I am running late. My prototype should have been live and locked on its URL by now. March was supposed to be the month I began meeting with potential partners and investors, refining the project’s design and business model, and going public with the name and exact nature of the website. But the past four weeks have decidedly not brought me from my planned Point A to Point B. It has also been an incredibly busy and potentially very fruitful phase for my project. Credit and blame can both be pinned on that rock’n'roll tech startup concept: iteration.

I don’t think I’d ever said out the I-word out loud in my life before six months ago, though any hack worth his salt and barstool is used to iterating on a regular basis. It happens when you’re just about to wrap your daily story, and a big break in the news suddenly arrives; or when your month-long in-depth piece is just coming together, and the big interview you’d long since given up on finally comes through. In such a moment, a major reset is in order on something that had been going perfectly well, thank you very much. And so you curse through the hard work of integrating/revamping the best of the old with the fresher (better) material. In the end, however, the kick-ass hack is always thankful because she knows her article will necessarily be much richer in its new, updated form. And responding to events is, after all, a big part of what this nutty job is about.

As a first-time (would-be?) entrepreneur, iterating doesn’t come quite so naturally. That create-destroy-repeat ethos suddenly feels radical, a well-executed pivot being always harder to pull off when you’re still getting your bearings. With that said, you’d have to be more than a bit dim not to see that the lightning pace of change in media and technology right now means that the only straight line from Point A to Point B is where B is failure.

The iterating for me lately has mostly been around the question of audience, both how to identify it and how to grow it. Let’s start with the latter.

Building an audience and the birth of a one-man news bundler

I’m still finding my tweetin’ voice, but we MSM folk are starting to grasp what the real-time feed may mean for the news business. Based in Europe, and with most of my followed-and-followers in the U.S., I’d started to see how my geography and language skills position me to get some breaking news into the Twitter stream ahead of the crowd. Still, I’d been content to treat it like an ongoing mini-exercise in improving my speed and range and eye for news that would be useful when launch time arrived.

Yet, there I was one morning last month about to retweet some bit of French burqua-ban news when another interesting story popped up from Germany, and I thought: Hmmm? Let me try to squeeze these two world news items together into one tweet. But with 140 characters to work with…well, good luck. So I put the two links aside into a Word document. And then it hit me: Why not expand the two links into five…and bundle them into a “Top Headlines From Jeff” post? I could post it on my blog, and link to it once a day. But then it hit me again: If timing is everything, that’s doubly true on the real-time web, which is bound to create new niches in the ways and whens of how we consume information. With my time-zone advantage and news biz experience, I could bundle and deliver a story list early, like at 7 a.m. Eastern, composed solely of news that has broken since 11 p.m. Like Slatest, but more time-specific, and aimed specifically at helping to sort through the endless stream of news flashes coming across your Facebook and Twitter feeds. I would take the established practice of aggregating from everywhere, and combine it with what seemed the novelty of a bundled selection of the news that has broken since Americans logged off last night. Exactly three weeks old, this has become whileUslept.

Unfortunately, coming up with an idea — half or fully baked — is no more than one-third of the battle in building an audience. You gotta get it to them, spread the word, go viral…and keep it going. I began posting the daily link on my own personal accounts, and in the last few days set up While U Slept pages of their own on Twitter and Facebook. It definitely did not catch on like wildfire. After two weeks, I had exactly three email subscribers, and a best-day grand total of a whopping 56 pageviews. (The daily average was 23.) Still, the webbiness of the web means that you are potentially always just one Link or Recommendation or Follow away from exponential growth. A private boost from one new-media guru, and then a retweet from another with the word “useful,” and my daily hit count suddenly spiked to 400-plus. Then a couple days later, it topped 600 after a link from a former colleague who has since transformed himself into the epitome of the 2.0 one-man news brand.

At such peaks, you sit there watching the views come in and start to dream that you too can build an audience all by yer lonesome? But the numbers that really count are still a long ways off from major mojo: 38 Twitter followers, 109 Facebook fans, 16 email subscribers. Perhaps I will need to hop on the shoulders of a major website? Iterate the iteration, making whileUslept richer and/or feed it at multiple points in the day. It will have to grow (and sustain) exponentially if I want to reach the kind of audience that actually helps me both pitch and execute the bigger project I am aiming for. Still, what started as an exercise on Twitter to prep myself for the big launch has actually become the beginning of the soft launch itself.

Perhaps just as important is the fact that some new ideas are flowing into my old media brain. This one I will dub the Baby Moses approach to aggregate realtime news: bundle the best content and drop it in the moving river of information at the right time and place.

The crowd and the core audience

The immediate collateral damage of this mini-project are the brakes it’s put on short-term progress of the Big Project. While I have essentially begun the “link to the rest” half of the famous Jarvis formula, I’m no closer than I was a month ago to actually establishing the “what you do best” part. And what will I do? Here too there is iteration to report. Without going into details — both because I still prefer to speak here in general terms about the product, and because the details of the new feature simply don’t yet exist — I will just describe it as crowd-source related. Though I do not plan on changing the entire product around this idea, as this very smart fellow startup dude vigorously suggested, I still think there is much room to integrate it in a way that could give the project some extra watts of glow in the eyes of potential investors. Crowdsourcing addresses two key questions that arise at different stages of the startup: identifying our core audience at launch, and giving the enterprise a vision of how to scale it up.

But before that, all this iterating risks sapping some of the vital big ‘mo from the Big Project. On the prototype (which I keep saying is just a week or two away), we are now rejiggering all the current pages and adding a brand new page or two. Meanwhile, the business plan will have to be overhauled. Completely. Again. Blessed be the iterationists, I and I: In creation where one’s nature neither honors nor forgives.

Looking for Mr. Right

All of this upheaval is further reminder that what I am missing most right now: more than audience, more than money: a partner. He or she would have the tech and business background that I lack, while having a natural interest in the news business. Last week, through a mutual friend in Paris, I set up a rendezvous with Mister X, whose resume features all what I am missing and more. But looking for a partner truly is like dating: “On paper” means nothing. We met at the Mabillon Metro stop in the Latin Quarter and found a nice café to chat over a beer. Though it was a relaxed conversation, a back and forth, I was also effectively pitching him my project as best I could. Talking to a potential partner is different than pitching other people. It starts out much more casually. But you are all too aware that if it goes well, really well, the project becomes his as much as mine. So in some ways, you must actually tread a bit more lightly on your first encounter. He needs to like me as much as my project.

As with the search for a life partner, timing is key. In this case, I am single, and looking, but I couldn’t know for sure what his status was. A couple of times in the past few months, I’d met people who might have fit the partner profile, who had the right skill set, and even interest in the project, but simply were not at a place in their life/work to commit to me. Though Mister X seemed to react positively to the project, and explained that he was finishing up a master’s degree this spring, he wasn’t giving any indication of his plans for the future. And then, about 40 minutes in, I finally said: “I don’t know if you might be interested…??”

He paused about two seconds, and said: “Hey, so long as I can be running a business, I’m open to anything.” My heart skipped a beat. Later, as we walked toward the metro, and I told him I’d send him all the working docs, we even talked for a moment about what the first steps together might actually look like. Then we shook hands, and said we’d be in touch when he got back from a long planned two-week hiking trip to Morocco. Perhaps for my next update here, I will have something (good) to report from our second date…

Here’s the slide deck from Varian’s presentation, entitled “Newspaper Economics, Online and Offline”:

(Lab readers may recognize some of the slides and data as having appeared here previously. I provided some input to Varian as he prepared his talk. Varian also posted the presentation and a summary of his remarks at the Google Public Policy Blog.)

Varian took a leave of absence from academia a few years ago to take charge, among other things, of tweaking and explaining the workings of Google’s brilliantly clever auction pricing mechanisms for text ads. He’s also involved in analysis, finance, corporate strategy, and public policy.

Google has been in the crosshairs of the newspaper industry as newspapers struggle to hold onto print revenue in the face of digital onslaughts, including the text ads that bring Google the bulk of its $24 billion 2009 revenue (equivalent to about 85 percent of the entire newspaper industry’s ad sales). The industry’s biggest beef with the search giant is that it sees content aggregation on Google News as pilfering, without compensation, page views that ought to be going to newspaper sites; Google counters that it delivers a hefty share of total traffic at news sites (and that publishers can opt out of Google News if they really want to).

Varian offered no magic potion for newspapers, other than exhorting the industry to “experiment, experiment, experiment,” and to get better at analyzing and exploiting the information they can glean from their site visitor data. He began with a series of slides illustrating the dismal trend lines of the newspaper industry and its place in the media environment:

• Newspapers’ share of total ad expenditures have been dropping pretty steadily since the 1940s, from a 37 percent share down to barely 10 percent today.
• Newspaper ad revenue kept pace with GDP until the mid-1980s (both inflation-adjusted), but since then, it has disconnected and fallen — not just during periods of recession but during the entire 2002-2008 expansion as well.
• Online ad revenue at newspapers has grown to just 5 percent of total ad revenue, failing to offset the declines suffered in other categories, particularly classified.
• Circulation as been falling from its 1970-1990 plateau of about 60 million copies, but on a per-household basis has dropped steadily from 1.2 copies per household in 1947 to about 0.4 copies per household currently.
• While television still predominates as a source of national and international news for most people, in 2009 “Internet” surpassed newspapers as a source reported by consumers.

Twenty-six percent of all Americans (46 percent of those under 50) access news by mobile phone, and an astonishing 80 percent get news from e-mailed links, Varian said. But (as first analyzed right here at the Lab), only three percent of all consumption of newspaper-generated content happens online; 97 percent is still consumed in printed newspapers. This is true whether you measure pageviews in print and online, or time spent with printed newspapers versus newspaper web sites.

Still, news consumption ranks high among online activities of consumers, with 39 percent getting online news “yesterday” (according to the Pew Internet and American Life Project, 2008), ranking it the third-most-popular reported activity (after e-mailing at 56 percent and using search engines at 49 percent).

Using Google data, Varian showed that accessing news exceeds search on weekdays, but drops to a fraction of its weekday level on weekends, when search leads. From this he concludes that much access to news and newspaper sites happens in the workplace, when consumers have time only for quick checks of headlines, not for in-depth reading.

The challenge for newspapers, therefore, is to “increase involvement in the news by turning it back into a leisure-time activity.” He sees tablets and mobile phones as helping to do that.

