News organizations have a clear opportunity to innovate and improve their resilience at a time when the United States sorely needs a strong journalism enterprise. To unlock the potential for innovation, though, local news organizations must navigate a narrow path between legacy products supported by advertising and digital products supported by readers. Because of past disruptions and present obstacles, an outside disruptor may find it easier than legacy organizations to build a reader-supported brand. Factors impacting local news organizations in 2018 include consolidation of television ownership, acquisition of newspapers by billionaires, growing distrust of big tech companies, and the specter of fake news.

As newspapers continue the struggle of the past decade, broadcast TV has emerged as the strongest survivor of local news competition in many markets and is thus an increasingly popular source of local news — not just on the air, but also on the internet. A recent Knight Foundation report1 found that local television is the most popular source of news in markets without strong newspapers, and there are ample opportunities for TV stations to improve their digital capabilities. In order to claim digital dominance in the long run, TV stations will have to learn to cover broader news topics, overcome internal cultures that value airtime over internet traffic, bridge a technology skills gap, learn more about their digital audience, and develop new aesthetics that work better on video-capable social networks like Snapchat and Instagram.

The Knight report highlighting the comparative strength of local television arrived in March 2018, in the context of Sinclair Broadcast Group forcing its anchors to read a silver-tongued condemnation of fake news. Fake news is simply deliberate misinformation packaged as a news article, and it’s a byproduct of an internet where attention can be bought, sold, and manipulated via social networks whose own need for traffic lowers the bar for content to pass as news.

Of course, Sinclair is not the only organization to react to fake news in tones of condemnation; the Boston Globe issued its own comment a year earlier2 and other organizations have issued statements of their own. What separates Sinclair from the Globe is that Sinclair’s statement essentially blamed other news organizations for the fake news phenomenon, whereas the Globe took on the problem for itself. Despite attempts by President Donald Trump and Sinclair to weaponize it as such, fake news is not evidence of any weakening in the moral fiber of America’s journalists. Rather, it is evidence of a fundamental shortcoming of digital media and the internet itself.

At the same time, the lines between news and entertainment are blurrier than ever. Not only does local news often focus, hypnotically, on sensationalist news stories, national news outlets have built a content flywheel by reporting outrageous statements as news. This happens in sports and entertainment as often as it happens in politics. One notable person, maybe a commentator, says something inflammatory about another notable person, and each volley in the spat becomes an internet article and a sound-bite. This self-fulfilling news cycle is a staple of ESPN, which can drive news from a commentary across many different channels and shows.3

News organizations push sensational content because they are engaged in a search for scale and for advertising yield. As internet advertising space and audience attention have both become commodities, the primary way for general-interest publishers to earn digital revenue is to simply increase the number of ad impressions they can sell. Manipulating variables to boost ad yield rarely results in products that serve the interest of their audience or the public. Further, the nature of programmatic trading of advertising space and audience attention has created the environment in which fake news became almost inevitable. While news organizations were not exactly dragged into this — many aspects of programmatic advertising and attention trading were invented at media companies — the present dominance of Facebook and Google place the phenomenon far outside of the control of these news organizations.

Still, publishers elect to participate in the search for ad yield, even though accountability journalism may not always receive as much web traffic as clickbait political news. Because national news commands a much larger potential audience, these news organizations can more reasonably rely on advertising. Local news, however, needs to find another way.

Unfortunately, there is no silver bullet that will turn a news organization’s primary revenue source from advertising to subscriptions overnight. The mere existence of advertising and the tactics required to keep the ad dollars make it harder to convince readers to pay for subscriptions. Compared to subscription-based news organizations, advertising-addicted news products will struggle to build new revenue streams, their cost structures will be harder to optimize, and their technology product will have to rapidly adapt to externalities. The news organizations that succeed in attracting support from their readers — via subscriptions, memberships, or donations — are more likely to survive this chaotic period, and more likely to dominate the media landscape for decades.

The solution that seems most obvious in 2018 is a local news organization with a real economy of scale, audience equity, and the financial support of its readers. Such an organization would be free from the grinding pursuit of pageviews and ad impressions, able to devote the entire weight of its enterprise to satisfying its readers. The clearest example of an organization that has built the necessary reach and scale in any media sector is Netflix, which entered a market dominated by advertisers and removed them from the picture entirely.

Chart showing news organizations with economies of scale and reader equity

Audience equity need not mean that readers own a certain stake in a news organization, but it must certainly mean that readers are invested in the success of the publication. The first step for a legacy ad-supported publisher to develop audience equity might be to simply listen to their readers before making key decisions about product development or editorial projects.

Likewise, an economy of scale in digital news need not mean that every publisher should be owned by a national conglomerate. For many news organizations, the easiest way to achieve scale would be to share non-competitive resources like technology and shared production services across an industry group.

Many American newspapers are attempting to head down this path, but their route is impeded by past and present circumstances that may prove too great to overcome and organizational cultures that have been damaged by years of downsizing. Publicly traded newspaper groups and those owned by private equity may be forced to choose short-term margins over long-term stability. Pure-play local news organizations that have built their business around advertising will struggle mightily to convince readers that what was once free is now not. Only the advantages of local television insulate it from needing to make this change immediately. However, these organizations’ relative security probably also means that disruptive innovation will not come from within. The organization most likely to walk the narrow path is the disruptive outsider with nothing to lose.

Addicted to Attention

“Beginning with radio, each new medium would attain its commercial viability through the resale of what attention it could capture in exchange for its ‘free’ content.”

Tim Wu, The Attention Merchants

The present path for publishers is so narrow because publishers could not see that the attention economy of the internet is disfavorable to journalism until they were already deeply committed to it. In The Attention Merchants, a detailed and fascinating history of the monetization of attention, Tim Wu shows that this is not a new phenomenon. “Beginning with radio, each new medium would attain its commercial viability through the resale of what attention it could capture in exchange for its ‘free’ content,” he notes.4 Likewise, Marshall McLuhan famously argued5 in Understanding Media that narratives adapt to media, not the other way around. Reading the newspaper aloud does not make for good radio, and adding video clips to a radio broadcast does not make for good television.

That Wu and McLuhan have been shown to be right by every shift in media could well have been a lesson for news organizations adapting to the internet. What works well in other media does not always play well online. The television broadcasters that are most successful at attracting internet video viewers are adapting their videos for the web, not simply uploading what they broadcast on TV. Similarly, a holy grail for newspaper technology is content portability — that prose ought to be used across all publication channels. Repurposing web stories for print or vice versa may yield some editorial efficiency, but often at a cost of the native richness of the internet or the printed newspaper. But the toughest lesson of the shift to the internet is that the news can no longer hold reader attention. Facebook, Google, and Twitter — not the news organizations that held audiences’ attention captive for most of the twentieth century — own the attention of internet users. The attention that is left over for news organizations can now be split between dozens of different publications, and is itself often mediated by platforms like Facebook, Google, and Twitter.

The advantage of social technology platforms over publishers on the internet is inherent in the basic communication protocols that computers use to talk to each other. The shift from print and broadcast television to the internet is not simply a change in media; it is a loss of control of the means of distribution. Newspapers, radio, and television are all platforms unto themselves, and publishers control their own printing presses and channels; insofar as users could interact with these platforms, they mostly had to use telephones or mail letters. On the internet, news organizations are in some sense mere equals of everyone else on earth who can post content to the web. This relative equality of individuals and corporations is a key feature of the internet, and a fascination of journalism business models that rely on the reporting capacity of the general public. Indeed, a smartphone camera is often the source of breaking news, from natural disasters to police brutality. Crowds, however, are fickle, and thus ill-suited to the task of enterprise journalism.

“Technology seems value-neutral, yet it isn’t, it has its own worldview, one the rest of us adopt without consideration because of the convenience and fun of our communications devices.”

Nicco Mele, The End of Big

Furthermore, the democratic nature of the internet is illusory. As Nicco Mele articulated in The End of Big, which catalogs the risks posed by the internet to big institutions from a variety of sectors, “Technology seems value-neutral, yet it isn’t, it has its own worldview, one the rest of us adopt without consideration because of the convenience and fun of our communications devices.”6 Facebook and Google don’t just enable a modern notion of convenience and fun; they do it on the backs of news organizations whose content flows freely to both platforms (and others) in the hope that these platforms will direct a trickle of attention their way. This distribution mechanism flattens news, running opinion, investigative journalism, and sports scores through the same algorithm.

