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The public service business model dilemma for newspapers

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Peter Littger, TheMediaBriefing Experts' Blog, Newspapers


german dailies about Muammar Gaddafi - behind newspaper box bars (23rd February 2011)

Almost exactly 10 years ago, Thomas Steinfeld, today culture editor of the German quality daily Sueddeutsche Zeitung, invited 30 leading journalists to discuss the raison d’etre of quality newspapers. He came up with the conclusion: “The current economic crisis of newspapers is so serious, that there is reason to doubt its survival in the form familiar to us“.

The conference participants shared the understanding that their newspapers were part of the DNA of post-war Germany and its constitution and thus fulfilled a kind of crucial public function. That this had to be funded privately was not subject to debate, but was taken as a given. Patrick Bahners, then comment editor of Frankfurter Allgemeine Zeitung underlined this concept when he declared the federal president to be the “top culture editor of the nation”.

Since then the Germany’s national newspaper publishers have been stuck in a sort of analysis loop. At the same time, they are careering at full speed toward the insoluble problem of combining the the cost structures of profit-making enterprises with the mission of public institutions and charities. In any case they lay claim to a role similar to those cultural entities financed by taxes and license-fees: schools, museums, theatres – and in particular public service broadcasters ARD and ZDF.

Since the founding of the German Federal Republic, the national press has assumed a quasi-constitutional status, which they wear rather demonstratively. It is a confidence in performing a wide-ranging watching, discussing, and safeguarding role in the democratic body politic, the knowledge of being a highly subtle element in an increasingly complex cultural construct.

For example, Sueddeutsche Zeitung describes its mission thus: “To contribute to information and to the free forming of opinions of the individual and to support a liberal and tolerant attitude, (…) to make a substantial contribution to the life, work and self-determination of the individual in a socially committed, free, democratic and free market society.”

You needn’t be a brand guru to see that with such vagueness in self-perception, you can never create a crystal-clear brand. The longing for the general interest and the belief in a social responsibility to reach potentially all halfway intelligent Germans of voting age, really means you want to offer as many people as possible as many subjects as possible. That explains the great indistinguishability of the leading quality publications in Germany.

Two-class journalism

For many decades publishers could finance their self-imposed public service remit securely: research could take months and years, and there was still enough left for publishers to become billionaires and managing directors, editors sometimes millionaires.

The private media economy worked like a magic power station: as there were more than enough readers and advertisers, there was always enough energy for moving the great and stolid public service.

Thus for some time Germany has now had two classes of journalism: those working for private publishers rarely have much time to think, and often not even to research. Whereas those in the pay of the license feefunded bodies have a choice of travelling by air or first class rail to an interview that may be broadcast the next day or week, or possibly not at all.

The economic asymmetry of the privately and publicly funded editorial organisations is very stark indeed and is likely to increase in the years to come, at least in Germany where the license fee is being increased.

While the Financial Times Deutschland closed in 2012 after 12 years, with an annual loss of €21 million, the ARD spends more than that on a new studio for its daily news show “Tagesschau”. Nobody knows what the running of programs such as “Taggesschau” or “Tagesthemen” has cost each ARD user over the past 12 years.

Which makes it even more astonishing that the notion of a public service mission persists in supposedly intelligent private publishing houses. They insist on the principle of a basic provision and are foolhardy enough to risk a competition with the public service system. In the cold light of day this is hard to understand because this is a competition they can never win.

Newspapers are not too-big-to-fail

Very often, the word from publishers is that their journalism is the only true and decent kind and therefore irreplaceable. There is demonising against social media too.

Frank Schirrmacher, the co-publisher of the Frankfurter Allgemeine Zeitung (this newspaper has no editor but five publishers), defined his position in the essay Das heilige Versprechen (“The holy promise”):

"In a world in which one can work out which institutions will profit most from the atomisation of public debate, in a world of supposed transparency, where shadow networks grow more quickly than ever before (as Manuel Castells has shown), the deciding question is this: How can a society survive without good journalism? Now, when sadly even journalists increasingly allow Silicon Valley and Wall Street to write their social forecasts, we risk a very simple answer: 'it can't'."

Maybe Schirrmacher is already anticipating the exodus and longs for a final, heroic moment or a magical rescue at the last minute. In any case he gives the FAZ a crucial role in the system of the nation – as if the editorial outlook of concern for the public good was guaranteed by some kind of social contract.

Meanwhile there should be real concern about the FAZ accounts: There are reports of up to €20 million in losses for 2012. It indicates that the business is broken and that FAZ can only survive by using its grand reserves and with the backing of the parent FAZIT foundation. Were these results to continue, one does not have to be overly pessimistic to predict that even this eminent newspaper can be forced to close.

As important as publishers may be to the public, “too big to fail does not apply to newspapers”, as Peter Hogenkamp, head of digital business of the Neue Zürcher Zeitung rightly commented recently – ironically on German public television.

