IPFS Menckens Ghost

More About: Technocracy

The Demise of Local News and Rise of Tech Oligopolies

Dear Thinkers: 

Google, Facebook, and other tech companies have brought many economic benefits by eliminating middlemen, hierarchies and bureaucracies.  But they've also caused harm by their control of more and more news and information, which, among other negatives, has caused a precipitous decline of local news coverage, investigative reporting, and the number of reporters who cover city hall, thus making it easier for entrenched local interests to stay entrenched.  Without news staffs of their own, the companies are aggregating (purloining) the work of others, especially at the national level, using proprietary algorithms that are unknown to the public.   Essentially, Big Tech is providing free news and information, which is worth what people are paying for it. 

Of course, they are also creepy businesses that eavesdrop on your electronic communications and purchases in order to sell advertising.  Speaking of creeps, it's like Mark Zuckerberg following you around in a library and looking over your shoulder to see what your political, cultural, literary and commercial interests are.  In the physical world, we'd punch him in the face or call the cops, but we let him get by with it in the electronic world, although the creepiness is more pernicious in the electronic world.

A thought-provoking book on this subject is "World Without Mind," by Franklin Foer, a left-liberal and former managing editor of the New Republic.  It's overwrought and biased in places but gives good insights on the thinking within Big Tech and how the thinking developed historically.  In my words, they want to change the world to their image---God help us!  Imagine a world in Mark Zuckerberg's image.

Below is an article from a recent edition of the Wall Street Journal on the demise of local news, due to the rise of such advertising platforms as Facebook and Google.  Spacing and formatting are askew from pasting, and the corresponding graphs and charts are not included.  I've included a link to the full piece, but you'll have to be a WSJ subscriber to read it.


Mencken's Ghost

Local News Fades Out

A divide between newspaper haves and have-nots

By Keach Hagey, Lukas I. Alpert and Yaryna Serkez

The Wall Street Journal, May 4 - 5, 2019


After suffering a historic meltdown a decade ago in the financial crisis, American newspapers began racing to transform into digital businesses, hoping that strategy would save them from the accelerating decline of print.

The results are in: A stark divide has emerged between a handful of national players that have managed to stabilize their businesses and local outlets for which time is running out, according to a Wall Street Journal analysis of circulation, advertising, financial and employment data.

Local papers have suffered sharper declines in circulation than national outlets and greater incursions into their online advertising businesses from tech giants such as Alphabet Inc.'s Google and Facebook Inc. The data also shows that they are having a much more difficult time converting readers into paying digital customers.

The result has been a parade of newspaper closures and large-scale layoffs. Nearly 1,800 newspapers closed between 2004 and 2018, leaving 200 counties with no newspaper and roughly half the counties in the country with only one, according to a University of North Carolina study.

Meanwhile, about 400 online-only local news sites have sprung up to fill the void, disproportionately clustered in big cities and affluent areas, the UNC study found.

The shrinking of the local news landscape is leaving Americans with less information about what's happening close to them, a fact Facebook recently acknowledged as it struggled to expand its local-news product but couldn't find enough stories. Local TV news is still a major, if declining, source of news for Americans, but local newspapers are vanishing.

"It's hard to see a future where newspapers persist," said Nicco Mele, director of the Harvard's Shorenstein Center on Media, Politics and Public Policy, who predicts that half of the surviving newspapers will be gone by 2021.

Declines in print circulation intensified markedly after the recession, hitting just about every industry player.

Of almost 300 newspapers tracked by the Alliance for Audited Media for which complete data is available, circulation fell for all but a handful between 2012 and 2018, a Wall Street Journal analysis of the data showed.

But the pace of the declines varied. At three national papers, The Wall Street Journal, the New York Times and the Washington Post, circulation dropped an average of 29%. By comparison, the median drop at major metro papers with circulation of more than 200,000, like Hearst's Houston Chronicle and Tribune Publishing Co.'s Chicago Tribune, was a steeper 41% over that time frame.

The pain was even more pronounced among mid-sized papers with circulations between 100,000 and 200,000 —papers like Advance Publications Inc.'s Oregonian and A.H. Belo Corp.'s Dallas Morning News, where circulation dropped some 45% between 2012 and 2018. As print ads disappeared, the publishing cost of maintaining a bigger circulation became untenable for many papers. Smaller papers with circulation under 20,000 were actually somewhat better off, with a median circulation drop of only 41%. 

With print advertising revenue hammered, online ad sales had seemed like the answer. But online ads fetch a mere fraction of the price of print ads.

As a result, digital ad sales didn't come close to offsetting what was being lost in print.

