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- I. Compton-Burnett, letter to Francis King (1969)

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Sunday, 8 October 2006
The Economics of Information - The Dialog Continues
Topic: The Media
The Economics of Information - The Dialog Continues
In the new issue of Just Above Sunset, the magazine-format parent to this web log, you'll find a media column - Truth Telling and Its Difficulties. This is a discussion of those difficulties involving key readers, one of the founders of CNN and the man who teaches marketing to graduate students at a noted business school in upstate New York. And that is appropriate, as the difficulties seem to arise from the tension between the traditional obligation of a news organization to objectively inform Americans of what was going on in their world, and the reality that almost all news organizations are commercial enterprises - they are supposed to turn a profit, and that may inhibit some sorts of "informing" and falsely exaggerate others. You don't want to make your advertisers uncomfortable, after all. And you want to show you have a larger and more affluent audience than your competitors - so you do your best to please them and hang onto them.

So who better to discuss this than Rick, the News Guy in Atlanta - one of the guys who started CNN back in the early eighties, and whose wife is an executive there now - and a marketing expert who explains marketing concepts to graduate students?

The triggers there were the amazing commentary by Keith Olbermann on MSNBC on Thursday, October 5, that created quite a buzz, and the same day the parent company of the Los Angeles Times firing its publisher, who refused to continue the massive staff cuts there, saying getting rid of journalists might raise the profit margins but it would ruin the newspaper. The parent corporation, the Tribune Company, brought in their own cost-cutter from Chicago - Davis Hiller, a Harvard-trained lawyer and MBA, who, without any journalistic background, had been publisher of the Chicago Tribune.

The Olbermann item was a clear "the emperor has no clothes" rant, pointing out the obvious - the president is, on a number of matters, simply lying, and additionally, slandering anyone who disagrees with him. It was "what he said" versus the clear facts, but no one seemed to have the courage to just lay it all out. Perhaps Olbermann could do that because MSNBC has such a small market share - the risk of offending and having the advertising dollars flee just didn't matter that much. MSNBC is such a tiny part of NBC-Universal that losing a sponsor or two for a minor one-hour news show hardly matters to that entertainment giant.

As for the Los Angeles Times, a newspaper, of course, generates revenue through the sale of print advertising and subscriptions, and now online services. Think of it as a cash delivery system. That's its purpose, to deliver profit. The content before, after and around the advertising is of somewhat secondary importance - it's just the "hook" that gets people to buy the thing or subscribe. It only needs to be "good enough." The journalists here thus mistakenly thought they were more important than they actually were. At least that seems to be how the parent corporation sees things. There's talk of a mass exodus of those with experience and reputations and the big awards, and the new Tribune guy says he's fine with that. His job is to increase revenues, and if the paper becomes fluff - well, fluff sells. The decision has been made. It may just turn into a fat Penny Saver, with cool display ads, a fine comics section and celebrity gossip. Heck, the circulation will probably go up.

But the discussion didn't end there, as Michael O'Hare in Same Facts, then posted The Wayward Press - and just what is this "Baumol's cost disease" mentioned there?

What Michael O'Hare said -
The resignation of the LA Times' publisher in a spat with the paper's new owner, Tribune Corporation, over how profitable a newspaper should be and to what degree that profit should be attained by cutting its news staff, is probably too bad for the paper at the moment, but it's a symptom of a very big problem for everyone. Everyone, because even people who don't care to read the paper have to experience the government that a news-poor world entails.

The traditional business model of a paper newspaper, in which readers' attention is sold to advertisers by placing the ads next to news on a physical page, is broken. One fracture is a very broad withdrawal of public attention from anything that takes very long or much effort to engage with, from music to books and news; another is the IT-driven transformation of text from a product that can be denied to anyone who doesn't payfor a physical object to a practically non-excludible public good. Still another is a phenomenon not fully understood, which is the much greater difficulty advertisements have drawing attention on a computer screen than on a paper page, evidenced by the flashing ads that now pop up screaming for attention over content on newspaper web pages. And we may also be seeing an example of "Baumol's cost disease", the steady increase of the relative cost of products like expert, competent, writing (music performance, in his example) that can't take advantage of productivity improvements through technology.

There have always been lousy newspapers and only a few good ones; many of the former are no great loss except for local issues. But the LA Times is a great newspaper, well written and probing, with a wonderful tradition of "print it once and print it all" that has generated long, interesting, expensive stories that can help you understand a complicated issue or situation in one sitting. The usual recipes for providing cultural capital in the face of market failure, like government provision, are non-starters in this case: no-one wants Villaraigosa in this business, nor even a California State Department of Public Information, at least not as a newspaper. Some sort of very mechanistic public subsidy program might help keep 'papers' alive, but it won't make anyone read them.