The internet’s disruption of the ad revenue earned by most media companies is often described as the shift from legacy products to digital products with respect to the way big brands spend their ad dollars. Certainly, advances in technology have decimated print advertising, and in some cases nearly destroyed entire lines of business. The internet is simply a much more powerful platform than print for activities like car shopping or placing personal ads. And on the internet, an arms race between ad blockers and services that thwart ad blockers7 has enriched a handful of technology companies but created little value for readers or publishers.

Newspapers, whose primary output is text, were bound to be the first ones disrupted by the early low-bandwidth internet. Written articles simply require fewer bits to transmit electronically than audio clips or video clips. User-generated content is easier to collect and moderate in written form than as audio or video. And in the early days of the web, most users’ bandwidth would not support the video resolution that could be carried by broadcast signal over cable or airwaves. Further, the simple descriptive language of the web — HTML — that made the early internet successful was optimized for text, lists, forms, and rudimentary images. It took another decade for technology standards and bandwidth to catch up to the demands of audio or video. Netflix did not even start its streaming service until 2007, sixteen years after the first text-based web page was published.8

By the time emergent online advertising began to displace newspaper revenue, local television had already endured a platform unbundling of its own. The explosion of cable channels in the '70s and '80s shook broadcast television’s monopoly over viewer attention and gradually transformed the way viewers consumed video content. The transformation of television by cable and then the entire industry by the internet were strongly linked by the Telecommunications Act of 1996, which allowed phone providers to provide cable service and vice versa. The price competition that resulted made connectivity — first to cable and then to broadband — much more affordable.9 Still, nearly every local TV news channel in the country is an affiliate of one of the big four television networks, and their reach and audience penetration has made them comparatively resilient.10 Local broadcasters can sell and air advertising against national sports events that remain resistant even to streaming services like Amazon and Netflix, though both Twitter and Facebook have flirted with becoming live sports broadcasters, and Twitter recently beat Facebook for the right to stream Major League Soccer.11 During major elections every two years, the captive audience generated by the big four TV networks results in far stronger revenues for broadcast television than for newspapers.12 Local newspapers lack the boosters of local television — political advertising, retransmission fees, live sports, and nationally syndicated content.

From a revenue perspective, newspapers were hit much harder than radio or television initially because newspapers bundled many services that were more susceptible to disruption. In 1995, when the internet began its relentless growth spurt, television and radio were linear; you could record a show, but only out of a premeditated desire to watch it later. And if you wanted to watch only the local sports coverage on television, you would have to wait through part of the newscast or hope to turn to it at exactly the right time. And if something had aired that you wanted to see but forgot to record, you’d have to wait for it to run again. That said, the cost of delivering all of the content that you did not want was essentially zero because it was borne by radio waves or analog signals over a cable rather than printed and carried to your doorstep.

Newspapers, on the other hand, offered a compromise between timeliness, in that the news was recent, and asynchronicity, in that you can browse a paper at your leisure. The newspaper is also designed for attention-signaling and serendipity — the stories on the front page of a given section are those that the editors consider most important, routine features run in the same spot on the inside of each section, and advertisements are included in eye-catching spots or in separate enclosures. This configuration allows readers to ignore anything they do not want to read that day at little cost to their time and attention, albeit at some cost of delivery.

To my knowledge, my parents only productively used the classified ads in the Des Moines Register, my hometown paper, twice during the thirteen years they subscribed — once in 1999 to help me find my first car, and again in 2001 to help me find a second car after I had demolished the first. Perhaps they consulted the glossy ads for local car dealers three times, once each for every new car they purchased in that thirteen-year span. Yet the classifieds were delivered to my parents every day, and the glossy car-dealer ads at least once a week, along with countless sheets of coupons for stores they never patronized, advertising products they did not want their children to have — tens of thousands of unwanted pages over the course of thirteen years. Could the Register have simply polled each household and asked which families shopped at one grocery store versus another, and which were willing to go anywhere to save money, so as to save themselves the trouble of sending coupons to families who would not use them? Given the audience-segmentation capabilities of print newspapers, some variant of this is possible and probably happened in Des Moines in the 1990s. Certainly stuffing newspapers by ZIP code happened long before the rise of the internet.

The platform function of newspapers extended far beyond their use in direct and peer-to-peer advertising, even before the radio era. Again, because text information is low-bandwidth, it was the first data sprayed across the world by telegraph in the nineteenth century and by radio waves in the early twentieth. Newspapers became last-mile delivery systems for every kind of news: not just local news, and not just earth-shattering reports of presidential elections and wars, but box scores, stock prices, and the daily grind of global centers of commerce and power. Wire services like the Associated Press proliferated as a result. Because of the aforementioned synchronicity challenge and because of basic time constraints — Walter Cronkite could not recite every ticker symbol and stock price on the air — the last-mile delivery of national and world news of all sorts remained dominated by newspapers well into the internet era.

The web is far more efficient at all of these tasks that were once the stock-in-trade of newspapers. Selling your stuff online is nearly frictionless, and it’s scalable to the magnitude of the item you’re selling — in a newspaper, a car takes up roughly the same space as a lawnmower. Personal ads, once the province of a single section of the classifieds, have ballooned into an online industry worth billions of dollars all on its own.13 And dissemination of news from all over the world is an obvious fit for the many-to-many nature of the web, to the point where users can mix and match their preferred sources of news. Unlike a newspaper, your web browser does not deliver large amounts of information that you were not planning to read — and even in cases where it does, the data is delivered as a series of vanishingly inexpensive electronic signals rather than the ink, paper, and gasoline required to drop a newspaper on your front step. Granted, readers lose some sense of serendipity and adventure when news is as flat as the web has made it, and social discovery is hardly a substitute owing to the filter bubble nature of most social networks.

Web browsers work essentially the other way around, delivering only what you ask for but sending lots of data in the other direction that you might not them it to. This feature of the internet — its ability to track users via cookies and other, sneakier means — is largely why it is so much more appealing to many advertisers. The key idea of online advertising is to divine user intent in order to control user attention, and it works far better for the likes of Google and Facebook than for any news organization. If you type a phrase into Google’s search bar, like “newborn diapers size,” Google can easily infer that you might be in the market for diapers, and probably have a new baby, and thus sell advertisements based on that perceived intent. When I search this term, it immediately shows me shopping results and several paid ads for diaper services. Facebook often has less information about intent, but far more information about you and your friends, and can often guess intent.

News organizations, alas, cannot generally mine for information about purchasing intent or for data about individual users beyond what their browsers present. Your browser tells any site you visit what your IP address is, what browser and operating system you are using, and in most cases what site you visited previously. Google and Facebook know what you tell them explicitly — what you want to buy, what you need to know, who your friends are, your education level. Thanks to rapid advances in data science and machine learning, Google, Facebook, and to some extent other companies that possess enough data about their customers can infer far more information about you than you provide yourself. News organizations do not have the raw material necessary to feed such sophisticated algorithms, and most do not have the organizational capacity to create a data-science program.

News organizations sell their digital advertising space in two main ways: via a human sales team, working directly with ad buyers, or via “programmatic” auction systems that allow software programs to bid on the ad space, generally in real time. The direct sales method relies on the brand reputation of the publication and its ability to deliver a desirable audience to advertisers, along with distinctly human factors like the relationship of the ad-sales representative with buyers for each brand. Direct sales delivers an ad to an entire audience or audience segment with the expectation that the audience members are similar enough by virtue of all reading the same thing, or that the halo effect of the publication will benefit the brand being advertised. By contrast, programmatic ads rely on ad networks to fit advertising to individual users on the basis of what the ad network knows about each user.

Like any personal sales approach, direct sales requires a unique selling proposition. For example, The Economist's ability to reach central bankers and Vogue's audience of fashion influencers are unique selling propositions for which advertisers will pay a premium. Thus this mode of filling ad inventory can work well for news and entertainment brands that are highly respected by a desirable audience. Direct sales are responsible for the vast majority of ad sales across all types of legacy media, from daily newspapers in midsize cities to glossy national magazines, or from local TV news programming to broadcasts of the Super Bowl. Direct sales can also work well for digital outlets that command a hard-to-reach audience. Websites that cover insider politics in Washington, D.C., and can show that their readership extends to congressional staffers can often sell ads to lobbyists at much higher rates than they could get from ad networks.