Few people in the industry understood just how potent Google and Facebook would become in online advertising. By 2017, they accounted for 86% of all growth in the industry that year, according to Brian Wieser, a former analyst at Pivotal Research.

While Google and Facebook have siphoned ad dollars away from all publishers, local news publishers have been the hardest hit. The tech giants suck up 77% of the digital advertising revenue in local markets, compared to 58% on a national level, according to estimates from Borrell Associates and eMarketer.

Many local newspaper companies tried to team up with the tech companies, creating "local marketing services" units that heavily resell Google and Facebook ads. The profit margins, however, are slim.

Terry Kroeger, former publisher of the Omaha World-Herald and former CEO of its parent company, Berkshire Hathaway's media group, believes one solution is to allow publishers to collectively negotiate with the tech platforms. He backs legislation that would make that possible. A similar bill didn't advance far in the last Congress but Democrats are hopeful that the latest version, which has a Republican co-sponsor, will gain momentum in the Democratic-controlled House.

"You can't help but admire Google's business model," Mr. Kroeger said. "They have close to zero content-creation cost, but are able to turn around and sell the lion's share of the advertising."

Putting up a digital-subscription paywall has so far only worked for a few.

Three large national papers have had some success, attracting more subscribers to their digital product than their print paper.

For many years, News Corp's Wall Street Journal was alone among major newspapers in requiring readers to pay for articles online, a decision it made in 1996. In 2011, New York Times Co. followed suit.

Today the Times boasts 3.4 million digital subscribers—2.7 million of whom are paying for the news product, with the rest springing for crosswords and cooking extras—and a newsroom of 1,550 journalists, the largest in its history. The Journal has 1.7 million digital subscribers and a newsroom of nearly 1,300.

The Washington Post, which launched a paywall in 2013, has transformed under the ownership of Jeff Bezos into a national digital enterprise, amassing 1.5 million digital subscribers, according to people familiar with its operations.

All three newspapers have their own challenges and are far from out of the woods. But they have all managed to increase revenue with the help of digital subscriptions, bucking the trend at their local counterparts. The Times charges $15 for a basic monthly subscription, the Post, $10, and the Journal, $39.

Those bigger outlets have been much more efficient at converting online readers into paying digital subscribers than local publishers. The Times converts 3.6% of its readers and the Journal 4.5%, while Gannett, which has a big audience across its local papers, is especially inefficient, converting just 0.4% of its digital audience into paying subscribers, according to the Journal's analysis of digital audience and subscription data. Many paywalled sites allow casual users to sample some content for free.

Gannett says that excluding USA Today, its largest source of web traffic, and other papers that do not have paywalls, its conversion rate would be 1.4%.

The Dallas Morning News in 2011 became the first major regional U.S. outlet to make readers pay for news online. The paper, which relaunched its paywall in mid-2016 after two previous attempts, now counts around 30,000 digital subscribers, according to people familiar with the matter, but that contributed only 5.6% of its total circulation revenue in 2018. In the past 15 months, the paper has cut more than 170 employees. A major investor is now urging the company to consider a sale.

The Minneapolis Star Tribune, owned by billionaire Glen Taylor, has signed up 60,000 digital-only subscribers, and takes in around $200 million in revenue annually, which has allowed it to maintain a newsroom of around 250 for the better part of a decade. "We have stayed profitable, but it gets tighter every year," said Michael Klingensmith, the paper's publisher and chief executive. The Star Tribune will need to surpass 150,000 digital subscribers to be sustainable in the longer term, he said.

A notable outlier is the Boston Globe, which has amassed 111,000 digital-only subscribers at the robust price of $1 a day, allowing it to support its newsroom of 200 journalists on digital subscription revenue alone. Globe President Vinay Mehra says the paper's focus on investigative reporting and sports under Boston Red Sox owner John Henry, who bought the paper in 2013, has propelled its success. Some 35% of those digital subscribers are from beyond New England, a testament to the popularity of the Red Sox and New England Patriots—a luxury few papers have.

The Seattle Times, which has been locally owned for 122 years, has racked up 42,000 digital-only subscribers since launching its paywall in 2013, the company's president, Alan Fisco, said. But, he added, it is still far from the 100,000 digital-only subscribers it needs to be able to fund its newsroom of 150.

Peter Barbey, publisher of the Reading Eagle, thought he did everything right according to the industry's digital growth playbook. When the heir to the multibillion dollar fortune behind brands like The North Face and Timberland took over his family's Pennsylvania newspaper in 2011, he quickly put up an online subscription paywall. He also grew web traffic, embraced social media to promote stories and built up a digital ad sales team — all now considered vital components of any newspaper's digital turnaround strategy. All the while he built up a high-quality newsroom that won awards.

