Some reasons digital media probably won't offset the decline in traditional journalism jobs

The long-term decline in journalism jobs appears quite serious because Internet-based firms don’t have a business model that can generate enough new jobs to replace the jobs that are being lost.

The Pew Research Center's Journalism Project recently weighed in on this issue, providing new information about the number of journalists employed at Internet firms. The data in the Pew report are limited, but they are in line with what we know about Internet business models.

 

Internet business models are not designed to support many jobs

 

The largest Internet firms – search engines and social media – use a micropayment system to generate small amounts of advertising revenue for each unit of production. Google makes pennies on each search result it delivers. Facebook and Twitter make a few dollars per year from each of their millions of members (these firms produce information about members that is used to target ads).

 

So Internet firms must keep their production costs low if they want to remain in business. These firms rely on automation – high speed computers and Internet connections – to deliver ads and information to their users. The firms also keep costs low with free access to the content that they index or display. Internet firms could not afford to pay for the content they need even if they wanted to.

 

Journalism firms that rely on Internet advertising revenue will have to charge the going rate, which means those firms must also rely on micropayments. So Internet-only journalism firms will probably only hire small numbers of journalists.

 

The Pew findings are in line with this expected outcome. Pew surveyed what it called 438 small digital news outlets focused on local coverage and found “an average of 4.4 jobs per outlet.”

The report also examined large digital organizations, some with national and international audiences, and the findings were striking. Only five of 29 large organizations[1] employ more than 100 journalists. Another six organizations employ 70 or 50 staffers, and the remaining 18 organizations employ fewer than 50 journalists.

Unfortunately, the Pew report did not include information about wages or the markets where the digital organizations operate. The report did not attempt even simple comparisons between digital and traditional media firms such as the number of journalists for a given audience size.

 

Comparisons would have been helpful because traditional media such as newspapers and television stations still employ the bulk of journalists in the U.S. Traditional firms don’t (yet) operate on a micropayment model. These firms still have substantial advertising or circulation revenue from their print and broadcast editions.

 

Some trends in markets for journalism jobs

 

So what are the current trends in jobs at traditional and digital media organizations?  A complete answer is beyond the scope of this post. However, I’ve examined trends for one important category of journalism jobs to illustrate how we might begin to answer these questions.

 

The category is employment of reporters and correspondents in the U.S. Reporters play a vital role by gathering raw information that is used to produce news stories. These statistics are from the Bureau of Labor Statistics, here and here,  and don’t include editors, photographers, or newsroom managers.

Bureau of Labor Statistics Reporters and Correspondents in the U.S.
	2008		2013	Difference	Pct. Difference
Total employment	50,960		43,630	−7,330	−14.3%
Nominal avg. wage	$44,030		$44,360	$330	0.7%
Inflation adjusted (2008)	$44,030		$40,998	−$3,032	−6.8%

The illustration begins in 2008, the year after the recession hit and advertising revenue at traditional media organizations went into a steep decline. The illustration ends six years later in 2013, when a sluggish recovery from the recession was well underway.

 

This first table shows the 2008 total of 50,960 reporters declined by 14.3 percent in those six years.  The average annual wage of $44,030 in 2008 increased by just $330 in those six years. I converted the 2013 wage to inflation-adjusted 2008 dollars, and the result shows that real wages actually declined by 6.8 percent.

 

Declining real wages are exactly what you would expect in a profession where employment is declining.

 

Reporters and Correspondents at Newspapers, Periodical, Book and Directory Publishers
	2008		2013	Difference	Pct. Difference
Total employment	37,500		27,420	−10,080	−26.8%
Nominal  avg. wage	$40,560		$40,240	−$320	−0.8%
Inflation adjusted (2008)	$40,560		$37,190	−3,370$	−8.3%

The second table shows the number of reporters working at newspapers, periodicals and other publishers. There was a 26.8 percent decline in the number of reporters in this category from 2008 to 2013. Nominal wages also declined by $320 a year. After adjusting for inflation, real wages declined by 8.3 percent.

Here again, a decline in real wages is expected because of the significant decline in the number of jobs. The decrease in jobs probably resulted from declines in newspaper and periodical circulation and advertising revenues.

 

Reporters and Correspondents in Radio & Television Broadcasting
	2008		2013	Difference	Pct. Difference
Total employment	9,670		10,370	700	7.2%
Nominal avg. wage	$51,410		$48,110	−$3,300	−6.4%
Inflation adjusted (2008)	$51,410		$44,464	−$6,946	−13.5%

This third table shows reporters working in radio and television broadcasting. There was a 7.2% increase in the number of reporters employed. However, the absolute increase was small – just 700 new jobs in six years – and did not result in an increased wages. Instead, real wages declined by 13.5%.

Why did wages for radio and television decline when the number of jobs increased?

