The Real Reason Newspapers Are Losing Money, And Why Bailing Out Failing Newspapers Would Create Moral Hazard in the Media

Conventional wisdom is that the Internet is responsible for destroying the profits of traditional print media like newspapers.

But Michael Moore and Sean Paul Kelley are blaming the demise of newspapers on simple greed.

Michael Moore said in September:

It’s not the Internet that has killed newspapers …

Instead, he said, it’s corporate greed. “These newspapers have slit their own throats,” he said. “Good riddance.”

Moore said that newspapers, bought up by corporations in the last generation, have pursued profits at the expense of news gathering. By basing their businesses on advertising over circulation, newspaper owners have neglected their true economic base and core constituency, he said…

And Moore cited newspapers like those in Baltimore or Detroit, his home town, with firing reporters that cover subjects that affect the community.

Ultimately, he said, this was self-defeating. It would be like GM deciding to discourage people from learning how to drive, he said.

“It’s their own greed, their own stupidity,” he said…

Similarly, Sean Paul Kelley writes:

I don’t buy all the hype that the internet is even the primary culprit of the demise of journalism. The primary culprit is the same as it is all over the country, in every industry and in government: equity extraction.

Let me explain, in short: when executives expect unrealistic profits of 20% and higher per annum on businesses something has got to give. It’s an unnatural and unsustainable growth rate. For the first ten or so years of a small to medium size company’s life? Sure. But when you are 3M, or GE? Unrealistic and ultimately impossible.

So, when such rates cannot be achieved by organic growth in the business, executives start shaving off perceived fat and before they know it they’re cutting off the muscle and then shaving off bone chips. And when they’ve gotten to the bone chips they borrow other people’s money to buy new companies, load up those companies with debt and extract equity form them and then because it looks like the parent is still growing award themselves huge bonuses. It’s a shell game.

That is what has happened to the news industry in America. The excessive obsession with unnaturally high profits has led to a vicious circle of cutting budgets, providing less services, which is then followed by even more drastic cuts. The local San Antonio paper is a great example of this. Twenty years ago there were two large dailies in my hometown. Both competed with each other for real scoops. Both had book reviews by local writers, providing local jobs. Both covered the local arts and sports scene. Both covered local politics in depth and local and state news in depth. Both had vigorous investigative teams. Both had bureaus in Mexico and both had offices and reporters on the ground in DC.

And then corner offices of Gannet and Harte-Hanks were populated with Kinsey-esque managers and the rout was on … So, today, San Antonio has one daily that is as flimsy and tiny as the local alternative … And 80% of this happened before … the internet. All in the name of higher industry profits–not some overwhelming fear of the world wide inter-tubes. So, who’s profiting? Certainly not the intellectual vigor of the locals? And certainly not the writers who are all now ‘journalism entreprenuers.’ The only people who profited are the executives who obsessed over profits, to lard up their own bonus pool …

You can provide a public service with small profits for a long, long time, but if you demand large ones you will destroy it. Just ask the big banks.

Moral Hazard for Newspapers

There has been talk of bailing out newspapers for months.

But the newspapers have largely driven themselves into the ground with their never-ending drive for higher profits, which led to a reduction in news bureaus, investigation and real reporting, and an increase in reliance on government and corporate press releases.

The newspapers made a speculative gamble that reducing real reporting and replacing it with puff pieces would increase its profits, just as the giant banks made speculative gambles on subprime mortgages, derivatives, and other junk, and largely abandoned the boring, traditional business of depository banking.

Bailing out these newspapers would be a form of moral hazard equivalent to bailing out the giant banks. Instead, we should let the bad gamblers lose, and make room for companies that will actually serve a public need.

The banking industry has become more and more consolidated, which has decreased financial stability.

Likewise, Dan Rather points out that “roughly 80 percent” of the media is controlled by no more than six, and possibly as few as four, corporations. As I wrote in July:

This fact has been documented for years, as shown by the following must-see charts prepared by:

***

This image gives a sense of the decline in diversity in media ownership over the last couple of decades:

If traditional newspaper companies are bailed out, they will be encouraged to continue their business-as-usual, and new, fresh media voices will face a handicap to competition (just as the small banks are now unable to compete fairly against the too big to fails).

We need more real reporting in this country, not less. Bailing out the traditional media will create more consolidation, just as it has in the banking industry.

The last thing we need is moral hazard in media.

What Do Readers Want?

As I wrote in September:

President Obama said yesterday:


I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding.

