Newspapers: an industry in crisis

"Newspapers are dead but it will take a while for the body to cool down."

It's unofficially official: news print is dead. Behind closed doors, web editors are united in their predictions of doom.

These particular closed doors were at Cambridge-MIT Institute's digital technologies project last Friday, where the big guns of British and US media were discussing the future of online news. 

All the editors and publishers were speaking under the Chatham House Rule, which means their quotes can't be attributed. But the consensus was clear: newspapers are dying and dragging their news sites down with them.

In the US, newspaper sales have stayed at the same level for 20 years - even though the population has increased by 25 per cent. Web audiences have boomed but newspaper sites have struggled to keep up.

So why are they falling behind? Doesn't the internet present an enormous opportunity for the future of the newspaper industry? An inexpensive, global publishing platform with unprecedented potential for multimedia publishing and customisation?

The real handicap, one delegate confessed, is starting with a traditional newspaper model and trying to adapt it for the web. The most successful websites - most notably Google - started from scratch and developed innovative, technologically-sophisticated products for the unique demands of the web environment. 

Wrapping the cast iron model of a 200-year-old newspaper around the amorphous chaos of the internet is seemingly impossible. And although the online industry is now more than 10 years old, the pace of change has simply been too rapid for newspapers.

Newspaper websites face enormous challenges from citizen journalism, rapid changes in online trends and technologies, fragmented audiences and lack of revenue sources. On top of that they often have to lock horns with management teams that are unwilling or unable to understand the internet environment.

The resistance to change 'borders on pathological', according to one news rep. The news industry is in 'profound denial' about the crisis. Another admitted the industry is completely out of touch with consumer expectations of online news.

To make things worse, the industry's executives still don't understand what the web is for: "So it doesn't make money, and it's not a back up for the newspaper?"

Short term, the plan for newspaper websites seems to be to enjoy the boom in online advertising for as long as it lasts. Experimenting with new print formats - a strong trend among UK newspapers - is an attempt to wring as much value for as long as possible from the print edition. And exploiting the blogging wave could also help by providing a low-cost source of information - if news sites can embrace the phenomenon before it starts to erode their businesses.

"No other media was ever so well suited to our business of journalism." "That's why I think it has been so successful over the past 10 years and will be in the next 10 years." UK publisher on internet news

Editors predict that by 2015, most site traffic will be generated by syndicated news content rather than random surfers. To remain competitive, sites will have to provide versatile news for a wide variety of platforms. Web users will continue to filter news content through their own beliefs and prejudices, customising their news package using favourite sites and sources.

But while newspaper sites are chained to antiquated publishing models they will struggle to innovate and will not be able to thrive online. 

One web editor described the website as a life raft for the newspaper - a powerful metaphor for the state of online news. 

Newspaper sites could drown quietly and sink without trace. But they might be washed up on a desert island and survive by being adventurous and innovative - an exciting prospect for the next era of news publishing.

The meltdown: whose crisis is it, anyway?

Many find it amusing that it took officials 11 months to declare a “recession” in the United States. Yet, it took more than 20 years to recognise worse. When does a crisis become “A Crisis?” First came ‘the boom’ — exploding debt, crazy credit, insane speculation, a finance sector gone berserk even as manufacturing declined. Then the doom — as multiple bubbles burst. Massive job losses, a credit crunch, a huge breakdown. These are some features of the ‘Crisis’ that has struck the U.S. since September.

But some of those problems, certainly ruin of industry and job losses, have plagued other, poorer nations for close to two decades now. Some even saw doom without a boom. When imposed on those societies we didn’t call these problems a crisis. We called them “reforms.” Or the painful fallout of necessary “adjustment.” When they come home to roost in Wall Street, we call it a crisis. Simply put, a crisis becomes a crisis when it hits the suits. Even within those nations on which it was imposed, the poor and hungry were devastated years before the well-off found crisis on their menu. Indeed, the predicament faced by poor people translated into the “success stories” of those elites.

Remember The Crisis that struck India in 1991? The then Finance Minister, a Dr. M. Singh, told us that our balance of payments problem and shrinking forex reserves were truly a crisis. These, he said, called for reforms on a war footing. Oddly, 400 million human beings going to bed hungry every night was never thought of as a crisis. Certainly not one to be dealt with on a war footing.

