Beneath the surface, the changes in media structure are almost revolutionary. The question is when these changes will break through to make the transformed media structure more visible.
PricewaterhouseCoopers’ (PwC) annual Global Entertainment and Media Outlook provides extensive future projections of media development. The latest report was published in the summer of 2010 and spans the years 2010-2014, with a backward glance to 2005.
According to PwC, the global cost for Internet access, that is, payments for access and use of the Internet, have increased from 138 billion dollars in 2005 to 228 billion in 2009. By 2014, the total cost of Internet access is expected to increase to 351 billion dollars globally. The cost of cellular Internet access is one contributing factor: between 2005 and 2009, the total more than doubled – from 26 to 59 billion dollars. The cost is expected to reach 110 billion dollars by 2014.
Looking at the total cost of both Internet access and advertising, the picture becomes even clearer. The turnover for Internet advertising in 2005 was 26 billion dollars. By 2014, this is expected to reach 105 billion dollars. Advertising on cell phones is also expected to increase, but on a somewhat lower level – from two to eight billion dollars by 2014.
Above all, it’s About the Daily Newspaper
It’s almost impossible to conceptualize the meaning of these projected numbers. One way to understand the Internet projections numbers is to place them beside those of the daily newspaper business.
In 2005, the total revenue for all daily newspapers in the world, from circulation to advertising, was 180 billion dollars. This is 30 percent more than the total global revenues for Internet access. Three years later, the total global revenue from daily newspapers had decreased to 155 billion dollars. In four more years (2014), the total global revenue from daily newspapers is expected to be 161 billion dollars – less than half of the total global revenues for Internet access.
Taking into account currency fluctuations, the annual loss of global revenue for daily newspapers is about four to five percent.
The collective revenues of the daily newspapers were greater than Internet revenues in 2005. Nine years later, the daily newspapers revenues are only a third of the global revenues for access and advertising among Internet companies.
What’s the outlook for other media? According to PwC, television is managing tolerably well. Total revenues are expected to increase from about 300 to 450 billion dollars. Subscription and licensing revenues are expected to increase, as are advertising revenues – although not as fast. The radio market is relatively small but, nonetheless, is expected to increase from 45 to 51 billion dollars. Especially notable is the strong growth of the games industry, from 30 to 87 billion dollars.
The numbers mentioned reflect the global market. Are the same trends relevant for Europe and North America? Basically, yes, with the exception of the revenues from North American daily newspapers.
The forecast for 2014 projects revenues of 34 billion dollars compared with 63 billion in 2005. That’s nearly a 50 percent decrease over a period of eight years. Taking inflation into account, revenues are less than half of what they were. Looking only from crisis-laden 2009 to 2014, it’s projected that North American daily newspapers will lose five billion dollars, or 15 percent of their revenues.
Daily newspaper revenues in Europe are expected to remain more or less unchanged from 2009-2014. The same is the case for Swedish daily newspapers, which nonetheless are projected to lose more than a billion Swedish crowns in fixed value by 2014.
Describing the daily newspaper as a kind of basic institution in a democracy is not at all to belittle the importance of radio or television. There are multiple reasons for assigning this significance to the daily newspaper: The long and extremely strong tradition of journalistic integrity, its close affiliation with the emergence of democracy and its continued development, the tradition of having very large journalistic resources, as well as being seen as the bearer of various ideologies in a democracy.
The Anatomy of Cutbacks
Newspaper companies have been forced to make large cutbacks in recent years, particularly but not only in the USA. That American newspapers have been hit exceptionally hard relates to their extreme dependence on advertising compared to European papers. In Europe, circulation and advertising usually contribute more or less equally to newspaper revenues, with advertising sometimes contributing slightly more. In the USA, advertising has accounted for more than 80 percent of revenues. Consequently, a dip in the economy hits harder against the American daily papers than the European. It’s important to try to provide a reasonable picture of the newspapers’ situation.
Despite large cutbacks in recent years, there are more than 40,000 journalists working in American newspapers. Viewed as a collective societal resource, this group is still quite impressive. The newspapers in the USA and Europe have shown outstanding flexibility. The number of employees in American newspapers has decreased from 450,000 to 300,000 between 1990 and 2009.
The PwC numbers referred to earlier indicate that continued cutbacks are necessary. In order to keep revenues at the 2009 level, newspapers would have to reduce the number of employees by about five percent annually. That would mean American newspapers would employ only about 30 thousand journalists in 2014. Moreover, if reasonable profits are to be realized, further cutbacks are required.
In less than 10 years, the number of journalists working for American newspapers has been cut in half.
