Mashery

Over the past few months I’ve thought a lot about the future of the news business. Mashery has several great customers who provide and distribute news and who have developed great APIs to increase their reach and, ultimately, increase their revenue.

Much has been written about this topic, with some news providers warning us that unless people pay for news content no one will be able to afford to staff a Baghdad bureau, investigative journalism will end, and society will suffer. I’m a huge fan of great journalism. I understand its important role in our world.

But like other media and entertainment, it is clear that the business model has to evolve. I believe it will evolve in a way that in the vast majority of cases explicitly separates news gathering and content creation from distribution.

This trend began a long time ago. The traditional big-city daily paper had bureaus around the world, covered all the local news, and created an inexpensive and efficient distribution channel for local delivery. Over time, it became more efficient to share resources for some of the broader national and international news, and to allow the local experts to share local stories of national interest with papers published elsewhere. Hence the wire services.

Thus the big-city dailies became a mix of internally generated content and syndication of externally generated content. The financial success resulted from the economic benefit of a strong local distribution capabilities coupled with cost sharing on gathering national and international news.

Blogs and citizen journalism notwithstanding, I would argue that the economics of newsgathering have not changed a lot. Good journalism requires talent and experience, and the money to pay for professionals to research, write and edit.

But the economics of distribution have changed dramatically.

Much of the debate on the news business seems to take as axiomatic that production of the news and its distribution must remain vertically integrated for the business to survive. I believe the opposite is the case.

Fred Wilson made an excellent point in a post this morning:

If the front page of NYTimes.com linked to everything interesting on the web instead of just their own stories, they could play the same game. I understand the organization reluctance to do that, but I wonder if they have any other choice.

I totally agree. I think we’ll see things evolve in a similar way to the motion picture business:

• Originally, there was the “studio system”. Studios hired actors, made them stars, hired writers, produced movies, marketed them and distributed them. The studios had very strong brands.

• Over time, the production and distribution divisions of the major studios began to separate. Independent producers began to package and produce content which would be distributed by either major studios’ distribution arms, or by independent distributors.

• “Talent” became free agents. Some would join together on a project-by-project basis, set up their own production companies, or commit to work with a particular distributor or production company in exchange for the financial support needed to conceive and develop projects.

• Meanwhile, the studios’ distribution divisions use their economies of scale to market and distribute a mix of films produced by their production divisions and films produced by third parties. Some of those third-party films receive production financing from the studios, while others are “picked up” once they’re completed.

• Today, we have a complex ecosystem of big-budget studio-financed films, independent art films, and everything in between. But the era of the vertically integrated studio system ended decades ago.

If the news business is to survive, production and distribution must be decoupled. The strong national brands will likely be able to play on both sides, just as the major studios do, but even there the production and distribution divisions will need to be autonomous.

Meanwhile, we’re going to see new business models in which newsgathering and production can be done efficiently and profitably, and distributors will figure out how to make money while providing the necessary economic incentive for the producers.

News producers who are opening APIs and experimenting with a variety of syndication business models are likely to lead the way. Those that aren’t are sitting on the sidelines and hoping that when the innovators “crack the code” they’ll still be able to jump in and join the party. By then, it will likely be too late.

Reposting of Oren Michels’ Praxis blog from Aug 16, 2009