Within India, rural despair and breakdown meant little. Crisis is when the Sensex tanks. It took over a decade of intense misery before a Prime Minister figured out there were problems in the countryside. Which he then tried tackling with makeshift “relief packages” thinly spread out across hundreds of millions of people. (Even the much-needed NREGA only happened due to arm-twisting allies.) But much larger “stimulus” packages, aimed mostly at the narrow corporate world, happen in a jiffy. And Finance Ministers are quick to descend on Dalal Street within hours of a hiccup on the Sensex. They do so, as the media tenderly put it, “to soothe the market’s nerves.” Recall the short eight-day session of Parliament in 2004? It followed the historic elections of that year. The then Finance Minister was absent on the first day of that session. He was consoling the distraught millionaires of Dalal Street. The delicate sentiment of the Market had been wounded by the democratic sentiments of the Indian voter.

Even today, debate on the ‘crisis’ in the U.S. centres around how to help the banks and other financial bodies back on their feet. And that with few preconditions or questions asked. Forays into the most painful part of it — the staggering job losses — are infrequent. These are often mentioned in news items, and now form the rationale for the American Recovery & Reinvestment Act. But it is still very hard to push through the modest measures to help those crushed by the crisis — despite popular support for it. In any case, the jobs crisis never gets the priority that Wall Street’s does.

Since the meltdown began in September, the U.S. economy has seen the loss, on average, of around 17,000 jobs a day. Move the baseline to November 1 and job losses have averaged more than 19,000 a day. And the trend is getting worse. Close to 2.6 million jobs have been lost since just September. Over 1.7 million of those have vanished over the last three months. January saw the loss, on average, of more than 800 jobs every hour.

‘Understated’

Paul Craig Roberts, who was Assistant Secretary of the Treasury in the Reagan White House, notes that even these numbers “are likely understated.” Writing in Counterpunch.org, Mr. Roberts sums up the message of those who use un-massaged job loss data: If we revert to the methodology used in the U.S. in 1980 — before the government started fiddling definitions of joblessness — the U.S. unemployment rate would be not 7.2 per cent but 17.5 per cent.

In India, too, job losses are now finding some mention. When covered in the media, it’s mostly about jobs in the IT sector. Or those lost in related fields in the organised sector. While these are not small, only a handful of reports look at the awful hit taken, for instance, by migrant labourers. Millions of these are people who left their villages seeking work when there was no other option. They found it in construction, in laying roads and other poorly paid work. And, keeping afloat in oppressive conditions, many still managed to send something back to their families. Now, as one of them told us: “There is nothing to send back to the village and nothing to go back to the village for.” And what about all those small farmers who moved towards growing cash crops for export markets that have collapsed? And do we get to ask questions of the policy experts who brought it all to this point?

Somewhere in there persists a fond and smug belief that our innate cleverness has saved India from all those bad things out there. “What slowdown?” crowed one daily, pointing to the sums spent at IPL’s “auctions.” If our barons could spend millions of dollars acquiring a clutch of foreign cricketers, it reasoned, things couldn’t be so bad. Never mind that some of the franchisees may have laid off lots of workers, and slashed the salaries of many others. Spending three million dollars on just a couple of players is worth seeing in that context, but it won’t be. Some sections of the media celebrating the IPL’s success as proof of the economy’s vibrancy are themselves laying off many journalists and other workers.

But our elite believe that CEOs lead or should lead a charmed life. Remember their outrage when Prime Minister Manmohan Singh — otherwise a darling of the corporate media — made a few bleats of protest about CEO salaries getting, er, a wee bit too large? That other media icon, Dr. Narayana Murthy of Infosys was not spared either when he called for some restraint in CEO feeding frenzy. “Pay peanuts, get monkeys” spat one contemptuous editorial. (Never mind that such publications have paid gold and got gorillas.) Now there is coverage, without much comment, of the bumbling efforts at curbing CEO pay in the U.S.

Corporate kleptocracy

Meanwhile, U.S. banks and CEOs continue to educate us on the culture of corporate kleptocracy. Take Citigroup, which hogged $45 billion of public money at the bailout trough. Soon after, it sought to spend $50 million on a corporate jet — a move that had to be squelched at the level of the Treasury Secretary. The now disgraced CEO of Merrill Lynch, John Thain, spent $1.22 million on redecorating his office in early 2008. That is, even as he prepared to cut thousands of jobs. The amount included purchase of an antique “commode on legs.” Heavy symbolism there, given the company was by then halfway down the tube with massive losses. Less than a week after the U.S. government committed $85 billion in bailout money to AIG, the insurance company’s executives whizzed off to a luxury resort where rooms could cost over $1000 a night. Blowout followed bailout. Wells Fargo ($25 billion in bailout money) laid on a trip to Las Vegas for its star execs.

