Four observations about charging for news that are often overlooked

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Four observations about charging for news that are often overlooked

Yesterday’s meeting of top newspaper executives in Chicago, where they considered ways to charge for content online, has reignited the often-passionate discussion of whether news sites could generate subscription revenue from readers. Plenty has been written about the futility of erecting pay walls — much of which I agree with — but a few points are often overlooked. So here we go:

1. Newspaper companies that attempt a pay wall imperil their value. Sorry to put on my French cuffs here, but this is an important point: With so many local newspapers on the brink, it’s fair to assume they have only one more chance to find a revenue stream in online subscriptions. And until they make that last attempt, investors can all be hopeful about the prospects of charging for news online.

That hope is currently priced into the stock of Gannett Co., The New York Times Co., News Corp., McClatchy, and every other publicly traded company with hobbled newspapers on their hands. If they try and fail to erect a pay wall, their already-flimsy valuations could evaporate as investors decide there’s no hope for newspapers to find a new business model.

And keep in mind that many of these companies would still like to unload some properties on private investors who are more bullish about the newspaper business (the Sam Zells of 2009). That’s a lot harder to pull off if it’s plainly evident the papers won’t be able to wring any subscription revenue from their onine readers.

2. Pay walls aren’t necessarily intended to generate revenue. It’s counterintuitive, but charging for the website may be an effective way to protect the print edition, which still provides 80-90 percent of income at most newspaper companies. In fact, MediaNews Group’s president, Jody Lodovic, recently told Editor & Publisher that while the company plans to erect pay walls, it doesn’t expect a windfall from them. “The whole idea is to stop the erosion from print to online and encourage people to become print subscribers,” she said.

It’s obviously not a great longterm strategy. But when we consider whether pay walls will work, it’s important to realize that newspaper executives may have a different definition of success here.

3. “It’s not pay wall/no pay wall.” That’s a quote from Alan Murray, executive editor of The Wall Street Journal Online, whom I interviewed last month on this topic. Murray’s point is that an effective model — or, at least, the Journal’s model — for charging online pinpoints exactly what content readers are willing to pay for and leaves the rest free. And in that sense, “pay wall” is a total misnomer. Not a serious suggestion, but maybe we should call it a pay window?

Last month, Times Co. CEO Janet Robinson said this about pay walls: “Our goal is to add substantial new revenue from our users, without materially affecting our leading display advertising business.” To me, that means the Times is not planning to charge for much or any of the content it currently produces but will ask select readers to pay for extra services that don’t yet exist. That’s like pay molding.

4. Even if pay walls are the future of newspapers, they aren’t the future of news. Newspapers face a very specific financial situation that’s driving their choice to charge for content or not. These companies are giant ships with dim prospects for quickly turning around in this economic tempest, so naturally they will turn to stopgap measures. It would be a mistake to read much more into it than that.

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Justin Ellis February 2, 2012

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missingthepoint

Sorry to be dense, but what does the phrase “put on my french cuffs” mean? I’m a native English speaker, but I’m totally unfamiliar with this expression.
http://jennamcwilliams.blogspot.com JennaMcWilliams

Wow. Awesomeness. This is my favorite item of the day. I’m especially fond of item #4: Even if pay walls are the future of newspapers, they aren’t the future of news.

We know enough by now to know, almost intuitively, that this is spot-on. Play newspapers on, Zachary M. Seward.
Zachary M. Seward

Hah, sorry, it is not an expression, just a reference to bankers who, at least stereotypically, wear French-cuffed blue shirts with white collars.

And thanks, Jenna! —Zach
http://sequelstudio.com Paschal Fowlkes

I wouldn’t necessarily disagree with this but most of it, as you say, has more to do with short-term care of dying institutions.

If newspaper brands can survive to be bought, or to eke out another few years of print viability, it’s only going to prolong the inevitable. On the other hand, if they can identify those aspects of their relationship with readers where they provide relatively unique value, they just might be able to rethink the distribution model to one that makes sense to all sides. Not an easy task to be sure, but the more they think of themselves as newspapers rather than content providers the sooner they will find themselves facing true obsolescence.

Murray’s absolutely right about the pay wall. In our work with consumerreports.org we thought of it more as a “pay fence,” carefully positioned to allow for a useful free experience while clearly communicating the value of the content beyond the wall.
Zachary M. Seward

Pay fence, yes! Much better than my attempts. Thanks, Pashcal.

And this important comment came in via Twitter from Ryan Pitt of The Spokesman-Review: “Another thing often overlooked: Pay walls aren’t free. They cost $$ (& time!) to build, maintain, provide customer service for.” Very true, and thanks. —Zach
http://thatshallowfellow.wordpress.com/ Drew

Pay-to-surf can work, it simply requires

1) a unified system built right into the browser that ALL sites use (and that gives a user a common resource for how much they’ve spent/will spend), instead of unique registrations per site
2) a realistic cost per article (and we’re talking something even less than a penny) rather than the concept of a subscription per site. 10c per article, as some have proposed, is insanely high scaled up all over the internet
http://www.kalemm.com Karsten

Since news has become so abundant that it’s now almost worthless in and of itself, the way I see it, charging for websites — pure Internet offers — will only drive people elsewhere.

