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Another milestone passed for newspapers: The Boston Globe is the first local newspaper to have more digital subscribers than print
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Oct. 28, 2010, 10 a.m.

The Newsonomics of the third leg

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Most publishing stood proudly and stably on two feet, for decades.

You got readers to help pay for the product. And you got advertisers to pay as well. While American newspapers dependably got 20 percent of their revenue from readers, European ones have gotten more than 30 percent and Japanese ones more than 50 percent. In the consumer magazine, trade, and B2B worlds, the splits vary considerably, but the same two legs makes the businesses work.

Even public radio, seemingly a different animal, has followed a similar model. Substitute “members” for subscribers and “underwriters” for advertisers, and the same two-legged model is apparent.

In our digital news world, though, the news business has been riding, clumsily, a unicycle for more than a decade. Revenue — other than the Wall Street Journal’s and the Financial Times’ — has been almost wholly based on advertising. So, that’s why we’re seeing the big paid content push. “Reader digital revenue in 2011!” is the cry and the quest, as the News Corp. pay walls have gone up, Journalism Online hatches its Press+ eggs, The New York Times prepares to turn on its meter, and Politico launches its paid e-newsletters. They all have the same goal in mind: digital reader revenue.

The simple goal: a back-to-the-future return to a two-legged business model. (See Boston.com’s New Strategies: Switch and Retention). We’ll see how strong that second leg is as 2011 unfolds.

While two legs are good, and better than one, consider that three would be better still. Three provide a stronger stool, and a more diversified business. We’re beginning to see a number of third legs emerging. So it’s look at the emerging newsonomics of the third leg.

The clearest to see is foundation funding. Foundations, led by Knight, have been pouring money into online startups. The startups, of course, are selling advertising and/or sponsorship, and some are selling memberships, as well. In addition to those same two legs, foundation funding provides a third leg — at least for awhile. Our 2010 notion is that foundation funding isn’t a lasting revenue source, but a jumpstart; that may change as we move toward 2015. We may well see foundation funding turn into endowments for local journalism, so it may become a dependable third leg.

Make no mistake: It’s not just the new guys who benefit from foundation “third leg” funding. Take California Watch, the Center for Investigative Reporting’s statewide investigative operation. Barely a year old, its dozen-plus staffers have written stories that have appeared throughout the traditional press, from major dailies to commercial broadcasters to the ethnic press. California Watch work — at this point wholly funded by foundations, though CIR, too, is looking back to the traditional legs for future funding — then is used by the old press both to improve quality and cut their own costs. So, indirectly, the old press derives benefit from this third leg of foundation funding.

Take a couple of examples from the cable industry. We’ve seen the Cablevision model, as the New York-based company bought Newsday, took the website “paid” and bundled it with its cable subscriptions. The notion, here: Cablevision is driving “exclusive” value for its cable (and Triple Play) offers by offering Newsday online content, content not otherwise available without paying separately (or subscribing to print Newsday). Newsday.com sells advertising, and online access, but the real value being tested is what its content does to spur retention and new sales in Cablevision’s big business: cable.

Similarly, Comcast — a pipes company fitfully becoming a content company as well as it tries to complete its NBCU deal — is making a big investment in digital sports. Headed by former digital newspaper exec Eric Grilly, ex of Philly.com and Media News, it’s a big play. Well-deployed in five cities — Chicago, Boston, Philadelphia, the Bay Area and Washington D.C. — and headed for nine more, all in which it runs regional sports cable networks. Comcast Digital Sports now employs more than 80 people and is producing more than 50 hours of programming a week in each market.

While Comcast is ramping up advertising sales and may test paid reader products as well, it’s that same third leg — the cable revenue — that is the biggest reason behind the push. “We want to provide value to the core business,” Grilly told me last week.

In the cable cases, news production can be justified because it feeds a bigger revenue beast. Thomson Reuters and Bloomberg’s large news staffs do the same, feeding bigger financial services businesses.

Lastly, let’s consider the new Associated Press-lead push for an industry-wide “rights consortium.” While its daily newspapers try to stand taller on the two legs of digital ad and reader revenue, the business that could emerge from this new company is about syndication. In that sense, it could be a business-to-business-to-consumer (B2B2C) push, aimed at a third growing revenue source for all, as news content un-tethered from publishers’ own branded sites is used — and monetized — across mobile platforms, mixed and matched in all kinds of ways.

Maybe, overall, it’s a regeneration process for the news business, as the old legs have grown weaker, the environment is forcing evolutionary experimentation. Over the next several years, we’ll see which third legs survive and prosper, and which others become dead ends.

Photo by This Particular Greg used under a Creative Commons license.

POSTED     Oct. 28, 2010, 10 a.m.
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