The situation for the European newspapers is less acute than for the American. During the last five years, Western European newspapers have lost an estimated ten percent of total revenues. During the coming years, revenues are expected to increase in current values somewhat, but not enough to compensate for inflation.
Great Britain and Germany are the big newspaper markets in Europe. Germany has managed the crises of recent years a bit better than most—this applies for German-speaking Europe in general. Great Britain reflects the general European pattern. It should also be said that a number of newspapers are in the same position as many American newspapers.
A common conception among owners and management is that it’s always possible to save more by productivity gains. This conception is, of course, theoretically flawed. That said, it has been shown to be, in a number of historical situations, right. Without a doubt, there have been substantial cost reductions within media companies in North America and Europe during the last 15 years.
The production cost of a media company can be reduced in a variety of ways:
- You can do the same thing but with fewer resources—increased productivity.
- You can sharpen the focus on goals in order to decrease use of resources—increased efficiency.
- You can reprioritize activities to decrease use of resources—review
- You can reduce the quality of the operation—ambition reduction.
- You can decrease the operation—cutbacks
The new digital technology has enabled large cost reductions particularly in newspaper, but also in radio and television. All text and layout editing within the newspaper business is digitalized today. By typing texts “directly in the computer”, the graphic task of text layout disappears. In principle, layout and text are both executed at the same moment it’s written. In the same way, photos are transferred digitally to the computer. Formatting of texts and pictures from draft to final is now integrated with the editing of the newspaper page. When a page has been edited, it’s technically produced in the form in which it’s to be printed. An entire profession – typesetters – and their work has become obsolete.
To some extent, tasks previously done by typesetters have been transferred to journalists. Essentially, though, it’s about traditional rationalization and increased productivity, made possible by machines performing what wage earners previously did.
A corresponding albeit smaller rationalization potential has been exploited in radio and television production. The old analog production technology demanded highly specialized technicians who were responsible for the technical production – live broadcasting or recording – of radio and television programs. Thanks to digitalization, journalists – producers and news anchors – broadcast or produce most of the program content directly.
Even here the rationalization potential has been realized. Radio today is produced with hardly any technicians. A large part of Swedish public service radio is broadcasted live by news anchors, without technical support, and journalists perform the majority of all feature edits on all radio channels, also without technical support. The news anchor is responsible for the entire production – adding music and prerecorded features at a digital control desk in the studio, and handling guests who are in the studio or on the phone.
Television is also produced with significantly fewer technicians today. Modern low cost television can be produced with fixed and prerecorded, or microphone-controlled, cameras.
Pure productivity gains are one thing. Cost reduction in newspaper, radio and television that lead to deteriorations in editorial content is something completely different.
One problem is that owners as well as management, for obvious reasons, rarely recognize the deterioration of editorial content. On the contrary, it’s part of the role-play between owners and management, on the one hand, and employees on the other: the former never admit deterioration while the latter always claim it’s occurring. Through this role-play—and in the absence of any systematic external follow-up—transparency becomes, oddly enough, exceptionally poor in a business where transparency is of the essence.
Tyranny of Structural Costs
It’s important to recognize the relationship between structural costs of media production and purely content costs. A well-functioning newsroom is an around the clock operation, 365 days a year, and as such demands a comprehensive base staff.
Let’s say it takes three fulltime positions, day and night. At a newspaper, there might be a manager, a text editor and a layout editor while at a radio station there might be a manager, someone responsible for following the news flow, and a newscaster.
Only this basic staffing of a newsroom or radio station requires 24 full time positions annually. The example is purely fictional but illustrates, nevertheless, the simple fact that in an editorial organization, the relation of editorial production to the number of positions is in no way linear. Consider the fictitious newsroom with its 24 full time staff positions: by themselves, they haven’t produced one single piece of news during the entire year.
Let’s say three positions for financial reporters, specializing in banking, are added to this basic staff in a Swedish newsroom. Suddenly, there would a watchdog presence in banking, the likes of which had never before been seen in Swedish journalism. Even if one of the three financial reporter positions were to be cut, the newsroom would still have larger resources for covering banking than most Swedish newsrooms. Cutting the remaining two financial reporter positions would translate to an editorial savings of eight percent. Production of original journalism would also be zero, despite retaining 92 percent of editorial resources.
All larger newsrooms in the world are organized into specialized sections. Swedish Radio, for example, includes 25 local offices and a dozen genre desks whereas Swedish nationwide daily newspapers, such as Svenska Dagbladet or Dagens Nyheter, include a dozen specialized news desks (national, international, politics, sports, culture, economy, etc).
