If there was any doubt that we are living in a new gilded age, today’s news about the sale of the Washington Post to Amazon founder Jeff Bezos should put it to rest.
Instead of industrial mechanization as our path to reducing production costs, we have digitization. We’ve made the world smaller through instant communication rather than railroads. We’re still focused on prohibition. (Instead of alcohol, today it’s “just say no” to both drugs and sex.)
And the gap between rich and poor is, once again, enormous.
“What is the chief end of man? –to get rich. In what way? –dishonestly if we can; honestly if we must.”
— Mark Twain, 1871
An Internet baron buys a piece of American information and intellectual infrastructure the week after his flagship company publishes an Amazon single transcript of an exclusive interview with President Obama. For free. After the White House made the offer.
The east coast gnashing of teeth could be heard in full force on the west coast.
What surprised me was not the sale nor the buyer but the price.
Only $250 million.
It seems such a paltry sum for what is was arguably the most important news organization in the nation’s capitol. It’s even harder to grasp that this is chump change to Bezos.
— edwardroussel (@edwardroussel) August 6, 2013
Sale of WaPost, Globe returns newspapers to status as playthings of the rich. But now they’re like yachts, estates of yore, not core biz. .
— Jonathan Alter (@jonathanalter) August 5, 2013
Facebook paid four times that for Instagram last year. Yahoo paid a bit more than four times that for Tumblr this year. Last year, Warren Buffett invested about $350 million in newspapers. (His Berkshire-Hathaway Company invested in the WaPost).
But the Post, facing structural challenges like other news organizations, has tumbled from its glory days.
This does not, however, mark the end of media monopolies, no matter what TIME says:
The Washington Post’s sale to Amazon CEO Jeff Bezos cements the end of our monopoly media era | http://t.co/I6URq51OXr
— TIME.com (@TIME) August 6, 2013
That’s because the Washington Post franchise was such a small one.
However, it does point to the challenges of running a news organization with a public journalism focus when the business is beholden to stockholders and not subsidized by more lucrative arrangements. As Emily Bell notes in Business Insider (another property with Bezos funds), buying a newspaper “is not a business deal; it is a cultural statement.”
I believe this investment is a positive sign because of the Bezos mantra: “It’s all about the long term.”
Bezos knows Wall Street and he’s demonstrated he knows ecommerce. But with the WaPost he is entering a market unlike retail. Success in retail is all about volume and low margin coupled with good customer service. Information? High fixed costs, negligible marginal costs (like Kindle books) except for those damn papers. And yes, he knows this cost model from the physical side (Amazon Cloud Services). But it’s not the same as the creation side. Margins on any specific piece of information, digital or analog, are all over the map and run higher than retail in general. And if you get a “best seller” (however defined), those excess digital edition sales bring in close to 100% margin because replication costs are almost zero.
We are living in an age of transition, and times like these are bumpy, to put it mildly. So long as a “newspaper” has to produce a “paper” as well as a digital edition, the cost equation is going to suck. Because atoms (ink, paper, printing presses, gasoline, trucks) are bloody expensive. Far more than the reporters and editors. But until a revenue model can siphon off enough of those former monopoly rents, print ads are essential for cash flow. Catch-22.
Long-term thinking essential.
Yet Wall Street’s demand for monopoly-rent-level quarterly returns is the antithesis of risk-taking or long-term thinking. That attitude is more often found in entrepreneurs and small- or family-business. So maybe we will see a return to family-run news organizations in some markets. I think this would be a good thing but don’t expect it to dent the media monopoly. That’s because news is such a teeny-tiny part of media. Even when you add sports. (And remember who owns ESPN.)
Some folks are wondering about publishing independence. (“Will the Post report on Amazon’s labor practices?”) How much did the Post report on Kaplan? How much does the NY Post report on Murdoch? How much does ABC report on Disney? I don’t know the answers to the questions – that’s not the point. The absence of reporting in the face of full-fledged news will be noticed. And will matter.
In the days of fat profits, news organizations did what incumbent organizations seem to always do. Sit back and enjoy the ride. Then when it’s time to make serious investments to accommodate change, guess what? There ain’t no money left.
Bezos brings money. And independence from Wall Street. Plus technical acumen far beyond that of anyone inside the Beltway.
That’s why I have hope.
* Gnashing of teeth about inequity for another day.
For prior writing on this topic, see:
- Newspaper ad revenue down another 6% in 2012, but Google is not the reason (2013)
- Beating a Dead Horse: Another Post About Newspaper Economics (2012)
- Online Revenue Cannot Rescue Newspaper Business Model (2011)
- Repeat After Me: Newspaper Consumers Have Never “Paid” For Content, MythBusters: Subscriptions Don’t Cover Salaries, Digital Information: Business Models In Flux (2010)
- No More Free Content, Follow Up: No More Free Content, The Future of Journalism Discussions Need Reality Economics, Thinking About “Free” (2009)
- Print Model Shifting, Publishers Experiment With Online Editions, Economics of Scarcity (2008)