Who Paid for the Paper?

Yglesias weighs in on the New York Times paywall:

It’s always worth emphasizing in these discussions that the widespread view among journalists that readers have traditionally paid for journalism is a mistake. Readers have traditionally paid for paper, ink, and distribution of physical media. The price goal of subscriptions is to cover costs so that you can maximize subscribers without going bankrupt. Then you make money by selling ads.

True that. There's this idea that what's killing journalism is that people won't pay for it now that they have access to free online news sources. But that's wrong. Circulation revenue is holding up ok for newspapers. What's collapsed is advertising revenue.

Newspaper Revenue by Source, 1956-2009 ($ Millions)

Source: Newspaper Association of America

The problem isn't that the public aren't willing to pay for journalism; it's that advertisers aren't. Over the past decade, newspaper subscription revenues are down 5 percent. But display ad revenues are down by a third, and classified ads are down by two-thirds. No doubt it's emotionally satisfying for newspaper executives to frame the question as whether journalism is worth paying for. But from an economic standpoint the paywall strategy is exactly backwards; it can only accelerate the collapse of advertising revenue that is the real cause of the crisis.

John Lanchester had a useful discussion of this in the LRB:

classified advertising ... was for years the secret weapon of the newspaper business. Classifieds are not the most glamorous aspect of the newspaper trade... What they are, however, is fabulously lucrative. For decades, whole sections of the newspaper industry were kept afloat by the classifieds. ... In the US, the importance of advertising was even greater: a fact which remains true, to a startling extent, when you look at the data which show the balance between revenue earned via sales and advertising. In the UK, which is roughly in the middle of the OECD range, the balance is 50-50. (The global average is 57-43 in favour of advertising.) In the US, the balance is 87 per cent advertising, 13 per cent sales.

I'm not sure where Lanchester gets this exact number; the NAA gives around 80% advertising, before the collapse of the past few years. But the bigger problem with the piece is the suggestion that the problem is finding a new business model for journalism. The whole point is that journalism as such never had a business model, it was only ever a loss leader for the classifieds. That is, it was cross-subsidized by the network rents from connecting buyers and sellers in thin markets. Now those rents are cross-subsidizing Internet search, free email, social networking, for that matter this humble blog. I'd be the last to say the trade was entirely for the better. But no one with a gmail account should say it was entirely for the worse.

Cross subsidies from monopolies are an important and underappreciated form of public good provision in modern capitalism. An interesting aspect of this is the subsidy by its nature is never the result of any straightforward optimization, in the way business decisions are supposed to be. It needs a sociological link with the source of the subsidy. Whether it's "All the news that's fit to print" or "Don't be evil," the principle only performs its function of legitimating the underlying monopoly if it is, on some level, sincerely held.

All of which is to say that saving newspaper journalism can't be a matter of restoring its status as a profitable commodity, because it never was.