Unfortunately for local news organizations, an audience concentrated in a single geographic area is no longer much of a selling point. As a result, many digital ads sold directly are actually bundled with ads in print or over the air, since print remains relatively valuable as a medium that can reach the dwindling number of consumers who do not regularly use the internet.14 On the web, though, locating internet users is relatively simple; an advertiser wanting to reach only people in a certain area could buy ads on nearly any website and simply select geography as a targeting criterion.

Programmatic advertising works roughly the same way that Google does, capturing user intent on the basis of one’s actions on the web. Google itself is a provider of programmatic advertising, and its DoubleClick for Publishers (DFP) platform is the near-universal choice of news websites to manage ad inventory. If, for example, you consider joining a gym and visit the gym’s website, you might subsequently see advertising for that gym on a news website. You might even come to feel that the gym is stalking you around the internet. You could join the gym and still potentially see ads for it. While news organizations earn revenue from these ads, they must share the revenue with the ad network that generated the data in the first place. This puts them at an additional disadvantage against Google and Facebook, who are not beholden to middlemen and do not bear the costs of content production.

If the key to successful direct sales is a unique selling proposition, the key to programmatic sales is the size of the audience. Because programmatic ad rates can be $5 per thousand impressions or lower (referred to in advertising as CPM, or cost per mille), and because most news organizations can only reasonably fit three or four ads per page, many thousands of impressions are needed each month in order to generate enough revenue to operate a website. Larger websites, or larger collections of websites, fare better in negotiations with ad networks. A newspaper chain will likely command a higher CPM for all of its papers than a single local newspaper contracting with similar advertisers would, but earn far less than Google or Facebook will for its efforts.

As the early features of the web disrupted print media, mobile devices and streaming media are disrupting television and radio. The maturation of online intent-driven advertising markets is now disrupting ad-supported digital products across all sectors of media. And because most local news organizations lack the selling proposition to drive direct sales and the audience reach to drive programmatic sales, they are hit the hardest.

Squeezed between slumping direct sales and ineffective programmatic campaigns, news websites must turn to increasingly intrusive and manipulative ad formats. Publishers can insert more advertisements into the same space, they can attempt to get their readers to read more articles (commonly referred to as recirculation), and they can experiment with alternate kinds of advertising. One kind of paid content, popularized by the likes of Outbrain and Taboola, combines recirculation with a new mode of advertising. Outbrain, Taboola, and similar providers serve “recommended content,” often but not always, including links to additional stories by the same publisher, interspersed with links to other sites that have paid for placement. This strategy certainly has propped up struggling news organizations, but at the cost of their readers’ attention and valuable space on the page.

Outbrain in action
Outbrain in use on

The rise of recommended content has mirrored the rise of content marketing and branded content, or the creation of original content directly for brands about themselves. This is is a broad category of advertising that, per Boston Consulting Group, “carries a consumer benefit, serves the brand, and is presented in an environment that consumers find authentic.”15 Brands have always played a role in directly describing their products to consumers, but this iteration of marketing generally captures an important essence of a brand or product and creates original content that reinforces that essence, rather than a direct pitch for the product itself. Casper, the mattress startup, publishes Woolly Magazine, which describes itself as “a curious exploration of comfort, wellness, and modern life — emotionally supported by Casper.”16 The idea is not only to generate impressions that are free, save for the cost of producing the content, but also to generate an authentic brand aura rather than borrow one from a publisher that will only run ads in gray-bordered safe zones. Branded content has become a big sector of online advertising that BCG expects to grow to $25 billion by 2019 from $10 billion in 2014.

While content marketing is as old as advertising itself, its modern incarnation is related in implementation to fake news and is a response to the same opportunity presented by the present condition of online news. Both are enabled by the democratization of publishing brought about by the internet, but programmatic advertising is what makes content marketing and fake news actually work. The goal of content marketing is to redirect a reader’s primary attention in service of an ulterior motive, which marketers can do easily by buying programmatic ads in recirculation widgets like Outbrain or Taboola, paying a tribute of pennies to the publication where their ads run. Similarly, fake news outlets purchase ads, largely on Facebook, to divert the attention of readers whose personal data made them susceptible to these outlets’ messages. While their mechanisms of promotion are similar, content marketing should not be confused with fake news. Reputable content marketing contains clear disclaimers about the advertising purpose of the content and adheres to a reasonable standard of editorial conduct. Content marketing bleeds into the realm of fake news when it makes unprovable claims — diet supplements and get-rich-quick schemes, long fodder for email spam, have invaded reputable news websites via recommended-content widgets.

“What will happen when the Times, the New Yorker and other pubs own up to the simple fact that they are just as guilty as Facebook of leaking their readers’ data to other parties, for … God knows what purposes besides ‘interest-based’ advertising?”

Doc Searls, March 23, 2018

The emergence of fake news thus seems to be a systemic problem in the monetization pattern of news media that news media cannot solve for itself under the present circumstances. The advertising ecosystem that barely supports news websites has also created a new adversary, with its accompanying propaganda and slurs against mainstream media. It’s in this context of President Trump repeatedly calling CNN fake news,17 and Sinclair forcing all of its anchors to recite statements about fake news, that efforts by reputable news organizations seem hollow and ill-fated. Doc Searls takes the New York Times and other media outlets to task for their argument against Facebook’s level of data collection,18 correctly pointing out that most news websites run code from programmatic ad networks that collects similar information. What Searls misses in this argument is that Facebook and Google themselves have made this level of data collection table stakes for publishers to participate in online advertising marketplaces, and the New York Times, unlike Facebook, must share what revenue it earns with third-party data collectors. Painting the Times with the same brush as Facebook is overly simplistic, and does as disservice to consumers of both products.

For most local news organizations, this continued shift in the advertising marketplace manifests itself as a race to cut costs and expand advertising inventory, because they lack a unique selling proposition to convince brands to buy ads directly, at least to the extent necessary to support their operations. Cost-cutting is a complex topic for news organizations, many of which are subject to union contracts. Newspapers have seen a substantial overall decline in the size of their editorial staffs since 2000. Since having fewer writers and editors can mean less content, and consequently fewer pageviews, news organizations are challenged to produce the same amount of content with smaller staffs. Many organizations turn to freelancers to fill their sites, which can be successful in generating traffic, but makes it more difficult to follow complicated or evolving stories. Expanding advertising inventory to boost revenue means either that news organizations must fit more ads per page or that they must boost pageviews — recruit new readers and also convince existing audiences to read more.

Unfortunately, cutting costs and increasing the number of ad units per page are both activities that can negatively impact the user experience of a website, which in turn can reduce the likelihood that a site visitor will visit a second page — and thus reduce the likelihood that users will pay for a subscription to the news product. Content-recommendation platforms that create recirculation units are a clear battleground for this tension. Editors tasked with expanding readership want to use that space to add contextual links to other articles from their news organization, whereas business managers responsible for revenue need that slot to monetize user attention.

Some newspapers understand that advertising is not going to save them. Dan Kennedy interviewed Chris Mayer, former publisher of the Boston Globe, for his book about Jeff Bezos and John Henry, and in the context of “cratering ad revenue,” Kennedy noted, Mayer said “his hope was to cover the basic operations of the newsroom with subscription revenue (which he likened to ‘annuities’) and bring in ad money (‘equities’) to pay for extras.”19 This plan predated Henry’s acquisition of the paper, and it certainly is practiced by other papers attempting to increase revenue. But the “equities” may impact the “annuities” in ways that are hard to understand. Could newspapers earn more subscription revenue if they could dial back the advertising?

Now is the time for bold experiments on the narrow path. Furor at Facebook over the Cambridge Analytica scandal has consumers avidly questioning the biggest brands on the internet, and the advent of GDPR has changed the nature of online advertising beyond just Europe, perhaps opening the door for advertisers to support publishers in new, more authentic ways. The attention economy that dominates value exchange on the web in 2018 is facing risks unlike those seen in the history of the internet. Whether this will result in a new era of reader supported news, however, is not so certain.

