Information industry jobs changes are mixed as economy re-opens from Covid-19

Three of the six information industries gained jobs in June and job losses slowed in the other three industries, according to preliminary labor department statistics.

Total employment in all six Information industries is still about 11 percent less than it was in February before stay home orders began. The six industries, which employed about 2.9 million people in February, had lost about 315,000 jobs by June.

However, the June jobs report is the first indication that some Information industries may be joining the recovery from the pandemic that began last month for sectors like Construction and Retail.

This post describes changes in employment for all six Information industries from June 2019-June 2020. The post does not include employment in selected occupations, which can be found in last month's post on Information jobs.

The first chart shows aggregate employment in all six industries.

The chart (above) shows monthly changes in Information sector employment. Data from the U.S. Bureau of Labor Statistics is seasonally adjusted to remove predictable influences such as seasonal changes or holiday hiring. This provides a more accurate estimate of changes from factors like the pandemic.

May and June employment statistics are preliminary and subject to revision.

The six Information industries employed more than 2.8 million people from June 2019-Feb. 2020. The industries lost jobs in March, April, and May before a small recovery in June.

June 2020 Information employment was still an estimated 315,000 jobs lower than in Feb. 2020, a decline of 10.9 percent. The Information sector employed an estimated 2.57 million people in June. 

Information is part of the private, nonfarm business sector which employed 129.7 million people in February 2020. The sector lost an estimated 21 million jobs in April, then added jobs in May and June. However, in June the sector was still down 13.1 million jobs since February, a decline of  10.2 percent.

Subsequent charts report employment in each of the six Information industries.

The second chart (above) shows employment in Data Processing, which includes hosting and providing data processing services.

Data Processing had the largest employment increase from May to June, adding an estimated 5,600 jobs. Employment is now 345,500, which is still below the 349,600 jobs in February.

Total job losses since February are estimated to be 4,100, a decrease of 1.2 percent.

The third chart (above) shows Motion Picture and Sound Recording, which includes the production and distribution of motion pictures and sound recordings.

This industry had the second largest employment gain from May to June, adding an estimated 2,600 jobs. However, employment was still far below the February figure of 456,000. 

Motion pictures and sound lost an estimated 243,700 jobs by June, or about 53.4 percent.

This unusually large decline may result from requirements that many people work in the same place when making a movie or a recording. Covid-19 makes physical proximity dangerous.

The fourth chart (above) shows Other Information Services, which includes search engines, internet-only publishing and broadcasting, and web sites that store and provide information.

This industry had the third largest employment gain from May to June, adding about 2,200 jobs.

Other Information jobs increased from February to March, before declining in April and May. Employment is still below the peak in March.

However, June's estimated employment figure is 1,200 higher than than the 354,400 jobs in February, an increase of 0.34 percent.

The fifth chart (above) shows Publishing, which includes newspapers, magazines, books, directories and software publishing. 

Job losses slowed in in June when the industry lost an estimated 600 jobs, the largest monthly loss in the Information sector.

Publishing had 770,000 jobs in February and lost an an estimated 30,700 jobs by June, a decrease of 3.9 percent.

The sixth chart (above) shows Telecommunications, which includes distribution and services for telephones, cable and satellite broadcasting, and internet access.

Employment losses in Telecommunications also slowed, an estimated decrease of 300 jobs in June was the second largest monthly loss in Information. 

The industry employed about 700,000 people in February. Telecommunications employment was down 12,400 June, an estimated decrease of 1.8 percent.

The seventh chart (above) shows Broadcasting, an industry that creates, acquires and distributes content via radio, television, cable and other subscription services.

Broadcasting employment decreased by an estimated 200 jobs in June, the smallest monthly loss in the Information sector.

The industry employed 263,300 people in February. Broadcasting lost an estimated 25,000 jobs by June, a decrease of 9.5 percent.

Comments

The pandemic continues to have the smallest effect on employment in Other Information Services, which may have two advantages. First, many employees can work from home. Second, there was increased demand for internet services as millions of people were ordered to stay home as much as possible. 

The June increase in Data Processing jobs is consistent with continued or increased demand for technology-based products and services. Job losses in Telecommunications continued in June, perhaps because the widespread loss of income during the pandemic reduced demand for telephone and cable services.

Motion Picture and Sound Recording remains the hardest hit industry despite the gain of 2,600 jobs in June. This change is too small to say if the large-scale production of movies, television programs and recordings is starting to resume.

Publishing and broadcasting job losses slowed, but these industries did not recover in June.

How to evaluate Gannett's offer to buy Tribune Publishing

Gannett revealed today that it wants to buy the Tribune Publishing company for about $815 million. The offer is about 63% higher than the Tribune company's closing stock price last Friday, April 22.

Stock prices for Gannett (blue) and Tribune Publishing (orange) suggest advantage Gannett now
that its offer to buy the Tribune company is public. Prices April 2015-April 2016, from MSN Money.

Gannett says it's a cash deal, implying Gannett won't take on debt. That reduces Gannett's risk if the merger doesn’t generate substantial profits. Gannett and Tribune Publishing are old-line newspaper companies that have been transformed by digital competition. Gannett is probably well aware that other once-profitable newspaper companies failed after taking on enormous debt to finance mergers in the early years of this century.

Gannett, and some analysts, claim the merger will generate millions of dollars in “synergies,” which means reduced production costs. That is easy to say, but hard to do.

Focus instead on the value of the Tribune company assets. Are those assets undervalued at the Tribune’s current stock price? Is Gannett’s offer price still below the book value of the assets?

