Newspapers and Beyond: The Loss of Beneficial Inefficiencies

Henry Blodget at Business Insider offers the latest evidence of what’s wrong with the news business.  Take a good hard look at the advertising revenue numbers below.  Simply put, newspapers don’t have a readership problem.  They have a revenue problem.

This isn’t the first time we’ve seen charts like this.  Pew reported similar numbers in 2009.

In The MoveOn Effect, I talk about the decline in classified ad revenues as an example of a general class of problems: the loss of beneficial inefficiencies. (I also have blogged about it here and here.)  Those classified ad dollars haven’t been stolen away to someone else.  They’ve disappeared.  The old advertising system was inefficient — if you wanted to reach potential customers in Charlottesville, VA, you probably had to broadcast to the whole town, and there were only a few venues around.  Clay Shirky called this “Walmart subsidizing the Baghdad Bureau.”  Online advertising is more efficient — more options for reaching customers (some free), more data on who those customers are.

More efficient communications markets are supposed to be a good thing.  Indeed, plenty of good is coming from the new media environment (Hey, #Eastwooding was fun!).  But we face an unintended consequence when those inefficient markets were providing revenue streams that subsidized public goods.

The most publicly-valuable types of reporting (local news, international news, investigative journalism) tends to also be high-cost, low-return work.  You get higher margins from the entertainment and sports beats than you do from sending a reporter to sniff around at public works subcommittee meetings.  When ad revenues were going up, profit-conscious news conglomerates could afford to pay for public-interest journalism.  Once they cratered, the types of journalism that society needs most were also the types ending up on the chopping block.

This problem is most visible in the news business, where we’re aware of the stakes and can publicly track the data.  But it appears in other areas as well.  Nonprofit advocacy organizations relied on direct mail membership fundraising for 30-40 years.  That wasn’t their only revenue stream, but it was a big, reliable, important one.  The decline of direct mail and redefinition of organizational membership is based in more efficient communication tools.  It’s generally a good thing that organizations can communicate with and hear from their supporters better than they did 30 years ago.  But it also disrupts a beneficial inefficiency that subsidized robust civil society organizations.

As with journalism, this doesn’t signal the end of all nonprofits.  But it does mean that high-cost, difficult-to-fundraise-for work goes underprovided.  It’s easy to raise money for attack ads.  It’s hard to raise money for long-term community organizers.

Think of beneficial inefficiencies as an alternative to the “on the one hand/on the other hand” debates about the Internet and society.  We don’t need to be internet optimists and internet pessimists anymore.  Instead, we need to look at how the new communications environment changes markets and changes institutions, then analyze what social goods are unintentionally challenged along the way.