ComScore data shows that search engines send 35 to 40 percent of traffic to major U.S. news sites — so, assuming that this traffic monetizes about the same as other traffic, search engines must be driving 35 to 40 percent of revenue, as well, Varian said. But he suggested newspapers could do a better job using the data that comes along with the search click (the keywords used in the search), and using it to categorize the reader’s interests and tailor content suggestions and advertising accordingly.

One problem with this, I’ve found, is that about half of visits that come via search engines tend to be generic — users type the name of the paper, the URL, or a variant thereof, into the search field, using it in lieu of their browser’s address bar. But of the non-generic search clicks, Varian pointed out that most are for categories like sports, news/current events, and local (Google’s categories), which are difficult to monetize, while few are for the more lucrative areas of travel, health, shopping, computers, and electronics. “So the news narrowly defined is pretty hard to monetize.”

What about charging the consumer for news online, then? Varian’s answer:

My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition…You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

Varian concluded with this exhortation to publishers: “The three things newspapers should do is experiment, experiment, experiment!” He cited a few options from Google, like Living Stories and starred stories that can be followed for updates during the day.

“I’m a big fan of the new devices,” he said. The iPad, Kindle and other tablets introduce a “completely different ergonomics for accessing the news…so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news…So I would like to see this — this area develop and we’re doing what we can to help that happen.”

Finally, Varian urged newspapers to better exploit the information they have:

You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web log [stats] is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs [stats] — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting.

Here’s a full transcript of Varian’s remarks, as recorded by the FTC’s transcription service. (Note: This is not fully cleaned up or compared with a recorded version. I’ve inserted the slide numbers at the appropriate points.)

[UPDATE, March 19: Commenters on this post questioned the original slide deck's assertion that five percent of newspaper ad revenue came from online advertising. Our friend Robert Heath of Rough Numbers reran the numbers and discovered an error, to which we alerted Varian. The actual percentage, 8.2 percent, is now reflected in the slide deck, which is also corrected on the Google Public Policy Blog.]

Wow, thank you very much for that kind introduction. Happy to be here. [1] As you heard, we’re going to talk about on-line and off line economics of newspapers. [2] And basically this is going to be mostly a fact-based presentation, looking at revenue, costs, advertising level change, composition, and so on. Most of the talk is from the data from the newspaper association of America that’s put up a lot of trends on the website, a key foundation of some of the other sources and a little bit of Google data that’s also emerged with this report.

[3] So I want to start off with a little overview of what revenues and costs look like for newspapers. And basically the bottom line here is 80% of the revenue roughly comes from advertising, 20% from sales. If you break down the cost side of newspapers, turns out that about 50% of the costs are production and distribution, that is the physical production and distribution of the newspaper, obviously it’s attractive if you can reduce your costs by 50% for any business. So the promise to the internet is just to reduce costs. I understand we’re going to hear much more detail about that this afternoon.

[4] If you look at ad spend by medium in the United States, I pulled this data from the U.S. Statistical Abstract. Of course, the big gorilla in the room is TV. You look at broadcast and cable TV, you’ve got by far the largest expenditure on advertising on those two media. Surprising enough, the next biggest thing is direct mail. Then after direct mail comes the — comes the newspapers. You look at how things have changed over the years, broadcast TV has gone down a little bit. Cable TV has grown by quite a bit, almost a factor of three. The internet’s grown from nothing in 1995 to about 5% of ad expenditures in 2008. And newspapers, As you can see, have contracted from about 23% down to maybe 13% or so. So the big changes are apparent in this diagram. And I guess the next talk is going to be perhaps some more up-to-date figures on the advertising business and newspapers. Newspapers, of course, are still about three times as large in terms of ad revenue as the internet, so there’s still quite a major force in the advertising world.

[5] This is another chart showing pretty much the same thing. If you look at newspapers, that’s the blue line, they’ve been going down since basically 1950 in terms of media share. If you look at the yellow line, that’s TV and cable. That’s been going up quite dramatically over the same period. And way down there in the bottom right-hand corner, that light blue line, is the internet which came from pretty much nothing up until the — maybe late 1990 s started to become a force in — in advertising and other media stayed more or less the same.

[6] Now this is a plot of GDP which I just put there to have a general measure of economic activity and newspaper ad revenue. And I’ve adjusted it but the consumer price index that you can see what the changes will be in the real term. So basically we have real GDP and real newspaper ad revenue. And you can see, it’s pretty much pieced back in the late ‘80 s, since then, more or less conference in the last couple of years where it took a big dropdown. By the way, the vertical grade bars are recessions. One thing to note is that typically during recessions, advertising expenditures are quite sensitive to cyclical conditions so you can see GDP dropping and advertising expenditures dropping as well. The last couple of years have been dropping outside and even more than the economy would indicate and we’ll see an echo of that in one of the — one of the later slides. The important point is that newspaper ad revenue pretty much Maxed out way before the internet came on the — on the scene.

[7] This is a picture of what ad revenue looks like by type, again, measured in constant dollars. So typically it’s broken down into four different categories, retail, which would tend to be local stores, national, which would be national brand advertising, classified, the blue segment there, and then on-line is the tiny little green segment that kind of popped up a few years ago. You can see what’s going on is retail advertising has been growing over this period. The brand advertising has been contracting and classified advertising stayed pretty much the same up until the last few years at which point it dropped fairly precipitously.

[8] This is the same chart only measured in shares so you can see the share and we’ll have a lot more clearly. I think the important point to note here is the on-line ad revenue is still — as of 2008, at least — is substantially less than 5%.

[9] What about circulation? If you look at circulation, the chart on the upper left-hand corner, the circulation stayed constant for a long period of time and drop in the last couple of years, but, of course, it’s a little bit misleading just to look at total circulation, what you’re most interested in, most likely, is circulation per house hold. So if you look at paid circulation per person, over on the right, you can see it was declining since the ‘60 s and pretty much a steady manner. The interesting thing is, if you look at ad revenue per reader, or ad revenue per circulation, it actually was increasing since the late ‘60 s with a few up s and downs in the recessionary periods and so on, but by in large increasing up until very recently in the last few years. But the ad revenue per circulation is going up even though ad revenue is going down because the circulation has been going down so much. So it’s the denominator that’s been causing this effect.

[10] And here’s another chart just showing circulation which, again, has been remarkably constant between say 55 million and 60 million copies.

[11] And here’s a chart of circulation per household, which is also been pretty stable in terms of its decline. Back in 1947, you were seeing a little over one newspaper per house hold, which I presume is morning and evening editions in many cases. But that’s gone down to something like 40 — .4 newspapers per household in today’s world.

[12] And this is the chart that — well, we just heard Susan refer to that now the internet has surpassed physical newspapers as the popular way of accessing information. I would say television is — got a pretty substantial lead on both of them. And, of course, most of the internet access is access to newspaper sites. So they aren’t, of course, the physical paper.

[13] In that same report, there were some interesting trends about getting news by phone. 26% of all Americans said that they actually access news on their phones and 43% of those under 50 — so this is yet another medium by which people can access news. But in many cases, given the interface that’s available, people are looking at weather or at current events because reading in depth on your phone may be somewhat inconvenient. I thought one of the more fascinating numbers that came out of the PEW report is that 8 80% of people get news by e-mailed links. That’s one of the more popular distribution mechanisms now. You see an interesting story, you send it to their friends. You go to the websites, you see the most mailed stories MRKS are accessed on people’s computers and now, increasingly, on handheld devices. And we shouldn’t think of a single medium per person. Half the population surveyed said they used four to six different media for accessing news. So it’s important to distinguish in these discussions between newspapers traditionally considered as the physical newspaper and, of course, all the other ways you can access news, on TV, on your phone, on your computer, your lap top, etc.

[14] Now, if you add it all up and you look at the difference between physical newspaper reading and on-line newspaper reading, you get this kind of amazing statistic that’s due to Martin Langeveld at Harvard['s Nieman Journalism Lab]. Only about 3% of total news comes on the computer. Most of it comes from looking at physical newspapers. You get nice numbers looking at the web data. This is data from the Newspaper Association Of America. People are spend 38 minutes per month on on-line news which works out about 70 seconds a day. Whereas a person who reads a physical newspaper tends to spend about 25 minutes a day. There’s also time use studies to back these numbers up. So even though accessing news on-line is a very popular thing to do, it’s actually the case that people are not spending nearly as much time on the newspaper on-line as those people are who are reading physical newspaper. Of course, they’re different populations, so you have to compare these carefully. But roughly speaking, about 3% of either page views or time accessing on-line news — sorry — 3% of the total access to newspapers is done on-line. On the other hand, it’s accessed quite often.

[15] This is from data from the U.S. statistical abstract. Also it came from Pew, that roughly 40% of adult internet users say they accessed news yesterday. And. In, if you look at those with household incomes of $75,000 or more, it’s about 53%. So it’s very popular to access that on-line news, it’s just that people aren’t spending a huge amount of time on it, at least compared to the people who are reading the physical newspaper.

[16] If you look, for example, at total number of hours per year where people are accessing newspapers or reading newspapers, it’s about — let’s see, in 2008, 168 hours per year. So roughly works out to 25 minutes a day. In terms of physical newspaper consumption — that’s the same order of magnitude as the time people spend on the internet.

[17] News — the third most popular activity on-line, sending a regular e-mail, using a search engine, getting news on-line. Those are, again, the three top things that people do on the internet, but they’re spending a lot more time, for example, reading e-mail than they are looking at the on-line news. Now this is a little bit of a paradox. Let me stop for a minute and show you the charts. The paradox is, it’s popular to access news on-line, but they don’t spend time doing it. Why is that? That’s the mystery. How much time they do it compared to physically reading the newspaper.

[18] So I pulled some Google data and I looked at the time use pattern of access to Google news. So what you got down there on the bottom are the hours in the over a couple of weeks. The two little small bumps are the weekend access. And the — the five bumps between them are the daily access. So the red line is search activities. This is how many people are searching Google for things. And the blue line is the news activity. So I plotted both of these charts from the area of — each graph is normalized to be one, so it’s measured in percentage terms.