Every specialized desk demands a basic structure. Naturally, it mustn’t necessarily include 24 full-time positions. However, even staffed with only a manager and a studio reporter, from morning to late evening five days a week, and a skeleton staff on weekends, at least five or six full-time positions are required. With 15 specialized desks, this translates to a basic staff of nearly 100 full-time positions.
It’s this staff that constitutes the company’s costs of basic editorial structure. With this staff in place, the newsroom has still not produced the content for one single radio spot of their own. There are resources to edit and broadcast the content obtained from Reuters or a national news bureau, but not to produce any unique editorial content.
In this description, there are implicit saving strategies possible. Reductions in editorial scope – fewer pages and tabloid format instead of broadsheet for the daily newspaper, and less frequent news updates for radio and television – make it possible to pare down the editorial staff. Fewer special newsrooms reduce structural costs. News bureau content replaces original editorial content. Around the clock news coverage and production is replaced with planned content production, that is, less news and more features.
What is described here has already happened, almost without exception, in all media companies around the world. It has happened in newspapers as well as radio and television. We also see the consequences: The large newspaper format, broadsheet, has been retained in only a small number of high quality newspapers.
Across the board, one can say that newspaper companies have, in ten years, halved the available editorial space by changing from broadsheet to tabloid format.
There’s an ongoing shift from using original news content to feature news, and buying content from news bureaus (that is then processed during business hours). There’s also a shift from news to views. It’s less costly to employ workers who share what they think during business hours, than reporters who are working around the clock, investigating what’s happening, when it’s happening.
Specialized reporters are being phased out and, as a consequence, original review and investigation is declining. Company correspondents are replaced by material obtained from large international, mainly Anglo-Saxon, news bureaus.
The Double Market’s Grip
The extraordinary thing about the media business is that it’s composed of two markets – advertising and editorial – merged into one.
The cutbacks in newspaper companies are the repercussions of wavering revenues and lost market shares within advertising. The stiffening competition within advertising increases the pressure to emerge victorious in the war of circulation sales. The question arises: What’s a reasonable strategy for increasing editorial competitiveness when editorial production is simultaneously decreasing?
The focus shifts from editorial to that which is commercially motivated. Content that sells newspapers becomes more important than news that changes society. Scandals and celebrity news penetrate far into what was previously the domain of quality journalism.
It’s easy to provide a pitch-black description of what’s happening within journalism. Such a description, however, isn’t balanced. As mentioned earlier, the journalistic resources that North American and European newspaper companies have at their disposal remain substantial. The majority of the journalism supporting the “democracy of everyday life” remains. It’s not the status but the change of direction – and the speed of the change – that is worrisome.
In less than 20 years, independent news reporting and journalistic review has gone from being an area of growth to one rapidly shrinking. This applies to newspapers, but the entire television market is also experiencing a strong commercialization.
Commercial television companies are not investing in news but in entertainment. There’s a risk this could apply to public service television as well since viewer ratings are measured constantly. For this reason, public service television cannot distance itself from the trend within commercial television. While public service media doesn’t compete with commercial media for resources, they do compete for the same viewers and listener’s time.
Additionally, the authorities deciding the stipulations for public service, in most countries, refuse to recognize the financial laws expressed in Baumol’sCost Disease. Both public service radio and televisionare forced to continue cutbacks based on the theoretical assumption about productivity gains. Baumol’s Cost Disease is a theory developed by the American economist William Baumol. It describes what happens to operations with low labor productivity in an economy where the wage evolution is decided by operations with high labor productivity. (The second generation’s effect of Baumol’s Cost Disease has been described in an interesting commentary by Bill Hackos.)
Daily media, containing a broad general content and essentially supported by advertising, finds it difficult to compete with new media. The situation is different for the more specialized media that, to a significant extent, are supported by customer payment. This is true not only for books but for journals as well.
American Newsweek showed a loss of 30 million dollars in 2009. The Washington Post sold it the following year, for one dollar, to 91-year old Sidney Harman, who has dedicated his life, mainly, to producing radios.
German Der Spiegel, with a substantially smaller circulation than Newsweek, showed revenues amounting to three and a half billion Swedish crowns in 2009. With a whopping 1,275 employees, that’s a darn good result. Circulation of British The Economist was one and a half million in 2009 and its income was even bigger than that of Der Spiegel—a gain of 56 million pounds in 2009 (about 700 million Swedish crowns).
