How a 1995 court case kept the newspaper industry from competing online

This week, the United States Senate held a hearing on “The Future of Journalism”, prompted by the recent demise of two major U.S. newspapers. I won’t rehash the many, many arguments and theories put forth by so many people on this issue, save to note one that I am afraid might be slipping down the memory hole.

It should not surprise any OJR reader that I stand with those who blame newspaper management for the industry’s current woes, and not upon “the Internet,” Google or even the competition from all those new websites out there. (After all, those new websites have to compete with each other, too.) No, when confronted with the ride of the Internet, the newspaper industry’s owners and managers made a series of lamentable decisions that crippled the industry’s ability to engage and defeat its new competition.

The particular decision I wish to remind folks of today was the industry’s reaction to 1995 court case, one that prompted news managers across the country not only to dismiss opportunities to engage with their audiences online, but to directly order their employees not to do so.

Perhaps the (relative) old-timers among us will remember Stratton Oakmont v. Prodigy. That 1995 case pitted a New York securities firm against the Prodigy online service. The plaintiffs argued that an anonymous poster on a Prodigy discussion forum defamed the firm and its president by claiming that they committed fraud during the IPO of another company.

Ultimately, a court held that because Prodigy had hired “board leaders” to monitor the forum, that made Prodigy the “publisher” of the information, and, thus, responsible for it. The court noted a distinction with a previous, similar case involving CompuServe: In that case, CompuServe did not hire anyone to monitor its forum, so it was simply a conduit, not responsible for what people posted.

The lesson the newspaper industry took from the case? Forums and comments are okay… only if newspaper staff do not edit, or even read, them.

Stratton Oakmont v. Prodigy lasted just one year as precedent. The U.S. Congress, effectively, made the ruling moot the next year with its passage of the Communications Decency Act of 1996. The CDA created a “Good Samaritan” exception that prevented people and businesses who hosted discussion forums from being treated as the “publisher” of information provided by participants on that forum.

But risk-averse newsroom and website managers weren’t persuaded. They continued to insist that their papers could be held liable for any defamatory statements made by readers on their website if newspaper staffers engaged in or managed those discussions. I heard that message from other employees at chains where I worked, as well at several industry conferences, in the late 1990s and early 2000s.

And with the guards pulled off duty, the crackpots moved in.

Few understood then, but the stakes were higher that the viability of message forums and comment boards on newspaper websites. The chilling effect of the Stratton Oakmont decision kept newspaper staffs from engaging with audiences (and potential sources) on the Internet at the precise moment when thousands of new Web communities were evolving, building relationships with those online readers that newspapers were choosing to ignore.

With no one from the paper engaging them at many newspaper-dot-coms, responsible folk looking for a conversation soon departed. And with no one from the paper to stop them, the cranks had an open forum in which to scream. Newspaper forums and comment boards were not communities, hosted by a trusted voice within the community. They were a blank wall, a virtual representation of a faceless institution. They weren’t your neighbor. They were “The Man.”

Little wonder so many frustrated, disempowered readers rebelled. And, worse, that so many smart voices simply clicked elsewhere to speak.

While many newspapers ignored their comments boards and forums, or shut them down, competing communities emerged. The most notable, Craigslist, ultimately helped destroy the newspaper industry’s highly profitable classified advertising business. But thousands of other niche topical and community forums demonstrated that the local newspaper would no longer be the best source for daily information on the issues and activities that readers held dear.

I can only guess why so many newspaper managers were eager to act upon Stratton Oakmont and slow to embrace the CDA. I suspect that some wished that Stratton Oakmont had held – it would have absolved the newspaper industry of the need to embrace interactivity online, and could have led to potential, reader-driven competitors being sued into oblivion. How convenient that future would have been to the newspaper business.

So when newspaper managers bemoan the poor quality of their user-generated content, blaming crude and offensive readers, please remember that the industry had the same chance that everyone else did to engage readers responsibly. And that the industry, for the most part, demurred.

Yes, some papers did the right thing. But not enough to create a critical mass that would have led the U.S. public to see newspapers as the best place to go online for interactive communities.

Nor was the failure to engage the audience online the only factor in the news industry’s decline. Conservative politicians for a generation have been encouraging their followers to disengage from newspapers. The Do-Not-Call list kept newspapers from using incessant telemarketing to keep ahead of high churn rates. Passionless, “he said, she said” reporting turned off readers looking for a source of truth amid the Internet’s deluge of information.

But how much stronger could the newspaper industry have been had more of its leaders decided in 1996 not to withdraw, but to engage? Plenty of employees within the industry urged just that. But fear of Stratton Oakmont ruled the day. And the decade.

