Washingtonpost.com reports on the precipitous decline in viewership of late-night newscasts in its region: more than 10% on average compared to last year. Such dropoffs are unheard of in the relatively stable media world. The culprit is apparently declines in the quality of prime-time network programming, which typically swings viewers into the late news. As networks have cut budgets in response to falling viewership, a domino effect has taken hold and now the local affiliates are hurting.

Is this the beginning of the end of television news? The average age of an evening news viewer is now 60. Late-night has been the one salvation of the broadcast business, but even that may fall by the wayside. News has always been a low-margin business for TV stations. In the future, will they even bother to offer news any more?

Media Post reports today that “newspapers’ decline will slow and maybe even stop in 2007,” based upon advertising buying intentions. These kinds of reports may give false hope to the newspaper industry, which has no future. The fact that advertisers say they won’t cut back on newspaper advertising has no bearing on their actual behavior. Try to convince a car dealer that the $10,000 he spends on advertising every week is money well-invested when he’s got countless alternatives that are free. Intentions have nothing to do with reality in a market like this and the reality is that advertisers are deserting newspapers in droves and will continue to do so. Make a note to check back on these predictions in a year to see how woefully wrong they were.

New competition from Web 2.0 companies along with continuing demographic shifts are about to send metropolitan daily newspapers into a spiral of decline from which few will emerge intact. Why now? People have been wrongly forecasting the death of newspapers for years. Why is this time different?

The first decade of the consumer Internet was very different from that which we’re now entering. Web 1.0 was the display Internet. It was a decade when organizations put their brochures online and users got comfortable with the idea of a global network. Search tools were rudimentary, Web content was difficult to create and interactivity was limited. The brands that dominated the pre-Web days were able to extend their brands online. While a few important new sources of information did emerge, media giants like CNN, The New York Times, The Washington Post and the Associated Press continued to dominate online media. There was little threat to their underlying businesses.

That’s all changed. It’s now easy for individuals to create Web content. Computing power, storage and bandwidth costs are declining rapidly. The open-source software movement has dropped the price of software to near zero. Search engines have become a more effective marketing channel than e-mail. Google AdSense and affiliate marketing networks can generate income for website operators, even at low traffic levels. Today, a small group of people with a few thousand dollars and a good idea can build a self-sustaining web franchise in a matter of months. You couldn’t have done that five years ago.

Layered on top of that is a demographic shift that is about to move a large new group of Web-savvy consumers into the economic mainstream. This new generation simply doesn’t have the loyalty to established media that their parents do. And they don’t read newspapers at all.

So here’s where the spiral begins. Newspapers’ profitable classified advertising business will be all but gone in 10 years, a victim of the vastly superior results and economics of search-driven online advertising. Display advertising will be under intense pressure from alternative media, including not just Web sites but an emerging class of small print publications and supermarket advertisers that serve local audiences (print publishing is getting cheaper, too). The department stores and cell phone companies that sustain newspapers’ display advertising business will apply intense pressure on papers to bring down their prices.

Newspapers will be forced to lay off staff in order to maintain margins. Cuts in services will lead to cuts in editorial coverage, making papers less relevant to subscribers. As circulation declines, advertising rates will have to come down to remain competitive. This will put more pressure on margins, leading to more layoffs, more cost cuts, more circulation declines and more pressure on margins. Once this spiral begins, it will accelerate with breathtaking speed. And it has already begun.

Experience has shown us again and again that business models based on vertically integrated, proprietary products quickly collapse when confronted with competition that is open, standardized and much less expensive. It’s happened in consumer electronics, telecommunications, computers and household appliances and there’s no reason it won’t happen in media. Advertisers will rebel at having to pay newspapers’ high fixed costs when they can get the same audience through other channels at a fraction of the cost.

The sole advantage that newspapers have is their reach in local markets. Small businesses that sell aluminum siding, flowers and cleaning services have have few alternatives to newspapers for their ad dollars. That, too, is changing. The declining cost of electronic composition and offset printing is leading to resurgence of local newspapers and Web 2.0 technology is making it cheap for citizens to launch their own community websites. Search engine makers are figuring out how to provide value in local search. These forces are converging to attack newspapers’ last refuge.

In 10 years, there will probably be half as many metropolitan daily print newspapers as there are now. Some will go entirely online, while others will merge with regional competitors. The question I’ll focus on next is what will happen to the profession of journalism as a result?

Technology journalists have long wrestled with the conflict-of-interest issues inherent in quoting industry analysts. These analysts – IDC, Gartner, Forrester and many others – are a vital source of commentary and perspective on happenings within the industry and they are quoted by nearly every major media outlet.

The conflict is that nearly every one of these analyst firms relies on vendors for their livelihood. Some, like Gartner, actually have a pretty strong user-side revenue source, but the reality is that most of these firms couldn’t survive in their current form without vendor dollars. And the big vendors employ almost all of them. You’d be hard-pressed to find any major analyst firm that doesn’t do business at least occasionally with IBM, Microsoft, HP, CA and other big vendors.
Reporters and editors know this, but it’s an inconvenient truth that has been conveniently ignored for many years. Which is why it was surprising to read this editor’s note in the New York Times late last week (registration required) regarding quote attributed to analyst Rob Enderle.

Enderle, who’s a veteran analyst and an expert at courting the media, had contributed two positive but rather benign quotes to an earlier Times story on the Microsoft Xbox. Apparently, someone took exception to Enderle being quoted because Microsoft is his client (a fact that is fully disclosed on Enderle’s website) . “Had The Times known of Mr. Enderle’s work for Microsoft, it would not have sought out his opinion on the product,” the editor’s comment said.
Well, had the Times known of every analyst’s work for Microsoft, it would never have any analysts to quote. The reality is that it’s hard to be in the tech analyst business without crossing Microsoft’s path at some point. But the fact that you take money from a company doesn’t mean you’re beholden to it.

Perhaps the Old Gray Lady is still smarting from the humiliation of the Jayson Blair incident. It certainly went over the line in casting doubts on Enderle’s credibility through this belated retraction.

The reality is that tech clients tend to cancel each other out. Analysts who do business with Microsoft are usually also doing business with IBM, Sun, Red Hat or other companies that compete with Microsoft. This competitive tension keeps people honest. It’s appropriate for a reporter to ask analysts to disclose their clients, just as The Wall Street Journal now mentions client affiliations when it quotes stock market analysts.

Also, what analyst is his or her right mind would shill for a client? The damage to one’s credibility would be devastating. A lot of people in the analyst business are still smarting over the WSJ’s 2002 roasting of Aberdeen Group over the firm’s now-discarded practice of “pay for praise.” Aberdeen’s name was mud in tech journalism circles for years following that disclosure.

In singling out one analyst for criticism, the Times went too far. Show me an analyst who doesn’t do business with the big vendors and I’ll show you an analyst who probably doesn’t have much interesting to say.