This is not a problem that will be solved by twiddling some media outlet ownership legislation, nor by any other quick fix, and not solving it is simply not OK, as the last few years of public sector disasters indicate. I have no cheerful summary, nor clever policy recommendation to offer. We're in a lot of trouble here, and without a map.
Well, that's cheery. And Rick, the News Guy in Atlanta, works on it -
I actually remember reading this James Surowiecki New Yorker piece (he writes an occasional column in "Talk of the Town" called "The Financial Page") a few years ago. It's sort of not totally clear to a civilian like me, but I think I get the general idea. Here's a clip:
Generally, productivity growth is a boon, but it creates problems for non-productive enterprises like classical music, education, and car repair: to keep luring talent, they have to increase wages, or else people eventually migrate to businesses that pay better. Instead of becoming nurses or mechanics, they become telecom engineers or machinists. That's why teachers are getting paid a lot more than they were twenty years ago. (The average salary for an associate college professor has risen almost seventy per cent since the early eighties, and that's if you adjust for inflation.) To pay those wages, schools and hospitals have to raise prices. The result is that in industries where productivity is flat costs and prices keep going up. Economists call this phenomenon "Baumol's cost disease," after William Baumol, the NYU economist who first made the diagnosis, using the Mozart analogy, in the sixties. As anyone with kids knows, cost disease is alive and well. A recent study by the economists Jack Triplett and Barry Bosworth demonstrates that among the service businesses that have been least productive in recent years you'll find education, insurance, health care, and entertainment. These are the ones that have seen steep price hikes.
The full column is here.
And the marketing expert in upstate New York confirms -
Rick's got it encapsulated.

To me the defining characteristics of "Cost Disease" are two fold -

1) it's service based, and 2) the service itself is the consumable.

The net result is costs always rise over time (with the natural "cost of capital" plus inflation over time) because the service is not subject to productivity gains we typically associate with technology, processes and systems efficiencies. The business that is trapped with Cost Disease is primarily salary-dependent.

Today a baseball game still takes eighteen players plus managers and still takes time duration of nine innings - same as in 1909.

If we are consuming the ball game and the activity of the 18+, then costs for staging the game can ONLY rise over decades. Hence changes in arbitration and trade rules, salaries and the emergence of "the Steinbrenner" not to mention evolution of advertising and sponsorship revenues to keep the game in stride with our economy one hundred years later.

Hope this hits the ball on the nose (a four-bagger?) for the "civilians" in the audience.

(The one parenthetical economic reference above to "Cost of Capital" refers to the very basic notion that as long as we charge interest to lend money, then the gains in the economy - the value we add by making products and services available - have to exceed that cost of borrowing in order to repay our debt - the fuel of the economy - PLUS make a profit so producers can eat! Hence - over the long run - and despite recessions - the value of the economy [and the stock market where food is dispensed to the owners of the production tools] WILL ALWAYS RISE over time! Hence the critical nature of the Cost of Borrowing or what economists refer to as the "Cost of Capital"!)

That may be too much.
Maybe so, and maybe not, as Rick, the News Guy in Atlanta, notes -
I have to admit, I still don't get it.

Not that I don't believe in "cost disease," I just don't think it applies to purely "services" exclusively, as if there's a logical and understandable reason that prices go up on everything else. Why would "technological productivity advances" make prices go up? If anything, it should make them come down! You would think, especially with markets always growing as populations grow, everything might be a little cheaper, since there are more and more of us everyday to take advantage of those famous "economies of scale."

But no, it doesn't seem to happen that way. One of the mysteries that's always nagged me - and I suspect whoever comes up with the definitive answer to this will win a Nobel prize in Economics - is, why is it that a good-size metropolis of today can support only one or two daily newspapers, while that same city, in the mid-nineteenth century and with maybe half the population, had maybe five or six dailies?

Here's my guess as to why prices go up, in those industries that rely on service as well as those that don't: Prices go up because we all want more money.

And by "we all," I mean not only the salaried middle manager who would be absolutely shocked to go ten years without a raise, and the unionized employee who has yearly raises built into his contract, but also the owners who demand 7% higher profits next year than those of this year. We all want more money, whether we're the cellist in the quartet playing Mozart the exact same way we've been doing it for ten years, or the baseball player who gets roughly the same number of hits this year as three years ago, or the newspaper reporter who covers about the same number of stories this year as last, using about the same number of words. Behind every hunk of plastic and metal and edible morsel that we buy, there are scores of human beings, and all of them want a raise.

