When Industries Die

I work approximately one block from the New York Stock Exchange. Once upon a time, one would see several dozen floor brokers, specialists, stock reporters and the like smoking outside the exchange on Broad Street. (The profession must've attracted the smoking type.) On CNBC, one would watch Maria Bartiromo reporting from the floor, getting jostled to-and-fro by floor personnel; indeed, the floor was jammed, activity frenetic. Around 2005, the floor became computerized, and trades that once took seven seconds to get executed by floor traders and specialists now took, via computers, one-third of a second. Spreads between bid and ask that once stood at 1/8th of a point now traded (due to "decimalization") at approximately three to two cents between bid and ask. With the merger between NYSE and Archipelago, floor personnel no longer were needed in the same way that they had been for the prior two-hundred and thirteen years. Two-dollar brokers were rendered obsolete, specialists were laid off en masse, "local" floor traders were edged out, and the floor became ghost town. Now, when Maria Bartiromo reports from the floor (or the new attractive CNBC correspondent, whoever she may be these days), you see nothing but wooden parquet floor. The floor is now, for the most part, obsolete.

Obviously, this is not the first time in the history of the free-market economy that this has occurred, and it surely will not be the last. Strange it must be to not only lose one's job, but to have trained in a profession which is no longer needed by our society is a whole different kettle of fish. Once upon a time, boot-making and buggy-makers were a necessary part of our economy; mass-production of foot-ware and automobiles rendered both unnecessary, save the odd-man who does such things as a historical re-enactor at places like Colonial Williamsburg. Try as some might (and in the case of boot-makers they did, vis-a-vis the Knights of St. Crispin), you can't fight progress, even if there is a human cost. Sometimes, indeed many times, whole professions get wiped out in the process of implementing new, efficient ways of doing things. The term for this phenomenon is "creative destruction", coined by the economist Joseph Schumpeter. Roughly put, the term states that old ways will be destroyed by new efficient ways; indeed they must be destroyed.

The music and publishing industry are currently in a state of flux, but the issue here isn't that their business models are obsolete; clearly, they are. Newspapers make their money not from subscriptions or news-stand sales, but from advertising. (I know something about this, as my father was in the advertising sales end of the publishing industry.) The service known as Standard Rate & Data would give would-be advertisers some semblance of what type of market they would reach with each newspaper and/or magazine based on gender, age, income, etc., thus targeting said group to maximize product sales. This is where magazines, newspapers, periodicals, and published journals made their profits. (Political publications like the National Review, the New Republic, and the Nation, for example, operate at consistent losses; their ability to sustain themselves comes from donations from politically like-minded readers.) The problem now is the internet, and also, free services like Craig's List; the former gives one timely news, the latter gives one a wide range of classified ads. Ad in e-Bay and Amazon, and you've just sliced off a huge chunk of revenue from the newspaper/magazine industry. Wider readership and cheaper has spelled, what in all likelihood, will be the death knell for magazines and newspapers. There's one problem with all of this: what replaces them? What is the new business model? Alas, this is the question that hasn't been answered completely. True, news can be had by merely tapping into the Drudge Report or any other news website or news hub. A recent conversation with a friend yesterday focused on just this topic. His contention was that something will be lost, as newspapers like the New York Times, with a presence in all corners of the world, will no longer be able to keep reporters all over the world to report on things happening in places like, say, Nepal. Probably true, but then why keep an American reporter in south-east Asia when you could hire a local to report on the facts all the same? And given the inaccuracies of the American media, would anything necessarily be lost? I think not.

Ever more complex is the issue with the music business. I've slagged the music business pretty vociferously on this blog for years, and I stand by all of it, but I cannot see how this business model is even remotely sustainable. I recently got a shock of ice-cold water (metaphorically speaking) when I was in Union Square about a week ago and saw Virgin Megastore boarded up and shut-down. I did feel a pang of sadness over this, I must admit, specifically since I'd been coming and hanging out in Union Square for well over a decade. Virgin Megastore was a part of the backdrop for me, looking across the square facing south. Many days were passed weeding through the CD bins, the bookstore on the basement floor, and generally checking out what was new. All gone now, but not surprising so. I can't remember the last time I bought a CD, for it must be years now. Online downloading has completely taken whatever profit margin the record industry had and shrunk it down to the bare minimum, if that minimum is being met at all. (Doubtful that it is.) As for when I did buy CDs, I would buy one only to find one or two good songs and the rest filler. (Definition of filler: Substandard songs or jamming done specifically to eat up time on a CD or an LP.) Now, all one needs to do is download the song you like for .99 cents, and leave the rest. A gross sale of $15 per CD is now reduced to .99 cents, a 93% reduction. Additionally, if I don't have a CD and a friend does, I merely need to put that CD in my computer and voila-I have everything! It is no big mystery why the record companies have turned so strongly to producing rap albums: the overhead costs are minimal; all that is needed is a drum-machine, a sampler, and a street-tough incoherently rhyming about violence in some inscrutable ghetto patois. Things continue to go the direction that they're going in, there might not be a record industry in three years. One thing is for certain, it certainly isn't going to look like it has for the last thirty. As for newspapers, I'll cry very little for them. The informational hegemony they presided over has been shattered. No longer will there be people like Walter Duranty around to file bogus dispatches that paper over full-blown genocides...and we're all the better for that.