Newspaper Groups in the Internet Age

Most local newspapers are still owned by corporations that are publicly traded or owned by private equity firms. Gannett, GateHouse Media, Hearst, Lee Enterprises, McClatchy, and Tronc are publicly traded; Digital First Media is owned by Alden Global Capital, a private equity firm. While these chains enjoy a necessary economy of scale, they are also pressured by the expectations of public markets or private equity owners. Their national scale is an advantage to creating reusable subscription tools and programs, but also creates opportunities for large-scale programmatic ad campaigns. We do not yet know enough about the relationship between advertising and subscriptions, but seizing an economy of scale for programmatic advertising may make it harder to create a fertile environment for readers to support a digital product — through donations, purchases, events, or memberships. The combination of financial pressures and internal cultures that have always regarded advertising as a core part of the news business means that these newspaper groups would have a hard route to convert their revenue from advertisers to readers, a core part of success on the narrow path. If such success results in lower margins and a lower market cap, it may in fact spell failure in the eyes of Wall Street and the private equity owners of media companies.

Digital First Media has exemplified the tension between short-term profit and sustainability. When, in April 2018, DFM further cut the editorial staff at the Denver Post that had seen many prior reductions, leaked financial documents showed that the DFM papers were earning 17% operating margin and 2017 profits of almost $160 million.20 This revelation in the wake of staff cuts spawned protests and editorials in DFM’s own papers that inveighed against its owner, Alden Global Capital. From a purely economic perspective, Alden may have the correct strategy, but its approach appears unsustainable. A news organization that relies on reader support and minimizes its dependency on the attention economy might not support the same margins.

Many newspaper groups are also committed to their own advertising technology solutions. DFM, for example, owns Adtaxi, a programmatic ad network. Gannett, Tronc (then Tribune Publishing), Hearst, and McClatchy banded together to create Nucleus Marketing Solutions21, an ad-sales agency that can sell directly against the combined inventory of all the newspapers owned by its founders. Nucleus also maintains a private marketplace, which allows for programmatic ads to run across the entire network of sites.

McClatchy, for its part, operates two marketing agencies — Excelerate, which is a full-service marketing firm geared toward helping its clients buy and manage online advertising, and HCP Media, a content-marketing firm that creates custom publications for hotels, airlines, and arts organizations. Hearst runs LocalEdge, which provides lead-generation solutions for businesses. The basic premise behind these firms is that local advertisers trust local newspapers to deliver an interested audience — but these agencies generally also help their customers purchase Facebook and Google ads.

Newspaper ownership groups also seek economies of scale in content production. Because one key to advertising yield is to produce more content at a lower cost, newspaper groups seek inexpensive methods of content production. While it’s possible to achieve some advertising yield from AP or Reuters content, the fact that these stories often run verbatim across the internet degrades their value in this sense. News groups — including television broadcasters — often will create syndication networks within their organizations that generate content that is not pegged to a local market or even to a specific time frame. Newspapers that can create national or international content can boost ad yield by publishing stories that appeal to a much broader audience than exists in their local market. One side effect of this search for yield is that every national news story is amplified by dozens of news organizations all writing basically the same story, whereas local news is often only covered by a small handful of outlets.

While some newspaper groups can successfully share articles that do not have a specific local context across markets, efforts to boost yield by sourcing inexpensive content tend to backfire. As a part of Tronc, the LA Times was able to serve national and international content to other papers in its corporate family, like the Chicago Tribune and the Orlando Sentinel. But in hiring of Lewis D’Vorkin as executive editor, the LA Times imagined perhaps becoming the home of a contributor network patterned after his era at Forbes that could boost yield for every site in Tronc’s network. Per a damning Columbia Journalism Review report that hinges on an editorial meeting in early November 2017,22 D’Vorkin terrorized his newsroom, warning them that the LA Times was his paper, and that the staff must get on board. Notably, D’Vorkin condescended to the newsroom — chastising them for a lackluster embrace of digital media, for failing to produce the sorts of interactive stories that mobile news consumers would want to “tap through.” Yet the LA Times had, in fact, invested a great deal in interactive news features much like those that D’Vorkin praised. The LA Times newsroom was upset by the contributor plan and offended by D’Vorkin’s treatment of them.

Apart from his incoherent “gifs, gifs, all manner of media” vision, D’Vorkin was essentially upbraiding the wrong team — in addition to everything else happening, the LA Times was in the midst of a tricky transition from a legacy Tribune Publishing system to Washington Post's Arc Publishing system, which it had ordered in March 2017.23 Beyond the complications of a large-scale migration, reporters and editors can only work within the confines of their tools, and the LA Times had taken their legacy system to the very limit to build creative interactive features. Was D’Vorkin encouraging them to post stories directly to Instagram or Snapchat? This does not seem likely, considering the Forbes model that he was aiming to replicate relies heavily on advertising, and thus on pageviews. D’Vorkin probably should have checked with those responsible for digital product development before castigating his editorial staff for failing to use tools that did not exist.

Ultimately, the search for yield seems incompatible with subscriber-supported journalism. Redirecting newsroom attention to national news in search of a larger audience, ramping up the number of ads on each page, and cutting editorial staff whose jobs are to ensure quality and rigor are all factors that degrade the user experience of a news product and thus the likelihood that casual readers will become subscribers. Newspaper groups do have a tremendous opportunity, though: If they can crack the code to convert casual readers into subscribers, they will have the economy of scale to unlock profits much more quickly than single-location news outlets.

Billionaire Superheroes on the Narrow Path

In the post-disaggregation era of local news, several individual newspapers have been purchased by very wealthy men, including the Minneapolis Star Tribune, the Boston Globe, the LA Times, the Las Vegas Review-Journal, and the Washington Post. Save for Sheldon Adelson, these billionaires purchased newspapers not because they view newspapers as viable economic investments, but out of the same sense of civic-mindedness that leads them to prop up ballets, symphonies, art museums, and perhaps professional sports teams. Jeff Bezos, the disruptor of countless industries, called the Washington Post an “important institution” in a speech to the newsroom after he bought it, adding that it would be crazy to wish for the soul of the Washington Post to change.24 Whether they have souls or not, newspapers are not art museums. Nearly every newspaper in the United States remains a for-profit corporation, including those purchased by billionaires. Despite the inherent complications it creates for the news organization, a billionaire owner can provide the runway to make progress down the path without the pressures of public markets.

Of these billionaires, Jeff Bezos is the wealthiest — in fact, as of early 2018, he’s the wealthiest individual ever.25 The Washington Post is also the largest paper that has recently changed hands, and the impact Bezos has had post-acquisition has been greater than that of any other billionaire paper-buyer. Fortune reported26 that when Jeff Bezos purchased the Washington Post, he moved quickly once he decided to act. He told Fortune, “I did no due diligence, and I did not negotiate with Don [Graham]. I just accepted the number he proposed.” Given the purchase price for the paper and its associated publications — $250 million, Bezos’s largest personal acquisition to date — this suggests a level of faith in the prospects of the paper, confidence in his ability to lead the paper through its continued digital transformation, and belief in its continued ability to hold the government accountable.

Since the acquisition, Bezos has invested heavily in the newsroom and in technology, building a content-management product, Arc Publishing, that numerous other newspapers have purchased. This “side effect business model” is what sets Bezos apart from fellow internet-age scions — Bezos builds tight, vertically integrated businesses, then rents out capacity in every part of his stack. Not only has Amazon spun out numerous business-to-business services through its Amazon Web Services (AWS) computing platform, it has also come to treat its core marketplace business as a platform for other merchants, allowing them to use Amazon warehouses and fulfillment services to sell products to consumers.

Whether Arc’s relationship to the Washington Post is truly designed to mirror AWS’s relationship to Amazon, Arc’s resemblance to AWS is a clear signal of business priorities at the Post. The Post will not outcompete other news products simply because its technology is superior or because its reporters are better. It will outcompete other news products because its integration is tighter — and many of its competitors will subsidize its operating costs by leasing its technology. For example, Netflix is a large-scale user of Amazon Web Services27, yet Netflix and Amazon Prime Video compete for consumers of entertainment and for deals with movie studios to produce original programming. Arguably their services are complementary, and certainly many consumers subscribe to both platforms.28 Likewise, the New York Times and Washington Post could be complementary, too. In assessing the Times and the Post, Ken Doctor concluded in February 2018 that “the impact of these two great journalistic institutions — institutions willing to stand up to state power — has been proven anew” and that readers should “subscribe to both.”29 The Times would not be a likely Arc customer, as it has its own sophisticated technology infrastructure, but unlike the Post, it has signaled no ambitions to license its efforts to other news organizations.