So what’s the first thing you see in the blue line is a lot further up than the red line. What that says is that people are accessing the news during the day a lot more frequently than they’re doing searches. And if you go over to look at the weekend, you can see the searches dramatically exceed the news, people are doing searches more on the weekend than they’re accessing the news. What that suggests to me is that people are accessing on-line news a lot during business hours. It’s not so surprising that they’re not spending a whole lot of time on it because offline news reading is a leisure-time activity. You do it over a cup of coffee, you do it in the evening, maybe. Whereas on-line news reading, that’s a labor time activity. People snatch a few minutes out of the day to check the sports scores or the headlines or something of that sort. So if that’s true, people are spending much less time looking at on-line news than they traditionally spent reading on-line news because they’re doing it during working hours, much less during leisure ours. During leisure hours, you might sit and watch TV, as a matter of fact, it would be a common thing to do.

So the challenge, I think, that’s facing the newspaper industry is to try to turn that on-line newspaper access which is much more attractive way to reach a broader audience is to increase involvement of the news by turning it back to a leisure-time activity.

[19] If you look at the value of clicks sent to newspapers, according to COMSCORE, it’s 35% to 40% of the traffic to news sites. That monetizes about as well as other traffic, that means that search engines are driving about 35% to 40% of traffic of revenues, on-line news sites. Which is a substantial amount. However I have to remind you that the on-line news revenue is about 5% of the total. So even though they’re driving a substantial fracture of the on-line revenue that’s still a relatively small amount of the total revenue.

[20] One thing that’s interesting to do is if you look at a search click that goes to the newspaper site, the newspaper is sent a query — or any site, not just the newspaper site, the site is sent a query that generated that search click. And that means that the site that received the search click could direct the user to the appropriate section of the site. So you can take those queries that people are issuing when they click on news sites and ask, what are the categories? What are people looking for when they go to these on-line news sites?

And I’ve done that. It turns out that the kinds of things that people are looking for when they’re going to these on-line news sites are sports, news and current events, and local — those are the top-level categories that we use at Google categorize search clicks. But there’s relatively the same in travel, shopping, so on. And roughly the same in entertainment, computers, and electronics. I’m comparing searches that go to newspapers to just searches in general that go to sites that aren’t specifically classified as newspapers. I say newspapers, I mean sites indexed by Google news.

Now the bad thing — or maybe not the bad thing, just a fact is, that if you look at the money in on-line advertising, the money is in categories like travel, health, shopping, and consumer electronics. But if you look at the revenue that’s going to newspapers. That’s in sports, news, and current events and local. And believe me, it’s very, very hard to monetize those categories because there isn’t as much consumer dollars spent in those areas as there are in areas like travel, health, and shopping.

[21] So the news narrowly defined is pretty hard to monetize. Despite the fact that it’s popular and frequently accessed, there’s a relatively low level of involvement because of the time constraints that people face, and it’s typically not a highly commercial activity. In fact, newspapers have never made money from news. You look at where the revenue came from, they made money from the business page, the automotive page, home and garden, travel and technology, all those parts of the newspaper that wasn’t the raw news, not the newspapers. Why? You can target ads, not surprising that people who read the automotive page are interested in buying cars or people who look at the travel section might be interested in taking trips.You can see targeted ads in the physical newspaper but tied to the sections. Then it’s the revenue generated from those sections which are used to cross subsidize the actual production of news.

And what’s happened is, this has been a problem with this intermediation that now people can go directly to finance sites, to auto sites, to consumer electronics, books, to travel sites, real estate sites, and so on, so people go directly to seeking those specific sources of information, they tend to bypass the traditional sections of the newspaper and so the cross subsiization model that’s worked for many years has not really work ed now. It’s very hard to do conceptual targeting of the news. If you’re reading the travel section and you see a story about Hawaii, you wouldn’t be surprised to see ads for travel to Hawaii next to that story. If you read the news section and you see bombing in Baghdad, you’re not likely to see travel ads or anything else particularly relevant to that story. So it’s very, very difficult to do the same kind of cross subsidization we’ve seen work in the past.

[22] If you go look at advertising verticals for newspapers, you can see 20% is general merchandise, 14% financial. That would tend to be in the business section of the paper, home supplies, furniture and so on. So you look at the breakdown of where the money is coming from, then it tends to be somewhat different from the kinds of things that people are making money on on search engines and general internet advertising. Of course, all this doesn’t mean that newspapers aren’t valuable. You heard earlier — I would absolutely second that is critical both from the individuals and societal point of view. People find it valuable because people are going to look at news on-line. We see half of internet users read news on-line at some time or another. They just don’t spend a whole lot of time on it.

[23] I’ve seen this big debate on whether you can charge for news, replace the advertising model. My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition — one seller sets it price here, one could sell it down. You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

[24] So, in summary, if you go through and look at all of this, newspaper ad revenue is pretty much cost adjusted for dollars. The circulation per capita is going down since 1947. The really big increase of advertising revenues come from cable TV and that’s way before the internet. You do have this problem with on-line news that people are using it differently than they’ve used offline news. They tend to access it more episodically, and the challenge that the newspapers face is how can they use that to — how can they turn that deeper access to the news to the kind of deeper involvement that they would like to have? Maybe what you need, everyone said this is maybe not the news, but engagement. You need to increase the engagement with news.

[25] And the three things newspapers should do is experiment, experiment, experiment. Google has been working on doing some of the experimentations, I think a promising avenue is try to link news access during the day so you use this rather brief occasional access to stories, to a much bigger engagement, partially by shifting some of the access to leisure time.

So we’ve done things like living stories where you work with major newspapers to try to string together all of the items about a particular story as the newspaper developed through the day. Got this capability called star stories, you can look at a story and star it and then you can follow what happens in that story. Maybe look at it later when you have some free time, and other things like that. I’m a big fan of the new devices. I think that things like the ipad or the kindle and this whole group of tab let computing is going to potentially make a big difference because it gives you completely different ergonomics for accessing the news. If people are accessing on-line news at their workstation, computer, or their laptop during the day and they have a lot of things going on, when you come home, probably you don’t want to go sit in front of your laptop or your workstation at home to do the same thing. What you might want to do is sit in your easy chair and look at your tablet where you can follow some of the stories that you might have seen accessed originally at work.

Of course, this isn’t going to be a flat textural description, it’s going to be multimedia in those devices, and so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news. Because what happens with TV is you get this emotional experience from the visual side, but in many cases, it’s frustrating because you can’t go deeper in to the story because the newspaper, the physical newspaper with textural material you can go deeper in the story but maybe don’t have the same emotional involvement, get them both together, then potentially you can have a very positive and interesting and worthwhile experience. So I would like to see this — this area develop and we’re doing what we can to help that happen.

Finally, the last point is newspapers should better exploit the information they have. You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web blog is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting. I think I’ll end there. And thank you very much for your attention.

[Laura Bennett is currently on a Fulbright grant in Madrid to research citizen journalism and the democratization of the mainstream Spanish media. She filed this report about Spain's late (but still talked-about) online news startup, Soitu.es. —Josh]

Spanish news site Soitu.es launched in December 2007 to considerable fanfare. Its homepage boasted flashy graphics and the lofty slogan “no mass media,” a play on the Spanish phrase “no más media” (“no more media”). Within months, Soitu was honored by the Society for News Design and eventually copped two Online News Association awards. The ONA praised its “underlying philosophy of sharing, linking and audience-focused engagement.” It had half a million unique visitors a month and accessed another two million users monthly through its third-party widgets.

In Spain — where the politicized national press has drawn public skepticism in recent years and newspaper circulation and Internet usage are both markedly below most of the country’s European counterparts’ — Soitu was widely regarded as a breath of fresh air.

But in October 2009, the site shuttered after just 22 months. Its main financial backer and principal shareholder, the Spanish bank BBVA, had pulled the plug.

“Soitu was an experiment, a new media laboratory,” founder Gumersindo Lafuente told me. “We have always believed in the socialization of information, but often when people comment on the news, it’s just pure noise. We wanted to capitalize on the whole flow of relevant information that society can contribute using tools that make this influx controllable.”

Soitu hinged on audience participation. Contributors whose photography, articles, or essays were selected for the homepage received 20 euros. Soitu’s web developers created a slew of original widgets that users could post on their own websites and blogs for free — an attempt, in Lafuente’s words, “to keep conquering spaces on the web with the Soitu brand without spending money on advertising.” Utoi was a homegrown microblogging social network — intended to help journalists rummage for story ideas — that allowed multimedia to be embedded directly in posts and could scan text and suggest tags for entries. And the streamlined crowd-aided news aggregator El Selector let hundreds of collaborators from different spheres of the web (tech, medicine, politics, arts, et al) flag stories that they’d read and liked.

“The idea was to share the task of deciding what was news with the readers,” said Lafuente, who previously ran the digital edition of Spanish newspaper El Mundo. “Soitu” is a fusion of the Spanish words “Soy” and “tú,” or “I am you.”

Soitu’s technological tools were groundbreaking. But its business plan, Lafuente admits, was not.

An overly traditional advertising model and excessive dependence on a single investor — the bank BBVA owned 49 percent — proved to be Soitu’s downfall. “We just had neither the size nor the time to find a focus [besides advertising],” Lafuente said. Developing its specialized technology was Soitu’s principal cost, but the relatively plush Madrid headquarters and large in-house staff of editors, journalists, web developers, and graphic designers were also considerable expenses. When the global economic crisis knocked Soitu to its knees, BBVA backed out and Lafuente struggled to track down another investor, to no avail.

So what would he do differently, if he could launch Soitu all over again?

“Clearly I would build a structure that was lighter on expenses,” he said. “I would choose a structure that was lighter on staff with more freelancers. With a product that was more ‘arrevistado’ [formatted similar to a magazine] with two parallel flows of information, one very up-to-date and another with more of its own news and deeper reporting. Nothing in between the two. And fewer structural costs (the office, etc).”

But for the most part, he added, the site itself — the technological tools, the branding — would be the same.

“The most important factor is to build a brand and to know how to speak to your audience,” Lafuente said. “I still think that advertising is the main investment and that to opt for other investments, you first have to cultivate your product and your audience.”

Spanish media experts seemed to agree that despite Soitu’s innovative design, its business plan was woefully shortsighted.

“Soitu was a great spectacle, but it wasn’t a realistic spectacle,” said Concha Edo, a journalism professor at the Universidad Complutense de Madrid and the author of several studies on the impact of the Internet on the media in Spain.

In the Spanish press, Soitu was elegized like a beloved politician who had died an untimely death. An editorial about the site’s closure in Spanish newspaper ABC was titled “Requiem for an example of creativity.” El País described Soitu’s collapse as the end of “one of the first completely digital media projects in Spain.”

