We are all looking at the same set of facts, so let's zoom back and try a historical perspective.
Newspaper household penetration peaked in the 1920s at about 130%. In other words, 130 newspapers were sold for every 100 households in the USA. Now penetration is less than 50% and still falling.
Newspapers adapted to the decline and became better than ever at making money. First, they consolidated, shaking down to one per market in all but the largest metro areas. That gave them monopoly pricing power. And they used new technology to slash production costs: offset printing; using computers to capture the reporters' keystrokes for typesetting; and computer pagination to move composition from the back shop to the copy desk.
Now an even bigger technology change is upon us: electronic delivery of news and advertising direct to the home. At Knight Ridder in 1978, we tried to get an early start on this development with Viewtron because we could see the potential for eliminating newspapers' main variable costs: newsprint, ink and transportation. But it turned out there was a catch. The low cost opened the door to all kinds of upstart competitors. Lou Alexander is right. The future isn't rosy.
Newspapers' problem today is that they are trying to maintain monopoly pricing when they no longer have the monopoly.
Because Craig Newmark and his ilk do not have those high variable costs, they can eat newspapers' lunch in the classified business, which had became an increasingly important part of their revenue in the second half of the 20th century. Worse yet, Craig doesn't appear to be interested in making a lot of money -- he's what Michael Porter calls "a bad competitor" -- one willing to provide the same or better service to your customers at a lower margin.
Internet-based media are bad competitors for another reason. In addition to low variable costs, they have low entry costs, as Matt Drudge demonstrated with his obsolescent computer. Newspapers are responding by going into Internet businesses on their own, but it will never be the same because they have lost the monopoly power created by the high entry cost of buying a printing press.
Specialized news media are the future
Now consider one other historical trend. The same technologies that made newspapers cheaper to produce have spawned specialized media that grow faster than general media. Specialized media have been drawing the attention of young people and keeping them from starting the newspaper habit in the first place. John Morton is right. Newspaper readers are dying off faster than they are being replaced. If you are not yet convinced that generational replacement, far more than changing habits, is the problem, look at the chart below. Each generation has been keeping roughly the same readership habits it had when its members became old enough to be included in readership studies.
Newspapers have tried to adapt by including more specialized content in their umbrella packages. But the Internet now makes possible the ultimate in specialization, tailoring messages for an audience of one. Bundling all that content diversity into the same package for everyone is no longer efficient.
Here's the good news. As Donald Shaw has pointed out, new media never completely replace old media. They just drive the old media into more specialized niches. Newspapers will survive, but in radically different form, many less than daily. The University of Missouri Journalism School's current experiment with MyMissourian, a daily report online followed by a weekly print summary, shows one of the many variations that the new combination might take.
Today's newspapers are stuck in the old hunter-gatherer model of journalism. But now we need information processing more than information production. The market is calling for information that is easy to find and use, and that requires very good editors to help us navigate through all the noise. We need more specialists who can explain events in their arcane fields. We need more trusted sources to alert us when attention should be paid. These jobs will require more skilled, better paid journalists than the newspaper marketplace is able to attract now. Steve Lacy is right: Quality pays.
Quality should look for a new home
Newspapers' problem today is that they are trying to maintain monopoly pricing when they no longer have the monopoly. You can't blame them for trying. By milking their assets, they can keep the revenue that the present owners, public or private, have built into their expectations -- for a while. And while quality pays, we cannot be certain that adding new quality to the old business model will be enough to save it. Quality should start looking for another home.
Newspaper companies have lost their ability to adapt. They should hedge their bets by spinning off some of that harvested revenue into new and totally separate enterprises that would go after the younger audience, provide skilled and deep local reporting and attract advertisers that want to be associated with a credible and influential brand name. They should try to become somebody else's bad competitor. If they do not do these things, they will soon find that more Craig Newmarks are out there, waiting for them.
Philip Meyer is the Knight Chair in Journalism at the University of North Carolina at Chapel Hill. He is the author of Precision Journalism and most recently, The Vanishing Newspaper. He is an original member of the Grade the News advisory board.