Newspapers will never be the same. But what happens to democracy if the Web business model can't fund journalism?

The decline of journalism over the past generation, which has accelerated in the last decade, would be a less pressing concern if the existing news media were making a successful digital transition, or if the Internet was spawning a credible replacement. The evidence suggests on balance that emerging digital news media are having a negligible effect upon the crisis in journalism. It certainly is not due to a lack of effort, as commercial news media have been obsessed with the Internet since the 1990s; they understood that it was going to be the future.

For traditional news media, it has been a very rocky digital road. A 2012 report based on proprietary data and in-depth interviews with executives at a dozen major news media companies found “the shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract at alarming speed.” For every seven dollars of print advertising lost there is only one new dollar of Internet ad revenues; the executives said it “remains an uphill and existential struggle.” The newspaper industry’s percentage of overall Internet advertising fell to 10 percent in 2011, an all-time low; it had been 17 percent in 2003. “There’s no doubt we’re going out of business right now,” one executive said. By all accounts, the “clock continues to tick” for old media to find a way to survive online in the inexorable transition to the Internet.

It is both tragic and pathetic to see dedicated journalists obsessing over how to keep their newsrooms alive. “We have to find a business model that works—we have to,” Christian Science Monitor editor Marshall Ingwerson told NYU media scholar Rodney Benson. “This is the word I hated but in the last five years has become universal—we have to monetize. How do we monetize what we do? Same as everybody else.” Journalists have been inundated with lectures that they “require an embrace of new technologies and a ruthless but necessary shedding of the old ways of doing business. It should have happened already. It must happen now.”

The assumption is that there has to be a way to make profits doing digital journalism if journalists and owners simply wise up and get with the program. Over the past few years, many American newspapers have been purchased on the cheap by hedge funds—nearly a third of the twenty-five largest dailies are now so owned—the subtext being that these business geniuses can generate profits where dummkopf journalism industry types have failed. As John Paton, the journalist-cum-CEO for a newspaper company purchased by the Alden Global Capital hedge fund in 2011, put it: “We have had 15 years to figure out the web and, as an industry, we newspaper people are no good at it.” Apparently, neither are the hedge fund managers. David Carr wrote in July 2012 that “hedge funds, which thought they had bought in at the bottom, are scrambling for exits that don’t exist.”

Few wish to consider the obvious question: what if it is simply impossible to generate commercially viable popular journalism online, let alone journalism adequate for a self-governing people? What then?

In the meantime, news media corporations work furiously to find their digital Shangri-La. The primary course for traditional news media has been to pursue digital advertising dollars, with disappointing results. Most websites for publishers and broadcasters primarily run generic banner ads, “among the least trusted sources of commercial information,” according to consumer surveys. These are rapidly falling out of favor with advertisers. Digital news sites have been laggards in “using technology that would customize ads based on their users’ online behavior.” Moreover, as much as 80 percent of digital newspaper advertising is placed through networks that take a 50 percent cut of the action. This means a paper’s revenues for a thousand viewers (CPM in industry parlance) can be as little as 2 or 3 percent of its CPM for print readers. Worse yet, much of local marketing—once the bread and butter of news media—as it goes digital does not support media content sites or independent content sites of any kind. “A consensus has emerged that website advertising,” a respected 2011 industry report said, “its rates driven down by massive available inventory, will probably never sustain a comprehensive daily news report.”

However, digital advertising provided newspapers over $3 billion in revenues in 2011, far exceeding all other forms of Internet revenues. It is not going to be abandoned even if no one expects it to grow very much.

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