For Lafuente, there will be other opportunities to experiment. In January he was appointed managing editor of El País, where he oversees elpais.com.

“We knew we were doing something new and therefore risky with Soitu,” Lafuente said. “But that was the goal — to do something different.”

Parse out the numbers, and they’re quite puzzling.

The average news reader spends little time on newspaper-owned sites, from a 20 minutes a month or so on the New York Times site to eight to 12 minutes on most local newspaper sites. That’s minutes per month. Those numbers, as tracked by Nielsen and reported monthly by Editor and Publisher, are steady at best, showing, in fact, some recent decline. They are, literally, stuck in time.

Then, take the number of minutes Internet users spend on social sites. Nielsen’s January tally showed seven hours of usage a month on Facebook alone, in the U.S., blowing away all competition. That’s some 40 times more time spent on social sites than on any single news site.

Which is a bit deflating for those in the news business. So let’s try to get at what the numbers may be telling us.

Maybe that big Facebook number isn’t as important as we think. We all have long spent much more time in conversation, much of it idle, some of it about what we’re doing right now or plan to do (the “statusphere” of the pre-digital world) than we have in reading the news. So social-site time may replace water-cooler conversation time. Further, do those Nielsen numbers mean that someone is actively perusing Facebook walls (or Twitter feeds) until their eyes fall out — or that they are keeping windows open on their computers? Are they engaged in a way that advertisers care about?

Then again, if Facebook time is a proxy for our new information centers — where we go to find out what’s happening in the community and the wider world — then it is becoming the new home page. Recall how newspaper sites all put up “make us your home page” buttons more than a decade ago? Constructively, that’s what Facebook done, without the button. That’s not surprising; it’s the ultimate page about what we care about most: me. Sure, some of the posts tell us about the wider world, but a good 80 percent or more tell us something personal.

If social sites, including Twitter, are a new center — Nick Negroponte’s “Daily Me” morphed — that’s a new challenge, and maybe opportunity, for the news industry. The challenge: getting the news to where the readers are hanging out, and figuring out to monetize there. The opportunity: If properly seeded in the social sites, the readers themselves do the (free) marketing and distribution of the content. The early tests of Facebook Connect appear promising here, though too few news companies are experimenting at any kind of scale. (See “The Newsonomics of social media optimization“.)

Now, let’s look at the Newsonomics of time-on-site — how well such time is monetized.

We’ll do some extrapolating with Facebook, to figure out what 2010 might look like. Let’s start with January numbers of 113 million U.S. users and seven hours time spent. Let’s be conservative and say for the year, it ends up with 120 million users and the same seven hours. That’s 84 hours a year for the 120 million, or a little over 10 billion hours of time spent.

For newspapers, let’s use one of the higher-achieving companies for comparison. The New York Times has been averaging about 20 million monthly uniques. It’s time-on-site varies considerably, with the news (!). Let’s give it 25 minutes a month on average. That’s 5 hours a year, or in total, about 100 million hours.

So, in time spent, the Times is less than one percent of Facebook.

Now, let’s look broadly, and quickly, at revenue. The Times’ 2009 digital revenue: about $342 million. Or $3.42 for each hour spent on the site.

Facebook’s revenue numbers are unannounced, but smart industry speculators put its 2010 number at about an even billion dollars. Or about a dime an hour of time spent.

$3.42 vs 10 cents. The Times is monetizing its time on site 34 times better than Facebook.

The Times and other big established news brands will say that’s more than fair, given the attention of the audience, the premium nature of the content and the demographics of the audience. Facebook, and its financial and spiritual advisors, will tell you that’s all upside. They’d point to yesterday’s partnership announcement with (Adobe’s) Omniture on ad placements as just one small step to a large revenue future.

Photo by Robbert van der Steeg used under a Creative Commons license.

In October, The Huffington Post launched a new section with an unusual goal: turning an audience of passive readers into activists for good causes. The section’s underlying business model is novel, too: All of its content is outsourced to an outside company, a for-profit firm that has nonprofits for clients.

In exchange for that content, HuffPo shares the advertising and sponsorship revenue the section generates with the outside company, Causecast. And Causecast gets a platform to promote its services and the nonprofits it chooses to highlight, some of which are its partner organizations.

The arrangement emerges at the same time news organizations are struggling to make display advertising alone a viable business model. The HuffPo-Causecast arrangement, in conjunction with ads, could be an example of the kind of hybrid solution publishers are struggling to find. However, by blurring the line between advertising and content, it also raises questions about conflicts of interest and editorial responsibility.

A platform to encourage giving

I first noticed the section — Impact — a few months ago, with its hot-pink branding and tagline “in partnership with Causecast.” There’s no further explanation of the relationship between the two organizations on the page; you have to browse away to Causecast’s site to learn that it provides nonprofits with online and mobile fundraising tools. Causecast’s site uses social networking to encourage users to become fans of nonprofits and then donate to them, using a single login and donation platform. About 60 nonprofits, ranging from local homeless shelters to national organizations like Planned Parenthood, are listed as affiliates. Causecast offers nonprofits a menu of services, some of them free, like getting a fan page on Causecast’s site, and others for a price, including technical support for mobile device fundraising. Causecast declined to say how many nonprofits are paying clients.

When I talked to the Impact section’s editor, Jonathan Daniel Harris, I was surprised to learn that — despite having a bio and byline like other Huffington Post editors — he is not a HuffPo employee. He is paid by Causecast and works out of their Santa Monica offices. As part of the arrangement with the Huffington Post, Harris oversees two other writers, who are also Causecast employees, in producing the site’s content, which includes short original stories and aggregation from around the web. The stories and curated links are generally about a social cause, or person in need; The earthquake in Haiti, for example, dominated the section for weeks this winter. But other causes, like malaria or homelessness — many of the same problems Causecast’s partner nonprofits aim to solve — are also featured.

At the end of some of the original posts, which look like other Huffington Post content, readers get a chance to donate money to a nonprofit. Often, the nonprofit highlighted is a Causecast-affiliated organization and the link will take the user to a Causecast-facilitated donation page. Causecast says it does not take a cut from any of the donations. The money is filtered through Causecast’s nonprofit arm and the money — about $200,000 so far — goes directly to the organizations.

When I asked Brian Sirgutz, Causecast’s president, if a Causecast client could pay for a link or a story on the Impact page, a spokeswoman for the organization responded in an email that they could not. I also asked if Causecast clients get any priority in the editorial process when determining what nonprofits to feature. I was told “no.”

Multilayered relationships

But that doesn’t mean Causecast isn’t writing about or linking to affiliated organizations. Here’s an example: On Jan. 31, Harris wrote a 76-word post titled, “Malaria Is The Cause of 2010, Declares Matthew Bishop and Malaria No More.” The quick post notes that the nonprofit group Malaria No More expects the World Cup in South Africa to draw attention to the disease. Underneath the post, a box features a link to donate money to Malaria No More, using Causecast’s donation tool. Harris doesn’t mention in the post that Malaria No More is a member organization of his employer, or that Causecast ran Malaria No More’s mobile fundraising campaign. Causecast lists the campaign as a case study for its text2give services.

Causecast has also linked to and promoted AARP’s project Create the Good. AARP contracted with Causecast to develop the concept and execute the site, which helps would-be volunteers find places in their community to pitch in. Create the Good was an early advertiser on the Impact section, noted by Arianna Huffington in her post announcing the new site. (Huffington didn’t note a relationship between Create the Good and Causecast in her post.) Including Huffington’s post, the Impact section has tagged seven posts with a “Create the Good” tag. None of the posts mention that Causecast was paid to create the site.

The Impact site has also run fundraising events. In the 12 days leading up to Christmas, the site ran a series of stories (about 1,000 words each) “highlighting Americans who have persevered to overcome incredible challenges and the nonprofits that helped change their lives.” I looked up some of the nonprofits readers were encouraged to support. Most are listed as partner organizations on Causecast’s website; some were not. Neither distinction was noted in the stories.

The same series also ran a disclaimer at the end of some of the profiles unlike anything I’ve seen in journalism: “Causecast Corporation and The Huffington Post make no representations or warranties as to the legitimacy of this person’s story, need for assistance, or the amount of any medical or other bills, if any, owed by this individual.” The Huffington Post and Causecast gave me statements noting they run the disclaimer when they ask readers to donate to an individual, rather than a vetted group with IRS nonprofit status.

I asked Harris about the editorial relationship between the two groups. He explained that the Huffington Post “pretty much gave up complete control of a section to another company.” But, he noted, he’s in regular touch with senior editors: “It’s not like we can do whatever we want.”

A joint arrangement

In an email response to questions, the Huffington Post explained that Causecast’s values are in alignment with its own and that the editorial process is similar to other sections on the site. “Impact editors receive this guidance jointly from senior editors at both HuffPost and Causecast. There is an ongoing back and forth between the HuffPost and Causecast teams.”

Sirgutz described the relationship as a service: Causecast takes care of a project that Huffington Post wants, but would not otherwise invest in. “This market is not exactly something where a big media company is going to say, ‘we want to spend resources and time and money to be able to develop this type of content or service for our readership,’ because it isn’t going to exactly blow off the charts on the profit margins or traffic,” he told me. “So, what we’re able to do was to bring our expertise, because this was our field, we were able to provide that service to the Huffington Post and come up with an arrangement where they don’t have to spend any money to cover this type of content or on providing the direct ability for their readership to take action.”

Both Harris and Sirgutz are hopeful about the future of the partnership with Huffington Post, and for these kind of partnerships more broadly. Both pointed to additional corporate sponsorships as an added revenue stream. AARP, for instance, sponsored the Impact site for six weeks, buying up all ads on the page. I asked Harris how he thought the project’s gone and where he thinks it’s headed. “It’s been successful so far,” he said, “and if it can continue to grow and sponsors are interested in paying us, that is kind of proof of concept right there.”

A site launching later this month claims to offer some recourse in the case of the ever-expanding skill set. Its name was originally shrouded in secrecy, as suggested by its working title: Secret Journalism Startup. But the enigma now unveiled as NewsLabs is seeking journalist partners for what it calls “a service to publish your work to the world, which lets you focus on the content.”

We handle everything else: making money, getting readers, online marketing, etc. Whether you are freelancing, laid off, or still successfully employed, now is the time to move online, and we can make it as painless and profitable as it can be.