 

One possibility is supply and demand.  We know, for example, that the supply of journalism graduates seeking television jobs far exceeds the demand.  Another possibility is that broadcasters adjusted to declines in ad revenue by laying off expensive older workers and hiring inexpensive younger workers to replace them.

 

However, there is not enough information in the table to be sure what the cause might be.

 

Reporters and Correspondents Other Information Services.
	2008		2013	Difference	Pct. Difference
Total employment	1,830		3,910	2,080	113%
Nominal avg. wage	$71,200		$57,830	$−13,370	−18.7%
Inflation adjusted (2008)	$71,200		$53,447	−$17,753	−24.9%

The fourth table shows reporters working for “Other Information Services.” This broad category with 242 occupations includes computer programmers and web developers. So this may include reporters working for digital firms.

Jobs in this category increased by 113% in six years. The percentage is high because the 2008 base of 1,830 jobs was small, and the actual increase is just 2,080 jobs.
 

Despite the rapid job growth, both nominal and real wages decreased dramatically from 2008 to 2012. Real wages declined from $71,200 a year to just $53,447 a year, a decrease of 24.9 percent.
 

The decrease in wages might be due to the small number of jobs in 2008. Perhaps these jobs were concentrated in high wage areas, and new jobs were added in less expensive areas.
 

Another possibility is that demand for these jobs is growing so fast it outstripped supply. The Pew report has anecdotal accounts of hundreds or thousands of applications for a single job at a digital firm.  If this is typical, it would drive wages down.
 

Again, the table doesn’t offer enough information to figure out the cause.

I think this illustration shows three important results.  First, almost all of the overall decline in reporting jobs is accounted for by one category - newspapers and other publishers.[2] Second, there is downward pressure on wages even in categories with minimal or strong job growth. Third, growth in the other information category still falls far short of replacing the jobs that are being lost.
 

Meanwhile, the Bureau of Labor Statistics projects continued declines in the number of reporters and correspondents, stating there will be 14 percent fewer jobs by 2022.

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[1] I did not include one firm on the Pew list, Vice, because its staffing includes journalists and non-journalists. Vice has the largest staffing number, 1,100, which means job totals in the Pew report may have an upward bias.
[2] Two small reporter categories, each  with fewer than 700 jobs, were not included this analysis.

A controversy at Bloomberg shows why subsidizing journalism is a bad idea

One popular idea for financing journalism is to create a non-journalistic business that generates enough profits to effectively subsidize the production of news stories. A controversy at the financial information company Bloomberg illustrates some reasons that this is a bad idea.

Most journalism firms produce news and information to attract an audience that advertisers want to reach. Advertisers then pay the firm for access to the audience. Sometimes these firms also sell subscriptions to generate additional revenue. So the production of news that audiences consider credible or entertaining is essential to the economic survival of such firms.

 

Suppose a firm relies on a non-journalistic business to produce the majority of its revenue and profits. Suppose the firm also produces some news stories, but they only generate a fraction of the firm’s revenue. The firm’s non-journalistic business is essential to its economic survival. But journalism’s role is more ambiguous because the firm cannot afford to publish news that substantially reduces the amount of revenue generated by its non-journalistic business. 

Bloomberg offers an example of what can happen when there is a conflict between a non-journalistic business that generates most of a firm’s revenue and a secondary business that produces news.

Bloomberg has about 15,000 employees who provide data and information to stockbrokers, bankers and other financial professionals around the world. About 16 percent of Bloomberg’s employees work for Bloomberg News.

The news service was created to help sell subscriptions to special computer terminals that generate the majority of Bloomberg’s revenue. The terminals give subscribers access to a wealth of valuable data and other information, and subscriptions cost an estimated $20,000 to $24,000 a year. Bloomberg’s revenue was estimated to be $7.9 billion in 2012, and most of that was generated by approximately 315,000 subscriptions to Bloomberg terminals.

 

So Bloomberg fits the model of a company where the majority of revenue comes from a non-journalistic businesses. Even if the news service is not directly subsidized, the news service could not exist independently from Bloomberg’s other lines of business.

Bloomberg’s news service is focused on daily coverage of business and economic news. The stories are intended to help people who subscribe to the company’s terminals make informed business decisions. The news service also produces investigative stories and other distinguished journalism.

However, Bloomberg’s reliance on revenue from its terminals creates a potential for conflict if news stories threaten that revenue source.

A conflict over news coverage of China

 

A conflict between revenue and news appears to be the reason that three Bloomberg journalists have quit after internal disagreements about two investigative stories that were never published.  One unpublished story examined foreign banks that employed the children of powerful Chinese leaders. Another unpublished story examined a wealthy Chinese businessman and his relationships with China’s leaders.

 

About 15 months before executives decided to withhold the stories, Bloomberg had allowed its journalists to publish a different series of stories that critically examined the wealth of China’s elite.

