The Subsidization Model is Dead

In the 19th Century news journalism was supported by government patronage of printing contracts.

In the 20th Century news journalism was supported by mass advertising and classified advertising.

Both existed because local media had an information distribution monopoly over a geographic population. Radio and television didn't really change things as local oligopolies continued to exist with a limited number of channels available to readers as alternatives. Now that that monopoly has been eliminated by the internet, those revenue models, which really had nothing to do with the editorial product, have disappeared. The first transition resulted in the reduction of many smaller newspapers and outright political publications and eventually helped gave rise to the larger media enterprises and the goal of unbiased journalism.

We are now in the next transition needing a new subsidy. The same societal and human need for news and journalism exits, and the cost of employing professional journalists and investing in reporting still exists. But the cost structure is out of balance.

We are currently at the beginning of an era of entreprenurial journalism. What does that mean? With the physical and cost barriers to entry for publishing reduced to almost zero, and new technology and distribution channels popping up almost daily, there are opportunities to try to do "journalism" as a business. Many will try to get individual consumers to pay for their share of the societal benefit.

It's not going to work.

Some types of content and information will convert to new businesses. Feature content--food recipes, travel advice, health tips may be monetized at a sustainable level. News will not. In economic terms, news is a public good, displaying the qualities of having a beneficial externality, where the private marginal benefit is less than the societal marginal benefit, so the equilibrium supply determined by the market will be less than optimal amount, or at prices not sustainable by consumers. For example, the marginal benefit to me (and the sum of marginal benefits to each individual reader) of reading a lengthy investigation of state house corruption is not as high as the total benefit of the investigation being done and published for everyone to read.

In this graph, personal demand for news would result in the yellow star equilibrium, which is less news produced than is optimal for society, which would be the red star.  The price willingly paid by private consumers (P1) is not enough to cover the optimal amount of news reporting for society (Q2). 

This is what we are beginning to witness as newspapers have to rely increasingly on revenues generated by consumers, whether it be from print subscriptions, website paywalls, or paid apps.  These will not command high enough prices to pay for the quantity of reporting that was previously done (presumably because it was beneficial for society), and that is why we are seeing layoffs, bureaus closed down, beats eliminated, and the overall amount of news reported reduced. It explains part of the paradox that overall readership of some publications is up when you tally all of the print and digital readers, yet cost cutting continues.

In such cases of positive externalities, the government may intervene in the market to subsidize the industry or to legally require consumption levels. That's the tricky part for journalism. Due to the Press' unique call out in the Constitution and the fact that much of the societal benefit derives from its role as the Fourth Estate, it cannot look to the government for a solution.

At the end of the day, this is the problem that must be solved. There is not a satisfactory market equilibrium for journalism. It needs a subsidy that cannot come from the government. It used to be mass advertising, which has been disrupted. So what can be the next subsidy?