Commentary: Quality News: Who Will Pay The Tab?

The decline of mass media will necessitate new economic models

Surveys show that a growing majority of Americans regard advertising as an annoyance at best. How easy it is to forget that advertising also has served to massively subsidize our consumption of news and entertainment for the better part of a century. With radio and television, the subsidy is complete: Broadcast programs are free for the taking. Newspapers and magazines charge, but circulation income doesn't come close to covering production costs; only advertising has made print financially whole.

The business world's evolution from mass to micromarketing inevitably will shrink advertising's subsidy of media content, to uncertain but potentially dire effect. Whatever happens, Americans are unlikely to suffer from a shortage of entertainment as long as there is a Hollywood. The real issue is the fate of news in the micromarketing era. It boils down to two questions:

Can the mass media make money from digital publications that tap advertisers' desire for targeted ads? And, if the ad revenue from digitalization proves inadequate, will Americans be willing to pay directly for good journalism?

As it is, mass media have been diminishing their investment in newsgathering for years in an attempt to maintain (or in some cases increase) profit margins in the face of audience shrinkage. In network news, the number of correspondents has been cut by a third since the 1980s. In radio, the number of full-time newsroom employees dropped 44% from 1994 through 2001. Time magazine's news staff has shrunk by about 15%, and Newsweek's by 50%, over the past 20 years, while the newsweeklies' roster of foreign bureaus has declined by 27% and 31%, respectively, according to the Project for Excellence in Journalism.

Within journalism, angst over the profession's future is acute. "Is there something missing?" asks Orville Schell, dean of the journalism school at the University of California at Berkeley, lamenting the lack of a new business model that will sustain quality journalism. "I don't have the answers, but I do know that things aren't working well."

What is at stake is abundantly clear, even if the solution is not. Although the audience for news is fragmenting along with consumer-products markets, Americans remain heavily dependent on the mass media for national and international news. According to a 2003 survey by the Pew Research Center for the People & the Press, 83% of us get most of our news from television, 42% from newspapers, 19% from radio, 15% from the Internet, and less than 5% from magazines. (The total exceeds 100% because more than one answer was allowed.)

MONEY HUNT

Advertising revenue generated by nightly network news shows rose in 2003, the first uptick since 1999. But prime-time network magazine shows are losing airtime and ad sales. What's more, TV execs seem overly enamored of the income-augmenting potential of product placement in reality, sitcom, and drama programming. (News shows are off-limits, at least for now.) Younger viewers don't seem to mind the intrusion, but rampant product placement could turn even more older viewers away from TV without adding enough new income to protect network news divisions from an eventual ad revenue implosion.

For years, newspapers and magazines have been trying to bring in extra money by sponsoring conferences and selling books and other merchandise. While the additional income can be significant for a niche publisher skilled at licensing, general interest news publications are too big and too short on obvious product tie-ins to find redemption in brand extension. To this point, the pursuit of ancillary revenues has failed utterly to diminish print's dependence on advertising, which accounted for 54% of magazine industry revenues in 2002, up from 52% in 1998.

That leaves circulation revenues, which account for a third of print revenues. While a number of publications have boosted newsstand prices of late, subscription rates have stagnated for years. The consensus view is that rate hikes would be suicidal. "We are conditioned now to think subscriptions are cheap -- and Wal-Mart keeps telling us things should be cheaper," says Kelly P. Conlin, CEO of Primedia Inc. (PRM ), which publishes 120 specialty magazines.

The Atlantic Monthly is defying convention to test the willingness of readers to pay up for quality journalism. It slashed its rate base by 28% earlier this year, to 325,000, and is preparing to double its average subscription price, to about $30. Dan Capell, editor of Capell's Circulation Report, is cheering on The Atlantic. "It will improve the demographic by cutting out all the fly-by-night circulation that wasn't paying for it anyway," Capell says. "Advertisers will respond to that."

WILD, WILD WEB

They should, because The Atlantic is making itself more useful to micromarketers without dumbing itself down or narrowing its purview. The magazine's target audience -- serious readers -- might be a diminishing breed, but they are much better educated and more affluent than the average American. "Where advertisers are going is that they'd rather have a smaller audience with a more committed readership," says David Verklin, CEO of media buyer Carat North America.

The wild card in the outlook for news is the Web. By now, every broadcast station and publication of note has created an online version of itself. There are numerous indigenous news sources as well, but a majority of the most popular Web news sites are owned by one of the 20 biggest media companies. The Internet already is a vital source of news and offers enormous long-term potential for news businesses that can figure out how to exploit the medium's intrinsic advantages -- notably broad, low-cost distribution, interactivity, and state-of-the-art digital ad formats.

The mass media's heavy investments in the Web are just starting to produce profits for many leading news sites. Online news is even more ad-dependent than print, because few publishers have dared challenge the free-for-all ethos of the Web by charging for access to their coverage. Online ad sales are growing at a healthy clip but are a long way from sustaining newspapers and magazines at their current size. Consider the New York Times Co. (NYT ), which sold $847 million of print ads and $34 million of Web ads during the first five months of 2004.

Can online news generate sufficient profits to finance a first-class newsgathering operation? Perhaps. Someday. In the meantime, right-sizing à la The Atlantic is likely to prove the most effective way for print in particular to adapt to the super-segmenting of America.

By Anthony BiancoWith Tom Lowry in New York

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE