Call me a contrarian on this one. But 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. Gone are the bureaus in Mexico. Today book reviews are now outsourced !for free! to bloggers via syndication. (And while it is well and good to have one’s name in print, I’d submit most would like some earnings off their intellectual property, as well.) Local arts? The office in DC? Well, that’s the AP, now. So, today, San Antonio has one daily that is as flimsy and tiny as the local alternative. The only real strength left with the local daily is the City Hall coverage. Everything else has been outsourced to the wire services or people writing for free. It’s hardly more than thirty pages. That’s a lot of wealth destruction and job loss in twenty years. And 80% of this happened before Al Gore even invented 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.
And while I agree with the overall thrust of Massig’s argument here, mostly because I think we are too far gone to get back to where we started, I think the overly obsessive focus on large profits, or the free market in general, when it comes to journalism is wrong.
The question that journalists inevitably ask Google, Schmidt went on, ”œis, okay then, why don’t you just write us a large check?” The problem, he said,
is that just transferring money from an area where we’re making a lot of money to an area where we’re making little money does not solve the problem for the long term. You’re fundamentally better off building the new product that is profitable and growing – again with the news, with magazines and so forth. It’s better for everyone. Because ultimately a subsidy model is a temporary solution. It’s not a long-term solution.
On that point, I think Schmidt is right.
No, Schmidt is wrong. It’s not about subsidies. It’s about money. And it’s about profits. And it is all about collecting obscene profit margins. When you run a public service it’s reasonable to expect reasonable rates of return. But not obscene ones. Same with the banks. Same with the cable news programs. Same with network news and newspapers. Reasonable profits are sustainable. The Google model is not.
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.
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