Felix Salmon explains why it is that cheaper deliv ery through the internet hurts newspaper profitability: you make people see the ads as they thumb through the paper, but you can't make them see as many ads as they page through the screens:
Newspaper Economics: Jim Surowiecki's column on newspapers is a good one, especially when he talks about the drop-off in advertising revenues and newspapers' failure in the online space. I have to take issue with this, however:
People don't use the Times less than they did a decade ago. They use it more. The difference is that today they don't have to pay for it... For a while now, readers have had the best of both worlds: all the benefits of the old, high-profit regime--intensive reporting, experienced editors, and so on--and the low costs of the new one. But that situation can't last. Soon enough, we're going to start getting what we pay for, and we may find out just how little that is.
Ask Sam Zell whether this is true, and he'll laugh. It turns out that subscribers are more expensive, not less expensive, than online readers. Yes, they pay more -- but they're not paying for intensive reporting, experienced editors, and the like. They're paying for printing presses, mobbed-up newspaper delivery operations, and the whole enormous physical infrastructure.... It's a hugely expensive operation, and its costs are nowhere near covered by subscription revenues.
Newspapers are, first and last, devices for delivering ads to readers. It's the ads which account for all the profits, not the cash coming from subscribers or people who buy their paper at the newsstand. Yes, news itself is free, nowadays. But it always has been. What we've been paying for all these years was never news, it was papers.