But as Dan Rather pointed out in July, the quality of journalism in the mainstream media has eroded considerably, and news has been corporatized, politicized, and trivialized…

No wonder trust in the news media is crumbling.

Indeed, people want change – that’s why we voted for Obama – but as Newseek’s Evan Thomas admitted:

By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring….

“If you are of the establishment persuasion (and I am). . . .”

So traditional newspapers are also losing readers to the extent they are writing puff pieces instead of writing the kinds of things people want to read: hard-hitting stories about what is going on in the country and the world.

Finally, as I wrote in March, the whole Internet-versus-traditional-media discussion misses the deeper truth:

The whole debate about blogs versus mainstream media is nonsense.

In fact, many of the world’s top PhD economics professors and financial advisors have their own blogs…

The same is true in every other field: politics, science, history, international relations, etc.

So what is “news”? What the largest newspapers choose to cover? Or what various leading experts are saying – and oftentimes heatedly debating one against the other?

The popularity of some reliable internet news sources are growing by leaps and bounds. For example, web news sources which run hard-hitting investigative news stories on the economy – and do not simply defer to Bernanke, Geithner, Summers and other people “of the establishment persuasion” – are gaining more and more readers.

It is not because it is some new, flashy media. It’s because people want to know what is going on … and some of the best reporting can now be found on the web.

Subtle, Unintentional Propaganda?

If there are bailouts of the newspaper industry, will the government take ownership of the media corporations, as it has in AIG and some of the giant banks?

Will that – in turn – lead to a situation in which the government representatives subtly and innocently censors anti-government stories? After all, the object of criticism might be the employer or friend of the government representatives on the newspaper board.

Indeed, the most cynical view is that this could eventually open the door to Pravda-style government control of media.

This entry was posted in General. Bookmark the permalink.
  • http://www.blogger.com/profile/04490179400711329488 Irrational Doomsday Blog

    The blogs, good and bad, wouldn't have the people flocking to them if the media hadn't been in quality decline for so long.It reminds me of Citizen Kane in a lot of ways. And also of this:http://s139.photobucket.com/albums/q285/photopsycho/?action=view&current=snl_tv_funhouse_conspiracy_theory_r.flv

  • http://www.blogger.com/profile/07714390119215804335 Ningen

    John Kozy writes about this as a problem with most American companies:http://www.globalresearch.ca/index.php?context=va&aid=16639Everything in our economy, from manufacturing to finance, insurance, real estate and health care, seems to have parasites attached. We need a new model of virtue – quality, not profits – and a new measure of prosperity – salaries for many, not profits for a few.

  • http://www.blogger.com/profile/08454222098667643650 Tom Hickey

    Or could it be that newspaper are the 21st century buggy whip? Who buys newspapers any more? Those folks are a dying breed.

  • http://Anonymousnoreply@blogger.com Anonymous

    The fast-tracked health care "reform" is nothing but a draconian bail out the immoral medical industries and the predatory insurance vampires.Climate change -the Chicago carbon mafia- is nothing more than flashing more bail out money around -for no good reason-, if it was meant to be a permanent device -set into the public jugular.The targets for the incensed masses are too big to defend, -even with one eye always kept open and one hand on a loaded Glock.And now they want to permanently buy-off the newspaper industry?O-M-F-G!And, everyone said George W. Bush was stupid!I'm beginning to think that when they executed the D.C. Sniper, that just maybe, the guillotine they used should have been left in place and an escalator built -leading up to its getting-down-to-business end.Naw, -too slow, too plebeian.There must be something more efficient.

  • http://www.blogger.com/profile/17066440544129368326 Bill Bergman

    Great stuff.Bailouts come in explicit and implicit ways. Channeling the ways in which sensitive information can legally be brought public is one of the implicit ways, e.g., in that 'journalists' can be sanctioned recipients of sensitive recipients, while criminalizing or otherwise putting at risk disclosure to those evil 'bloggers.'

  • http://www.blogger.com/profile/13156080225918567393 The Grey Tiger

    The MSM is already controlled by the corporation that own them who are the same one's that control the government with their lobby and campign money. So we have nothing to loose if they go away, print, tv , and most radio news would not leave us any less informed. Those of us who care work hell out of the internet to weed out what we believe is the truth.The fall of print media is just another example of the Free Market, deregulate, merger and funny money finance that tried to wring 30% profit out of a 6% profit business and they did it by firing reporters and running bullshit 750 word puff pieces written to fit a pre determined space. Even the newspaper of previous record has turned into a propaganda rag. If you want the truth you turn to the net sources you have learned to trust GW Blog anyone. (how's that for blowing smoke) Seriously you do a hell of a job and your among my most trusted source list.