If undervalued assets are a factor that may explain why, according to Gannett, the Tribune has been reluctant to negotiate a sale. Changes in the Tribune's ownership and board of directors may be influencing the company's response to Gannett's offer. But we should also ask if Tribune executives have evidence that Gannett’s 63% premium is still less than the underlying value of their company.

Sixty-three percent surely sounds good to Tribune stockholders, which is why Gannett went public. But Gannett’s offer might not be the best available deal.

Focus also on the local markets where a merger might consolidate the ownership of local media that currently compete with each other. Consolidation would reduce the elasticity of audience demand. If local audiences have multiple media choices that are all owned by Gannett, that will make it easier for Gannett to sell advertising in those markets.

In a classic economic model, consolidation creates the possibility of increased power to raise prices for the owner that dominates the market. But Google, Facebook and other new media also sell local ads in local markets. One possibility is that Gannett only hopes to gain enough pricing power to become profitable in these markets.

In any case, a post-merger Gannett will have to manage audience demand. Audiences increasingly consume news only on social media sites like Facebook.  The fraction of the audience that leaves social media to visit news company sites doesn’t stay long or visit often.

It’s true, and often overlooked, that about half of newspaper readers still only read the print edition. But the trends are clear, more and more people are consuming news online or on social media.

Gannett will face the tricky problem of (a) trying to stop the migration of audiences away from its traditional or digital media platforms while (b) trying to persuade social media audiences to engage with those platforms.

So, the financials of the proposed deal may favor Gannett. But managing the merger to produce anticipated cost reductions, pricing power, or profits is likely to be challenging.

(A version of this post first appeared on my Twitter account @HughJMartinPhd)

Newspaper industry revenue declines have slowed, but revenue hasn’t stabilized



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Some analysts argue declines in newspaper industry revenue are finally stabilizing. The Newspaper Association of American has released the 2013 revenue figures. I’ve prepared two pictures to see if it revenues have stabilized.

As readers of this blog know, the business model for Internet-based news organizations is unlikely to replace the thousands of journalism jobs that are vanishing at traditional media organizations. Newspapers have always been the major source of jobs for journalists who produce local news across the U.S.. Stabilizing newspaper revenue is critical for preserving some of the jobs that are left.

The chart above shows inflation-adjusted advertising and circulation revenues since 1991. Print advertising revenues peaked in 2000 at about $38 billion, followed by a brief decline.

In 2003 the industry added digital advertising revenue generated by newspaper websites to its advertising figures. Revenue increased slightly that year, and stabilized until 2006.

In 2007 the last recession began, and advertising revenue began a steep decline that devastated the newspaper industry. The recession exacerbated an underlying trend caused by the shift of advertising to websites and search engines. In 2010 the decline slowed, but digital advertising only accounted for 13% of the industry’s total ad revenue that year.

The steep decline in print ad revenue and the small gains from digital ad revenue forced the industry to reconsider its revenue strategies. In 2011, the industry added to its advertising base revenue from niche publications, direct marketing, and non-daily publications. Total ad revenue increased slightly that year, but declined again in 2012 and 2013.
 

The industry generated about $13.7 billion in inflation-adjusted ad revenue last year, or less than half of its peak revenue in 2000.

 

The chart above shows inflation-adjusted circulation revenue has been less volatile. In 1991 newspapers generated $8.6 billion from print subscriptions and single-copy sales. In 2013 newspapers generated an inflation-adjusted $6.3 billion from print and digital subscriptions and single-copy sales.

I’ve written before about the importance of charging subscriptions for access to newspaper websites and mobile applications. Digital subscriptions can slow the loss of print subscribers who will otherwise switch to free access on the Internet. Preserving print circulation is critical because print advertising still accounts for the largest portion of industry revenue.

Some newspapers now offer discounts to encourage subscribers to select bundled digital and print subscriptions. These bundled subscriptions are designed to slow or stabilize declines in print circulation.

Digital subscriptions can also generate new revenue to offset some of the losses from print advertising revenue. And the first chart does show that subscription revenue has stabilized, which may be partly due to double-digit growth in digital subscriptions.1

The first chart also provides perspective on the second chart, which shows the ratio of circulation revenue to advertising revenue since 1991.

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This ratio declined throughout the 1990s when newspaper advertising revenue enjoyed its last period of sustained growth. In 2007, the ratio began a pronounced increase that continued until 2013. If the trend continues, newspapers will generate $1 from circulation for every $2 from advertising in the next year or two.

A naïve reading of this chart would suggest that circulation is on track to replace the advertising revenue that newspapers are losing. But the first chart shows the increase in the circulation/advertising ratio is mostly the result of steep declines in ad revenue. This increases the industry's reliance on circulation, but circulation revenue is not yet increasing enough to replace the ad revenue that is being lost.

So I’m not ready to agree that newspapers revenues have stabilized.

Advertising is still the industry’s primary source of revenue. Ad revenue declines have slowed, but they have not ended. Circulation revenue appears stable, but it still cannot replace the ad revenues that continue to disappear.

Even if inflation-adjusted revenue was steady from year to year, the industry would still be falling behind. An industry has to grow faster than inflation to be considered truly healthy.

I do expect that if enough newspapers adopt economically sensible digital subscriptions, those subscriptions will help stabilize industry revenues. But it’s going to take a couple more years of data before we can tell if that is happening.
1 The amount of revenue from digital subscriptions has not been released. The report only includes percentage changes in revenue. Without the base numbers, it's impossible to know how much real growth has occurred.

Pulitzer Prizes an occasion to consider relationship of newspaper quality to economic success

The Pulitzer Prizes announced today offer a chance to consider three studies of the links between journalistic quality and economic success. The Pulitzers, newspaper journalism’s most prestigious awards for excellence, go to a small number of newspapers and websites each year.