Most citizens and loyal subscribers are not even aware of the situation, particularly those who echo the former editor-in-chief of the ARD Hartmann von der Tann: “But I will always want my newspaper in the morning with my breakfast.”

The supposed saviours become victims

For a long time publishers were able to subsidise their unusual public mission with an unusual internal cross-subsidy. Cover prices never had to be pegged to real costs and were always kept relatively low so that circulation could be increased. Journalism was really, from a business point of view, the icing on the actual product: a widely circulated advertising carrier.

Because this journalism is now increasingly created like any other product, financed by sales, the public mission has now become so expensive, that it is devouring the system from within. The intention of saving society has turned into the existential threat to the intended saviour. This problem has been partly overlooked, partly played down and underestimated, but also knowingly ignored by some.

 

Mission without boundaries

Zeit editor Giovanni diLorenzo recently commented that the “decisive question” in his view is: “How can we finance high value journalism, concerned with profound analysis and research and the free reporting from across the globe, with its critical watchdog function?”

In truth, the opulence and open-endedness of their mission which is mirrored in diLorenzo’s question is the publishers' failing. All national titles should be using the year 2013 to focus on the question already asked in 2003: “Which of all these things can we continue to finance?"

FT Deutschland would have had to charge between €5 and €7 on advertising-free days, just to cover the cost of production. To please its owners, a moderate multiplying factor of 3 to 5 would have been necessary, making for a cover price of €15 to €21. So FTD printed daily was never going to be an alternative.

Still journalists and managers across the nation dream of a magic cure for their existing structures, with existing contracts and rewards. At the same time they have to admit: “We have no functioning business model for the future”… “The situation is dangerous” … “Paper has no future”. And yet they continue as before.

In fact, the palliative phase has already begun, at the end of which stands a certain death and a stiff bill, unless mental attitudes and material structures can be radically changed in the coming years. The case of FTD and the bankruptcy filing of Frankfurter Rundschau paper show that continued cost-cutting at the foundations, precisely where there should be a unique daily creative effort, is counterproductive in newspaper publishing. These measures merely delay the funeral and in the end make the whole business unbelievably expensive.

 

The risk of one product enterprises

This positioning as socially important, morally superior and virtually without competition in the open market, also creates a legitimisation for cartel behaviour. While the common good is the declares goal up front, there is the danger of damage behind the scenes, for example through collusion in the advertising market.

While there are good reasons for the FTD and the Frankfurter Rundschau to have been the first newspapers to leave the market, there is no reason why they should be the last. For publishing houses like DuMont and Gruner+Jahr, closing individual titles is an opportunity, as they have many brands. FAZ and SZ belong to virtually one-product-enterprises and closures would mean a 100 percent loss for their publishers.

Which is why one product enterprises have a particularly hard time with changes and risks and delay fundamental decisions. They – and society – lose time and in the worst cases they fudge the problems and possibly even hide the fact that their journalistic apparatus can’t be re-financed and their journalism in its current form is insolvent.

Sober economists would speak of a failure of the market in such cases. Should society still desire the service, there would be justification for a state subsidy, possibly in the form of a public licence fee.

Five proposals of reform for the year 2013:

1. Uniqueness: Because the significance of cover prices – printed and digital – will grow immensely, publishers will have to give their products much stronger identities and distinctiveness.

At the same time, newspapers will have to give up the race for high circulations with low prices and aim for high sales prices and lower print runs. This creates the additional pressure to change today’s products: it will be a question of re-inventing them – or closing them.

2. Frequency: Publishers will have to scrutinise the costs of their daily publications and probably give this up. Instead, they must create new, realistic sales prices based on the new frequency. The same conclusion was reached by Martin Langeveld who recently formulated a prognosis: “The coming death of seven-day publication”. (Note: see TheMediaBriefing’s recent article on this problem)

3. New money: In any case, publishers will have to diversify their income streams, target more business with citizens and the state, possibly even with the EU, as well as club memberships of readers, as outlined by Michael Manness of the Knight Foundation.

German quality newspapers will have to learn from the budget structures of public institutions such as theatres or the larger NGOs, as well as the varied income streams of some journalistic projects of the Knight Foundation, for example the Texas Tribune.

4. Commercialisation: The traditional Chinese wall between news and commentary is obsolete and could be a model for a new division: between radically commercial and totally uncommercial subjects and areas. Here there currently are mixes that damage credibility and still don’t guarantee income. Publishers must inspect and exploit all possible commercial openings and not just in the narrow sense of journalism, but in every kind of content, digital and non-digital.

5. Information: Above all publishers should inform the public, their colleagues and their readers about the true situation and the possibly consequences and avoid hiding the problem.

Peter Littger is country director for Germany at Innovation, the international media consulting group. He tweets as @plittger and can be reached at Littger AT innovation-mediaconsulting.com.

This article originally appeared in German at Meedia.de.


Image via quapan on flickr via a Creative Commons licence.

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