What We Know About the Business of Digital Journalism

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Columbia Journalism School | Tow Center for Digital Journalismjournalism—like established brands and well-staffed newsrooms—are turningout to be liabilities, because they are accompanied by a severe reduction in pricingpower for circulation and advertising. The pressure on costs is intense.One local TV station, interviewed for this report on the condition it not beidentified, illustrates this paradox well. The station is a successful local broadcasteroperating in one of the top four U.S. television markets. It has a 150-person newsstaff and is a leading source of local news in its market. For several years it has alsooperated a website, run by three dedicated producers who do original reportingas well as post stories and video drawn from newscasts.On paper, the site has the assets to be a top online outlet for news about its city.It can draw on its sizable reporting resources and the promotional power of thestation’s broadcast operation. And it has free access to a large supply of valuable“rich media” assets in the video and audio segments produced by its parent.The station has built a large online audience over the last several years, growingfrom a monthly average of 550,000 unique visitors in 2008 to about 2.5 millionat the end of 2010. Still, the station’s general manager has struggled to make thesite break even. He shaved expenses substantially by outsourcing software andsite maintenance and by cutting back on reporting from the field; not countingsalaries, the site now costs roughly $500,000 per year to run. He has also tried anumber of different sales strategies, including revenue-sharing partnerships andsmall, dedicated sites—“microsites”—custom-built for particular advertisers. Still,the site accounts for just 1 percent of the station’s overall revenue. “Forget localbeing the holy grail,” he says. “National sites are making money, but we don’thave the scale locally to do so.”The cost pressure can be even more severe for local newspapers following theiraudiences to the Internet. A newspaper has enviable assets for putting news onthe Internet—because it produces so much news text every day—and in theoryit can also achieve enormous savings as it makes the switch to digital distribution,which does not require ink, paper and delivery trucks.John Paton, chief executive officer of the Journal-Register Company, based inYardley, Pa., has made reducing legacy costs the centerpiece of what he calls a“Digital First” strategy. The company, which came out of bankruptcy in 2009,Dollars and Dimes: The New Cost of Doing Business 95
The Story So Far: What We Know About the Business of Digital Journalismowns 18 local dailies and scores of other “multi-platform products” across theNortheast and upper Midwest. Since becoming CEO in 2010, Paton has reducedexpenses by consolidating printing facilities and outsourcing a wide range ofnoneditorial functions, from delivery to advertising design. He promises to havereduced infrastructure costs by 50 percent in three years.Another prong of “Digital First” is to wean the publisher from its dependenceon print advertising revenue, which Paton calls the “crack cocaine” of the business.He predicts that by the end of 2011, more than 15 percent of ad revenuewill come from the digital side and that most of that will be purely online revenue—notads sold in print-online package deals.Paton has been a popular figure on the future-of-journalism circuit, appearingfrequently at industry conferences to extol his company’s digital gains. Hefrequently cites growth percentages for the Journal-Register site—for instance,he says the company’s “digital audience” grew 75 percent in 2010, reaching 8.8million unique visitors in March 2011. He also recently announced bonuses foremployees and declared the company had made a $41 million annual profit. 6 Itisn’t clear, however, how that profit figure is calculated, because the companydoes not provide data on revenue, costs or other metrics as a publicly traded firmwould. Paton says his investors don’t want to disclose too much.But Paton does acknowledge that moving revenue online amounts to “tradingdollars for dimes”—or perhaps, if he’s successful, quarters. The gamble isthat the Journal-Register Co. will be able to cut costs and increase its onlineaudience quickly enough to compensate for the lower revenue that onlineadvertising brings.The notion of “trading dollars for dimes” captures the impact of digital distributionon the economics of the business. Newspapers, magazines and broadcastingare all characterized by high fixed and low variable costs; it’s quite expensiveto produce the first copy of a newspaper, but it’s far cheaper to produce thesecond copy—or the millionth. A local broadcaster faces much the same set ofcosts whether it reaches 100 viewers or 100,000. Hence the traditional media’sprofound economies of scale. News outlets that could not build a large enoughbase of readers or viewers to cover their steep fixed costs have tended to collapse96
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