(By the way, if a "raise" is understood to mean "more money," what's the word for "less money"? There is no one word for that, simply because it hardly ever happens. The best we can come up with is "reduction in salary." I suspect the reason we tolerate three words for this instead of one is because the phrase is so seldom used, not very much total breath is wasted in saying it.)

To sum up: Prices go up because we all want more money, and where else are we going to get it but from one another?

But to relate back to the original topic - and I wish I could remember where I'd seen this recently (was it something the market man said in these exhanges, or maybe something I saw in the New York Times Book Review a week or so back?) - that it used to be recognized by all concerned that businessmen ran businesses with service to the community in mind, that every business had a public function to fulfill, and that no business had, at its sole purpose, to make money. Somewhere along the line, that changed, and businesses were taken over by people who either never fully understood this little tidbit of history, or just didn't care.

And so I conclude that the job of a newspaper is news. If the job of a newspaper were to make money, they'd call it a moneypaper, but hardly anybody would read it.
And it loops back to Keith Olbermann, oddly enough.

David Bauder of the Associated Press (a "television writer") on Sunday, October 8, covers the Olbermann business here -
Keith Olbermann's tipping point came on a tarmac in Los Angeles six weeks ago. While waiting for his plane to take off he read an account of Defense Secretary Donald H. Rumsfeld's speech before the American Legion equating Iraq War opponents to pre-World War II appeasers.

The next night, on Aug. 30, Olbermann ended his MSNBC "Countdown" show with a blistering retort, questioning both the interpretation of history and Rumsfeld's very understanding of what it means to be an American.

It was the first of now five extraordinarily harsh anti-Bush commentaries that have made Olbermann the latest media point-person in the nation's political divide.

"As a critic of the administration, I will be damned if you can get away with calling me the equivalent of a Nazi appeaser," Olbermann told The Associated Press. "No one has the right to say that about any free-speaking American in this country."

Since that first commentary, Olbermann's nightly audience has increased 69 percent, according to Nielsen Media Research. This past Monday 834,000 people tuned in, virtually double his season average and more than CNN competitors Paula Zahn and Nancy Grace. Cable kingpin and Olbermann nemesis Bill O'Reilly (two million viewers that night) stands in his way.
So the folks who follow the news business - the business side of it - recognize something is up here.

A nugget on corporate ownership of the news - "As dangerous as it can sometimes be for news, it is also our great protector," Olbermann said. "Because as long as you make them money, they don't care. This is not Rupert Murdoch. And even Rupert Murdoch puts 'Family Guy' on the air and 'The Simpsons,' that regularly criticize Fox News. There is some safety in the corporate structure that we probably could never have anticipated."

And this - "The purpose of this is to get people to think and supply the marketplace of ideas with something at every fruit stand, something of every variety," he said. "As an industry, only half the fruit stand has been open the last four years."

And there's this bit of marketing/programming/scheduling history -
Liberal activist Jeff Cohen is thrilled for Olbermann's success, but admits that it's bittersweet.

Cohen was a producer for Phil Donahue's failed talk show. Less than four years ago Donahue's show imploded primarily because MSNBC and its corporate owners were afraid to have a show seen as liberal or anti-Bush at a time those opinions were less popular, he said.

In his new book "Cable News Confidential: My Misadventures in Corporate Media," Cohen alleges that NBC News forced Donahue to book more conservatives than liberals and eventually wanted one of the nation's best-known liberal media figures to imitate O'Reilly.

Same time as Olbermann, same channel.

That Olbermann has been permitted to do what he's doing is evidence that "the political zeitgeist has changed dramatically in four years, and especially (at) MSNBC," Cohen said.

While it's true a different political atmosphere has helped Olbermann, NBC News senior vice president Phil Griffin disputed Cohen's interpretation that politics doomed Donahue. While MSNBC could be faulted for giving up on Donahue too fast, the show never caught its rhythm and was extremely expensive, he said.

"People try to ascribe motives to us, that somehow we're trying to keep liberals off the air and it's all about ideology," Griffin said. "If you get ratings, there's no issue."
Rick, the News Guy in Atlanta, knows Griffin and adds this -
What gives me an ironic giggle as I read this is that, when I was working at CNN in Atlanta and Keith Olbermann was a sports reporter in CNN's New York bureau, Phil Griffin - who is now Keith's boss - was working for CNN Sports in Atlanta as, I think, a "VJ" (or "video journalist," an entry level job) or maybe a junior producer. He's a good guy, and I also agree with what he says here.

