Go Big or Go Under: Consolidation and Collaboration Might Be the Best Bet for Preserving the Nation's Struggling Mainstream News Outlets
Farhi, Paul, American Journalism Review
The problem with the newspaper business, says Steven Pearlstein, is that there are just too many newspapers. More of them will have to die, he says, before the rest can thrive. And the sooner they start dying, the better.
Pearlstein, a Pulitzer Prize-winning financial columnist (and a longtime colleague of mine) at the Washington Post, has some tough-love ideas about how to save daily journalism. Most of them can be boiled down to one word: Consolidate. Cull the news herd. Rationalize--i.e., eliminate--inefficient and redundant parts in the merged operation. Repeat. Newspapers, he says, "are in desperate need of a wider base of business to spread their fixed costs."
A heartless prescription for a business that is already black and blue and bleeding a little more every day? Maybe, but also quite possibly inevitable and ultimately beneficial--not just to the bottom line but to journalism. Just as other industries--steel, coal, autos, airlines, you name it--have combined into fewer and more powerful players, so, too, may the troubled news business be in for an era of contraction and consolidation.
It's not just because economic forces are working against newspapers (and the rest of the mainstream news industry, too). It's because, in its current form, the newspaper industry is highly fragmented. Even with the loss of afternoon papers and the death of multi-newspaper towns over the past few decades, newspapering remains practically a mom-and-pop business. According to the Newspaper Association of America, there were 1,408 daily newspapers in the U.S. last year. Most of those papers are small; only 395 dailies have circulation over 50,000, according to the Audit Bureau of Circulations. The largest newspaper company in the nation, Gannett, operates 84 dailies, which account for a modest 12.5 percent of the nation's daily newspaper circulation. As a business matter, few newspaper companies dominate a particular region or state. Gannett's 10 largest papers (outside of the nationally distributed USA Today) are literally all over the map, stretching from Rochester, New York, to Detroit, Des Moines, Phoenix and Honolulu.
As a result of this balkanized structure, newspapers have never enjoyed what economists and business-school types like to call "scale efficiencies." Unlike Wal-Mart or Home Depot, which can squeeze lower prices from their suppliers, newspapers have never had such advantages. They could afford not to: Sky-high profits meant every publisher could maintain its own presses, distribution operation, promotional campaigns, ad-sales and newsroom staffs, even though some of those functions and their costs could conceivably have been shared with another publisher just down the road.
But that world is rapidly fading. The recession and the movement of news to the Internet have changed the competitive landscape. As the lights go out on America's few remaining two-newspaper towns (Seattle, Denver and Tucson in the just the past year), the real question is which major city will be the first to become a no-newspaper town (see "Cities Without Newspapers," June/July).
Consolidation could help TV stations produce news at lower cost, too, but getting bigger is more problematic in broadcasting than in newspaper publishing. For decades, federal laws and regulations have set limits on how large a broadcast company can be. Among other things, rules prohibit companies from operating more than two TV stations in most cities or owning the licenses of stations that collectively reach more than 40 percent of the country's population. Also banned: cross-ownership of a TV station and a newspaper in the same town. Big broadcast companies have lobbied for years to eliminate these rules over objections from smaller broadcasters and grass-roots groups who say that deregulation would destroy "localism" and ownership diversity.
But the opponents' arguments seem outdated in an age of cable, satellite and Internet alternatives, says Ken Ferree, a senior fellow at the Progress & Freedom Foundation, a libertarian think tank in Washington, D. …