In other words: a partnership, NewsLabs promises, will allow journalists to focus on doing journalism — rather than spending their time engaged in the Everything Else that being a journalist requires these days. That subsidiary work being “the sort of thing that journalists (a) aren’t capable of doing except for a vast effort on their part, and (b) don’t want to be doing,” NewsLabs‘ Paul Biggar told me. He and fellow programmer Nathan Chong are behind the startup, which is funded by Y Combinator, Paul Graham’s noted startup incubator which has recently been interested in journalism projects.

The idea is to replicate the infrastructural benefits of the newsroom — the resources shared among journalists, the content dissemination architecture, etc. — for journalists who, whether by choice or by something else, work independently of a newsroom. Journalists who sign on to work with NewsLabs (the site is aiming to cull ten or so to start with, and then to expand from there) will post their content to the site—”we want to be a centralized space for publishing,” Biggar notes — and NewsLabs, in return for that content, will provide the subsidiary support that will help them to keep producing it. Based on NewsLabs’ ad, that support includes:

Revenue generation: we only make money if you do; you get 80% of revenue from your content (not profit, revenue); ad sales; selling your story to publications; affiliate links; sponsorship.

Bring traffic to your stories: We submit your content to Twitter, Facebook, Digg, Reddit, etc, appropriate[ly] tailored for each community; We automatically recommend stories to readers based on what they read, who they are, and what they’re interested in.

Community management: The new news model is about community interaction. We make this as cheap and simple as possible: Facebook Connect so people comment with their real identities; Automatic moderation and spam control; We organize your interaction with social media outside the site.

Lead generation: get tips from your readers; automatically get sources for your stories; find out what stories people want to hear about, before they know themselves!

Collaborate with other journalists

Analysis: We tell you: how much of the story readers read (when they get bored); what headlines are most effective; where does your traffic come from; what topics people want to hear about.

The unbundled news product is one thing; what NewsLabs is proposing is, essentially, unbundling the journalistic process. Revenues will come mostly from ads, Biggar says. “We take a cut out of the money that we earn for them,” meaning in the end that the journalists “get 80 cents out of every dollar that is earned by their content.” (The ad specifies a $30,000-$70,000 “salary” for participating journalists, but notes: “We help journalists make money online, and earn a small portion of the proceeds. So while this isn’t a paid position, we only earn money if you do. (So the 30K-70K is an estimate, not a concrete figure).”) “It’s difficult to know for certain,” Biggar acknowledges, “what our major revenue is going to be in the long term.” Much of NewsLabs’ success — or lack of it — will depend on the individual journalists who sign on to the service, and to the quality and popularity of the journalism they produce.

NewsLabs isn’t entering a completely open space. There are any number of tools and platforms available for journalists seeking back-end support, from ad networks to publishing tools. And NewsLabs’ idea doesn’t seem too far away from True/Slant’s, since both aim to make money helping journalists “build their brand online.” Biggar told me NewsLabs imagines itself as more of a brand-builder than a brand-facilitator — more of a comprehensive support structure than a simple platform. “It’s almost a distinction in wording,” Biggar says. “There aren’t contributors to our site. We are providing a service to journalists. It’s a difference of perspective.”

You can see a lot of NewsLabs’ plans in this discussion thread on Hacker News (part of Y Combinator), where Biggar (posting as “stealthyc2010″) answers questions about the startup’s plans, including:

We have many people interested. I haven’t triaged them all, but there are high quality people in there. We don’t need people to jump — there were 8000 journalists laidoff last year, and there are many many freelancers out there. The people interested are mixes of both, and some full timers who want to make money on the side, and are looking to jump online in the future.

The main distinction, Biggar notes, is the fact that NewsLabs will focus on collaboration among journalists, rather than competition. Tools are being built toward that end, he says, but he declines to specify what they’ll ultimately look like. (Biggar and Chong both have substantial comp-sci chops.) But they’ll ultimately rely, he says, on leveraging the network effect by way of empowering the individual members of the network. “The large media conglomerates are going to die whether they like it or not,” Biggar says. And “it seems obvious to us that the content providers — that is, the journalists themselves — are the ones who should be benefiting” from the content they produce.

“We’re really aiming for journalists to make a living out of this,” Biggar says. And “we want this to be the model for how news is generated.”

Kenneth Li of the Financial Times reports that “Newspaper and magazine publishers are stumbling over key issues such as sharing subscription revenues as they consider deals to offer digital versions of their products on Apple’s upcoming iPad digital media device.” Apple’s 30 percent take of any subscription revenue is a far better deal than the 70 percent many publishers forked over to Amazon to be on the Kindle, but some publishers are balking at Apple’s deal. “Thirty percent forever changes the economics,” one newspaper exec complaned to Li. “You can imagine we feel less good about it.”

In addition to the revenue share, publishers are kvetching about control of information. Apple intends to hold on to customer data, as it does with iTunes, and to share only sales volume with publishers. One unnamed metro newspaper publisher told Li: “Is it a dealbreaker? It’s pretty damn close.” Magazine publishers, despite some similar concerns, have already formed a consortium (Next Issue Media) to publish their content on the iPad, and Condé Nast has begun announcing titles that will appear on the device.

But Richard Tofel of ProPublica, blogging at The Daily Beast last week, opined that “the iPad could kill newspapers” because (italics added):

…online advertising revenue, on a per reader or per impression or any other relevant basis, lags so far behind print revenue that it seems destined to never catch up — never to come even close. Thus, it has been clear, for perhaps three to five years, that any sudden conversion of all print readers to Web readers, while greatly reducing costs, would reduce revenue even more, deepening losses at unprofitable papers and throwing those that remain profitable into losses — losses that would likely be impossible to reverse except through huge further expense cuts, especially in newsrooms.

(For a more optimistic view, see “Can Apple’s iPad save the media after all?” by Wired’s Eliot Van Buskirk.)

Over at Gawker, Ryan Tate claims to have it on good authority that a “heated turf war” has erupted at the Times over the pricing of its content on the iPad. The digital folks at the Times, he says, want to charge $10 a month (less than what a Times subscription costs on a Kindle), while the print managers want to charge $20 or $30 a month. The two sides, Tate says, are appealing to the executive suite.

It’s an argument that will make little real difference. Tofel is correct that current online monetization of news is too low. But the problem with his line of thinking is that nobody is talking about a “sudden conversion of all print readers to Web readers.” It’s an interesting exercise in speculative accounting; one that’s been done repeatedly over the years, and one that discovers every time that the numbers won’t work for desktops, laptops, iPhones, and now they won’t work for iPads. No surprise. The alleged argument between the print trolls and online geeks at the Times won’t make much difference. And the whole industry faces the same challenge.

In reality, however, the Times will print as usual tomorrow morning; its readership will not move to the iPad overnight. So far, the conversion of readers from print to digital formats has been gradual. New devices like the iPad may accelerate the trend — they’ll bring a major transformation in how people use the web, but it won’t be an abrupt transformation. So the real challenge to publishers is to manage through that transition, to stay ahead of the curve, and to find the right model at the other end of the rainbow. This is hard enough, but it’s easier to deal with a gradual shift in consumer habits than a sudden one.

And the real mistake in Tofel’s thinking is to assume a linear continuation of current trends. Online advertising, he says, “on a per reader or per impression or any other relevant basis, lags so far behind print revenue that it seems destined to never catch up — never to come even close.” This assumes that only standard revenue models (advertising and subscriptions, at currently typical price points), and only extrapolations of current trends, are possible on a new device like the iPad. This is like the original assumption of Alexander Graham Bell that people would use the telephone to transmit brief telegraph-style messages.

In reality, the iPad will be disruptive, and the real question is this: How will the iPad transform digital behavior (again), and what should publishers be doing now to be players in that transformation? Multiple disruptive developments in the history of the web have had unexpected transformative effects on user behavior: think of Facebook (now used actively by 116 million U.S. users for an average of seven hours a month, far beyond what anyone would have predicted when it was launched just six years ago), smartphones (now used by 17 percent of U.S. adult cellphone users and growing rapidly) and smartphone apps; and the whole notion of the mobile web, the use of which is likely to overtake the old stationary desktop web, worldwide, within three years.

The iPad’s effects on how people use the web (and other media) will be similarly profound, and similarly unpredictable at the outset.

Nonetheless, I’ll hazard a prediction. I believe the biggest transformation that will be wrought by the iPad will be to bring an enormous increase in online shopping.

Even before anyone knew for sure what features would come with Apple’s iPad, mobile shopping was projected to zoom to $119 billion by 2015 (from a mere $396 million in 2008 and $1.2 billion in 2009). With the iPad coming on the scene shortly, it’s likely the mobile shopping growth curve will far steeper, because the iPad is a far more attractive platform than any smartphone for showcasing merchandise and services, and its portability will allow it to claim a far greater portion of leisure time than any deskbound computers. Consumers with iPads will be connected to the web in far more places with far more engagement (relative to smartphones), presenting far more opportunities for direct marketing and sales than any previous interface.

While the iPad is conceived primarily as a media consumption device, marketers will see it as a godsend. Direct mailers are already nervous. (Echoing Tofel, they’re asking, “Will the iPad be the nemesis of direct mail?)” The whole thrust of the last 10 years of web development has been to move consumers and brands closer together — to link consumers and marketers in direct conversations on many platforms ranging from Twitter and Facebook to email, branded toolbars, coupon distribution sites, and other personalized tools.

As Rick Edmonds of Poynter reported the other day, this trend is having an impact on the revenue newspapers derive from advertising inserts — which are really the last area where, until recently, they’ve maintained some semblance of monopolistic pricing power, and certainly a high profit margin. But marketers, with better ways of measuring response rates and ROI across marketing platforms, are now finding them too costly. Edmonds reports that the NAA is looking at ways to combat the trend, but he worries that “the difficulty of getting newspapers to act collectively on anything [is] a huge and recurring issue.”

One thing is for sure: No retailer, no marketing executive, no ad agency anywhere is looking to spend more money in any part of any newspaper. (Well, maybe you could find a few.) By and large, they’re looking to build more direct connections with consumers on digital platforms. And they see the iPad as the Next Big Thing.