 

Brian Logan and Daniel Sutter found newspapers that had won Pulitzer Prizes also had “significantly higher circulation [than newspapers without Pulitzers], even when controlling for the economic and demographic characteristics and media competition of the metropolitan area” where the newspaper circulated.

 

Publishers will only spend money to produce prize-winning journalism if the journalism pays for itself by increasing circulation and generating extra revenue. Increases in circulation at Pulitzer winning papers were probably large enough to generate that extra revenue, the study concluded.
 

Logan and Sutter argued that Pulitzer Prizes are an important “signal of quality” for consumers. News is what economists call a credence good. Consumers cannot evaluate the true quality of a credence good even after they have consumed the good. For example, consumers have no way to tell if the information in a news article is accurate. This forces consumers to evaluate quality based on a newspaper’s reputation, including the prizes it has won.

This was a careful study, but it used circulation data from 1997. We need newer studies that account for the shift of audiences to the Internet before we can be sure the Pulitzers are still associated with significantly larger audiences. The second and third studies are from a line of research that examines the overall quality of news instead of focusing on Pulitzer Prizes.
 

These studies  use the financial commitment model. This model states newspapers facing competition will increase their newsroom spending, or financial commitment to news. Increased spending results in a larger newspaper staff and/or an increase in the variety and depth of news that is published. As the quality of news increases, consumers receive more utility from reading the newspaper. This in turn leads to increases in the newspaper’s circulation and/or advertising revenues.

 

In the second study Stephen Lacy and I reviewed decades of research that supports the financial commitment model. We focused on newspaper reactions to declines in circulation as readers and advertisers shifted to news published on the Internet.

 

Papers might use any of three strategies to maintain profits when circulation declines. First, newspapers might try to offset circulation declines by increasing advertising prices. Second, newspapers might leave ad prices unchanged, which amounts to an increase since advertisers are paying to reach fewer readers. Third, newspapers might cut their newsroom costs and reduce the quality of their news.

We concluded newspapers that raised ad prices or reduced quality would probably accelerate the loss of circulation. However, newspapers that published quality content might stabilize or slow declines in circulation.

The third study had unusual access to 12 years of  internal revenue and circulation data from an individual newspaper. The study looked at newsroom spending, subscription revenue, and advertising revenue from the print and online editions of the newspaper.

 

The study used subscription revenue instead of circulation because advertisers value subscribers more than they value readers who don’t pay for the paper. Subscribers are more likely to read the paper carefully and register advertising messages, argued authors Yihui Tang, Shrihari Sridhar, Esther Thorson and Murali K. Mantrala.

 

Results showed increased newsroom spending resulted in increased subscriptions to the newspaper.  The subscription increases then resulted in increased print and online advertising revenues. A simulation showed opposite effects – reductions in newsroom spending could lead to reductions in subscriptions, resulting in reductions in both online and print advertising revenues.

 

These last two studies accounted for the Internet. However, the three studies are just a beginning.

 

Many newspapers still rely on print editions to generate the bulk of their advertising and subscription revenues. Online revenue is a distant second when it comes to generating profits. More empirical research is needed to produce additional recommendations that can help newspaper managers who are trying to survive in this difficult environment.

Shifting production to the Internet creates new problems that newspapers must solve

As newspapers shift from print to the Internet, they are hoping to significantly reduce production costs. These companies are trying to offset declines in advertising revenue by reducing the amount they spend on printing presses, newsprint and delivery trucks.

But the benefits of this change are not guaranteed. Reducing offline production costs is a complex problem to solve.

Most of the industry’s advertising revenue – about $21.8 billion in 2012 – still comes from print publications. So newspapers must maintain that revenue source at the same time they are moving to the Internet.

Production costs might be lower on the Internet, but they are not zero. Newspapers must pay for websites and mobile applications. But Internet advertising and other digital sources accounted for just 11 percent of the industry’s total revenue in 2012.[1] Newspapers also face significant competition from digital firms for online revenue.

To make the transition succeed, newspaper companies must keep digital production costs low enough to be competitive and attract enough online revenue to cover those costs. Meanwhile, the companies must continue to produce the print products that generate the bulk of their revenue for as long as those products remain profitable.

And economic survival isn’t likely to get easier for newspaper companies that do leave print behind. Those firms will have to manage new kinds of competition.

There was an important reminder this week of just how difficult the transition can be. Digital First Media, which owns 75 newspapers, has a strategy of moving quickly away from print to digital distribution on the Internet.

One high-profile piece of the Digital First strategy has now failed. The company is closing a centralized newsroom that used digital production to provide national stories for its newspapers across the U.S.  Rick Edmonds notes the failure is a valuable reminder that even digital news production is expensive:

It is myth, embraced by digital future-of-news enthusiasts, that Web publishing is close to free. [Digital First CEO John] Paton seemed of that view early in his tenure when he asked newsrooms to use mainly free tools to put out their reports for a week. 

But in his most recent manifesto/speech to the Online Publishers Association in January, he said he was looking for another $100 million to invest in the company’s digital activities on top of an earlier $100 million. 

Digital First is a private company, so it's hard to tell what the implications are for other newspaper companies. There is reason to be cautious because Digital First has complex finances – it was created by merging two other companies that had both been gone through bankruptcy. A hedge fund is a major investor, and that fund may be looking for a quick return on its investment.

Other companies with stronger finances or different investors might have more flexibility in managing the transition from print to digital. But it won’t be easy for any company to do.