Top bosses of New York financial firms paid themselves bonuses worth $18 billion in 2008. The kleptocrats clearly believe that the crisis — one that has their personal stamp on it — is for others. They themselves flourish by divine right. And the bailouts seem to confirm that. The very gangs that spurred the meltdown are rewarded with huge amounts of taxpayer money so that they can go back to doing the same things they were doing before.

Meanwhile tens of millions of human beings across the world stand to lose their jobs. Many will descend into distress and chaos. The already hungry will have it much worse. Whose crisis is it, anyway?

Burgeoning bourgeoisie

For the first time in history more than half the world is middle-class—thanks to rapid growth in emerging countries. John Parker (interviewed here) reports

Financial Times

THE crowd surges back and forth, hands above heads, mobile-phone cameras snapping one of Brazil’s best-known samba bands. It could be almost anywhere in Latin America’s largest city on a Saturday night. But this is Paraisopolis, one of São Paulo’s notorious crime-infested favelas (slums). Casas Bahia, the country’s largest retailer, is celebrating the opening there of its first ever store in a favela (pictured above). It is selling television sets and refrigerators in a place that, at first glance, has no running water or electricity.

Among the shacks, though, rise three-storey brick structures with satellite dishes on their tin roofs. In the new shop, Brazilians without bank accounts—plumbers, salesmen, maids—flock to buy on instalment credit. In a country with no credit histories, the system is cumbersome: the staff interview customers about their qualifications and get them to sign stacks of promissory notes, like post-dated cheques, before allowing them to take their purchases home. But it works, more or less. According to Maria, a cleaner, “Everything I have comes from Casas Bahia. Things are very expensive but the means of payment are better for people like us, without any money.” This is the emerging markets’ new middle class out shopping.

Eduardo Giannetti da Fonseca, one of Brazil’s most distinguished economists, describes members of the middle class as “people who are not resigned to a life of poverty, who are prepared to make sacrifices to create a better life for themselves but who have not started with life’s material problems solved because they have material assets to make their lives easy.” That covers a broad range of ambitions, as two other examples will show.

Back in 1992 Lu Jian was a dissatisfied mid-level bureaucrat at China’s department of transport and communications who became surplus to requirements. Taking advantage of government measures that encouraged such officials to go into business, he went off for a stint at China’s first commodity-futures trading company. Soon afterwards he found himself designing the country’s first ski resort, near the northern city of Harbin. Now, as chairman of the Nanshan Ski Village, in the desert hills near Beijing, he presides over the capital’s main winter-sports recreation ground.

This season 3m Chinese will take up a sport that was unavailable in the country only 15 years ago. China has around 300 ski runs, including some in the subtropical south where skiing is done indoors. Even in freezing Nanshan, snow is manufactured from wells deep underground. “When the Chinese first got rich,” says Mr Lu, “they wanted to go to Thailand and South Korea. Now they want to go skiing.” Every weekend the resort is packed with IT executives, bankers and media glitterati. This is the emerging markets’ new middle class at play.

In December 2008, a week after the terrorist attacks in Mumbai, thousands of young, English-speaking professionals gathered in Mumbai, New Delhi, Bangalore and Hyderabad. They were demanding a new security law and a ban on criminals holding parliamentary seats, as well as urging people to vote. India’s professional classes have long been considered indifferent to politics and less inclined to vote than the poor. Yet suddenly social-networking sites were full of memorials to the victims and proposals for further action: vote, don’t vote, withhold taxes, join a new party. “Those laid-back, lethargic, indolent middle classes—they’ve been galvanised,” says a former advertising executive.” This is the emerging markets’ middle class engaged in politics.

So much to do

“We expect a lot from the middle classes,” say Abhijit Banerjee and Esther Duflo, of the Poverty Action Laboratory at the Massachusetts Institute of Technology. Following the historical examples of Britain and America, they are expected to be the dominant force in establishing or consolidating democracy. As a group, they are meant to be the backbone of the market economy. And now the world looks to them to save it from depression. With the global economy facing the biggest slump since the 1930s, the World Bank says that “a new engine of private demand growth will be needed, and we see a likely candidate in the still largely untapped consumption potential of the rapidly expanding middle classes in the large emerging-market countries.”

This special report will assess these expectations. It will argue that many of them are broadly justified; that there is indeed something special about the contribution the middle classes make to economic development that goes beyond providing a market for Western consumer goods. The middle classes can, and sometimes do, play an important role in creating and sustaining democracy, though on their own they are not sufficient to create it, nor do they make it inevitable. On balance, the report is optimistic about the prospects of countries where the middle classes are growing. But they are not a homogeneous group, so their impact varies. A middle class that has grown largely to tend to the state will behave differently from one that is based on the private sector.

