Orlando Bellini - Fotolia

Newspaper woes show that when technology changes, everything changes

Traditionalists bemoan the declining finances of newspapers, but those old sources of revenue aren't coming back – technology has changed everything

Economists tend to misunderstand quite how wrenching technological change is on the people subject to it. Those of us doing the technological change itself also often rather miss this point. For it isn’t only true that our new and whizzy way of doing something is better, fancier or more lovely. It’s also true that the old way is now going to die and all the people working in that old manner are going to find lives changed irretrievably.

There are those who insist that, therefore, we shouldn’t have this technological advance – but that way lies stagnation. It is still true though that the interregnum, the switchover, is painful for a lot of people.

A useful example of this is the closing down of the Gothamist and DNAinfo news sites. There is, of course, a certain irony here. The staff voted to unionise to get better benefits, higher pay and job security, and the next week they found there were no jobs at all. But it would be unkind to dwell upon that.

Rather, the important thing to understand is that this internet thing has entirely changed the business of newspapers and news. And it has changed the US world very much more than the UK in an interesting manner.

Newspaper competition

The British newspaper business has been a nationally competitive one since just before the First World War, when trains were able to deliver nationwide – even if perhaps from a couple of printing plants.

Sure, the local press existed underneath that as well, but 10 or 20 titles were competing for the national audience and they did so by being different in style and political leanings. It’s also notable that classified ads were a very small part of the operation for the obvious geographic reasons.

The distances of America meant this never happened in the US – instead, there was a series of regional monopolies built around the major metropolitan centres. Des Moines had a serious paper; as did New Orleans; Chicago perhaps two, and so on. On average, those classifieds sections produced some 30% of the revenue as well – alongside subscriptions (about 30%), advertising (30%) and a few other sources. At which point entered the internet.

The newspaper industry is just an example – when the technology of production changes then everything changes
Tim Worstall

The first thing that happened was that classified ads were ripped out from newspaper finance – typically by Craigslist – and the likes of Monster.com took all the ads for employment opportunities. But then came that same abolition of distance as a constraint that had happened in Britain a century earlier.

Suddenly, instead of there being, say, 100 regional monopolies, all were competing in their national news coverage. And the market isn’t going to support that.

This is when various people thought about recreating the local news system for this modern age. Patch was one attempt, Gothamist another. Isn’t it very much cheaper to run a “newspaper” now, online only, so can’t this work? The answer seems to be no, it can’t.

Changing economics

Patch makes profits but only by repeating the same content across many local sites – syndication in the jargon. The biggest expense of creating local news is in fact the people to collect and write it up. And, given the loss of classifieds, there simply isn’t enough revenue to do this.

Technological change hasn’t just changed how you might be able to report – it’s also changed the economics of how this is done. And changing the economics really is the much more wrenching change. An example of this is one of those unionising workers arguing, “Is this is the future of journalism? It should be a career for the people, not a post-college hobby”.

A nice thought no doubt, but that’s not the way economics works, it’s a positive, not normative, discipline. Economics doesn’t do “should” or “ought to”, it does “is”. The “is” here being there’s simply not enough revenue in the news business to carry the people it used to.

An example of this is US economic research that shows payroll costs for newspaper, magazine and book publishers plummeting from $37.5bn in 2007, to $26.5bn in 2015. This is a business that is shrinking, and that’s not an environment where steady, well-paid careers are forged.

Another symptom of the same thing is the widely held view that “reporters at many digital sites make only a fraction of what staffers made in the heyday of print newspapers”. Undoubtedly true – as an aside, nominal freelance rates in the UK haven’t risen in two decades, let alone real ones.

Broken monopoly

But then what would we expect? The US newspaper business was that series of regional monopolies and as is normal the monopoly profits were distributed to both shareholders and staff. The latter gained a share in solid salaries, decent pensions and many more positions than a pure free market would have provided. Now the monopoly is broken, then of course the incomes from working in it are falling.

My point here is not that journalism is broken and something be done to mend it. That could even be true given the importance of being told what is going on out there. But this industry is just an example – when the technology of production changes, everything changes.

Read more about economics and IT

We can’t and won’t go back to that old world of heavily staffed newspapers offering careers and good wages. The money isn’t there in the system any more. It is, then, this economic reality brought about by the technological change which is going to prevail.

There aren’t going to be as many journalists as there used to be and they’ll not get paid as they did, simply because the entire ecosystem of the business is able to extract less money from you and I, the consumers.

Which is all to the good of course, we consumers being who the economy is and should be in favour of. But, still, the good old days aren’t coming back; they never have done elsewhere either.

Read more on Managing IT and business issues