Tom Rosenstiel, “the print news organization in that community has more reporters and editors than all of the other news organizations in that community combined.”44
Newspapers need to find a better way to compete online—ideally one that involves bundling content from different publications under one fee and sharing data to get more money for ads. Journalism Online, a start-up founded by Steven Brill, Leo Hindery Jr., and the former Wall Street Journal publisher Gordon Crovitz, provides an e-commerce platform that could eventually allow publishers to do both of those things. They have a similar vision to that of Project Alesia, and in June 2010 News Corp. announced it was investing in the company. As of early 2011, Journalism Online’s Press+ allows a dozen publications—including the Augusta Chronicle and the Scranton Times-Tribune—to charge readers for news and adjust how much content they give away for free. If it attracts enough newspapers, it could let them share information about readers to get the kinds of ad rates that only online giants now command.
To understand how this might work, think about how companies value readers of print papers and online sites. To advertisers, each reader of a print paper is worth the same amount, since it’s almost impossible to figure out what sections a reader actually looks at. But the value of online users varies widely according to what they look at—and how often—and publishers should be able to charge advertisers accordingly, without having to depend on another company for data. They also need to use better online tracking to identify and charge regular readers who are dedicated consumers of the paper’s unique content. That way they can get some online subscription revenue without losing the less profitable drive-by traffic that comes from blogs and search engines.
By changing the way newspapers generate revenue online, Journalism Online would also change the incentives that make many of them chase the same stories online. As long as advertisers focus on numbers of readers, publications will tend to bring in traffic with general news and celebrity stories. Few readers will pay for this, simply because so many sites run similar fare, but a thin story about a national issue will generate more hits than smart reporting about a local one. If Journalism Online can convince local audiences to pay for content, it would give newspapers an economic incentive to specialize in the state and local news coverage that has disproportionately been lost to layoffs.
“What they’d need to do is have the best, most talked-about coverage of the town zoning board or the mayor’s new education plan,” Brill says. “You can start thinking like an editor again.” His plan assumes that at least one of every ten readers of a particular news site will pay for it—a figure well within the range of most surveys.
Of course, Brill’s plan will work only if newspapers retain the staff, and the institutional will, to create journalism locally engaged readers will pay for. In spring 2010, Brill met with an executive at a big-city daily—he won’t say which—that’s planning to join Journalism Online. “Walking out, the editor says to me, ‘This is great, but I don’t have anything left in this paper that I think anybody would buy anymore,’ ” Brill says. “That’s tough stuff.”
More than ever in the coming years, the way publishing companies make money will determine the kind of journalism they do. Publications that charge for news will need to produce the kinds of stories readers are willing to pay for, while those that give away content will have to cut costs and attract the broadest audience possible. They’ll embrace citizen journalism, maximize page views by creating photo galleries, or use “search engine optimization” to choose stories and headlines that will score high in Google’s search results.
The city of Seattle is already serving as a makeshift media lab for these two approaches. In March 2009, after the end of a joint operating agreement that allowed the Seattle Times and the Seattle Post-Intelligencer to run parts of their businesses together in order to save money, the two newspapers took very different paths.45 The family-owned Times maintained its print edition, while the Hearst Corporation’s Post-Intelligencer became an online-only publication, cut its editorial staff to twenty, recruited two hundred volunteer bloggers, and introduced eye-catching new features to boost Web traffic. Hearst thought this approach might point the way toward a successful model for online journalism.
So far, not much has changed at the Times, which picked up some of its rival’s subscribers. The paper maintains a newsroom staff of 170, and in 2010 it won a Pulitzer Prize for its coverage of the fatal shooting of four police officers. The company is not net profitable, but it is cash flow positive, according to its publisher, Frank A. Blethen. “We believe there’s nothing wrong with the newspaper model,” he says.
The Post-Intelligencer offers local coverage as well, but its Web site also features photo galleries—of celebrities, fashion, and even “The week in dogs.” (On the Internet, cute pets are the new hot girls.) It now has 2.7 million readers a month.46 It’s tempting to think that a major daily could slim down to a fighting weight of twenty journalists and use the power of the Internet to succeed. (Hearst declined to comment on whether the Post-Intelligencer is making money.) But, like many online businesses, it lacks a sustainable competitive advantage. Any number of local entrepreneurs could hire twenty reporters, set up a Web site, and fight for traffic—including some of those twenty Post-Intelligencer reporters themselves. And anyone who’s spent any time online knows the Internet is full of pictures of cute dogs.
The Times faces its own challenges: much higher staffing costs, a print business that will eventually decline, and the difficulty of adapting to new technology as fast as its rival. But its print paper gives it an advantage on the Internet, and it recently started a neighborhood blog consortium to improve its reach online, where its Web site already draws three million readers a month, many of whom are probably local readers, and hence worth more to advertisers.47
“The basis of our Web site, which from a traffic standpoint is incredibly successful, is the content that’s produced for print,” Blethen says. “There’s no way you could make enough money for this kind of newsroom online. There’s a lot of hope that things will get better online, and I think we’ll find some solutions, but a lot of it is wishful thinking.”