The Internet did not make newspaper oblivion inevitable. Witness how Microsoft responded to the same threat, parlaying its market dominance in operating systems and desktop software into dominance in the Web browser market, protecting Microsoft’s market share for another decade. (Yeah, the government sued Microsoft, but the firm stood its ground and, ultimately, didn’t have to give up nearly as much as it would have lost had it allowed Netscape to continue dominating the browser market, thus potentially undermining Microsoft’s position in other markets.)

Vibrant online newspaper communities could have strangled competitors like Craigslist in their virtual cribs… if newspaper managers had not called off their online innovators. That missed opportunity is the newspaper industry’s fault. And no one else’s.

About Robert Niles

Robert Niles is the former editor of OJR, and no longer associated with the site. You may find him now at


  1. Dale Harrison says:

    I really believe that newspapers problems are far deeper and more out of their control than most analysis would suggest…and that the future of media will not be anything that looks like the current structures…

    A lesson worth remembering is that at the turn of the 20th century, people had a transportation problem…and the solution turned out not to be a “faster horse”…but a Ford.

    And one should note that the Ford didn’t arise out of the “horse industry’s” R&D efforts, nor the “Horse Industry Revitalization Act” nor the horse industry’s attempts to experiment with new Business Models.

    I think the future of the media business will look as different as Ford and Toyota’s operations look from horse traders and blacksmiths.

    What’s historically given value to editorial content is the relative scarcity of distribution versus readers (not the Kindle kind). Newspapers have historically enjoyed natural localized economic monopolies that allowed each of them to exercise monopoly control over the amount of content (and advertising) they allowed into their local marketplace.

    Monopoly constraint of distribution and supply will always lead to prices (and profits) significantly above open market rates. Newspapers then built costly organizational structures commensurate with that stream of monopoly profits (think AT&T in the 1970’s).

    Unfortunately the Internet came along and changed all the rules!

    The dynamics of content replication and distribution on the Internet destroys this artificial constraint of distribution and re-aligns advertising (and subscription) prices back down to competitive open market rates. The often heard complaint of Internet ad rates being “too low” is inverted…the real issue is that traditional ad rates have been artificially boosted for enough decades for participants to assume this represents the long-term norm.

    An individual reader now has access to essentially an infinite amount of content on any given topic or story. All those silos of isolated editorial content have been dumped into the giant Internet bucket. Once there, any given piece of content can be infinitely replicated and re-distributed to thousands of sites at zero marginal costs. This breaks the back of old media’s monopoly control of distribution and supply.

    To paraphrase Nietzsche, “God is dead. God remains dead. And we have killed him with the Internet…”

    The core problem for the newspapers is that in a world of infinite supply, the ability to monetize the value in any piece of editorial content will be driven to zero…infinite supply pushes price levels to zero!

    What this implies is that no one can marshal enough market power to monetize the value of content in the face of such an infinite supply and such massively fragmented distribution. Pay-walls, lawsuits and ill conceived legislation won’t allow the monopoly conditions to be re-constructed because only ONE VERSION each story has to leak out to start the cycle all over again.

    Another way to think about this is that once data becomes publicly visible on the Internet, its monetizable value rapidly dissipates to zero.

    This is at the core of why Google can extract $25B a year from the economy without creating ANY content…what they create is meta-data about content (which CAN be monetized)…and all that meta-data remains non-visible. Only the results of decisions based on that meta-data by their search and advertising platforms is made publicly visible.

    The lesson is that Google DOES NOT monetize other people’s content…it monetizes its OWN meta-data. This is certainly one path to making the news profitable…not search per se…but various other approaches to the monetization of meta-data that’s within the reach of publishers.

    So the exquisite irony is this:
    In the future, the only content that will have monetizable value is content that no one is ever allowed to read! (i.e. the meta-data)

    There are certainly ways to make online news profitable…and many of us are working to develop such approaches…but I can assure you they don’t involve inventing a “faster horse”…

    Dale Harrison
    [email protected]

  2. Dale’s points are valid but, I think, address a completely different set of issues than Robert is discussing.

    As we moved from print’s limited capabilities to the interactive, networked online world, very few newspapers mounted any serious efforts to take advantage of those capabilities to build interactive communities.

    There’s a very deep, poorly met human need for social interaction that traditional media failed to address. Twitter and Facebook are just the latest in a parade of digital-native businesses to enjoy explosive growth by helping people meet that need.

    There are many factors — especially cultural factors — to blame for this failure by newspapers to act, but I think Robert’s absolutely right to point a finger at Stratton Oakmont as an important one. I’ve been dealing with this for years.

    Newsroom lore (“if we moderate, we’ll get sued”) seems to be infinitely more powerful than what our lawyers actually tell us or what our corporate policy actually says.

    The good news, though, is that the game is far from over, and some of us have made tremendous progress in the last couple of years in internalizing the concept of building community by facilitating the “town square” process. While it’s easy to point to many organizations and individual journalists who just don’t understand this, it’s increasingly easy to point to many who do.

