The money quote from Hal Varian’s presentation to the Federal Trade Commission, according to TechCrunch, was this: “newspapers have never made much money from news.”
But for me, the kicker is this data point from slide #3:
Subscriptions account for 3% of revenue on average
Editorial expense is 14%, so subscriptions don’t even cover the cost of news gathering. Production and distribution (mostly the stuff related to atoms) is 52% of expenses.
Can we finally put the myth that “consumers pay for news” to bed, for once and for all?
Also, newspapers accounted for slightly more than 35% of all media ad dollars in 1949. By 1989, that was down to about 25%. In 1992, TV (network and cable) finally caught up and then passed newspapers. The other big challenge? Direct mail. Makes sense — and we can argue in another post about unintended consequences of federal legislation that makes direct mail (junk mail) dirt cheap, so to speak.
More evidence that the Internet is not the beast that killed newspapers (although an argument could be made about straws and camel backs): newspaper circulation peaked in 1990 but circulation per capita has been on a steady decline since at least 1960 (since 1950 per household), which reflects competition from other media, particularly television.
Varian, Google’s chief economist, was the keynote speaker earlier today at the Federal Trade Commission’s second round of hearings on the future of journalism. The Federal Communication Commission is also studying the issue. More from PaidContent.
A year ago yesterday I wrote “No More Free Content” in response to repeated chants by old school journos that all would be fine if people would just pay for online news like they always had paid for news.
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4 Comments, Comment or Ping
Lara Underhill
I wish the newspaper industry could figure out a model to make money. Not that I have any answers, but considering this has been a challenge for decades (as you pointed out), it seems as though someone would have figured it out by now. I know I am in the minority, but I would pay for online newspaper content even though I haven’t subscribed to the newspaper in several years.
Mar 12th, 2010
Greg Rasa
Kathy, I don’t know where that 3 percent figure comes from, but it’s flatly absurd.
I can’t share a lot of details about the financials of my employer, The Seattle Times, but in general terms I can tell you that subscription revenue is about a third of our total — and growing.
Varian is off by a factor of at least 10.
It’s no myth: People *do* pay for quality newspaper journalism. It’s the biggest bargain they’ve ever had, and they may pay for this thing without fully realizing how important it actually is to their lives and to society, but they do pay.
Some pay eagerly. At the time the P-I folded, we had readers contacting us to ask how they could start paying for our online product. Those who did so may be a deluded minority unique to literate Seattle, but at least a few people wanted to help keep us alive and felt it was wrong of them to get something for nothing.
They begged us to accept their money.
As for the continued sense of denial regarding the Internet’s role in harming newspapers: It wasn’t “the Internet,” in general terms. (After all, we are an Internet company.) And some companies such as the job-search outfits had a role. But nobody’s hands are as bloody as Craigslist’s.
Classified advertising used to constitute two-thirds of our revenue. Not all advertising — just classifieds. Now classifieds are a small fraction of our income. It’s the core reason for everything bad that has happened.
At least when Monster, et all, stole business from us, it was because they offered a superior product — greater functionality to a targeted audience. Their listings beat a print newspaper job listing all hollow. But when Craigslist came along, it displayed a certain capriciousness, with little realization that their moonbeam model would eviscerate the thing that paid hundreds of skilled journalists to labor in service of any given community.
Craig Newmark still blinkingly doesn’t see it.
But: They know not what they do.
Don’t get me wrong, the business side of newspapers was bloated, slothful and addicted to obscene profit margins. As a business, we deserved a comeuppance. Yet these old-media money machines paid for something that is vital. And in many communities, this vital thing has been lost to an entity that provides cheap-to-free ads for hookers, scammers and purveyors of junk. This may have been unforeseen and accidental, but it decidedly did happen.
The good news: The Seattle Times attracts more eyeballs today than ever before, both in print and online. Subscriptions are a major piece of our revenue. We are a competitive new-media company and are learning every day how better to make a buck in the new reality.
And the best news: People absolutely do pay — both directly and in patronage of our advertisers — for their news.
Mar 16th, 2010
Greg Rasa
Overnight, I thought of a simple bit of math to demonstrate that the 3 percent figure is all wet:
Let’s suppose every one of the Seattle Times’ 263,588 weekday subscribers was getting the newspaper at my employee rate, which is $11/month ($132/year). Based on that, subscription revenue would be a minimum of $34.8 million.
For that to represent a mere 3 percent of our total, we’d need to have annual revenue of more than $1.1 billion. Which we don’t: At our peak, we were a $300 million company; our current revenue is far, far off that peak.
This calculation is super conservative because it doesn’t reflect our many Sunday-only or weekend-only subscribers, nor single-copy buyers. And obviously most poeple are paying more than my employee rate.
If I ever need to hire an economist (to, I dunno, do light economic forecasting around the house), remind me not to hire Hal Varian …
Mar 17th, 2010
Greg Rasa
Also, I should apologize for my harsh characterization of Craigslist. It’s just frustrating, and I let that frustration show. Craigslist is analogous to a child who breaks something valuable and then says, “I didn’t do it. It broke all by itself.”
Anyway, I’ll shut up now.
Mar 17th, 2010
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