Google’s CEO Eric Schmidt encapsulated the challenge facing newspapers in an interview with the FT (only available to subscribers).
He highlighted that there was always an uncomfortable relationship between news gathering and the profitability model. News, itself, did not produce revenue. Profits came from the bundling of news with advertising and other services:
So the structure of newspapers that evolved, where the majority of the revenue came from classifieds and these big, untargeted print ads, the content was fascinating but they were not connected to… it was ultimately destined to be challenged by technology and that’s indeed what happened.
This great unbundling is the problem for the newspaper industry, as Nicholas Carr wrote last year:
A print newspaper provides an array of content—local stories, national and international reports, news analyses, editorials and opinion columns, photographs, sports scores, stock tables, TV listings, cartoons, and a variety of classified and display advertising—all bundled together into a single product … The publisher’s goal is to make the entire package as attractive as possible to a broad set of readers and advertisers. The newspaper as a whole is what matters, and as a product it’s worth more than the sum of its parts.
And this changes once the newspaper is on the internet:
When a newspaper moves online, the bundle falls apart. Readers don’t flip through a mix of stories, advertisements, and other bits of content. They go directly to a particular story that interests them, often ignoring everything else. In many cases, they bypass the newspaper’s “front page” altogether, using search engines, feed readers, or headline aggregators like Google News, Digg, and Daylife to leap directly to an individual story. They may not even be aware of which newspaper’s site they’ve arrived at. For the publisher, the newspaper as a whole becomes far less important. What matters are the parts. Each story becomes a separate product standing naked in the maketplace. It lives or dies on its own economic merits.
Google has worked out how to make money from the atomisation of content and the fragmentation of the audience. And while it considered investing the beleaguered newspaper industry, it concluded that ploughing money into the physical bundle of content called a newspaper was not the way forward.