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Paying for online news: Sorry, but the math just doesn’t work.

The morning’s RSS scan brings another couple of entrants in the ongoing conversation about paying for news on newspaper web sites:

  • As Roy Greenslade reports, News Corp. chief Rupert Murdoch favors charging: “People reading news for free on the web, that’s got to change.”
  • And in an AJR article by Paul Farhi questioning the wisdom of AP’s decision, years ago, to start selling its content to online-only publishers, AP president and CEO Tom Curley is quoted as favoring reader fees, as well: “The readers and viewers are going to have to pay more.  Advertising is not there. Advertising will likely be contracting. So there has to be a shift. If I had tried to suggest this a couple of years ago, I’d be hollered out of the room. Last year the realization started to occur. I would say the conversation has now turned from a whisper into a roar. Media CEOs are saying, ‘I’ve got to charge.’”

OK, newspaper CEOs, let’s have a look at that urge to charge you’re roaring about every morning when you wake up.  I ran some numbers derived from the NAA’s just-reported 2008 newspaper revenue recap.  Here’s what the back of my envelope says:

Total 2008 newspaper online revenue was $3.109 billion. Newspaper sites averaged 67.3 million monthly unique visitors in 2008, nearly all of them to free content.  Now suppose a switch were turned, and each and every newspaper started imposing a monthly fee on all those visitors. Whether in the form of a monthly subscription or micropayments, clearly, the UV count would drop significantly.

I assumed that an industry-average $1-a-month fee would reduce traffic by 30 percent, $2 would knock off 50 percent, $5 would chop out 70 percent, $10 would say goodbye to 90 percent, and $25 would wipe out just about all of it.  And further, I assumed that the 2008 ad revenue level of $3.109 billion would be reduced by the same percentage as the visitor reduction (which is probably a generous assumption).

So the question becomes: Will the new monthly fees offset the lost ad revenue?  Here’s what happens:

  • At $1 a month, with viewer retention of 70 percent, subscription revenue would be $566 million.  But ad revenue would drop by 30 percent, or $933 million, for a net loss of $367 million.
  • At $2 a month, with viewer retention of 50 percent, subscription revenue amounts to $808 million.  But newspaper sites would kiss away half their ad revenue, or $1,555 million, for a net loss of $747 million.
  • At $5 a month, and 30 percent of visitors sticking around, subscription revenue swells to $1.212 billion.  But 70 percent of ad revenue, or $2.173 billion takes a walk, cutting the net by $946 million.
  • At $10 a month, sites retain just 10% of visitors, who pay a collective $808 million for the privilege, but 90 percent of ad revenue ($2.798 billion) flies the coop, leaving newspapers poorer by $1.990 billion.
  • At $25 a month — well, I won’t bother with the arithmetic.  Make your own assumptions, but nearly all the ad revenue goes away and viewer fees don’t replace more than a small fraction of it.

Are these viewer retention assumptions valid?  Granted, they come from the top of my head.  If you disagree, make your own assumptions; the math is simple.  We don’t have a lot of real-world before-and-after figures from news sites that have imposed fees.  But we know, for example, that the New York Times’s 2005-2007 Times Select experiment drew 227,000 paying customers at an average of about $3.70 a month (based on reported revenue of $10 million a year), at a time when the Times’s free content was drawing 13 million unique visitors a month — a conversion rate of less than 2 percent.  Or consider that the Wall Street Journal has about a million paying subscribers at $8.66 a month, versus 14 million monthly UVs at the free New York Times site.  Print circulation for the two are roughly equivalent, but the Journal’s fee cuts its online audience to just 7 percent of the Times’s.

Based on this, retention rates as high as those I’ve modeled don’t look attainable, and retention high enough to increase net revenue is plainly not in the cards.  (To get a net gain at a seemingly reasonable $5 a month rate, retention would have to be about 45 percent.)

A simple tollbooth approach at any price cuts out the vast majority of the audience, and would mean that newspapers were retrenching to print — saying in effect, “If you want our news online, it’s there, just pay the fee, but we’re no longer investing much energy in developing our sites, because there’s no money on that side of the fence.”  A newspaper industry retrenchment to print would mean a withdrawal from competing online.  The game would be to squeeze the remaining profits out of print while the clock runs out; while readers continue to migrate online, now to non-newspaper online-only sources; and advertisers follow the audience to the Web.

For newspaper firms to survive, they must become fully digital enterprises, engaging a broad audience online without barriers — although they may be able to charge for some very high-value content that goes beyond their core site offerings (see, for example, GlobalPost’s $199-a-year Passport service).

Daily print is not a long-term sustainable model, and forward-looking newspapers, rather than exploring an online paywall, should explore transitioning to a once- or twice-weekly frequency, focusing their print efforts on a weekend edition distributed Friday.  (Explore my prior musings about this for more.)