So what is a publisher to do? My suggestion is: Build a strategy around the assumptions that over the next few years:

1. The mobile web will be ubiquitous — upward of 70 percent of adults will be connected to the web on mobile platforms virtually all of their waking hours.
2. All forms of media consumption will move to mobile platforms, especially the iPad and its competitors and successors, at an increasing rate.
3. Marketers will shift their budgets to mobile platforms (and out of both newspapers and direct mail) at an increasing rate.
4. Consumers will respond strongly to mobile pitches in the form of ads, video, social recommendations, online catalogues, deals-of-the day (like the explosively growing Groupon — an operation newspapers should be partnering with), and other channels yet to be invented.

To play, publishers (both magazines and newspapers) must adopt a number of new strategies. They must:

1. Embrace the mobile web and the iPad. As Ken Doctor said about Next Issue Media, the recently-formed tablet publishing consortium, publishers still have a chance to get this one right (“A Digital Do-Over,” Doctor called it), after having misread signals and failed for the last two decades to catch the online waves consumers were riding. The opportunity for publishers here is to lead their audience, rather than belatedly to follow it. This means walking the walk, talking the talk, from the board room to the mail room.
2. Reinvent their content for the mobile web and the iPad. As Doctor also notes, this is easier for magazine folks, with their visual orientation and design smarts, than it will be for newspaper stiffs. The words “reinvest in our business” need to return to the newspaper world. Let’s devote some of those hard-earned rising profits to acquiring some innovative design capability.
3. Challenge their journalists to develop new streams of content that will attract new readers (like all those digital natives who never even started reading news in print), and built new relationships of trust with them. (This will take some investment, as well.
4. Work with Apple and other mobile platform entities to enable content and advertising personalization. If Apple insists on “owning” the customers, in terms of having the billing relationship, that’s one thing — no different from outsourcing delivery to independent contractors who until recent years “owned” the print customer relationship at most papers; or ad agencies who own the primary relationship with many advertisers. But if publishers are to be players in the mobile marketing game, they must be able to deliver individually targeted marketing messages, and that means having some ability to identify the reader and respond (with permission) to the reader’s profile and preferences.
5. Work with marketers to invent new ways to interact with customers: to facilitate conversations, to blend news, social media and brand messages, to actually sell stuff and facilitate transaction — in short, to leverage those new relationships of trust into brand new streams of revenue.

If they can do that, the rumored argument at the Times about iPad subscription pricing is beside the point, and over time, the Times and most newspapers will be able to move their readership from print to mobile while maintaining, or even growing, a healthy bottom line.

—

Addendum, Feb. 22: Frederic Filloux has posted a Monday Note on iPad opportunities for publishers. He makes a point similar to my strategy No. 5 with regard to the need for Apple to provide publishers with customer usage data:

But the key issue is marketing data. Apple generated a great deal of frustration for iPhone application makers by refusing to handle any data other than basic sales figures. That won’t work for the media industry. Publishers are used to pore over tons of numbers from their subscribers databases; they now data-mine internet traffic numbers. When selling iPad applications, they’ll need to know who gets them, in which markets, what parts of the content readers actually look at, for how long, all of the above broken-up demographics, location, time of the day/week, etc. If publishers want to switch to a test-learn-adapt mode, Apple ought to handle such data. By cutting off access to marketing information regarding its Kindle’s content sales Amazon shot itself in the foot. Apple must avoid this. It should soften its paranoid stance, and help the publishing industry embrace this potentially huge market. It’s in everyone’s interest.

—

Addendum, March 8: For an expanded version of the strategies outlined above, please visit News After Newspapers, where I have posted a white paper, “iPad strategies for publishers,” based on and expanded from the content of this post. The paper was prepared for distribution to members of the Digital Publishing Alliance at their March 7-9 meeting at the Reynolds Journalism Institute in Columbia, Mo.

I realized not long ago that it’s been one full year since that night I drifted off to sleep, (suddenly) secure in the knowledge that this was going to be the new passion and focus of my professional life. With the future looking grim for any single foreign correspondent, it was time to commit to the one good idea I’d been mulling for awhile: a unique, cost-efficient way to produce high-profile world news content online. It would be a few more months before I would actually be operative, but I dozed off that night knowing that with a lot of hard work, a few good friends, and a couple of million pesos of funding, all would fall into place.

How I got to that late-night clarity is a long, not very fascinating story. But what has happened since — both much more and much less than I could have envisioned that night — may be of some interest for those tracking or taking part in the figuring out of where the news business is heading. Banging it out here will certainly be of use to me, to give a quick hard once-over at my past mistakes, and return to the counsel of Lesson No. 11 below.

So here’s the run down of the would-be lessons that I’ve learned — and keep on trying to learn.

1. ‘Plan A’ will not work

How you think it will all go down when you are at your most charged and confident (ie, before you’ve started) will very quickly untangle when confronted with real life. The core concept/product may remain standing, but the two other major pieces — how your content will be delivered/generate revenue and figuring out how to actually get to lift-off — will be ground into chopped meat, early and often.

The fact that the news business and technology happen to be in such flux is not the principle reason for this ground-meat sensation. Much more banally, it’s because you are getting on the bicycle for the first time. Starting something that’s meant to be bigger than a job or a blog is like Grad School and Five-Years-of-Full-Time-Experience crammed into several months. This doesn’t mean you shouldn’t have a Plan A, or B or C, that you believe in to the bone. You should. Just be prepared for it to evaporate — or at least, radically transform — any minute now.

2. Your business plan is not enough (not even close)

The first tangible task was cranking out a business plan, with input from a few select colleagues and a quick tutorial on PowerPoint from my nine-year-old (really). For an old media hack, it was empowering that with just a few strokes of the keyboard I could suddenly be presenting information the way the business world does. But sending off the document by email or pulling it out of a snazzy plastic folder may fool you into thinking you are on your way. You are not. Save some money by not printing out more than one or two copies of the thing, for you will be constantly updating it, and fewer people than you think will be interested in actually reading it.

More to the point, a BP is not enough these days, even for those intrigued by your project. You should really consider, sooner rather than later, getting a live prototype up on a URL. Even if you have a concept that can be well described in a business plan (or on the back of a business card!), it is worth your time and money to have a preliminary version in pocket of THE THING itself. Mine will be ready in a couple of weeks. A bit late, perhaps, but not too late.

3. Partners are the least and most important thing

You may already have a partner. Or a sort-of partner. I had two of the latter, each a colleague and friend, involved at different stages and to different degrees. And I consider both very much still part of the project, and certainly still friends. But it became clear, for different reasons, that they were not going to be partners. Ultimately, I was able to better focus on what I needed to get done when I accepted the basic fact that the project was mine alone.

Still, a fully committed partner (perhaps even more than funding) is what this particular project needs right now, and I wonder if I should have been more clear in my mind about that, and in offering to share it squarely. Of course, it can’t be just any partner. The person or persons have to bring the right skills and energy to the table. But in and of itself, you see in other teams of entrepreneurs the value of having someone as committed as you to bringing the project to life, both in the substance and psychology such an adventure requires. In the meantime, though, it is better to go it alone than to spend energy trying to drag others along with you.

4. Funding is the least and most important thing

I have not actually asked anyone for funding yet, though I have talked both to and about money sources. My Plan A was premised on some basic seed funding from one particular source I had in mind. That didn’t happen — a miscalculation that sent my wheels spinning for a good month. But I soon realized there was plenty to keep me busy and moving forward in refining just what I wanted to build, and how to build it, before I should even be asking for cash. I still have much to discover about this obviously essential piece to the puzzle, but it seems that the challenge is as much in the weeding through the many potential funding avenues — seed capital, VC, media companies, foundations, public support — as it is in facing a shortage of options.

5. Lots of luck with your business model

This is the proverbial moving target for journalism startups and media titans alike. So don’t feel as though your small, still-non-existent enterprise must be the one to figure out whether the future of news includes paid content, whether online ad revenue will take off, whether public money will ultimately be required to support quality news. No, it is not up to little ol you to figure it out — but you must absorb as much of the discussion as possible, and figure out, as best you can, how it will apply to what you are creating. Look ahead. Crunch the numbers. Get advice. And then choose. I’m about to start mine over, nearly from scratch.

6. Hold on to your day job

This question will apply to everyone differently, depending on the nature of your day job, of the project, your personal/family financial situation. Also the urgency question counts: If you feel a rush to market, it may be untenable to hold on to other employment. For me, I have found that it has been extremely helpful on many levels — finance-wise, state-of-mind wise, networking-wise — to continue my other journalism work. It’s also a way to stay connected with the world itself, when a startup project tends to suck you into the process and leave you isolated. After all, it is the affairs of the world — or your town or country — that we will be aiming to deliver in our projects-to-be. Better to stay on top of it.

7. Keep the horse before the cart

This is an ongoing challenge. An idea comes to mind, a potential contact or funding source suddenly stumbles into your universe. The temptation is to jump all over it. But there is a time for everything. Don’t do your prototype if you are unclear about what you want to present; it makes no sense to seek venture capital if you don’t have seed money; don’t cold call someone if you think you can get an introduction. As with Lesson No. 6, you will often find yourself forced to fend off a sense of urgency in order to make the wise decisions. With that said: “Pursue all leads” is another worthwhile dictum, not to mention: “The time is now.”

8. Don’t get sucked into the media industry psychosis

If you are reading this, you are probably already at least halfway down into the vortex. In this case: Keep reading! And there is much in the debate that can and must be applied to each individual project. But spend most of your time focused on what exactly you are trying to add to the ecosystem, and let Jay Rosen (and Rupert Murdoch) worry about the rest.

9. Talk to (almost) everyone

Like most would-be entrepreneurs, I spent the first months shielding my project and concept like a newborn baby in winter. Someone might steal the idea! What will my colleagues think? What will my businesswoman sister think!?

But little by little, I realized that not talking about it was the one guarantee that it would die. You need to feed off of the reaction of others to keep up the momentum: new ideas, your next good contact, encouragement and discouragement…are all intellectual fuel and motivation. But this doesn’t necessarily mean carrying around a bullhorn either, not electronically nor at the dinner table. Find the proper setting and scale of your conversation with the outside world. My new blog is an attempt to chronicle what it looks and feels like from where I sit, and hopefully connect for further collaboration. But even on the blog, I haven’t yet actually specified the precise content and/or business model for my site. That said, there is now no longer anyone I won’t share the project’s details with if they take the time to ask. They should be forewarned that I might not ever shut up.

