The media and the internet: The history of a failure - Online journalism 1/3

This is the first of three introductory lectures in online journalism I gave at the Akademie Mode & Design in Berlin. It is a loose translation of a previous essay of mine, Comment une industrie a raté le virage des données et du numérique.

In January 1996, Mark Zuckerberg was 11, Google did not exist and the New York Times launched its website. Almost all major newspapers went online in the second half of the 1990s, years before most of the internet giants were even created.1

It seems hard to believe nowadays, but the media, and newspapers in particular, were vastly profitable enterprises at the time. In the last decades of the 20th century and until roughly 2005, they were wealthy and, in many cases, independent and powerful.

Today, many of the major news outlets suffer financially, and all of them fear the decisions of Google, Facebook and Apple. Not a few receive money from these online giants, either because they became their content suppliers or because they accepted grant money.2 As for their political influence, the scoops that some outlets still publish should not obscure the fact that voters ceased to follow their advice a long time ago. In the 2005 French referendum or the 2016 United States election, the media almost unanimously supported the losing side.

How did such an important industry manage to climb down the social ladder in less than two decades? Why did the media, powerful as it was in the 1990s, lose against Californian startups despite arriving online first? Was their downfall unavoidable or did they fail to act when they still had the opportunity?

The missions of offline media

Describing how newspapers operated in the late 20th century, Warren Buffet, an investor, said that “no [company] in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”3 This was how good newspapers had it.

Indeed, until digitization came along, the media were in a very envious position. Bringing content in front of an audience necessitated huge investments. If you wanted to put a newspaper in the hands of a large number of people, you had to set up a printing press and, more importantly, create a distribution network. If you wanted to provide video or audio content, you needed a recording studio, a license from the national regulator and antennas to broadcast the signal. The barriers to entry were so high that competition was low. In fact, in most cities, there was no competition at all because newspapers had merged into monopolies.

Once the hardest part of the job was done (e.g. once you had access to a printing press or a studio and had a distribution network or a broadcast license), you could use the investment to provide a wide array of services. You could provide the news that some people wanted or you could provide entertainment, that more people wanted. And, if you were a newspaper, you were the only place in town were people could post and read classifieds (job offers, ads for real estate, garage sales and so on).

Not only did newspapers provide a variety of services, they were also products that people bought. The paper was used to start the fire in the stove, to pack meat and fish and, from the beginning of modern hygiene until the arrival of toilet paper in the 1930s in the United States and in the 1950s in Western Europe, they had another very important role in the house.

The double blow

Digitization unbundled the missions the media provided - and this changed everything. It started in the early 1980s with the arrival of cable television. The cost of a television license went down and broadcasters could create specialized channels. MTV launched in 1981 and Discovery Channel in 1985, for instance. Audiences liked it, but advertisers loved it, as it allowed them to target their message much more effectively.

The internet continued this trend towards personalization and “unbundling”. While traditional broadcasters and newspapers had an incentive to bundle as many services as possible (remember, the hard part was to get the media off the ground, not running it) to get money from as many customers as possible, the internet was the opposite. There, at least in the 1990s and 2000s, the costs of creating a website were very low and the costs of content distribution were almost zero. You could start an online service for a few thousand euros and have millions of users in very little time, without the need for much investment.

This let companies specialize in different services and dealt a first, huge blow to the newspaper industry. If you want to rent an apartment today, you don’t buy a newspaper. You go to a website like immonet or immoscout24. Starting in the 1990s, internet users discovered how much more practical online services were compared to their paper equivalents and did not go back. In the 2000s, advertisers followed them and newspapers lost the classifieds business.

The second blow came in the 2010s, with the advent of mobile devices. Online giants, who, until then, were merely successful startups, began to capture all of our attention, all day long. Google and Facebook not only benefited from the time we spent on them, they also acquired massive amounts of information of their users, which they could resell. As an advertiser, you had the choice between newspapers, who let you reach a vast number of undifferentiated readers at a high price, or Facebook and Google, who let you target only the audience you wanted, at a much smaller cost. It took less than a decade for advertising budgets to leave newspapers.

The online contradiction

This double blow make it seem like the downfall of the media was unavoidable. This is not the case. Remember, media outlets were online before everyone else. They had more time than anyone to study and understand how economic forces worked on the web, but most of them did not.

Instead, they fell in the trap of the “page” analogy. They thought of web pages as the equivalent of paper pages and tried to copy their offline product on the web. This was a massive mistake. Not only is this strategy not smart, it is contradictory.

The three missions of the media, offline, (provide content to users, sell attention to advertisers and sell classifieds) are mutually exclusive, once online. Classifieds, for instance, benefit from specialization. People who search for a flat are not the same as those who look for a job - it makes sense to have two separate services for each.

More subtle is the contradiction between advertising and news content. To sell advertising, you need as big an audience as possible. To be a credible news content provider, you need to check your facts and make as little mistakes as possible. News, however, is of little appeal to massive audiences when it is not sensational or highly emotional. To reach large audiences that they could sell to advertisers, media outlets went for sensationalism and lowered their quality standards, which negatively impacted their image in the eyes of those most interested in news content. You can see the contradiction when a news outlet publishes a story about fake news while showing links to false or misleading articles in the article’s footer.4

An absence of vision

The reason most news outlets did not see the contradiction lies in their lack of vision. On the one hand, newsroom employees had a hard time understanding the internet because they did not understand why people bought or consumed traditional media.

