The News Industry Runs Out of Money

The key conclusions of the annual Pew Research Center’s Project for Excellence in Journalism report on the “State of the News Industry” are two. A rise in new technology that allows information dissemination has made the news industry more profitable for technology companies that distribute infrastructure. The same new systems have eroded the profits of news providers more than at any time in the past. The trend makes it more likely that electronic distributors will have less traditional news to distribute in the future as news organizations lose their revenues and their ability to cover costs to report on events — a process that is essential to their survival.

Pew points out that an increasing number of people receive news from desktops, laptops and smartphones. The study singles out in particular Apple (NASDAQ: AAPL), Google (NASDAQ: AAPL), Facebook and Amazon (NASDAQ: AMZN) as the dominant conduits for traditional news. News organizations that once controlled the airwaves and the newsstands face more attrition of those methods of distribution. The ongoing rise of the smartphone eventually may eliminate those means of distribution altogether.

It would make sense that, as new means of distribution rise, news organizations would take advantage of them and migrate their revenue models. Subscribers would pay for their news via electronic payment systems. Advertising revenue would come from online media instead of print and broadcast versions.

Pew offers a little hope for the future of traditional news media — but not much:

In sum, the news industry is not much closer to a new revenue model than a year earlier and has lost more ground to rivals in the technology industry. But growing evidence also suggests that news is becoming a more important and pervasive part of people’s lives. That, in the end, could prove a saving factor for the future of journalism.

Pew’s conclusions are not new. As a matter of fact, they are quite old for anyone who watches the media industry, even casually. The most readily identified sector of the news industry in real trouble is newspapers. Online revenue for papers rose some in 2010, but that increase died last year. There seems to be little hope that this revenue will recover. Print revenue has dropped so much that major newspapers now look more like pamphlets because they have so few pages. Magazines are not much better off. An average copy of Time is half the size it was a decade ago.

Pew’s argument is that people consume news online because devices like smartphones are one more place to locate their favorite news media. That is not the entire story, however. Facebook and Twitter have started to become news distribution hubs:

Some 133 million Americans, or 54% of the online U.S. population, are now active users on Facebook (out of 850 million monthly active users globally). They also spend an average of seven hours there a month, 14 times the amount of time people spend on average on the most popular news sites.

A “medium” that is used as often as Facebook is bound to become a huge source of distribution for traditional news.

Facebook is almost entirely a platform of “recommendation.” “Friends” share with “friends” their likes and dislikes and tell others how they spend their time. As news becomes more a part of this process, it will become “pushed” to Facebook users by other users, instead being sought as people seek news today. News media not only will have lost its normal distribution systems, it will have lost its appeal as people move from active news seekers to those who receive it passively.

The ability of the news industry to make money online will be further undermined as people no longer look for information but get it as part of a recommendation process. This new model will make it even harder for traditional media to target audiences. As that problem grows, so will the chance that media can support the news organizations that are at the heart of their appeal.

Douglas A. McIntyre