10. Don’t be paralyzed by what you don’t know

For those employed on the “edit side” of the old media, jumping into online news business worlds means facing the imposing twin mountains of Biz and Tech. My previous entrepreneurial activity was selling t-shirts dorm-to-dorm at college, and I have never been a techie by any measure. The sheer quantity of all the information you don’t know and experience you don’t have can be intimidating. On both fronts — so far at least — by way of both curiosity and necessity, I have managed to get up to speed in how to think and talk on both fronts, with mini discourses about angel investors and PVs per UV now rolling off my tongue!? So much of the basics, of course, is right there on the Internet, if you need to know something specific. And the rest is osmosis. Of course actual execution on both the business and technological fronts after lift-off is something else. For that, check back (hopefully) later this year!

11. Don’t look back

One of the many encounters that sticks in my mind this past year was with someone who had nothing to do with the news business. His name is Jason Jacobs, a first-time entrepreneur, founder of RunKeeper, an iPhone application that helps avid runners track their progress. We met by chance at the LeWeb Internet convention in Paris. A super-fit, high-energy 30ish Bostonian, Jacobs was a walking (running!) metaphor. At least 18 months and several hundred thousand customers ahead of me in our respective startups, he just let all his experiences roll out in a steady 10-K of advice and encouragement. Though his project was in serious take-off phase — and his product had little to do with mine — much of what he said in our 15-minute chat could be applied to what I was doing and experiencing. His conclusion capped the metaphor: “Keep moving forward. Do whatever you have to do to keep moving forward.” The road is long, but the highs and second winds will come, sometimes even on the uphills.

Rafat Ali is founder, publisher and editor of ContentNext Media. Reuters described its success well: “ContentNext’s flagship paidContent, founded in 2002, has quickly established itself as a must-read among executives in the media and digital media sector.” PaidContent has indeed a daily stop for those involved in the business of news, media, and entertainment industries. In addition, the company runs parallel sites for the United Kingdom and India and around mobile content.

Q: PaidContent filled a niche no one had previously seen as clearly as you did. How did you see the niche, define it, and make sure you got it as focused as you could?

A: This was the depths of Internet recession in 2002 in New York City, and I was looking for a way to raise my profile, and this seemed like a good way to showcase my skills as an online journalist covering online media and the Internet. I was aiming for a new job with the likes of WSJ and CNET then. Of course, no one was hiring in those days, much less hiring an online journalist covering online media.

I was working for what then was Silicon Alley Daily, the online and email remnant of the magazine Silicon Alley Reporter. I joined it right after the print magazine closed, and online and the email newsletter remained. There, after a few months of working, I was the last man standing, sort of, as the company started to lay off other journalists, and I learned to do a lot more with a lot less, including editing my own stories.

The daily coverage meant I saw the trend: Online advertising had tanked, and a definite trend toward premium and subscription content online, with sites such as NYTimes.com, TheStreet.com, Salon.com and others experimenting with it. The idea — even then — was that this wasn’t the only way in a downturn, but that it was essential to experiment with all sorts of revenue models, and having multiple legs meant overall some would work better than others as economic cycles came through.

As the economy came back, so did advertising online, and the paid content trend went on the backburner for most of the online publishers. The key for us was focus: covering the money flow for online media, where it went in and how it came out. As long as we were at the intersection of technology and how it affected the business models and financing of digital media, we were safe as a viable business. PaidContent began covering all the ways in which content gets paid for, and covering it across all sectors and geographies. That also meant defining “content” in as broad a manner as possible, across tradition and new media, entertainment and information sectors, with the focus being on content aimed at and generated by individual consumers.

Q: You’ve combined business coverage of entertainment and journalism businesses. What major idea should news publishers take away about the relevance of the entertainment business to their own business models?

A: Entertainment was the lowest-hanging fruit, and the first to be affected by the changes in digital media, as consumer consumption patterns changed. I saw and covered firsthand the decimation of the music industry with the advent of Napster and realized that this was going to happen to the news business very soon. Both these legacy businesses were built on the economics of scarcity, something that digital media did away with. Also, packaging as defined top-down didn’t matter anymore in entertainment, as the remix culture took hold, and the same became true very soon for the journalism and news businesses as well. What is different is that great investigative journalism has a lot more civic value than great entertainment, and funding that requires a lot more creativity than publishers have displayed till now.

Q: What’s the moment when the lightbulb went off on how the economics of this new digital business would be radically different from legacy publishing?

A: It would be clichéd to say it was the advent of blogging, but, for me, it was when Blogger.com launched in late nineties. That showed how easy it was to publish, and how it could be used to deliver news, opinion, and aggregation in a very efficient way. Also, a few years later, it was the advent of RSS feeds and newsreaders, and how news packaging as defined by publishers went away. It really defined how personalized interest areas defined by users would be the way going forward. Monetizing this age of dispersed media was very different, and was on a very different scale and margins, than legacy. The cost of experimenting with any of these innovations came down dramatically, and publishers had to learn how to do a lot more with a lot less, and at the same time, competing with a lot more sources online.

Q: What lesson in digital publishing do you wished you’d learned faster?

A: I underestimated the value of comments when I was building the business, back in 2002–2003, and adding community later became a lot more difficult for us down the line. For us, it was about giving the news as accurately and efficiently as we could, and my contention was that our expert readers could form their own conclusions and opinions on it. We did have pithy analysis and opinion occasionally, and continue to have it, but later on we learned that a heavy mix of all of it is what the users wanted. In some senses, we were top-down too, and that we should have rectified sooner. Also, blogging in a specific trade vertical means you will hit a scaling issue (getting big enough, fast enough) sooner or later, and that means building replicable models in other verticals (content niches) too. We also should have learned that lesson sooner.

From Newsonomics by Ken Doctor. Copyright 2010 by the author and reprinted by permission of St. Martin’s Press, LLC.

Phil Balboni launched GlobalPost in January 2009, just as many news companies were further reducing international reporting. He acted on a forty-year-old idea he’d had about bringing back global news to American audiences — and had seen that the ability of Internet efficiencies now made it possible. GlobalPost is his second career; he founded and ran the award-winning New England Cable News (NECN) business for many years. Now he can look out on the harbor, where clipper ships came in, and beyond, to his growing network of more than seventy correspondents working around the world.

Q: How did your cable news experience inform your GlobalPost plan?

A: There are quite a few, seminal lessons learned from NECN. First, the enormous value of more than one revenue stream and not being solely dependent on advertising.

The most important thing I did on the business side of NECN was throw myself totally into building distribution and selling the network to cable systems — always for cash and never for free. This generated over time enormous growth in steady, reliable revenue that was recession proof and not subject to the ups and downs of the ad market. In my final year, thanks to new contracts with new distributors like Verizon, we were headed toward a double-digit net revenue increase from license fees. Second, the essentiality of intelligent cost control.

Finally, quality works. In journalism, this is generally not believed and, therefore, virtually all media companies chase the largest audience with the lowest common denominator content. We started with a determination to be the high-quality provider of local news on television in New England. We also knew that we would never be the most viewed station with the highest ratings. We created our entire operation and our entire business to be able to be successful as a high-quality provider of content and to live happily with the smaller number of people who wanted an intelligent news product.

Q: What’s the moment when the lightbulb went off on how dramatically this new digital business of journalism would be radically different from legacy media?

A: For me, it was probably the fall of 1997, when we launched necn.com as the first all-video-news web site — perhaps in the world, certainly in the United States. There were probably not more than a couple of dozen broadband connections in the Boston metro area, but we believed in the promise of digital, of being interactive, of letting people have what they wanted in the order they wanted it, and only what they wanted.

And then I saw how slowly this built, how long it took for people to catch on to the power of the web to deliver video, but we never doubted that we were doing the right thing, and today the power of video has swept over the Internet.

Q: What have you learned about the role — and economics — of bloggers that surprised you?

A: I am constantly amazed at the enormous scope of blogging and the immediacy of its viral power. I would never have expected it to have come this far but it has, and shows no signs of any significant slowdown. To the contrary, the economics are generally not there, and blogging is not of great interest to advertisers. There are certainly some exceptions, but I don’t see this changing much. It is more of a social networking and intellectual engagement tool than an economic one.

Q: Is this “freelance stipend” model a big part of journalism’s future? [GlobalPost correspondents are generally not full-time employees; they're paid a regular stipend as freelancers in exchange for a set number of pieces a month.]

A: I do believe that it will be a meaningful part of the future for journalists as the large and well-endowed media companies disassemble. It puts the burden on the journalist to cobble together the means of his or her support, but, on the other hand, it offers more freedom, more flexibility, and more creativity than being yoked to one entity. We do hope, and expect, to reward the best of our correspondents with compensation that will look more and more like full- time payment. That depends on our overall economics, of course, but it is part of the game plan for GlobalPost.

From Newsonomics by Ken Doctor. Copyright 2010 by the author and reprinted by permission of St. Martin’s Press, LLC.

That all sounded like fun to us, so Jonathan Stray, the journalist/coder who built Paywall! for us, has kindly agreed to share his work, in the form of the original Flash source file (.fla) he created to build the thing. (Jonathan did this in between calls to Jürgen Habermas.) This’ll only be of interest to Flash jockeys and aspiring Flash jockeys, but if you do build something off of the code, do let us know. Here’s the file.

The New York Times’ announcement that it would be charging for some access to its website, starting in 2011, rekindled yet another round of debate about paywalls for online news. Beyond the practical question (will it work?) or the theoretical one (what does this mean for the Times’ notion of the “public”?), there remains another question to be untangled here — perhaps one more relevant to the smaller papers who might be thinking of following the Times’ example:

What is the underlying economic value of online news, anyway?

Media economist Iris Chyi [see disclosure below] has a few ideas about this problem. An assistant professor in the School of Journalism at the University of Texas, she has been researching the paid-vs.-free, print-vs.-online conundrum since the late ’90s. Her research has consistently found that even while online news use continues growing, its preference lags behind that of traditional media. In other words: Even as audiences transition from TV/print news consumption to the web, they still like the traditional formats better for getting news, all other things being equal.

Now, this seemingly makes no sense: How could a format as clunky, messy and old-school as print “beat” such a faster, richer and more interactive medium on likability?

Chyi believes she found the answer in the economic principle of “inferior goods.” The idea is simple: When income increases, consumers buy more “normal goods” (think: steak) and fewer “inferior goods” (think: ramen noodles). When income goes down, the opposite occurs (again, all things being equal in economics terms). Inferiority, in this case, isn’t so much a statement of actual quality as it is of consumer perception and demand. If we get richer, our desires for steak go up and our desires for ramen go down.

