Originally a Medium post. Published in the Spectator Australia as on 9 July 2020 as ‘The death – and rebirth – of the newspaper?‘
Everybody, whatever side of politics they are on, generally agrees that the media is one of the reasons that politics is so polarised right now.
Agreeing on why the media has driven this is a little harder. Yes, the newspaper and print industry has been disrupted, thanks to the internet. And yes, it seems like newspapers are more desperate for readers.
But underlying these surface level observations is the fact that newspapers are undergoing a fundamental structural shift between two organisational types — from platforms to factories.
Let’s call what’s happened to the newspaper industry multi-sided market collapse. Understanding the industry this way clarifies how today’s media environment is so different from that of the twentieth century — and offers a warning for other platform industries that face disruption in the future.
(I’m going to focus here on the newspaper industry, because the dynamics are most obvious there. But we can use this framework to understand how media economics effects media content in everything from talk radio to cable television.)
The twentieth century newspaper was a particular type of economic organisation: a platform that serviced a multi-sided market.
The idea of a multi-sided market platform was first developed in detail by Jean-Charles Rochet and Jean Tirole in 2003. It’s intuitive: we want to make trades with each other, and a platform helps match us together.
Platform economics is interesting because market participants want to use the platform that everybody else is using. We want to buy the video game console that has the most games — and developers want to design for the console that has the most users. We want to use the ridesharing app that has the most drivers — and drivers want to drive for the app with the most riders.
This desire to go where the crowd already is leads to some curious pricing structures. Platforms typically feature complex cross-subsidies. One side of the multi-sided market might be given access to the platform for free, or given heavy discounts, while the other faces high charges.
For the traditional newspaper industry, the market participants are advertisers and readers. Readers want content, and advertisers want eyeballs. Revenue from advertising paid for the production of news content, which attracted readers, which attracted more advertisers, and so on.
The cross-subsidies were straightforward. Advertisers were charged relatively large fees for access (very large in the case of fullpage advertising, and relatively large in the case of classifieds). Readers were charged small fees (through either subscription or individual sales), or even no fees (such as the free newspaper model or free distribution locations like stadiums and railway stations).
The need to get as many readers as possible onto the platform didn’t just shape pricing — it shaped decisions about what content would be published.
Newspapers sought to cater for as wide an audience as possible. On the op-ed page newspapers would strive for a rough balance. They’d match one opinion piece from the ideological right with one opinion piece from the ideological left. Let’s call this liberal balancing theory — all voices get heard.
In the news pages they’d adopt a perspective that wouldn’t excessively upset any particular side of politics. Let’s call this median reader theory. The combination of these two approaches has given us the twentieth century model of journalistic objectivity, view-from-nowhere journalism, the idea of newspaper-as-public-square etc.
The arrival of the internet disrupted the underlying newspaper business model.
Newspapers first sought to continue the existing model in an online world by offering their content for free supported by banner ads or cross subsidised by print sales.
However, much advertising — particularly but not only classified advertising — migrated to dedicated digital platforms. To be more specific, the advertising migrated to digital platforms that didn’t use journalism as a way to attract eyeballs.
Within the space of a decade, the cross-subsidies that sustained the newspaper business model evaporated. But the demand for journalism has not. Newspapers have responded to this reduction in revenue from advertising by increasing the cost to readers. Newspaper websites now charge for access. Newspaper subscription prices went up.
Journalism is now predominantly paid for by fees from the readers that demand that journalism, rather than indirectly through advertising. This shift represents a change from a platform servicing a multi-sided market to a something that looks more like a production process servicing a single sided market. Less an advertising platform, and more a journalism factory.
In other words, what we’ve seen in the newspaper industry is multi-sided market collapse. (I would prefer to call it deplatforming — but that word has already been taken.)
Now let’s think through what this means for newspaper content and journalism.
Higher subscription fees imply a smaller readership. This is less of a problem than it appears — newspapers no longer have the same need to deliver huge readership numbers to advertisers. Instead, newspapers need to convince readers to pay more for what a product they used to get cheaply or even free.
The strategy newspapers have pounced upon is specialisation. Newspapers now seek readers who have more emotionally invested in that particular newspaper brand. They’re the ones more likely to pay the higher subscription fees.
Ideology is a specialisation. Partisanship is a specialisation.
In other words, multi-sided market collapse explains the dominance of ideologically driven media outlets in the digital age.
It helps explain controversies like that which greeted the Tom Cotton opinion piece published in the New York Times in June 2020. Why should ideologically-motivated readers pay higher prices for content intended to appeal to their ideological opponents?
And if newspapers are no longer trying to appeal to the median reader, why should they continue producing bland ‘view-from-nowhere’ content? The news pages have become more passionate, more opinionated, more self-aware. Newspapers now focus on what their most dedicated readers actually want — not just what the median reader in the population will accept.
Converting a business from a platform to a factory is hard. If, presented with this argument before the internet existed, you tried to make predictions about what would happen to the newspaper industry should its platform model collapse, you’d likely predict:
1. Lots of newspapers fail to make the transition and massive business failure.
2. Lots of new media organisations be established that are structured around the new factory model.
Which is of course exactly what we have seen.
There are lots of implications of the idea of multi-sided market collapse. Here are a few. For instance, it demonstrates clearly that lot of our current debate about platform ‘monopolies’ like Facebook and Google is deeply confused about platform economics.
The multi-sided market collapse model shows that there has been no ‘expropriation’ of advertising from newspapers to digital platforms. Rather, as platform businesses, newspapers have been outcompeted. “Readers” (in this case, social media users and webpage searchers) and advertisers want the platforms they use to be as big as possible. Advertisers were attracted to newspapers because they were big platforms. Now advertising has migrated to different (digital) platforms. Nothing nefarious has occurred.
What does this mean for future technological disruption? If the analysis here is correct, it’s not obvious that new platform technologies like blockchain pose a threat to the new business model of journalism. They’re just not platforms anymore.
If we’re looking for blockchain use cases in journalism we should be thinking of them more along the lines of the factory/production process/supply chain model (focusing on provenance, track and trace) rather than the matching service performed by platforms.
Platforms are one of the dominant organisational structures of the digital economy. They rely on their ability to cross-subsidise one side of a market with another. And society invested heavily in newspapers as platforms — not just investments in terms of capital, but in cultural and political significance.
But when you work for a platform company it is easy to be confused about what your company’s competitive advantage actually is. In truth that advantage was not journalism, but matching. Newspapers were outcompeted by competitors that were better at matching.
The partisanship and fervour we’re seeing in media content right now is just the most visible symptom of an entire industry trying to restructure itself in real-time.