UPDATE 4/05/08: Dutch blogger Marc Drees of Recruitment Matters has posted recap and commentary of this post, including a very nice graph summarizing my results:

(Red=paid content; Blue=advertising income; first column=present, 2008 baseline revenue per NAA)

image-thumb17

                                   
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Joseph Lichterman    April 22, 2014
Four-year-old startup Benzinga is growing thanks to a free consumer site, a paid news wire, and online financial service marketplace.
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  • http://www.ellisbenus.com Ellis Benus

    tutsplus.com has several websites. They charge $9 a month for the plus version. It’s worth it. If the news was worth it, and we didn’t all feel it was biased crap, we might pay for that too…

    But know that in a recession the revenues are probably even lower, and people cut subscriptions, newspaper, magazine, online, as one of their first cutbacks. Just for future notice.

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  • http://mediumrun.blogspot.com Michael Andersen

    So I’ve all the comments on this first-rate post, and I have to observe that everybody, including Martin, seems to be making an assumption: that the only content that might be placed behind the pay wall would be some sort of content already offered by newspapers.

    Wouldn’t it make much more sense to create new varieties of niche-y stuff, then put that behind the pay wall?

    Wouldn’t that totally shake up this Etch-a-Sketch?

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    Michael, I wrote: “…they may be able to charge for some very high-value content that goes beyond their core site offerings…” So I agree with you — it needs to be new, high value, incremental content. One way to start: instead of burying content forever in archives priced at $3.95 per article, hard for users to find and generating very few sales, why not sell a $3.95 monthly subscription providing unlimited archive access, and offer links to relevant archive stories with every current story. (Hyperlinked inside stories, even!) Then add access to other extras — photo and video archives and outtakes, full interview transcripts, and the more niche-y content you suggest, which could include things people are willing to pay for elsewhere: a weight-loss site and online cooking lessons from local chefs come to mind.

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  • http://www.quotidiano.net Cec

    I believe that a single newspaper will rarely manage to convert a significant portion of its online readers into paying users.
    There can be exceptions in case of highly respected brands like WSJ or FT which in theory provide “unique” content, but the average newspaper will not be able to convince its readers to pay for content which can be found elsewhere for free.

    On the other hand what would happen if all the newspapers would create a consortium and sell subscriptions jointly?

    It could be a bit like a cable TV bundle where, instead of a bundle of film channels to be watched on TV, we would have a bundle of online newspapers to be read on the web.
    This consortium could also negotiate special deals directly with the internet service providers, shutting off those ISPs which do not accept the model.
    ISPs could embrace the model because it could bring them additional revenues, since they could be the prime sales channel of the subscriptions and keep a share of the transactions.
    It is probably a crazy idea (very very difficult to implement), but I would like to hear some comments about it.

  • http://toughloveforxerox.blogspot MichaelJ

    Cec, the problem is “This consortium could also negotiate special deals directly with the internet service providers, shutting off those ISPs which do not accept the model.”

    The power player is the internet. Newspapers can’t force the internet to do anything.

  • http://www.quotidiano.net Cec

    I found the article “Is the Free Web About to Expire?” on PCMag.com which elaborates a bit more on the same concept if I understand it right.

    http://www.pcmag.com/article2/0,2817,2346956,00.asp

    Brief extract:
    “…newspapers actually do get their act together, convince Congress to loosen monopoly laws, and then work in concert to create a fixed online menu of content prices. With all this once-free content behind a pay gate, one would assume that smaller news sites and blogs—even citizen journalists—would fill the free gap. Not so fast. The safety nets provided by companies with deep pockets and the patience to let a platform build its revenue base are no more…”

  • http://toughloveforxerox.blogspot MichaelJ

    Putting a fence around content is like putting a fence in the ocean. I just don’t see it. No matter what Congress does. On the other hand outdated anti-monopoly laws will probably be changed. It’s just not the answer for content creators.

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  • Jack

    I think if news sites start charging users will completely avoid it and watch tv news instead which most of them pay monthly fees to cable companies. Tv news rating would be booming. Online users do not just visit one news site, they visit many news sites. I think feed reader like http://newscombined.com will help some users read just the headlines.

  • Mark

    I won’t even pay $1 a month for Wired Magazine, which is right up my alley, totally rocks as a publication, keeps me informed about cool stuff, feeds me creative ideas, and lets me sound informed at the water cooler. I just don’t have the time to read it, and kissing $12 a year byebye annoys the hell out of me, so no.

    And Murdoch thinks I’m going to be willing to pay to read AP reports, or his equivalent? No way.

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  • Edward Jones

    If you read more than one newspaper then it does get expensive. If you Google the title line of the story you can usually find it somewhere else on the web for free.