Google starving newspaper revenues

Penn law school professor C. Edwin Baker summarizes the problems of newspapers. Much of it is a familiar story: declining revenues that bring layoffs, reduced quality and further declines; a problem of free riders who use the content without paying for it.

He argues that Google is killing newspapers in a zero-sum fight for ad dollars:

Possibly most serious, advertising is a more or less fixed pot. Huge portions of advertising revenue now supports the suppliers of the “search” for all sorts of already-produced information (including product and personal information) rather than journalistic entities which produce news – which is the story of huge capitalization of Google. Internet advertising that basically did not exist thirteen years ago clocked in at $21.2 billion in 2007 – with 41% going to advertising related to “searches” – and the amount is rising rapidly. That compares with annual newspaper advertising of roughly $40 billion, an amount in decline due primarily to this increasing diversion to online advertising. Though advertising always goes down even in minor recessions, even more so in anything like what the country is currently experiencing, the movement to online advertising is of historic significance for the news industry. Essentially the advertising that has long paid for journalism is in irreversible decline.

Unfortunately, Baker has no answer to these systemic problems: his claimed answer, nationalization of the press, is a nonstarter for reasons too numerous to mention in this post.

A better, more decentralized answer may be the efforts of the Public Press Project in San Francisco, whose response to plummeting ad revenues is to build a newspaper without advertising. Their argument (grossly simplified) is that if member supports works for local PBS TV stations, why not a local newspaper?

The US news industry was created by decentralized initiative, and I believe the solutions will have to begin here too (even if reform of the AP may be a prereq to their salvation).

Of course, I may be a little biased, since I know founder Michael Stoll, a journalist and adjunct professor here at SJSU. In fact, I arranged for two management students from our Sbona Honors Program to work with Public Press this semester to help them develop their business model.

The problems of newspapers are the same as they have been for the past decade: if they don’t have a revenue model, they won’t exist. Finding some way to get to paid content is the crux of the problem.