In a thought provoking piece in the “London Review of Books” entitled “Let us Pay” John Lanchester discusses the future of the newspaper industry.    The economic problems are obvious.  He points out that between 2004 and 2009, the US newspaper industry lost 34 per cent of its readers; the UK industry lost 22 per cent.  Things have got worse since.  At the same time advertising revenue is falling at an alarming rate – in particular, classified ads which Mr Lanchester describes as “the secret weapon of the newspaper business“.  He points out that such advertising is even more important in the US where newspaper revenue is 87% advertising and 13% sales (in contrast to 50/50 in the UK and a global average of 57/43 in favour of advertising).  He suggests that this

“reflects the fact that in the US, the newspaper business is a local one, with a strong tendency towards de facto monopoly. Most of America’s cities have (or had) a dominant newspaper, and that paper had a monopoly of classified advertising. During the long years of the 20th century’s newspaper boom, that monopoly was the proverbial licence to print money. It was this gushing faucet of classified revenue which allowed the elaborate superstructure of American newspapers to develop. The well-staffed offices, the air of self-conscious seriousness shading into pomposity, the tendency to file what from a British point of view always seemed several hundred words too much – all these features of American papers were underpinned by the easy money of monopoly-based classified advertising. It is one reason lessons from the US are not instantly generalisable to the UK, where the newspaper market is national, and as competitive as any equivalent business anywhere in the world. It is also the reason US newspapers are for the most part more fundamentally serious than British ones. In Britain, the papers have never been able to forget for long their close proximity to the entertainment industry”.

He draws attention to the fact that with the arrival of the internet, in particular and free advertising outlets such as Craigslist, “the fountain of classified ad revenue simply stopped“.  The result has been financial disaster.  Mr Lanchester points out that “the global flagship of serious journalism”, the New York Times, lost US$74.5 million in the quarter to March 2009 and had US$1.3 billion in accumulated debt.   In this country Times Newspapers lost £87.7 million in the year to June 2009, having lost £50.2 million in the previous year. “It was“, as he puts it, “mayhem out there“.

The paradox is that, during this period, newspapers have been hugely increasing their readerships – via their online editions.

“One of the reasons the industry is so anxious is that there is something inherently maddening about a situation in which papers have more readers than ever before – not just a few more readers, but millions more – and at the same time are facing collapse”.

Unfortunately, no one has found an effective way of “monetising” this increase in readership.  Mr Lanchester quotes an OECD report “The Evolution of News and the Internet” which

‘ finds that currently no business and/or revenue sharing models have been found to finance in-depth independent news production. This raises questions as to the supply of high-quality journalism in the longer term.’

“Paywalls” do not appear to be the solution – outside the specialist field of financial journalism (and, as is pointed out in a letter to the LRB, specialist publications like the “Racing Post”).  He quotes a telling example

Newsday on Long Island (which when last I saw it was a pretty good paper) went behind a paywall in October 2009. At that point it was having 2.2 million unique visitors a month. Guess how many people had signed up to pay by January 2010? Thirty-five. A way ahead for the industry, this is not”.

He suggests that, in the case of the “Times” the revenue generated by those who have signed up to pay online – from 105,000 subscribers of all kinds is unlikely to be sufficient to compensate for the revenue lost from online advertising as a result of the paywall.   This general view of “paywalls” is in line with data from the Pew Research Center last year.

So what is the solution?  Mr Lanchester has an interesting suggestion.  He points out that a very large percentage of the cost of running a newspaper concerns printing and distribution

“A persuasive looking analysis in the Business Insider put the cost of printing and distributing the New York Times at $644 million, and then added this: ‘a source with knowledge of the real numbers tells us we’re so low in our estimate of the Times’s printing costs that we’re not even in the ballpark.’ Taking the lower figure, that means that New York Times, if it stopped printing a physical edition of the paper, could afford to give every subscriber a free Kindle. Not the bog-standard Kindle, but the one with free global data access. And not just one Kindle, but four Kindles. And not just once, but every year. And that’s using the low estimate for the costs of printing”.

In other words, he suggests, the future of newspapers is to “junk their print editions”.  In order to make this work economically, he suggests that the model of iTunes can be used: downloading replacing the buying of “hard copy CDs”.  This would involve

“a new payment mechanism for online reading, which lets you read anything you like, wherever it is published, and then charges you on an aggregated basis, either monthly or yearly or whatever. For many people, this would be integrated into an RSS feed, to create what amounts to an individualised newspaper”.

His conclusion is “let us pay”:

“Make the process as easy as possible. Make it invisible and transparent. Make us register once and once only. Walls are not the way forward, but walls are not the same thing as payment, and without some form of payment, the press will not be here in five years’ time

The article contains a number of other interesting thoughts and insights into the position of the press in the internet age and we commend it to our readers. The full piece appeared in the LRB Vol 32, No.24 on 16 December 2010 and can be accessed via the LRB website.