oh, the interwebs

Journalism! Where would we be without it?

You can already see some of the risks of a country reliant on the internet without the traditional checks and balances provided by the professional standards of established journalism. During last year's US election, several stories whirled through the media sourced to one political pundit, Martin Eisenstadt. You may even have heard of some of them: a casino planned for Iraq's Green Zone; the shock of Paris Hilton's family at being used in a John McCain TV ad; the failure of Sarah Palin to understand Africa was a continent, not a country. But Eisenstadt was a fraud, created by an Israeli prankster, Eitan Gorlin, via a fake think-tank website. Yet his tales had a life of their own, permeating the net, eventually appearing on television and in magazines, creating reaction until they became part of the debate.

The horror. Imagine if, say, most of the world's most respected newspapers, and the entire Murdoch empire, had uncritically repeated a succession of entirely false and basically implausible stories briefed to them by a string of nebulous thinktanks and anonymous government mouthpieces, based on the unsupported word of various frauds, Iranian agents, and prisoners under torture. Imagine if The Observer itself had been printing material it was given on the quiet by the British government's intelligence services.

If newspapers face a crisis, a major part of this crisis is a crisis of self-awareness and humility. Another major part of it is a crisis of ownership - not a problem with their business model, but their financial model. To his credit, Paul Harris does actually mention that the US newspapers that have gone under have done so for one single, simple reason in all cases - they fell because The Proprietor loaded them up with debt, and then squeezed the paper ruthlessly for cash. But he devotes a total of three out of 34 paragraphs to this, and buries the point under 10 pars of colour and "oh, the Internet!". In a real sense, what we are seeing isn't a crisis of the press but a crisis of the press baron, that highly leveraged capitalist figure of the 20th century.

The press baron emerged in the late 19th century, arguably as a response to the capital-intensive technology of the first mass circulation newspapers. It was an era of railways and mammoth presses, and the press became more concentrated and oligopolistic to round up the capital this demanded, just as so many other industries did. The political and ego advantages of owning a huge newspaper both grew out of and contributed to this process. More recently, this tied-in with the trend towards tax-efficient, return-boosting thin capitalisation - the Leverage Jihad, as I think of it.

This had three important effects on the press. First, it empowered the proprietor even further. When the bulk of his capital was tied up in the newspaper, he could sack the editor on a whim, insist on reprinting Hitler's speeches in their entirety like Viscount Harmsworth, but he could only abandon the paper with difficulty and at considerable cost. He could sell or float the paper, but killing it implied losing a lot of money. Second, by decreasing the barriers to entry, it created more potential press barons, and consolidated the existing ones. It also, by boosting their returns, made them personally much richer. Third, it hugely increased the papers' operational gearing and therefore their vulnerability to any shock to cash flow.

This also meant that the possibility of the press baron losing his investment was considerably increased, and the case of the Sam Zell papers neatly points this out. Now, all this was chiefly possible because the papers were experiencing a long period of great ad markets, and also because of technological changes. The arrival of the Apple Macintosh, the Ethernet LAN, and the fast offset-litho machines meant it was possible to run a lot more glossy colour pagination, and hence more class-A ad space, with fewer people and, after this leap had been undertaken, less capital.

Arguably, the nature of a newspaper has changed; it's now much more the kind of business whose assets walk out of the front door. What does this imply for its model of ownership?