  • http://Anonymousnoreply@blogger.com Anonymous

    Stepping back from these arguments, one can ask why the concentration of newspaper ownership happened. Probably it was because, at least for a few years, newspapers were extremely profitable. In large part their profitability was due to classified ads. Before the internet, if private parties wanted to meet to barter or buy, the classified ad was nearly the only game in town, but they were expensive/profitable.The internet did change that profitability picture for newspapers. If you want to sell your old furniture or car or perhaps find a soul mate, no longer is placing an ad in your local newspaper the first thing that comes to mind. Probably it is Craig's list or perhaps eBay. So these conglomerates that stepped in to buy up all the newspaper to take advantage of their profitability now find themselves stuck with a bunch of lemons. They have been squeezing the juice out of them for the last few years and now seem prepared to throw them away.They still could be profitable, though not wildly profitable. With a little TLC and some capital they could spring to life again.

  • http://Alan8noreply@blogger.com Alan8

    I used to read a newspaper every day.I stopped when they started telling me Iraq was behind the 9/11 attacks.I stopped when they were telling me Iraq had weapons of mass destruction.I stopped when they told me an attack from Iraq was "imminent".I stopped when they parroted the Bush Administration's lies as "news".I stopped when they labeled people who questioned the Dick-Cheney version of what happened on 9/11 as "conspiracy theorists".I won't waste time and money to soak up their propaganda. Good riddance!

  • http://Anonymousnoreply@blogger.com Anonymous

    The main business of newspapers is manipulating public opinion and thought to desired positions so that policies beneficial to the controlling elite can be implemented. Every once in a while, there is an event that illuminates just how manipulative and deceptive the media attempts to be, when their self-professed 'superior intellectual' opinion is totally rejected by the public. The most recent such occurence was the 1980 landslide election of Ronald Regean in spite of a very negative newspaper/media campaign. That there was an immediate attempt on his life only shows how his election was not supposed to happen.With gore's global warming political corectness and obama worship being delivered ad nauseum in the mainstream media with no aggressive rebuttal, the media's communist agenda is being delivered on cue to consolidate the power of the controlling elite.

  • http://Anonymousnoreply@blogger.com Anonymous

    The cause of their demise is simple – the reason why they do it is not as simple. Basically, the fact is that, like a drunk – no body believes them any more. They are intellectual prostitutes – and have been for over half a century.“There is no such thing, at this date of the world’s history, as an independent press. You know it and I know it. There is not one of you who dare’s to write your honest opinions, and if you did, you know beforehand that it would never appear in print. I am paid weekly for keeping my honest opinions out of the paper I am connected with. Others of you are paid similar salaries for similar thing, and any of you who would be so foolish as to write honest opinions would be out on the streets looking for another job.” “If I allowed my honest opinions to appear in one issue of my paper, before twenty-four hours my occupation would be gone. The business of the journalist is to destroy the truth; to lie outright; to pervert; to vilify; to fawn at the feet of mammon, and to sell the country for his daily bread. You know it and I know it and what folly is this toasting an independent press. We are the tools and vassals of the rich men behind the scenes. We are the jumping jacks, they pull the strings and we dance. Our talents, our possibilities and our lives are all the property of other men. We are intellectual prostitutes.” – John Swinton, the former Chief of Staff at the NEW YORK TIMES, speaking at the New York Press Club in 1953.

  • http://Anonymousnoreply@blogger.com Anonymous

    They are failing because they refuse to report news, they are too agenda driven. The leftwing influence has destroyed them. If you know the blogs they are much better.

  • http://TKinTexasnoreply@blogger.com TK in Texas

    Thanks for this post. It is so true. The corporate situation has been even worse in TV news, where local stations got used to 40%-50% margins. No one had high expectations for TV news, but it has deteriorated as the stations defend these untenable margins.

  • http://Anonymousnoreply@blogger.com Anonymous

    There was a time when I had three papers delivered to my door. I stopped subscribing when local news coverage went into decline. I can receive international perspectives from the net…in fact papers these days seem to pull stories from Google and present them to their readers one day too late. If the papers want me back I want to see local reporters covering local news and local views on international events.

 

 

Twitter