Journalism

The debate in journalism is about the effect of the internet when it needs to be about the value of the journalistic product. The real issue is not the medium but the message. Putting more information online is not just a matter of reaching a new and different and broader audience, but about the velocity of information and, by extension, its value.

The problem for most purveyors of information has been that the arbitrage they used to enjoy is gone. Much like…well, exactly like…stock brokers who used to connect buyers and sellers in an illiquid market, journalists connected people with information. It was the old many-to-one-to-many arbitrage whereby an expert gleaned information from multiple sources and compiled that information to produce a centralized hub in the form of a physical publication. The internet, of course, eradicated this model by allowing for a many-to-many distribution mechanism. The internet also allows for the slicing and targeting of an audience in a way never before seen in media, thereby dramatically changing the economics of advertising.

About advertising: it has been very pernicious to all types of editorial content, because it removes a direct financial link between the consumer and the product. This has seemed like a very good thing, because advertisers got eyeballs and consumers got a product without having to shell out for it directly. The moral and quality implications of such arrangements are interesting, but so are the economic implications.

By subsidizing information, advertising masks its true price. It is not dissimilar to the way that securitized mortgages had a deleterious effect on housing prices; when the lender has a stake in transactional commissions rather than the quality of the loan, he naturally has a perverse incentive. When a consumer no longer has to pay for what he consumes, this tends to skew his purchases. This, in short, is what happened to journalism. It isn’t that the internet killed journalism, but that advertising for a very long time masked the fact that journalism had been a product for which people were no longer willing to pay. It is for this reason, also, though it didn't need to be the case, that most journalism has long been declining in value.

It would be easy to argue that people stopped paying only because they got used to journalism costing them little or nothing, but that’s sophistry. If information presented in a paper format was very valuable, people would still purchase it. Instead, subscriptions have fallen. I still purchase the Wall Street Journal (both in print and online) because it has a definite value to me. The NYTimes is raising the cost of its Sunday paper. Good for them.

Subscriptions need to rise and people need to pay for information directly. Then the market will function and the most valuable information will succeed. And perhaps this could mean that all we’d have are tabloid rags, but I doubt it. I think people will seek out valuable information products the same way they seek out valuable products in all other categories. Journalists might argue as to what they think is valuable, and that's an argument worth having when it's focused on the consumer. The argument that journalism has a responsibility to do xyz has worn thin. It might be true, but what does it have to do with what consumers will purchase?

The problem is that the information in most newspapers is, by definition, not very valuable. My publication charges about $1,800 a year and a number of people pay it. I couldn’t begin to pinpoint exactly why they all do, but I have my suspicion that it’s because we cover hedge funds, already a very specific topic, in a highly granular way. Our expertise in this subject matter is also likely a function of our success, because it allows us to bypass general commentary and appeal to a specific audience in language they understand. I’m certain that our tone (arising from an understanding of jargon and subject matter) is appealing in a way that a similar story in a more mainstream publication would not be. Regardless of the specifics, our subscription revenue more than covers our cost of production. Our advertising revenue is gravy. This makes what we do a bit more like research or consulting, and perhaps that is where journalism has to move. It has to go where whatever product it tries to sell is something someone is willing to buy with hard cash, because the advertising subsidy is gone. In the long run, this promises to be a very good development.

I am dubious that the ad-driven internet can work as a model for the distribution of journalism. The kinds of articles that bring in massive numbers of eyeballs are never those that reach the Pulitzer committee, so ‘good journalism’ will have to make itself more saleable.

Perhaps, as in housing, we need a lot of the dead wood to go away before a price level can be reached. A large amount of the “news” on web sites is really the re-presentation of information that companies now blast out to everyone for free. It’s unclear what value Forbes.com provides by running a story like “U.S. Retail Sales Drop In April” when that article is everywhere and the data it is based upon are available on free public web sites. The argument that people need a filter is without teeth and, really, irrelevant. Who cares if they need it? The question is whether people will pay for it.