Give them something like the New York Times Reader, though, but with more added value (time savings, convenience, etc.), and media companies might be able to charge money again. Also, the move away from PCs to mobile, e-readers and, later, the digital living room will help, of course, as it opens up a slew of new revenue opportunities — all better than charging for something on the Web that’s currently free.
Joey

Look, if newspapers want to get serious about charging for content, they need to collaborate with Dell, Apple, MasterCard and Visa to include some tap-and-pay technology so people can easily ding their credit cards against the laptop and get nicked $0.50 per article.

It’s easy enough to nickel-and-dime people; we do it with the EZ-Pass on the turnpike all the time. It’s only hard when you *make them aware* of it. Pulling your wallet out and keying in numbers does that.
Zachary M. Seward

Drew and Joey, if you haven’t seen it, I’d recommend Clay Shirky on “Why Small Payments Won’t Save Publishers.” He may not be right, but it’s a good place to start the micropayments discussion. In general, I’m skeptical of these plans without seeing them in action and don’t think iTunes (which sells goods you can keep and enjoy forever) or EZ-Pass (which is a government tax) are analogous to newspaper consumption. But I’d love to be wrong and am eager to learn about any pay-for-news plans that might work.

Karsten, it does seem like the Times has a chance to charge for content on devices other than the traditional web browser. Times Reader is currently free for print subscribers (and no one else) but could probably be sold as a standalone product. Similar situation with the Kindle, other e-readers, and devices not yet invented. One advantage in those cases, as my boss Josh has argued, is that the owners of, say, a Kindle have already shown themselves willing to shell out a lot of money to access information and are probably less reluctant to pay for news as well. It may be a small market, though.

Happy to keep discussing this over the weekend. —Zach
http://jennamcwilliams.blogspot.com JennaMcWilliams

Hey: 4. Even if pay walls are the future of newspapers, they aren’t the future of news.

Okay, what IS the future of news?
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Zachary M. Seward

But, Jenna, it’s so much easier to say what isn’t the future of news!

It’s a fair question, and I’d like to think you’re at the right domain for venturing an answer, but I wouldn’t presume to try it in a single blog post, let alone a blog comment. One piece I’m thinking about this weekend is paidContent’s report on Steve Brill, et al.’s plan to charge for portions of newspaper sites. Their figures look overly optimist, at first blush, but I want to get more details. —Zach
http://gobalmojo.org stephen quinn

Useful article, Zachary. In point 2 you say “… the print edition … still provides 80-90 percent of income at most newspaper companies”. May I have a source for that, please?

And are you referring to all newspaper companies worldwide, or newspaper companies in specific countries or regions such as the US/North America? And are you referring only to daily newspapers?
Cheers,
Stephen Quinn in Australia
Zachary M. Seward

There’s a particular study I was thinking of when I wrote that, and I’ll get it for you when I’m in the office on Monday. Until then, the Newspaper Association of America reports that in 2008, online advertising accounted for just 8.2% of total ad revenue. There’s also circulation revenue, of course, but that skews even more heavily toward print.

Either way, I was just referring to U.S. newspapers, though the situation is similar in most other countries. (European newspapers get more of their revenue from circulation. Don’t know much specifically about the breakdown for Australian newspapers.) Thanks for keeping me honest, Stephen. —Zach
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BD

is the pay wall really going to do anything for the newspaper companies.
tbone

Welcome to the free society

Web people forget…They have no money…No revenue to pay for the free content they get from the print side.

What future business model will work if the pblic doesn’t pay for the news.

What new business model will support enough staff to have the quality of news the web now gets for free.
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Jon Donley

re: 2. Pay walls aren’t necessarily intended to generate revenue.

It’s not counterintuitive, but it is wrong-headed . . . part of the group-think that is endangering journalism by tying it to the factory that is a modern newspaper.

Anyone digging into the history of the collapse of newspapers knows that the decline began two generations ago, in the mid-50s. The acceleration of that decline far preceded the Web. The industry was worried enough to spend decades grasping at the next program or technology to win back or win over Boomers and their descendants who flocked away from newspapers. Many pioneering newpaper web sites did have pay walls, and used online content as a hook for subscription sales. Putting editorial content on the web did not take newspapers down . . . . decades of rapacious business practices in business classifieds and advertising, in an attempt to continue one of the highest profit margins of any industry, did that quite well.

And the web provided an enticing, and much better, solution for aggrieved advertisers, especially in the real estate, employment and automotive categories. Real estate organizations and auto dealers, especially, found they didn’t need newspapers. That was the gun to the head of newspapers . . . not free content.

If it were true that a local newspaper, by putting free content on the web, harmed its circulation, then there would be only one logical answer: Shut down the web site. If the point is to save the newspaper print factory, with its huge expenses in raw materials, production, delivery and other costs that are NOT this vaunted valuable editorial content, then the only answer is to focus all resources on the print factory. The web site is a drain.

If you believe in horse-drawn carriages as your business model, why give even a nod to providing your customers with toy automobiles. Tell ‘em it’s the carriage, darn it, and they’d better keep buying them, or they’re going to lose the ability to travel from one spot to another.

I’m sure, faced with such an ultimatum, readers will flock to subscribe to the paper, whose content they value so much.

Or, newspapers could face up to some soul-searching about what they REALLY produce of value, shut down the print factory and get on with the business they profess to be in . . . the origination and distribution of quality journalism. No one is going to come up with a business model to save journalism until they model the right business.
Zachary M. Seward

Jon, thanks for the eloquent comment. —Zach
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http://www.gfo.me Jeevan | GFO

If they make 80-90% of their revenue from printed editions then why bother charging for online content? I don’t see a future in this for them.
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