Newspaper economics: online and offline

[Commentary] Newspapers have never made much money from news.

They've made money from the special interest sections on topics such as Automotive, Travel, Home & Garden, Food & Drink, and so on. These sections attract contextually targeted advertising, which is much more effective than non-targeted advertising. After all, someone reading the Automotive section is likely to be more interested in cars than the average consumer, so advertisers will pay a premium to reach those consumers. Traditionally, the ad revenue from these special sections has been used to cross-subsidize the core news production. Nowadays Internet users go directly to websites like Edmunds, Orbitz, Epicurious, and Amazon to look for products and services in specialized areas. Not surprisingly, advertisers follow those eyeballs, which makes the traditional cross-subsidization model that newspapers have used far more difficult. Some have argued that the solution to the financial problems of newspapers is to charge for access. Many people place a high value on news, and there is clearly a significant social value to having a well informed citizenry. The problem is that there is a lot of competition among news providers, and this competition tends to push prices down. News sources that have highly differentiated content may be able to make pay-for-access work, but this will likely to be difficult for more generic news sources. In my view, the best thing that newspapers can do now is experiment, experiment, experiment. There are huge cost savings associated with online news. Roughly 50% of the cost of producing a physical newspaper is in printing and distribution, with only about 15% of total costs being editorial. Newspapers could save a lot of money if the primary access to news was via the Internet.