The Media's Broken Business Model

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There’s a lot going on in the world of media, and the pace has been picking up in just the last few months. You know that the ongoing financial crisis has put a lot of very famous newspapers right up to the edge of going out of business. You also probably know why: because their business model is totally broken, and they’ve been denying it for years. This year, they all found that they couldn’t stop denying it. The distress extends to other sectors of the media business, like magazines, music, books and film, which are all under pressure, and now the job loss has become so significant it’s having an impact on the next generation of potential journalists.

The common thread in all of this is that traditional distribution models don’t work anymore. In the past, it was difficult and expensive to move information from producer to consumer. Ever since the middle ages, this has enabled a business model which was all about controlling not content, but how content got to consumers. Newspapers are printed and distributed locally using an expensive and heavily unionized industrial process of the kind that moved offshore decades ago in every other industry. Film, video and music are distributed on plastic discs and reels of film, which someone has to manufacture, ship, and retail. Television requires a special viewer with chips in it that distribution companies have some control over.

All that friction and industrial activity meant that there was huge money to be made in controlling the distribution of media. And because content producers have no access to consumers without distribution, distributors had all the power to influence content. But in the electronic age, when anyone with a computer can produce content and distribute it to anyone on the planet for little more than the cost of breathing, there’s no inherent value anymore to being a content distributor.

This has the big media distributors (you can name them: Murdoch, Redstone, Bronfman, Disney, Sony, iTunes, Bewkes, Sulzberger, not many others) realizing that they have to do something, anything, to protect their sinecures.

At this point, you may remember one of the Internet boom’s big gurus, Harvard Business professor Clay Christensen, the father of the “disruptive technology” meme. If you remember when you read his book ten years ago (while sandwiched into a coach seat on the cross-country redeye because you hit SFO too late to get an upgrade), one of his most key points was this: the best-run and most successful businesses are precisely the ones that are least able to change when change becomes necessary.

Apply that to the media industry, and you get the response that we’re all seeing from them: they’re madly trying to figure out ways to get you to pay for content, as you’ve always done in the past.

There are only two ways to do that. First, you can do what the music business has been doing for years to counter the threat from online sharing services: you can try to educate your customers into thinking that it’s their patriotic duty to pay you for content. (If education doesn’t work, you sue them.) Second, you can do what all media businesses have done for centuries: you can try to keep controlling the distribution media. The former is strictly for suckers. The latter isn’t going to work (the iPhone and the Kindle notwithstanding), because there’s simply too much free content out there that will compete with paid content, no matter how effectively media companies manage to restrict access to it.

Newspapers are a special case for several reasons. First, there’s the reality that printed local advertising has long had a huge amount of commercial value. The only reason this business hasn’t been totally subsumed by Internet search yet, is because of one of the few things that Al Gore got wrong when he first took the lead in inventing the Internet, back in the late Sixties: IP addresses are only weakly location-specific. Google can’t easily tell where you are, so they can’t easily show you an ad from your local Government Motors/Fiat dealership.

Because it’s easy to add editorial content alongside printed local and classified advertising, we’ve had for centuries a fourth estate which has now come to see itself as a coeval branch of democracy, a guarantor of our freedoms. The newspaper and broadcast-news business even have their revenue model enshrined in the Constitution (in the First Amendment), which they will defend and protect because their life depends on it, even as they deny that the rest of the Bill of Rights has any relevance outside of the late Eighteenth Century.

Now that model is coming to an end. Craig’s List and others will find ways to get local advertising out to the masses, which means there’s no reason but nostalgia to buy a local newspaper. (And why do you think, of all the companies that deal in prurience and pornography, none other than Craig’s List is now the target of multiple government probes into its role in enabling people desiring sex to find each other? It’s because Craig’s List presents an existential threat to existing media.)

If there’s no reason but nostalgia to buy a newspaper, then the people who print newspapers will spend the next few years staving off inevitable death. They’ll all try to emulate the success of the Wall Street Journal in inducing people to pay for content (which they pay for not because it’s good, but because business information is actionable for the few seconds before everyone else knows it). In so doing, they’ll shrink their readership drastically and create major new opportunities for alternative voices to spring up and find an audience. But because they’ll be making moderate amounts of money, they’ll call it “success.”

And where does that leave the proud profession of journalism itself? In a jam. By the serendipity of the local advertising models which enabled newspapers, and by broadcast rules which favored large networks for many decades, journalists have come to think of themselves as a special class, protected from the realities of the business world. Now that professional journalists are confronting the horrible fact that no one actually needs to pay attention to them, they’re falling back on the argument that we need them because they’re the defenders of truth and freedom.

This is where branding comes into the picture. Branding is one of the very few things left in our world of commodity production that can actually add realizable value to any product or service in a sustained way. People buy technology products from IBM not because they’re better (they’re not), but because they believe in IBM’s brand identity of safe, corporate power, projected by the three blue letters. People eat at McDonald’s because they know that, wherever they go in the world, the “golden arches” will give them a familiar, consistent experience.

And people keep reading the New York Times because it’s the fount of journalistic integrity and excellence. At least, that’s what the New York Times believes. They’re about to find out that people outside of the journalistic profession (and media junkies) keep reading them out of inertia more than anything else, and that they’ll flock to other media outlets when the Times tries to put everything behind a micropayment wall.

The point is not that people want to be well-informed. It’s that people simply want the illusion of being well-informed. They choose what to read not because they know how to tell which media sources are balanced and objective. (Who but committed political and cultural liberals would otherwise read the New York Times at all?) They choose what to read based on what their friends are reading, and on their sense of which media properties are “cool” at any given time.

That means that success in the new age of media will be determined by branding. Whoever manages to convince a large and sticky audience that, for whatever magical reasons, their media are worth reading and hearing, will win in the new age. It’s possible that some of the incumbent players will make this transition, but most won’t, and many people will succeed wildly that you haven’t even heard of yet. What’s certain is that no one will be able to build up a long-term successful enterprise based on controlling the means of distribution.

Again, this still leaves the journalistic profession without a clearly-defined place at the table. They sell themselves as having a monopoly on truth, which is laughable on its face. And yet if you look into the earnest faces of the icons of broadcast journalism (from Jim Lehrer all the way down to George Stephanopoulos), what you’ll never see is laughter. These are people who honestly believe they’re the arbiters of truth and objectivity.

Professional journalism no longer serves the market created by local and classified advertising. They do, however, have another critically important constituency: the government in Washington. The politicians and bureaucrats who control our lives depend on nationally-prominent journalists in a fundamental way. Because it’s impossible to observe its activities closely without seeing the deep corruption that animates it at every turn, populist government is only sustainable when abetted by a national press that is at once sycophantic to its power and respected by the people.

The kind of journalism that inhabits the New York Times, the Washington Post, the major broadcast-news organizations and CNN will not disappear. The government needs it too much, because national news is how the government does its PR. As the media business embarks on a bruising process of transformation, professional journalists will become a fourth branch of government in reality as well as in their own minds. Somehow, but inevitably, today’s mainstream news organizations will become government-sponsored entities funded with taxpayer dollars.

Francis Cianfrocca is a Senior Editor of The New Ledger.
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