Google’s chief economist understands media better than some industry executives do

Hal Varian, the chief economist at Google and a former MIT professor, isn’t a practising journalist and has never run a media company (unless you see his current employer as one, which many people increasingly do). But he knows a lot about information theory and network effects, and he made it clear during a recent presentation in Italy — where he received a journalism award — that he has a better grasp of what those two factors are doing to the media industry than many of those who run media companies.
In his presentation, Varian not surprisingly focused on the economic aspects of the journalism and media business, and his first point was very much in line with one that British journalism professor George Brock made recently: namely, that the internet is not to blame for killing newspapers or even causing the majority of their decline. In terms of circulation, that has been going on for some time — since long before the internet started to become a factor:
“In the US, newspaper circulation reached its peak in 1972 and it has been all downhill ever since. Experts agree that most of the decline during this period was due to competition from broadcast TV news and cable news, with the internet contributing only in the last few years.”
It may not be something that traditional print-media supporters like to hear, but Varian also argued that the internet is simply “a superior way to distribute and read news.” Over half the cost of producing a newspaper is wrapped up in printing and distribution, he said — and on the reader’s side of the equation, publishing online provides a host of things that print doesn’t, including hyperlinks. It provides, he said, “the emotional immediacy of TV along with enhanced interactivity, personalized content and the analytic depth of the printed word.”
Varian also noted something that I and others have tried to argue for some time — that newspapers have never really made money from news, and so the idea that they can suddenly flick a switch and start charging for their news content online (or that some kind of “original sin” was created by not charging for it in the early days of the web) makes no sense. The news business was always cross-subsidized by classifieds and stock listings and the travel, section, Varian says, something media theorist Clay Shirky has also pointed out a number of times. That cross-subsidization doesn’t work as well online:...
http://www.journalismfestival.com/news/hal-varian-on-the-economics-of-the-newspaper-business/