 

The publication of those stories prompted the Chinese government to deny visa requests from Bloomberg journalists, keeping them out of the country. Sales of subscriptions to Bloomberg terminals in China slowed after the stories were published. These consequences probably influenced Bloomberg’s decision to withhold subsequent stories that were critical of China’s elite.

 

After Bloomberg’s decision to withhold the stories became public, the company’s chairman said that Bloomberg should reconsider the publication of articles that “wander away a little bit” from its core coverage of “the local business and economic environment.”

He did not specify which articles should be reconsidered, but he did say the articles could jeopardize the sale of subscriptions to Bloomberg terminals in China. The company was also concerned it might lose access to financial data from China, data that Bloomberg subscribers need to make money.

Withholding investigative news stories can damage a news organization’s credibility.

 

But at Bloomberg that concern was reversed. This was a case where publication of investigative stories might have damaged the company's credibility and potentially harmed its subscribers.

Bloomberg’s economic self-interest 

Why would publication of the stories have such counter-intuitive effects at Bloomberg?

Publishing stories about foreign firms that hire the children of powerful Chinese officials might force the foreign firms to end those arrangements, costing them business and profits. Publication of the stories might also lead to investigations or new regulations that make it difficult for firms entering China to gain an advantage by hiring the children of powerful officials.

So the business people who subscribe to Bloomberg’s terminals might regard withholding the stories as a sensible decision that helps business.

Publication could also put at risk the profits Chinese officials gain from their relationship with a wealthy businessman. The stories could also put at risk future profits and jobs at foreign firms for Chinese officials’ children.

 

So Bloomberg, the company’s customers, and Chinese officials all have self-interested reasons to oppose publication of the stories. Bloomberg journalists favored publication, but their contribution to the company’s revenue was too small to win the argument.

 

Bloomberg’s executives probably withheld publication because they had learned from publishing the earlier stories that critical reporting in China can damage Bloomberg’s economic interests. And responsible executives should put their company’s economic interests first, that is the very essence of their job.

 

The advantage of a traditional model for funding news

 

The controversy became public knowledge because The New York Times published stories about what happened at Bloomberg. The Times has also published its own critical stories about China, including reports on U.S. firms that hired the children of Chinese officials. Those stories did indeed  result in an investigation of one major U.S. bank. Chinese officials have also banned or threatened to ban Times reporters from working in China.

Why does the Times publish these stories when Bloomberg did not?

The Times is a much smaller company than Bloomberg, it only had about $1.59 billion in revenue in 2012.  However, the Times doesn’t have the kind of internal economic conflicts that created problems for Bloomberg. The Times uses a traditional model for funding journalism, and most of its revenue comes from circulation and advertising. Journalism is essential to the company’s economic survival.

Publishing critical stories about China does not harm an important revenue source at the Times. Instead, these stories might have the opposite effect.

The stories add to the newspaper’s reputation as a trustworthy source of news. That reputation is critical for attracting the audience that advertisers pay to reach. The Times is also generating increasing amounts of revenue from selling subscriptions, and some readers might consider investigative stories valuable enough to pay for.

 

Does this mean the Times would never allow its economic interests to conflict with its journalism?  Of course not.

 

But the reliance on credible journalism at the Times means the paper must focus on stories that its readers and advertisers prefer. This creates incentives to publish stories, not to withhold them. However, the Times will still shy away from stories that violate the preferences of its readers and advertisers.

 

Bloomberg is a large company with enormous resources and a history of supporting journalism. But Bloomberg had no choice when confronted with the possibility that some news stories could substantially harm its core business. The company had to withhold the harmful stories.

 

Those who argue that non-journalistic businesses should be used to finance journalism should rethink their argument. There will always be a potential for economic conflicts in these cases, conflicts that can damage the journalistic enterprise.

 

Journalists should not look to other businesses to help support what they do.  The journalism business will function best when it has to pay its own way.

Will the next 10 years bring more of the same for journalists and journalism jobs?

So, where do things stand for journalists who hope to earn a decent living for the foreseeable future?

Internet-based companies have so far failed to create large numbers of journalism jobs. Newspapers, however, are still a leading employer of journalists and other people involved in the production and distribution of advertising, news and other information.

For example, newspapers remain the primary source of news about local governments.

This chart shows how newspapers were affected by competition from new media and the recession of 2007-2009. U. S. newspapers employed about 389,000 people in 2002. Ten years later, employment had decreased 62% to just 241,000 people.

Declining employment resulted in wage stagnation at newspapers. Weekly earnings averaged $337 from 2007-2011, according to the Bureau of Labor Statistics. This inflation-adjusted figure is equivalent to an average annual wage of just $17,571.

