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

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

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

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

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

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

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

[audio:http://www.niemanlab.org/audio/stevebrill.mp3]

 
Previously: “How Steve Brill pitched newspaper executives on charging for online content” and “Micropayments? Steve Brill isn’t optimistic on per-article fees.”

Zach Seward: My, my eyes immediately dart to the 88-91 formula. Seems interesting. I wondered what the calculations are behind that. You know, that, or where is that coming from?

Steve Brill: Well, it’s part of a rather complicated set of models that we’ve been using and testing, and that my partner Gordon Crovitz has some experience with at The Wall Street Journal, although those aren’t the exact numbers that I think characterize the Journal. I think their numbers are actually better than that.

But so it’s based on a lot of different calculations of, for example, how much, how many more page views subscribers engage in than non-subscribers because they’re much more avid consumers of whatever. And it also has to with whether you’re, you know, is the last the last 10 percent of your advertising— you know, if you lost the last 10 percent of your advertising inventory, would you lose 10 percent of your advertising revenue? Obviously you wouldn’t because that’s the stuff you’re selling as remnant space, et cetera.

So the key is to figure out how to optimize your ad inventory and at the same time that you’re targeting your most avid readers as the people who you’re asking to subscribe— at the same time that you’re offering lots of samples and lots of, in effect, you know, free circulation to more casual readers, which keeps your page views up and keeps your ad revenue up.

Seward: Sure. Does the Journal then become a model of what you’re talking about here?

Brill: No, the Journal’s numbers are different.

Seward: Sure. Then maybe not a model so much for the, specifically the 88-91 numbers.

Brill: It becomes the one of many case histories of publishers that have successfully been able to do this.

Seward: Fair enough. And in all the cases, we’re talking about leaving much of the site open to anyone and essentially picking what content can be charged for?

Brill: Yeah, and I think there are several operative dynamics there. One is, people who— the most avid users will pay for the convenience of knowing that any page they look at, anything they want to see, they’re not gonna get a wall that confronts them.

And second, that there are lots of different ways to skin that cat. For example, if you made the headline and the first two paragraphs of everything free, you’d get a lot of page views out of that, even at the same time that you were charging people who wanted to read further. So that would be one type of method to do it.

Seward: And that comes into play in calculating 88-91?

Brill: Yeah.

Seward: Sure. How do you, I guess, how do you even begin to make that calculation without knowing what a paper’s strategy would be for how much content they charge for?

Brill: Well, part of it is we help them develop that strategy to get them toward that kind of goal. Now, that could be different— The danger of looking at any of those slides in isolation is, as we try to explain there, that’s a generic model. But, for example, just take the most obvious example. If your advertising is yielding not a whole lot of money, and yet you think you can charge a lot for your circulation, then you wouldn’t care as much about losing even 20 percent of your ad revenue if 20 percent of x is a low number—

Seward: Mmhm, sure.

Brill: —than you would if 20 percent of x is a high number. So these were meant to be, you know, illustrations of how you could apply the most important principle, which is, this is a hybrid model, and it’s not an either-or proposition.

Seward: Sure.

Brill: Because what, I mean, basically, we developed those slides because in the first conversations we were having at the very beginning — and now this has changed dramatically ’cause I think everybody understands this — but in the first conversations, you know, publishers who were saying, alright, I get $10 million a year in online advertising revenue, so you have to show me where I’m going to get $10 million a year in online circulation revenue because if you don’t, I know I’m going to lose my $10 million in online ad revenue. So if you say to them, well, actually, you may lose a $1 million in online ad revenue—

Seward: And the ad revenue on the subscribers, you’re assuming, is a higher CPM?

Brill: Yeah. So you may lose that, but you’re going to gain circulation revenue online and, equally important, you are going to improve your bottom line on your print side because your cost-per-acquisition for print subscribers is going to go down because you’re suddenly going to be able to order, to offer bundles. So you’ll be offering me, if I subscribe to the print model, a discount on my online subscription.  

Now, there are two things going on when you do that. The first is, I’m seeing I’m getting a discount for doing something, which is always a way to help, you know, you know, to improve sales.

Seward: Sure.

Brill: Second, underlying that whole thing is the message, by the way, if you don’t buy the print, you’re not getting it for free online. So stop thinking of that as your alternative. And that’s a, you know, that is a really kind of suicidal alternative. At the same time that newspapers are declaring, well, we have to charge more for our print subscriptions, and yet we’re still free online.