And yes, I do agree with what Olbermann says about the Nielsens - that they can, in some cases, protect dissent - and maybe I even agree with that thing he says about the fruit stand. But the problem with hiding behind the money is that there's no guarantee it will always be there, working on your side. In truth, I'm not so sure it doesn't tend to the favor conservatives, the evidence being that conservative radio talkers (e.g., Rush Limbaugh) never lack listeners, while the other side (e.g., Air America) goes begging. Political broadcasting seems to appeal most to angry conservatives, not non-confrontational liberals.

So if we're looking to greed to save the country from itself, we're definitely looking for salvation in all the wrong places. The best thing is to get behind a good strong principle, fight for it, then stick with it to the end.
Olbermann can lay out the truth, because there no real demand for it - he can get behind a good strong principle, fight for it, then stick with it to the end.  So what? And the Tribune folks can turn the Los Angeles Times into a Hollywood gossip rag. There's always a demand for that. So that's how it is.



Michael Kinsley, the former opinion editor for the Los Angeles Times (he was fired last year) says it's time to forget the Times. He has a suggestion. How About a National Tribune?

That goes something like this -
National-quality journalists who work for the L.A. Times, attracted by good salaries and great editors (first, John Carroll and now Dean Baquet), endure the frustration of not being read by the people they write about. If money keeps getting tighter and the paper's ambitions keep getting narrower, they will leave if they can, or won't come to work in L.A. in the first place. Then The Times will be an adequate provincial paper like the Chicago Tribune, and the tension of being prettier than the boss' daughter will be resolved.

… Journalists know how to stage a great hissy fit. And I'm not sure a fit was really called for in the initial staff reductions. On the editorial page (I can reveal, from the safety of hindsight) we initially had 15 people producing 21 editorials a week! So now cries that Tribune Co. has moved from cutting fat to cutting bone ring a bit hollow.

The other issue that ignited flames of self-righteousness in my colleagues was any attempt to integrate The Times into the Tribune chain, or to achieve economies of scale by sharing costs. This sensitivity seems especially shortsighted - first, because logic was completely on Tribune's side. (Why should one company be paying four or five reporters to cover the same one-person beat?) And second, because in any merger or pseudo-merger of Tribune papers, the Los Angeles Times would clearly come out on top.

In fact, there may be no better way to preserve The Times' role as a major newspaper (if that is of any interest to its owners). These days, on the one hand, thanks to the Internet, any newspaper can be a national newspaper. On the other hand, near universal availability of the New York Times print edition makes the traditional role of a regional paper like the Los Angeles Times superfluous.

But now imagine the Tribune chain as a single newspaper with separate editions in each of its cities. Call it the National Tribune. Or the papers could keep their separate identities, but carry a "Tribune" insert or wraparound with national and international news. This paper would start out with towering dominance in two of the nation's top three markets (Los Angeles and Chicago) and a solid position, via Newsday, in the largest (New York). It would even have a toehold in Washington (thanks to the Baltimore Sun). All this, and Orlando too.

Like the British papers, this new national paper could go after a demographic slice of the market instead of a geographical one. It could aim for the currently unoccupied sweet spot between USA Today and the New York Times, or it could take on the New York Times directly.

I assumed that Tribune Co. must have had something like this in mind when it paid a premium for the Times-Mirror papers. But apparently it had something else in mind, or nothing at all.

… Los Angeles is the capital of the increasingly dominant infotainment-media-celebrity complex. Broaden your scope to California generally and you can throw in high technology as well. The L.A. Times should be the diary of this capital. Often it is.

… I miss the Los Angeles Times. My very first day on the job, I attended the Page 1 meeting in the newsroom. There was a story about a transient who allegedly had broken into the home of a 91-year-old Hollywood screenwriter - author of "Abbott and Costello Meet Frankenstein" and later a blacklisted victim of the Red Scare - cut off his head, climbed over the back fence (head in hand), stabbed a neighbor to death, and was ultimately arrested at Paramount Studios, where guards recognized him from police photos shown on a TV they weren't supposed to be watching on the job.

What a story! But it didn't make the front page. It ran in the Metro section. I asked Carroll, "Gosh, who do you have to decapitate to make Page 1 around here?" Now we know.

Well, you can cover that, and people will read it. But that was covered in the pages here, Tuesday, 15 June 2004, in Embrace the Zeitgeist, with a picture and everything. And this is hardly the Los Angeles Times.

If the New York Times covers the capital of the economic world, and the Washington Post covers the capital of the political world, that leaves what? This?

Posted by Alan at 20:57 PDT | Post Comment | Permalink
Updated: Monday, 9 October 2006 08:02 PDT home

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