A Case Study In Bailout Pointlessness: The Suicidal Business Model of Newspapers in the Internet Age
ByIn Reflections on the Revolution in France, Edmund Burke warned against ideological devotion and its potential to cause human suffering. As the federal government dramatically increases the size and scope of its influence, we think it is an opportune time to appreciate that when ideology conflicts with reality, reality always wins. This principle is true whether the dreamer who refuses to submit to the constraints of reality is an environmental purist, an idealistic pacifist, or an industry trying to compete on terms of its own invention. It is, however, the increasingly adamant protection of delusional industry that concerns us the most.
In the recent past, the predominant focus of trendy progressive movements was too often to use government as leverage in a grand philosophical struggle with human nature about what ought to be. When Pat Buchanan recently regretted that “We are all Kensians now,” he harkens back to another era when conservative columnists and commentators, such as the esteemed Henry Hazlitt, made careers out of debunking the belief that deficit spending to trigger consumption could be a miracle guarantee of economic growth and a suitable replacement for greater productivity achieved through hard work and reinvestment of savings.
We agree that the age-old ideological drive to change the world often leads to costly and unfortunate unexpected consequences, but the accelerated rush to defend the ideological and dogmatic decision-making of key companies and industries in the United States is even more disheartening. It doesn’t take reference to Friedman or Hayek to understand that our economy avoids the weakness of delusional players by making them pay directly for the costs of their mistakes. If you are wrong about people’s tastes and preferences and you cannot change them, you will be forced to take losses until you acknowledge the flaw in your thinking, readjust, and adopt an approach more consistent with reality. It is through this process — and not through bailouts, regulation, and stimulus — that we stay sharp and competitive.
On top of the recent attempts to bailout financial groups that made both faulty and trendy mistakes and an auto industry eager to survive without the pain of adaptation, last week we heard talk of legislation to allow struggling newspapers to convert to non-profit entities without tax penalties traditionally associated with the process.
What we didn’t hear last week and haven’t heard in the last few years is any flexibility from the newspaper industry when it comes to loosening the ideological business models that are, in no small part, responsible for their economic woes. Two such injurious models come to mind:
First, newspapers believe they must give away their content on the web to end users and competitors in order to be successful. About ten or twelve years ago, there was a fairly short industry-wide conversation about the relative merits of subscription-based business plans for the web versus “free” advertiser-supported models. The web was still young, but with a few exceptions, the industry turned with devotion to entirely “free” advertiser supported sites.
Today, despite massive failure, the wisdom of this business strategy is embraced with ideological fervor. Newspapers and the mainstream media have helped to create the legion of online bloggers that many of their subscribers prefer as their portal to current events. Millions check Matt Drudge’s DrudgeReport for news throughout the day, but Matt Drudge rarely writes original content. His excellent site is usually merely a collection of links to intellectual property prepared by newspapers and mainstream media sources. Traditional media eats the costs while Drudge feasts on the revenue rewards.
Second, newspapers believe that they should continue to passively present their content as “objective” even as evidence shows people either don’t believe they really are objective or don’t want an objective frame on their news. Last week in the cable news race, the right-leaning Fox News Channel came in number one in the ratings while the left-wing MSNBC edged out the purportedly objective CNN channels in similar time slots. It would appear that either people want to listen to cheerleaders and pundits they agree with on Fox News or MSNBC or that they don’t think CNN’s purported objectivity is valuable. Newspapers such as the Washington Times and the Orange County Register have long survived and even prospered on the impression that they come from a different perspective, but most newspapers refuse to align themselves while, at the same time, refusing to sell the benefits or authenticity of their objectivity. While subscriptions are falling, right-wing and left-wing journalistic “objectivity” watchdogs are on the rise, and newspapers refuse to ask whether they should adapt to this environment.
Instead, newspapers are looking to government to help them find a way of surviving while operating under an unrealistic business model. The sting of the marketplace should cause newspapermen to rethink their premises rather than look for help from Congress. The marketplace is valuable not only because it provides the incentive of a call to wealth, but also because it provides a wake-up call to those whose wealth could otherwise lead to stagnation. We urge legislators to announce that they will let newspapers fail and watch as the industry struggles, adapts, rights itself, and emerges leaner, stronger, and more effective than ever.
