The network effects that destroyed traditional news organizations are benefiting digital startups, which can grow virally and generate outsized impact in their communities.
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| From Unimedliving |
My teaching colleagues are experts on the economics of the media industry, and we recently had a lively debate on how to reverse the financial crisis of journalism. The collapse of the industry’s business model is endangering the institution of journalism-the Fourth Estate, a counterweight to power–by eliminating journalists and media coverage, especially for local media.
It’s a question that was explored recently by Ken Doctor at Nieman Lab in his report, “Newspapers are shells of their former selves. So who’s going to build what comes next in local?”
Doctor details a number of initiatives by non-profit and for-profit organizations aimed at filling the gaps in local news coverage involving hundreds of media outlets. But using the standard industry metrics, it doesn’t a appear to be sufficient to plug the gaps in the short term without significant changes in the way news media do business. Entire communities are losing news coverage of any kind, a pillar of democratic institutions.
But there is another way to look at this situation. True, at the moment, the news organizations that are making a difference represent a tiny fraction of the news media industry. However, some of the old industry metrics for media organizations–total revenues, number of employees–are not relevant for digital media.
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| Two digital news startups are among the top brands in Spain, as ranked by user loyalty. Reuters Institute 2018 |
The future of journalism lies with the nimble, agile business models that are emerging based on low-cost digital production and distribution technologies, highly focused niche content, and a focus on users rather than advertisers. Among outstanding examples are eldiario.es and ElConfidencial in Spain, Animal Politico in Mexico, and Texas Tribune in the U.S.
The investigative news site eldiario.es started out six years ago with a handful of journalists but competed with the vast newsrooms of the biggest daily newspapers in Spain. Today it has 33,000 “partners” who are paying $67 a year for a free publication that generates $5 million (Spanish) in revenue and is one of the most popular and trusted media brands in the country (Reuters Institute Digital News Report 2018).
What the startup had was a sharp focus: coverage of corruption in politics, business, and media. What it didn’t need was an enormous infrastructure for production and distribution (printing press, office building, delivery vehicles, distribution network) nor any of the accompanying debt load.
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| Two digital startups, eldiario.es and El Confidencial, are among the most trusted news brands in Spain. |
The new models
The success of eldiario.es is one of many emerging models. Here is a composite of some of the promising trends in digital journalism:
- A small newsroom of from 10 to 25 journalists (sometimes they grow much bigger)
- Narrowly focused value propositions–investigative journalism, long-form enterprise reporting, deep coverage of specific topics (business, finance, health, education) or issues about community needs and problems rather than chasing clicks with sensational breaking news
- Assisted news production by volunteers, crowd-sourced data and coverage suggestions
- User-generated expert columns
- User-funded models based on engagement, credibility, and trust, rather than an advertiser-funded model based on scale and clicks
- Nearly zero-cost distribution through digital channels
- Audience assisted distribution through social networks
- New genres of multimedia storytelling made possible by powerful, inexpensive digital tools, such as interactive maps and graphics powered by data and video and audio editing tools for mobile reporting
- Constant innovation in content and distribution as tastes and technologies evolve
- More organizations focused on public service, fewer focused on returning profit to investors
So, the bad news is that the news industry as a whole will employ fewer people. And the individual news organizations will be much smaller than in the past. Total revenues will be much less, but so will total costs. The new models will be lean and agile.
These new news organizations are able to grow rapidly, like a virus, based on the network effects of digital communication. A digital startup will be able to reach an audience of millions in a matter of months or years.
A recent study of 100 digital media startups in Latin America that I participated in as an editor and researcher found that these organizations were having impact locally, nationally, and internationally. But at the same time, their total revenues of around $15 million annually represent a tiny fraction of the industry.
Many of these digital startups, especially on the local level, will appear and disappear rapidly, but the accumulated learning will fuel their successors. Every failure contains the seeds of the next potentially successful startup. This process of trial and error has provided the basis of every major industry we have today, from agriculture, to textiles, to automobiles, to pharmaceuticals, to computers, to mobile phones. These industries moved from the cottage (or garage) to the workshop to the factory.
The network effects that destroyed the traditional business model of news media, sending advertising revenue to the technological platforms, are also benefiting the news startups. How else to explain an email newsletter for young professional women, TheSkimm, which grew to 7 million email subscribers in six years? It has attracted millions of investment.
The enemy: inertia
And while there will be some news organizations run as successful businesses generating profits for investors–the American Journalism Project is investing in them–the trend is toward news media as public service organizations whose main goal is to improve the quality of life in their communities rather than generate a return to shareholders.
The digital forces that destroyed local journalism can power the public response. And that can happen quickly. The biggest obstacle to this, says one of my colleagues, is inertia. Some media owners seem content to milk the profits from their enterprises until all that remains is the fixed assets, which they will then sell off.
As long as leaders of government, business, and media fail to take action, we will see a continued rapid decline. But this media revolution is not coming from the top down; it is coming from the bottom up. It might take longer, but it also might be more enduring.
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