December 20th, 2006

Brad @ Burning Man

"Why would anybody leave money on the table?"

About a week ago, I saw a link somewhere (Crooks and Liars, maybe) to a brief bit by Will "Attytood" Brunch entitled, "The 'lone nut' theory of the American newspaper assassination," and the "conspiracy theory" he's reporting on (and gently mocking) is that one man, founder Craig Newmark, is well on his way to putting every print newspaper in America out of business once and for all. That it will be Craig Newmark's personal fault when reporters are laid off all over the country. And that he must have some dire, conspiratorial motive for this because all he would have to do is to behave like any decent human being would: to actually take some of the money that's being offered to him that he says he doesn't want.

Why do they say that Craig Newmark "hates America"?

Well, let's back up and talk about the victims, first. You think of newspapers, probably, as an industry that exists in order to sell you newspapers, that is to say, collections of news articles. You probably think of advertising, to the extent you think of it at all, as something that exists as a secondary revenue stream, as something that provides extra luxury money to companies in the otherwise profitable business of selling journalism. And certainly, everything (and I mean everything) about American law and custom assumes that this is true. We elevate journalists to the Fourth Estate, co-equal in power to royalty and military and the clergy, because they perform a sacred trust. Democracy, indeed any kind of free society at all, can only exist as long as somebody is actually telling the people the truth about the things they need to know. And since the market for the truth is huge, and the need is great, obviously there is real money to be made in compiling it and selling it to people? The founders certainly thought so. And in there time, it was; Ben Franklin was a wealthy man specifically because he invested in a global network of newspaper printers.

Now? Not so much. No, on the contrary, actually selling people news stories became unprofitable ages and ages ago. But few people outside of the business offices of newspapers noticed. Because at about the point where newspapers started to lose money, they were single handedly saved because what had been their minor side business of selling advertising notices became the tail that was wagging the whole dog. Whether you like it or not, your daily newspaper is sold to you at a substantial discount to what it cost to compile, print, and distribute because they are no longer in the business of selling newspapers to you. They are, as Adbusters constantly reminds people, in the business of selling you to advertisers. Not you personally, not selling you into slavery, but selling your attention. They get paid to write things that can be wrapped around profitable advertisements for the purpose of persuading you to look close enough to the advertisements that the advertisers have a chance to pull your eyes off of the news story and over to their sales pitch.

But oddly enough, the big shiny ads that the news copy is wrapped around aren't the most profitable department. Their costs are high, and the advertising space buyers are consolidated and they negotiate hard on price. No, the only completely truly profitable department in the entire newspaper is the classified advertising section. Costs are low. Buyers are unorganized and naive, so prices are high. The classified advertising department pays the salary of pretty nearly the whole newsroom.

Except that as someone who doesn't have to print his ads on hundreds of tons of paper and pay trucks to deliver that paper all over the city or country, Craig Newmark's costs to sell classified advertising are even lower. And he isn't burdened with the cost of subscribing to a wire service feed and two or three salaried local news writers and one or maybe maybe two investigative journalists and editors for all of the above. Too bad. So sad. It's just like when phone service became deregulated here in America. High long distance rates were subsidizing local rates. Companies were allowed to go into long distance phone sales without having to assume the expense of providing last-mile local service, and long distance rates went way, way down. But local service doubled in cost, even allowing for inflation, practically the only information service in the 20th century to do so; it was that subsidized.

But what makes this anything more than a pure business story, what elevates this to conspiracy theory fodder, is one more fact: there is no evidence that people who are buying classified ads are particularly price-sensitive. Newspapers have experimented with dropping their prices in the past, and found out that it made very little difference whether a 3-line, 3-day ad was $5, $8, or $10; the same number of people bought them. So while it would be very illegal for newspapers to discuss this among themselves to fix the price, since everybody knows this fact, no actual discussion is necessary. Nobody competes on price because the customer doesn't care about the price. Which is what raises all that ire at Craig Newmark. He charges just barely enough to pay himself a comfortable working-class salary, and minimally comfortable salaries for his people, even though almost none of his customers would complain if he charged more. Why would he turn down free money? Nor is it the only way in which he's turned down free money. It would cost him nothing, and (if the history of other websites is any judge) not one user, to add Google AdSense text ads to his web pages and make free money. As many readers as he has, we're talking big money.

So why is he walking away from all of that free money? Mostly because he doesn't need it. And that's driving critics nuts: what kind of a reason is that? As at least one of them has said, fine, if you don't want the money, take it anyway and give it away! You know, the classic philanthropic model, the one that assumes that demonstrated competency at making money is proof of wisdom, is proof that you ought to be the one who decides what causes are worthy of being funded and which ones aren't.
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