You take someone like, you know, my 25-year-old daughter, who might be intrigued by Jon Meacham‘s new version of Newsweek, and she might even be willing to pony ’cause she has such a generous father, you know, the increased newsstand price of the new Newsweek. But all of that will stop her in her tracks when she says, Oh, wait a minute, Meacham’s giving it to me for free online so why do I have to do any of this?

Seward: Sure, sure.

Brill: And as a 25-year-old, she’s just as comfortable, if not more comfortable, reading it online than she is getting it at a newsstand.

Seward: Right, well, I’m her age group, so I get that [inaudible], for sure. In the, in your examples, you refer both to annual and month-to-month subscriptions as well as micropayments.

Brill: Yeah. We’re, our e-commerce engine is going to offer all of those things so that publishers can experiment and decide what works best.

Seward: Sure. So when you refer to micropayment [inaudible], obviously we’re talking hypothetically here, but if it’s a micropayment of a quarter per article, and then you say, with a total of 6 per subscriber per month. What does that mean?

Brill: That was just meant to quantify ’cause we were saying 5 percent of the paying customers will be micropayers. We wanted to figure out, well, what kind of revenue can you ascribe to that. So we said, alright, let’s say they do an average of 6 per month, or whatever we said there. Now, it could be that it’s 10 percent, and they do an average of 2, but we were just trying to get to some numbers.

Seward: Sure, okay, fair enough. I just wanted to—

Brill: Yeah, and our view, as you can tell from that, is that we don’t think micropayments are going to be a huge part of this deal, but who knows? That’s the whole point of trying everything.

Seward: Sure. What, what’s your skepticism there?

Brill: I think that people really want — especially given that the, you know, they way we’re gonna have a common password across all platforms, all newspapers and magazines — that they’ll go for the convenience of just having a subscription as opposed to stopping and buying something. Even though, in our case, when they have to stop and buy it, they’ll just have to do it with one click because they’ll have a password. They won’t have to set up an account every time they want to spend for an article.

Seward: They’d essentially be told this is, this costs you whatever, and you’re already signed in—

Brill: Click here, put your password in, and you’ll just get charged whatever it is, if it’s 25 cents.

Seward: Sure.

Brill: So it will eliminate that piece of it. But still, my gut is that subscriptions will win the day, but I don’t want to bet on it—

Seward: Sure.

Brill: —because I could be completely wrong.

Seward: So the assumption here that’s not written in the side is 95 percent are annual or—

Brill: Or monthly, yeah. And 5 percent come from micropayments.

Seward: Sure. Is that the assumption on all the slides? Just if I’m—

Brill: Yeah.

Seward: After we get off the call, I’ll just run the numbers in my— or not in my head, unfortunately.

Brill: Yeah.

Seward: For setting a price point, I again I know we’re talking hypothetically, but does a $60 online subscription for one year of a regional newspaper seem like a decent point to start at?

Brill: We just put that in as a hypothetical model, and when we were asked, when I was asked that at the newspaper meeting, I said it’s purely hypothetical, and in some of our models it’s 50, in some it’s 70, and in some it’s less than.

But it’s just, especially in a group, I mean, I think it was, you know— I don’t think it’s a great idea for us to be making these presentations in groups — and we might not even make any anymore — because we just prefer dealing with publishers individually, stressing that they are gonna make individual decisions about whether to charge, how to charge, what to charge, monthly, daily, annually, three samples before you charge, five samples. And that’s not a conversation we feel comfortable having in a group.

Seward: Sure. I guess there’s paradox, right? You want to negotiate individually, but it, but the plan only really works if there’s some sizable group that allows you to have a—

Brill: No, I don’t think that’s right, actually.

Seward: OK, go ahead.

Brill: The reason I don’t think that’s right— I mean, someone at a, we were meeting with the publisher of a major, you know, city newspaper, not a national newspaper, but a big city newspaper. And he said, well, what do you think you need to achieve critical mass? I said, in this town, I’m looking at it. Which is to say, this thing that, you know, if you’re the publisher of a newspaper, you know, in a major city, one assumes your, your reporting, especially on local issues, is really the critical mass, especially if you’re the only newspaper in that city.

Seward: At this point, I guess it’s fair to say in most cities, that they’re unrivaled, but there’s certainly a working theory out there that the minute any of those big-city papers start charging, they’re going to encourage competition that they don’t currently have. That the free blogs that are much derided now for not providing reporting will, in fact, you know, begin to put up much, much more competition—

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

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

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

Seward:  So, what are we talking about, 5 or 10 percent of monthly uniques?

