Tuesday, December 06, 2005


BUSINESS MODELS: American Journalism Review story considers: Is paying for content inevitable?


from the American Journalism Review
From AJR, December/January 2006

The New York Times joins the ranks of news organizations charging for some of their online content. Is paying for Internet news inevitable, or will the Webs information wants to be free culture prevail?

By Lori Robertson
Lori Robertson is a former AJR managing editor.

On September 1, 2004, the Spokesman-Review in Spokane, Washington, dared to defy a Web-born dogma few want to cross: It started charging people to read the paper online. Seven whole dollars every month. Unless you were a faithful print subscriber then you got everything free.

Ken Sands, online publisher for the Spokesman-Review, was quickly branded a "greedy bastard" in many of the 300 e-mails he received "really nasty e-mails," he notes from people who proclaimed that all they wanted to do was check their hometown news, and they weren't going to pay seven bucks to do it. Online audience growth ground to a screeching halt. "Our site traffic in the first eight months of 2004 was up 42 percent year over year," Sands says. "The minute September 1 rolls around, our growth rate went to zero."

But the bad news only lasted about a quarter. A year later, the August 2005 traffic was 50 percent more than the August 2004 numbers. The 100,160-circulation paper has about 1,000 online subscribers (Sands' goal was 1,000 to 1,500), a revenue stream it didn't have before and happier advertisers. "One unanticipated consequence is that our local online advertisers are getting more bang for their buck," Sands says. Before the paid model, about a third of spokesmanreview.com's visitors didn't live in the area; the subscription fee drove those readers away. The local advertisers, he says, aren't wasting a third of their Web ad budgets any longer.

It's been an online subscription success story, and the impetus behind it was the same worry facing most print outlets today: Readers were giving up their print subscriptions to get the news free online. Even newspapers that say they aren't seeing much of this cannibalism from the freebie Web site face the dilemma of how to maximize revenues as we move toward a more-electronic news world or possibly, one day in the future, a digital-only one. Sure, maybe the baby boomers psychologically can't let go of a paper product when nifty new devices come on the market, but each subsequent generation can: They're not even getting into the ink-on-paper habit to begin with. Newspapers in the coming decades could still be a primary source of news albeit not so much in "paper" form but can they stay in business if they give their work away? Is paying for it inevitable?

This is one aspect of the media about which few want to make definitive declarations. "If I knew the answer, I'd be making a million dollars instead of talking to you," says Rick Edmonds, a researcher and writer at the Poynter Institute who has written about the business of online news. "Content is very expensive to produce..and the notion that you're just going to go on forever giving it away is pretty problematic. So to some extent, at least, my reaction is, it makes a lot of sense to try something."

The "something" that Edmonds refers to is the New York Times' launch of TimesSelect, a $49.95 per year Web deal that makes the paper's op-ed and other columnists off-limits to non-print subscribers who won't hand over their credit card numbers, and gives the Select folks extra services, such as the ability to download up to 100 articles a month from the Times' archives free of charge.

Martin Nisenholtz, senior vice president of digital operations at the New York Times Co., has heard plenty of criticism of the Times' decision to put the columnists behind a paid wall and plenty of predictions that this move is going to fail miserably. But Nisenholtz is of the mind that paying for something is going to have to be a part of online news eventually. The question of whether newspaper sites have to charge to survive, he says, "has been debated from the moment that all of us started out putting our products online. I would say that ultimately the answer to that question is yes."

The early results for the Times were encouraging: In mid-November, two months after TimesSelect's launch, about 270,000 people had signed up for it. About half of them not being print subscribers paid the 50 bucks for the service.

Nisenholtz says making money from more than one source is simply good business and other online executives agree. "You do need some form of a mixed revenue model in order to have healthy economics," he says, adding that that's what the Times is doing. "How [paying for content] happens and in what markets and for what newspapers and in what time frame..and how it relates to the AP and what the role of blogging is and independent content, I mean, all of that has to be factored in... The ultimate judge is the consumer. They're either going to pay or they're not going to pay."

Some of the journalists interviewed for this story worry that the industry has devalued news by bandying it about gratis for so long while others aren't sure news had much monetary value to begin with. Whatever media sites offer for sale has to be unique enough, or special enough "differentiated" is the business term of choice to prompt people to open their pocketbooks. And whether it is or isn't, can online advertising revenues grow enough to keep news organizations afloat?

