Thursday, March 01, 2007

Want to know how to get more investigative journalism? Try this suggestion.

Today I read Sara's post at The next Hurrah after watching the most recent "Frontline" last night, and put it together with my own knowledge of newspapers and a recent post I placed at Booman Tribune. This has been growing for a while. But I think I know how to solve the problem of the disappearance of foreign bureaus and investigative journalism.

I left this as a comment at The Next Hurrah earlier this evening.

The Frontline last night made the point that city newspapers do most of the original reporting.

In the past they have been able to do this because they made what an economist would call "Monopoly" profits. That is, their costs of production and distribution of the newpaper (70% of costs) has been a barrier to entry for competitors.

But the monopoly profits depended on wide distribution, because the number of copies distributed determined the price of advertisements. This is why newspapers have worked so hard over the last century to reduce the number of papers in each city to one and no more. One of the last stages in this process has often been a "joint production agreement" in which there are two editorial departments, one sales department and a single production and distribution system. This usually ended when (over the last three decades or so) the evening paper bought out the morning paper.

I have watched the Houston Post be bought out by the Houston Chronicle (which, interestingly was totally owned by a foundation while the Post had been sold by the family and gone public) and the Dallas Morning News (DMN) bought out the Dallas Times Herald. This latter occurred because a new owner borrowed a bunch of money at 13 to 15% interest to buy the Herald, and in the competitive market of Dallas, could never make more than about 10% profit. In 1991 or 1992 the DMN bought out the Times Herald and shut it down, then raised their own advertising rates.

It is interesting that the DMN had purchased the local ABC TV outlet ICH 8) before the Congress passed a law stating that no one company could own both a major newspaper and TV outlet in the same market. It was by use of this synergy that they overcame the Dallas Times Herald and shut them down.

Before 1960 a major city newspaper was a money machine. They had a monopoly on want ads, local for-sale classified ads, and department store advertisements. TV came in and took the car ads and a lot of the consumer product ads. The single city newspaper was a result of TV competition. But so was the closure of all the Newspaper foreign bureaus. I am not aware of a single Texas newspaper that hadn't shut down its foreign bureaus by 1970, with the possible exception of a Mexican bureau. (Those are all gone now, also, as far as I know.) The papers depended on the AP and UPI wire services for foreign coverage, and for something really big they sent in a special reporting team.

But the TV news was setting the news reporting agenda after 1970, and once Viet Nam was over, who needed foreign news? With the news agenda set for local news, AP and UPI were in real trouble. UPI collapsed and was bought by the Unification Church (Yeah, the Moonies.) UPI, like the Washington Times, is a loss-leader for the Moonies.

These events carry us up generally to the early 90's. Then the Internet appeared and began to steal revenue from the papers and TV. Craig's List has been a Newspaper-killer. So has Career-Builder.

Economically, Investigative reporting has been a result of monopoly profits. The News media that had a monopoly on advertisement revenues has offered investigative reporting because it was a barrier to entry to competitors that could not be easily afforded by a new entry to the industry. By offering investigative reporting, a news outlet could differentiate itself from the potential and actual competitors. This was one of the "unnecessary" costs that were eliminated when competition was replaced by a monopoly. But if some organization with a different technology could start offering local news and collect advertisement revenues (TV?) they were sufficiently differentiated from the newspapers so that the investigative reporting was unimportant.

Essentially, a paper is a bunch of paid advertisements that pay for the distribution of the paper. See the "Greensheet" or whatever your local sales advertisement throwaway is. News attracts readers, and investigative journalism differentiates between news providers. The revenue is still the advertisements. But advertising rates are higher if the paper has higher circulation. The news is thrown in to increase circulation, so they can charge more in advertisement rates.

Unfortunately, better news <>= [is not equal to] better circulation.

Instead, Better News is directly related to a better reputation for useful news, which is loosely related to increased habitual reading of the newspaper [while competitive sources of news will be (probably more strongly) inversely related to habitual reading of the newspaper] and habitual reading of the paper is directly related to circulation.

