To understand what went wrong with digital publishing, we need to go back to the fat years of newspaper journalism that preceded it.
On March 9, management at HuffPost notified 47 employees that they were being laid off as part of a cost-cutting effort following the digital journalism pioneer’s acquisition by BuzzFeed. The brass handled the layoffs in a particularly ham-fisted way, but no amount of finesse would have made so many pink slips any less brutal to the staffers.
For years now, journalists have watched their industry produce a steady stream of mass layoffs and closing publications. Incompetent executives, greedy owners, acquisitions, and consolidations tend to get the blame, often with good reason. But the reality is that many early-21st-century news organizations are simply not financially viable; they don’t bring in enough money to pay their expenses. Indeed, many of them were never financially viable to begin with. The whole digital news industry has been based on lies.
Twenty years ago, I launched what has turned out to be a reasonably successful small, digital publication: Talking Points Memo. The cost of entry was enticingly low. I started for just $50 a month on a hosting account, which I used to reach readers across the country and around the world. But the low cost of entry that enabled the success of outlets like TPM proved enticing.
Soon, investment dollars flowed into an array of outlets, funding an efflorescence of digital news media. Tech-centric venture-capital firms, in particular, jumped at the chance to deploy their familiar model, pushing in a different direction from TPM’s, building scale and using network effects to lock in dominance and profitability.
So why didn’t it work?
To understand what went wrong with digital journalism, we need to go back to the fat years of newspaper journalism that preceded it.
For several decades in the latter half of the 20th century, most American cities and towns had a single newspaper. Even many of us who were alive then find it difficult now to comprehend just how geographically isolated information and news were at the time. If you lived in Southern California in the 1970s or ’80s, for example, and wanted to stay abreast of the news in all its dimensions, you had little choice but to subscribe to the Los Angeles Times. Some cities and towns had two papers, but the same basic model operated almost everywhere in the United States. That gave these publications a de facto monopoly on commercial speech in their region.
Television, radio, and billboards complicated the monopoly power enjoyed by newspapers a bit—but not much. Car dealerships, movie theaters, and clothing stores had to advertise in the paper. If you wanted to hire or be hired, you had to advertise in the paper. Many publications folded over the course of the 20th century, but once a city was down to one or two papers, publishing was a very lucrative and stable business. Our understanding of how journalism is supposed to work is based on this relatively transitory period in the history of American journalism.
The internet destroyed those local monopolies in the late ’90s, and most papers have never recovered. Suddenly, readers in Omaha, Nebraska, had countless news sources to choose from, and advertisers had limitless options as well. Inertia carried some publications forward for a time; things took a few years to shake out. But the crucial point is that almost all of the elements of good, newspaper journalism—big newsrooms paying middle-class salaries and giving reporters the time to get the story right—were made possible by those monopolies. Without them, there would have been no 20th-century newspapers as many of us knew them.
Out of this creative destruction, digital news journalism was born. And for all the digs about clickbait and “fake news,” the past 25 years have seen a wealth of innovation, creativity, and great journalism online. After one quick cycle of boom and bust in the late ’90s, oceans of investment money poured into digital news publications. They went from success to success, leaving print newspapers in the dust. The Huffington Post was perhaps preeminent among these success stories—launched in 2005, sold for a fabulous $315 million in 2011—but there were many others.
From the start, though, there was a problem. The super-low costs of entry and the lack of geographic limitations that were key to the explosive growth of digital journalism were also key to its undoing. These new publications had no way to recreate the profitability and stability that the old regional monopolies had made possible.
Have you ever wondered why digital ads, which were fairly sedate 15 years ago, suddenly started taking over your screen or demanding your attention with hideous images? Or why publications let advertisers track you across the web? It’s simple: The chronic oversupply of publications chasing a fixed number of ad dollars has required publishers to continually charge less for ads that demand more of readers. For the biggest players, which scaled up quickly to dominate digital media, there was—at first—enough money to go around. But most digital publications were funded on the premise that scale would eventually lead to dominance and stability, much as it had with technology firms. News publishing, however, doesn’t work that way.
By the middle of the 2010s, the highfliers were still flying high, but their success was mostly an illusion. They were sustained by ongoing infusions of equity investment, all in the hunt for eventual dominance and lock-in. And this is where the real darlings of venture-capital investing, the emerging platform monopolies, came into the picture decisively. Scaling up quickly and wiping out competitors didn’t work in the news business, but it allowed platforms such as Google and Facebook to take control of the advertising industry, and they took an ever-mounting share of its profits for themselves.
Platforms dissolved the privileged space that publishers held in the advertising economy, sending ad revenues at digital publications into sharp decline. Investors realized that the tantalizing prospect of ad revenue lock-in that had always appeared just over the horizon was an illusion, so they shut off the investment spigot. Publications that had spent lavishly to build up scale were suddenly whipsawed by catastrophic declines in their two primary sources of money.
Many of the jobs that have disappeared over the past three or four years never had business models that could sustain them—at least not in the old-fashioned sense of bringing in more revenue than they cost. These hires were made in pursuit of a theory of publishing economics that was simply wrong. The journalists themselves, in most cases, weren’t read into this part of the equation.
Not all publications are doomed. A few big, metro newspapers have evolved into national outlets, blending ad dollars with increased subscription revenues. They have reporting resources that are difficult to match and serve a broad audience. Successful D.C.-centric political publications operate in a unique advertising market, tapping into corporate America’s lobbying budget, and they’ll continue to thrive. Other publications, such as The Atlantic, are operating sustainably in various niches of their own, leveraging a unique vision or approach to the news and the reader loyalty this earns to produce subscription revenues. Outlets with no subscription revenue are a rarity in publishing history. Television and radio are the exceptions that prove the rule, succeeding because broadcast licenses are scarce, which has allowed them to command sustainable advertising rates.
All of this is to say that news publishing is a tough business. It requires finding an unserved niche, providing some unique service, and building a durable relationship with a specific customer base. But that’s really no different from most forms of commerce: doable, but hard; potentially profitable, but usually not wildly so. In digital publishing, scale was the god that failed. And thousands of journalists went along for the roller-coaster ride, without anyone warning them how it was bound to end.
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