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.

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Here comes the summer of paid content: Steve Brill tells me that his pay-for-news startup, Journalism Online, will soon announce deals with several newspapers to — in many cases, for the first time — charge readers for some of their digital content.

“We’ve signed a couple, we’re going to sign some more, but we’re sort of holding off on making any public announcements about that, probably for three or four weeks,” he said in a phone conversation from his New York office yesterday afternoon.

Brill’s firm, which he launched in April with media magnates Gordon Crovitz and Leo Hindrey, is pushing a “common platform” for news websites to charge annual, monthly, and per-article fees. They believe publishers, by offering a mix of paid and free content, can wring subscription revenue out of 5-10 percent of their existing monthly visitors while maintaining 88 percent of page views and 91 percent of ad revenue. That, at least, is the pitch Brill made to leading newspaper executives who gathered in Chicago on Wednesday at the O’Hare Hilton.

We’ve obtained the slides from that presentation, and you can follow along right here:

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Even as he leads newspaper publishers toward charging for their websites, Steve Brill remains skeptical of one oft-mentioned model for making money online: micropayments. In our conversation yesterday, he told me that his startup, Journalism Online, isn’t expecting newspapers to reap much revenue from per-article fees, though readers will have that option.

“I think that people really want…the convenience of just having a subscription as opposed to stopping and buying something,” Brill said, later adding, “My gut is that subscriptions will win the day, but I don’t want to bet on it because I could be completely wrong.”

In the slides we presented earlier today, Brill’s calculations assume very little business from micropayments: just 5 percent of paying readers purchasing six articles a month at a quarter a pop. For a site like The New York Times, given some of Brill’s other assumptions, that would generate $900,000 to $1.8 million a year in revenue — before Journalism Online and perhaps a third-party vendor like PayPal take their cuts. “We don’t think micropayments are going to be a huge part of this deal,” Brill told me, “but who knows? That’s the whole point of trying everything.”

A common platform like the one under development at Journalism Online could help micropayments catch on since readers would need just one account to buy news across many sites. “They’ll just have to do it with one click because they’ll have a password,” Brill said. “They won’t have to set up an account every time they want to spend for an article.” On the other hand, there’s little overlap between the markets for paying readers of, say, The Philadelphia Inquirer and The San Francisco Chronicle. And while the 25-cent-per-article price point in Brill’s slides is just hypothetical, it’s worth noting that you can usually pick up the entire Boston Herald for a quarter at most commuter hubs around here.

For a comprehensive background on micropayments, see the arguments in favor by Scott McCloud and, more recently, David Carr as well as the ultimate micropayment takedown by Clay Shirky. Steve Outing also generated a lot of buzz in February with his piece on a micropayment system called Kachingle. He provided a quick update on that and a few similar platforms in a comment at my earlier post. (Thanks, Steve!)

Photo of newspaper box by Steve Rhodes, used under a Creative Commons license.

It’s happening. Yesterday we revealed Steve Brill’s latest moves toward charging readers of newspaper websites, and separately, Philadelphia Inquirer publisher Brian Tierney said he would erect an online pay wall by the end of the year. Those developments followed similar statements by executives of Hearst Corp. and MediaNews Group, among other newspaper companies.

As these paid-content models develop, a key question is how the broader news ecosystem — of blogs, radio, TV, and mediums still unknown — will react to the opportunity. That subject came up in my conversation with Brill on Monday:

Me: There’s certainly a working theory out there that the minute any of those big-city papers start charging, they’re going to encourage competition that they don’t currently have. That the free blogs that are much derided now for not providing reporting will, in fact, you know, begin to put up much, much more competition—

Brill: Why? Why will they be able to? How are they going to pay for it?

Me: Perhaps by starting with a model that is, you know, that isn’t a 150-person newsroom, and so even if the end product is not as good, it’s free, and that’s sort of the hardest thing to compete with.

Brill: But again, if what you’re striving for is to get the 5 or 10 percent of your most committed readers to pay, then you can afford to have that happen. And you can’t afford not to do it.