The Times and the Post are, however, alike in one crucial way that disinvites comparison to other local news products, which is that their importance hinges on their coverage of national news, not local news. Both papers use their city as a lens on global news, and much of their respective local coverage reflects the view through that lens. As a result, both have become indispensable in their coverage of U.S. politics, trade, and the economy. The only other paper that can reasonably claim this local-out perspective in 2018 is the Wall Street Journal. Whereas other news products compete locally, the Times and the Post compete nationally and enjoy large markets of voracious news consumers around the world. Doctor concludes that the Post earns $100 million dollars annually from digital subscriptions, at approximately $100 per reader and 1 million readers, which CNN reported that the Post had surpassed in September 2017.30 Weekday circulation of the Post peaked in 1993 at 832,332; Sunday circulation peaked then at 1,152,272.31 With just its digital product, the Post has surpassed its peak weekday audience and is approaching — or has perhaps already surpassed — its peak Sunday audience. Likewise, the New York Times has expanded its digital audience; it counts 2.6 million digital subscribers, including to crosswords and cooking products.32 Whether counting crosswords and cooking products in digital subscription numbers yields figures that can reasonably be compared to the Post’s is debatable. But the diversity of digital products produced by the Times, which has grown to include Wirecutter, a popular digital-only consumer review site,33 is its signature. If the Post is like Amazon, happy to sell individual slices of its vertically integrated whole, the Times is perhaps more like Apple, bringing its ethos and voice to a more diverse array of products.

The Times and the Post are a rare breed of newspapers finally able to use digital disruption to their own advantage. While in one sense, the internet has taken a great deal from newspapers — it has terrorized print circulation and most kinds of advertising — it has also given new strength to those news organizations that do have a truly national platform. But where, then, does that leave regional dailies like those recently acquired by billionaires in Minneapolis, Los Angeles, Las Vegas, and Boston? Certainly less sure of their foothold and envious of the fortunes of the likes of the Times and the Post.

One path could lie in the towering map of New England that greets those entering the headquarters of the Boston Globe — if a newspaper could leverage its digital reach to better serve an entire region, it could potentially turn the threat of the internet into a strength, albeit on a smaller scale than the New York Times or the Washington Post. With its regional importance, the LA Times has had success building its digital subscription base, reaching 105,000 digital subscribers as of September 201734, though its accomplishments pale in comparison to the New York Times and Washington Post. And these gains have also come amid a terrible pattern of turmoil for the LA Times that seems perhaps to have concluded in February 2018 with the announced purchase of the paper by Patrick Soon-Shiong that closed in June 2018. Being the largest of the regional papers in the United States, the LA Times has at points set its sights on being instead the smallest of the national papers.

While the D.C. bureaus of local newspapers as a group have shrunk or vanished in the past decade35, the LA Times and Boston Globe have continued to cover national politics and economic issues. The LA Times lists 24 editors and reporters on its international and national desks; 17 in its D.C. bureau; and 16 on its politics desk.36 At face value, more reporters covering those in power seems like a net asset to society. Los Angeles certainly needs an editorial team to hold its elected officials accountable to their constituents. Still, those responsible for the LA Times news product must carefully navigate the tension in allocating resources between national news that will certainly be covered elsewhere but that could bring a national scale of pageviews, and local news that may otherwise go unreported but that would enjoy a naturally narrower audience.

It was against the backdrop of Lewis D’Vorkin’s chaotic tenure that the newsroom voted to unionize in January 2018, publisher Ross Levinsohn was placed on leave during an investigation of his workplace behavior at prior employers37, and Tronc reached an agreement to sell the paper and its recently adopted sibling, the San Diego Union-Tribune. D’Vorkin was removed from the editor slot and Jim Kirk was appointed in January 2018,38 just a week before Tronc announced the sale to Patrick Soon-Shiong. Still, the staff of the LA Times might not take a deep breath just yet. After making a $70.5 million investment in Tronc, Soon-Shiong told Bloomberg in 2016 that he hoped to bring “machine vision” to the LA Times: “For example, a reader could pan a camera across a physical newspaper and the photos could be turned into video. Focus the camera on a photo of basketball star Kevin Durant or Donald Trump and ‘you’d hear him speaking or Kevin Durant would be dunking,’ he said.”39 If D’Vorkin sought to marry Instagram to Forbes at the LA Times, Soon-Shiong seems eager to breathe new life into the CueCat,40 the barcode-scanning device publishers gave for free to their readers in the hope of boosting engagement and bringing e-commerce revenue to print media.

In fairness, Soon-Shiong’s concept does away with the inelegance of the printed barcode and the computer-connected barcode scanner, replacing them with printed images and the reader’s smartphone, placing such an experiment closer to the trendy realm of augmented reality than to the retrospective uselessness of the CueCat. Yet the user’s action is essentially the same: Find something interesting in print; learn more on the web. In further fairness to the machine-vision idea, most newspapers are brainstorming ways to bridge the gap between print and digital, not ways to make the print product more valuable and more connected. But the newspapers that are flirting with augmented reality are clearly still only flirting — the New York Timess occasional technology experiments, like its 2018 Winter Olympics feature,41 feel high-touch and expensive, and do not appear to feature in the print edition.

Assuming Soon-Shiong takes a more moderate approach to leading the evolution of the news products at the LA Times, it could come to resemble John Henry’s Boston Globe in some ways. Among regional papers, with just over 103,000 digital subscriptions as of December 2017, the Globe only narrowly trails the LA Times.42 The Boston metro area, however, has only a little more than a third of the population of the Los Angeles metro area, with 4.5 million and 12.8 million residents, respectively, in 2016.43 And New England as a whole is home to about 14.44 million people, whereas California is home to 37.2 million by itself.44 The cultural demographics of California versus New England could yield further opportunities for the LA Times, which also produces Hoy, a daily Spanish-language newspaper.

“Print is becoming a niche product for people willing to pay for it.“

Dan Kennedy, The Return of the Moguls

The Globe, of course, has had recent and well-documented struggles with its printed product. When it changed printing plants in summer 2017, problems with the transition left many subscribers without their newspapers. And as of March 2018, the Globe’s annual seven-day subscription cost will climb to $1,34745 — making it the most expensive newspaper in the United States, but at $112 per month, about the cost of a midrange gym, or at $3.69 a day, cheaper than most drinks at Starbucks, and cheaper than getting most paperbacks delivered from Amazon. Perhaps, as Dan Kennedy says, print is destined not to be a mass-market product; “print is becoming a niche product for people willing to pay for it.”

In Minneapolis, Glen Taylor’s Star Tribune has managed to collect about 50,000 digital subscriptions, roughly as many as the Chicago Tribune,46 and avoid the level of scrutiny or intrigue that coastal papers now owned by billionaires have faced. Taylor purchased the Star Tribune in 2014, five years after it emerged from bankruptcy, a victim of the steep decline in value of newspapers since the 1990s and the great recession.47 His purchase of the paper was praised by R.T. Rybak, then the mayor of Minneapolis, and welcomed by the NewsGuild, which represents the Star Tribune’s reporters. The Star Tribune has since become a strong example of funnel-driven consumer marketing, which treats the subscription process like a conventional e-commerce experience, and has invested in data tools and technology to identify the readers most likely to pay for subscriptions.48

Conversely, casino magnate Sheldon Adelson bought the Las Vegas Review-Journal in 2015 in secret. His purchase of the paper was revealed by its own reporters. The $140 million sticker price outstripped Taylor’s $100 million price tag for the Star Tribune and doubled John Henry’s $70 million for the Boston Globe, which led to speculation that his motives were to use the newspaper to promote his own political agenda. That theory was borne out by his request, as negotiations to purchase the paper were coming to a close, that Review-Journal reporters monitor three judges in the city, one of whom was overseeing a lawsuit that imperiled Adelson’s casinos.49 The New York Times called this an “ominous coincidence.” By early 2016, newsroom anxiety had given way to firings and resignations; a new publisher and editor were appointed; and stories involving Adelson were routinely killed.50 The market size, about 1.9 million people, of the Las Vegas metro area pales in comparison to Minneapolis–St. Paul, with its 3.3 million people.51 This underscores the questionable nature of Adelson’s purchase. Adelson’s net worth, as reported by Forbes,52 was $31.8 billion in 2016, far higher than Taylor’s,53 at $1.9 billion, making his $140 million purchase of the Review-Journal a far smaller fraction of his net worth than Taylor’s $100 million purchase of the Star Tribune. Adelson has the means and the motive to take a major metropolitan newspaper and turn it into a puppet.

