Decline of Newspapers Is Sign of Market Success

Decline of Newspapers Is Sign of Market Success
July 7, 2010

The decline of U.S. newspapers is real. Since 1970 the number of dailies in the United States has fallen by 20 percent and circulation per capita has been cut in half. More recently, advertising on newsprint is down 50 percent since peaking in the year 2000.

Even including the more recent stream of online advertising, total newspaper ads are down 35 percent since 2003. Jobs for reporters and correspondents have fallen by one-third over the past decade, and analysts expect another 13 percent drop in the next decade.

Answering the question of what can or should be done about the decline of newspapers starts with a firm understanding of what’s driving that decline and what effect it all has on the public.

Competing Business Models
Defenders of print media argue news is a public good, which means it is valuable to society. But producers of news have difficulty getting consumers of news to pay for it. Thus, they say, the decline of newspapers is a market failure, and journalism needs government subsidies.

Last month the Federal Trade Commission made this very argument in a study, “Potential Policy Recommendations to Support the Reinvention of Journalism,” which proposes more than 30 policies to prop up news organizations.

Economics, by contrast, offers a dynamic model of competition in which goods that society values—such as journalism—get produced by competing business models, the most successful of which come to dominate markets. A really good example is newspapers in the 1950s and ’60s.

But there are no finish lines in market competition. As technology steadily advances and consumer tastes continually evolve, new business models emerge to challenge older forms. Dynamic market competition continually presses all businesses to create more value for society than their potential substitutes. Or disappear.

Creative Destruction
In this “creative destruction” view of markets, changing business models are not a market failure but instead a market success, as new entrants take advantage of the opportunities a declining business model creates.

Where newspapers have declined, substitute models have emerged to create significant wealth for society. Despite the drought among newspapers, advertising in the economy as a whole is actually up 9 percent since 2000. Although spending on magazines and newspapers has dropped 38 percent, consumer spending on Internet access has more than quadrupled since 1999.

Just since 2004, consumer use of online classifieds has more than doubled. Unheard of before 1999, Google’s market capitalization is today above $140 billion.

New Journalism Markets
This new competition tends to benefit all parties but the legacy media. Consider the frenzied coverage of this summer’s college sports realignments, both actual and potential. When the Big Ten Conference began to deliver on its longstanding promise to expand its membership by recruiting schools from the Big XII or Big East conferences, a fast-paced domino effect went into motion, and no individual person knew which domino was going next.

For two weeks, the college sports world was transfixed by the potential impact on this $4 billion industry. As the bargaining power shifted each day, different schools would enter the spotlight. One day it was Nebraska, the next day Colorado. For a week, no one knew whether the Texas schools would continue their century-long affiliation or split into the Pac-10 and SEC.

In this flurry of activity and negotiation, readers scurried about in search of up-to-the-minute news about which dominoes would fall next. National outlets such as ESPN.com relied heavily on regional papers such as the Dallas Morning News, which in turn relied heavily on local papers like the Bryan Eagle, which in turn relied heavily on sports bloggers who cover single schools full-time. News consumers around the nation benefited from access to isolated pockets of specialized knowledge about what was going on, which major figures were saying what, which rumors were realistic and which were farfetched.

In showing how the new media generate knowledge for society, the conference realignment story is big news. Here is the market for news achieving an increasing dispersal of knowledge through technologies of instant communication.

All this would have been unthinkable even a decade ago.

Good News for Newspapers
Old-fashioned newspapers would typically spread a given sports reporter across several schools and afford just a few weeks each year on campus. Reporters lacked the opportunity to cultivate many channels of communication. Today, by contrast, we have full-time, year-round, on-the-ground investigators with kinetic knowledge that’s ready to be shared instantly.

Market process theory even promises good news for newspapers. This new paradigm is increasingly freeing newspapers from the up-front costs of investigative work, while newsprint remains familiar and convenient to large numbers of consumers. And news organizations still hold their economies of scale in areas such as finance and politics.

Government funding of journalism simply isn’t necessary. But continual experimentation and specialization will be vital to newspapers if they are to continue to fulfill a valuable role in society.

The market process is doing exactly what it does best. The market for journalism continues to evolve through a process of trial and error and experimentation that destroys models that no longer add value and builds newer, more value-creating ones.

Edward J. Lopez (Edward.lopez@sjsu.edu) is associate professor of law and economics at San Jose University and a visiting scholar at the Social Philosophy and Policy Center at Bowling Green State University.