Practical analysis for investment professionals
28 September 2015

Journalists Should Chill Out about Their Business Model

Posted In: Economics

Apple and the news media are not on good terms right now. The company’s newly released iOS 9 contains an ad-blocking feature that many journalists see as a potential death knell for the industry.

It’s rational to be worried. Journalists exist in a competitive sphere that is in many ways the worst of all worlds. The professionals in the field are constantly on the hook for creating content, and it’s not enough to just turn out one good story and then milk it for a long time. Content needs to be fresh every day, and reporting is a labor intensive endeavor, particularly when it comes to breaking news. So the amount of work that needs to be done just to stay relevant is daunting.

And almost nobody wants to pay for that work. The clearing price for information has dropped to “free,” which presents some business model challenges. It turns out one of the requirements for doing the work above is a live human being, and keeping one of them alive takes money.

Historically, that money has come from a mix of newsstand sales, subscriptions, and advertising. The first two have been gutted by the transition from print to digital, while the third has long been under threat. Is Apple’s move to include ad blocking by default a harbinger of things to come? Will it undermine one of the news media’s remaining financial foundations and spell the end of journalism? Are the ranks of the unemployed about to become drastically more literate?

I’m Not Worried

If you take a step back from the discussion about revenue models and monetization to focus on the core function that journalism and journalists provide society, you arrive at a short but important list:

  1. Transmitting information
  2. Uncovering new information

For some segments of journalistic activity, there is an excellent argument that this is a form of public service. Certainly it is critically important that the public is kept informed about what’s occurring in the halls of power and crises that could affect our daily lives. It’s obvious why many hear that journalism is under threat and connect that immediately to a significant risk to civil society.

But it’s not going to happen. Here’s why: A side effect of fulfilling the roles outlined above is that journalists gain a significant amount of influence over time. Influence is a tough thing to buy. You can purchase a spot on my Twitter feed or inside my Economist, but the odds that I am going to ignore you or even become annoyed are significant.

If you just publish something good, however, I (and others) will want to read it, and it will travel around the world without anyone spending a penny on it. And your influence will grow.

So If You Want to Grow Your Influence, Buy a Journalism Organization

Obviously that’s not a route available to everyone, but it doesn’t need to be. Plenty of people have money and want influence. A subset of those people might be able to offer a forever home to one of the beleaguered news organizations that fear its business model is abandoning it.

And I’m not suggesting everything is fine because, say, Jiffy Lube would be happy to sponsor The New York Times. There’s a clear pattern that develops as people grow wealthier: They start trying to leave a lasting impression. This has given rise to a number of great things that aren’t explained by pure commercial intent: the modern museum and the giving pledge, among them.

Now, I’ve essentially argued here that the journalism industry doesn’t need to worry about going extinct because there exists a coterie of friendly billionaires who would be more than happy to take it in as a pet. That does not feel good. And I’m not predicting that billionaires will cascade into newspapers and buy them out.

But I do think that they will have a market-defining effect well into the future. In other words, I think you’d be foolish to ignore the influence they can have in the valuation of any given media company. In M&A speak, they are what’s called a “strategic” buyer, which means their idiosyncratic answer to the question “does this purchase make sense?” will have as much to do with the pricing of a property as the dollars and cents it creates.

And the net effect of that is that there will be money around to fund journalism for a long time, even if it doesn’t come from the newsstand, subscriptions, or advertising. The allure of enhanced influence will be enough to keep capital drifting into the news media for quite some time to come.

And Some of That Capital Won’t Be Seeking Influence Alone

Think like an entrepreneur for a second: What happens to the value of a new revenue model when an old one comes under threat?

Whether or not the new model is any good in real life, it will attract attention in roughly exponential proportion to any revenue it can create. For new ventures, attention has a way of transforming into influence. That influence might translate into just the sort of tailwind that a new venture needs.

Now is not an objectively fantastic time to go out and start a journalism business, but ventures that have been successful in monetizing without relying on ads are likely to be viewed as suddenly more valuable.

New ventures with novel approaches to monetization are also likely to continue beating down the doors of Sand Hill venture capitalists. Some of them will get funded. Few of them will work. But everyone will expect that going in.

And journalism will stay alive. And individual journalists who have been successful at informing and provoking reaction over the years will find their content still has value that someone (even if they’re not the ultimate consumer) is willing to pay for.

In a perfect world, these challenges would not be such a huge factor. But even in our imperfect world, there are people willing to fund projects for reasons that aren’t purely financial, as well as people who love to fund risky projects in uncertain times. Journalism will be fine.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Sloane Ortel

Sloane Ortel publishes The Sloane Zone, an email newsletter that comes when you least expect it and makes more sense than it should. She joined CFA Institute's staff as a sophomore at Fordham University, and was instrumental to the global growth of Enterprising Investor as a collaborator, curator, and commentator over the subsequent eight years.

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