February 18, 2016 — Nicco Mele, author, digital strategist and Wallis Annenberg Chair in Journalism at the USC Annenberg School of Journalism, discussed the future and feasibility of various news outlet business models.

Mele, who is also a former senior vice president and deputy publisher of the Los Angeles Times, and a Shorenstein Center board member, said that while the production and distribution of digital journalism are well understood, “what’s not well understood is how we make money or fund journalism in the digital age.”

Mele described a deepening crisis in the newspaper industry: although some outlets are seeing the largest online audiences they have ever had, revenue is still shrinking. On a local level, preprint advertising (e.g. coupons) has seen a steep decline as retailers like Wal-Mart and Best Buy face challenges of their own. Paradoxically, print advertising still generates the vast majority of newspaper revenue – an undesirable situation, given the cost of printing.

If the next three years look like the last three years, I think we’re going to look at the 50 largest metropolitan papers in the country and expect somewhere between a third to a half of them to go out of business.

“If the next three years look like the last three years, I think we’re going to look at the 50 largest metropolitan papers in the country and expect somewhere between a third to a half of them to go out of business,” said Mele.

Mele noted that newer entrants such as Buzzfeed, Vox and Vice rely in large part on venture capital. “None of them are yet true public companies with a clear sense of what their revenue equation looks like,” he said.

And although philanthropic and government funding could be options, Mele stressed the importance of news outlets remaining economically independent from large institutions to better fulfill their duty of holding power accountable.

What is clear is that diversity in revenue streams will be an essential part of the future, said Mele, and part of the mix could include two effective but “underappreciated” options: subscription revenue and native content.

While The New York Times and NPR have a strong subscriber base, few other outlets do, said Mele. “Part of the challenge is an overreliance on paywalls – people think you put up a wall, and that’s how you’re going to force people to pay. I think that building a subscription base is a lot more about engaging people in a variety of channels,” he said. He added that paywalls also hurt digital distribution on platforms such as Google and Facebook.

Regarding native advertising, Mele said that while the wall between editorial and advertising exists for good reason, and advertising buys must never influence coverage, there is a “huge appetite” for branded content, and cited Vice as an example of an outlet with an in-house agency that produces branded content. “It’s important that we have, industry wide, a real discussion,” he said. “That doesn’t mean that we should throw that wall away. It means we have to come to some new norms and standards for how we preserve the integrity of newsrooms but also help meet the needs of being economically sustainable and viable.”

Native advertising and other new approaches could be a way for local news outlets to win back advertising dollars lost to competitors such as Google and Craigslist. “We’ve surrendered too much to the technology industry,” said Mele. “To a large extent, Facebook and Google substantially own audiences’ attention the way that newspapers used to,” he said, even though these platforms rely on the content of established news brands. Mele said he thinks that people “are hungry for the brands they trust in their community,” and news outlets should “fight back.”

The future of journalism is small, scrappy enterprises that are entrepreneurial, that are innovative, that are trying things.

Adapting to demographic shifts in local communities is also essential for remaining relevant to both readers and advertisers. The Los Angeles Times was slow to adjust to its changing market, which is home to large populations of more than 40 nationalities, said Mele. “The very demographics and ethnic makeup of our communities and cities are changing much faster than we’re able to recognize…our media needs to understand and represent that change both inside the newsroom, as well is in the business models, and in the relationships with advertisers…you have to be a part of your community.”

But even as new business models prove to be successful, media owners will still need to temper their expectations; newspapers no longer have the high profit margins that accompanied a monopoly on audience attention. “The future of journalism is small, scrappy enterprises that are entrepreneurial, that are innovative, that are trying things. And that means that the economic expectations of the performance of those institutions has to be reset,” said Mele.

In the face of an overall “unpleasant” situation, Mele remained forward looking. “It needs to be a clarion call, not for fear and craziness, but for increased innovation, for more failure, until we’re able to find models that work more aggressively – and I think we have a pretty good idea of what those models are.”

During the question and answer session, Mele also discussed his time at the Los Angeles Times, opportunities for longform journalism, crowdfunding, microfunding, verticals for niche audiences, hyperlocal journalism, the role of social media in the 2016 election and more. Listen to the full audio recording above.

Article and photo by Nilagia McCoy of the Shorenstein Center.