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[1] An estimated $4.2 billion of $38.6 billion in total industry revenue according to the Newspaper Association of America.

Thoughts on the proposed sale of Newsweek and what it means

The Washington Post Co., a bastion of journalistic excellence, wants to sell Newsweek because the magazine keeps losing money.

This development illustrates why some proposals for preserving first-class newspapers and magazines are unlikely to succeed.

The company has owned Newsweek since 1961. The company's record of journalistic excellence rests on reporting in both the Washington Post newspaper and in Newsweek.  Despite this fact, the Post Co. has for years not relied on either publication to ensure its economic survival.

The majority of revenue at the Post Co. comes from the educational testing giant Kaplan. The long-term decline in print advertising revenues has forced the company to use Kaplan's earnings to offset losses from the continued operation of Newsweek and the Post newspaper. This could not be sustained, so the Post is now forced to try and sell Newsweek.

What does this mean for other journalistic organizations?

First, Newsweek has tried to adapt to the digital world where a week's delay publishing news or commentary is far too long to satisfy audiences. This report says Newsweek's "digital side" generated just $8 million last year, too little to pay for the magazine's production.

The cost of producing print newspapers and magazines is relatively high.  But advertising revenue per reader in print is also relatively high.  The cost of producing digital news is much lower, but ad revenue per reader is much, much smaller than print revenue. Print journalism organizations face the problem of transitioning from high-cost high-revenue markets where audiences are still sizable, but stagnant, to low-revenue markets where audiences are growing.

Newsweek probably had unusual support for making this transition because the Post Co. is controlled by the Graham family, which has a commitment to journalism.  The family was probably more willing than other Post Co. stockholders to subsidize losses at Newsweek while trying to make the transition work.

But in the end, no company can afford to keep losing money in one division and subsidize the losses with profits from another division. At some point, the company's ability sustain itself will be questioned.

So the second lesson is that suggestions for subsidizing journalism -- with profit-making parts of a company, with donors or endowments, or with government funds -- ignore a fundamental economic reality. Journalism that cannot sustain itself economically will always be at risk of economic failure.

Google gives newspapers some friendly advice - Why they should listen

A lot of newspaper publishers and editors are understandably angry that Google is siphoning their revenue and readers.  But they should set that emotion aside for now, and listen to what the company's chief economist is saying about their industry.


Hal Varian was already a distinguished research economist when he turned his attention to information economics.  His knowledge and authority were well-established when he joined Google, so his words reflect more than the company's self interest.

Varian's description of the problems facing newspapers in this post on Google's policy blog won't surprise  anyone who follows the business side of the industry.  What deserves consideration are his suggestions about which parts of the problem matter most.

Why newspapers are losing the race for online advertising

Varin points out that print editions of newspapers are still attractive to advertisers because people actually read them.  Online readers average less than two minutes on a day looking at newspaper web sites, which sounds to me as if they mostly skim headlines.

As a result, newspapers aren't attracting much of the rapidly expanding pool of online advertising revenue.  Varian says search engines are not the real culprit.  Search engines actually account for almost half of the revenue newspapers have managed to attract.

The real problem is readers don't find newspaper web sites engaging.  Meanwhile, lucrative advertising in categories like automobiles and real estate has migrated to independent web sites that provide information about, well, automobiles and real estate.

Varian doesn't say this, but he is clearly responding to proposals some publishers have made to block search engines like Google from indexing their stories.

Those publishers should listen.

Cutting costs vs. charging for access

Varian also reminds us of a basic economic fact, one that I've also tried to stress.  Most news is a commodity.  Readers can find the same basic headline and story on lots of different websites.  When competition is intense, prices are always low.

If newspapers want to differentiate themselves enough to persuade readers to pay for access, they must find and pay for better ways to provide unique news that readers will pay for.

Varian points out that newspapers could instead cut the costs of producing the news.  He estimates printing and distribution accounts for half the cost of producing a physical newspaper.  Covering the news accounts for just 15 percent of the cost.

Varian suggests newspapers try to cut costs by producing news only on the internet.

I think this makes sense, but only as a long-term response. Companies that produce physical newspapers cannot just abandon their financial obligations, such as loans to finance a building or a printing press.

Varian's real message is that it's late in the game for print newspapers that want to compete on the internet. Perhaps they should consider focusing on the issues he highlights if they want to start catching up.

What were the Miami Herald's editors thinking?

A badly-conceived "experiment" recently ended when the Miami Herald stopped asking its online readers for voluntary donations to help pay for news coverage.

This had the feel of a gimmick when it began two months ago. As I recently noted, the print editions of most newspapers don't generate enough reader revenue to survive.  They rely on advertising.

So it's hard to take seriously any talk about generating reader revenue to support general news coverage on the web.  Alternate sources of free news are plentiful and likely to remain so.

However, Herald executives may not be entirely daft.  They are continuing efforts to expand online coverage of local communities with news reported by "partners" who live or operate in those communities.

The partners apparently include a paella of local web sites, weeklies, and small dailies. The Herald is trying to attract readers without having to pay journalists and others to produce the local coverage.  This might help the Herald sell more local advertising.

What do the partners get? Access to a larger audience and a share of any advertising revenue generated by the experiment.  Now that is an idea that makes sense.

New York Times threat to close Boston Globe prompts some weird criticism

Six years ago the New York Times Co. paid more than $1 billion for the Boston Globe, bringing two of the most respected newspapers in the United States under common ownership. But this marquee purchase is ending badly as the Times Co. threatens to close the Globe if its unions fail to make major cost concessions.