Why does a billionaire decide to buy a newspaper? Of the five considered here, four purchased papers in their hometowns or adopted hometowns. Bezos grew up in Miami and built Amazon in Seattle; his purchase of the Washington Post underscores the nationally important nature of that paper, rather than a billionaire committing a pure act of civic charity. Each of the five men in question exhibited some combination of civic-mindedness, profit motive, and raw self-interest in using the power of the news organization for their own purposes, though those purposes range from holding the government accountable to suppressing negative coverage of related business ventures. Thus far only Gerry Lenfest, the owner of the Philadelphia Media Network who donated the Inquirer and Daily News to the Lenfest Institute, has officially acceded to profit motive as rationale for owning a newspaper.54 In contrast, many newspaper owners emphasize their view that newspapers should be profitable and link their profit potential to their sense of civic pride: If our readers truly cared about their community, we could have a profitable newspaper.

The motivations of billionaires hearken back to a core question of whether our society needs newspapers, or just news. Why not apply one’s civic pride, resources, and business acumen to a new way of distributing news, one not so decimated by declining print revenues and advertising? There’s also a sense of inequality in the fate of newspapers — will cities with struggling local media and no interested saviors simply become local news deserts? How does that impact the accountability of state and local governments? Still, newspapers that have had the advantage of such a patron — especially the Globe and the Star Tribune — have much more experience growing reader support of their digital products than most other papers. As such, they are the furthest down the path between reliance on advertising and reliance on reader support. Those that trail might look to them as examples to follow.

Consolidation in Local Television

As a result of the internet’s rise — nearly every local news organization has a website — broadcast television and newspapers are much more avid competitors than ever. Broadcast television has structural advantages in revenue streams that are not available to any other media, most notably a “deluge of political money” and retransmission consent fees — money paid from cable providers to local television stations has increased in part due to the success of stations in attracting viewers to their local news broadcasts.55 These circumstances mean that broadcasters are unlikely to ask their digital audience to become paying subscribers, and that the industry itself is unlikely to produce disruptive innovation. Still, broadcasters ought to do what they can to build relationships with their audience so as to improve their ability to respond to disruptive innovation.

Broadcasters have an additional structural advantage over newspapers, in that their news product is bundled with an entertainment product. The big four TV networks — NBC, ABC, CBS, and FOX — all produce a combination of news, sports, and entertainment. Thus even in a climate where local news is devalued, broadcasters still have a means to earn revenue. The disruption of these streams is much less mature than the disruption of newspapers, since the capacity of the internet to deliver high-definition streaming video developed much more recently than its original ability to deliver structured text. Further, older viewers are resistant to replacing over-the-air or cable television with streaming alternatives. Cord-cutting is an existential threat to the entire television industry, but the big players — the big four networks — have much greater leverage against such a disruption than newspapers did against the internet itself.

Of course, TV networks are not without their own challenges brought about by the internet, and their challenges are certainly related to those facing local broadcasters. The networks themselves are largely battling a broader competitive context involving not only streaming providers that compete with episodic programming, but also other national news organizations. Because national news is so readily available in a variety of formats, the audience for national news has declined and aged rapidly. Younger viewers have flowed largely to internet publishers with tricky pathways to monetization, and older viewers have simply watched more cable news.56

The propensity of older viewers to continue to watch linear television means that some small TV stations can command outsize ad revenue. Notably, broadcast television’s captive audience of older Americans remains one of the most likely demographics to vote in elections. Spending on TV ads during presidential campaigns has thus increased year over year. Hypothetically, a small television station could lose money for three years, then turn enough of a profit during an election to make up for it.

The nature of broadcast television emphasizes the split between urban and rural Americans demonstrated by recent presidential elections. Each of the big four broadcasters owns and operates TV stations in the largest markets in the country. The ABC, NBC, CBS, and FOX affiliates in New York, Los Angeles, and Chicago are directly owned by the broadcast networks. Broadcasters like Sinclair, Meredith, Raycom Media, and Nexstar Media Group mostly own stations in smaller markets, with some notable exceptions. So when Sinclair marshaled their news anchors to broadcast a dark message about fake news, this message often played in markets that elected Donald Trump. In other words, TV stations in large, coastal urban markets that voted for Hillary Clinton in 2016 are more likely to be owned by national broadcasters like NBC; TV stations in smaller markets that voted for Trump are more likely to be owned by broadcasters like Sinclair. Most mergers and acquisitions occur in the context of stations owned by independent broadcasters, which creates an opportunity for a company like Sinclair to create a national news platform on the strength of its red-state penetration.

Perhaps because of its delayed disruption by the internet and its demographic advantage in capturing ad dollars, broadcast television has mostly squandered a key competitive advantage in producing content for the web. Broadcasters have built-in video production capabilities, and online video ad impressions are worth much more than display ads, but the tendency of many broadcasters is to simply generate clips from their news broadcasts. The aesthetic of video on the internet is not at all similar to the style of local newscasts, and clips of anchors delivering the news do not tend to generate much interest online.

Broadcasters are also highly unlikely to ask readers to pay for online content. The history and culture of local television is that it is supported by advertisers and free to viewers, and websites for local television stations are often relatively primitive in terms of audience engagement tools. Many broadcasters rely on freely available tools for user engagement — Facebook is an especially popular integration for broadcast websites. While Facebook provides a free comments widget, it comes at the cost of Facebook perhaps coming to understand the broadcaster’s audience better than the broadcaster itself does.

Even though the social features of broadcast television websites tend to be primitive, broadcasters’ use of social media is much more effective than newspapers’ — if it bleeds, it leads. This is because social media, like broadcast news, is timely and emotional, and benefits from video, notes Sean McLaughlin, vice president of news at the E.W. Scripps Company, in the Knight Foundation report on Local TV News.57 Less clear is the cost of winning a war for social-media users or the value of attracting them. While broadcasters may bemoan the interventions of the Federal Communications Commission in regulating the broadcast spectrum in the United States, there is no equivalent administrative oversight of social media. Attracting attention on Twitter and Facebook is worthwhile if broadcasters can convert social users to site visitors, even for just one or two articles. But no news organization has much recourse, or indeed much traction, with Twitter or Facebook, even as their work makes these networks more valuable. The specter of congressional intervention in social media is thus of great interest to news organizations.

Alan Wolk, lead analyst at TV[R]EV, suggests that disruptive innovation will come, eventually, for broadcast television. “The TV industry is in the same place the cell phone industry was just before the introduction of the iPhone: all the pieces are there; it’s just that no one’s bothered to put them together,” he notes. So long as profits are up, incumbent players have no incentive to disrupt each other. Whoever puts the pieces together will be “someone who feels their current market position is tenuous enough to make a risky move worth it.”58 Someone, perhaps, like Netflix in the early 2000s.

Lessons from Streaming Video Providers

If television broadcasters are providers of both news and entertainment, their most pressing competition probably comes from internet streaming services that enable some consumers to cancel a cable subscription altogether. While most local broadcasters still support over-the-air signals, and all over-the-air stations now broadcast in high definition, the vast majority of television viewers pay a monthly fee for cable or satellite access to TV channels, and over-the-air HD signals are extremely unreliable in some communities. While television was insulated from the initial disruption of the internet, viewership of broadcast television has declined in recent years, though not because of new alternatives to broadcast news. Rather, consumers now have many more choices of entertainment providers, the largest of which are not ad-supported at all. Indeed, the vast array of choices available to consumers of news and entertainment has made it difficult to ascertain how audiences are changing.

Netflix has led the charge into an on-demand future, and not simply by virtue of programming its shows with no advertising at all to disrupt the viewer. Netflix has turned the notion of episodic television on its head, releasing entire seasons of television shows at once instead of one at a time as is required by the time-slot driven schedule of linear television. Netflix controls its entire library by virtue of agreements with movie studios and with the owners of television shows that originally ran on cable or network TV; sometimes shows leave Netflix and reappear on other streaming services, as happened in 2017 to 30 Rock, which became available on Hulu instead. There is no inherent value in retransmission of news, so the creators of news cannot continue to earn revenue by shopping for better syndication deals for old content.