For Ken Sands, putting a price tag on the Web site paid off. Spokesmanreview.com only charges for the content that's in the print edition; Web extras, such as breaking news and 25 staff-written blogs, are free. (In fact, such unpaid offerings helped spokesmanreview.com win the general excellence award for medium sites from the Online News Association this year. NYTimes.com garnered the prize for large sites.) But Sands wouldn't recommend his model to everyone. His paper offers local news in a noncompetitive market. Readers pay for it because "it" can't be had anywhere else. For papers the size of the New York Times or the Washington Post, competing with CNN and USA Today, Sands asks, "how could any one of those charge for its content without just chasing people to the other sites?"

Requiring online subscriptions isn't something that Caroline Little, CEO and publisher of Washingtonpost.Newsweek Interactive, wants to try right now "every number that we run, it just doesn't make sense," she says. But the Times' move has sparked lots of interest. "They're sort of the first to go," Little says, "and people are watching very, very carefully."

L. Gordon Crovitz, senior vice president of Dow Jones & Co. and president of its electronic publishing group, says there was never doubt in anyone's mind at the company that the Wall Street Journal's Web site would require users to pay. Part of the thinking could be attributed to the company's long history of delivering news electronically for a fee through the Dow Jones Newswires. But also, Crovitz says, the company thought "it was untenable over the long term to have a paid subscription model for a newspaper while giving away the content for the newspaper and much more on a Web site."

The Wall Street Journal Online's subscribers number 764,000 (up 9 percent from the third quarter last year), paying $99 per year, or $49 if they also get the print edition. But the Journal is unique differentiated, if you will. Crovitz lists the advantages the site has over other newspapers' online offerings: the brand and its unique business and financial news; more than a thousand articles available daily from the Dow Jones Newswires; and the ability to charge more for advertising, an advantage that's really the result of having a subscription model that gives advertisers lots of information about a loyal audience.

Other online executives point out that it doesn't hurt that some of the Online Journal's readers are businesspeople whose employers pick up the tab. Still, Crovitz says publishers are changing their thinking about the Web, believing it's important to have subscription revenues. "I'm certain that more and more newspapers and magazines and traditional news publishers will look for ways to generate subscription revenues," he says. "I think many have discovered that it is untenable to charge in print and give away content online."

Vin Crosbie, managing partner of Digital Deliverance LLC, a new-media consulting firm, says of newspaper sites: "They're finally waking up to the fact that they've got to get a business model here." But Crosbie doesn't think paying for online news is inevitable. Some people aren't willing to pay for news at all anymore, he says, citing the "avalanche" of information the average consumer can access. "That's driven the value of news down."

It's not just the evil free Web sites; there are plenty of free print products these days, like those ever-popular minipapers that big metro dailies, among others, are pushing (see "Hip and Happening," April/May).

Crosbie does believe the industry will see micropayments (tiny amounts charged per story) in the future, once the software and credit card companies come up with an easy way for consumers to use them. But the problem, he says, is in producing something that can bring in the money. "The issue is not whether we can find a payment technology, but more a case of whether we can come up with a product people are willing to pay for."

Rob Runett, director of electronic media communications at the Newspaper Association of America, maintains a list of newspapers that charge for content there are 44 that he knows of whether it's the Dallas Morning News' CowboysPlus.com or the Arkansas Democrat-Gazette's main content. Runett has not seen a big move in the paid-model direction. The industry's thinking is more, "we have audiences coming to our site now, what can we do to keep them as loyal as possible?" he says.

As Runett notes, "When you do put up a wall in front of people, there is a very harsh reaction." Consumers aren't accustomed to paying much for news, period. Paid circulation is a small percentage of the print paper's overall revenue as well. "In that sense, people's expectations of media [have] been pretty low cost," Runett says.

Historically in the print newspaper world, says Crovitz, "we've said it's very odd that for the price of a cup of coffee, you could get a newspaper." But today it's difficult to do that, even if you eschew Starbucks for 7-Eleven. The coffee industry has figured out a way to charge more, he says, and the newspaper industry hasn't. "But the Internet has been the greatest offender of a common-sense business model."

If publishers have highly differentiated content, it's still a significant challenge to suddenly ask for money after spending years "devaluing the brand" by making it available free, Crovitz says.

While the New York Times used to give away the words of such big-name brands as Maureen Dowd, Thomas L. Friedman and Frank Rich, the paper may have gained immeasurable value by getting its columnists in the hands and inboxes of people around the world, people who won't necessarily spend money for that access.

