The History and Economics of Information, Part IV
The growth of the modern newspaper and book publishing industry
In the previous episode, we covered two business models followed by the print industry- newspapers and the Elzevier mega-distribution model. The Geopolitical fragility of 17th century Europe meant that any company depending upon access to a European market would have a short-lived existence. The Elzeviers folded up quite soon. Newspapers, however, kept going strong.
However, the next two centuries were a good one for the print industry, as they found growth and new business models. They also had four tailwinds to thank.
a) The industrial revolution significantly improved the output of Printing presses- making the actual product cheaper.
b) Electric and Gas Lighting became much more common, increasing the amount of time people could read.
c) A literate and prosperous middle class was slowly but slowly emerging.
d) The growth of the railway travelled to a new space for information consumption to take place.
With that out of the way, let’s look at how books and newspapers fared:
Modern newspapers
Modern Newspapers discovered their optimum business model relatively early, and their story till the 21st century is one of consistent growth. It was helped by events such as the Napoleonic Wars led to a surge in demand for the news.
In the 18th century, the newspaper spread like wildfire across Europe and to America. Very quickly, newspapers realised that advertisers had fewer options for spreading their message than consumers had for sources of information. They began focussing on boosting circulation in an effort to win over advertisers. Thus they reduced prices and increased the breadth of their content to become a truly mass bundle. Invariably, however, this led to the lowest common denominator fare that was also characteristics of the early television channels.
Another important development was the invention of electricity and the telegraph. Before the telegraph, information used to flow at the speed of horses. Most newspapers would copy news from each other by taking advantage of an exchange system set up by Benjamin Franklin, one of America's founding fathers, and a printer. As New York emerged as a metropolis and the centre of the publishing industry, newspapers soon began seeking an advantage. This led to some amusing outcomes, like the setup of the ‘Pony Express’. Here is one of its advertisements.
After 1833, a series of events all contributed to an explosion in the newspaper industry:
a) Technology finally enables printing of the ‘Penny’ newspaper, i.e., a newspaper affordable to the masses.
b) The invention of the telegraph meant news was no longer constrained by physical limitations and could move practically instantly
c) The US Civil War led to an explosion in demand for the news. It also forced newspapers to adopt many modern practices and increased the number of correspondents they hired to keep up with the news
Newspapers had been quick to realise the potential of the telegraph. The scarcity in message capacity of the telegraph network led to newspapers coming together to share the capacity by creating Wire Services like the Associated Press. This made news itself something of a commodity.
Europe at this point was still held hostage by its old institutions and was relatively conservative and repressive. The US, on the other hand, freshly emerged with ideals of free speech, began looking at sensationalism and drama as a means to increase circulation. It worked, by 1850, the US had 240 dailies with a circulation of 750,000. The practice would reach its epitome with New York World publisher Joseph Pulitzer, ironically the individual behind whom the prestigious Pulitzer Prize for journalism is named.
Geographical Fragmentation of News
A key feature of newspapers is, that they never really found a massive scale to go with their circulation. I believe this was baked into the industry structure from the very beginning.
There were plenty of highly profitable medieval businesses with limited reach. Inns, for example, did a roaring business, but without access to modern regulations, transport and finance- it was extremely difficult for inns to expand outside of their local market. Further, any market that they choose to expand to would already likely have its own thriving set of inns. The land was scarce, yes, but it wasn’t concentrated. In contrast, Spice was so concentrated that none of it grew in all of Europe. A spice trader selling in Portugal could easily expand to nearby Spain and even as far as England, as Europeans could never have enough of Spice⁷. Thus the value went to those controlling the key trade routes, which would move from Venice to Portugal to Holland to the English.
The news was scarce, but not concentrated. After all, Printing was an inherently local industry and most major cities ended up having their own printing press. Any printer expanding to new geographies would thus enter a competitive market. Each newspaper had relationships with local advertisers and distribution with customers- these were significant barriers to overcome. And then, of course, no one geography has a monopoly on newsworthy events- they happened everywhere.
Inns eventually achieved scale after they became hotels, primarily by infusion of huge amounts of scarce capital in ultra-luxury hotels. The rise of vast retail chains helped Book Publishers achieve scale as described in the next article. The newspapers industry, in contrast, required no such massive infusion of capital and saw no such consolidation in distribution. It thus remains fragmented up to this day.
Modern Books
The 19th and 20th century slowly led to the rise of the regulatory state, with an increased ability to enforce copyright. More importantly, new points of integration began to be formed- this time around the consumer side.
It is a feature of demand that it tends to concentrate on key chokepoints- such as the downtown record stores for music or the railway station and airport for bookshops. Over-time, these choke-points were dominated by large chains of distributors. One of the first large bookstore chains- W.H.Smith, grew by building newsstands at railway stations. This concentration of demand had other benefits for monetization. Publishers could leverage their existing relationships to crowd out substitutes.
Finally, publishers had managed to enforce scarcity on books- using a combination of copyright and convenient distribution. Importantly, there was always enough competition amongst the retailers themselves to prevent any of them from gaining too much leverage over the publishers. This led to the rise of the big five publishers, achieving a geographic scale that few newspapers could. But the structure of the industry remained one that precluded high margins. There were always going to be too many authors for any one publisher to cater to. There was plenty of competition, both within the big five publishers and with independents.
It was telling that newspapers, not books, were described as rivers of gold by Rupert Murdoch.
Helped by technology and the rise of the middle class, books began increasing in popularity. The price of the book slowly but surely began to fall, until the paperback mark established by Penguin in the 1940s.
The concentration of demand might life difficult for the small and independent publisher. Thankfully, they not only survived but thrived, partly due to the proliferation of mail-order catalogues that helped them establish their own distribution channel.
Conclusion
This was the state of affairs. There was a thriving newspaper industry with lots of competition that, in theory, should have ensured the newspapers stayed honest. There was a large market for books, with large publishers serving the masses and smaller publishers serving the niche markets.
And then, the internet came along and ruined everything. Or did it?
Thank you for reading. You just read Part IV from a five-part series outlined below. The final part of the series is on its way!
Part I explains why it’s hard to monetize information, and the state of society until the invention of the printing press in the 15th Century
Part II explains the structure of the early print industry, and why it never became a very lucrative business despite a consistent increase in demand.
Part III covers the birth of the newspaper industry, and why the news was profitable in a way that books weren’t.
Part V explains why despite the rise in media consumption and addressable market, why the internet decimated the newspaper industry, while also discussing the impact of this new distribution channel.