This threat has stirred understandable shock, given the Globe's reputation as a newspaper dedicated to journalism that represents the profession's highest ideals. The first order of business for those not directly involved might be considering the best way to fend off the threat, even though some believe it's just a hard-nosed negotiating ploy.

So, it's strange to see the folks at the Huffington Post -- who routinely attract audiences by featuring stories from newspaper web sites -- coming to the conclusion that this is the wrong moment for the Globe to launch a marketing campaign.

This story by the Globe's staff touches on the underlying problem, the risk that more and more people in Boston will decide the paper is not necessary to their lives. This marketing campaign that the Globe launched today shows executives are trying to address that problem.

Of course, marketing alone will not save the Globe. The underlying problem is a large debt and a steep decline in advertising revenue that makes it impossible for the Times Co. to continue paying off the debt.

But it's far from clear that advertising revenue will come back to the Globe when the recession finally ends.

Ad revenue follows readers, not sentiment, and readers in markets like Boston are shifting to new, more convenient media to access the news. Even if readers turn to the Globe's website for news, ad revenues will be much smaller because competition is more intense on the Internet.

Whatever the marketing campaign costs, it probably won't decide the Globe's immediate fate one way or the other. But the last thing the Globe can afford right now is to reduce efforts to attract readers and advertisers.

Some newspapers are failing, but is that a reason to panic?

News that the 150 year old Rocky Mountain News will publish its last edition today is just the latest grim tale about prominent United States newspapers desperately seeking buyers, filing for bankruptcy, or struggling with quarter after quarter of declining revenue.

All of this so unnerved the American Society of Newspaper Editors that it canceled its annual convention saying '"the challenges editors face at their newspapers demand their full attention.”'

The newspaper industry's problems are real, but the causes vary from newspaper to newspaper and so do the implications for the industry's survival.

The closing of the News is likely to be followed by the closing of the Seattle Post-Intelligencer, leaving each of those cities, like most cities in the United States, with a single newspaper. This is sad, but not surprising to economists who have long understood that exempting from anti-trust laws newspapers in Denver, Seattle, and a handful of other cites only delays the inevitable.

The exemptions, called Joint Operating Agreements, are granted by the U.S. justice department if competing newspapers in the same market can prove that one would fail without the agreement. These agreements allow the newspapers to save money by combining sales, production and other business operations, but they must continue operating separate newsrooms.

Newspapers argue that JOAs benefit to their readers by preserving two editorial voices with diverse views and information about the issues of the day. But Robert Picard at The Media Business points out that newspaper companies had other reasons to seek these arrangements:

Joint operating agreements have been seen by many in the industry as a way of keeping two newspapers operating within the same city, but JOAs have been a continual failure since they were authorized in 1970. The biggest problem is that JOAs ignore the basic economics of newspaper publishing and merely provide benefits from a newspaper antitrust exemption that allows collusion on advertising and circulation prices, market division, and other acts prohibited by federal law. Those benefits were never enough to “save” papers in the long run, but allowed publishers to gain a limited period of time to try to squeeze more money out of the operations.

The failure of the News was probably inevitable, and I expect the Post-Intelligencer will soon suffer a similar fate.

The News' demise was certainly hastened by the loss of audience and ad revenue to new forms of media exacerbated by the general economic collapse. But even though the loss is sad, it doesn't have much to teach editors at other newspapers who are staying home this year as they try to sort their way through all of this.

Misunderstanding the market for online news

The number of monthly visitors to major newspaper web sites increased significantly during the recent election, and then appeared to decline according to this chart compiled by the Nieman Foundation, which promotes journalistic excellence.

But by concentrating on newspapers, the chart paints a misleading picture of digital competition to attract audiences interested in news.

The New York Times has the largest number of visitors in the Nieman chart, but its website ranked 5th among Internet news sites in October 2008 behind MSNBC, CNN, Yahoo News and AOL. The Times had about 20.3 million unique visitors that month, barely trailing AOL but far behind the other three sites. Yahoo News was in third place with 37.3 million unique visitors, so the Times would have needed 85 percent more visitors just to catch up.

I don't have access to data for the entire period listed in the Nieman chart, but the October 2008 figures are probably representative of the real online market for news. Large newspaper web sites compete with broadcasters such as Fox, ABC, NPR and the BBC, and with Internet only sites such as Topix, Google and Yahoo news, or the Huffington Post.

There is some evidence of how this really works in the chart, but it's not explained. In July 2007 The Times, NBC, and MSNBC announced a deal to share political coverage on the web. One goal was to increase each company's audience for news.

Apparently, it worked. The Nieman chart shows a sharp increase in visitors to the Times site over the next three months. The increase resulted in a substantial lead over its nearest newspaper rivals that persisted through December of 2008.

Meanwhile, the October 2008 data shows election coverage by two of the Times' longtime print rivals -- The Washington Post and USA Today -- produced substantial increases in visitors to their web sites. But neither came close to matching The Times and its partners on the web.

The chart posted by Nieman reflects a wider mindset in the newspaper part of the journalism industry that just won't go away. The mindset is mistaken -- this is a different market, with different rules and different competitors, and it should always be talked about that way.

Remembering Barry Litman, who died Dec. 26

Prof. Barry Litman used to sit quietly in meetings of my dissertation committee, holding a document I had labored over for days, waiting for his turn. He always began with a few introductory questions to be sure I understood what was coming next -- a single, penetrating query that would send me back to the library to spend hours digging through books and journal articles in search of an answer.

The result was always the same. I learned something, usually more than just one thing, that was important and useful. Barry Litman made my work better. It wasn't just me. He made everyone's understanding of media economics better.

