US Newspapers' Problems Come From Their Former Monopoly, Not The Duopoly Of Facebook And Google

Tim Worstall, Contributor

There is a move by a collection of America’s newspapers–largely newspapers that is–to seek anti-trust exemption so that they can negotiate as a group against Facebook and Google. The argument is that the two tech firms now dominate the online advertising market and if the newspapers are to survive to produce that democratically important public service journalism then they must be allowed to combine in negotiation. Myself I’m howlingly sceptical of the proposition, my own take being that the newspapers are suffering horribly from the collapse of their own former monopolies. American geography led to a specific structure of the newspaper industry, this brave new world having entirely destroyed that model. Yes, I know I am one and I’m arguing against my own interests but my analysis would be that there are still far too many US newspapers and far too many journalists working at them. The industry is being gutted, that’s entirely true, but then it should be.

Please note this is nothing at all about the general political attitude of most journalists, it’s also not some jeremiad about the mainstream media. It’s just the economic observation that the internet has meant we just don’t need as many people doing this any more in as many different flavours as we have.

But we do have this insistence that the newspaper industry should be privileged:

Whenever President Trump attacks CNN or berates the Washington Post, journalists and free-speech advocates rise up to defend the media and the First Amendment. Meanwhile, a greater threat to America’s news industry looms mostly unnoticed: Google and Facebook’s duopolistic dominance of online advertising, which could do far more damage to the free press than anything the President posts on Twitter.

I identify the American print media’s (for this is what we are talking about, print media transforming into online) basic problem entirely differently. It stems from their former position as local monopolies spread across the country, local monopolies which are now dismembered as a result of the internet’s abolition of distance as an economic factor. It’s their carry over of practices from that past which is the problem, not the exigencies of today’s market.

The New York Times is also a part of this:

So what we used to call “the newspaper industry” — but which now includes outlets with robust online existences — is coming together to make its biggest push so far to change the balance of power.

This week, a group of news organizations will begin an effort to win the right to negotiate collectively with the big online platforms and will ask for a limited antitrust exemption from Congress in order to do so.

It’s an extreme measure with long odds. But the industry considers it worth a shot, given its view that Google and Facebook, regardless of their intentions, are posing a bigger threat economically than President Trump is (so far) with his rhetoric.

That’s how David Chavern, the chief executive of the News Media Alliance, put it in an opinion piece published online by The Wall Street Journal on Sunday evening.

And here is the alliance itself:

Consumer demand for immediate, reliable information is growing but the current online distribution systems are distorting the flow of economic value derived from good reporting. Google and Facebook dominate online news traffic and consume the bulk of digital ad revenue. Because of this digital duopoly, publishers are forced to surrender their content and play by their rules on how news and information is displayed, prioritized and monetized. These rules have commoditized the news and given rise to fake news, which often cannot be differentiated from real news.
Antitrust laws are intended to address the injury inflicted by dominant monopolistic companies. Yet when it comes to the media, existing laws are having the unintended consequence of preventing news organizations from working together to negotiate better deals that will sustain local, enterprise journalism that is critical to a vibrant democracy. News organizations are limited with disaggregated negotiating power against a de facto duopoly that is vacuuming up all but an ever-decreasing segment of advertising revenue.

At which point we need to have a little pencil sketch of how the economics of the industry worked before the internet.

The first thing to note is the influence of geography and transport. By definition a newspaper needs to arrive daily–in physical format least–meaning that there’s a useful radius around a printing plant which can be served. What then happened is exactly what is happening with Google and Facebook, network effects come into play. Each urban area effectively became the monopoly of just the one newspaper. Sure, there were more than that in New York City for example, SF supported two majors later than many other places. But even in such large and rich places we did really only ever end up with one “serious” newspaper.

The network effects stem from the revenue sources. Roughly speaking, you understand, one third came from subscription revenues, one third from display advertising and one third from classifieds. Classifieds are a classic case of said network effects. Everyone advertises where they know everyone reads. Everyone reads the ads where they know everyone advertises those used baby bassinets. Whoever can get ahead in the collection of either then almost always wins the race. Classifieds are also hugely, vastly, profitable.

The way that American newspapers are sold, on subscriptions with a local paper boy, also contains elements of such network effects.

