Business May 2014

A New Golden Age for Media?

An era of investment in the news business is upon us. Will it last?

These high-profile triumphs weren’t always as economically significant as they seemed. Hearst, for instance, built the country’s first real media empire, but it was mostly a vanity project, funded first by his father’s mining and real-estate riches, and then by a succession of bank loans and bond issues, and finally a partial IPO in 1930, before the banks effectively seized control in 1937. (The Hearst Corporation remains a media power today because its founder happened to pick up, during his acquisition sprees, a few iconic magazines.)

Advertising had supplanted circulation as newspapers’ and other periodicals’ main source of revenue in the 1890s. Abetting its rise was a lot of behavior that would meet with tut-tutting today. What has recently come to be called “native advertising” was a staple then: Advertisers paid for “reading notices,” which were more or less indistinguishable from the articles alongside them. Reporters were often expected to provide “puffs” in the news pages for favored advertisers, and it was not uncommon for advertisers to give cash directly to ill-paid reporters and editors.

In the 20th century, this free-for-all finally began to settle down. The number of daily newspapers peaked around 1915, and has been declining ever since. Circulation kept rising through the 1960s, but it became harder and harder for the third or fourth daily in a city to prosper, in part because readers migrated to the suburbs and got their papers delivered at home rather than selecting from among the offerings at newsstands. And in the 1930s, radio took off and quickly established itself as a great way to sell consumer products.

Thus was the stage set for the era of national media oligopolies and local monopolies. As radio stations and their TV successors turned readers into listeners and watchers, they paradoxically enabled bigger newspaper profits, as weaker papers went under and left most cities with one dominant carrier of the ads (classifieds, department-store spreads) that couldn’t be delivered on air. “The newspaper business was as easy a way to make huge returns as existed in America,” the investor Warren Buffett recalled a few years ago. “No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”

Until that gusher suddenly went dry, of course. In the early 2000s, advertisers discovered that the likes of,, Craigslist, and Google gave them far more efficient ways to reach consumers than the newspapers ever could. The business of regional and local newspapers fell into a downward spiral, from which it has not emerged.

Which brings us to now. On the national level, at least, there are all manner of experiments and signs of success. The New York Times has, thanks partly to the success of its metered paywall, returned to a 19th-century model whereby circulation brings in more money than advertising. Buzzfeed has, by astutely catering to the massive new distribution network that is Facebook, built a huge audience at relatively low cost, while bringing in revenue with clever (and clearly labeled) modern equivalents of the “reading notice.”

The role of Facebook is worth dwelling on. The site competes with media companies in that, like them, it makes money by delivering audiences to advertisers. So does Google. These two are also possibly the most successful such enterprises ever. “They’ve become the mass media, and traditional news organizations have become the niche,” says Ken Doctor, a former executive with the now-defunct Knight Ridder newspaper chain, who writes the influential Newsonomics blog. The returns to scale and the monopoly or oligopoly profits that once accrued to news companies are going somewhere else now. The recent spate of innovative media organizations does not change that.

There are still ways to make money in news. But only in rare cases will the news business be a path to sustained riches. Doctor estimates that it takes just $5 million to $25 million to a launch a digital news operation with national impact. Yet that also may mean that it only costs the next person that much to steal your business away.

Justin Fox is an executive editor of the Harvard Business Review.
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Justin Fox is the editorial director of the Harvard Business Review.

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