So it came as a shock to hear that Barry, 59, died Dec. 26 after battling cancer.

Barry was one of the first classically trained economists devoted to understanding producers of and audiences for newspapers, television broadcasts, and film. You cannot call yourself a student of media economics if you don't know his work.

Barry and a doctoral student completed the first study linking the quality of news to the financial performance of newspapers.¹ He later helped update the fundamental model of newspaper competition developed in the 1970s to reflect three decades of changing technology and markets.² He then took an overused, ill-defined buzzword -- convergence -- and gave it meaning by showing how people select news from different media based on differences in characteristics like speed of delivery, convenience, and quality.³

Barry developed a model predicting what will happen if people can't get reliable information from the media about urgent topics like birth control, showing they will instead assemble an understanding from whatever sources they can find.⁴

He identified a major flaw in the long line of studies examining diversity or its absence in media content, refuting the underlying assumption that there is an unlimited demand for diversity.⁵ Barry offered a more realistic model showing that the desire for diversity is balanced against the desire for other characteristics of content, always within the limits of available time for reading, watching and listening.

Barry helped examine the creation of the Fox network, showing how a confluence of regulatory and economic factors made possible the enormous gamble for News Corp.⁶ The study is a valuable reminder that what now looks like a taken-for-granted success was anything but that at the time. In another study, Barry and his co-authors showed why networks prefer programs that are predictable, making truly innovative television the exception, a finding that holds up well in the cable universe.⁷

Barry was a professor at Michigan State University for more than 30 years, one of a handful of faculty who made the College of Communication Arts & Sciences the center of gravity for understanding media economics.

This spring, as always, I will teach a graduate course where Barry's work appears multiple times. I like to quote Barry because it always makes me sound smart. This semester won't be nearly so much fun. Mostly, I'm going to think about what we've all lost.

Barry's obituary is available here, and an announcement from the college can be read here. A Facebook page to post memories of Barry can be found here.


¹Litman, B. R., & Bridges, J. (1986). An economic analysis of American newspapers. Newspaper Research Journal, 7(3 spring), 9-26.

² Bridges, J. A., Litman, B. R., & Bridges, L. W. (2002). Rosse's model revisited: Moving to concentric circles to explain newspaper competition. Journal of Media Economics, 15(1), 3-19.

³ Litman, B.R. (2006). The convergent society and the media industries. In Bridges, J. Litman B. R., &Bridges, L.W. (Eds.), Newspaper competition in the millennium (pp.23-32). New York, Nova Science Publishers.

⁴ Litman, B. & Bain, E. (1987). Information search and banned product advertising: An indifference curve approach. Current Issues and Research in Advertising, 39-59.

⁵ Litman, B. R. (February 1992). Economic aspects of program quality: The case for diversity. Studies of Broadcasting, 121-56.

⁶ Thomas, L., & Litman, B. R. (Spring 1991). Fox Broadcasting Company, why now? An economic study of the rise of the fourth broadcast "network." Journal of Broadcasting and Electronic Media, 35(2), 139-158.

⁷ Litman, B. R., Shirkhande, S., & Ahn, H. (2000). A portfolio theory approach to network program selection. The Journal of Media Economics, 13(2), 57-79.

Building A Newspaper’s Online Audience

By Stephen Lacy
Professor, Department of Communication and School of Journalism
Michigan State University

Newspapers are struggling with how to attract online visitors. This reflects the need to replace readers who are leaving the print newspaper, but more importantly, increasing online visitors will be essential for attracting advertisers to newspaper Web sites. Traditionally, advertisers follow audience and not the other way around.

As a result, how newspapers can gain online visitors remains the primary issue deciding the future of newspapers. A one-size-fits-all solution is unlikely to emerge. The key to attracting visitors will vary from market to market and from demographic group to demographic group.

However, general observations serve as a guide for managerial decisions. This commentary offers some of those general observations about how news organizations can make the transition from the current upheaval to a more stable time.

Reasons to experiment

* The high profit margins that news organizations have enjoyed during the last 40 to 50 years cannot be maintained when advertisers can go straight to consumers rather than using media, and when competition for people’s time has become so intense. Companies will have to adjust profit goals or they will cease to exist. In times of industry restructuring, potential profit margins shrink and surviving restructuring requires higher levels of investment.

* Although businesses can bypass news media to reach customers, the Internet is a medium where people must purposefully seek information, and even then, it is not always easy to search efficiently and effectively. Therefore, businesses still need to create awareness of their presence in a market and develop a brand in people’s minds. News organizations need to generate large local audiences and effectively segment them to generate advertising support. Advertisers will still need to reach buyers through media, but the need will not be as great before the Web developed.

* News organizations will need to create multiple forms of financial support. This can range from e-commercial to selling specialized information to small audience segments. The exact form of new revenue sources will vary from market to market and will need to be determined through experimentation.

* The digital media distributed through the Internet does four things well: 1. It provides depth of news and information at low cost. 2. It delivers news and information quickly. 3. It is multimedia. 4. It is interactive. Newspapers will need to use all of these Internet strengths when generating content on their sites.

* The ways news organization can best use the Web’s strengths for delivering journalism and attracting audiences remain unclear. The immediate future will require news organizations to experiment with a variety of content to discover how to best serve their audiences.

* This experimentation must be combined with formal and informal evaluation of reader feedback. Newspaper companies need to conduct periodic market research about the news and information their audiences need and want, the best ways to present that news and information, and types of interactivity their audience members want and need. But the companies also need a continuing, formal system for acquiring feedback from a wide range of audience members.