Internet companies have not created many journalism jobs

Internet-based media companies have not created enough jobs to offset losses at newspapers. Internet Publishing and Broadcasting and Web Search Portals is the employment category that includes news sites. This category includes more than 80 kinds of Internet-only companies, many producing information that is not found in a typical newspaper.

In 2011, Internet-only publishers employed about 108,000 people, or 56% fewer people than the entire newspaper industry.

A lot of people who have lost newspaper jobs are understandably angry and frustrated.  But newspapers are facing an entirely new form of competition that developed with devastating speed.

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Advertising revenue is the economic life-blood of newspapers and their newer media competitors. This second chart compares ad revenue for the entire U.S. newspaper industry with ad revenue for a single new media company – Google.

Google generated about $410,000 in advertising revenue in 2002.  Five years later, Google generated more than $1 billion in ad revenue. By 2010 Google generated $28.2 billion in ad revenue, or $2.3 billion more than the entire newspaper industry.

The steep decline in newspaper advertising revenue was accelerated by the recession. But the chart shows revenue at Google increased throughout the recession and recovery. Meanwhile, revenue at newspapers continues to decline.

What are the lessons from the last 10 years?

New media companies are competing in entirely new markets. These markets only superficially resemble older media markets, primarily because the newer companies compete for advertising revenue.

Companies like Google operate in global markets.  They use automation – computers and high-speed Internet connections – to sell advertising that is cheaper and potentially more effective than ads sold by newspapers and other older media companies.

Automation allows Google and other new media companies to generate profits using a system of micropayments, earning just a few pennies or dollars per year from each of their millions of customers.

Companies like Google, Facebook, Twitter and others compete to deliver unprecedented access to information and advertising around the world.  These companies are marvels of the information age.  But we are just beginning to understand the economic, social, and cultural benefits and costs generated by new media companies.

However, it is already clear that older media companies cannot compete directly with newer companies. The older companies cannot survive on micropayments because they rely on people – journalists and other employees- to produce and deliver information in smaller local, regional or national markets.

Older companies must instead stabilize declining revenue and employment as a first step toward returning to profitability. I started this series of posts because older companies are taking important steps toward stabilization.

Will those who did not learn from the past keep making the same mistakes?

I am dismayed by the failure of many commentators to understand basic economic facts about the competition between older and newer media markets.

The most recent manifestation of this failure is the Google Journalism Fellowships.  Journalism foundations are working with Google to develop new tools for computer-assisted reporting and other ventures.

But Google’s reliance on micropayments means it cannot afford to hire large numbers of journalists and pay them a living wage. Does anyone at these foundations actually understand Google's business model?

The failure to understand the information economy extends far beyond these foundations. The failure includes many journalists, many journalism educators, and many business people who run journalism businesses.

We know what the last 10 years looked like because of this failure to understand. What will the next 10 years will bring?

A note on how wages might be affected as computers do more and more journalism jobs

For readers interested in the larger implications of automating jobs that journalists and many other office workers do, I recommend this brief post by economist Paul Krugman. 

It’s a bit technical, but if you work through it the point he is making should be clear. 

If we are at the beginning of a widespread change that results in more and more jobs being done by networks of high-speed computers, the wages earned by good old-fashioned human beings will start to decline.

Why it makes economic sense for Google to build computer programs that do the jobs that journalists do

A quick note.  Google appears to be expanding its computer programs that do the work that journalists do.

These programs are called digital journalism tools, and the keywords here are digital and tool.

And once again, journalists and journalism organizations are helping Google take away their jobs.

Why do I suspect this - Google is offering journalists and journalism students a 10-week fellowship for $7,500 and $1,000 in travel funds. The price someone is willing to pay journalists for their labor is a key economic signal - it tells the journalists exactly how much they are worth to the company that is paying them. 

That means at this moment Google and the foundations are willing to pay journalists about $8,500 for 10 weeks of work.

Google only makes $0.02 a search, so the journalism foundations listed in Google's press release are subsidizing the fellowships. (I'm not linking because the last thing I want to do is help Google).

The subsidy might be needed because at $0.02 a search, each journalist has to generate 425,000 searches before the work they do is worth any money.

The small amount of revenue generated by each search is the reason that Google must develop computer programs that are more efficient and capable than any human journalists can be.  The programs at Google must compete with computer programs at other new media companies that are also learning to do the same jobs that journalists do.

What are these companies competing for?  To drive traffic to websites where digital advertising tools are used to sell and deliver advertising. The keywords here are digital and advertising. 

I wonder if the foundations financing this venture have offered to do it again next summer. Google will has every reason to keep working with the foundations so long as the fellowships help Google refine its digital journalism tools, making the tools better and better and faster and faster at doing jobs that used to be done by people.

Meanwhile, journalists at all the newspapers that recently abandoned their print editions are about to find themselves competing against computers that drive traffic to websites and sell advertising. And when people compete against machines, machines always win. 

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?