The effect of this economic structure was that each major urban area really had the one monopolist newspaper. This is where that famed “objectivity” comes from too. If there’s going to be the one newspaper then it’s going to try to make sure there’s no room for another by steadily occupying the middle ground on anything and everything. This is just the Hotelling problem all over again. Swing too viciously left or right (on any issue, political, social, whatever) and there might be room for someone to sneak in from the borderlands. Thus the very milquetoast indeed political views at most of these newspapers.

So, what’s happening now? Well, that economic geography problem has been pretty much obliterated by the internet. That radius around the printing plant plus those network effects no longer protect that local monopoly. Yet all of the papers do carry cost burdens that you’d expect from a former monopoly. Anyone–as I have–who has written for both US and UK papers will know what I mean. It’s entirely true that my writing could do with some decent editing at times but I’ve done a short piece for one US paper (yes, one of the headliners) that had no fewer than three editors making contradictory suggestions to my 600 words. The equivalent in an English newspaper would have had one sub altering, with no reference to me at all, to meet house style and that’s done and dusted in 20 minutes. Any comparison of a US to a UK newspaper would have the US one being grossly overstaffed with a very high cost base. All the result of that former local monopoly.

Another contrast with the UK market is informative as well. The UK has been a national newspaper market since before WWI, when the train system finally covered the country. OK, it’s smaller, too, but what this meant was that one plant could and did print for the country, one title could be nationally available. The printing was usually in London, where the journalists were, early editions coming out at perhaps 6 or 7 at night, to get on the trains for Scotland, the final London editions not being printed until perhaps 3 or 4 am for distribution more locally. The effect of this was that there wasn’t that same monopoly at all.

One of the odder things I’ve done in my life is deliver the newspapers to the Queen of England–walking across Red Square (no, really!) with my Daily Telegraph marked newspaper bag in a blizzard during her visit to Moscow–to deliver the standard 13 newspaper (that’s from memory, sorry) package that goes to all government ministers and HM. The point being that all of them are national newspapers. The Sun, Mirror, Times, Telegraph, Independent, Guardian and so on, even the Morning Star. Any Brit will be able to tell you that these papers all have entirely different political outlooks, very much in contrast to the bland uniformity of US papers.

I would also note that these national newspapers have never really had much in the way of classifieds sections. Those were always in the local papers, akin to say the Bloom County Herald (??) and the like.

So, what’s happened to the economics of US newspapers? The classifieds have gone as that great profit engine, they’re all over on e-Bay, and all the rest. Subscription revenues are going to die out as those who buy a physical newspaper do. That leaves just display advertising which is what this Facebook and Google thing is about. Worth noting that subscription revenues have generally been a face washing exercise. It costs about as much to provide a physical copy of a paper as people pay for it, it’s display and classifieds–where they exist–which pays for the journalism.

We’re down to that display advertising which is what this argument is about. OK, technically display and online are thought of as different things but we do mean just the eyeball time of the readers.

And that, I insist, is what is really happening to US newspapers. Most certainly, their problems stem from the internet. for the internet broke that monopoly imposed by economic geography and all else stems from that. They got fat and happy within those monopolistic areas and their pain is coming from the adjustments necessary to deal with that. The likely outcome I would expect to be many fewer first line newspapers staffed by many fewer people in much the way that the UK market has worked for near a century now. I would also expect to see them using political stance as a differentiator just as in Britain.

Which brings us to this desire for an exemption from anti-trust. This is only an opinion of course but when that industry has slimmed down to perhaps half a dozen national titles to cover the varied political and sociological bases (so, as in the UK, rightish vernacular, rightish intellectual, leftish intellectual, leftish populist and so on) as in this from Yes, Prime Minister:

When the US newspaper industry has slimmed down to that sort of level and also still can’t make a buck then perhaps something might need to be done.

There is also of course this other manner that we might want to consider. My fellow journalists think that having a large and vibrant newspaper industry is oh so terribly important to the citizenry of the country. By their actions the citizenry seem to be less convinced of this. I tend to think the people should get what they want, not what they’re told they should desire. No to the antitrust exemption therefore, let the newspaper industry adapt to the changing economic geography, don’t prop it up.