  3. Perry Gaskill says:


    Good post. Thanks for bringing up Stratton Oakmont v. Prodigy. I remember casually following the case at the time but don’t remember the resolution or discussions of its impact.

    It also so happens that Mike Tharp, Executive Editor of the Merced Sun-Star announced ( this week a change in policy that will now make comments on stories a matter of option on the part of the paper instead of an always-on routine. In theory, this seems like a rational approach to things, but it would be interesting to see how it shakes out internally at the Sun-Star in terms of how they make the cut.

    One of the things that’s gone missing in a lot of the discussions about story comments and/or social interactives in general is that there are a lot of potentially useful lessons from the past which have gone largely ignored. Networked computers have been social tools from the beginning. The first time an engineer in one place sat down and typed a message to a guy at another machine 2,000 miles away, the message was probably something like, “Can you read this?” followed by “How ya doin’?”

    It seems to me that a lot of what we’re seeing these days tend to be fundamentally older technologies wrapped up in shiny new packages. Before there was Facebook, for example, there were UseNet and AOL groups, and it seems evident not much attention is paid to group-dynamic lessons already learned. We’ve simply moved on to something different, but the new thing is based on the same old foundation. A foundation with problems which have never been resolved. Spammers aside, these include:

    Anonymity – What do you do with a medium where nobody knows you’re a dog? Current ideas range from making every comment anonymous to restrictive paid registration models.

    Group Dynamic – There are those who would argue that over time the Internet has gotten to be a less useful place for social interchange. Commenters are less on-topic, less polite, less informed, and less willing to listen to views which may be thoughtful but dissent from the collective group consensus. On the other hand, useful and dynamic social groups can and do exist online; the mystery is how they happen to emerge in one context and not in another.

    Moderation – The most workable models now tend to lean toward some kind of moderated comment system but that raises the issue of workload at a time of tight budgets. An interesting area of research going on is in the development of a “stupid filter” ( which attempts to separate out, for example, the more sociopathic element among commenters.

    Online News – Your comment about online variants of newspapers being seen as “The Man” raises an interesting– and scary– question. Does a news site targeted at a general news audience have an inherent disadvantage compared to one targed at a more focused niche? Because if that’s true, it starts to raise even more questions about sustainable revenue models and/or how news gets covered.


  4. says:

    Twitter and facebook are not profitable.
    So while the article’s points may be a seperate set of issues from commenter Dale’s, Dale’s point is the more important. The article implies “If only we had moved early and quickly to foster community, we would have retained web readership.” All well and good. What does not follow is that by retaining web readership they’d be making money. Craigslist didn’t succeed because it was independent, or because it fostered community. It succeeded because it was _free_. The independent and community fostering parts are nice. They help. But if it had been both those things and charged users a fee, it might now currently exists, but it wouldn’t be the ax that chopped off 20 or 30% of newspaper revenue. Craigslist can afford to exist on a stripped down model in which small fees garnered from 1% of users — real estate brokers, etc. — pay for 100% of the costs, because it’s not trying to use that revenue stream to provide for anything beyond its servers and a few programmers and moderators. You can tighest, biggest, bestest community ever — if only 1% of them are pay, you can’t pay reporters and editors.

  5. Charlotte-Anne Lucas says:

    Great piece, Robert!
    Thank you once again for cogently bringing history around so we can learn from it and move forward.
    At the heart of this, of course, is attitude. Back in the day, the best newspaper editors I worked with would always tell their First Amendment lawyers, “show me how I *can* publish this,” when it came to important and controversial stories.
    The best of them wouldn’t take no for an answer.
    But what I saw as an online content manager were newsroom editors in almost every department who viewed online reader comments as unimportant and annoying. They certainly didn’t regard them as useful or valuable, or (God forbid) as partners in the journalistic community process.
    Those editors considered themselves better than – not a member of – the community. And they seemed quite happy for a “legal” excuse to validate the institutional caste system.
    Which, of course, is why we get things like the Pew study ( showing people don’t care if their local paper folds.
    That’s because for people in the community, that paper is not *their* paper because it doesn’t include or embrace *their* community and their lives.

  6. Thanks for bringing up the Stratton decision. So many times we don’t realize the events in our history that lead us to the present.

    I disagree with people that believe that the death of journalism is inevitable because of the internet. Brands such as the New York Times and Washington Post have a level of ubiquity and trust that would have given them a huge advantage back when online publishing was developing. In fact, they still have those advantages now.

    While newspaper websites have provided dynamic content, they had failed to provide a dynamic user experience with participation and communication. They are getting better, but are off to a late start, and I think your point about the Stratton decision provides a good insight when combined with the failure to predict how big the internet was going to become.

    Newspapers need to adjust to new advertising models and create an online environment that encourages users to visit their sites and spend time there in an interactive environment. They can survive if they are willing to evolve.