Brill: Yeah.

Seward: OK, ’cause also, and again, I’m playing devil’s advocate, pushing back on this. The, you know, most of monthly uniques are kind of junk, right? It’s the reader who lands on the site once, maybe, because they came through a referral—

Brill: Yes, that’s why I’m saying 5 or 10 percent.

Seward: Right. But we think if— So what’s that based on, that it could be that portion?

Brill: Well, for example, the Journal’s experience, it’s more than 10 percent. Much more.

Seward: OK, sure.

Brill: And some local newspapers that have done this have been able to attract more where they’ve done it gradually, and gradually turn the faucet. So, but that’s why we’re starting low.

Seward:  Hmm. Right, OK, alright, fair enough. I think, ’cause one of the things people bring up is, if you looked at, instead of monthly uniques, a statistic like how many people come to a news site even just three times in a month that suddenly, I mean, that’s a much smaller number, obviously. Are you using any of those metrics to determine the 5 or 10 percent?

Brill: Yeah, I mean, again, that is the way we get to such a small fraction.

Seward: OK.

Brill: It’s all of those things. I mean, and then, you know, there’s another piece that actually cuts both ways. There are some newspapers — for example, some overseas — that have a ton of monthly uniques. But only like a third of them actually live in the country where the newspaper’s published.

Seward: Sure.

Brill:  Now, what that tells you is, is the advertising that they’re getting from those visitors is probably next to nothing because most advertising online is not thinking about the fact that if I’m a English newspaper, you know, I have all these people in New York.

Seward: Yeah.

Brill: You know, it’s British Telecom advertising or Sky News or something.

Seward: Sure.

Brill: So, the reason I say it cuts both ways is, those are likely to be casual visitors who just found something in a search.

Seward: Yeah.

Brill: That’s the bad news. But the good news is that if you sacrifice them, you’re not giving up any advertising revenue. And the better news is, if they really want to read your paper in London, and they’re in New York, they’re obviously going to buy it online, ’cause it’s not like you can go down to the newsstand and buy it.

Seward:  Yeah. That’s funny, ’cause I don’t know if we’re talking about The Telegraph, but I know, in their experience, that they do so well on like a site like Digg, but then like you’re saying, those readers are just not—

Brill: I’m not talking about any particular—

Seward: Sure, but they’re not. If someone coming from Digg, the threshold to pay, even if it’s a micropayment, is very high.

Brill: But if someone’s coming from Digg who already has an account—

Seward: Sure, it makes it a little— It lowers the threshold, certainly.

Brill: Yeah.

Seward: Right, OK, fair enough. In terms of the micropayments, in your account, I mean, do you envision it, if it were to catch on or work, that you’d essentially have some amount in the bank? Or, you know, sort of an E-ZPass sort of system?

Brill: Could be. Yeah, I mean, there are several alternatives we’re looking at, and we’re probably going to adopt all of them. You wait a month before you charge their credit card, or they have a PayPal-like account. You know, we may even use PayPal to do that, though there are lots of possibilities.

Seward: Sure. A few more questions about other slides, but before I ask that, I just, were there other— Did you get pushback at the meeting in any way that, you know, made you come back— Or were there other particularly interesting questions you got that might help explain some of these slides?

Brill: Not really. The only, again, the only thing that gave me hesitation was I, I’m just not comfortable with the idea that there’s going to be any kind of a group decision.

Seward: Sure.

Brill: And I think the staff of that association is trying to steer them that way, and I’m not sure that’s a very good idea.

Seward: Right, right. Not a good idea, I mean obviously there’s got to be antitrust concerns but also because?

Brill: Well, it’s a combination of antitrust concerns and the fact that groups making decisions take a notoriously long time.

Seward: Sure. So just briefly on the other slides, there’s reference to, or how did you put it, “restoring the balance of power” with search engines, and then you just sort of, I assume you’re referring to some news aggregators as well?

Brill: Yeah.

Seward: What are we talking about there? I mean, is that through legal avenues?

Brill: Through legal avenues, perhaps, but it is more through just the ability to, you know, level the playing field by negotiating from strength.

Seward: That sounds like something that maybe, where being a group is much more of an advantage than what we were previously talking about.

Brill: Yeah, but that’s a different kind of group. That’s not a group deciding what they are doing vis-a-vis the consumer.