Plus, there's the exposure bloggers give to op-ed pieces and traffic they drive to the site. But Martin Nisenholtz says he doesn't "see that as a huge issue at this point." He and Scott Heekin-Canedy, president and general manager of the New York Times, point out that while the columns are part of TimesSelect, scant attention has been paid to the services the company has packaged in this deal. Most valuable among them: access to the archives.

Nisenholtz says the Times' online users have been asking for more seamless access to the archives for 10 years. Some wanted it to be free, of course. "But that's just not realistic." TimesSelect also gives subscribers advance access to weekend features; use of the News Tracker, an e-mail alert system matched to readers' interests; and Times File, a tool to save articles and pages from the Times' and other Web sites.

Kinsey Wilson, vice president and editor in chief at USAToday.com, says he thinks that offering services that people value, rather than content, will be the key to prompting them to pay. "As audience behavior changes and with that as ad dollars shift and as the Web allows others to get into businesses that were once the dominant preserve of newspapers..we may find that newsgathering as a discrete isolated function is not by itself a sustainable business. On the other hand, it never was," Wilson says, adding that television networks depend on entertainment programs and newspapers use classifieds and consumer services to attract audiences.

"But I think all that means is we need to find some combination of news and other services that come together to support the newsgathering function," he says. Wilson elaborated in an e-mail to AJR: "It's evident people will make substantial outlays for certain services, given the appeals of things like dial-up Internet access (AOL), cable, enhanced phone services, mobile offerings, broadband, VOIP [Voice over Internet Protocol] and so on."

Wilson, however, sees online content moving away from the paid model. "I think both within the realm of news, and if you look at what's going on with music and other forms of information that are being shared on the Internet, the tendency is toward cheaper or altogether free offerings," he says. The business model of choice, Wilson says, is an advertising-supported one.

Newspaper companies have been thrilled with the recent online advertising growth, touting the double-digit numbers. Poynter's Rick Edmonds wrote in a column that Web advertising spending has grown 30 percent to 40 percent in the past few years at mid-size and larger papers. (But remember, online ad budgets started at zero not that long ago.) Edmonds used recent newspaper industry statistics to project that online revenues wouldn't equal or surpass print revenues at such papers until 2018 if the online ad growth continued at this rate.

In an October report, Morgan Stanley calculated that online advertising spending in 2004 averaged $145 per U.S. household with Internet access, while spending on newspaper ads was $674 per newspaper home. If readers do make more of a shift from print products to online or digital news, the Internet ad dollars would need to multiply at a much faster pace.

Despite the current disparity in spending, Doug Feaver, former executive editor of washingtonpost.com, says "it's certainly feasible" that advertising alone could support the online news business. "Television has survived that way forever. Everyone likes to have a little diversification in terms of where the revenue streams are," says Feaver, who teaches online journalism at Ithaca College. "As you go forward into this new world of electronics, I think [not having subscription revenues] worries the traditionalists," who are accustomed to that additional flow of income. The question is, "if you're giving something away that you used to charge for, are you destroying your business?... There's less concern over that than there was."

Even Dow Jones doesn't believe solely in a paid subscription approach. Beyond OpinionJournal.com, which gives away Wall Street Journal editorial page content, the company offers free sites such as CareerJournal.com and RealEstateJournal.com, and it got a big boost in online traffic by acquiring MarketWatch in January 2005 (see "Dotcom Bloom," June/July). Internet acquisitions are certainly becoming part of big media companies' business models: Recent ones include the New York Times Co.'s purchase of About.com and Gannett/Knight Ridder/Tribune Co.'s stake in Topix.net.

While the Journal offers business news, Crovitz says Dow Jones bought MarketWatch to get into the personal investor news market. But the purchase also gives the company a larger online audience across its collection of Web sites, which leads to higher advertising rates. "We have subscription," Crovitz says, but we "also have as much scale as anyone" serving this audience. (Translation for the non-online-executives out there: An awful lot of people visit their Web sites.)

Dow Jones Online's sites attract 9 million unique visitors a month, he says, and that level of audience is very important in "interests-based targeting." That's the Big-Brother-like and highly lucrative way of knowing that someone's reading a car review and then popping an ad for a Lexus on his or her screen, not right that minute in a too-obvious way, but a few page views later.

