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March 5, 2009

Remodeling the Media

The News is Dead, Long Live the News

by Shawn Hoffman

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It's been a rough couple of weeks for newspapers. The Rocky Mountain News is gone, shut down by parent company E.W. Scripps. The San Francisco Chronicle and Seattle Post-Intelligencer may not be far behind, as Hearst has threatened to close both papers if it's unable to find a buyer or receive major concessions from its unions. And even the Wall Street Journal is taking it on the chin; News Corp had to take a $2.8 billion write-down on the paper (half of what they purchased it for just over a year ago), even though it has kept its circulation relatively flat.

This obviously isn't a new phenomenon. Newspapers have been on death row ever since the internet destroyed the barriers to entry in this space (it takes about four minutes and zero dollars to set up an online publication), but the recession has accelerated the process beyond anyone's reasonable estimates. If the advertising climate in the US doesn't improve by the end of this year, the Rocky will only be the first in a long line of papers going the way of the dodo.

One popular solution is for newspapers to shut down their print operations and begin charging for online content, either through subscriptions or micropayments (i.e., you would enter your credit card number once, and then pay a tiny amount for each article you read). Subscription revenue isn't really the problem though-newspapers were great businesses because they had de facto monopolies on local advertising. Warren Buffett, for one, used to love them for that exact reason. (He still owns a big piece of the Washington Post Company, which now makes more money from its education division than from its flagship newspaper.) With those advertising dollars now spread across millions of websites, we may just be at a point where a stand-alone newspaper with a massive editorial staff is no longer viable.

This could all result in major changes in the way that baseball is covered-or, more specifically, in who is covering it. Most of us already get our news from television, radio, and blogs, but it's the newspapers that still do much of the base reporting. That's especially true on a local level; bloggers and talk show hosts usually get their subject matter from what's been in the paper. And Major League Baseball has always had a you-scratch-my-back-I'll-scratch-yours relationship with the newspapers, to the point where teams used to pay for the writers' transportation and lodging when they went on the road.

Even if all of the local papers die, beat reporters won't just cease to exist. As long as people want to read about Noah Lowry's elbow problems, someone will be there to report on it, but the economics of the process will obviously need to change.

So the question is, who will be there to pick up the slack? Or, perhaps more importantly, what business models will support local news reporting? Here are the most likely candidates-all of which exist today-that should become more prevalent as traditional newspapers move toward extinction.

The Irreplaceable Content Model

If you're able to read this far down, you're probably paying to do so (either that, or you're mooching off of someone else's account). BaseballProspectus.com can charge for its content because enough of you find it valuable and irreplaceable. The same goes for the Financial Times and the Wall Street Journal, both of which charge for online subscriptions, but with millions of people producing content online, this certainly isn't an easy model to win with; it requires significant competitive advantages, which most newspapers simply no longer have (here's looking at you, Newsday).

The Wall Street Journal and Financial Times aside, most of the publications that use this approach will have to be very small (much like BP.com). Subscription revenue can certainly pay the bills and keep the lights on, but it won't produce a giant newsroom filled with full-time staff writers. And while there's a decent advertising business to be had here (given that subscribers will be highly-targeted and, in some cases, very wealthy), it's hard to scale up with an inherently closed model.

Could we see a bunch of startups in this space? Sure, but we could also see existing-but-defunct brands (like the Rocky Mountain News) recreating themselves as small, subscription-based online outlets that focus on local news. There would have to be very little competition in the area, and the content would have to be outstanding, but it could work in some limited cases.

The Up-Sell Model

If anything, though, we're inevitably trending away from subscription-based models. With more and more competition, it's constantly becoming harder to charge for written content, so a more practical approach is to use the news to draw eyeballs, and then sell them something else.

MLB.com is a pretty good example of this: you may go to MLB.com to read today's top stories, and end up leaving with a new shirt, two tickets to a game, and a subscription to MLB.tv. ESPN does this as well, but in a more indirect way, as the site helps to support the cable business, which accounts for an incredible 49 percent of Disney's total earnings. ESPN.com itself might be reasonably profitable, but it's still very much a side business for the company as a whole (at least until cable is outclassed by IPTV).

On a local level, the biggest news divisions will almost certainly have to use this approach. Don't be surprised to see existing companies (like RSNs) jumping on the opportunity to become bigger players in the reporting game, or even starting to buy newspapers out of bankruptcy at some point. Most sports stations already have some news on their websites, so this seems like a natural extension.