News content was just one of the many services newspapers provided, and people also bought newspaper for the paper component. Journalists were shielded from this fact by the “Great Wall of China” (the term they often use) separating the newsroom from other activities of the news organization. Originally imagined to protect journalists from pressure from advertisers, it ended up providing a justification for the lack of interest many journalists showed for the commercial side of their business. For journalists, it was much more rewarding to think that people bought the paper for the news section, even if most readers were really interested in the job offers.

This attitude did not help when journalists saw audiences flock to articles such as “What color is this dress?”5 Many journalists were torn between dumbing down their articles to make it to the “most shared” list of their websites, dismissing their audiences as stupid or leave the industry altogether to take a job in public relations.

More consequential was the lack of vision from management. Their approach to the internet often resembled the cargo cults of Melanesia.6 On these small islands of the Southern Pacific, Japanese and American armies set up airfields and bases during the second world war. In order not to be disturbed by locals, they gave them food and cargo. After the war, as the occupying armies left, Melanesians looked for a way to bring the cargo back. Having noticed the link between cargo and airplanes, they recreated airfields in the hope that foreign planes would land again. These practices, some of which survive to this day, were called cargo cults by anthropologists. Melanesians spectacularly failed to distinguish between correlation and causation: although airfields were necessary for the cargo to arrive, the root cause of the deliveries was the war.

Many media managers applied the same bogus logic to their own companies. They observed how youngsters in Californian start-ups were raising billions simply by creating websites. Instead of looking for the causes of their own downfall, some media executives set out to ape what the Californians were doing.

The most spectacular cases of cargo culting in the news industry are News Corp.’s acquisition of MySpace in 20057 and, closer to home, the similar move made by Holzbrinck on the social network StudiVZ in 2007.8 In both cases, media giants thought of social networks as a great way to sell attention wholesale to advertisers, nothing more. They ruined user experience to rake in more money and, within a few years, Facebook had made MySpace and StudiVZ irrelevant.

Beyond these two exceptional failures, each technical novelty has been viewed as the solution to the industry’s woes. In 2010, some saw the iPad as a savior9, then, in 2014, mobile phones in general.10 In 2016, it was crowdfunding,11 and the blockchain in 2017.12 And these are just the links you will find if you Google “will * save journalism?”. It does not include the other would-be silver bullets such as blogs, coupons, Instant Articles, chatbots and artificial intelligence.

Many decision-makers failed to understand the dynamics of the internet and ended up following buzzwords from conference to conference. Some, however, saw the potential of digitization early on and defined coherent strategies. Schibsted, a Norwegian publisher, or Axel Springer, the German powerhouse, started early on to acquire online properties and are now profitable corporations running classifieds, advertising and content businesses online. For Axel Springer, this three-pronged strategy is visible in brands such as Immonet (classifieds), Idealo (advertisement), Bild and Welt (paid content).

Litigation as the only strategy

The strategy that was most largely followed by media outlets in Europe was, by far, litigation against online services. The music industry showed the way in the early 2000s, when it sued peer-to-peer networks such as Kazaa. The first European publishers to go against online offerings were the French book industry, in 2006, which sued Google Books on copyright grounds.13 Belgian news outlets followed with a complaint against Google News that same year,14 the Germans did so in 2012.15

All these stories follow the same pattern, but the Spanish publishers’ is the most exemplary. In the late 2000s, they banded together against Google and demanded that the government change the copyright law so that Google would be forced to pay them royalties when it showed article snippets on Google News. Google challenged the law in court and lost. After that, Google discontinued its Google News offering in Spain - and Spanish publishers yelled that this move was a threat to Spain’s democracy.16 In Germany, publishers pressed for a similar law (passed in 2013) but, informed by the Spanish fiasco, did not try to have it implemented.17

This series of legislative and legal actions were not about competing with Google (if it had, publishers would have jumped at the opportunity to replace Google News). They were a show of force. Google showed that it was more powerful than publishers (Spanish publishers lost revenue from the closure of Google News, Google did not) but publishers showed that they could yield enormous influence in governments and parliaments.

Google decided to buy the peace with publishers. After each legal action, Google set up programs and funds, ostensibly to help publishers digitize their business ; in reality to prevent them from joining forces and to keep them busy.18 Facebook, Amazon or Snapchat follow strategies similar to Google’s, engaging with news outlets and paying them hefty amounts to prevent any aggressive action on their part. Internet giants now subsidize the European news industry with millions of euros each year and largely sponsor or even entirely finance professional conferences and events.

The media is safe, but journalism isn’t

A lack of vision and decisiveness from management pushed most news organizations in Europe in a downward spiral, losing both quality and readers. Many survive thanks to the largesses of governments, internet giants or, in many European countries, oligarchs. (Germany is remarkable among European countries because few of its media organizations are owned by non-media oligarchs, due in part to the financial robustness of many news outlets and in part to a tightly-knit network of publishers that prefer to sell their properties among themselves).