The one-third rule

But who, as a patrician British prime minister, Harold Macmillan, once loftily asked, are these middle classes? Their members are neither rich nor poor but somewhere in-between. In countries long divided between lord and peasant, that has large consequences. “Middle-class” describes an income category but also a set of attitudes. In the words of Shashi Tharoor, an Indian commentator, it is a category “more sociological than logical”.

An essential characteristic is the possession of a reasonable amount of discretionary income. Middle-class people do not live from hand to mouth, job to job, season to season, as the poor do. Diana Farrell, who is now a member of America’s National Economic Council but until recently worked for McKinsey, a consultancy that has spent a lot of time studying the middle classes, reckons they begin at roughly the point where people have a third of their income left for discretionary spending after providing for basic food and shelter. This allows them not just to buy things like fridges or cars but to improve their health care or plan for their children’s education.

Usually, an income of that size requires regular, formal employment, with a salary and some benefits, that is, a steady job—another key middle-class characteristic. The income needed to have a third of it left over after meeting basic needs also varies from place to place. In China, for example, $3,000 a year may be enough in Chongqing or Chengdu, big cities in the west, but not in Beijing or Shanghai. So defining the middle class in absolute terms is hard (see article).

In practice, emerging markets may be said to have two middle classes. One consists of those who are middle class by any standard—ie, with an income between the average Brazilian and Italian. This group has the makings of a global class whose members have as much in common with each other as with the poor in their own countries. It is growing fast, but still makes up only a tenth of the developing world. You could call it the global middle class.

The other, more numerous, group consists of those who are middle-class by the standards of the developing world but not the rich one. Some time in the past year or two, for the first time in history, they became a majority of the developing world’s population: their share of the total rose from one-third in 1990 to 49% in 2005. Call it the developing middle class.

Using a somewhat different definition—those earning $10-100 a day, including in rich countries—an Indian economist, Surjit Bhalla, also found that the middle class’s share of the whole world’s population rose from one-third to over half (57%) between 1990 and 2006. He argues that this is the third middle-class surge since 1800. The first occurred in the 19th century with the creation of the first mass middle class in western Europe (see chart 1). The second, mainly in Western countries, occurred during the baby boom (1950-1980). The current, third one is happening almost entirely in emerging countries. According to Mr Bhalla’s calculations, the number of middle-class people in Asia has overtaken the number in the West for the first time since 1700 (see chart 2).

In many emerging markets the middle class does not grow incrementally, in line with, say, economic growth. It surges. Chart 3 below shows why. The vertical line represents an income of $10 a day, which is where Mr Bhalla considers the middle class to start. In 1980 there was hardly anyone beyond that line. The lop-sided bell shape represents the distribution of income in a country (in this case, China) with a tail of poor people on the left, a longer tail of rich ones on the right and a bulge of people on average incomes in the middle.

As the economy grows, the bell moves to the right and as it meets the threshold, a great whoosh of people cross into the middle class. In reality, growth may be even faster because the shape of the bell has been changing. According to new research by Martin Ravallion, the director of the World Bank’s development research group, income distribution in developing countries started to shift between 1990 and 2005. The bulge in the middle of the range got bigger, making the bell taller, so the middle class is growing even faster.

At a certain stage it starts to boom. That stage was reached in China some time between 1990 and 2005, during which period the middle-class share of the population soared from 15% to 62%. It is just being reached in India now. In 2005, says the reputable National Council for Applied Economic Research, the middle-class share of the population was only about 5%. By 2015, it forecasts, it will have risen to 20%; by 2025, to over 40%.

Sweet spot

Homi Kharas, of the Brookings Institution, a think-tank in Washington, DC, argues that the point at which the poor start entering the middle class in their millions is the “sweet spot of growth”. It is the moment when poor countries can get the maximum benefit from their cheap labour through international trade, before they price themselves out of world markets for cheap goods or are able to compete with rich countries in making high-value ones. It is also almost always a period of fast urbanisation, when formerly underemployed farmers abandon what Marx called “the idiocy of rural life” for the cities to work in manufacturing, boosting their productivity many times over. Eventually this results in a lessening of income inequalities because the new middle class sits somewhere between the rich elite and the rural poor.