It wasn't enough. The Reading Eagle signed up only 3,000 subscribers, not enough to make a difference with online ad sales hitting the Google-Facebook wall and print revenue falling roughly 25% in just the past two years.

In March, the paper Mr. Barbey's family has owned since 1868 filed for bankruptcy. "It's like we were in a canoe paddling upstream and there was a waterfall behind us," Mr. Barbey said.

Warren Buffett's U-turn on newspapers is an indicator of the industry's predicament. The legendary investor began buying up local papers in 2011, betting they could overcome the horrible economics of the print business by making a transition to the internet.

They didn't. Last year the "Oracle of Omaha" turned over management of his papers to another company, Lee Enterprises. He recently told Yahoo Finance that newspapers were "toast," adding that, with the exception of the three biggest national papers, "they are going to disappear."

Executives at some outlets, such as the Omaha World-Herald, talked about paywalls for years, but didn't truly get serious about them until recently, by which point staff cutbacks had made it hard to put out a product people would pay for. Mr. Buffett, whose company purchased the paper, told the Journal that the World-Herald's digital product had "grown significantly in the past year," but "remains well short of where it needs to be."

For years, many in the news industry believed that even if newspapers vanished, journalism would flourish in a lower-cost, digitally native form. But those hopes proved misplaced.

Newspaper jobs declined by 60% from 465,000 employees to 183,000 employees between 1990 and 2016, according to the Bureau of Labor Statistics. Since January, more than 1,000 newspaper jobs have disappeared through layoffs and buyouts.

Jobs in the Bureau of Labor Statistics's internet publishing and broadcasting category, the best measure of online news employment available, rose from 29,000 to 197,800 during the same period. Those jobs have been highly concentrated in New York and California, according to a Journal analysis of Bureau of Labor Statistics data.

That would leave large swaths of America with radically diminished access to local news. A future without newspapers, Mr. Mele of the Shorenstein Center, says, is "actually a crisis for democracy."

At many outlets, no amount of job cuts could save them. Openings of online-only news sites haven't made up for flood of newspaper closures. The result is that rural areas and poor neighborhoods are fast becoming news deserts.

Newspapers' financial woes have spurred consolidation. Financial investors such as hedge fund Alden Capital, backer of MNG Enterprises, and private equity firm Fortress Investment Group, operator of Gatehouse Media, are now formidable players and are pushing for ever-deeper cost cuts. MNG, which was formerly known as Digital First Media, is pursuing a hostile takeover of Gannett Co., the largest newspaper chain by circulation. MNG is skeptical of newspapers investing heavily in digital strategies, pointing to Gannett's $350 million in digital acquisitions as a strategic disaster.

MNG, which owns the Denver Post and San Jose Mercury News, says "the newspaper business is in secular decline," arguing the better strategy is to focus on profits now.

"What Alden is doing is liquidating," said Dean Singleton, who founded the company that now forms the crux of MNG Enterprises and pioneered several newspaper cost-cutting measures, but who is no longer associated with the company. "They are taking the cash out as quickly as they can and reinvesting in businesses they think have more promise. It may be a very good business strategy, but it is not a good newspaper strategy."

MNG says its aim is to make newspapers sustainable, not close them.

As local journalism's business model foundered, many in the industry began to believe that it could only be rescued through charity or outside support.

Google and Facebook have each announced $300 million commitments to help strengthen journalism, including funds earmarked for local news, and Craigslist founder Craig Newmark has given more than $85 million to journalistic causes.

Between 2010 and 2015, foundations gave $80.1 million in grants to local and state nonprofit news organizations, according to a study by the Shorenstein Center and Northeastern University. That amounts to just 5% of the total that foundations gave to media, and less than one one-hundredth of the $8.3 billion in revenue that newspapers lost during that time, according to the study and a Journal analysis of Pew data.

At the moment, national institutions like the Knight Foundation are the largest source of funding for local nonprofit journalism.

In part that may be because local journalism's financial woes are not widely known. A recent Pew study found that 71% of Americans believed local news outlets were doing well financially, though only 14% actually paid for local news.

Jim Friedlich, the chief executive of the Lenfest Institute for Journalism, which owns the Philadelphia Inquirer and supports local journalism initiatives, said the nonprofit organization has worked hard to attract financial backing beyond gifts from local billionaire H.F. "Gerry" Lenfest.

The institute has raised more than $20 million more from other donors by positioning news as a civic need.

"There is no reason why other communities can't follow suit," Mr. Friedlich said. "Indeed, they are."