Television has responded to this tectonic shift with streaming services of its own. Hulu is owned by a syndicate of broadcasters, and each major network has at least one — and usually several — streaming apps that work on popular devices like the Roku and Amazon Fire TV and enable viewers to access live and recorded network content. ESPN, for example, offers far more live coverage of major sporting events via its Roku app than it does over most cable networks. NBC offered a streaming app for the Olympics that allowed viewers to watch nearly any event that had been filmed; it also offers a separate NBC Sports app with soccer and cycling content that viewers must pay for separately from their cable subscriptions.

Still, live sports and entertainment remain mostly the province of national broadcast networks and cable channels, and thus remain focal points for spending on television advertising. These networks also use live events to advertise their own episodic programming and often air an important episode of a popular show right after a major live event. But as these networks embrace streaming services of their own, their relationship to broadcast television stations seems likely to become ever more tenuous. Networks have historically needed broadcasters for the simple reason of reaching every part of the United States. But since the advent of cable television, networks have been able to reach markets without a local affiliate. And if the answer to the viewership puzzle for broadcast networks is live sports and entertainment, networks will need local partners even less.

Despite its inability to program live sports and entertainment, Netflix has had remarkable growth and success in convincing users to pay a monthly fee for TV shows and movies, which Netflix can release (or remove from circulation) at the time of its own choosing. Because Netflix does not need to serve advertisers in order to earn money, its release cadence can be much more free-form than, say, NBC, which must produce enough shows to accommodate the 24-hour demands of linear TV, along with the right combination of sports, news, live entertainment, and episodic content to attract an audience for which advertisers are willing to pay. In fact, the lack of advertising liberates Netflix from a cadence almost entirely — the company needs only to keep its customers happy enough to pay the monthly fee, which has inched upward to Wall Street’s satisfaction and at no apparent cost to its rate of growth.59 Netflix uses a “sophisticated algorithm and seemingly endless resources to buy, develop, and distribute as many different types of content to as many micro-targeted audience groups as possible.”60 Correspondingly, its ability to experiment with shows that serve micro-niches that might attract new subscribers far outstrips that of any conventional network.

Netflix has demonstrated a level of tenacity and flexibility that is uncommon among news organizations and their investors. In the years after its IPO, which occurred in 2002,61 Reed Hastings faced shareholder pressure to boost profits instead of continuing its relentless pursuit of Blockbuster. This, of course, occurred in the context of the pre-streaming version of Netflix, which mailed DVDs to subscribers. Without this vision and corporate grit, it could have taken many more years to bridge the gap between the internet and the television.62 Instead, Netflix grew quickly to become the largest single source of internet traffic by 2011, when it was responsible for more downstream traffic than BitTorrent and YouTube combined.63

Netflix has not only built a tremendous audience for its streaming product, but also led a paradigm shift in consumption by publishing entire seasons of series at one time. Linear television still releases approximately one episode per week, with some weeks of reruns. When it works, this cycle creates a flywheel of content and anticipation. Binge-watching content on Netflix and other services is an iteration of liveness, not a rejection of it. As Justin Grandinetti, a communications researcher and PhD candidate at North Carolina State University, notes in The Age of Netflix, “Liveness is essential to the television and the communal television experience, but these newer, altered forms of liveness continue to be driven by significant technological change, including the high-speed streaming technology of Netflix.”64

In Netflix, there is evidence that the right digital product can actually move consumer preferences, and proof again that the medium dramatically shapes the content. The format encumbrance so strongly felt by local news organizations is a mirage. Local news does not have to arrive in a package every day, and the internet incarnation of it does not need to create so many affordances for the legacy version.

Pure-Play Local and “Local Doesn’t Scale”

The internet, of course, has already spawned many pure-play competitors — news organizations with no distribution stream other than the internet — to legacy news organizations, from conglomerates like Patch and Examiner to independent local news websites like Berkeleyside and Voice of San Diego, along with smaller networks like WhereBy.Us, which started with the New Tropic in Miami. News products like Patch and Examiner were meant to participate in the search for ad yield. The vision of an organization like Patch could hardly be more different from the vision of WhereBy.Us — Patch sought to commoditize local news and reach a national economy of scale that would generate enough advertising yield to turn a profit, whereas WhereBy.Us has only entered markets where it can be assured that its model of quality content and audience memberships has a reasonable chance of success.

WhereBy.Us has a far more moderate blend of advertising and reader support than most news organizations, including those newspapers that emphasize subscriptions over ads. Its primary advertising offerings are for email newsletter sponsorships, not display ads on its news websites. The network also has a creative studio that aims to assist brands in developing content-marketing campaigns to generate the same sort of user engagement that its own platform seeks. The articles on its news platforms are also less likely to be accountability journalism and more likely to help readers improve their quality of life — a mission reflected in the motto “Live like you live here.” The audience-engagement tools on their sites are mostly limited to Disqus, which integrates with ad networks and has been subject to considerable criticism for its opaque privacy practices. Still, WhereBy.Us’s focus on audience engagement is a crucial first step toward developing a product that monetizes from subscription revenue instead of reader attention.

Patch, however, was designed to serve smaller market segments — hyperlocal, perhaps, rather than local — and to create an advantage in the search for yield. At its peak, it served 900 markets in the United States. Patch subdivides TV markets to provide more specific and contextual information to individual communities. Patch overestimated the scope of web traffic that would seek hyperlocal information, and it certainly fell victim to the shift in ad dollars to Facebook and Google — Patch could no better divine user intent than any other news organization, and the hyperlocal nature of its sites meant that individual local buyers would generally make only small deals.

Patch also erred in the staffing of its sites. Most kinds of local journalism require deep familiarity with both the geographic area and the topic at hand. Reporters who effectively cover local governments tend to have years of experience navigating local bureaucracy, personalities, and politics. Rather than paying to attract this level of talent, Patch hired many junior reporters and assigned them to compete with seasoned journalists to cover complex topics.65 Patch was thus best at the same sort of quality-of-life content that WhereBy.Us tends to produce, except Patch sought to monetize its readers’ attention instead of their loyalty.

NowPublic, which was acquired by the Examiner, was an experiment in gaining scale from user-generated content. Recruiting area residents to write about local topics of interest for free would eliminate one of the largest costs of creating content in search of advertising yield, essentially allowing a news organization to scale like Google or Facebook. If you can earn web traffic without paying for content, like Google and Facebook do, you will have a far lower pricing floor. The trouble with this approach is that user-generated content is not nearly as reliable as professional journalism, and NowPublic failed to attract a large enough audience to profit from its ad yield.

The evident shortcomings of Patch, NowPublic, and others, combined with the relentless procession of cost-cutting by local news ownership groups, have discouraged entrepreneurs from building pure-play local news organizations at scale.66 The current trend is one of publishers serving individual markets — proudly locally owned and operated. Dylan Smith, the chairman of LION Publishers, the association of Local Independent Online News Publishers, delivered a talk at Newsgeist 2017 in which he claimed that local doesn’t scale and that local owners are as critical to local news as local reporters are, to counter the homogenization of local media on the part of national chains.67

While many local news producers have built impressive news organizations, a common problem for independent producers is technological and operational economy of scale. WordPress, among a few other platforms, has allowed nearly anyone with a vision to create a publishing website, and tools for newsletters, commenting, and donations are almost as easy to come by. Service organizations like the Institute for Nonprofit News and the News Revenue Hub help organizations add capabilities as they mature, but there is no turnkey economy of scale without national control, and most technology is limited to the increasingly claustrophobic confines of the web browser rather than the opportunities to be found on mobile devices and connected television services.

News websites must also now integrate with a wider variety of distribution partners than ever. Four of the largest consumer technology companies have their own unrelated ways to integrate with their products: Amazon Alexa, Google AMP, Facebook Instant Articles, and Apple News. Additional first-party products like mobile apps and streaming video device integrations are generally out of reach for independent publishers. Furthermore, advertising technology shifts rapidly, and the more of it in use on a website, the greater the performance burden on end users and their web browsers. Users who are fed up with the toll that advertising takes on their computers simply install ad blockers. It’s possible, but frequently time-consuming and expensive, to build websites with lots of advertising and analytics integrations that still manage to perform respectably.