Is this about differences between various publications or differences between various markets? It can very well be about national differences. Certainly, the French media market is difficult to compare with the British or German markets. On the one hand, fewer share the language. On the other hand, for historical reasons, the French daily newspapers have a much weaker position. Journals, such as L’Express and Le Nouvel Observateur, have relatively strong positions, with each reporting a circulation of about half a million.
What goes for the journal market is all the more true for the book market, which is undergoing a rapid revamping. During the second quarter of 2010, Amazon.com sold more e-books than bound books. With Ipad’s speedy breakthrough, there are promising indications that e-books (or e-readers) will be established globally.
The printed book is similar to daily newspapers in that its traditional format is associated with high print and distribution costs. Many media companies around the world – among them both News Corp and Swedish Bonniers – are shaping their business strategies based on, to a large extent, the opportunities that e- readers will provide to charge for content that either didn’t exist before, or was removed when the content of daily newspapers became available free online.
The success of e-books on the American market shows that it really is possible to charge for books on the Internet. Obviously, there must be a functional system for obtaining the book digitally, as well as a payment system that works well enough for the product to be purchased.
While we’re on the subject, let’s reason to return to Metro, the successful free newspaper in Stockholm. Metro was certainly not new as a product. The novelty was that the newspaper was accessible to readers during the short morning bus or subway commute to work. And the newspaper didn’t cost anything. The distribution worked well, and there was no complicated payment model to prevent the transaction between seller and buyer.
The e-book – and a future e-newspaper – can be distributed instantaneously and read on an electronic reader. Since e-books are, relatively speaking, items seldom purchased, the buyer is probably prepared to accept the inconvenience of paying with a credit card. With an easier payment method, some form of micro- and mini payment, e-distribution will inevitably have a significant impact on both books and journals.
It might seem puzzling that so little has happened when it comes to ordering, distributing and paying online for texts and images. If one realizes the powerful structures that are challenged with such an endeavor – not the least the entire payment system institutions – it’s becomes less puzzling. The credit card has become the bank system’s strategy for stepping into the cashless society. Smoother payments mean other payment systems and, possibly, alternative institutions behind these new payment systems.
We discuss in another chapter (in Swedish) how new technology meets established habits and actual needs. Book reading is obviously an established habit but it’s the response to a need, too. Despite the fact that television has offered a more easily obtained form of storytelling for a long time, book reading has not tapered off. In Sweden, the number of published book titles has increased from eight thousand in 1980 to 24 thousand in 2008.
On any given day, book reading is more common today than it was in 1980. The number of book loans has decreased some, but not dramatically. At the same time, has the number of books sold in Sweden increased from 17.5 million in 1986-1987, to 23 million in 2008. The e-reader will affect book printing and book sales, but it will more than likely benefit book reading in general. A significantly bigger range of books will become more easily accessible.
The quality journals have managed well despite the breakthrough of Internet with its free content. It’s striking that Der Spiegel and The Economist remain strong, while Newsweek is perishing. Time Magazine (the finances of which we know little), Newsweek and US World & News Report (now a monthly newspaper with ongoing net publication) have been news journals with relatively short texts and without strong specialization.
In the net society, one can exact payment for both printed products as well as cyber material, as long as it’s unique. Content that’s considered a commodity, however, will not sell.
The worldwide selection of journals becomes decidedly more accessible through e-readers. It will doubtless foster the development of the journal segment of the market. An entirely different thing is that a future online journal, or an “Ipad-magazine” might differ considerably from the journals of today. For readers of The Economist, electronic distribution means that the subscriber will have the journal early Friday morning.
There are practical reasons for the weekly cycle of journal production; per definition, of course, the material for a weekly journal needs to be printed and distributed once weekly. Does electronic distribution mean that The Economist will eventually be updated constantly? The answer likely hinges on the reason the reader subscribes to the Economist in particular. Has it become a habit to read The Economist once weekly? Does a quality update once weeklyfulfill the reader’s need?
Those who trade on the London Stock Exchange can’t be satisfied with a weekly update. But for those not dependent on a continuous update for their professional or private affairs, it’s reasonable to stop once a week “just for an update”. If the newspaper or journal is updated constantly, it loses its loyal subscribers. The resources, then, should focus on rapid updating rather than in-depth updating. Thus The Economist begins competing with completely different market players, who today are specialists in the art of rapid updating.
For all of us who need, from time to time, really in-depth knowledge within a specific area, the Internet offers extraordinary possibilities, of course. One can very well imagine that we may see totally new types of journals online – very high quality and rather expensive. Sweden is much too small a market for a really specialized journal. The same goes for Great Britain or even Germany.
But the entire English speaking world – or at least those who understand English – is a potential market in a media landscape, which we can yet only imagine.
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