BOB GARFIELD:
The Project for Excellence in Journalism has released its fifth annual State of the News Media Report. And the good news is the state of the news is strong. There is an audience. People still want news, old school, mainstream, shoe leather news – you know, like you get in the – newspaper.

The catch is, we want to find the news where we already live – on our Facebook pages and through links sent by friends over email. So while the state of news audiences is strong, the state of news business – eh – not so much.

Still, news seems to be better positioned than entertainment media. According to Project director Tom Rosenstiel, entertainment is awash with competitors while the nation's great news outlets still own the field.
TOM ROSENSTIEL:
Google has not really gone into the news-gathering business nor has AOL, or even Yahoo, which has toyed with it a little bit. What they're offering is wire copy from the AP and aggregating The New York Times and The Washington Post. And so, blogging, posting comments and all kinds of other activities are now part of my news consumption, but that discussion still seems to begin with my reading the news of what happened yesterday.
BOB GARFIELD:
One of the more interesting observations in the report is about how news consumers interact with the news versus the way they did in the mainstream media bad old days. Now when reading online, people start at a story and dig into a link and maybe from there to another link, layer after layer downward or maybe wholly away from the original website to begin with.
TOM ROSENSTIEL:
The general thinking now about the designing of a webpage is that the interior page of a website that has a particular story on it should devote 50 percent of the space on that site to telling me where I can go for other information.

Another way that we're seeing this is that even a year ago, a lot of traditional websites only contained the information that their people had produced. It was what they called the "walled garden." Even now, today, a year later, that's no longer the case.

I can drill down and get to The Washington Post from The New York Times, even though they're direct competitors, because the expectation is that I'm hunting the Internet for things and your website should be a waystation, a place that can help me get to where I want to go. If it were a dead-end street, a cul-de-sac, it would be less useful to me.
BOB GARFIELD:
All right. Let's get to the economics of the newsgathering business. Let's start with display advertising, those delicious full-page ads from department stores and supermarkets that used to fill the paper and line the pockets of publishers.
TOM ROSENSTIEL:
Yes. There is no equivalent of that full-page ad on the Internet. The idea that the ad was a kind of content that would draw you to the newspaper doesn't really translate online.

I can go directly to Best Buy's website or Circuit City's website at three in the morning. I don't have to wait for the Sunday paper and all those wonderful color supplements which I might have spent 10 or 20 minutes with all by themselves before I even looked at the newspaper itself. And that's only part of the problem that newspapers are having with advertising.
BOB GARFIELD:
[LAUGHS] The other part of the problem is the big cash cow of newspapers since time immemorial, and that's the classified ads. But now Craigslist, which is free, has rendered the classified business, you know, almost irrelevant.
TOM ROSENSTIEL:
It's true. Newspapers used to derive about 40 percent of their revenue from classifieds. Roughly about half of that classified has now gone away. And there's all kinds of sectors that potentially the news business could have kept – let's say real estate advertising – but the realtors have created their own online classifieds for real estate in a given community. You go to Realtor.com and you can look those things up.

So those things have decoupled themselves in some ways from news. And that's proving to be devastating.
BOB GARFIELD:
Isn't an even larger problem consumer behavior itself? They don't click on the banner ads. Given the option to close a full-page display ad, they will. Is advertising going to be the means of financing news content in the, you know, even intermediate future?
TOM ROSENSTIEL:
There's no question that advertising in totality will not be enough. So what else might there be? It could be drilling down and actually making your retail purchases right there in the ads, that an ad becomes not an ad so much as the beginning of a retail transaction.
BOB GARFIELD:
And what about micro-payments, the idea of paying a penny or two or, you know, twelve, for a story that I've clicked on?
TOM ROSENSTIEL:
I think that the signs are that that is not likely to happen any time soon and maybe not at all, at least not that way. I think there's more potential for something along the lines of the cable model. In cable, I pay a subscription fee to CNN and to Fox News and to the Golf Channel and to the Food Channel every month, but I'm not aware of it. It's embedded in my cable access fee that I pay to the cable company.

There is a vested interest in the Verizons and the Comcasts of the world having a robust news business because it's such a draw for traffic.
BOB GARFIELD:
Newspapers have been forced into cost cutting, retrenchment, closing bureaus, buying out veteran reporters and editors and depriving themselves of the very resources [LAUGHS] they're going to need to maintain an audience to get from here to whatever that intermediate future is.
TOM ROSENSTIEL:
That's the great dilemma. It's something of a race against time. The company that emerges, I think, is the one that's going to say, we can't be prudent, we have to take a gamble. We're going to not cut this company and we're not going to trim our news staff and we're not going to reduce this product down that much because that ultimately is going to kill the golden goose.
BOB GARFIELD:
Tom, thank you so much, as always.
TOM ROSENSTIEL:
My pleasure, Bob. Thanks.
BOB GARFIELD:
Tom Rosenstiel is the director of the Project for Excellence in Journalism. It has just released its fifth annual State of the American News Media Report.