Thursday, December 13, 2012

Newspapers will put themselves out of business if they take advice from commentators who are telling them to become “more like” new media

Subheads in this post:

1. Each newspaper should charge its readers because prices are a critical economic signal that newspapers need to survive

2. Why new media companies have not reached the point when they can began charging for access to their products

3.New media companies have a business model designed to automate journalism jobs

I started this series of posts because newspapers are finally starting to charge online readers for access to news and advertising.

Each newspaper should charge its readers because prices are a critical economic signal that newspapers need to survive

The prices that readers pay tell each newspaper how much readers value that particular newspaper’s news and advertising.  There is no other way that newspapers can figure this out.

Each newspaper must know before it creates a news story if there will be enough revenue to cover the costs of producing that story. If the newspaper does not know how much revenue the story will generate, it also does not know if it can pay the journalist who creates the story.

So executives watch how prices change to figure out if they should hire journalists to produce news stories. If prices are going up, that’s a signal to produce more news stories and hire more journalists.  If prices are going down, that’s a signal to stop producing news stories and stop hiring journalists.

If the newspaper doesn’t charge readers anything at all, the executives don’t have any way to tell how many journalists they should hire to produce news stories. (It’s actually more complicated, but this is the basic idea).

Of course, we are far past the point of fine adjustments in the number of journalists a newspaper hires. Newspaper executives have been forced to lay off thousands of journalists and other employees because they are being devastated by competition from new media companies.

The fact that newspapers were not charging for online access probably made the problem worse.  Executives had no way to tell how many journalists they would need tomorrow to produce the news. All they knew was that prices for advertising – a distant second best for detecting the value of a news story – kept going down.

So charging readers is a critical tool for executives who are trying to make their business model work and keep their newspapers alive. Those executives need every tool they can find because the competition is so lopsided.

The newspaper executives are competing with new media executives. As I explained in my last post, the new media business model is completely different from the older media business model.
Why new media companies have not reached the point when they can began charging for access to their products

If new media companies charge for access they will hide the signals that they are looking for. The signals new media companies are finding are patterns in the jobs that journalists do each day.
New media companies give all journalists free access because they are trying to record everything that all journalists do all day long. Once the new media company has recorded enough actions by enough journalists, it uses computers to find patterns in the jobs journalists do. Patterns are required so the company can automate journalism jobs.
New media companies have a business model designed to automate journalism jobs
Once a job is automated, it becomes almost impossible for people to compete.  A high speed computer can almost always do the job faster, cheaper and better no matter how hard the person tries.

Here are some jobs done by people who work at newspapers that new media have already automated – advertising salesperson, advertising creator, advertising marketing researcher.

Many journalism jobs have also been automated. One example is the police reporter’s job. The job has 5 big steps:
1. go to police station. 2 find all police reports. 3. sort through all police reports to see where and when different kinds of crimes were committed. 4. go back to paper. 5. write story that tells readers about a handful of crimes that happened in a handful of neighborhoods.
Automation eliminates two steps – 1. go to police station, and 4. go back to paper. 
Automation is faster and better at the remaining steps. Automation can tell readers about every crime that happened in every neighborhood. All readers have to do is ask.  Then the computer goes to work:
3. sort through all police reports to find the crimes committed in the neighborhood the reader asked about. 5. write a story that tells the reader exactly what they want to know.
You can try it yourself. Here is just one example of a computer hard at work, doing its job as a police reporter.

Newspapers are competing for their economic life.  Commentators who tell newspapers that they should learn to be “more like” new media are talking through their hats.

If newspapers become more like new media that will ensure that new media win the competition.  That will also ensure there are even fewer jobs for the people that newspapers employ.

When two products are similar, consumers usually select the one that costs less. Consumers always select that one that costs less if it is actually a better product.  And the best way to make a better product that costs less is to use automation.

So if newspapers want to become more like new media they will also have to become experts at automation. Newspapers will have to learn to automate all of the jobs that they currently hire people to do.
At that point, the competition might look like something like this:

The best computer programmers in the world vs. journalists trying to learn how to program computers

Who do you think will win?

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