Here’s why people won’t pay for news: No one does journalism anymore


I opened my Yahoo home page today and read the news headline “Outgunned Kurds Beg US for Weapons to Battle ISIS” and its lead paragraph.  “Interesting,” I thought, so I clicked on the item, expecting an expanded story from a news agency. What I got was the Huffington Post. 
 
“OK, they are becoming a decent news source,” I reacted. So I began reading, only to realize they gave me two paragraphs before redirecting me to Newsmax for the entire story. 
 
Newsmax is a news site established with the aid of politically conservative political figures and journalists. That doesn’t preclude them from reporting news accurately, but can influence their news choice, analysis and opinion. Nevertheless, I read the 14-paragraph story written by Drew MacKenzie. It was a sound story. However, it only paraphrased a story by Washington Post reporter Terrance McCoy, “The strongest military left in Iraq has not stopped the Islamic State.” So I decided to read the original Post story.
 
When I got there I discovered that McCoy relied entirely on secondary sources: quotes from other journalists, a statement by President Obama and a quote the president attributed to an Iraqi parliamentarian, some previous Washington Post stories, online photographs, a New York Times interview, and an essay by a foreign policy specialist.
 
4 news organizations. 4 stories. No original sources. And no fact checking, I suspect.
 
Setting aside the problems this illustrates about journalism practices today, this example of news linking underscores why news organizations are having trouble getting people to pay for news.  As this case shows, they are doing nothing new, adding nothing or little, and essentially copying each other and themselves. This gives readers nothing they cannot get elsewhere, so how can they expect people to see it as valuable. 
 
This value creation deficit is especially a challenge if news organizations want readers to pay for journalism, but it is increasingly a problem even in asking them to spend time reading free content.
 
This kind of cheap news of dubious value will cause the death of many news providers in the coming years. If news organizations don't change their behavior, it will be death at their own hands.
 

Loss of a competitive market is afflicting U.S. single-copy magazine distribution


Single-copy magazine distribution is undergoing a remarkably unheralded transformation and it has enormous implications for both publishers and consumers.
 
Each year about 3 billion copies of magazines are distributed to 150,000 retail outlets within a large and complex distribution channel. This is extremely important to publishers because it produces about one quarter of circulation revenue and is used to promote subscription and introduce new titles.
 
In simple terms, the system operates by publishers selling copies to wholesalers and wholesalers reselling the copies to retailers. However, retailers return unsold copies to wholesalers for a full refund and wholesalers return them to publishers for a similar refund.
 
Because of the large number of titles, copies, and retailers involved, and the geographic scale of the country, publishers and retailers have sought to minimize their effort, create economies of scale, and reduce transaction costs.  Publishers contract with national distributors that organize and manage their distribution activities through wholesalers and retailers now typically select a single wholesaler to provide all the magazine titles they carry.
 
Prior to 1955, when it became the target of antitrust action, American News Company distributed more than half of magazine titles and accounted for half of the industry’s value. In the years following, 850 wholesalers emerged across the U.S. and they were often given territorial exclusivity for the magazines they handled. This system was highly influenced by TV Guide, which sold 10 million single copies weekly in 150 regional editions and gave wholesalers exclusive distribution to the territories of those editions.  Other major publishers also wielded significant power. They were able to effectively force distribution terms and prices on wholesalers and they set cover prices that consumers had to pay.
 
Large national and regional retail companies developed during the second half of the twentieth century and companies such as Walmart, Target, Krogers, and Safeway became major outlets for leading magazines. Because of the exclusive distribution territories set by publishers, retailers were forced to do business with multiple wholesalers to get the magazine titles they wanted. As their power increased, however, these large retailers began reducing the wholesalers they used and they began seeking single wholesaler arrangements that undermined the territorial distribution exclusivity for titles. The existing system collapsed in the mid-1990s and, by 1996, only about 100 wholesalers remained in business and 41% of all single-copy sales were occurring in supermarkets and big chain stores. 
 
Ten years later, in 2005, only 4 wholesalers remained—Anderson News, Levy Circulating Company (later sold to Source), The News Group (TNG) and Hudson News Distributors. They accounted for 90 percent of the wholesale business. These four firms were subject to significant pressure about prices and distribution terms from both publishers and retailers. Although they had strong positions in the market, they lacked power because retailers selected the wholesaler with which they would do business and publishers continued to control distribution terms and compensation paid to wholesalers. Today, only TNG and Hudson remain in business and the two firms account for about 90 percent of the wholesale business.
 
The history of magazine distribution has thus moved from near monopoly in the 1950s, to competition in the 1990s, to oligopoly in the mid 2000s, and once again to near monopoly in 2014. 
 
The results of the changes are that publishers, who previously wielded the greatest power over distribution terms and prices, are now dependent upon the services of the two remaining wholesalers. These wholesalers are, unsurprisingly, demanding more compensation for their services and more control over distribution decisions and terms. Retailers are not making many price demands at the moment, but are asking for more transactional efficiencies and changes to the traditional means in which they buy and resell magazines. No one in the business is happy with each other or the system under which they operate.
 
Consumers are feeling the effects because fewer titles are being distributed in retail outlets—thus reducing their choice—and the prices of magazines continue to rise--taking more money out of their pockets.
 
The current situation is challenging the efficacy of the wholesaler-based distribution channel, raising issues of distribution pricing, who should bear costs of inventory, and how audit bureaus account for circulation. It is highly fragile distribution channel in which no stakeholders—publishers, national distributors, wholesalers, or retailers—are exercising leadership to stabilize and improve its functionality.
 
The options to the current conditions are limited and, absent remaking the entire distribution chain, it is unlikely that any solution sought will be pro-competitive.