Even as the industry collapses around them, some newspapers seem not to fully understand their own business.
Traditional newspapers consist of reporters (gather content), editors (judge and shape content), ad sales staff, a printing facility and distribution trucks. Reporters and editors provide the value to end users, and the ad sales pay for it all.
Newspapers were able to charge money largely because printing and distribution costs created barriers to entry for other newspapers. You can’t afford to buy a printing plant and fleet of delivery trucks if you don’t have circulation, but you can’t get circulation without a printing plant and fleet of delivery trucks. That’s a big barrier. As a result, the city paper was the only way to reach a consumer in print on a daily basis. Local monopoly. They charged a lot for that, and this is why Warren Buffett loved to own newspapers.
Printing and distribution costs are now zero, thanks to the Web. This lowers entry barriers, while pushing price down to marginal cost: zero. That’s why Web news is mostly free, and Web ads are nearly free. Oddly, ten years into the collapse, news industry pundits still sometimes ask, “Why are we giving away content?” They simply don’t understand that free-ness is a microeconomic certainty, given the conditions. Google internally describes the situation very simply: ”information wants to be free.” That was always true, but distribution costs created the opportunity for distribution control, which pushed up prices. Until now.
So that whole industry is the walking dead, excepting a few very strongly branded papers. What might replace the other 500 papers that disappear?
Go back to the second paragraph and look at the list of functions performed by newspapers. Note how only two pieces of this puzzle are useful to the reader: reporters and editors. The rest, from the end user perspective, was just an unavoidable cost of getting the content.
So the real question in news is how to pay for information gathering and editing. And we already have a partial answer to the editing problem: bloggers.
Not all blogs are collections of random ruminations (as this one is). There is a small but growing handful of blogs that act as meta-editors for the news.
For example, Calculated Risk and Naked Capitalism, two respected finance blogs, are increasingly quoted by traditional media. They are written by industry professionals with over a decade each of experience in their respective specialties (mortgage and investment banking).
From the reader’s perspective, these two blogs do what the city newspaper editor used to do: edit the news. They read everything publicly available on a given story, condense it, and tell a pithy and interesting story.
They also have a business model. Each has a wide readership, which lets them sell ads. Though each author could, so far, probably make more money doing something else, there are certainly cases where bloggers are already making a living by acting as meta-editors.
In short, the editing function may be a solved problem. Each successful news blogger becomes a sort of one-person brand. That brand sustains a readership, which in turn sustains an ad base.
This leaves a harder problem: news gathering. Currently nearly all news bloggers are parasitical on newspaper reporting. They don’t actually fly to Geneva to talk to a banker, but instead judge the comments the banker made to a NY Times reporter. Obviously this will fail when the newspapers go under. What will pay for content gathering?
Basically, bloggers will eventually have to pay the Associated Press, or a lightweight Web-only equivalent of AP, for stories. This will probably work once blogs completely replace news, but we are headed for a chasm, during which newspapers and AP have laid off all their reporters, but blogs (or their proxies) have not yet hired any back.
More hypothetically, there is probably a way to crowdsource some kinds of reporting. If 100 people send “earthquake in Karachi” over Twitter, you know there is something going on. This solves event reporting, but not the higher-end stuff like interviewing experts.
Whatever happens, there will be a transition period in which there is very little news gathering for print. Reporting in that period will likely be done by non-newspaper sources: government data, subsidized reporting (BBC, CS Monitor), television, and magazine investigative pieces. The transition period might last years.