What does this mean for journalism? “Users perceive online news in similar ways — online news fulfills certain needs but is not perceived as desirable as print newspapers,” Chyi said.

She and co-author Mengchieh Jacie Yang make this point through an analysis of data on news consumption gathered from a random sample of U.S. adults; their findings are published in the latest issue of Journalism & Mass Communication Quarterly, the flagship peer-reviewed journal for AEJMC. (See the related news release, overall highlights, and the full-text PDF). Chyi and Yang summarize their key findings as follows:

This analysis, based on data collected by the Pew Research Center in 2004, identified a negative relationship between income and online news consumption: When income increases, online news use decreases; when income decreases, online news use increases, other things (demographics, news interest, and/or other news media use) being equal — suggesting that online news is an inferior good among users. In contrast, the print newspaper is a normal good.

Such findings, at first glance, may surprise media scholars as well as online news professionals. After all, in communication research, no news products have been labeled as inferior goods before. In addition, major U.S. media companies have invested heavily in their online ventures, offering an array of interactive features and multimedia content — most of which are unattainable by print newspapers. It is therefore difficult to understand why online news could be an inferior good. Yet, from an economic perspective, “goods are what are thought of as goods.” Any product’s economic nature is determined by consumer perception and response. Based on this particular data set, which consists of survey responses collected from a national sample of online news users by a major polling institution in 2004, online news is an inferior good among users.

Clearly, the use of 2004 data is a limiting factor here (although the authors explain why more recent Pew surveys couldn’t be used for this kind of question). Yet, if we accept these findings, we’re left to unravel two mysteries: Why is online news perceived as an inferior good in the first place? And what should that mean for the future of web journalism?

On the first question, there are at least several possibilities, as Chyi suggests. Maybe the computer screen just isn’t an enjoyable reading device. (And how might that compare with smartphones and e-readers?) Or maybe online newspapers still have content/design problems — think of all the ads for teeth whitening and tummy tightening, not to mention the general lack of contextual cues afforded by print. Or maybe it’s simply because online news is free — and, as behavioral economics research has indicated, sometimes consumers perceive higher-price products as more enjoyable. In any case, as Chyi puts its: “More research, as opposed to guesswork or wishful thinking, on the perception of news products is essential.”

Then there’s the second question: What does this suggest about the future of online news? Perhaps nothing too dire, as people still do pay for ramen noodles when it suits them — when the price, convenience, or alternatives make ramen noodles the preferred choice. This isn’t to suggest that consumers invariably will pay for online news, but rather that they might if the perception calculation is right.

The key here is to recognize that consumers are rapidly adopting online news not necessarily because they prefer the medium to print, but because online news is “good enough” — cheap, convenient, flexible, and sufficient to satiate our information cravings. (This takes us into territory related to disruptive innovations and fidelity vs. convenience — interesting stuff, but something for a later post.) But the danger is in taking a “platform-neutral” approach if that leads one to assume that content value remains constant between print and online — that, basically, you can charge for content either way. Chyi suggests that is like trying to market ramen noodles as steak: Newspapers do so at their peril.

So, what does all of this say about the Times and its paywall? Perhaps not much because, after all, “the Times is the Times.” Yet, the notion of online news as an inferior good highlights a few salient points for thought: (1) news usage doesn’t always correlate with preference, counterintuitive as that is; (2) publishers hoping to charge for niche content need to understand where their offering fits in the normal-inferior goods relationship, and how that should affect pricing and marketing strategies; and (3) there’s a critical need for R&D to help us grasp why consumers perceive online news as inferior, and how that perception might vary among different demographics of users and/or according to different types of news content.

In the meantime, enjoy your ramen noodles.

[Disclosure: Chyi and I have collaborated on several research projects through her Media Economics Research Group in the School of Journalism at the University of Texas — including a recent peer-reviewed article on newspapers' effectiveness in penetrating the local online market (PDF). Also, she's currently a member of my dissertation committee.]

Photo of ramen by Broderick used under a Creative Commons license.

It’s not just newspapers struggling to find their way in the digital era. Many content companies — broadcasting, film, music, publishing, and gaming — are grappling with the same business model uncertainty.

In a recent survey (pdf), the consulting firm Accenture asked 102 content-industry leaders to pick the biggest hurdle they face. Overwhelmingly, executives pointed to the hunt for a viable business model. And since they’ve asked the same question (sort of — see below) for three years, we can look at how execs’ thoughts have shifted over time.

First, the data shows a clear decline in what Accenture calls the “pay-for-play” concept — something like what we in the news context would term micropayments or “the iTunes model.” In 2007, 23 percent of respondents were banking on micropayments as the next top business model. In 2008, that number dropped to 11 percent. In 2009, it fell to just 8 percent.

But beyond that, the changing nature of the options Accenture gave respondents muddies the waters a bit. In 2009, the survey included two new options: “freemium” (some content remains free, users can pay for extra content) and “hybrid” (a combination of different models, like ads plus a subscription). One could easily argue that freemium is a type of hybrid, and for the chart above, Accenture chose to combine the hybrid responses with advertising ones. (The 60 percent you see above is actually 39 percent advertising, 21 percent hybrid.)

I spoke with David Wolf from Accenture’s media division about what we should take away from the findings. He said that the clear takeaway here is that “hybrid” models are the next big thing. “The only thing we can discern as we get through our research and look at it is there is no business model clearly emerging as ‘the one,’” Wolf explained.

Going hand-in-hand with a hybrid business model is an aggressive transition to a multi-platform delivery strategy. “What we conclude [from the survey] is that the platforms and the growth need to be viewed as integrated,” Wolf explained. “How do we create offerings that span the screens?” About 65 percent of respondents said new platforms or method of delivery is where they’ll find business growth next year, compared to 25 percent by creating new content, and 10 percent by expanding to new geographic areas. Those are all roughly similar to previous years.

Another trend to watch is the media industry moving toward a more personalized use of data. Rather than thinking about audience in broad terms, Wolf predicts media companies will get better at tailoring to individuals the way a hotel chain attracts customers with loyalty programs. Where companies once went after a demographic group like tweens, Wolf mentioned, “we’re changing that mindset” to something much more individualized.

Last year saw no shortage of future-of-journalism conferences. But if 2009 was dominated with talk about business models for news, perhaps 2010 will be the year we hear more about education models for news.

The ongoing discussion of pay models has led us to think more critically about forms of press subsidy — to recognize that all journalism is subsidized to some extent, that each type of subsidy comes with its own kind of strings attached, and that journalists of the future will have to be more proactive in understanding sources of funding or finding ways to innovate their own. All of that talk is healthy for journalism.

Likewise, a wider debate about journalism education might lead us to ask some soul-searching questions, beginning with the existential one: What is journalism school for, anyway? If j-schools historically looked to the industry for leadership and jobs for their graduates, how should they orient themselves now? What happens when much of our journalism education has been built up around the “newsroom paradigm” of training 20-somethings to operate in a traditional organizational setting — at a time when media work (of all kinds, not just journalism) is increasingly individualized, temporary, and precarious? Even more, at a time when the future of higher education itself is in major flux, what becomes of journalism education’s place in the university and society at large?

These questions have been on my mind lately since I was invited to join the Lab as a contributor covering the evolution of the j-school. I won’t profess any more expertise than my own experience in j-schools (as an undergrad, and now as a Ph.D. student at the University of Texas), as well as the perspective I’ve gained recently after touring several major j-schools as a candidate on the academic job market. I had intensive two-day interviews at three schools, all major programs in different parts of the United States, and also engaged in half-hour phone interviews with another four programs, most of them of the Big J-School variety.

In each case, my interviewers posed a question that went like this: “What should we be teaching today?” This wasn’t a loaded question, a guess-what-the-teacher-is-thinking sort of test. They sincerely wanted some fresh ideas, as it was clear that just about every school is grappling with curriculum reform.

So, what do we teach?

After fielding that question at least a dozen times, I finally settled on this talking point: It’s about adaptability. We’re never going to find the silver bullet, so instead let’s teach students to be flexible — to work in unpredictable settings, to generate their own funding as needed, and otherwise learn as they go. We can do that by using a curriculum that is similarly flexible, adaptive to technological and cultural trends in society even while it retains bedrock values of truth-seeking and fairness.

That plan is imperfect, of course, but it’s a start. Looking ahead, I hope to draw on the wisdom of others in blogging about what j-schools large and small are doing for 2010 and the uncertain future beyond. For starters, I’m reaching out to the deans and directors at the 12 schools funded by a multimillion-dollar Carnegie-Knight initiative on journalism education to see how these schools — arguably the biggest players in the field — are responding both to the contractions among legacy media and the opportunities for growth elsewhere.

But, in the meantime, I would also like to hear from all of you, readers of the Lab: What should the 21st century journalism school look like? Would it have a more DIY focus to prep students for freelance careers? Take a more project orientation, as in Jay Rosen’s Studio 20? Focus on teaching the right mix of analog and digital skills, as Ryan Sholin suggests? Or try to become part of the wider academic curriculum — a sort of “journalism school for all” general-education requirement, as Dave Winer recommends?

What are your ideas? Drop them in the comments, or if you think there’s something I should cover in a future post, e-mail me directly at sethclewis@gmail.com.

Photo by Fabrice Florin used under a Creative Commons license.

It’s finally here: At 1 p.m. Eastern (10 a.m. Pacific) Wednesday, Apple CEO Steve Jobs will walk onto a California stage and — unless a lot of tea leaves have been read spectacularly wrong — announce the new Apple tablet, a device that will save the news industry, the book industry, the magazine industry, and probably the rubber band industry too. At least that’s what some have argued. The truth is probably a little more nuanced.

There’ll be no shortage of coverage of the event, but we’ll be approaching it a little differently: We’ll be liveblogging the tablet’s unveiling from a journalism-centric perspective. We’ll tell you what’s announced as it’s announced (by piggybacking on the live coverage of tech blogs like Gizmodo and Engadget), but we’ll also be covering what it means to journalism and the industries that support it.

I’ve invited some smart commentators to join me (more on that later), and we’d love to get your thoughts throughout the unveiling. So come join us at this URL at 1 p.m. EST (we’ll actually open the doors a little earlier, around 12:30) and figure out for yourself whether the reality has any connection with the hype.