The question comes down to what people will pay for, and that is very hard to determine. Eyeballs don’t tell us. That’s just popularity. Ask a person who their best friends are and then ask the same person which of their acquaintances they’d be willing to lend money to and be certain that they’d get it back. Those would be very different lists, right? We don’t lend money to our fun-time pals, but to our stable, boring, married friends. It’s much the same problem with the information provided by publications, and one they seem wholly oblivious to. I love Michael Lewis’ writing and I will buy his books (Moneyball, Liars Poker, etc.). They entertain and inform me. I also liked what he wrote for Portfolio Magazine. I read his articles for free on their web site. If I hadn’t been able to do that, I would have bought the magazine. Bringing my eyeballs to their web site didn’t even come close to monetizing my interest in Michael Lewis’ writing. Why did Portfolio pay so much for those articles only to give them away for free? For eyeballs. Dumb move.

The greater fear is not that publications will give away its ware for free, as Portfolio did, but that they don’t even know what to put on the shelf! Look at how little many publications, judging from their online site, seem to value their readers: BusinessWeek values breaking news so much that they get theirs from the AP. Forbes is so big on breaking news that their website takes it from the AP, PRNewswire (!), BusinessWire (!!), Reuters and Thomson. The proprietary “breaking news” on their web site is all market stuff, such as quarterly earnings reports and stenography or data released by companies and governments. What’s really interesting is to see what Forbes.com thinks is great and what their readers think is great. The article lists below are a snapshot from today. There is no overlap!

Top News
• U.S. Retail Sales Drop In April
• MGM Mirage To Raise $2.5B In Capital
• Intel To Appeal $1.5B E.U. Fine
• Allianz Q1 Profit Falls 98%
• Verizon, Frontier Strike $8.6B Deal

Top Rated
• Migrating To Linux--Safely
• Stress-Test America
• Chanos: Prosecute Bank Execs
• U.S. Seeks To Join A Despots' Club
• Baseball's Best Boss
• Rating Your Doctor
• ABB: Power Guys
• The Stress Test Head Fake

Forbes.com readers seem to value opinions and advice far more than earnings releases and corporate “news.” Since these articles make money by attracting eyeballs, the opinion and advice are more valuable than the “news.” Now, more importantly, how much money would these popular articles be worth if they were monetized properly via direct sale? I think we’d have a third list or what people were willing to pay for, followed by what people liked to read, and finally what Forbes.com thinks is important.

Publications are all running online because it offers them a chance to market their wares, get some ad dollars and connect with an audience in, they think, a more direct way. It may take a few years, but ultimately publications will realize that these initiatives make no sense. These web sites, as structured, do not let anyone know what information is most valuable, only what is most popular. Again, popular = valuable only in the narrow sense that it can glean more ad dollars. Whoopie, but that won’t pay for a real staff, let alone the kind of profitability worth writing home about. Secondly, there is the high probability that whatever information might really be valuable (e.g. Michael Lewis’ pieces in Portfolio) is going to be given away with almost no compensation in return. Last is the absurd notion that a website functions are free advertising which will lead people to buy the product. This is possible, of course, but where’s the example of that being the case? Where’s the case study of a publication giving away only 5% of its content and watching its subscription revenue go up? I defy anyone to find it. I’d be extremely excited to see it. I bet what would work is posting really old issues as examples, the way that b-to-b publications do, the way my publication does, and saying: if you like what we’ve got here, please pay to get the product. But, of course, doing that requires having real faith in the value of the product. Giving away fresh information for a miniscule amount of ad revenue sends a strong signal to readers about how much you think the information is worth.

The message is this: journalism will fall much farther before a few publications come up from the dust with working revenue models. These revenue models will not be some amazing innovation the way journalist and web guru prognosticators keep stating. These models will be simple. We’ve seen them in other industries, such as b-to-b publishing. It’s called subscription revenue and it’s a real signifier of value. Now, not to be confused, distributing a product via the internet is a very good idea. Giving away a valuable product is never a good idea: you’ll never know what it’s worth and you’ll have trouble convincing anyone that it has value.