Reputation for providing useful news will be strongly directly related to investigative journalism. But only over a long period of time. The stock market looks at almost nothing more than 90 days. If the stock isn't going up, then the solution is cut the costs that are most loosely related to the 90-day change in stock price. That means cut foreign bureaus first followed by investigative journalism. For anyone who has followed the history of newspapers, this is a given. [It is also totally clear to anyone who watched the "Frontline" number 3 last night and remembers the NY Stock Exchange woman who proposed that newspaper should focus entirely on in-depth local and super-local news.]

So the problem is the financial markets. They want newspapers to continue to throw off monopolistic profits like they did before 1960. Because of competition, they can't. Not and provide investigative journalism. Not as long as they are controlled by the stock market.

But notice that I pointed out in Houston that the Houston Chronicle was able to buy out and close down the (better) Houston Post. The Houston Post was on the stock market. The Houston Chronicle was owned by a foundation. Guess who could plan (and spend) long term? It was the Chronicle.

The Frontline also pointed to the largest newspaper in Florida, the St. Petersburg Times. It is also owned by a foundation, and not subject to the short-term thinking of the stock market.

A newspaper that has the purpose of making money as first priority puts a low priority on news. But a newspaper owned by a foundation can be free to place news at a higher priority than can stock owned papers.

The problem with a foundation is that it can't go to the stock market for more cash to expand.

My proposal is that we (bloggers) create a set of local foundations to provide local news and operate on local advertisements. If we do it as blogs, we do not have the costs (70% of all newspaper costs) of production and distribution. We can compete with Craig's list by emphasizing local advertisements for local clientele, and we can do most of it with volunteer labor. [Key is that fact-checking and editing must be controlled in-house by expert journalists, probably paid.]

The volunteer labor would include journalism students (organized by their teachers who control their actions and output) and other volunteers. The news would supplement the national news on NPR and Public TV, so those would be sources to coordinate with. Similar to Public TV and NPR, there could be pledge drives for contributions for capital and overhead expenses, and for support of investigative journalism. See what the blogosphere could do.

A network of such foundations could contribute to State investigative journalism foundations. The various states could contribute to a similar national foundation base in Washington, D.C. That's similar to the funding of national shows on public TV and NPR. The local news foundations would own the investigative journalism foundations and provide the individuals on the Board of Directors for the investigative journalism foundations. [This would not be similar to the Public TV and NPR organizations that can be taken over by a government - as we have recently seen.]

You may have noticed from last night's Frontline that the LA Times is making a 20% per year return on invested funds. The problem is that the competition is increasing, circulation is decreasing, as a result the revenue is decreasing, and the business side of the newspapers are trying to deal with the drop in stock prices by cutting costs.

The costs they cut are also the benefits we users of newspapers buy them for, so we are going to the competitors and their circulation is dropping even further. Newspapers aren't going to disappear, but they are getting more and more like the Greensheet. They can't afford investigative or international journalism any more.

But a 20% return to a news foundation is a high return. Those of us who want international bureaus and investigative journalism will contribute to a foundation to provide those services. [I REALLY want bureaus in South America, Central America and Mexico!]

The first step in this is to set up the local foundations. It requires legal work and the blogging software (like that of Huffington Post) followed by active organization of volunteers in each major metropolitan area. A few professional journalists (like Josh Marshall) who can edict and fact check need to be paid from day one. The investigative foundations should probably be set up very early on in each state capital and Washington, D.C.

The business side needs to also be built at the same time, so that donations are nothing more than start-up costs.

Anyway, that's my idea at the moment. Anyone who wants to get in touch with me and help set up a business plan, my email is

Some of this is my ideas for local news and local advertisements on the internet, while a lot of it is from the way Josh Marshall has set up TPM and from the way National Public Radio and Public TV work.

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