One newspaper's response

Uncertainty is the biggest problem underlying this transition from print domination to more online distribution. The appropriate response to uncertainty is experimentation with a variety of content based on research. But what does it mean to experiment with content on news Web sites?

There are more than a few sites that are trying to figure out what will and will not work, but one that is seriously experimenting with content is the Web site of the Las Vegas Sun.

The Greenspun family, which has owned the Sun since its inception in 1950, has committed itself to extensive investment in its Web site. Under the leadership of Rob Curley and Josh Williams, with whom I discussed the Sun’s online future in May, the Sun’s revitalized Web site is founded on a tradition of strong local news coverage with a commitment to developing new ways for expressing that coverage.

Experimenting with multimedia

If you visit the Lasvegassun.com, you will find news stories, blogs, photographs, and video about events and issues that concern the city of Las Vegas and surrounding areas, just as you will you will on any modern newspaper web site. The more experimental work can be found on the multimedia page.

The Sun Web team is emphasizing news video that provides background about important issues, multimedia presentations that deal with history and the nature of the community, and databases that allow visitors to customize the information they want.

Examples of the Sun’s video include interviews with families of some of the nine workers who died on Strip construction sites during a 16-month period. The video, titled “Cost of Expansion,” fits well with the Sun’s traditional investigative story about these deaths.

The Sun also includes an interview with two Iraq War veterans who have very different opinions about the war. The sharp contrast between their views seems to summarize the national debate that has occupied us for the last few years.

The Sun also emphasizes “evergreen” content about the city. This includes a video history of Las Vegas and interactive maps of downtown Las Vegas, the Strip, and the Valley. The maps allow you to see what the city was like at various times, along with important events and entertainers from that time. The map includes icons representing important buildings. If you click on an icon, a popup will reveal information about the location, size, and history of the building. In some cases, you can see video of the building’s implosion.

The interactive maps are really databases presented in a graphic form, and the Sun offers others. The site has a Flight Delay Generator , which allows a visitor to enter a flight number and find out how late it will be. An interactive map allows you to go to various airports around the nation and find out the percentage of flights from that airport that arrive late at Las Vegas McCarran Airport. The site has a variety of other data about air travel to Las Vegas.

Another interactive map was developed to go with a story about prescription drug abuse, and it allows a visitor to examine state by state use of six prescription drugs over a decade. These interactive maps are experiments in the user friendly, interactive presentation of databases.

Curley, president and executive editor of Greenspun Interactive, recently wrote about plans and some of the developments at the Sun in his blog.

Take risks, don't be defensive

This is not to say that the Lasvegassun.com has found the solutions to the problems confronting news organizations, nor that the content it produces is perfect. As with all news, errors are inevitable. The point is that the Sun is currently doing what all news organizations need to do--experimenting with ways to build its audience. Many news organizations have taken defensive approaches to the Web, but the Sun management seems to think that the best defense is a good offense.

Out of fairness, it should be mentioned that Lasvegassun.com has some advantages not enjoyed by all news organizations. In addition to the Web site, Greenspun Media includes the Las Vegas Sun, seven weekly newspapers in the Hometown Community News group, several local magazines, such as Las Vegas Magazine and In Business Las Vegas, and a low-power TV station. These media provide a wide range of community content that can be leveraged online.

Of course, having access to content does not guarantee its effective use. The long-term goal of the Lasvegassun.com management team is to take advantage of these content sources to create a Web site that will dominate the local Web market.

In addition to the commitment to experimentation, the Lasvegassun.com approach incorporates all of the Web’s strengths into the site—depth, speed, multimedia and interactivity. Many newspapers have not yet committed to exploiting all of these strengths.

Although the nature of newspaper Web sites will vary from market to market in meeting community needs, this does not mean each newspaper site will be unique. Few ideas are totally new. Newspapers’ experimentations should “borrow” ideas, content forms and presentation from any place they can find them. Lasvegassun.com is one. It would help newspapers to share as many experiments as possible.

Philly paper clarifies its plans for print vs. online

Executives at the Philadelphia Inquirer have issued a second memo clarifying plans to restrict online publication of some expensive or exclusive stories, apparently in response to a barrage of often ill-informed criticism.

Yesterday, I argued the paper's plan to delay online publication of some stories makes economic sense because revenue per reader is still very small online. The paper did not say it would never publish the stories on its website, just wait until the stories had a chance to circulate in print.

The new memo says these stories will instead "appear online concurrent with print publication." The memo also clarifies the kinds of stories that will be published immediately on the web, such as breaking news or time-sensitive stories that help readers plan for a night out.

The original plan made sense because it tried to separate readers into groups based on the amount of revenue the paper earns. Print readers are far more valuable than readers on the web. Publishing a story in print first might therefore limit the number of readers who abandon print to read the story on the web.

The new plan to publish stories "concurrently' may have a similar effect if some stories don't appear on the web until the paper's print deadlines. Print deadlines are often very late at night, when many readers are either watching television or getting ready for bed.

Meanwhile, columnist Will Bunch at the rival Philadelphia Daily News has a good suggestion for using web videos to promote stories the Inquirer wants to delay publishing online, building anticipation to increase readership once the article finally appears.

Bunch, unlike many others who responded to the original memo without much thought, gets this one. It's all about the revenue, ...

Information may be free, but that doesn't make it cheap

Monday's New York Times took an unjustified swipe at a sister paper for plans to delay web publication of expensive to report or popular to read stories until after those stories appear in print.

Times media columnist David Carr sought out an entirely predictable quote from a former newspaperman turned "Web evangelist" denouncing the Philadelphia Inquirer for delaying online publication.

