October 10, 2009
Nearly everyone agrees now on the basic narrative of the news business in transition. Old media — newspapers especially — are contracting drastically. They don’t field the news effort they did in better times and probably never will again. On the other hand, alternative digital startups are exploding, and may in time plug much of the gap.
It occurs to me, though, that there has been very little effort to quantify what has been lost, then compare that figure to the scale of the best of new media.
This is a first shot at those numbers.
By my back-of-the-envelope calculations (see below), newspapers have, just in the last several years, reduced their spending on journalism by about $1.6 billion annually. 
The new media sector defies that kind of collective measurement. By its nature, digital launches are extraordinarily diffuse. There is room for debate over what qualifies as a news/information site. And by any definition, new media ventures are a fast moving target with the pace accelerating even in the last few months.
What is known is the dimension of some of the most prominent ventures, the majority of them non-profits. Pro Publica has an annual budget of nearly $9 million and is growing. The Knight Foundation is investing up to $5 million a year in start-ups through the Knight News Challenge. The Kaiser Family Foundation is spending millions on a health policy news service launched in April.
San Francisco financier Warren Hellman is commiting $5 million through his family foundation over several years to a non-profit digital service that will also seek to harness volunteered effort by UC Berkeley journalism students. Venture capitalist John Thornton, several foundations and individual donors have committed $4 million to launch the non-profit digital Texas Tribune, which expects to operate on a $1.6 million budget in it first year.
Probably best known of the start-ups are MinnPost and Voice of San Diego. Both operate on a total budget of a little more than $1 million a year, probably about $1 million of that a direct spend on journalism. Geoff Dougherty recently suspended operation of Chi-Town Daily News, saying he had been unable to raise $300,000 to keep going. He commented that a metro digital report needed at least $1 to $2 million a year to make a difference.
So here is an indicator of relative scale. It would take roughly 1,600 MinnPosts or Voice of San Diegos to replace the spending on journalism newspapers have cut.
How do I figure the deficit at $1.6 billion? In 2004, 2005 and 2006, newspapers were a $60 billion industry with advertising revenues just over $49 billion and circulation revenues of about $11 billion
Deep advertising losses will take the advertising total for 2009 down to around $28.5 billion. The Newspaper Association of America no longer offers estimates of circulation revenue. I’m estimating that despite some rate increases, the total has fallen to around $8.5 billion. That will leave roughly a $37 billion industry as 2010 begins.
The Inland Press Assocation’s cost and revenue study is the best source I know for figures on newsroom spending as a percentage of revenues. The latest report, as of the end of 2008, finds that figure at 13.7 percent for papers of roughly 100,000 circulation.
But in earlier work with these numbers, I found the newsroom spend was a lower percentage at the biggest papers of 250,000-plus circulation. Given their outsized weight as a share of the industry, I estimate the current industry average at 12 percent. When profits were higher in the middle of the decade, I estimate newsroom share was closer to 10 percent of revenue.
So at $60 billion total revenues in 2005 and 2006, the newsroom spend would have been roughly $6.2 billion. Now as a $37 billion industry, newspapers are likely spending $4.4 billion on news. That’s $1.6 billion less. 
Newsroom spending, by the way is 80 to 90 percent salaries. It also includes fees for wire service and freelance contributions, as well as a travel and training budget. In the Inland survey, benefits are counted separately as part of “general and administration.”
These raw numbers, you may already be thinking, don’t tell the full story. Even stalwart newspaper enthusiasts would admit that some of the trimmed spending and positions were expendable with little impact on quality for readers. The industry is still hacking at inefficiencies like having six editors read a single story or sending hundreds of reporters, editors and photographers to the Super Bowl.
MinnPost, Voice of San Diego and the rest have made canny decisions about what to leave out of their report — sports results, breaking crime news and more — the better to deliver serious reporting. A number of the new non-profit units — like Pro Publica — focus exclusively on investigative reports.
The start-ups typically dispense with the expensive print, delivery and ad sales costs of newspaper organizations and thus can spend the great majority of their revenues — not just 12 percent — on content.  My comparisons, however, back out most of that legacy expense structure to look apples-to-apples at levels of news spending.
All that said, new media at best appears to be covering a small fraction of the traditional news capacity lost. (Broadcast and magazines have cut coverage too, though I do not have a handy way to measure how much).
We will save further discussion on how far a dollar goes in the old and new media for later in the week. Your thoughts are welcome in the meantime, however, and feel free to check my math, too.
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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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