Caroline Little at Washingtonpost.Newsweek Interactive says her company is starting to use that kind of ad targeting technology on its sites, too. Little says that while classified and certain types of display advertising are doing very well, it's still a challenge to explain the benefits of Internet advertising to local businesses. "Radio's still very strong in communities. We haven't seen the kind of migration [to the Web] that we've seen with other advertising," she says, noting that about 4 percent of all ad spending goes to the Internet right now.

The ad market may be a challenge, but Little doesn't see a subscription model saving the day. "Advertising is very strong and has been very successful in helping us move forward," she says. "What is so critical to us right now is growing our audience."

Washingtonpost.com, which attracts about 80 percent of its visitors from outside the Washington, D.C., area, launched registration in the spring of 2004. In order to read articles on the site, users create passwords and enter their names, addresses, birth dates and job titles. (NAA's Runett maintains a list of about 100 newspaper sites that require registration.) Those tiny pieces of demographic information are very valuable for the advertisers, says Little, who views registration as the price of admission. There are liars, of course the Post has readers who claim to live in Antarctica but Little believes there'll be less of that as people get more and more used to registration. Advertisers need to get more used to the online world as well. Runett points out that the ad rates online are very low, "unnecessarily low I would say in some cases." And Edmonds recalls the wary comments of a woman from Best Buy, talking to newspaper folks at an NAA event. Research shows mos!
t of the people who come into the store are familiar with the company's Sunday newspaper inserts, she said.

Such advertisers are interested in newspapers continuing to be successful, Edmonds says. "They're not real gung ho on trying to implement that online." As far back as 1981, Roger F. Fidler was talking about ways newspapers could be distributed digitally. In the early '90s, he was carrying out his work in a lab in Colorado funded by Knight Ridder, developing an electronic newspaper to be read on a tablet-like device. He called it a "personal information appliance." Fidler predicted that this device would begin replacing newspapers by 2001 and be in the hands of half of the nation's newspaper readers by 2010.

The industry was skeptical, and it didn't happen at least not the first part of his forecast. "I had expected the display technology would develop faster than it did," Fidler says. But the 2010 prediction is "still a possibility."

Fidler who jokes that his tombstone will probably contain something that says "the tablet guy" has continued to work on a format for a digital newspaper that would present news and ads in the same serendipitous way as the print product, something that looks like the paper but with hyperlinks, video and sound. The concept now has a much cooler name eMprint, short for Electronic Media Print and Fidler is testing it as director of technology initiatives for the Donald W. Reynolds Journalism Institute at the Missouri School of Journalism.

Like most of those interviewed for this story, Fidler doesn't believe print will completely vanish, but he doesn't think it will be the dominant delivery mechanism, either. "Over the next 10 or 20 years, digital products will be the major source of revenue and profit for the industry," he says. His experiments at Missouri provide some hopeful signs for the digital newspaper industry. In the spring the Columbia Missourian, a community newspaper that's affiliated with the journalism school, offered a Sunday eMprint edition to about 5,000 people for 10 weeks. Not only did readers find it an enjoyable way to read the paper (and most were reading it on laptops), Fidler says, but "we sold out all the advertising in the eMprint edition during the field test... It was actually a profitable product right out of the door."

On the Web, Fidler explains, advertisers feel their ads get lost easily, or are ignored by readers. eMprint is more like a magazine. "People are more receptive to whatever they encounter as they turn the page," he says, be it an ad or a collection of stories. The Columbia Missourian relaunched eMprint in September, producing a free Wednesday and Sunday electronic edition, available at columbiamissourian.com/emprint. Fidler believes digital editions of newspapers would need to be sold at much lower prices than the paper products people know there are no newsprint or distribution costs, after all but he sees some subscription fees on the horizon. "I don't have any magic solutions to the problem," he says. "But I think the days of giving away all of the content of the newspapers on the Web are numbered."

Another futurist, Russ Wilcox, chief executive of E Ink Corp., predicts an auspicious outcome for newspapers as well. E Ink has developed a paper-like video screen, and in a washingtonpost.com chat in October, Wilcox said newspapers would give their subscribers this device free, a new-world scenario that could spring up by 2015. He touted one clear advantage to this type of delivery system: "[B]ecause space is infinite there will hopefully be more room for thoughtful pieces, longer pieces, the kind that a journalist wishes he or she could do but doesn't have the space."

That is, if the news company has a robust business model to support it.

Contents Copyright 2004, American Journalism Review. All rights reserved.


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