Where Does Newspaper Industry Go?

-- By AndoY - 11 Dec 2009 -- By AndoY Revised- 18 Mar 2010

Section I Finding Rules: Commoditization or Disintermediation

Professor Moglen told us that "almost everything becomes commodity by advancement of technology." The statement is well proven by examples of music and movie industries which have been severely affected by commoditization of their distribution system and recording technology. I thought this “commoditization” statement might be something really important and interesting among one of the many rules we learn at school and in life. As a law student, we learn many legal rules. However, we might not remember all or many of the rules after graduation.

When I was asked "what did you learn from your legal study," I used to answer that I learned that law is a tool to mitigate two conflicting interests. The concept of balancing two conflicting interests applies, when I think about relationships between a buyer or a seller in the business deals, or an investor and an issuer in sale of securities. However, I started to feel that a purpose of law should be more than mitigating two conflicting interests.

Since starting my second legal study, I found the importance of finding rules from various cases and situations, then applying these rules to issues. As a result, final outcome of applying a rule in a particular situation may not be ideal in terms of balance; win-win relationship hard to achieve, most of time win-lose relationship unavoidable, or the outcome can be unexpected from the original prediction. Having first educated in civil law country, a law or a rule is not something to be found, rather, it is given by the sovereign power. I may have been too short-sighted on the superficial outcome of the legal rulings using codified laws. Especially, I was agonizing over how to find an optimal balance between the oppressed and the oppressing power. I do not have a definite answer. However, I came to think that I should focus more on finding principles and applying principles to the issues.

Here, I would like to analyze what happened and is happening to newspaper industry. Commoditization may not explain everything happening in newspaper industry. It might be necessary to consider another phenomenon, disintermediation.

Section II What happened to Newspaper Industry?

As I mentioned earlier, just keeping balance may not be almighty. If one side seems unfairly oppressed, is it the best remedy to save the oppressed under any circumstance? If journalists are suffering from declining newspaper industry, would it be the best to subsidize journalism by the government, such as by bailout of newspaper companies, or employing journalists by the government? Newspaper industry is suffering by the change of business model and by emergence of new media formats. Now, they need to adapt themselves to rules of game in the new digital media era. It might be true that Google is free-riding on newspaper contents. Then, would it be necessary to save the newspaper industry?

What is happening in media industry? Is it commoditization or what? When recording devices such as cassette tape recorder, CD player, and DVD recorder became prevalent, music and movie started to be consumed easily with much cheaper distribution costs compared to the previous days. Those trend can be described as commoditization. What is happening now is more of disintermediation than commoditization. YouTube? can give direct consumer access to content owner and creator of music and video. Similarly, readers can go to direct sources of information for checking weather or financial news rather than reading newspapers. Aggregators or editors of contents lost value in piling up contents and assembling them. Disintermediation is widely seen trend affecting media business. This was also mentioned by Professor Moglen as impacts of zero marginal cost by the Internet.

The Internet changed the way how people access to news information. Now, a growing number of population stopped reading print newspapers which is a “push” media. Rather, people favor “pull” media where people can access digital news through the Internet or iPhone whenever they want. By technological advancement, people have a customized own home pages of news information set up by individual preference. There is no need to subscribe only to the New York Times or to Wall Street Journal. People have tons of access to information 24/7 at real time. People can pull information they want. As advertiser, there is no need to spend advertising budget only to newspaper companies, rather they are better-off paying to Google and various other media.

Section III Future of Newspaper Industry

The great thing about the 20th century newspaper business was that it attracted enormous audience and people relied upon this social institution to gather information and have opinions about various issues. It is clear that Newspaper industry is going to be less money-making going forward, thus we need to be creative how the society can maintain newspaper's quality of its editorial functions and accuracy of information. I struggle to find how newspaper industry will transform itself to adapt to the new Internet age. However, transforming newspaper industry is unavoidable in the age of disintermediation. Here, two conflicting interests has to be mitigated; profitability/money mechanism and quality of news content/editorial function.

Paper based format may disappear in the future and advertising revenue is likely to decline continuously. Newspaper business may turn into non-profit organization such as Carnegie Hall in music business. Even though the format or a corporate structure may be altered, the social function of newspaper is essential for people's daily lives and democracy. One idea to maintain the accuracy of information and quality of editorial functions will be bringing in check and balance by open source kind of mechanism in managing a new media format.

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(from old versions of this writings)

In a Charles Darwin’s concept, newspaper industry survived a process of “natural selection” by fitting themselves to an advanced form before the Internet became a prevalent media.

• When employing this metaphor in an argument, remember that Darwin's natural selection is an unguided process in which acquired characteristics cannot be inherited. Cultural evolution, on the other hand, is Lamarckian—the whole point of culture is the inheritance through sharing of acquired characteristics, and it is guided, in all the ways that cultural power can be used. These points aren't a reason to avoid evolutionary analysis, or even to mention Darwin, but it's important always to keep in mind that cultural evolution is not a Darwinian kind of evolution.

