What Is A Traditional News Source To Do?

Newspapers are poised to see a decline in ad revenues for a 5th consecutive year.  And while most of this drop is due to a loss in print ad revenue, the fact that Google, AOL, Microsoft, Yahoo and Facebook are expected to command 72% of the digital ad revenue market in 2012--up from about 68% in 2011--does not bode particularly well for the ability of news sites to cover these losses.

Net US Online Ad Revenues at Top 5 Ad-Selling Companies as a Percent of Total Online Ad Revenues, 2009-2012

It thus begs the question: what is a traditional news source to do?

The ideal solution would be to find a means of subsidization for the provision of news content.  Bloomberg L.P., the New York-based financial data and services company, with its $6.9 billion in revenues--85% of which come from its Terminal--has become the preeminent example for why this is the case.  As other news organizations are currently in the midst of contraction, Bloomberg is expanding at a rapid pace and has surpassed both the Wall Street Journal and the New York Times combined with its 2300 reporters.  In addition, with its 2009 takeover of Businessweek and with its 2011 launch of Bloomberg View, the company's new division for opinion-based news, Bloomberg is now pushing itself into the space of many of its competitors and appears to be engaging in an ostensible attempt to crowd them out.

Thomson Reuters, the "world's leading source of intelligent information for businesses and professionals," is another such example.  Despite posting flat revenue gains this past year in its media divsion, the company was nevertheless able to grow at 5% due to the value of its various other information products.  And the Financial Times Group, which has added to its vast holdings in recent years with acquisitions of  Medley Global Advisers and Money-Media and which operates FT Business, an investment consulting arm of the company, is increasingly looking to subsidize the Financial Times in a similar fashion.

The problem for traditional newspapers, however, is that these successful supplementary businesses are what Jay Rosen calls "logically-related."  That is, the nature of both the informational structures of these companies and the type of information itself--privy financial data--makes these supplementary businesses not only high-margin in nature but also relatively low-cost to pursue.

For generalist organizations like the New York Times or the Washington Post, the noticeable lack of these two elements would suggest that this structure would therefore fail to translate (If anyone can think of a supplementary business service that one of these papers could employ that feeds into their primary business model, explain it in the comment section!).  Thus, it would appear that acquiring unrelated businesses for the purpose of subsidization would, if possible, appear to be a logical middle ground.

However, it is worth noting that this solution is not infallible.  For example, the Washington Post Co. discovered this firsthand last week, as its profits for the 4th quarter of last year were reported to have fallen 22% due to a 23% decrease in enrollment at its Kaplan education unit.

Obviously, there's no clear answer.  What do you think is the best approach?

About David

David Helene is a senior economics major from Brooklyn, New York. He recently just completed an internship at Bloomberg View.
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