The surge across the poverty line is a period of accelerating growth both for the new middle class and for the country it inhabits. That should continue for a couple of decades. By most estimates, the global middle class will more than double in number between now and 2030. This will have profound social consequences, as happened in previous middle-class surges.

Close to the creation of the world’s first mass middle class in early 19th-century England, Thomas Malthus (the political economist who scared the world with his forecasts of overpopulation and food shortages) wrote that “it is probable that extreme poverty or too great riches may be alike unfavourable [to furthering the progress of mankind]. The middle regions of society seem to be best suited to intellectual improvement.”

Marx, who admired Malthus, was equally astonished by the emergence of the middle class. As he wrote in the “Communist Manifesto”:

Historically it has played a most revolutionary part. The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations…It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts and Gothic cathedrals…The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country…All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life-and-death question for all civilised nations…In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes…National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures there arises a world literature. The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation.

Is it recession-proof?

Nothing can entirely escape the economic downturn. But leading sports come close

AFP

GLOOMY days, these, for English cricket. On February 7th the England Test (international) side was skittled out for 51 runs, its third-lowest total in 132 years and 880 matches, as it slid to ignominious defeat against the West Indies, one of the lowest-ranked Test sides in the world.

England may be useless, but they’re not worthless. The previous day, some of the players were auctioned—that’s right, by a man with a gavel—for the second season of the Indian Premier League (IPL), a six-week tournament of short matches (lasting around three-and-a-half hours each) which begins in April. The services of England’s two great crowd-pleasers, Andrew Flintoff and Kevin Pietersen (pictured above), fetched $1.55m apiece. A third member of the team scooped $275,000. For cricketers, these are huge sums—and the top price has gone up since last year.

There is little hint of global recession there. You might conclude the same from other sports, even in shrinking economies. The average price of television-advertising slots during this month’s Super Bowl, American football’s ultimate prize, was even higher than in 2008. And on February 6th the Premier League, the top tier of English football, said it had sold domestic live broadcasting rights for three seasons from August 2010 for nearly £1.8 billion ($2.6 billion), 5% more than the existing deal. Deloitte, a consulting firm, paints a broadly positive picture of European football in a report this week (seearticle).

Sport is not immune to economic woe. As Deloitte notes, the shirts of Premier League teams offer a brief history of the credit crunch: Newcastle United’s sponsor is Northern Rock, a nationalised bank; Manchester United sport the initials of American International Group, an insurance company now owned by the American government; and West Ham went logoless for three months after XL, a travel company, went bust. On February 4th the Detroit Pistons, an American basketball team, failed to sell out a home game for the first time in five seasons. And although NBC, the Super Bowl’s broadcaster, increased average advertising revenues, says Jason Maltby of Mindshare, a marketing and media consultancy, it struggled with the last few slots.

Yet leading sports are, by and large, standing up to recession better than most. They have two big advantages. It helps, first, to be able to sell broadcasters and sponsors what they crave in a world of myriad channels: lots of dedicated viewers. This advantage may even rise in a downturn. As recession grips, fans may decide that season tickets are too great a luxury, but they will cling on to their television subscriptions.

The other advantage is timing, which is just as important in the business of sport as it is on the field of play. Long-term broadcasting contracts help to lay a good base of revenue and some sports are in the early days of such deals. The IPL, for instance, started out with a ten-year, $1 billion agreement. In America the National Basketball Association is in the first season of eight-year contracts worth $7.5 billion.

With a sought-after event, it is possible to plan ahead—beyond, with luck, today’s troubles. The International Olympic Committee is already negotiating for the 2014 winter and 2016 summer games. So far it has struck separate deals for Italy and Turkey, rather than sell all European rights to the European Broadcasting Union as in the past, and has done rather better from them.

Not all sporting activities can rise above today’s troubles. Away from the top table of sport, times look harder. Stefan Szymanski, an economist at Cass Business School in London, notes that sport is like any other industry: “All recessions are about consolidation,” he says. The IPL is “pretty much recession-proof”; English county cricket looks much less robust. Of course there are winners and losers.

Even at the top, not all is rosy. Mr Maltby detects “cracks” in sponsorship as well as advertising. For example, cars in the National Association for Stock Car Auto Racing, or NASCAR, are no longer festooned with logos over every square inch. Some NASCAR teams have merged and selling the right to be a sport’s official beer, say, may get harder.

This is not a good time to be looking for a sponsor to name a new stadium or for a lender to finance it. But the world of sport can console itself. In hard times people need escapism more than ever, it seems. They like heroes to watch and cheer. And still they are willing to pay.