Newspaper business is an old business. Internet was not the first threat for the newspaper industry, and there were emergence of radio broadcasting and later that of TV broadcasting. Broadcasting has advantage in terms of delivering information much faster in real time compared to newspaper since newspaper involves higher distribution costs and time. On the other hand, newspapers differentiate themselves by providing more detail analysis to various issues, editorials, and giving more advertising information by classified. Thus, newspaper could remain strong media formats until the emergence of the Internet. In addition, in some countries, newspaper companies own broadcasters so that a newspaper company can keep advertising revenue which might otherwise stolen by broadcasters.

• I think your problem is that the concept you want to apply here is less commoditization than disintermediation. Newspapers aren't actually the creators of content; they are editors and aggregators of content, famously unable to afford adequate and sufficient reporting, and primarily reliant—except for the world's biggest and richest papers at the height of their power—on content purchased from "press agencies," "wire services," and other aggregators representing creators. To those aggregations of "editorial" matter, they added advertising and some propaganda acceptable both to the leadership of the "content" side and the actual owner or the government, depending on context.

However, newspaper industry may become commodity since people find more value in the new technology. This fundamental shift of people’s behavior might be analogous to a transition of railway industry in a century ago. After automobile changed the way how people commute or move to one location to another, railway industry severely struggled, also they suffered later by emergence of airline industry. Railway industry became commodity while people paid a lot to automobile and airline transportation.

• I don't think it makes sense to speak of the decline of railways as a matter of commoditization. Use of railway transportation to carry people rather than freight imposes costs that cannot be paid through competitive pricing of the cost of carriage. In order to have extensive and effective railway passenger service, every human society has so far determined that it can only be provided by socialism, that is by state subsidy to industry at a level that only state ownership or control can justify. In the US, socialism chose instead—for many evident reasons, geographical, political, economy, and military—to build a vast highway network and to subsidize the global exploitation of petroleum reserves. In Japan, equally for evident reasons, the other decision was made. The resulting social dynamics aren't about commoditization of railway transport, it seems to me.

• As aggregators, they are extremely inflexible: they print a few editions a day, at most, on paper which is expensive to make, move and sell. Their content is more or less uniform to all readers, and the advertising must be such as would be effective at the price charged across a broad range of readers. In the current evolution of communications technology, those costs and inflexibilities are fatal. Physical production is no longer cost effective at all. Advertising is being transformed by the transition from push to pull: it is infinitely more effective for advertisements to be aimed at people who already want to buy the product, so the bulk of advertising budgets are shifting to the pull model made possible by Google, and the newspaper is no longer an effective place for the finding of new consumers because young people are growing up without any habit of looking at newspapers. Game over.

In my original belief in balancing conflicting powers, I may want to think that there should be an optimal point where free riding of content by technology companies may be punished and content providers will be saved. On the other hand, the character of the threat imposed by the Internet is much more severe than the threats by broadcasting. If information in newspapers is really valuable and worthwhile paying a lot of money, I might blame Google or new technology as free-rider. However, the Internet made value of information much cheaper or almost free. Then, as newspaper industry, their differentiation may not be quality of journalistic article, rather, what matters are its technology of distributing content, branding and marketing. I am skeptical whether those cosmetics will keep its strong positioning which newspaper traditionally enjoyed. Google or new Internet media continue to require existence of content provided by newspaper companies. However, content is readily available without paying a lot of cost. Therefore, commoditization of the newspaper industry is likely to be unavoidable.

• So newspaper businesses are becoming other media businesses, which is problematic only because newspapers had higher standards of accuracy and lower levels of tolerable corruption in the late twentieth century than the businesses built around broadcasting technology with which they competed. But disintermediation changes both the accuracy and corruption problems in deeper, structural ways: when content-making is an activity everybody shares, issues of accuracy, reliability, motive and corruption become systemic and social rather than episodic and internal.

Dear Ando, It was a great pleasure reading your article. After reading your writing, I came to encounter one question. As a whole, I think you are right that it is hard for newspapers to avoid being commoditized. But wouldn't "people's personal preference" play a role in this commoditizing dynamic? (For example, even though it is slower in speed, I perfer newspapers than internet provided information since I can think more deeply when I read newspapers.)It is true that newspapers have their own values which are unique and un-substitutable. And people who like that kind of uniqueness certainly do exist. Therefore, even though I might know how, but if the newspaper companies are able to find a way to maintain this "uniqueness" and make the most of it by distinguishing themselves from the upcoming new technologies, wouldn't they be able to avoid being "commoditized"?

Keeryong,

Thank you for your comment. Newspaper took advantage of inefficiency of distributing information in the old days. However, content of newspaper is available for free on Google. As a business, I would not see any reason to long newspaper stocks since it is not clear how newspaper industry will create additional revenue and profit at this point. Here, I am not saying that the industry is to die, newspaper industry will survive. However, they will lose advertising and subscription revenue they used to enjoy. As you mentioned, personalization and customized content should be way to go, however, it seems only a defensive measure.

Ando