That’s just a taste of our 23-minute chat, which you can listen to below (or download here). Much of my interview with Brill focused on slides he presented to newspaper executives last week, which I’ve embedded again after the jump. There’s also a full transcript of the conversation with some references explained by links.

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When newspaper executives met in Chicago last week to discuss new business models for the industry, they expected to hear from Steve Brill about his well-publicized venture to charge for online content. But the executives were surprised by a last-minute addition to their agenda: Alan Mutter, a veteran newspaper editor and entrepreneur widely known as the Newsosaur.

Mutter and his business partner, Ridgely Evers, are pitching a targeted-advertising and e-commerce system that, in an intriguing twist, would be owned by the newspaper industry. They are, essentially, seeking venture capital from publishers “who would gain a permanent, preferred share in the future profits,” according to a two-page document distributed at the Chicago meeting. We obtained that briefing and called up Mutter to see what it was all about.

Behavioral targeting

“We just introduced this idea a week ago, and nobody really knew what we were doing until we got there,” Mutter told me in a long telephone conversation yesterday from San Francisco, where he has held camp since 1995. He described the core of their venture as an online advertising solution in which newspaper companies and other publishers would share data on the demographics and reading habits of individual users to serve highly targeted ads based on that information.

If that sounds familiar, it’s because plenty of ad networks do forms of behavioral targeting, which has long been considered a holy grail of advertising. Mutter readily conceded, “It’s not like we’re inventing electricity,” but said his venture, called ViewPass, would be different for several reasons.

Perhaps most importantly, if ViewPass is able to raise capital from newspaper companies, it would be an industry-owned company with higher profit potential. He contrasted that with Yahoo’s targeted-ad system, APT, which has gained popularity among local news sites but takes, according to Mutter, a roughly 50-percent cut of revenue. (In fairness, Yahoo provides a lot of its own traffic for those targeted ads as part of the arrangement.) “The industry needs to own its own data,” he said. (In a follow-up conversation after this post went up, Mutter noted he doesn’t view Yahoo as a competitor.)

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Remember? Two months ago, Associated Press chairman Dean Singleton said his organization would take a firm stand against unlicensed use of its content and that of its members. “We are mad as hell,” he declared at the AP’s annual meeting in San Diego, “and we’re not going to take it any more.”

Singleton is a newspaper man. His first reporting gig came as a teenager in Graham, Texas, and now he’s in charge of MediaNews Group, the nation’s fourth-largest newspaper company. So, of course, he knew that channeling Howard Beale was certain to find its way into every article and blog post about the speech. That’s why he said it, and that’s how most people learned of the AP’s supposed crackdown on piracy of its work. (Watch the meeting here, or listen to the magic words below.)

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Here’s what followed: Google was said to be a major target of the speech, even though Singleton didn’t mention the company or even the phrase “search engine.” News aggregators were also assumed to be in the crosshairs, although The Huffington Post, like Google, is a paying customer of the AP. Everyone was very angry, and nuance seemed to be lost amid all the saber-rattling. Since then, the AP has done little to clarify whom, exactly, its mad at or how it plans to address that anger.

Shift the tale to New York, three weeks later, at the headquarters of Thomson Reuters, where a slew of major news organizations — but not the AP — gathered to consider a new tact in combatting online piracy. Reuters and Politico were already on board. So was every member of the Magazine Publishers Association.

They proposed banding together as the Fair Syndication Consortium with an innovative approach to combatting the true tapeworms of the online news business: not Google, certainly, or Arianna Huffington, but wholesale copiers of content. The consortium is targeted, in part, at spam blogs — or splogs — that reprint news articles and posts in their entirety alongside cheap advertising. Splogs are typically automated, and the only human being involved is the one who gets a check at the end of the month.

What the consortium seeks to do is turn tapeworms into fungus. They don’t want to shut down splogs and their ilk, which would be a largely sisyphean task of enormous cost. Instead, the consortium is negotiating with the networks that serve ads against pirated content to negotiate a substantial share of that revenue. Keep reading »