Economics of the News
December 19, 2008
Last week's post about Generation Y not being a huge fan of newspapers may have led some to believe that Generation Y isn't interested in the news - and as I hope to explain, that may or may not be the case. On Monday, the Economist's Free Exchange blog set out to analyze the market for news:
In a typical newspaper (take the New York Times, for instance) the are basically two products offered to readers: the traditional news (front page stories, breaking headlines, investigative reporting, sports recap, stock quotes, etc.) and the editorial page (including op-eds and letters to the editor). Even though they are contained in the same newspaper, they are essentially two distinct markets: the market for news and the market for editorials.
In that sense, what the internet has done is glut the market for editorials. Where it used to be that you had to be a hired columnist or get past the gatekeepers of the editorial page to get your work published; now anyone with a computer and some opinions can disseminate their thoughts instantly to the world. The market for editorials has indeed become a perfectly competitive market; and this in and of itself isn't necessarily a bad thing.
The market for news, on the other hand, is a natural oligopoly. Even the best bloggers and citizen journalists simply don't have the resources to engage in investigative reporting or break news stories on a consistent basis. This type of operation has huge barriers to entry; it requires large amounts of capital, and it requires time to build credibility and gain access to places typically reserved for traditional media. For bloggers whose primary career is something other than full-time journalism, we can't ever expect them to fill in these gaps.
The problem , perhaps, lies with the fact that economists are still lumping these two markets together and trying to analyze it as such. It used to be that you bought a newspaper for both your news and for your editorials. Now, if you are primarily interested in editorials, there is less reason to buy a newspaper or visit the website of Reuters, the AP, NY Times, or whoever is breaking the news. In the old days, buying the editorials meant that you were also buying the news and vice-versa. Today, there is a plethora of editorial content available that you can get just about anywhere without ever having to look at the original story. Perhaps the coupling of these two markets made the demand for each other artificially high until now? Not that it would be such a bad thing to have artificially high demand for breaking news stories, but now that the two markets are almost fully separated, the implications are worth considering as we move forward.
James Surowiecki has an entertaining column this week on the business of news, riffing off the recent bankruptcy of the Tribune company... Felix Salmon has a very good response to this... I liked both pieces, but I think they also miss something about the current market for news, namely, the fact that it's glutted. Technology hasn't just changed the demand for newspapers, it's also changed the supply of information. News used to be an oligopolistic business, now it's just about perfectly competitive. Barriers to entry are minimal, and plenty of suppliers are happy to provide content at next to nothing. That's a recipe for a big drop in price, and any organisation built on market power and rents is sure to fail in such an environment.At first this made sense, but after discussing the issue with my favorite micro economist (or nano economist, as she likes to call herself) I realized that our attempts to oversimplify things may be distorting the reality of the news market.
In a typical newspaper (take the New York Times, for instance) the are basically two products offered to readers: the traditional news (front page stories, breaking headlines, investigative reporting, sports recap, stock quotes, etc.) and the editorial page (including op-eds and letters to the editor). Even though they are contained in the same newspaper, they are essentially two distinct markets: the market for news and the market for editorials.
In that sense, what the internet has done is glut the market for editorials. Where it used to be that you had to be a hired columnist or get past the gatekeepers of the editorial page to get your work published; now anyone with a computer and some opinions can disseminate their thoughts instantly to the world. The market for editorials has indeed become a perfectly competitive market; and this in and of itself isn't necessarily a bad thing.
The market for news, on the other hand, is a natural oligopoly. Even the best bloggers and citizen journalists simply don't have the resources to engage in investigative reporting or break news stories on a consistent basis. This type of operation has huge barriers to entry; it requires large amounts of capital, and it requires time to build credibility and gain access to places typically reserved for traditional media. For bloggers whose primary career is something other than full-time journalism, we can't ever expect them to fill in these gaps.
The problem , perhaps, lies with the fact that economists are still lumping these two markets together and trying to analyze it as such. It used to be that you bought a newspaper for both your news and for your editorials. Now, if you are primarily interested in editorials, there is less reason to buy a newspaper or visit the website of Reuters, the AP, NY Times, or whoever is breaking the news. In the old days, buying the editorials meant that you were also buying the news and vice-versa. Today, there is a plethora of editorial content available that you can get just about anywhere without ever having to look at the original story. Perhaps the coupling of these two markets made the demand for each other artificially high until now? Not that it would be such a bad thing to have artificially high demand for breaking news stories, but now that the two markets are almost fully separated, the implications are worth considering as we move forward.
