Sam Zell, the F-Word, and Microeconomics 101

At Fitz & Jenn, here’s some bracingly profane footage of Sam Zell bemoaning the fact that in Tribune, he bought what he thought was a business.  Apparently, nobody dared to tell him that a lot of his new employees held dear the romantic notion that they were performing a public service.  You can understand the confusion.   Add a heaping helping of leverage, a wickedly bitter ecnomic environment,  and stir—yuck.  What a mess.

The most basic of microeconomics seems to be at play here.  The newspaper industry developed its principles and business practices amidst an industry structure which was monopolistic for about a century, then oligopolistic for about a half century.  With the maturation of the commercial internet, wewspapers now face a market which more resembles “perfect competition,” where all competitors are “price takers,” and none has very much market power. 

Journalists, being trained skeptics, (and publishers, many of whom are self-trained apologists) immediately begin to tear the above statement apart.  Newspapers were never a “perfect” monopoly, they cry,  nor are the products of newspapers today completely without differentiation.   But there is a fine line between dutiful skepticism and self-defeating literalism.    Even if they don’t know they are doing it, both editorial and business types are invoking Philip Meyer, who argued four years ago in The Vanishing American Newspaper that there is an inherent correlation between journalistic quality and newspaper profts.  To read Meyer’s book in 2004 had to be painful enough; he clearly had a conclusion in mind that he positively tortures the data to support.  Given the reality that has descended four years later,  it’s clear that he missed the big picture–the structural change of the industry–almost entirely.

Back to Microeconomics 101.  The nearer the newspaper industry was to a pure monopoly market structure, the more it tended to produce the positive externality which was high-quality, public-service journalism.   There is far too much dog/tail confusion in the unusually economically juvenile discussion of the future of civic journalism.  It shouldn’t be that confusing.  Undercompetitive markets begat high quantities of civic journalism, whether because of the proprietors’ sense of duty or because of their desire to pre-emptively protect their franchise from those who might question their public spiritedness.    Barriers to entry such as printing presses and and distribution networks–not rock star journalism– made newspapers obscenely profitable for decades.  Public service journalism was the tail, not the dog.   And unfortunately, this particular pooch is now too old, tired, and sick to do much wagging.

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