The No-Cost Advertising Model

This isn't meant to write off advertising entirely. When page views are high and fixed costs are low (which is possible when there's no monstrous printing press to run every night), ads can support a great deal of content. SB Nation, which has become a very valuable resource for sports fans, seems to be doing quite well with an ad-only model. And once the economy turns around, display ads should regain some of their pre-recession stature.

As far as replacing the newspaper revenues of old, however, that ship has sailed. Ten years from now, local coverage is going to come from publications that look a lot more like BP and SBN on the small side (nimble, inexpensive, and high quality), or MLB.com on the larger side (drawing attention to a more lucrative business). As time goes on, and more sustainable companies join the fray, the overall caliber of reporting should actually rise. After all, as much as traditionalists are bemoaning the loss of newspapers, competition always yields higher quality. And that should give us a very happy ending to this sad story.

Shawn Hoffman is an author of Baseball Prospectus. 
Click here to see Shawn's other articles. You can contact Shawn by clicking here

Related Content:  Journal News,  News,  Business,  Newspapers

10 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

Richard Bergstrom

I think you'll get a bunch of local online bloggers to join a web ring to report on local news, while being paid through advertising.

Truth be told, except for Sundays, there wasn't a whole lot of local reporting since half of a newspaper consisted of Associated Press/Reuters articles and another third of it was advertising and classifieds.

Mar 05, 2009 08:49 AM
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Richard Bergstrom

Oh, and also, colleges with newspapers can pick up the slack too.

Mar 05, 2009 08:49 AM
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SC

With no newspapers to train students to work for in the future, college newspapers are going extinct as well.

Mar 05, 2009 10:04 AM
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Dan McKay

Will there be enough revenue to support a reporter traveling with a team, or do you expect that kind of coverage to go away?

Frankly, I think we've got the best of all worlds right now (as a fan). Traditional newspapers are doing beat reporting and competing with each other, and blogs and outside analysts like BP are providing insight, too.

Mar 05, 2009 10:57 AM
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cbirkemeier

Wouldn't it be better to have a beat reporter in each city that covers both teams that are in town for the series? That would eliminate nearly all travel expenses. You'd lose the personal touch of always getting your team's reports from the same reporter, but some people might not even notice.

Mar 05, 2009 11:41 AM
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BP staff member Shawn Hoffman
BP staff

Dan -- It might be tough for a small publication to have a traveling beat reporter. But think of a setup like SBN, where you have somebody in every city. That's one approach. Another might be to lease out the content, and have a bigger company pay for the travel.

Mar 05, 2009 12:15 PM
 
Dan McKay

Interesting. Thanks.

Mar 06, 2009 11:33 AM
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baserip4

MASN is definitely moving forward with the more news from the regional sports networks, hiring reporters bought out by the Baltimore Sun.

http://masnsports.com/masnblogs/roch-kubatko-1/

Mar 05, 2009 11:08 AM
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jafessenden

Here in Boston we're already seeing some of this. Yes, the Globe, Herald, Journal, Telegram and others all cover Red Sox games, some still travel with the team too.

However, NESN (the Red Sox-owned broadcast outlet) is doing far more with programing. I can totally see them hiring a columnist or reporter to provide content for their web site. Several Globe reporters also appear on NESN for regular gigs.

Also, WEEI, the sports radio station in Boston has been beefing up its web site with original content.

Throw in MLB.com and their reporting model (which could be syndicated at some point to provide on the ground reporting to local web sites, as well as driving their own product) and I don't we're seeing the future of sports reporting.

Mar 05, 2009 13:03 PM
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BP staff member Jay Jaffe
BP staff

You wrote: "...it takes about four minutes and zero dollars to set up an online publication..."

That's certainly true in the case of blogs, but for a mainstream newspaper to set up an online presence, that's certainly not the case; I've worked in a cyber-sinkhole that turned out to be a dead end, and can only imagine the millions that have gone into sites like nytimes.com or other newspapers. There's a consumer expectation of a slick bells-and-whistles site, and those things don't grow on trees, they take plenty of time and burn through tons of cash, and the models for recouping those investments aren't at all clear.

I wonder how many of these publications have been taken down simply by the need to invest in an online presence to keep up with the Joneses, so to speak.

Mar 06, 2009 18:21 PM
 
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