Civil, a journalism startup that uses cryptocurrency as a mechanism to validate the provenance and authenticity of news, offers one potential solution to the conflict between local equity and an economy of scale. Its news organizations are independent organizations that access an ecosystem of content, audience, and cryptocurrency management tools and partners, and thus can develop local equity without the concomitant duplicative investment in technology. While Civil, as a platform, could serve any journalism sector, several local news organizations have launched on it or plan to launch on it as of 2018. Block Club Chicago launched in June 201868 with many staff from DNAInfo Chicago, which owner Joe Ricketts shuttered in a huff in the wake of its editorial staff voting to unionize. The Colorado Sun plans to launch in the summer of 2018 with many staff from the Denver Post.69 Whether readers will support such cryptocurrency-backed news organizations is an open question and the subject of some of the coverage around their launch.70

Another emergent solution to this problem is digital products that offer bundles with a clean, simple reader experience. Tony Haile’s Scroll plans to bundle many news products under one subscription, offering an ad-free experience for them.71 Indeed, Scroll resembles Netflix in one key way: The top priority is audience experience and retention. The market for news, though, differs greatly from the market for episodic television. Netflix built its streaming business by licensing shows that originally aired on linear television. Scroll cannot reasonably license reruns for news, so it must essentially compete with the owned-and-operated products of its publishers. Similarly, its publishers have significant overhead from building and distributing their own products. To truly gain an economy of scale, a product like Scroll would need to build an editorial operation that could share resources and eliminate duplicative work.

Audience engagement, the holy grail for most independent pure-play publications, is probably the most difficult part of the technology stack to optimize for any publisher. Registrations, subscriptions, donations, commenting, analytics, ad delivery, and email newsletters are all problem spaces that have free or inexpensive components, but uniting all of the data these systems generate in order to make intelligent marketing decisions can be extremely difficult. Again, the likes of Facebook and Google have massive advantages in terms of data science and user customization that cannot be easily replicated using piecemeal systems. This is hardly just the case for independent local publishers — some large television broadcasters and newspaper ownership groups scarcely have the capacity to identify their own audiences, relying only on third-party ad networks for data-driven customization of ads.

Toward a Consumer-Supported Future

The first imperative for publishers wishing to venture down the narrow path to subscription or donation revenue is thus to ensure that they know their audience, then to use that knowledge to develop a revenue funnel. For metro daily newspapers, the Lenfest Institute for Journalism’s Table Stakes project provides a framework for this process.72 With a funnel in place, though, publishers would be wise to consider the relationship between user experience and the probability of converting a reader to a subscriber, and evaluate the opportunities that exist to redirect advertising space toward marketing their own subscription products. It would be helpful, but difficult, to measure the impact of advertising on the likelihood of users becoming subscribers. Notably, the news products that boast the most subscribers, such as the New York Times, the Washington Post, and the Boston Globe, have fewer advertisements than other newspapers, with the capacity to do extensive testing of their platforms on the basis of many different variables.

Of course, advertising is not the only component of user experience that can impact a user’s likelihood of subscribing. Components that load quickly and look appealing, coupled with content that is easy to find and read, probably boost the likelihood that a user will start down the funnel in the first place. Subscription tools that are easy to use make it more likely that they will complete the process. A great mobile application, for example, could be a real benefit to a subscriber of a local news product. But ad requirements make it difficult to ensure that a mobile app monetizes as well as a mobile website does, and development and integration are expensive, so most local news organizations either publish an app that’s a thin wrapper around their mobile website or do not deliver any app at all.

Still, news organizations that combine advertising and subscriptions will find their technology and business needs more complicated than those that focus on one or the other, and a news organization with no legacy product and no advertisers would probably find its needs simplest of all, provided that it had the tools necessary to know their audience and optimize their conversion to subscribers. Such a publisher would still need to meet reader expectations about content frequency, and would probably need to predictably update certain service-journalism features, but without the need to fill a newspaper every day and without the pageview demands of yield-based advertising networks, writers could focus on quality over volume. Like Netflix, this type of publisher could delve into micro-niches that would convert new groups of readers into subscribers. It would be easier to develop software that appealed to users instead of advertisers, and easier to take content into new form factors.

One concrete action for newspapers would be to aggressively question the language and culture around the paywall itself. The term itself — wall — evokes denial, not access. Even in her recent defense of them, Megan McArdle refers to paid subscriptions in these terms.73 Gyms, which also provide a service in the interest of public health, sell memberships. Netflix has also settled on membership to describe its relationship to its customers. Shaking off more than two decades’ worth of expectations around providing free content in exchange for advertising is difficult, but worthwhile.

Television stations might simply improve their knowledge of their digital audiences and experiment with ways to maximize their advantage on social media and their prowess with video. That said, the obvious advantage of television is not some source of digital revenue that other news organizations lack; rather, it is a much longer runway to develop alternative revenue streams that may mature alongside a technology like ATSC 3.0. So a digital strategy built to expand reach and viewership of the core TV product is only good as long as driving an audience into that product is a profitable endeavor, since Twitter and Facebook have not demonstrated a willingness to pay for engagement.

Because of its long history of individual, corporate, and nonprofit donors supporting a publicly available product, public radio has enjoyed relative stability in the same period that has rocked commercial broadcasters and publishers. Public radio stations could leverage their listener base to provide more local news, which is a common feature of stations in large market but less typical of smaller markets. Radio, and especially public radio, where sponsorships prevail over advertising, is a natural fit for podcasts, and public radio syndicates are already leaders in internet audio formats and technology. While converting existing terrestrial supporters of public radio to a digital users need not happen overnight, public radio should seize the opportunity to grow its audience by attracting digital users who do not typically listen to terrestrial streams.

Journalism researchers, and funders of journalism research, could focus on the relationship between the volume of advertising, the nature of advertising, and the likelihood of subscription conversion: How does advertising impact willingness to pay? Does advertising framed as sponsorship work impact readers differently than programmatic advertising? While there is not enough data on the relationship between advertising and subscriptions, the experience of startups like De Correspondent suggests that advertising negatively impacts the likelihood of subscription.74 One possible way to bridge the gap between advertising revenue and subscription revenue might be to adopt Pandora’s strategy and use an ad-free experience as a key selling point for the subscription product. Pandora found that serving more ads increased both the likelihood that a free user would become a paid user and the likelihood that they would stop listening entirely.75 Serious research into this question would help all journalism enterprises.

A second research question that would benefit many news organizations is what the ideal form factor of a news article might be on a mobile device. A subtle shift away from prosaic local news could decrease the time to publish a story, lower costs, and improve mobile engagement. Attention economy publishers have long relied on slideshows and listicles to boost pageviews. Is there a modality that might similarly benefit reader-supported publishers?

These questions, of course, are hard to answer because readers do not reliably report their preferences. And even armed with answers, an economy of scale in operations and technology, and patient owners willing to see the project through, a legacy organization will have a tough time on the narrow path. Changing organizational culture is much harder than simply changing technology, and legacy products drag on digital products in ways that are hard to predict or isolate. A local news startup at scale might create a product that meets readers where they are — on their phones and televisions — with no advertising, or a quite different sort of advertising, and stubbornly stick to its guns, Netflix-style, even when it commands enough reader attention to turn the heads of public markets. For such an enterprise, the narrow path might not seem so narrow at all.

About the Author

Headshot of Austin Smith

Austin Smith is the CEO of Alley, a digital consulting firm that Austin co-founded in 2010. Alley specializes in product strategy, design, and software development for clients in news media, entertainment, and related sectors. In August 2017, Austin was named an entrepreneur in residence at the Lenfest Institute.

Austin can be reached at, or @netaustin on Twitter.

About the Lenfest Institute

The Lenfest Institute for Journalism is a nonprofit organization whose sole mission is to develop and support sustainable business models for great local journalism. The Institute was founded in 2016 by the late cable television entrepreneur H.F. (Gerry) Lenfest. Lenfest gifted to the Institute an initial endowment of $20 million, which has since been supplemented by other donors, for investment in innovative news initiatives, new technology, and new models for sustainable journalism. Lenfest also gifted his ownership of the Philadelphia Media Network (The Philadelphia Inquirer, Philadelphia Daily News, and, the Philadelphia region’s largest local news website) and these news properties now serve as a live lab for the Institute’s innovation efforts. The Institute’s goal is to help transform the news industry in the digital age to ensure that high-quality local journalism remains a cornerstone of our democracy.

For more information, please visit


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