Newspapers and the Three-Legged Stool
Despite being two of the most well-read news outlets in the world, both the Wall Street Journal and the New York Times are in serious, financial trouble for a simple reason. Though part of the WSJ is subscription-based (yeah, who does that?), most of their online revenue is derived from advertising. Walter Isaacson describes the failure of this model in a recent Time Magazine article, How to Save Your Newspaper:
This is not a business model that makes sense. Perhaps it appeared to when Web advertising was booming and every half-sentient publisher could pretend to be among the clan who “got it” by chanting the mantra that the ad-supported Web was “the future.” But when Web advertising declined in the fourth quarter of 2008, free felt like the future of journalism only in the sense that a steep cliff is the future for a herd of lemmings.
Newspapers and magazines traditionally have had three revenue sources: newsstand sales, subscriptions and advertising. The new business model relies only on the last of these. That makes for a wobbly stool even when the one leg is strong. When it weakens — as countless publishers have seen happen as a result of the recession — the stool can’t possibly stand.
Incidentally, Mark Cuban’s announcement of an Open Source Stimulus specifically states that he won’t invest in a business that “generates any revenue from advertising.” Why? Because it’s a lost cause. Ad revenue might bring in a sustainable living for a few bloggers working out of their homes. But for large and (sometimes) inflated organizations like NYT and WSJ, that model just isn’t good enough. The other two legs of the stool are missing. And both investors and media-types are beginning to understand this new reality.
There’s a finer point here that while the free market is currently speaking loudly about these 2 organizations, their content remains relatively free and undervalued as far as the end-user is concerned. They are operating in unchartered territory in which there is not a stable model to go by. There is currently no “market” in this free market equation.
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