The downward trend was not a fatality, as the stories of Schibsted and Axel Springer show. But even they do not invest in journalism outside of their home markets.19 For them and for others, news and journalism ceased to be a core component of their business and became a prestige asset, used at least in part to yield political power.20

We are now at a time when the upheaval caused by digitization slowed down dramatically. The environment that allowed online-only newcomers such as Buzzfeed to rise to prominence in a few years is gone, mostly because a few companies are now attention oligopolists (Google, Facebook) and others are distribution oligopolists (Deutsche Telekom, Vodafone), both of which exact a huge price from their dominant position. Concretely, to start a mass media today, you would need to pay these companies just to reach your audience - although it was for free less than ten years ago. Several successful start-ups emerged and some became profitable, such as Mediapart in France, De Correspondant in the Netherlands or Krautreporter in Germany, but none of them has the prestige and clout of traditional media brands or reaches massive audiences like the Huffington Post. New outlets are being created but the next media start-up is very unlikely to reach the size of current internet giants.

More importantly, the media will not disappear in its current form because they are too important a part of the political system. Could you imagine a press conference without journalists? A political rally without swarms of photographers? An extremist politician not blaming “the media” for everything?

The media is saved but journalism suffers. The long-term strengthening of authoritarian tropes in the United States and in Europe encouraged assaults on dissenting media voices. This lead to the downfall of Gawker, a news website, in the United States, shut down by oligarch Peter Thiel,21 the sale of Doğan media group to a friend of the government in Turkey,22 the multiple sales of Hungarian media properties to friends of Orbán…23 the list is long of the newsrooms maimed or killed by the rich and powerful in the last five years. Online media is especially vulnerable to such attacks because it has no tangible presence. Even its archive, absent any specific measures, can be deleted or modified to suit the new owner’s taste.


Most news outlets were struck by the internet twice: first by losing classified advertising to newcomers, then by losing their audiences’ attention to Google and Facebook. Most of them failed to adapt due to a lack of vision from management. However, very few went bankrupt. European media outlets still yield political clout, which is valuable to internet giants (which pay media outlets for them to keep quiet) and to oligarchs looking for vehicles to channel their influence. These last trends, coupled with the consolidation of the internet landscape, ensure the future of the media. But journalism and journalists face other challenges, which are the focus of the next part, “From digital sweatshops to the integrated newsroom”.

Cover illustration: John Heartfield, Rationalization on the march, 1927.

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Notes

1. Not all European newsrooms were online so fast. At France3 Pays de la Loire, a regional television station in France, for instance, computers arrived in the late 1990s.

2. Snapchat offered to buy content at a fix price, for instance (read Snapchat wants to stop sharing ad revenue with its media partners). Facebook paid millions for media outlets to produce live videos (read Facebook looks like it’s going to stop paying publishers to make live videos).

3. Buffett Pessimistic About Newspapers, Washington Post, 2 March 2007.

4. For instance, NOT REAL NEWS: A look at what didn’t happen this week, AP, 10 November 2017, lists a dozen links to misleading stories offered by Taboola.

5. For context on The Dress, read For BuzzFeed, The Dress Is One Color: Green, AdAge, 27 February 2015.

6. I took the cargo cult metaphor from Stijn Debrouwere.

7. Read News Corp.’s Failed Social Experiment: Why MySpace Didn’t Deliver.

8. Read Is StudiVZ – Holtzbrinck’s once-proud “German Facebook” – on the brink of collapse? and German Social Network StudiVZ Sold To Holtzbrinck For $112 Million.

9. For instance: Will Apple’s iPad save the news industry?.

10. How the Smartphone Ushered In a Golden Age of Journalism.

11. Will crowdfunding save journalism?.

12. Blockchain: so that newsrooms can go back to doing what they do best.

13. Read L’alliance de Google avec les éditeurs (2) : en France, après les procès, les accords.

14. En conflit avec la presse belge, Google accepte de l’indemniser.

15. VG Media reicht Klage gegen Google ein.

16. Google News says ‘adiós’ to Spain in row over publishing fees.

17. An EU-wide ‘Google tax’ in the making?

18. I wrote about the issue in What could Google do if it cared about Journalism?

19. After a spending spree to acquire news publishers in Central and Eastern Europe in the 1990s and 2000s, Schibsted and Axel Springer (and others) are now selling their assets to focus on classifieds instead of news. Read Ringier Axel Springer Media sells the most popular daily and acquires online assets for a recent example from Slovakia.

20. If news were an actual, profitable business for media companies, they would run news operation outside of their home market. If it was not a profitable business, they would sell their assets in their home markets as they did sell what they owned in foreign countries. Hence, their news operations are not driven entirely by direct business interests.

21. Nick Denton, Peter Thiel, and the Plot to Murder Gawker.

22. Doğan media group sale completes government control of Turkish media.

23. Fidesz-tied oligarchs now control all 18 regional daily newspapers.


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