Seward: Sure. I was interested, I hadn’t seen — maybe it had been reported, but I’m not sure — David Boies and Ted Olson‘s names. Are they on as, I presume, as legal counsel?

Brill: Yeah, they’re both old friends of mine, and when I started thinking about this a month or two ago, I decided — well before the, their current effort together—

Seward: Oh, right, sure, in California?

Brill: —they wanted me to just to get them involved in this.

Seward: In what sort of role?

Brill: Well, in part — smaller part than the larger part — in part, to give us antitrust counsel, which we’re operating under, and second— We want to make sure, we don’t even get close to a line, let alone go near a line. And second, to formulate negotiating strategies with some of the third parties we’ve been talking about.

Seward: Alright, and so when I get off the phone and crunch the numbers again with some of the assumptions we went over, anything, are there any other assumptions that were sort of built into these slides but not written out here that I should keep in mind?

Brill: Well, there are a lot built into them that aren’t written out, but they’re more sort of subsets of how much, what’s the current CPM someone is getting, how much will that rise among, you know, how much, how different will the CPM for subscribers be, how many more page views disproportionately will they provide. I mean, all that stuff is sort of baked into that.

Seward: How ’bout on the page views, what is, is their a working assumption in these slides at least on what—?

Brill: I don’t have it in front of me, but the, I mean, the assumption is that the people who end up subscribing will on average provide a significantly higher number of page views per month than those who are, who had been getting it for free and are going forward getting it for free.

Seward: But tenfold, a hundredfold?

Brill: Nah, that’s probably, you know, a conservative, you know, 30 or 40 percent. Something like that.

Seward: OK.

Brill: It’s much lower than the reality that anyone’s experienced.

Seward: OK, fair enough. And did you get skeptical looks, encouraging looks on some of these assumptions?

Brill: I’d say we didn’t get really any skeptical looks at all. I think by the time we— By the time I was in that room, I had met with at least half of the people— You know, we had met with at least half of the people one-on-one who were in that room. And, you know, I didn’t feel that kind of skepticism. I think they’re, they’re just trying to decide what to do. I just don’t think they should be deciding it as a group.

Seward: Sure. Are you at a stage of signing with anyone or—?

Brill: Yeah. I mean, we’ve signed a couple, we’re going to sign some more, but we’re sort of holding off on making any public announcements about that, probably for three or four weeks.

Seward: Sure. When we talk, when we say signed, that’s, I mean, signed a deal deal, not just — I see the steps slide — so not just a non-disclosure agreement but a, but a contract?

Brill: Signed a letter of intent.

Seward: OK. And we’re talking about big city newspapers or—?

Brill: I’m just not going to go any further.

Seward: Fair enough, fair enough. And so—

Brill: Good try.

Seward: [Laughter] I have to try. The timeframe, then, is announcing some of those in three to four weeks?

Brill: Probably, yeah.

Seward: And for you guys, what’s the next, what comes after that?

Brill: Well, what comes before that is we’ve got a lot more talking with them to do, and we’ve, we’re talking with some potential partners. There’s a lot of moving pieces going on, but then, I mean, what comes after that, as that slide indicates, is with the ones who’ve signed as affiliates, we sit down with them and really device a model using their real numbers and our real assumptions, so that they get comfortable with a plan for, fo starting to do this.

Seward: Sure. Find out what their current CPMs are—?

Brill: Yeah, exactly.

Seward: What they think the price point is in their particular market?

Brill: Yeah. I mean, there are all kinds of assumptions in there such as their cost per print acquisition.

Seward: Oh, yeah, that seemed very high to me. I know, that’s not something I’m very familiar with, the cost, the print acquisition cost but—

Brill: If you do the all-in circulation costs of a newspaper, it is not that high.

Seward: Which is, by which you mean, so not just the—?

Brill: Television advertising, radio, call centers, the whole thing.

Seward: Fair enough. Well I guess that’s— It worked when it worked, and I guess—

Brill: Yeah. [Laughter]

Seward: Alright, well, Steve, thank you very much. I really appreciate this, and I just wanted to say I was a Brill’s Content subscriber back when, when did, what years were those?

Brill: 1998 to 2001.

Seward: All right, so I was—

Brill: Well, thanks.

Seward: So I was in middle school when the first issue came out, but I have a complete set back at home.

Brill: You really lowered our demographic.

Seward: [Laugher] Yeah, I’m sure.

Brill: Take care.

Seward: I appreciate it.

Brill: Sure enough, bye-bye.

Seward: Bye.