/// The news business could continue to be unprofitable forever. That’s OK.
Some people were unpersuaded by Thursday’s post arguing that the low profits in the news industry were a positive sign. Slate’s Will Oremus, for example, is “not sure how anyone could honestly believe this without their head exploding.”
Adam Gurri suggests an analogy that helps to illuminate the basic issue: the restaurant business. Succeeding in the restaurant business is difficult. Margins are low, owners have to work hard, and the typical restaurant doesn’t make a lot of money. One researcher found that only about 40 percent of new restaurants last three years.
Running a restaurant is relatively unprofitable because a lot of people want to run restaurants. It’s an interesting, relatively high-prestige occupation. Some rich people start restaurants as hobbies or retirement projects. Other restaurant founders are over-optimistic entrepreneurs who give up after a few years. Others succeed, but just barely, working long hours for mediocre compensation.
If you looked at the restaurant industry from a strictly financial perspective, it would be easy to conclude that the situation was unsustainable. You might think that sooner or later, restaurant owners and investors will wise up and stop accepting the high risk and low returns of this industry, leading to a precipitous decline in the variety and quality of restaurant fare.
But this never seems to happen. There’s an endless supply of individuals who either overestimate their chances of turning a profit or have so much money that they don’t need to care about profitability. That keeps the supply of restaurant seats perpetually above the level that ordinary principles of supply and demand would predict. That’s terrible news for restaurant owners, but great news for consumers, who enjoy more options and lower prices as a result.
The state of the modern news business is similar. A number of news organizations today are relatively unproven start-ups like Business Insider and the Verge. Others enjoy the support of rich benefactors like Rupert Murdoch, Chris Hughes, or Jeff Bezos who can afford to subsidize their losses indefinitely. The fact that so many news organizations aren’t worried about short-term profitability has created a news glut that makes it a struggle for anyone else in the industry to turn a profit.
But it’s a mistake to conclude from this that the abundance of high-quality news we experience today is a temporary aberration. There may be an endless supply of over-optimistic start-ups and deep-pocketed patrons willing to produce news despite the dim prospects of a financial return. That situation is terrible for companies trying to make a profit producing news. But it’s a great state of affairs for the reading public.
The Washington Post - Timothy B. Lee