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New FTC Staff Discussion

New FTC Staff Discussion

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Published by Alex Howard

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Published by: Alex Howard on May 29, 2010
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 In May 2009, the Federal Trade Commission announced a project to consider thechallenges faced by journalism in the Internet age. Now, one year later, staffresponsible for this project present this draft for discussion of 1) the tentativeconclusions outlined here about the current and likely future environments for newsgathering and reporting, and 2) potential policy recommendations to address the issuesraised during this proceeding. We note that this draft does not represent finalconclusions or recommendations by the Commission or FTC staff; it is solely forpurposes of discussion, in particular at FTC roundtable discussions to be held on June15, 2010, at the National Press Club. Journalism is moving through a significant transition in which business modelsare crumbling, innovative new forms of journalism are emerging, and consumer newshabits are changing rapidly. We are greatly indebted to the many journalists,newspaper publishers and editors, creators of new online news organizations,economists, lawyers, academics, and others who have contributed their time andexpertise to describe and analyze this transition, thus providing the foundation for thisdocument. Many have already organized conferences and written reports that expertlyaggregate and assess the vast majority of the relevant information. We are well awarethat we are in no way writing on a clean slate.Rather, through this document, we seek to prompt discussion of whether torecommend policy changes to support the ongoing “reinvention” of journalism, and, ifso, which specific proposals appear most useful, feasible, platform-neutral, resistant tobias, and unlikely to cause unintended consequences in addressing emerging gaps innews coverage. The list of proposals in this document is no doubt incomplete, and wewelcome additional proposals, which can be submitted at:http://public.commentworks.com/ftc/newsmediaworkshop. Members of the publicalso may submit comments on proposals in this document at the same web address.We anticipate that different participants in the roundtables at which thisdocument will be discussed will criticize some or all proposals, improve others, and1
FTC STAFF DISCUSSION DRAFTadd ideas of their own. The purpose of this document is precisely to encourage suchadditional analyses and brainstorming.To provide background, staff’s key observations and conclusions to date are asfollows.
The Current State of the News
1. Although many of the issues confronting journalism cut across different newsmedia platforms, such as broadcast television and radio, most of the discussion in thisdocument will use the perspective of newspapers to exemplify the issues facing journalism as a whole. Studies have shown that newspapers typically provide thelargest quantity of original news to consumers over any given period of time. Weinclude within the term “newspapers” online news websites run either by an existingnewspaper or by an online-only news organization. Other sources of news are alsoimportant, of course, and proposals for action should not favor newspapers over othernews platforms.2. Advertising paid for the vast majority of the news produced in the twentiethcentury in the United States. For most newspapers, about 80% of revenues came fromadvertising and 20% came from subscribers. Advertisers paid newspapers (as well asradio and television broadcasters and cable) to bring together audiences to viewadvertisements. As an ancillary benefit, consumers received news about a wide varietyof topics, including important public affairs.3. Newspapers’ revenues from advertising have fallen approximately 45% since2000. For example, classified advertising accounted for $19.6 billion in revenue fornewspapers in 2000, $10.2 billion in 2008, and is estimated to be only $6.0 billion in2009.
 4. With the advent of the Internet, advertisers have many more ways in which toreach consumers, including, for example, through a marketer’s own website or throughtopical websites that relate to the products that an advertiser wants to sell (e.g., a soccerblog for soccer equipment). Search engines also provide sites for advertising related toparticular search queries.5. Although some types of online advertising (e.g., advertising targeted to aconsumer’s known interests) can generate greater revenue than other types (e.g., bannerads), the vast supply of online sites for advertising reduces the amount that an online2
FTC STAFF DISCUSSION DRAFTnews site can charge for advertising at its site. This means that online advertisingtypically generates much less revenue than print advertising (often described as “digitaldimes” as compared to the dollars generated by print ads). It appears unlikely thatonline advertising revenues will ever be sufficient to replace the print advertisingrevenues that newspapers previously received.6. Although newspapers’ print advertising revenues are significantly smaller thanthey were at the beginning of the twenty-first century, many newspapers still receiveapproximately 90% of their advertising revenues from print advertising, withsomewhat less than 10% coming from online advertising. Print advertising revenuesstill account for more than half of newspapers’ revenues. Thus, even though, in theory,newspapers could move to online-only and save approximately 50% of their costs (dueto printing and distribution), such a move would not make economic sense. Mostnewspapers’ circulation revenues now account for approximately 25% to 30% of totalrevenues.7. Existing newspapers have responded to substantial declines in ad revenues bycutting staff. Financial problems due to the current recession and enormous debt loadsfrom overleveraged transactions also have squeezed newspapers’ resources andcontributed to staff downsizing.8. Staff downsizing has caused significant losses of news coverage. For example,coverage of state houses and state perspectives on news from Washington, D.C. hasdeclined, as has coverage of local government issues, foreign affairs, and specialty beatssuch as science and the arts.9. Existing newspapers are struggling to find a sustainable business model for thefuture. Severe cuts in expenditures, especially staff cuts, permitted most newspapers tobreak even or better during 2009. Advertising revenues are likely to improve in 2010 assome businesses recover from the recession and increase their advertising expendituresagain. But the trend toward online, rather than print, advertising is very likely tocontinue over time, forcing newspapers to look for other sources of revenue.
New Sources of Revenue and New Types of News Organizations
10. Newspapers are experimenting, and will continue to experiment, with new waysto generate revenue. Experiments include special websites for certain types of in-depthreporting for which people are willing to pay (e.g., sports coverage of the local team),requiring payment for the news in some circumstances (e.g., must pay after reading 53

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