But the Philadelphia Inquirer's new policy to publish "signature investigative reporting, enterprise, trend stories, news features, and reviews" in print first, and then online, makes good economic sense.

Many newspapers still make startlingly small amounts of revenue on the web. I suspect that is the case at the Inquirer, so delaying publication of their best material is a smart move entirely consistent with the economics of new media.

It's the revenue, ...

A bit of arithmetic using statistics from an industry survey shows some newspaper web sites were earning only $0.33 to $0.83 per visitor for the entire year in 2006.¹

I presented these calculations last week at a conference, and the next day heard an executive at a major metropolitan newspaper cite figures for their current web operations. The paper earns less than $4.00 per visitor each year. Revenue per reader in print is probably much higher at all of these papers.

Publishing a story online probably increases the number of readers compared to a story published only in print. But some print readers will also move online to read the story, reducing the revenues earned in print.²

This means any online gains in readers and revenue have to be large enough to offset losses of print readers and revenue. And the very small online revenue numbers suggest this is unlikely to happen if the story is published both places at the same time.

So the Inquirer is probably doing the right thing economically. Withholding publication of expensive to produce investigative and enterprise stories will limit the immediate loss of print readership. Meanwhile, the paper plans to keep publishing breaking news on its website, which is probably what most online readers are looking for in the first place.

Several newspaper and television employees responsible for publishing online and in mobile media spoke at the conference, and all complained about having small staffs. The majority of journalists at these organizations still work in the print or broadcast part of the operation.

But this is also sensible so long as revenue per reader or viewer is much higher for distribution in print or over the airwaves. Keeping web operations small when online revenues are also small shows these companies are economically rational.

That may not satisfy the naive view that Carr promotes in his column, but it should make everyone at the Inquirer and elsewhere feel a little better about what their bosses are trying to do.

1 Newspaper Association of America: Newspapers Online Operations – Performance Report 2006.

2 Wildman, S.S. (in press). "Interactive channels and the challenge of content budgeting." The International Journal on Media Management.

Mortgage crisis threatens media companies too

The $20 billion deal to sell Clear Channel Communications, which owns hundreds of radio stations across the country, is fading, another potential victim of the mortgage crisis.

The Clear Channel sale was announced months ago, but six banks that agreed to finance the deal are getting cold feet. The banks contend the original terms of the deal would place them in the ranks of lenders who've been bitten in all kinds of unexpected ways by cascading effects from the collapse of the market for subprime mortgages. Bain Capital and THL Partners, the private equity firms buying Clear Channel, are suing to get the financing restored, according to The New York Times.

Newspaper companies are vulnerable

This development also reinforces questions about the sale of several large newspaper companies that left the buyers with large amounts of debt. Ordinarily, these companies might not be affected by the shaky credit markets because their loans would have been for very long periods, with the actual newspapers providing collateral. Advertising revenues shrink whenever the economy turns down, but historically that was a short-term problem for newspapers. Many companies responded by cutting variable costs, like wages and benefits until advertising began to expand again.

But it's likely that long-term declines in newspaper advertising revenues will accelerate in the current slowdown and may not recover. This is not a helpful development given extraordinary levels of concern about the true state of financial markets. The Tribune Co., which was sold in December, has been put on a watch list, meaning its credit rating is under review. The $8.2 billion sale put the company deeply in debt.

Alan Mutter's Newsosaur blog argues credit problems could potentially cause severe damage to newspaper companies already weary from repeated rounds of cost cutting. There is a lot to like about the new technologies and media that are siphoning audiences and advertising from old media like newspapers. But the plight of these once proud companies, the people who work for them, and their readers, is nothing to celebrate.

FCC Chairman Makes Lemonade from Lemon (at least for now)

The Federal Communications Commission today voted to tighten regulation of cable companies, and ease regulation of newspaper and broadcast companies. The votes are a triumph for FCC Chairman Kevin J. Martin, who last month suffered a temporary defeat when he brought the cable proposal up for a vote.

Today's victory on the cable issue may also be temporary given strong and continuing industry resistance. But for now Martin appears to have reconciled the complex array of competing interests at stake in both of these votes.

The importance of competition

Competition is at the heart of all the arguments voted on today. Newspaper companies argued increasing competition for advertising revenue makes obsolete a rule against owning a broadcast station in the same market. Huge numbers of readers disagreed, arguing the restriction preserved competition covering local news, increasing the range of information and ideas available in those markets.

The FCC voted to ease the cross-ownership restriction in the 20 largest markets.

Cable companies argued they need to get larger because subscribers have more and more alternatives in the new media world. Consumer groups and Chairman Martin disagreed, arguing cable rates keep rising and subscribers don't have access to the full range of possible program choices.

The FCC voted to keep individual cable companies from reaching more than 30 percent of the national market. This is expected to have an immediate effect on Comcast.

Reasons to be skeptical on cross-ownership

My immediate reaction is mostly to the cross-ownership vote. The competitive problem for newspapers is not local radio or television stations, but new forms of media such as the Internet and cell phones. Putting resources into broadcast stations is an odd response, especially when you consider some newspaper companies such as The New York Times and Belo recently divested their television stations.

The expense of acquiring radio and television stations will also force newspaper companies to cut operating costs, so be skeptical of claims that these companies will increase news coverage in these markets.

More broadly, the competition arguments rely on differing definitions and models. Newspaper companies, and both sides in the cable argument, are using economic models concerned with efficient use of limited resources, and providing goods and services at the lowest possible cost.

Supporters of cross-ownership restrictions are using a First Amendment model concerned with expanding the range of ideas, and the emergence of a workable consensus on matters of public concern.